REDHILL BIOPHARMA LTD.
This prospectus relates to the resale from time to time by the selling shareholders named in this prospectus of up to an aggregate of 10,600,000 American Depositary Shares (the
“Offered ADSs”), with each American Depositary Share (“ADS”) representing 400 of our ordinary shares, par value NIS 0.01 per share (the “Ordinary Shares”), or 4,240,000,000 Ordinary Shares in the aggregate, issued or issuable upon the
exercise of warrants (the “Warrants”) that were issued pursuant to (i) a securities purchase agreement (the “Purchase Agreement”), dated as of January 25, 2024, between us and the purchasers named on the signature pages thereto and
(ii) an engagement letter (the “Engagement Letter”), dated as of January 24, 2024, between us and H.C. Wainwright & Co., LLC (the “Placement Agent”).
We will not receive any of the proceeds from the sale of the Offered ADSs by the selling shareholders. However, we will receive the exercise price upon any exercise of the Warrants, to
the extent exercised on a cash basis. Any ADSs subject to resale hereunder will have been issued by us and acquired by the selling shareholders prior to any resale of such shares pursuant to this prospectus.
The selling shareholders named in this prospectus and any of their pledgees, assignees and successors-in-interest, may offer or resell the Offered ADSs from time to time through public
or private transactions at prevailing market prices, at prices related to prevailing market prices or at privately negotiated prices. The selling shareholders will bear all commissions and discounts, if any, attributable to the sale
of the Offered ADSs. We will bear all costs, expenses and fees in connection with the registration of the Ordinary Shares. For additional information on the methods of sale that may be used by the selling shareholders, see “Plan of
Distribution” beginning on page 159 of this prospectus.
Investing in our securities involves a high degree of risk. These risks are discussed in this prospectus under “Risk Factors” beginning on page 5 and, if any, in any
applicable prospectus supplement.
We are a “foreign private issuer” as defined under the federal securities laws and, as such, are subject to reduced public company reporting requirements. See
“Prospectus Summary – Implications of Being a Foreign Private Issuer.”
Neither the Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The selling shareholders named in this prospectus may resell, from time to time, in one or more offerings, the Offered ADSs. Information about the selling shareholders may change over
time. When the selling shareholders sell Offered ADSs representing Ordinary Shares under this prospectus, we will, if necessary and required by law, provide a prospectus supplement that will contain specific information about the
terms of that offering. Any prospectus supplement may also add to, update, modify or replace information contained in this prospectus. If a prospectus supplement is provided and the description of the offering in the prospectus
supplement varies from the information in this prospectus, you should rely on the information in the prospectus supplement. You should carefully read this prospectus and the accompanying prospectus supplement, if any before making an
investment decision.
You should rely only on the information contained in this prospectus or any applicable prospectus supplement. We have not, and the selling shareholders have not,
authorized any other person to provide you with different or additional information. If anyone provides you with different or additional information, you should not rely on it. This prospectus is not an offer to sell, nor are the
selling shareholders seeking an offer to buy, the Offered ADSs in any jurisdiction where the offer or sale is not permitted. No offers or sales of any of the Offered ADSs are to be made in any jurisdiction in which such an offer or
sale is not permitted. You should assume that the information contained in this prospectus or in any applicable prospectus supplement is accurate only as of the date on the front cover thereof, regardless of the time of delivery of
this prospectus or any applicable prospectus supplement or any sales of the Offered ADSs offered hereby or thereby.
You should read the entire prospectus and any prospectus supplement and any related issuer free writing prospectus, as well as any prospectus supplement or any related issuer free
writing prospectus, before making an investment decision. Neither the delivery of this prospectus or any prospectus supplement or any issuer free writing prospectus nor any sale made hereunder shall under any circumstances imply that
the information contained herein or in any prospectus supplement or issuer free writing prospectus is correct as of any date subsequent to the date hereof or of such prospectus supplement or issuer free writing prospectus, as
applicable. You should assume that the information appearing in this prospectus or any prospectus supplement is accurate only as of the date of the applicable documents, regardless of the time of delivery of this prospectus or any
sale of securities. Our business, financial condition, results of operations and prospects may have changed since that date.
Unless the context otherwise requires, all references to “RedHill,” “we,” “us,” “our,” the “Company” and similar designations refer to RedHill Biopharma Ltd. and its wholly-owned
subsidiary, RedHill Biopharma Inc. The term “NIS” refers to New Israeli Shekels, the lawful currency of the State of Israel, and the terms “dollar,” “US$” or “$” refer to U.S. dollars, the lawful currency of the United States
(“U.S.”). Our functional and presentation currency is the U.S. dollar. Foreign currency transactions in currencies other than the U.S. dollar are translated in this prospectus into U.S. dollars using exchange rates in effect at the
date of the transactions.
This prospectus may include forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance
or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms, including
“anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements.
Forward-looking statements reflect our current views with respect to future events and are based on assumptions and are subject to risks and uncertainties. In addition, certain sections of this prospectus contain information obtained
from independent industry and other sources that we have not independently verified. You should not put undue reliance on any forward-looking statements. Unless we are required to do so under U.S. federal securities laws or other
applicable laws, we do not intend to update or revise any forward-looking statements.
Our ability to predict our operating results or the effects of various events on our operating results is inherently uncertain. Therefore, we caution you to consider carefully the
matters described under the caption “Risk Factors” on page 5 of this prospectus and certain other matters discussed in this prospectus and other publicly available sources. Such factors and many other factors beyond our control could
cause our actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by the forward-looking statements.
Factors that could cause our actual results to differ materially from those expressed or implied in such forward-looking statements include, but are not limited to:
We have included important factors in the cautionary statements included in this prospectus, particularly in the section entitled “Risk Factors”, that we believe could cause actual
results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or
investments we may make. No forward-looking statement is a guarantee of future performance.
You should read this prospectus completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements in
this prospectus represent our views as of the date of this prospectus. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at
some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date
subsequent to the date of this prospectus.
RISK FACTORS
Investing in our securities involves a high degree of risk. In addition to the other information contained in this prospectus, you should carefully consider the
risks discussed below before making a decision about investing in our securities. The risks and uncertainties discussed below are not the only ones facing us. Additional risks and uncertainties not presently known to us, or that we
currently see as immaterial, may also harm our business. If any of these risks occur, our business, financial condition and operating results could be harmed, the trading price of the ADSs could decline, and you could lose part or
all of your investment.
Please also read carefully the section above entitled “Cautionary Statement Regarding Forward-Looking Statements.”
Risks Related to Our Business
Our financial statements include a going concern reference. We will need to raise significant additional capital to finance our
losses and negative cash flows from operations, and if we were to fail to raise sufficient capital or on favorable terms and/or fail to replace Movantik® with another commercial product on a timely basis or successfully conclude a strategic business transaction, we may need to cease operations. Management has substantial doubt about our ability to continue as a going concern.
Our consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal
course of business. During the six months ended on June 30, 2023, our net cash used in operating activities was $17.8 million leaving a cash balance of $16.3 million, including $9.1 million of restricted cash under the Credit
Agreement, for which HCRM has exercised control rights and to which we do not currently have access, as of December 31, 2023. Because we do not have sufficient resources to fund our operations for the next twelve months from the
date of this filing, management has substantial doubt of our ability to continue as a going concern. Our operational costs include the payment of the remaining pre-closing liabilities relating to Movantik®, which our subsidiary, RedHill U.S., retained under our agreement with HCRM for the extinguishment of all our debt obligations under the Credit Agreement in exchange for the
transfer of our rights in Movantik® to an affiliate of HCRM. See “Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Liquidity and Capital Resources – Term Loan Facility”. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of
liabilities that might be necessary should we be unable to continue as a going concern.
We will need to raise significant additional capital to finance our losses and negative cash flows from operations. We are also actively pursuing and in discussions with multiple
parties regarding strategic business transactions, including potential divestment of certain of our assets. If we were to fail to raise sufficient capital or on favorable terms or successfully conclude a strategic business
transaction, we may need to cease operations. There are no assurances that we will be able to raise significant additional capital on terms favorable to us or at all, particularly given the current difficult conditions in the
capital markets and very low market capitalization which makes it more difficult to raise significant amounts of capital. In addition, following the sale of our rights to Movantik® in 2023, we lost our primary revenue source and our ability to operate as a financially viable commercial business has been significantly more difficult. See “ - Following our sale of our rights to
Movantik®, our revenue, business’ size and scope, market share and opportunities in certain markets, or our ability to compete in certain markets and
therapeutic categories is reduced”. If we are unsuccessful in achieving sufficient commercial sales of our products, including replacing Movantik® with another commercial product on a timely basis, or in raising sufficient capital, or successfully concluding a strategic business transaction, we will
need to reduce activities and curtail or cease operations.
We are actively pursuing and in discussions with multiple parties regarding strategic business transactions, including potential divestment of
certain of our assets. There is no assurance that our discussions will result in any strategic business transactions.
We are actively pursuing and in discussions with multiple parties regarding strategic business transactions, including potential divestment of certain of our
assets. The success of any such strategic business transactions, including potential divestment of certain of our assets, is subject to various uncertainties, including but not limited to, market and other conditions, negotiations
with potential buyers, regulatory approvals, and other factors beyond our control. There is no assurance that our discussions will result in any strategic business transactions. If we are unable to successfully complete strategic
business transactions on favorable terms to us, or at all, our ability to strengthen our balance sheet and enhance our strategic focus could be impacted and could have a material adverse effect on our ability to continue to
operate as a going concern.
Following our sale of our rights to Movantik®, our revenue, business’ size and scope, market share and opportunities in certain markets, or our ability to compete in certain markets and therapeutic categories is reduced. Our
ability to replace Movantik® with another commercial
product, either internal or external, may not occur, and we may never achieve levels of revenue we have achieved through Movantik®, which could have a material adverse effect on our ability to operate as a going concern.
Following the consummation of our sale of our rights to Movantik®, our revenue generated from Movantik® sales was eliminated and our business size and scope, market share and opportunities in certain markets, or our ability to compete in certain markets and
therapeutic categories were substantially reduced. Our ability to realize any value from Movantik® beyond its price in an asset sale was permanently
lost. Additionally, following the sale of our rights to Movantik®, we lost our primary revenue source and our ability to operate as a financially viable
commercial business has been significantly more difficult. We may not be successful in replacing Movantik® with another commercial product, and we may
never achieve levels of revenue we have achieved through Movantik®. We also lost economies of scale in our commercial operations that we were able to
benefit from by having Movantik® as a core commercial product. As a result, we have downsized our commercial operations and taken other steps to better
align its expenses and revenues, which has adversely affected our ability to sell our commercial products. If we are not able to replace Movantik® with
another commercial product on a timely basis, this could have a material adverse effect on our ability to continue to operate as a going concern. In addition, in the event we are not able to replace Movantik® with another commercial product on a timely basis or are otherwise unable to achieve levels of revenue we have achieved through Movantik®, we may need to further downsize our commercial operations, which could cause us to incur additional costs and expenses, including severance expenses,
and make it more difficult to sell commercial products in the future. See “Management – Compensation – Change in Control Retention Plan and Agreements; Severance Arrangements.”
Certain obligations under the Credit Agreement (as amended), the APA (as defined below) and escrow agreement
entered into with HCRM and certain of its affiliates in connection with the sale of Movantik® in exchange for extinguishment of all debt obligations under the Credit
Agreement are secured by a lien on Talicia® and Aemcolo®-related assets. As a result of this security interest, until extinguishment of such security interest, if we were to breach our obligations under any of these agreements
or become insolvent, the Talicia® and Aemcolo® assets would only be available to satisfy claims of our general creditors or to holders of our equity securities to the extent the value of such assets exceeded the amount of our
indebtedness and other obligations. In addition, if we lose these assets to a foreclosure, we will lose our remaining source of revenue following the sale of Movantik®, assuming we are not able to replace Movantik® with another commercial product. The existence of these
security interests may also adversely affect our financial flexibility.
Certain obligations under the APA (as defined below), the Credit Agreement (as amended) and escrow agreement entered into with HCRM and certain of its affiliates in connection with the sale of
Movantik® in exchange for extinguishment of obligations under the Credit Agreement are secured by a lien on Talicia® and Aemcolo®-related assets. See “Business – Business Overview – Sale of Movantik® to HCRM”. These obligations include the settling of substantially all pre-closing liabilities relating to Movantik as of the closing date of the transaction, which were
estimated at approximately $51 million. To fulfill this obligation, an escrow account was established, utilizing the remaining accounts receivable related to Movantik that totals around $32 million, in addition to $5.3 million
of restricted cash, and other available resources as required. As of June 30, 2023, the amount held in the escrow account was $9.1 million. These obligations also included the obligation of RedHill U.S. under the escrow
agreement to deposit all cash received from accounts receivable related to Movantik® accrued as of the closing of the APA into the escrow account
within a certain period of time in order to pay certain scheduled pre-closing liabilities related to Movantik®.
Accordingly, if an event of default were to occur under the APA, Credit Agreement (as amended) or the escrow agreement, HCRM could foreclose on its security interest and liquidate
some or all of the Talicia® and Aemcolo® assets and would have a prior right to these assets, to the exclusion of our general creditors in the event of our bankruptcy, insolvency, liquidation or reorganization. In that event, these
assets would first be used to repay in full all indebtedness and other obligations secured by such assets, resulting in a substantial portion of our assets being unavailable to satisfy the claims of our unsecured indebtedness. Only
after satisfying the claims of our unsecured creditors would any amount be available for our equity holders. If we were to lose these assets to a foreclosure, we will lose our remaining source of revenue following the sale of
Movantik®, assuming we are not able to replace Movantik® with another
commercial product, in which case the loss of these assets could have a material adverse effect on our ability to continue to operate as a going concern. The pledge of these assets may also limit our flexibility in raising capital
for other purposes.
We may never have access to the cash held in an escrow account established in connection with the sale of Movantik® to an affiliate of HCR, which jeopardizes our ability to finance our day-to-day operations.
In connection with the sale of our rights in Movantik® to an affiliate of HCR, the $16 million that was held as restricted cash under the Credit Agreement was
deposited into an escrow account to pay pre-closing liabilities related to Movantik® that have been retained by RedHill U.S. under the terms of the APA (as defined below), and all cash received from accounts receivable related to
Movantik® accrued as of the closing of the Asset Purchase Agreement were also deposited into the escrow account. See “Business – Business Overview – Sale of Movantik® to HCRM – Escrow Agreement.” As of June 30, 2023, the amount
held in the escrow account was $9.1 million. We are not currently able to access or otherwise use any of the cash in the escrow account until amounts are released pursuant to the terms of the escrow agreement. In addition, we may
never have access to the cash in the escrow account if all of it is used to resolve pre-closing liabilities related to Movantik®. The possible lack of future access to the cash in the escrow account jeopardizes our ability to
finance our day-to-day operations and may require us to cease operations.
Our current working capital is not sufficient to commercialize our current commercial products or to complete the research and
development with respect to any or all of our therapeutic candidates. We will need to raise significant additional capital to achieve our strategic objectives and to
execute our business plans. Our failure to raise sufficient capital or on favorable terms would significantly impair our ability to fund the commercialization of our current commercial products, therapeutic candidates, or the
products we may commercialize or promote in the future, attract development or commercial partners or retain key personnel, and to fund operations and develop our therapeutic candidates.
As of June 30, 2023, we had cash, cash equivalents, short-term investments and restricted cash of approximately $16.3 million, and as of December 31, 2022, we
had cash, cash equivalents and short-term investments of approximately $36.1 million. Our restricted cash as of June 30, 2023, was $9.1 million as required by our Credit Agreement with HCRM. Following the sale of our rights to
Movantik® under our Asset Purchase Agreement with HCRM, the restricted cash was deposited into an escrow account to pay pre-closing liabilities related to Movantik® that have been retained by RedHill U.S. under the terms of
the Asset Purchase Agreement, and all cash received from accounts receivable related to Movantik® accrued as of the closing of the Asset Purchase Agreement were also deposited into the escrow account. See “Business – Business
Overview – Sale of Movantik® to HCRM.” We have funded our operations primarily through public and private offerings of our securities, through strategic investments and our Credit Agreement with HCRM. We will need to raise
significant additional capital to achieve our strategic objectives of commercializing our current commercial products and other products that we may commercialize or promote in the future and acquiring, in-licensing and
developing therapeutic candidates. We plan to fund our future operations through commercialization of Talicia® and Aemcolo®, out-licensing of our therapeutic candidates and
commercialization of in-licensed or acquired products, and we will also need to raise significant additional capital through equity or debt financing or non-dilutive financing, including government grants. We are also actively
pursuing and in discussions with multiple parties regarding strategic business transactions, including potential divestment of certain of our assets and/or our commercial operations, which we expect would provide us with
additional capital although there is no guarantee that we will complete such a transaction on favorable terms to us, or at all. We are not yet certain of the financial impact of our commercialization activities, and the
amounts we raise may not be sufficient to complete the research and development of all of our therapeutic candidates.
Our business is not yet profitable. As we plan to continue expending funds to commercialize Talicia® and Aemcolo®, out-license Talicia® and our therapeutic candidates and acquire additional products and therapeutic candidates and expand our efforts in research and development,
we will need to raise significant additional capital in the future through equity or debt financing, non-dilutive financing or pursuant to development or commercialization agreements with third parties with respect to particular
therapeutic candidates and commercial products approved for sale in the U.S. However, we cannot be certain that we will be able to raise capital on commercially reasonable terms or at all, or that our actual cash requirements will
not be greater than anticipated.
We may have difficulty raising needed capital or securing development or commercialization partners in the future as a result of, among other factors, present and future market
conditions, the very low market capitalization of our company which makes it more difficult to make large capital raises, unsuccessful commercialization of Talicia® or Aemcolo® or products that we may commercialize or
promote in the future, as well as the inherent business risks associated with our Company, our current commercial products, products that we may commercialize or promote in the future and our therapeutic candidates. In addition, our
ability to raise capital would be adversely affected if we are not able to maintain compliance with Nasdaq’s continued listing requirements. Any financing may also involve significant dilution to our shareholders. We have completed
financings in the past which resulted in significant dilution to our shareholders, and we may complete additional financings in the future with similar dilutive effects to our shareholders. To the extent we are able to generate
meaningful revenues from our current and future commercial products, we may still need to raise capital because the revenues from our current and future commercial products may not be sufficient to cover all of our operating
expenses and may not be sufficient to cover our commercial operations expenses. In addition, global and local economic conditions may make it more difficult for us to raise needed capital or secure a development or commercialization
partner in the future and may impact our liquidity. The healthcare industry faced a challenging market during 2023 and may continue to cause difficulties for healthcare companies to raise capital in the future. If we are unable to
obtain sufficient future financing, we will need to reduce activities and curtail or cease operations.
We may not successfully continue the commercialization of Talicia®
or Aemcolo®.
We may not successfully continue the commercialization of Talicia® or Aemcolo® and our products may not be, or continue to be, commercially successful for various reasons, including but not limited to:
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difficulty in large-scale manufacturing, including yield and quality, and in shipping product internationally;
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low market acceptance by physicians, healthcare payors, patients and the medical community as a result of lower demonstrated clinical safety or efficacy compared to products, prevalence, and severity of adverse side
effects, or other potential disadvantages relative to alternative treatment methods;
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changes to the underlying dynamics of the markets for these products;
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infringement on proprietary rights of others for which we or third parties involved in the development or commercialization of our products or potential future therapeutic candidates have not received licenses;
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incompatibility with other marketed products;
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other potential advantages of alternative treatment methods and competitive forces or advancements that may make it more difficult for us to penetrate a particular market segment, if at all;
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ineffective marketing, sales, and distribution activities and support;
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lack of significant competitive advantages over other products on the market;
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lack of cost-effectiveness or unfavorable pricing compared to other alternatives available on the market;
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pressure from commercial payors and government agencies on gross to net margins;
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inability to generate sufficient revenues to sustain our business operations in accordance with our plan from the sale or marketing of a product;
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changes to product labels, indications or other relevant information that may trigger additional regulatory requirements that may have a direct or indirect impact on the commercialization of our products;
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our inability or unwillingness, for cost or other reasons, to commercialize Talicia® and Aemcolo® to the extent any are approved for commercialization at the time of any such collaboration issues;
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timing of market introduction of competitive products, including from generic competitors; and
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changes in any laws, regulations, or other relevant policies related to drug pricing or other marketing conditions and requirements that may directly or indirectly limit, restrict, or otherwise negatively impact our
ability or success in marketing or commercializing.
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Physicians, various other healthcare providers, patients, payors or the medical community, in general, may be unwilling to accept, utilize or recommend Talicia® or Aemcolo®. If we are unable, either on our own or through third
parties, to manufacture, commercialize or market Talicia®, or to commercialize or market Aemcolo®, we may not achieve or continue to achieve market acceptance or generate meaningful revenues from Talicia® and Aemcolo®. In addition, in order to support our development product portfolio, we will need to achieve revenues from sales of Talicia® consistent with our business expectations, which may prove more difficult than currently expected. Our reputation, business, financial condition and results of operations may
be materially adversely affected by any failure to meet such expectations. See “ - We are actively pursuing and in discussions with multiple parties regarding strategic business transactions, including potential divestment of
certain of our assets and/or our commercial operations. There is no assurance that our discussions will result in any strategic business transactions.”
If we are unable to successfully continue the commercialization of Talicia®, our business and results of operations will suffer.
We expect our future success will significantly depend upon our ability to successfully commercialize Talicia in the U.S. or to find a commercialization partner ng to do so. In
addition, there can be no guarantee that we will be able to establish our own manufacturing capabilities, including through third parties, in order to continue the successful commercialization of Talicia®. Our success depends on obtaining reimbursement to patients for our products and there is no guarantee we will be able to secure commercial or government coverage for any of
our products. There is significant pressure within the U.S. healthcare reimbursement system to reduce costs of prescription drugs which could adversely affect us. In order to support our growing development product portfolio, we
will need to achieve revenues from sales of Talicia® consistent with our business expectations, which may prove more difficult than currently expected.
Our reputation, business, financial condition and results of operations may be materially adversely affected by any failure to meet such expectations. See “ - We are actively pursuing and in discussions with multiple parties
regarding strategic business transactions, including potential divestment of certain of our assets. There is no assurance that our discussions will result in any strategic business transactions.”
Our management conducted an evaluation of the effectiveness of our internal control over financial reporting and concluded that our internal
control over financial reporting was not effective as of December 31, 2022. If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or
prevent fraud. As a result, shareholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of the ADSs.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures are
designed to prevent fraud. Our management is required to assess the effectiveness of our internal controls and procedures and disclose changes in these controls on an annual basis and our independent registered public accounting
firm is required to attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404.
Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In
addition, any testing by us conducted in connection with Section 404, or any subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that
are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause
investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of the ADSs.
Our management conducted an evaluation of the effectiveness of our internal control over financial reporting and concluded that our internal control over financial reporting was
not effective as of December 31, 2022 due to a lack of sufficient number of financial reporting personnel with an appropriate level of knowledge, experience and training commensurate with our financial reporting requirements,
resulting in a failure to maintain an effective control environment and a failure of segregation of duties, and also concluded that our disclosure controls and procedures were not effective as of December 31, 2022, due to material
weaknesses in our internal control over financial reporting, all as described in our Annual report on Form 20-F for the year ended December 31, 2022. We have implemented a corrective plan, which we are still monitoring, and we
cannot guarantee that our internal control over financial reporting was effective as of December 31, 2023. As defined in Regulation 12b-2 under the Exchange Act, a “material weakness” is a deficiency, or combination of
deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual financial statements will not be prevented, or detected on a timely basis.
While management has continued the process of remediating the material weaknesses, as described in Item 15, “Controls and Procedures,” if significant deficiencies or other material
weaknesses are identified in our internal control over financial reporting that we cannot remediate in a timely manner, investors and others may lose confidence in the reliability of our financial statements and the trading price
of our shares and ability to obtain any necessary equity or debt financing could suffer. The material weaknesses will not be considered remediated until we have completed implementing the necessary controls and applicable.
We have made, and will continue to make, changes in these and other areas. In any event, the process of determining whether our existing internal controls are compliant with
Section 404 and sufficiently effective will require the investment of substantial time and resources, including by our chief financial officer and other members of our senior management. As a result, this process may divert
internal resources and take a significant amount of time and effort to complete. In addition, we cannot predict the outcome of this process and whether we will need to implement remedial actions in order to implement effective
controls over financial reporting. The determination of whether or not our internal controls are sufficient and any remedial actions required could result in us incurring additional costs that we did not anticipate, including the
hiring of outside consultants. We may also fail to complete our evaluation, testing and any required remediation needed to comply with Section 404 in a timely fashion. Irrespective of compliance with Section 404, any additional
failure of our internal controls could have a material adverse effect on our stated results of operations and harm our reputation. As a result, we may experience higher than anticipated operating expenses, as well as higher
independent auditor fees during and after the implementation of these changes. If we are unable to implement any of the required changes to our internal control over financial reporting effectively or efficiently or are required
to do so earlier than anticipated, it could adversely affect our operations, financial reporting or results of operations and could result in an adverse opinion on internal controls from our independent auditors.
Furthermore, if we are unable to certify that our internal control over financial reporting is effective and in compliance with Section 404, we may be subject to sanctions or
investigations by regulatory authorities, such as the SEC or stock exchanges, and we could lose investor confidence in the accuracy and completeness of our financial reports, which could hurt our business, the price of the ADSs
and our ability to access the capital markets.
We have a history of operating losses. We may continue to incur significant losses in the coming years.
From our incorporation in 2009 until establishment of our commercial presence in the U.S., we focused primarily on the development and acquisition of late-stage clinical therapeutic
candidates, and since we established our commercial presence in the U.S., we have focused primarily on the acquisition and commercialization or promotion of products in the U.S. There is no assurance that we will be able to generate
substantial positive cash flow or be profitable in the future.
We plan to further fund our future operations through commercialization and out-licensing of our therapeutic candidates, commercialization of in-licensed or acquired products and
raising significant additional capital through equity or debt financing or through non-dilutive financing, including government grants. We are also actively pursuing and in discussions with multiple parties regarding strategic
business transactions, including potential divestment of certain of our assets and/or our commercial operations, which we expect would provide us with additional capital although there is no guarantee that we will complete such a
transaction on favorable terms to us, or at all. Our current cash resources are not sufficient to complete the research and development of any or all of our therapeutic candidates and to fully support our commercial operations
until generation of sustainable positive cash flows. We expect that we will incur additional losses as we continue to focus our resources on advancing the development of our therapeutic candidates, as well as advancing our
commercial operations, based on a prioritized plan that may result in negative cash flows from operating activities.
Most of our therapeutic candidates are in late-stage clinical development. All of our therapeutic candidates will likely require successful additional clinical and non-clinical
trials before we can obtain the regulatory approvals in order to initiate commercial sales of them, if at all. We have incurred losses since inception, principally as a result of research and development, selling, marketing, and
business development, and general and administrative expenses in support of our operations. We experienced net income of approximately $51 million in the first six months of 2023, net loss of $71.7 million for the twelve months
ended December 31, 2022, and net loss of $97.7 million for the twelve months ended December 31, 2021. As of June 30, 2023, we had an accumulated deficit of approximately $382 million. Our ability to generate sufficient revenues to
sustain our business operations in accordance with our plan and to achieve profitability depends mainly upon our ability, alone and/or with others, to successfully commercialize or promote our current commercial products and
products that we may acquire or for which we may acquire commercialization rights in the future, develop our therapeutic candidates, obtain the required regulatory approvals in various territories. We may be unable to achieve any or
all of these goals with regard to our current commercial products, our therapeutic candidates or products we may commercialize or promote in the future. As a result, we may never achieve sufficient revenues to sustain our business
operations in accordance with our plan or be profitable.
Our capital requirements are subject to numerous risks.
Our long-term capital requirements are expected to depend on many potential factors, including but not limited to:
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whether we are able to complete a strategic business transaction, including a potential divestment of certain of our assets and/or our commercial operations, on favorable terms to us, or at all;
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the progress, success, and cost of our clinical and non-clinical trials and research and development programs, including manufacturing;
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the number and type of commercial products we commercialize;
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our ability to successfully commercialize our current commercial products and products that we may commercialize or promote in the future, including through securing commercialization agreements with third parties and
favorable pricing and market share or through our own commercialization capabilities;
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the existence and entrance of generics into the market, including entrances into the market as a result of adverse outcomes in Abbreviated New Drug Application (“ANDA”) litigation, that could compete with our products
and erode the profitability of our commercial products or products that we may commercialize or promote in the future;
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the number and type of therapeutic candidates in development;
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our ability to successfully complete our clinical and non-clinical trials and research and development programs, including recruitment and completion of relevant pediatric and oncology studies, since the pediatric
population and the very advanced disease state and poor prognosis of the oncology patients in our oncology studies make it particularly difficult to recruit and successfully treat the patients, and to successfully complete
the studies;
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the identification and acquisition of additional therapeutic candidates and commercial products;
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the costs, timing, and outcome of regulatory review and obtaining regulatory clarity and approval of our therapeutic candidates and addressing regulatory and other issues that may arise post-approval;
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the costs of enforcing our issued patents and defending intellectual property-related claims;
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the costs of manufacturing, developing and maintaining sales, marketing, and distribution channels for our commercial products;
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our consumption of available resources, especially at a more rapid consumption than currently anticipated, resulting in the need for additional funding sooner than anticipated;
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the amount and frequency of any milestone or royalty payments for which we are responsible; and
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the ability and interest of investors to invest in our products and activities.
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We have limited experience achieving regulatory approval or out-licensing our therapeutic candidates, making it difficult to evaluate our
business and prospects.
Talicia® is our first and only product that was developed internally and approved for marketing by the
FDA. We have limited experience in commercializing products and achieving regulatory approval or out-licensing our therapeutic candidates. Consequently, any predictions about our future performance may not be accurate, and we may
not be able to fully assess our ability to commercialize our current commercial products or ones we may acquire or develop in the future, complete the development or obtain regulatory approval for our current and future therapeutic
candidates or obtain regulatory approvals, reimbursement by third-party payors, achieve market acceptance or competitive pricing of our current commercial products or products that we may commercialize or promote in the future.
If we are unable to maintain and train an effective commercial infrastructure, including sales and marketing infrastructure, or maintain
compliant and adequate commercial capabilities, we will not be able to successfully commercialize and grow our current commercial products and any products we may commercialize or promote in the future.
We and our employees, as well as our contractors, must comply with applicable regulatory requirements and restrictions relating to marketing and advertising. If we are unable to
maintain compliant and adequate sales and marketing capabilities, including training our new sales personnel (including sales contractors) regarding applicable regulatory requirements and restrictions, we may not be able to increase
our product revenue, may generate increased expenses, and may be subject to regulatory investigations and enforcement actions.
Our commercial efforts, including our sales and marketing efforts, must comply with various laws and regulations. Under applicable FDA marketing regulations, prescription drug
promotions must be consistent with and not contrary to labeling, present “fair balance” between risks and benefits, be truthful and not false or misleading, be adequately substantiated (when required), and include adequate
directions for use. Additionally, our marketing activities may be subject to enforcement by the Federal Trade Commission, state attorneys general, and consumer class-action liability if we engage in any practices that appear
misleading or deceptive to the applicable agencies or consumers.
In addition to the requirements applicable to approved drug products, we may also be subject to enforcement action in connection with any promotion of an investigational new drug. A
sponsor or investigator, or any person acting on behalf of a sponsor or investigator, may not represent in a promotional context that an investigational new drug is safe or effective for the purposes for which it is under
investigation or otherwise promote the therapeutic candidate.
If the FDA investigates our marketing and promotional materials or other communications and finds that any of our current or future commercial products are being marketed or promoted
in violation of the applicable regulatory restrictions, we could be subject to FDA enforcement action. Any enforcement action (or related lawsuit, which could follow such action) brought against us in connection with alleged
violations of applicable drug promotion requirements, or prohibitions, could have an adverse effect on our reputation, business, financial condition or results of operations, as well as the reputation of any approved drug products
we may commercialize or promote in the future. In addition, we may also be reliant on third parties’ compliance with such regulations.
Moreover, laws and regulations covering commercialization activities in the pharmaceutical industry are constantly changing, and we will need to continually update and adjust our
policies and sales and marketing and commercialization activities to meet legal and regulatory requirements. Our ability to comply with legal and regulatory requirements at any time in time does not guarantee we will continue to be
able to comply in the future.
In addition to complying with applicable laws and regulations covering commercialization activities in the pharmaceutical industry, we must also comply with various contractual terms
governing our use of third-party intellectual property in our commercialization materials.
In order to maintain and potentially increase our commercialization capabilities in the U.S. and outside the U.S., we may need to maintain and
potentially expand, among others, our development, regulatory, manufacturing, sales and marketing capabilities, and to maintain or potentially increase our personnel to accommodate sales. We may experience difficulties in managing
this growth and integrating new personnel.
To maintain and potentially increase our own commercialization capabilities in the U.S. and outside the U.S. we may need to expand, among others, our development, regulatory,
manufacturing, sales and marketing capabilities, and to maintain or potentially increase our personnel to accommodate sales. We may not be able to secure or retain personnel, organizations or vendors that are adequate in number or
expertise to successfully and lawfully market and sell our products in the U.S. or outside the U.S. If we are unable to maintain or expand our sales and marketing capabilities, train our sales force or contractors effectively or
provide any other capabilities necessary to commercialize products, we may need to contract with third parties to market and sell our products which could have an adverse effect on our financial condition and our results of
operations.
We may also have difficulty in integrating into our existing U.S. operations sales and other commercial personnel or contractors that we may hire or engage to support the
commercialization of Talicia® and Aemcolo®. Sales personnel or
contractors' productivity may decrease as we hire new, less experienced sales personnel or contractors who are not yet familiar with our commercial products. In addition, we may be exposed to greater regulatory and compliance risks
with an expanded sales force and activities to the extent applicable.
Future growth may impose significant added responsibilities on members of management, including the need to identify, recruit, maintain, motivate and integrate additional employees
or contractors. Our U.S. subsidiary, RedHill U.S., has recently experienced high turnover rates due to the overall tightening and increasingly competitive labor market in the U.S. employment market in response to the COVID-19
pandemic. See “– Our business could suffer if we are unable to attract and retain key personnel” below. In addition, management may have to divert a disproportionate amount of its attention
away from running our day-to-day activities and devote a substantial amount of time to managing these growth activities.
Although Aemcolo® was approved by the FDA before we acquired rights to it, such approval is contingent upon the completion of two additional postmarketing studies in specified pediatric populations.
The Pediatric Research Equity Act (PREA) amended the federal Food, Drug, and Cosmetic Act (FDCA) by authorizing the FDA to require that NDA submissions must each contain an
assessment of the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations that supports dosing and administration for each pediatric subpopulation for which the product is safe
and effective. The FDA may, in some cases, grant deferrals for submission of some or all pediatric data until after the product’s approval for use in adults (in addition to full and partial waivers).
Aemcolo® received FDA approval on November 16, 2018, for the treatment of travelers’ diarrhea caused
by non-invasive strains of Escherichia coli in adults, subject to the completion of the deferred pediatric studies required by PREA as mandatory postmarketing studies. In acquiring the
ownership rights to Aemcolo®, we assumed responsibility for completing any postmarketing requirements or commitments that may be required to retain
approval. Accordingly, we must conduct two randomized, placebo-controlled studies to evaluate the safety, tolerability, and efficacy of Aemcolo® for the
treatment of travelers’ diarrhea in (i) children from 6 to 11 years of age and (ii) children from 12 to 17 years of age, respectively.
In conducting the required pediatric postmarketing studies for Aemcolo®, we must comply with various
regulatory requirements set forth in, or pursuant to, PREA (in addition to other FDA regulations to which clinical trials are subject, more generally). For example, pediatric study sponsors must submit periodic reports to the FDA on
the status of each study and other relevant information, such as (among other things) whether any difficulties have been encountered, as well as annual reports regarding clinical safety. Such sponsors are also required to submit to
the FDA a timetable for completion in connection with each pediatric postmarketing study, along with a set of milestone dates (which typically include dates for final protocol submission, clinical study completion, and final report
submission) by which the FDA will measure the study’s progress and compliance with applicable requirements. After submitted to and approved by the FDA, pediatric study sponsors must adhere to the agreed-upon timetables and
milestones in conducting each study. Any failure to meet the deadlines established by the applicable timetable or milestone dates for a given pediatric study constitutes a violation of the FDCA (per PREA).
The timelines and milestones initially set for the contemplated postmarketing Aemcolo® studies, in
relevant part, required that we complete the study in children from 6 to 11 years of age by June 2022 and the study in children from 12 to 17 years of age by December 2022, with submission of the final study reports by December 2022
and 2023, respectively. Due to the impact of COVID-19 and travel restrictions, we submitted a proposal to the FDA and received approval to extend the deadlines for study completion to January 2025 for each of the studies and to
extend the corresponding final report submission deadlines to December 2025. Upon completion of the Aemcolo® studies, if achieved, we will submit the
required reports containing the safety and efficacy results of each study as supplements to the approved NDA for Aemcolo®, along with the proposed
labeling changes (incorporating the relevant dosage and administration information for the studied pediatric populations) that we believe to be warranted based on the data derived from such studies. We cannot be certain that the
safety and efficacy results of the pediatric postmarketing studies for Aemcolo® will be favorable, and it is possible that such study results could
ultimately cause the FDA to require certain pediatric-specific labeling for Aemcolo® that may negatively affect its reputation, competitive advantages,
and/or profitability.
If we fail to complete the required pediatric postmarketing studies for Aemcolo® in accordance with
PREA, we may be subject to the traditional FDA enforcement actions authorized under most other contexts, such as warning letters, seizure, injunction, and withdrawal or suspension of the marketing approval for Aemcolo®, among others, any of which may have a material adverse effect on our reputation, business, financial condition or results of operations. In addition,
the FDA is required to issue PREA-Non-Compliance Letters to any sponsors who fail to meet specified PREA requirements and to publicly post each such Non-Compliance Letter on the designated FDA webpage. The postmarket pediatric
obligations we assumed upon acquiring Aemcolo® could subject us to any of the above-described actions, as well as more substantial consequences beyond
the scope of the FDA’s traditional enforcement authority. In particular, non-compliance with PREA’s postmarketing pediatric requirements could give rise to civil monetary penalties of up to $250,000 per violation and up to a total
of $10 million for all violations adjudicated in a single proceeding. In addition, failure to fulfill any postmarketing commitments that we agreed to assume could also result in our breach of the license agreement with Cosmo
Pharmaceuticals N.V. (“Cosmo”) and cause us to lose our rights thereunder.
Any collaborative arrangements that we have established or may establish may not be successful, or we may otherwise not realize the anticipated
benefits from these collaborations, including commercialization of our current commercial products. We do not control third parties with whom we have or may have collaborative arrangements, and we rely on such third parties to
achieve results which may be significant to us. In addition, any current or future collaborative arrangements may place the commercialization of our current commercial products or products that we may commercialize or promote in the
future or the development of our therapeutic candidates outside our control and may require us to relinquish important rights or may otherwise be on terms unfavorable to us.
Each of our collaborative arrangements requires us to rely on external consultants, advisors, and experts for assistance in several key functions, including clinical development,
manufacturing, regulatory, market research, intellectual property, and commercialization. We do not control these third parties, but we rely on such third parties to achieve results, which may be significant to us. With respect to
Aemcolo®, we rely on Cosmo, the party responsible for, among others, the manufacture, supply, and other operating responsibilities.
With respect to Talicia®, we rely on Recipharm Strängnäs AB (“Recipharm”) and other contracting parties for the manufacture of
Talicia® and its components and we rely on Gaelan Medical Trade LLC (“Gaelan Medical”) to obtain necessary approvals and
commercialize Talicia® in the UAE.
Relying upon collaborative arrangements to commercialize our current commercial products and other products that we may commercialize or promote in the future and to develop our
therapeutic candidates, subjects us to a number of risks, including but not limited to the following:
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we will be responsible for making certain milestones, royalty or other payments under our various in-licenses even if our operating costs exceed the revenues generated from the relevant products;
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our collaborators may default on their obligations to us and we may be forced to either terminate, litigate or renegotiate such arrangements;
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our collaborators may have claims that we breached our obligations to them which may result in termination, renegotiation, litigation or delays in performance of such arrangements;
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we may not be able to control the amount and timing of resources that our collaborators may devote to our current commercial products, products that we may commercialize or promote in the future or our therapeutic
candidates;
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our collaborators may fail to comply with applicable laws, rules, or regulations when performing services for us, and we could be held liable for such violations;
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our collaborators may experience financial difficulties, making it difficult for them to fulfill their obligations to us, including payment obligations, or they may experience changes in business focus;
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our collaborators’ partners may fail to secure adequate commercial supplies for our current commercial products or products that we may commercialize or promote;
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our collaborators’ partners may have a shortage of qualified personnel;
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we may be required to relinquish important rights, such as marketing and distribution rights;
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business combinations or significant changes in a collaborator’s business or business strategy may adversely affect a collaborator’s willingness or ability to complete its obligations under any arrangement;
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under certain circumstances, a collaborator could move forward with a competing therapeutic candidate or commercial product developed either independently or in collaboration with others, including our competitors;
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collaborative arrangements are often terminated or allowed to expire, which may limit or terminate our rights to commercialize our current commercial products or products we may commercialize or promote in the future,
or could delay the development and may increase the cost of developing our therapeutic candidates;
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our collaborators may not wish to extend the terms of our agreements related to our commercial products or therapeutic candidates beyond the existing terms, in which case, we will not have access to existing rights upon
the expiration and will therefore not be able to develop such therapeutic candidates or commercialize or promote such products following the initial terms of our agreements; and
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our collaborators may wish to terminate the collaborative arrangements due to any disagreements or conflicts with us, a change in their assessment that the arrangement is no longer valuable, a change in control or in
management or in strategy, changes in product development or business strategies of our collaborators.
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In addition, our reliance upon our partners in connection with commercial activities subjects us to a number of additional risks, including but not limited to, the following:
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we do not generally control our partners’ communications with the FDA or other foreign regulatory authorities, and the FDA or other foreign regulatory authorities may determine not to approve or elect to withdraw the
products from the market due to various factors including any action or inaction taken by our partners (see “ – Our current commercial products or products which we may commercialize or promote in the future may be subject
to recalls or market withdrawal that could have an adverse effect on our reputation, business, financial condition or results of operations.”);
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in many instances, we rely on our partners to take enforcement action to protect the IP and regulatory protections, if any, of some of our commercial products. Their failure to diligently protect these products could
materially affect our commercial success;
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we rely on our partners to be responsible for the manufacture of some of our current commercial products, including through third-party manufacturers with
the requisite quality and manufacturing standards as required under applicable laws and regulations, and we also rely on those same partners to supply their respective products and active pharmaceutical ingredients
(“APIs”), which may result in us having those respective products and APIs in insufficient quantities or not delivered in as timely a manner as is necessary to achieve adequate or successful promotion and sale of their
respective products;
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our partners relating to our commercial products may significantly create or change reimbursement agreements or increase or decrease the price of their respective products to a level that could adversely affect our
sales or revenues;
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our partners may make decisions related to the product and take critical actions to support the product, including with respect to promotion, sales and marketing, medical affairs and pharmacovigilance, and any action or
inaction taken by those same partners may adversely affect the approval, promotion and sales of their respective commercial products;
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our partners may terminate their agreements with us after an agreed-upon period for reasons set forth in those same partners’ respective agreements with us;
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our partners for future commercial products may change or create new agreements with wholesalers, Pharmacy Benefit Managers or other important stakeholders, which may significantly impact our ability to achieve
commercial success, or they may fail to negotiate reimbursement agreements with payors which could also negatively affect our commercial success;
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our partners may change the price of their respective commercial products to a level that could adversely affect our sales or revenues; and
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our partners may not be successful in maintaining or expanding reimbursement from government or third-party payors, such as insurance companies, health maintenance organizations and other health plan administrators,
which may adversely affect the sales of their respective products.
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If any of these or other scenarios materialize, they could have an adverse effect on our reputation, business, financial condition or results of operations.
If we acquire products, technologies, companies or businesses that own rights to, or otherwise acquire commercialization and related rights to,
products, such transactions could result in additional costs, integration or operating difficulties, dilution and other adverse consequences. Such acquired products, technologies or businesses that own rights to products may not
achieve commercial success or further establish our marketing and commercialization capabilities.
Part of our strategy is to identify and acquire rights to products that have been cleared or approved for marketing in the U.S. or elsewhere, and in particular, those with a
therapeutic focus on GI and infectious diseases or with therapeutic activities which are overlapping or complementary to our existing commercial activities. Management has evaluated, and expects to continue to evaluate, a wide array
of potential strategic acquisitions. From time to time, management may engage in discussions regarding potential acquisitions or licensing of rights to certain products that management believes are important to our business. Any one
of these transactions could have a material effect on our reputation, business financial condition or results of operations. In connection with these acquisitions or licensing transactions, we may:
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issue equity securities that may substantially dilute our shareholders’ percentage of ownership;
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be obligated to make upfront milestones, royalty or other contingent or non-contingent payments;
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incur debt or non-recurring and other charges, or assume liabilities; and
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incur amortization expenses related to intangible assets or incur large and immediate write-offs of assets or goodwill or impairment charges.
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In addition, the process of integrating an acquired product, technology, company or business may create operating difficulties and expenditures and pose numerous additional risks to
our operations, including:
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difficulty and expense in integrating the acquired product, technology, company or business, and personnel in accordance with our business strategy and existing operations, including the failure to achieve the expected
benefits and synergies;
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obligations to further develop and commercialize the acquired product, technology, company or business, in particular in jurisdictions outside of those in which we have experience operating;
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higher than anticipated acquisition costs and expenses;
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failure to manufacture or supply, or procure manufacturers or suppliers for, the acquired product, technology, company or business economically or successfully commercialize or achieve market acceptance of the acquired
product;
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exposure to liabilities of the acquired product, technology, company or business, including contract terms and conditions that are less favorable to us than our standard contractual terms, known or unknown risks
relating to the validity or enforceability of patents, expiration of patents or exclusivity rights, generic competition, product defects or product liability claims, patent and other litigation and clinical, development or
other liabilities;
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disruption of our business and diversion of our management’s and technical personnel’s time and attention from their day-to-day responsibilities;
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adverse effects on our reputation, business, financial condition or results of operations, including due to expenditures or acquisition-related costs, costs of commercialization or amortization or impairment costs for
acquired goodwill and other intangible assets;
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impairment of relationships with key suppliers and manufacturers due to changes in management and ownership and difficulty in maintaining existing agreements, licenses and other arrangements or rights on substantially
similar terms as existed prior to the acquisition;
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regulatory changes and market dynamics after the acquisition; and
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potential loss of key employees, particularly those of the acquired entity.
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If any of the above events (or more) occur, or if we cannot effectively manage or respond to such events following one or more acquisitions, they may have a material adverse effect
on our reputation, business, results of operations or financial condition.
Moreover, there can be no assurance that we will accurately or consistently identify products approved or cleared for marketing that will achieve commercial success, that we will be
able to successfully acquire or commercialize such products or that such acquisitions would further establish our marketing and commercialization capabilities.
Maintaining and potentially expanding our commercial infrastructure in the U.S., is a significant undertaking that requires substantial
financial and managerial resources, and we may encounter setbacks or may not be successful in our efforts.
Maintaining and potentially expanding the necessary commercial capabilities is competitive and time-consuming, and the commercialization of Talicia® and Aemcolo® requires a significant expenditure of operating, financial and management
resources. Even with those investments, we may not be able to effectively commercialize our current commercial products, or we may incur more expenditures than anticipated in order to maximize our sales. We cannot guarantee that we
will be able to maintain or expand our sales, marketing, distribution, and market access capabilities and enter into and maintain any agreements necessary for commercialization with payors and third-party providers on acceptable
terms, if at all. If we are unable to maintain or expand such capabilities, either on our own or by entering into agreements with others, or are unable to do so in an efficient manner or on a timely basis, we will not be able to
maximize the commercialization of our current commercial products or products that we may commercialize or promote in the future, which would adversely affect our reputation, business, financial condition or results of operations.
Even if the commercialization of our current and future commercial products is successful, we may fail to further our business strategy as anticipated or to achieve anticipated
benefits and success. We may incur higher than expected costs in connection with the commercialization of our current commercial products, and we may encounter general economic or business conditions that adversely affect these
products.
In addition, if we incur higher than expected costs in connection with the commercialization of our current and future commercial products, we may need to reduce or terminate our
commercial activities, which may have a material adverse effect on our reputation, business, financial condition or results of operations.
We have a limited history of independently commercializing products that we developed and for which we obtained regulatory
approval, such as Talicia®, and a limited history of commercializing products in the U.S. Due to our limited
experience, we may have difficulty commercializing current commercial products, including Talicia® and Aemcolo®, or promoting or commercializing any products for which we may
obtain FDA approval or to which we may acquire commercialization or promotion rights in the future.
Compared to competitors in the industry, we have relatively limited experience marketing and selling products in the U.S. In particular, we have limited experience in commercializing
products that we developed and for which we obtained regulatory approval, such as Talicia®, which may materially increase our marketing and sales
expenses or cause us to be ineffective in these efforts. Talicia® is the first product that we are
commercializing that we developed and for which we obtained regulatory approval.
Our prior experience promoting and commercializing several other commercial products in the U.S. that we no longer commercialize or promote was limited and brief.
There can be no assurance we will successfully commercialize our current commercial products or any products we may commercialize or promote in the future.
In addition, many companies, both public and private, including well-known pharmaceutical companies and smaller niche-focused companies, are currently selling, marketing and
distributing drug products that directly compete with our current commercial products and therapeutic candidates that we may seek to commercialize in the future. Many of these companies have significantly greater financial
capabilities, marketing, and sales experience and resources than us. As a result, our competitors may be more successful than we are in commercializing products, and we may not be able to generate sufficient revenue to achieve or
sustain profitability.
Our failure to accurately forecast demand for our commercial products, or to quickly adjust to forecast changes, could adversely affect our
business and financial results.
Market uncertainty make it difficult for us to accurately forecast future commercial product demand. We will be setting target levels for the manufacture of our commercial products
in advance of purchases based upon our forecasts of commercial product sales.
If our forecasts exceed demand, we could experience excess inventory of APIs or of our commercial products, which can increase our inventory costs and result in
obsolete inventory. Alternatively, if demand exceeds our forecasts, this may cause a shortage of commercial products, or the APIs used in our products, which could result in an inability to satisfy demand for our commercial
products and a resulting material loss of market share and potential revenue. A failure to accurately predict the level of demand for our commercial products could adversely affect our revenues and net income.
In addition, some of our suppliers may require extensive advance notice of our requirements in order to produce APIs or commercial products in the quantities we desire. Long lead
times may require us to place orders far in advance of the time when the commercial products will be offered for sale, and limitations on our flexibility to change such orders may not only make it difficult for us to accurately
forecast demand for our commercial products, but also expose us to risks relating to shifts in consumer demand and trends and adversely affecting our operating results.
If third parties do not manufacture, our therapeutic candidates, upon approval, if any, or products we may commercialize or promote in the
future in sufficient quantities, within the required timeframes, at an acceptable cost and in accordance with applicable quality standards and other regulatory requirements, the commercialization of our current commercial products
or products we may commercialize or promote in the future may be adversely affected, or clinical development of our therapeutic candidates.
We do not currently own or operate manufacturing facilities. We rely on, and expect to continue to rely on, third parties to manufacture commercial quantities of our current
commercial products and products that we may commercialize or promote in the future and clinical quantities of our therapeutic candidates. We rely on Recipharm and other contracting parties to provide sufficient quantities of
Talicia® in the required timeframe. We rely on Cosmo to provide sufficient quantities of Aemcolo® in the required timeframe. We rely on various third parties to satisfy our supply requirements and there is no guarantee they will be able to do so successfully or in a timely manner. Our reliance on
third parties includes our reliance on them for quality assurance related to regulatory compliance. Our current and anticipated future reliance upon others for the manufacture of our therapeutic candidates and any products that we
may commercialize or promote may adversely affect our future operations and our ability to commercialize our current commercial products and any products that we may commercialize or promote on a timely and competitive basis, and to
develop therapeutic candidates.
We may not be able to maintain our existing or future third-party manufacturing arrangements on acceptable terms, if at all. If for some reason our manufacturers or our development
or commercialization partners’ manufacturers do not perform as agreed or expected or terminate or fail to renew the agreements for any reason, we or our partners may be required to replace them, in which event we may incur added
costs and delays in identifying, engaging, qualifying under applicable regulatory requirements and training any such replacements and entering into agreements with such replacements on acceptable terms. In addition, our ability to
enter into such alternative arrangements within a reasonable period of time, if at all, may be contractually limited by the terms of our manufacturing agreements existing at that time. Obtaining the necessary FDA or other regulatory
approvals or other qualifications required for changes in manufacturing sites, methods or processes under applicable regulatory requirements could result in a significant interruption of supply. In the case of the manufacturer of
Talicia®, in particular, the delay in identifying, engaging, qualifying and training its replacement may be extended, leading to a significant
interruption of supply. Any such additional costs and delays may adversely impact our ability to obtain regulatory clearances and approvals for our therapeutic candidates or any product we may commercialize or promote or make such
commercialization or marketing economically unfeasible.
We rely on third parties to manufacture and supply us with high-quality APIs and their starting materials in the quantities and quality we
require on a timely basis.
We currently do not manufacture any APIs ourselves. Instead, we rely on third-party vendors for the development, manufacture, and supply of our APIs that are used to formulate our
current commercial products and products we may commercialize or promote in the future and our therapeutic candidates. If these suppliers are incapable or unwilling to meet our current or future needs on acceptable terms or at all,
we could experience delays in supplying product to market or commercial supply shortages that would adversely affect our sales of products we currently or may commercialize or promote in the future, or delays in obtaining regulatory
clearances or approvals for our therapeutic candidates.
While there may be several alternative suppliers of APIs on the market, for most of our products we have yet to conclude extensive investigations into the quality or availability of
their APIs. Changing API suppliers or finding and qualifying new API suppliers can be costly and take a significant amount of time. Many APIs require significant lead-time to manufacture. There can also be challenges in maintaining
similar quality or technical standards from one manufacturing batch to the next.
If we are not able to find stable, affordable, high quality, or reliable supplies of our APIs, we may not be able to produce enough supplies of our current commercial products or
products we may commercialize or promote in the future, or of our therapeutic candidates, which could have a material adverse effect on our reputation, business, financial condition or results of operations.
In addition, while to date there have been no significant disruptions to our supply chain, including to the manufacture of our APIs or their starting materials, there may be
unfavorable changes in the availability or cost of raw materials, intermediates, and other materials necessary for production, which may result in disruptions in our supply chain.
We anticipate continued reliance on third party manufacturers for our current commercial products, and we expect to rely on third-party
manufacturers if we are successful in obtaining marketing approval from the FDA and other regulatory agencies for any of our therapeutic candidates.
We rely on, and we expect to continue to rely on, third-party manufacturers to produce commercial quantities of our current commercial products. In addition, we expect to rely on
third-party manufacturers to produce products that we may commercialize or promote in the future. To date, other than Talicia®, which the FDA has
approved for marketing in the U.S., our therapeutic candidates have been manufactured in relatively small quantities for preclinical testing and clinical trials, as well as for other regulatory purposes by third-party manufacturers.
If the FDA or other regulatory agencies approve any of our current or future therapeutic candidates for commercial sale, we expect that we would rely, at least initially, on third-party manufacturers to produce commercial quantities
of our approved therapeutic candidates. These manufacturers may not be able to successfully increase or maintain the manufacturing capacity for our current commercial products or any product we may commercialize or promote in the
future or any of our therapeutic candidates that may be approved in the future, in a timely or economic manner, or at all. The significant scale-up of manufacturing may require additional validation studies, which the FDA must
review and approve. Foreign regulatory agencies may also require the approval of additional validation studies for scaling up the manufacturing process of any of our therapeutic candidates or current or future commercial products.
If the third-party manufacturers are unable to successfully increase or maintain the manufacturing capacity for a therapeutic candidate, current commercial products or for products that we may commercialize or promote in the future,
or if we are unable to secure replacement third-party manufacturers or unable to establish our own manufacturing capabilities, the commercial launch of any approved products may be delayed or there may be a shortage in supply. A
supply disruption from any of our third-party manufacturers could have a material adverse effect on our reputation, business, financial condition or results of operations.
Reliance on third party manufacturers entails risks, including, but not limited to:
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manufacturing delays if our third-party manufacturers give greater priority to the supply of other products over our current or future commercial products, including Talicia® and Aemcolo®, or any future therapeutic candidates, if approved, or otherwise do not
satisfactorily perform according to the terms of their agreements with us;
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the possible termination or nonrenewal of manufacturing agreements by the third-party manufacturers at a time that is costly or inconvenient for us;
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the possible breach of manufacturing agreements by third-party manufacturers;
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inability to fulfill all or part of our undertakings and commitments to our current or future commercialization partners in the U.S. and other territories, such as our partner Gaelen Medical, due to, among other things,
delays or lack of supply by manufacturers of commercial products or the supply of such products in quantity or quality which is inadequate or not in line with the required regulatory standards or our agreements;
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delays in obtaining regulatory approval for any future therapeutic candidates, if our third-party manufacturers fail to satisfy FDA inspection requirements in connection with pre-approval inspections or otherwise fail
to comply with regulatory requirements; and
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product loss or serious adverse events due to contamination, equipment failure, or improper installation or operation of equipment or operator error.
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If we are unable to establish collaborations for our therapeutic candidates or products we may commercialize or promote, or otherwise not be
able to raise substantial additional capital, we will likely need to alter or abandon our development and commercialization plans.
Our drug development programs and the potential commercialization of our approved products or our therapeutic candidates and products that we may commercialize or
promote in the future will require additional cash to fund expenses. As such, our strategy includes either selectively partnering or collaborating with multiple pharmaceutical and biotechnology companies to assist us in furthering
the development or potential commercialization of our approved products and therapeutic candidates, if approved, promoting or commercializing products, in whole or in part, in some or all jurisdictions or through our own
commercialization capabilities, such as our partnership with Gaelan Medical. With respect to potential new third-party partners for the development or commercialization of our approved products and therapeutic candidates, if
approved, and development or commercialization of products that we may commercialize or promote in the future, we may not be successful in entering into collaborations with third parties on acceptable terms, or at all. In
addition, if we fail to negotiate and maintain suitable development, commercialization or promotion agreements or otherwise raise substantial additional capital to secure our own commercialization capabilities, we may have to
limit the size or scope of our activities or we may have to delay or terminate one or more of our development or commercialization programs. Any failure to enter into (or in the case of Gaelen Medical, any failure to maintain)
development or commercialization agreements with respect to the development, marketing and commercialization of any therapeutic candidates or products we may commercialize or promote or failure to develop, market and commercialize
such commercial products or therapeutic candidates or products we may commercialize or promote independently may have an adverse effect on our reputation, business, financial condition or results of operations.
We may depend on our ability to identify, consummate and integrate in-licenses or acquire additional therapeutic candidates to achieve
commercial success, including products approved or cleared for marketing in the U.S. or elsewhere.
Talicia®, Aemcolo® and
our five clinical-stage development therapeutic candidates were all acquired or licensed by us from third parties and we may in the future pursue in-licenses or acquisitions of additional therapeutic candidates or products and seek
to integrate them into our operations as well. We evaluate internally and with external consultants each therapeutic candidate we in-license or acquire. However, there can be no assurance as to our ability to accurately or
consistently identify therapeutic candidates or products that have been approved or cleared for marketing in the U.S. or elsewhere that are likely to achieve commercial success. In addition, even if we identify additional
therapeutic candidates or products that have been approved or cleared for marketing in the U.S. or elsewhere that are likely to achieve commercial success, there can be no assurance as to our ability to in-license or acquire such
therapeutic candidates or products under favorable terms or at all. In-licenses and acquisitions of therapeutic candidates and products involve risks that could adversely affect our future results of operations.
We compete with other entities for some in-license or acquisition opportunities.
As part of our overall strategy, we pursue opportunities to in-license or acquire therapeutic candidates and products that have been approved or cleared for marketing in the U.S. We
may compete for in-license and acquisition opportunities with other companies, including established and well-capitalized companies. As a result, we may be unable to in-license or acquire additional therapeutic candidates or
products that have been approved or cleared for marketing in the U.S. at all or on favorable terms. Our failure to further in-license or acquire therapeutic candidates or products that have been approved or cleared for marketing in
the U.S. in the future may materially hinder our ability to grow and could materially harm our reputation, business, financial condition or results of operations.
If we or a licensor or a partner of ours cannot meet our or their respective obligations under our acquisition, in-license or other development
or commercialization agreements or renegotiate the obligations under such agreements, or if other events occur that are not within our control, such as bankruptcy of a licensor or a partner, we could lose the rights to our
therapeutic candidates or products we may commercialize or promote, experience delays in developing or commercializing our therapeutic candidates or products we may commercialize or promote or incur additional costs, which could
have a material adverse effect on our reputation, business, financial condition or results of operations.
We acquired our rights to Talicia® and two of our other therapeutic candidates, RHB-104, and RHB-106,
from a third party pursuant to an asset purchase agreement. In addition, we in-licensed our rights to three other therapeutic candidates, RHB-102 (Bekinda®),
opaganib, and RHB-107 (upamostat), pursuant to license agreements in which we received exclusive perpetual licenses to certain patent rights and know-how related to these therapeutic candidates. We have also obtained the exclusive
U.S. rights to commercialize Aemcolo® pursuant to a license agreement. These agreements require us to make payments and satisfy various performance
obligations in order to maintain our rights and licenses with respect to these marketed products and therapeutic candidates. If we or our collaborators do not meet our or their respective obligations under these or future
agreements, or if other events occur that are not within our control, such as the bankruptcy of a licensor, we could lose the rights to commercialize our current and future commercial products or to our therapeutic candidates,
experience delays in developing our therapeutic candidates or incur additional costs.
In addition, we are responsible for the cost of filing and prosecuting certain patent applications and maintaining certain issued patents licensed to us. If we do not meet our
obligations under these agreements in a timely manner or if other events occur that are not within our control, such as the bankruptcy of a licensor, which impact our ability to prosecute certain patent applications and maintain
certain issued patents licensed to us, we could lose the rights to our current and future commercial products or our therapeutic candidates which could have a material adverse effect on our reputation, business, financial condition
or results of operations. We manage a large portfolio of patents and may decide to discontinue maintaining certain patents in certain territories for various reasons, including costs, such as a current belief that the commercial
market for the therapeutic candidate will not be large or that there is a near-term patent expiration that may reduce the value of the therapeutic candidate. In the event we discontinue maintaining such patents, we may not be able
to enforce rights for our therapeutic candidates or protect our therapeutic candidates from competition in those territories.
Disputes may arise between us and third parties from whom we have acquired assets or commercialization rights, with which we
have license agreements or with which we have commercialization agreement. Any conflict, dispute or disagreement with such third parties may result in disruptions to our business relationships, require us to pay damages and incur
costs, adversely affect our results of operations and may lead to loss of rights that are important to our business or costly litigation.
Our existing agreements impose, and we expect that future acquisition, commercialization or license agreements will impose, various diligence, milestone payments, royalty or other
obligations on us. Such agreements require, or may in the future require, us to remit upfront and royalty payments or performance milestone payments, for commercial products that we in-license and to supply and delivery of know-how
for products that we out-license. Any failure on our part to perform our obligations could lead to us losing rights under our licenses or commercialization agreements and could thereby adversely affect our business. If there is any
conflict, dispute, disagreement or issue of non-performance between us and our third-party partners regarding our rights or obligations under the acquisition, commercialization or license agreements, including any such conflict,
dispute or disagreement arising from our failure to satisfy payment obligations under any such agreement or to perform certain activities or to adhere to any contractual obligation, we may be liable to pay damages and incur costs,
and it could lead to delays in the research, development, collaboration, and commercialization of our commercial products, products we may promote or commercialize in the future or our therapeutic candidates. The resolution of such
disputes could require or result in litigation or arbitration, which could be time-consuming and expensive. Such third-party partner may have a right to terminate the affected license or commercialization agreement subject to a
dispute. If our existing agreements are terminated, it would have a material adverse effect on our reputation, business, financial condition or results of operations.
Our business could suffer if we are unable to attract and retain key and other personnel.
The loss of the services of members of senior management or other key personnel could delay or otherwise adversely impact the successful completion of our planned clinical trials or
the commercialization of our current commercial products and therapeutic candidates, if approved, and any product we may commercialize or promote in the future, or otherwise affect our ability to manage our company effectively and
to carry out our business plan. These key personnel are Dror Ben-Asher, our Chief Executive Officer, Reza Fathi, Ph.D., our Senior Vice President for Research and Development, Gilead Raday, our Chief Operating Officer, Adi Frish,
our Chief Corporate and Business Development Officer, Guy Goldberg, our Chief Business Officer, Razi Ingber, our Chief Financial Officer, Rick D. Scruggs, our President, RedHill Biopharma Inc. & Chief Commercial Officer, Dr.
Mark Levitt, our Chief Scientific Officer and Rob Jackson, our Senior VP, Sales & Marketing. We do not maintain key-man life insurance. Although we have entered into employment or consultancy agreements with all of the members
of our senior management team, members of our senior management team may resign at any time. High demand exists for senior management and other key personnel in the pharmaceutical industry. There can be no assurance that we will be
able to continue to retain and attract such personnel.
Our growth and success also depend on our ability to attract and retain additional highly qualified scientific, technical, business development, marketing, sales, managerial and
finance personnel. We experience intense competition for qualified personnel, and the existence of non-competition agreements between prospective employees and their former employers may prevent us from hiring those individuals or
subject us to liability from their former employers. Our U.S. subsidiary, RedHill U.S., has recently experienced high turnover rates. A sustained labor shortage or increased turnover rates within our employee base, caused by the
COVID-19 pandemic or as a result of general macroeconomic or other factors, could lead to increased costs, such as increased overtime to meet demand and increased wage rates to attract and retain employees, and could negatively
affect our ability to efficiently operate our manufacturing and distribution facilities and overall business. If we are unable to hire and retain employees capable of performing at a high-level, or if mitigation measures we may take
to respond to a decrease in labor availability, such as overtime and third-party outsourcing, have unintended negative effects, our business could be adversely affected. An overall labor shortage, lack of skilled labor, increased
turnover or labor inflation, caused by the COVID-19 pandemic or as a result of general macroeconomic factors, could have a material adverse impact on our operations, results of operations, liquidity or cash flows.
In addition, so long as we continue to promote our current commercial products and in the event we promote additional commercial products we may develop, we need to
maintain and may need to expand our marketing and sales capabilities and retain key personnel and talented commercial employees including sales representatives. While we attempt to provide competitive compensation packages to
attract and retain key personnel, many of our competitors are likely to have greater resources and more experience than we have. This has made it more difficult for us to successfully retain and attract key and other personnel
that are key to our growth and even the viability of our commercial operations, particularly given the numerous challenges we face, including management’s substantial doubt about our ability to continue as a going concern. Many
of our sales representatives, including some of our must successful ones, have departed our company over time to pursue more lucrative employment opportunities. We believe this trend may continue in the future and could pose a
major challenge to our ability to operate our commercial operations. If we cannot attract and retain sufficiently qualified suitable employees on acceptable terms, we may not be able to develop and commercialize our commercialized
products and competitive therapeutic candidates. Further, any failure to effectively integrate new personnel could materially prevent us from successfully growing our company.
We face several risks associated with international business.
We operate our business in multiple international jurisdictions. Such operations could be materially affected by changes in foreign exchange rates, capital and exchange controls,
expropriation and other restrictive government actions, changes in intellectual property legal protections and remedies, changes in data privacy laws, trade regulations and procedures and actions affecting approval, production,
pricing, and marketing of, reimbursement for and access to, our current commercial products and products we may commercialize or promote, or our therapeutic candidates, as well as by political unrest, unstable governments and legal
systems, and inter-governmental disputes. For example, though we entered into an exclusive license agreement with Gaelan Medical for Talicia® in the UAE
and the Exclusive License Agreement for opaganib in South Korea (see “ – We face risks associated with the lawsuit we initiated against Kukbo. Regardless of if we prevail in the lawsuit against Kukbo, we may not receive the payments
due to us under certain of our license agreements). We may not be able to obtain regulatory approval in South Korea, may experience a termination of the agreements, or may be unable to sell the product or sell the product in
sufficient quantities to generate meaningful revenues. In addition, we are subject to global events beyond our control, including war, public health crises, such as pandemics and epidemics (as described above), trade disputes and
other international events. In the UAE, for example, threats to the stability of the Abraham Accords between the UAE, the U.S. and Israel may disrupt our ability to supply Talicia®. Any of these changes could have a material adverse effect on our reputation, business, financial condition or results of operations. In addition, the current armed conflict in Ukraine and the
subsequent economic sanctions imposed by some countries on Russia and certain territories in Ukraine may negatively impact the supply chain for our commercial products, our R&D activities and our business development activities.
We face risks associated with the lawsuit we initiated against Kukbo. Even if we prevail in the lawsuit against Kukbo, we may need to enforce
the judgment in South Korea if Kukbo does not promptly pay the judgment.
On September 2, 2022, we filed a lawsuit against Kukbo in the Supreme Court of the State of New York, County of New York, Commercial Division, as a result of Kukbo’s default in
delivering to us $5.0 million under the Subscription Agreement, in exchange for the ADSs we were to issue to Kukbo, and in delivering to us the further payment of $1.5 million due under the Exclusive License Agreement. Kukbo
thereafter filed counterclaims alleging breach of contract, misrepresentation, and the breach of the duty of good faith and failure dealing. Due to the uncertainties of litigation, we can give no assurance that we will prevail, or
that we will be able to collect some or all of the damages awarded to us in the event of a favorable outcome. If we do not prevail in the lawsuit against Kukbo and receive the payments due to us under the Subscription Agreement and
Exclusive License Agreement, we may not receive any of the $6.5 million owed to us, or may have to pay associated damages and related expenses and legal fees if Kukbo receives a favorable judgment against us in their counterclaim.
The lawsuit against Kukbo may additionally divert management’s attention and resources in preparing for litigation and defending our claim, result in disruptions to our business, and require us to pay legal fees, damages, or
associated expenses, all of which could adversely affect our ability to conduct our business.
Risks Related to Regulatory Matters
If we or our future development or commercialization partners are unable to obtain or maintain the FDA or other foreign regulatory clearance
and approval for our commercial products or therapeutic candidates, we or our commercialization partners will be unable to commercialize our current commercial products, products we may commercialize or promote in the future or our
therapeutic candidates, upon approval, if any.
Our current commercial products must maintain, and the products we may commercialize or promote in the future may be required to obtain and maintain, FDA and other foreign regulatory
clearance and approval.
Aemcolo® was approved by the FDA in 2018 for the treatment of travelers’ diarrhea caused by
non-invasive strains of E. coli in adults, and Talicia® was approved for marketing in the U.S. for the
treatment of H. pylori infection in adults in November 2019. Pursuant to our license agreement with Gaelan Medical, Gaelan Medical received marketing approval for Talicia in the UAE and that
Gaelan Medical had subsequently placed the first commercial order for Talicia, which was dispatched from the contract manufacturing organization (“CMO”) in December 2023. However, future regulatory developments may lead to a loss of
the right to commercialize Talicia® or Aemcolo® or any product we may
commercialize or promote in the future.
We currently have five therapeutic candidates in development, most of which are in clinical stage development, with the goal of eventually seeking FDA or other foreign regulatory
approvals. Our commercial products and therapeutic candidates are subject to extensive governmental laws, regulations, and guidelines relating to the development, clinical trials, manufacturing, marketing, promotion, and
commercialization of pre- and post-approval prescription drugs. We may not be able to submit for or obtain marketing approval for any of our therapeutic candidates in a timely manner or at all.
Any material delay in obtaining or maintaining, or the failure to obtain or maintain, required regulatory clearances and approvals will increase our costs and may materially
adversely affect our ability to continue to generate meaningful revenues and could adversely impact our reputation, business, financial condition, results of operations or ability to attain or sustain revenues from other markets. We
also are, and will be, subject to numerous regulatory requirements from both the FDA and other foreign regulatory authorities that govern the conduct of clinical trials, manufacturing and marketing authorization, pricing and
third-party reimbursement. Moreover, clearance or approval by one regulatory authority does not ensure clearance or approval by other regulatory authorities in separate jurisdictions. Each jurisdiction may have different approval
processes and requirements and may impose additional testing, development and manufacturing requirements for our current commercial products and products that we may commercialize or promote in the future and for or our therapeutic
candidates.
Additionally, the FDA or other foreign regulatory authorities may require, or companies may pursue, additional clinical trials after a product is approved for marketing. Such
postmarketing studies may be mandated by the FDA or other foreign regulatory authorities as conditions for initial or continued approval for marketing. The FDA or other foreign regulatory authorities have expressed statutory
authority to require holders of NDAs to conduct postmarketing trials to specifically address safety and other issues identified by the regulatory authority.
Certain changes related to an approved drug, including changes to the product labeling, manufacturing process, indications and other certain specifications set forth within the
product’s NDA, may not be made until a new NDA or NDA supplement reflecting the applicable changes is submitted to and approved by the FDA. An NDA supplement for a new indication typically requires clinical data similar to that in
the original application, including relevant pediatric data, and the FDA typically uses the same procedures and standards in reviewing NDA supplements as it does in reviewing NDAs.
Even if a therapeutic candidate receives regulatory marketing approval, such approval will be limited to a specific disease state(s) and might contain significant limitations on use
in the form of warnings, precautions or contraindications, or in the form of onerous risk management plans, restrictions on distribution, among other possible restrictions. Further, even after regulatory approval is obtained, later
discovery of previously unknown information, such as safety risks, problems with a product or such information, the extent or severity of which were previously unknown, may result in restrictions on the product’s ability to be
marketed as initially approved or even complete withdrawal of the product’s NDA approval and, in effect, its removal from the market.
Additionally, the FDA or other foreign regulatory authorities may change their clearance or approval policies or adopt new laws, regulations or guidelines that materially delay or
impair our ability to commercialize our current commercial products and products that we may commercialize or promote in the future, or our ability to obtain the necessary regulatory clearances or approvals for any of our current or
future therapeutic candidates.
Our current commercial products or products which we may commercialize or promote in the future may be subject to recalls or market withdrawal
that could have an adverse effect on our reputation, business, financial condition or results of operations.
The FDA and similar foreign governmental authorities have the authority to require the recall of regulated products in the event of material deficiencies or defects in design or
manufacture. In the case of the FDA, the authority to require a recall must be based on an FDA finding that there is a reasonable probability that the product would cause serious injury or death. In addition, foreign governmental
bodies have the authority to require the recall of our products in the event of material deficiencies or defects in design or manufacture.
Product manufacturers or owners, as applicable, may, on their own initiative, recall a product if any material deficiency in a product is found. A government-mandated or voluntary
recall by us or one of our collaborators, as applicable, could occur as a result of manufacturing errors, design or labeling defects or other deficiencies and issues. Recalls of any of our products would divert managerial and
financial resources and will have an adverse effect on our reputation, business, financial condition or results of operations. The FDA requires that certain classifications of recalls be reported to the FDA within 10 working days
after the recall is initiated. Companies are required to maintain certain records of recalls even if they are not reportable to the FDA. We may initiate voluntary recalls involving our products in the future that we determine do not
require notification of the FDA. If the FDA disagrees with our determinations, they could require us to report those actions as recalls. A future recall announcement could harm our reputation with customers and negatively affect our
sales. In addition, the FDA could take enforcement action for failing to report the recalls when they were conducted.
Regulatory authorities in other jurisdictions may have similar procedures that may subject any product we may commercialize or promote to limitations or withdrawal requests. In
addition, the FDA or other foreign regulatory authorities may determine that the chemistry, manufacturing and controls (“CMC”) of marketed products that we develop, acquire or to which we acquire commercialization rights, such as
our current commercial products, is unsatisfactory due to the manufacturing standards of the products. If either of these or any regulatory action is taken, our current commercial products or any product we commercialize or promote
in the future could be withdrawn from the market at any time. In addition, we may suffer from delays in further commercialization of any product we commercialize or promote.
We and our third-party manufacturers or our partners’ manufacturers are, and will be, subject to regulations of the FDA and other foreign
regulatory authorities, such as applicable current good manufacturing practices and other quality-based regulations.
We and our third-party manufacturers or our partners’ manufacturers are, and will be, required to adhere to laws, regulations, and guidelines of the FDA and other foreign regulatory
authorities setting forth current good manufacturing practices (“cGMP”). These laws, regulations, and guidelines cover all aspects of the manufacturing, testing, quality control and recordkeeping relating to our current commercial
products and any products we may commercialize or promote, and our therapeutic candidates with varying cGMP rigors depending on what phase each of our respective therapeutic candidates is in with respect to its drug development
process. We and our third-party manufacturers and our partners’ manufacturers may not be able to comply with applicable laws, regulations, and guidelines. We and our third-party manufacturers and our partners’ manufacturers are, and
will be, subject to unannounced inspections by the FDA, state regulators and similar foreign regulatory authorities outside the U.S. Our failure, or the failure of our third-party manufacturers or our partners’ manufacturers, to
comply with applicable laws, regulations and guidelines could result in the imposition of sanctions on us, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our
therapeutic candidates, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of our current and future commercial products and therapeutic candidates, operating restrictions and criminal
prosecutions, any of which could significantly and adversely affect regulatory approval and supplies of our current and future commercial products and therapeutic candidates, and materially and adversely affect our reputation,
business, financial condition or results of operations.
Furthermore, changes in the manufacturing process or procedure, including a change in the location where the product is manufactured or a change of a third-party manufacturer, will
require prior FDA or other regulatory review or approval of the manufacturing process and procedures in accordance with the FDA’s regulations or comparable foreign requirements. This review may be costly and time-consuming and could
delay or prevent the launch or commercial production of a product. The new facility will also be subject to pre-approval inspection. In addition, we will have to demonstrate that the product made at the new facility is equivalent to
the product made at the former facility by physical and chemical methods, which are costly and time-consuming. It is also possible that the FDA may require clinical testing as a way to prove equivalency, which would result in
additional costs and delay, and may also result in delays in approval or commercialization of a product or render it unfeasible.
Our current commercial products, and any product we may commercialize or promote in the future, even if all regulatory clearances and approvals
are obtained, will be subject to ongoing regulatory review. If we fail to comply with continuing U.S. and applicable foreign laws, regulations, and guidelines, we could lose those clearances and approvals, and our reputation,
business, financial condition or results of operations may be materially and adversely affected.
We or our commercialization partners, as applicable, are and will be subject to ongoing reporting obligations with respect to our current commercial products and any cleared or
approved product that we may commercialize or promote in the future, including pharmacovigilance, and with respect to our therapeutic candidates, even if they receive regulatory clearance or approval. In addition, the manufacturing
of our current commercial products, and any other product we may commercialize or promote, whether currently or in the future, and our therapeutic candidates, will be subject to continuing regulatory review and approval, including
inspections by the FDA and other foreign regulatory authorities. The results of any ongoing review may result in withdrawal from the market of one of our current commercial products or products we may commercialize or promote in the
future, interruption of manufacturing operations or imposition of labeling or marketing limitations for such commercial product or therapeutic candidate, or other potentially significant enforcement actions. Since many more patients
are exposed to drugs following their marketing clearance or approval, serious adverse reactions that were not observed in clinical trials may occur during the commercial marketing of our current commercial products or any product we
may commercialize or promote in the future, including therapeutic candidates.
If a product receives regulatory approval, the approval is limited to the specific indications for use identified in the approved marketing application and by any additional
requirements, restrictions, and limitations identified at the time of the product’s approval or thereafter, which could restrict the commercial value of the product. As a condition of approval or after approval (if the FDA becomes
aware of new safety information), the FDA may require us to implement a Risk Evaluation and Mitigation Strategy (REMS), which may include distribution or use restrictions to manage a known or potential serious risk associated with
the product. REMS can include medication guides, communication plans for healthcare professionals, and elements to assure safe use (ETASU). ETASU can include, but are not limited to, special training or certification for prescribing
or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability of a given drug. Once
adopted, REMS are subject to periodic assessment and modification. Additionally, the FDA may require post-approval, “Phase 4” clinical trials to generate additional information on safety or efficacy. The results of such
postmarketing studies may be negative and could cause the FDA to, among other things, further limit marketing efforts or a product’s approved uses or even withdraw approval.
If we or our current or future commercialization partners, as applicable, are required to conduct additional clinical trials or other testing of our current commercial products, or
any other product we may commercialize or promote, or of our therapeutic candidates, we may face substantial additional expenses, be delayed in obtaining marketing clearance or approval, if required by the FDA, or may never obtain
marketing clearance or approval for such product we may commercialize or promote or therapeutic candidate.
Third-party manufacturers and the manufacturing facilities that we and our development or commercialization partners use to manufacture any of our current commercial products and any
other products that we may commercialize or promote, and therapeutic candidate, will be subject to periodic review and inspection by the FDA and may be subject to similar review by other regulatory authorities. Later discovery of
previously unknown problems with any of our current commercial products and product we may commercialize or promote, or any therapeutic candidate, manufacturer or manufacturing process, or failure to comply with rules and regulatory
requirements, may result in actions, including but not limited to the following:
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restrictions on such therapeutic candidate, marketed product, manufacturer or manufacturing process;
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warning letters from the FDA or other foreign regulatory authorities;
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withdrawal of the marketed product from the market;
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withdrawal of the therapeutic candidate from use in a clinical trial;
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suspension or withdrawal of regulatory approvals;
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refusal to approve pending applications or supplements to approved applications that we or our development or commercialization partners submit;
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voluntary or mandatory recall;
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refusal to permit the import or export of our current commercial products or products that we may commercialize or promote in the future or our therapeutic candidates;
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product seizure or detentions;
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injunctions or the imposition of civil or criminal penalties; and
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If we or our current or future commercialization partners, suppliers, third-party contractors or clinical investigators are slow to adapt, or are unable to adapt, to changes in
existing regulatory requirements or the adoption of new regulatory requirements or policies, we and our development or commercialization partners may lose marketing clearance or approval for any products already cleared or approved
for marketing in any jurisdiction, resulting in decreased or lost revenue from such products and could also result in other civil or criminal sanctions, including fines and penalties, and we may lose marketing clearance or approval
of any of our therapeutic candidates, if any of our therapeutic candidates are approved for marketing.
We may encounter delays in receipt of FDA approval, if any, for our therapeutic candidates due to CMC, clinical, efficacy, safety, or
regulatory or other issues.
We may encounter significant delays in receipt of FDA approval, if any, for our therapeutic candidates. For example, the FDA may determine that the CMC of one of our therapeutic
candidates is not satisfactory due to the manufacturing standards of the products or that additional CMC work, information or quality assurances are needed. The FDA may also consider the clinical studies conducted with a therapeutic
candidate and the additional information provided to be inadequate, or insufficient, or require us to provide additional information, which may require us to conduct additional studies or otherwise significantly delay potential FDA
approval of the potential NDA for a therapeutic candidate, if at all. In addition, we cannot guarantee that potential future manufacturers or other vendors related to manufacturing will be able to perform as required, will not
terminate their agreements with us, or otherwise will not perform satisfactorily. The potential delay in identifying, engaging, qualifying and training an alternative manufacturer may be extended, leading to a significant delay.
Furthermore, the FDA may also change its clearance or approval policies or adopt new laws, regulations or guidelines in a manner that materially delays or impairs our ability to obtain approval of the potential NDA for a therapeutic
candidate, if any.
If any of these or other issues occur, we may face substantial additional expenses and otherwise experience delays in obtaining FDA approval of the NDAs we may file in the future for
our therapeutic candidates, including RHB-104 for Crohn’s disease, or may never obtain the FDA approval for such NDAs.
Clinical trials and related non-clinical studies may involve a lengthy and expensive process with an uncertain outcome, and results of earlier
studies and trials may not be predictive of future trial results. We or our development or commercialization partners may not be able to obtain regulatory approvals for our therapeutic candidates or commercialize products we may
commercialize or promote without completing such trials in accordance with the applicable regulatory standards, even products that may have already been cleared or approved for marketing.
We have limited resources and experience in conducting and managing the clinical trials that are required to obtain or maintain regulatory approvals and commence or continue
commercial sales. Clinical trials and related non-clinical studies are expensive, complex, can take many years and have uncertain outcomes. We cannot predict whether we, independently or through third parties, will encounter
problems with any of the completed, ongoing or planned clinical trials that will cause delays, including suspension of a clinical trial, delay of data analysis or release of the final report. The clinical trials of our therapeutic
candidates may take significantly longer to complete than estimated. Failure can occur at any stage of the testing, and we may experience numerous unforeseen events during, or as a result of, the clinical trial process that could
materially delay or prevent the obtainment of a regulatory approval of current or future therapeutic candidates and delay or prevent their commercialization.
In connection with the clinical trials for our therapeutic candidates and other therapeutic candidates that we may seek to develop in the future, either on our own or through
licensing or partnering agreements, we face various risks and uncertainties, including but not limited to:
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delays or failure in securing clinical investigators or trial sites for the clinical trials;
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delays or failure in receiving import or other government approvals to ensure appropriate drug supply;
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delays or failure in obtaining institutional review board (IRB) and other regulatory approvals to commence or continue a clinical trial;
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expiration of clinical trial material before or during our trials as a result of delays, including suspension of a clinical trial, degradation of, or other damage to, the clinical trial material;
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negative or inconclusive results or results that are not sufficiently positive from clinical trials;
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the FDA or other foreign regulatory authorities may disagree with the number, design, size, conduct or implementation of our clinical studies;
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the FDA or other foreign regulatory authorities may require us to conduct additional clinical trials or studies in connection with therapeutic candidates in development, as well as for products that have already been
cleared and approved for marketing;
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inability to monitor patients adequately during or after treatment;
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inability to retain patients;
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lack of technology to support clinical trials results;
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problems with investigator or patient compliance with the trial protocols;
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a therapeutic candidate may not prove safe or efficacious; there may be unexpected or even serious adverse events and side effects from the use of a therapeutic candidate;
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the results with respect to any therapeutic candidate may not confirm the positive results from earlier preclinical studies or clinical trials;
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the results may not meet the level of statistical significance required by the FDA or other foreign regulatory authorities;
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the results may justify only limited or restrictive uses, including the inclusion of warnings and contraindications, which could significantly limit the marketability and profitability of a therapeutic candidate;
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the clinical trials may be delayed or not completed due to the failure to recruit suitable candidates or if there is a lower rate of suitable candidates than anticipated or if there is a delay in recruiting suitable
candidates; and
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changes to the current regulatory requirements related to clinical trials, which can delay, hinder or lead to unexpected costs in connection with our receiving the applicable regulatory clearances or approvals.
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A number of companies in the pharmaceutical and biotechnology industries, including those with greater resources and experience than us, have suffered significant setbacks in
advanced clinical trials, even after seeing promising results in earlier clinical trials. As such, despite the results reported in earlier clinical trials or related non-clinical studies of our therapeutic candidates, we do not know
if we will be able to complete the clinical trials or related non-clinical studies we conduct or if such clinical trials will demonstrate adequate safety and efficacy sufficient to request and obtain regulatory approval to market
our therapeutic candidates. If any of the clinical trials or related non-clinical studies of any of our current or future therapeutic candidates do not produce favorable results or are found to have been conducted in violation of
the FDA’s or other regulatory body’s standards governing such studies, our ability to request and obtain regulatory approval for the therapeutic candidate may be adversely impacted, which could have a material adverse effect on our
reputation, business, financial condition or results of operations.
If a diagnostic test for MAP will not become available, our ability to develop or obtain approval for RHB-104 may be adversely impacted.
A companion diagnostic for the detection of MAP bacteria in Crohn’s disease patients is required in order to advance this development program. We do not know if and when such a
diagnostic test for MAP will become available and we depend on third parties’ resources and expertise in this area. If such a diagnostic test for MAP will not become available, our ability to develop or obtain regulatory approval to
market RHB-104 may be adversely impacted.
We rely on third parties to conduct our clinical trials and related non-clinical studies and those third parties may not perform
satisfactorily, including but not limited to failing to meet established deadlines and compliance with applicable laws and regulations for the completion of such clinical trials.
We currently do not have the ability to independently conduct clinical trials and related non-clinical studies for our therapeutic candidates, and we rely on third parties, such as
contract research organizations, medical institutions, contract laboratories, development and commercialization partners, clinical investigators and independent study monitors to perform these functions. Our reliance on these third
parties for research and development activities reduces our control over these activities. Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. Although we have, in
the ordinary course of business, entered into agreements with such third parties, we continue to be responsible for confirming that each of our clinical trials and related non-clinical studies is conducted in accordance with its
general investigational plan and protocol, as well as all applicable laws and regulations. For example, the FDA requires us to comply with regulations and standards, commonly referred to as good clinical practices (“GCP”), for
conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the trial participants are adequately protected, and regulatory authorities in other
jurisdictions may have similar responsibilities and requirements. Our reliance on third parties does not relieve us of these responsibilities and requirements. If these third parties do not successfully carry out their contractual
duties or meet expected deadlines, we may be required to replace them or perform such functions independently. Although we believe that there are a number of other third-party contractors we could engage to continue these
activities, it may result in a delay of the affected trial and additional costs. Accordingly, we may be materially delayed in obtaining regulatory approvals, if any, for our therapeutic candidates and may be materially delayed in
our commercialization efforts for the targeted indications.
In addition, our ability to bring our therapeutic candidates to market depends on the quality and integrity of data that we present to regulatory authorities in order to obtain
marketing authorizations. Although we attempt to audit and control the quality of third-party data, we cannot guarantee the authenticity or accuracy of such data, nor can we be certain that such data has not been fraudulently
generated. Furthermore, the FDA may consider clinical studies inadequate where steps have not been taken in the design, conduct, reporting, and analysis of the studies to minimize bias. For example, one potential source of bias in
clinical studies is a clinical investigator with a financial stake in the outcome of the study. Accordingly, we (or the applicant of the IND or Biologics License Application, as applicable) must submit for all applicable clinical
investigators either: (i) a completed Form FDA 3454 attesting to the absence of financial interests and arrangements described in the regulations, dated and signed by the chief financial officer or another responsible corporate
official; or (ii) for any investigators for whom a Form FDA 3454 is not submitted, a Form FDA 3455 disclosing completely and accurately the following:
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any financial arrangement entered into between the sponsor of the covered study and the clinical investigator involved in the conduct of a covered clinical trial, whereby the value of the compensation to the clinical
investigator for conducting the study could be influenced by the outcome of the study;
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any significant payments of other sorts from the sponsor of the covered study, such as a grant to fund ongoing research, compensation in the form of equipment, retainer for ongoing consultation, or honoraria;
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any proprietary interest in the tested product held by any clinical investigator involved in a study;
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any significant equity interest in the sponsor of the covered study held by any clinical investigator involved in any study; and
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any steps taken to minimize the potential for bias resulting from any of the disclosed arrangements, interests, or payments.
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The FDA may refuse to accept a filing of an NDA that does not contain the required certifications and disclosures or attestations by the applicant that the applicant has acted with
due diligence to obtain the information but was unable to do so and stating the reason. Additionally, FDA refusal of an NDA on potential bias grounds may have a material adverse effect on our reputation, business, financial
condition or results of operations and the credibility of our other commercial products or therapeutic candidates.
We rely on contract research organizations for the management of clinical data generated from our studies, and such contract research
organizations may not perform satisfactorily.
We rely on contract research organizations to provide monitors for and to manage data for our studies. Our reliance on these contract research organizations for data management
reduces our control over clinical data management. While we have agreements governing their activities, we have limited influence over their actual performance. If these contract research organizations do not successfully carry out
their contractual duties or obligations or meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or for other reasons, we may be
required to replace them, or our clinical studies may be extended, delayed or terminated. In addition, such failure of our contract research organizations would pose risks to the accuracy and usability of clinical data from our
clinical studies. Replacing a contract research organization may result in a delay in our clinical studies and generation of data from such studies. In addition, we face the risk of potential unauthorized disclosure or
misappropriation of our intellectual property by contract research organizations, which may reduce our trade secret protection and allow our potential competitors to access and exploit our proprietary technology.
We may fail to receive or maintain the benefits from the orphan drug and QIDP designations granted by the FDA for our applicable products or
therapeutic candidates, as applicable.
In the U.S., under the Orphan Drug Act, the FDA may grant orphan drug designation to a drug or biologic intended to treat a rare disease or condition, which is
defined as one occurring in a patient population of fewer than 200,000 in the U.S., or a patient population greater than 200,000 in the U.S. where there is no reasonable expectation that the cost of developing the drug or biologic
will be recovered from sales in the U.S. In 2011, the FDA granted RHB-104 orphan drug designation for the treatment of Crohn’s disease in the pediatric population; in 2017, the FDA granted opaganib orphan drug designation for the
treatment of cholangiocarcinoma and granted RHB-107 (upamostat, formerly Mesupron) orphan drug designation for the treatment of pancreatic cancer, and in 2020 the FDA granted orphan drug designation to RHB-204 for the treatment of
nontuberculous mycobacteria (“NTM”) infections.
In the U.S., the orphan drug designation entitles a party to financial incentives, such as opportunities for grant funding toward clinical trial costs, tax advantages and user-fee
waivers. In addition, if a product that has the orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan drug exclusivity, which means
that the FDA may not approve any other applications, including an NDA, to market the same drug or biologic for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the
product with orphan drug exclusivity or where the original manufacturer is unable to assure sufficient product quantity.
Exclusive marketing rights from a given orphan drug designation may be limited if we seek approval for an indication broader than the orphan-designated indication or may be lost if
the FDA later determines that the request for designation was materially defective, or if we are unable to assure sufficient quantities of the product to meet the needs of patients with the orphan-designated disease or condition.
Further, even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs with different active moieties may receive and be approved for the
same condition, and only the first applicant to receive approval will receive the benefits of marketing exclusivity. Even after an orphan-designated product is approved, the FDA can subsequently approve a later drug with the same
active moiety for the same condition if the FDA concludes that the later drug is clinically superior if it is shown to be safer, more effective or makes a major contribution to patient care. Orphan drug designation neither shortens
the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process.
In addition, in 2017, we announced that RHB-204 had been granted QIDP designation by the FDA for the treatment of pulmonary NTM infections. Like orphan drugs, QIDPs may take
advantage of market exclusivity, which in the case of QIDPs is five years (total period of twelve years together with the orphan drug designation). However, the five-year exclusivity extension does not apply to a supplement to an
application under Section 505(b) of the FDCA for any QIDP for which an extension is in effect or has expired; a subsequent application submitted with respect to a product approved by the FDA for a change that results in a new
indication, route of administration, dosing schedule, dosage form, delivery system, delivery device or strength; or a product that does not meet the definition of a QIDP under Section 505(g) based upon its approved uses.
Modifications to our current commercial products or to any product that we may commercialize or promote in the future, or our therapeutic
candidates, may require new regulatory clearances or approvals or may require us or our development or commercialization partners, as applicable, to recall or cease marketing any of our approved products, or delay further studies of
our therapeutic candidates in human subjects until clearances or approvals are obtained.
Modifications to our current commercial products and any products we may commercialize or promote, or to our therapeutic candidates, after they have been cleared or approved for
marketing, if at all, may require new regulatory clearance or approvals, in particular, if we seek or are required to expand our operations to jurisdictions outside of the U.S., and, if necessitated by a problem with a marketed
product, may result in the recall or suspension of marketing of the previously approved and marketed product until clearances or approvals of the modified product are obtained. The FDA and other regulatory authorities require
pharmaceutical product and device manufacturers to initially make and document a determination of whether or not a modification requires a new approval, supplement or clearance. A manufacturer may determine in conformity with
applicable laws, regulations, and guidelines that a modification may be implemented without pre-clearance by the FDA or other regulatory authorities. However, the FDA or other regulatory authorities can review a manufacturer’s
decision and may disagree. The FDA or other regulatory authorities may also, on their own initiative, determine that a new clearance or approval is required. If the FDA or other regulatory authorities require new clearances or
approvals of any pharmaceutical product for which we or our partners, including development or commercialization partners, previously received marketing approval, we or our partners, including development or commercialization
partners, may be required to recall and stop marketing such marketed product, which could require us or our partners, including development or commercialization partners, to redesign the marketed product and may cause a material
adverse effect on our reputation, business, financial condition or results of operations.
Risks Related to Our COVID-19 Therapeutic Candidates and COVID-19 Impact on Our Business
Government involvement may limit the commercial success of our COVID-19 therapeutic candidate.
The COVID-19 endemic has been previously classified as a pandemic by public health authorities, and it is possible that one or more government entities may take
actions that directly or indirectly have the effect of abrogating some of our rights or opportunities. If we were to develop an anti-viral therapeutic to COVID-19, the economic value of such therapeutic to us could be limited.
Separately, various government entities, including the U.S. and or other governments, have offered, and may continue offering incentives, such as those we received, grants and
contracts to encourage additional investment by commercial organizations and drug development companies into preventative and therapeutic agents against COVID-19, which may have the effect of increasing the number of competitors
and/or providing advantages to competitors. Accordingly, there can be no assurance that we will be able to successfully establish a competitive market share for our COVID-19 candidates.
If we are successful in developing a COVID-19 therapeutic, we may need to devote significant resources to our manufacturing scale-up and
large-scale deployment, including for use by the U.S. or other governments. If one of our COVID-19 therapeutic candidates is approved for marketing or for Emergency Use, we may also need to devote significant resources to further
expand our U.S. and non-U.S. sales and marketing activities and increase or maintain personnel to accommodate sales in the U.S. and outside the U.S.
In the event that the clinical studies of opaganib and/or RHB-107 as a COVID-19 therapeutic candidate are perceived to be successful, we may need to work toward the large-scale
manufacturing scale-up and larger-scale deployment of the potential therapeutic through a variety of U.S. and foreign government or other agency mechanisms, such as an Expanded Access Program or an Emergency Use Authorization
program. In this case, we may need to devote significant resources to this program, which would require diversion of resources from our other programs. In addition, since the path to licensure of any COVID-19 therapeutic is unclear,
if use of the therapeutic is approved by the U.S. or other governments, we may have a widely used therapeutic in circulation in the U.S. or any another country prior to our full validation of the overall long-term safety and
efficacy profile of our therapeutic. Unexpected safety issues in these circumstances could lead to significant reputational damage for us and our therapeutic candidates going forward and other issues, including delays in our other
programs, the need for re-design of our clinical trials and the need for significant additional financial resources.
In addition, in the event one of our COVID-19 therapeutic candidates is approved for marketing we may also need to further expand our sales and marketing activities in the U.S. and
outside the U.S. and increase or maintain personnel to accommodate sales. In this case, we may need to devote significant additional resources to this program, which would require diversion of additional resources from our other
programs.
Since the beginning of 2020, we have entered into several collaborations with leading manufacturers, including with U.S.-based partners, to expand manufacturing capacity of opaganib for COVID-19 in
preparation for potential emergency use applications and to gradually meet subsequent large-scale demand and distribution that could follow potential emergency use authorization and/or full marketing approval, if at all. We cannot
guarantee that our ongoing efforts in relation to the drug candidates or their manufacturing, including the scale-up of manufacturing will be successful or that we will be able to supply the potential high demand for opaganib for
COVID-19 that could follow potential emergency use authorization and/or full marketing approval, if at all. The exercise of march-in rights by the U.S. government may also adversely affect our ability to supply sufficient
quantities of opaganib. See “ – The development of opaganib and RHB 107 have been supported by government-funded programs and thus may be subject to federal regulations such as “march-in” rights
and certain reporting requirements, and compliance with such regulations may limit our exclusive rights and our ability to contract with manufacturers. In addition, the government is under
no obligation to continue to support development of our products and can cease such support at any time which could be irreplaceable to the development process of our products. ”
below.
The COVID-19 endemic and its ongoing effects may adversely affect our business, revenues, results of operations and financial condition.
In May 2023, the World Health Organization determined that COVID-19 no longer fit the definition of a public health emergency and the declaration of a public health emergency associated with
COVID-19 subsequently expired on May 11, 2023. The COVID-19 endemic and its ongoing effects are expected to remain a serious endemic threat for an indefinite future period and may continue to create significant economic
uncertainty and volatility in the credit and capital markets, supply chain issues, global shortages of supplies, materials and products, and contribute to rising global inflation. Outbreaks of epidemic, pandemic or contagious
diseases, or a resurgence of COVID-19, may adversely affect our business, revenues, financial condition and results of operations. The various precautionary measures taken by many governmental authorities around the world in
order to limit the spread of SARS-CoV-2 had and may sometime in the future have an adverse effect on the global markets and its economy and demand for pharmaceutical products, including on the availability and pricing of
employees, resources, materials, manufacturing and delivery efforts and other aspects of the global economy. The spread of the pandemic caused significant volatility and uncertainty in U.S. and international markets and
resulted in increased risks to our operations.
Specifically, there are a number of risks that affected our business related to the pandemic and may in the future in the event of a resurgence of the coronavirus,
including the following:
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Commercial Operations: An extended pandemic would have a material adverse effect on sales of our
commercial products. In the past, the COVID-19 pandemic decreased commercial activities, which affected the sales of some of our commercial products due to slower initiation of some promotional activities associated with
a significant decrease in in-clinic patient visits, tests and treatments and the impact on our sales force’s ability to engage with healthcare providers in an in-person setting, cancellation of events such as industry
conferences and limited local and international travel. In addition, there was a negative impact on our business as a result of COVID-19 within our commercial organization, including reductions in our sales force. The
ability to successfully commercialize Aemcolo® and Talicia®
depends on in-clinic patient visits and the availability of diagnostics, both of which were negatively affected by the pandemic, especially with respect to Aemcolo® and Talicia®, which we launched shortly before or at the time of the COVID-19 outbreak. In addition, the
significant decrease in travel significantly reduced the demand and sales of Aemcolo® for travelers’ diarrhea. We continue to expect a
decreased level of demand and sales of Aemcolo® to continue over the coming quarters due to the very limited resources we are investing in
the growth of this product. The COVID-19 pandemic also adversely affected our ability to attract commercial partners, our relationships with commercial partners and our ability to sell our commercial products outside the
U.S., including sales of Talicia® in the UAE.
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Supply Chain: A resurgence of the coronavirus could result in broad supply disruptions of the supply of
commercial products and difficulty in finding alternative sources in the future which may adversely affect our ability to distribute certain of our commercial products for commercial supply and our therapeutic candidates
for clinical supply. For example, if quarantines, shelter-in-place and similar government orders, travel restrictions characteristic of the COVID-19 pandemic are reinstated, the impact, availability or productivity of
personnel at third-party manufacturers, distributors, freight carriers and other necessary components of our supply chain could be disrupted. In addition, there may be unfavorable changes in the availability or cost of
raw materials, intermediates and other materials necessary for production, which may result in disruptions in our supply chain and could significantly and adversely affect our business if one or more of our manufacturers
or suppliers are impacted by any interruption at a particular location or in relation to a particular material. To the extent there are disruptions in the global supply chain (especially those connected to
COVID-19-related supply and logistics issues), our business could be adversely affected.
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Clinical Trials: In the past, the COVID-19 pandemic adversely affected our clinical and preclinical
trials, including our ability to initiate and complete our clinical and preclinical trials within the anticipated timelines, and delays or difficulties in enrolling patients in our clinical trials and recruiting clinical
site investigators and clinical site staff. Interruption of key clinical trial activities, such as clinical trial site data monitoring, due to limitations on travel imposed or recommended by government officials or
entities, employers and others or interruption of clinical trial patient visits and study procedures (particularly any procedures that may be deemed non-essential) due to a resurgence of the pandemic, may impact the
completeness of clinical trial data and clinical study endpoints. As a result, our previously anticipated filing and marketing timelines may be adversely impacted. For example, the enrollment of patients for our Phase 3
study with RHB-204 in first-line pulmonary NTM infections was slow, which slowed the progress of the study.
In addition, we may be unable to meet the timelines and milestones established for the contemplated postmarketing studies we are required to conduct for Aemcolo®, in which case we could be
subject to FDA enforcement actions and civil monetary penalties, among others, unless the FDA agrees to an extension of the timelines and milestones.
Our clinical trials can also be adversely affected by the reduction or diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving
as our clinical trial sites and hospital staff supporting the conduct of our clinical trial. Any delays or interruption of our clinical trials could have an adverse effect on our development efforts of our therapeutic
candidates, and failure to fulfill any postmarketing commitments could subject us to FDA enforcement actions or result in our breach of certain license agreements and cause us to lose our rights thereunder.
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Regulatory Reviews: The operations of the FDA or other regulatory agencies may be adversely affected. We may also experience delays in necessary interactions with
regulatory authorities around the world, including with respect to any anticipated filings.
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Additionally, because our corporate headquarters are in Israel while our commercial office is in the U.S., there is additional risk in our ability as a company to control the
activities occurring in the U.S., due to the geographic separation within our company.
Assessment of the complete extent of the impact of COVID-19 endemic and its ongoing effects on our results will depend on future developments, which are highly uncertain and cannot be predicted,
including new information that may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. The ongoing effects of the COVID-19 endemic could materially disrupt our
business and operations and have an adverse effect on the global markets and global economy generally, including on the availability and cost of employees, resources, materials, manufacturing and delivery efforts, and other
aspects of the economy. A resurgence of COVID-19 could also in particular materially affect the sales of our commercial products, making it more difficult for us to meet our financial obligations.
Supply chain and shipping disruptions may result in shipping delays, a significant increase in shipping costs, and could increase product costs
and result in lost sales and reputational damage, which may have a material adverse effect on our business, operating results and financial condition.
Our third-party manufacturers and suppliers have experienced in the past, supply chain disruption and shipping disruptions, including disruptions or delays in
loading container cargo in ports of origin or off-loading cargo at ports of destination, congestion in port terminal facilities, labor supply and shipping container shortages, inadequate equipment and persons to load, dock and
offload container vessels, as a result of the COVID-19 pandemic, among others. In addition, recently there have been shipping disruptions in the Red Sea and
surrounding waterways due to attacks on marine vessels by the Houthi movement, which controls part of Yemen. These disruptions may impact our ability to receive APIs and other materials and products from our manufacturers
and suppliers, to distribute our products to our customers in a cost-effective and timely manner and to meet customer demand, all of which could have an adverse effect on our financial condition and results of operations. There
can be no assurance that further unforeseen events impacting the supply chain will not have a material adverse effect on us in the future. Additionally, the impacts that supply chain disruptions have on our third-party
manufacturers and suppliers are not within our control. It is not currently possible to predict how long it will take for these supply chain disruptions to cease or ease. Prolonged supply chain disruption that may impact us or our
manufacturers and suppliers could interrupt product manufacturing, increase raw material and product lead times, increase raw material and product costs, impact our ability to meet customer demand and result in lost sales and
reputational damage, all of which could have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Our Industry
The market for our current commercial products, for any product we may commercialize or promote in the future and for our therapeutic
candidates is rapidly changing and competitive, and new drug delivery mechanisms, drug delivery technologies, new drugs, generic products, treatments and products which may be developed by others could impair our ability to maintain
and grow our business and remain competitive.
The pharmaceutical and biotechnology industry is highly competitive, and we face significant competition from many pharmaceutical, biopharmaceutical and biotechnology companies that
are researching, developing and marketing products designed to address the indications for which we are currently developing therapeutic candidates or may develop therapeutic candidates in the future or for which we may
commercialize or promote products. There are various other companies that currently market, are in the process of developing or may develop in the future products that address all of the indications or diseases treated by our
current commercial products, products that we may commercialize or promote in the future, and our therapeutic candidates.
New drug delivery mechanisms, drug delivery technologies, new drugs and new treatments that have been developed or that are in the process of being developed or will be developed by
others may render our current commercial products, products we may commercialize or promote in the future and our therapeutic candidates noncompetitive or obsolete, or we may be unable to keep pace with technological developments or
other market factors. Some of these technologies may have an entirely different approach or means of accomplishing similar therapeutic effects compared to our current commercial products, products we may commercialize or promote in
the future and our therapeutic candidates. In addition, our current commercial products and products we may commercialize or promote in the future may compete with products of third parties for market share, and generic drugs or
products that treat the same indications as our current commercial products or products we may commercialize or promote in the future, which can have an adverse effect on our revenues by reducing our market share or requiring us to
reduce the price of the products we market.
Talicia® primarily competes with several branded and generic therapies already approved and used
extensively to treat H. pylori.
Aemcolo® primarily competes with several competing drugs marketed in the U.S. intended for the
treatment of travelers’ diarrhea, including Xifaxan® (marketed by Salix Pharmaceuticals). Aemcolo® also competes with generic antibiotics such as fluoroquinolones and azithromycin. Aemcolo® also competes with prescription
and OTC anti-diarrheal medications such as loperamide and bismuth subsalicylate, as well as probiotics and medical foods which may offer symptomatic relief. We may also be exposed to potentially competitive products, which may be
under development to treat or prevent travelers’ diarrhea, including new antibiotics, anti-diarrheal medications, and vaccines.
Technological competition from, and commercial capabilities of, pharmaceutical and biotechnology companies, universities, governmental entities, and others is intense and is expected
to increase. Many of these entities have significantly greater research and development capabilities, human resources, and budgets than we do, as well as substantially more marketing, manufacturing, financial and managerial
resources. These entities represent significant competition for us. Acquisitions of, or investments in, competing pharmaceutical or biotechnology companies by large corporations could increase such competitors’ financial, marketing,
manufacturing, and other resources.
The potential widespread acceptance of therapies that are alternatives to ours may limit market acceptance of our formulations, current commercial products or products we may
commercialize or promote in the future, even if commercialized and therapeutic candidates. Many of our targeted diseases and conditions can also be treated by other medications or drug delivery technologies. These treatments may be
widely accepted in medical communities and have a longer history of use, among other possible advantages. The established use of these competitive drugs may limit the potential for widespread acceptance of our current commercial
products and products we may commercialize or promote in the future and may limit the potential for our commercial products and therapeutic candidates to receive widespread acceptance, if commercialized.
Talicia® or any product for which we may obtain regulatory
approval or acquire commercialization rights may not become or continue to be commercially viable products.
Other than Talicia®, none of our therapeutic candidates have been cleared or approved for marketing,
and none of our therapeutic candidates are currently being marketed or commercialized in any jurisdiction. Even if any of our therapeutic candidates or any product we may commercialize or promote receives regulatory clearance or
approval, such as Talicia®, or do not require regulatory clearance or approval, it may not become a commercially viable product. For example, even if we
or our development or commercialization partners receive regulatory clearance or approval to market a therapeutic candidate or receive regulatory clearance or approval to commercialize or promote any product, the clearance or
approval may be subject to limitations on the indicated uses or subject to labeling or marketing restrictions, which could materially and adversely affect their marketability and profitability. In addition, a new therapeutic
candidate may appear promising at an early stage of development or after clinical trials but never reach the market, or it may reach the market but not result in sufficient product sales, if any. A therapeutic candidate or any
product that we may commercialize or promote, may not result in commercial success for various reasons, including but not limited to:
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difficulty in large-scale manufacturing, including yield and quality;
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low market acceptance by physicians, healthcare payors, patients and the medical community as a result of lower demonstrated clinical safety or efficacy compared to products, prevalence, and severity of adverse side
effects, or other potential disadvantages relative to alternative treatment methods;
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insufficient or unfavorable levels of reimbursement from government or third-party payors, such as insurance companies, health maintenance organizations and other health plan administrators;
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infringement on proprietary rights of others for which we or our development or commercialization partners have not received licenses;
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incompatibility with other therapeutic candidates or marketed products;
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other potential advantages of alternative treatment methods and competitive forces that may make it more difficult for us to penetrate a particular market segment, if at all;
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ineffective marketing, sales, and distribution activities and support;
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lack of significant competitive advantages over existing products on the market;
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lack of cost-effectiveness or unfavorable pricing compared to other alternatives available on the market;
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inability to generate sufficient revenues to sustain our business operations in accordance with our plan from the sale or marketing of a product in view of the economic arrangements that we have with commercialization
or other partners;
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changes to labels, indications or other regulatory requirements as they relate to the commercialization of our products;
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inability to establish collaborations with third-party development or commercialization partners on acceptable terms, or at all, and our inability or unwillingness for cost or other reasons to commercialize the
therapeutic candidates or any product we may commercialize or promote on our own; and
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timing of market introduction of competitive products, such as Voquezna.
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Physicians, various other healthcare providers, patients, payors or the medical community, in general, may be unwilling to accept, utilize or recommend Talicia® and any product we may commercialize or promote. If we are unable, either on our own or through third parties, to manufacture, commercialize or market
Talicia®, our proposed formulations, therapeutic candidates or any product we may commercialize or promote when planned, or to develop them
commercially, we may not achieve any market acceptance or generate meaningful revenue.
Unexpected product safety or efficacy concerns may arise and cause any product we may commercialize or promote to fail to gain or lose market
acceptance.
Unexpected safety or efficacy concerns can arise with respect to any product we may commercialize or promote, whether or not scientifically justified, potentially resulting in
product recalls, withdrawals or declining sales, as well as product liability, consumer fraud or other claims. The market perception and reputation of any product we commercialize or may commercialize or promote in the future, and
their safety and efficacy are important to our business and the continued acceptance of any such product. Any negative publicity about any of our current or future commercial products, such as the pricing of any product, discovery
of safety issues, adverse events, or even public rumors about such events, could have a material adverse effect on our reputation, business, financial condition or results of operations. In addition, the discovery of one or more
significant problems with a product similar to any of our current commercial products or products we may commercialize or promote in the future that implicate (or are perceived to implicate) an entire class of products or the
withdrawal or recall of such similar products could have an adverse effect on the current or future commercialization of any product we may commercialize or promote. New data about any of our current commercial products or products
that we may commercialize or promote in the future, or products similar to any of our current commercial products or those we may commercialize or promote in the future, could cause us reputational harm and could negatively impact
demand for such products due to real or perceived side effects or uncertainty regarding safety or efficacy and, in some cases, could result in product withdrawal. Any of the foregoing could have a material adverse effect on our
reputation, business, financial condition or results of operations.
The development of opaganib and RHB 107 have been supported by government-funded programs and thus may be subject to federal regulations such
as “march-in” rights and certain reporting requirements, and compliance with such regulations may limit our exclusive rights and our ability to contract with manufacturers. In addition, the government is under no obligation to
continue to support development of our products and can cease such support at any time which could be irreplaceable to the development process of our products.
Our intellectual property rights to opaganib, which we in-licensed from Apogee Biotechnology Corporation, have been generated through the use of U.S. federal and state government
funding and are therefore subject to certain federal regulations. As a result, the U.S. government may have certain rights to intellectual property embodied in opaganib pursuant to the Bayh-Dole Act of 1980, or the Bayh-Dole Act.
These U.S. government rights include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the U.S. government has the right, under certain limited
circumstances, to require the licensor to grant exclusive, partially exclusive or non-exclusive licenses to any of these inventions to a third party if it determines that (i) adequate steps have not been taken to commercialize the
invention, (ii) government action is necessary to meet public health or safety needs or (iii) government action is necessary to meet requirements for public use under federal regulations (also collectively referred to as “march-in
rights”). The U.S. government also has the right to take title to these inventions if the licensor fails to disclose the invention to the government or fails to file an application to register the intellectual property within
specified time limits. These rights of the government may affect us even though the U.S. government has not previously contacted us with respect to these intellectual property rights. Any exercise by the government of such rights
could harm our competitive position, business, financial condition, results of operations and prospects. Intellectual property generated under a government-funded program is also subject to certain reporting requirements, compliance
with which may require us to expend substantial resources.
In addition, the U.S. government requires that any products embodying any of these inventions or produced through the use of any of these inventions be manufactured substantially in
the U.S. The manufacturing preference requirement can be waived if the owner of the intellectual property can show that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees
that would be likely to manufacture substantially in the U.S. or that under the circumstances domestic manufacture is not commercially feasible. This preference for having products covered by such intellectual property be
substantially manufactured in the U.S. may limit our ability to contract with non-U.S. product manufacturers or even U.S. product manufacturers whose manufacturing capacity is offshore.
The development of opaganib and RHB-107 has relied on support by the National Institutes of Health and the U.S. Department of Defense and other government bodies. These government
bodies can withdraw, reduce or end their support of our products at any time, and this would significantly impair our ability to develop them further. In addition, the government is under no obligation to continue to support
development of our products and can cease such support at any time which could be irreplaceable to the development process of our products.
We could be adversely affected if healthcare reform measures substantially change the market for medical care or healthcare coverage in the
U.S.
On March 23, 2010, President Obama signed the “Patient Protection and Affordable Care Act” (P.L. 111‑148) (the “ACA”) and on March 30, 2010, he signed the “Health Care and Education
Reconciliation Act” (P.L. 111‑152), collectively commonly referred to as the “Healthcare Reform Law.” The Healthcare Reform Law included a number of new rules regarding health insurance, the provision of healthcare, conditions to
reimbursement for healthcare services provided to Medicare and Medicaid patients, and other healthcare policy reforms. Through the law-making process, substantial changes have been and continue to be made to the current system for
paying for healthcare in the U.S., including changes made to extend medical benefits to certain Americans who lacked insurance coverage and to contain or reduce healthcare costs (such as by reducing or conditioning reimbursement
amounts for healthcare services and drugs, and imposing additional taxes, fees, and rebate obligations on pharmaceutical and medical device companies). This legislation was one of the most comprehensive and significant reforms ever
experienced by the U.S. in the healthcare industry and has significantly changed the way healthcare is financed by both governmental and private insurers. This legislation has impacted the scope of healthcare insurance and
incentives for consumers and insurance companies, among others. Additionally, the Healthcare Reform Law’s provisions were designed to encourage providers to find cost savings in their clinical operations. Pharmaceuticals represent a
significant portion of the cost of providing care. This environment has caused changes in the purchasing habits of consumers and providers and resulted in specific attention to the pricing negotiation, product selection and
utilization review surrounding pharmaceuticals. This attention may result in our current commercial products, products we may commercialize or promote in the future, and our therapeutic candidates, being chosen less frequently or
the pricing being substantially lowered. At this stage, it is difficult to estimate the full extent of the direct or indirect impact of the Healthcare Reform Law on us.
These structural changes could entail further modifications to the existing system of private payors and government programs (such as Medicare, Medicaid, and the State Children’s
Health Insurance Program), creation of government-sponsored healthcare insurance sources, or some combination of both, as well as other changes. Restructuring the coverage of medical care in the U.S. could impact the reimbursement
for prescribed drugs and pharmaceuticals, including our current commercial products, those we and our development or commercialization partners are currently developing or those that we may commercialize or promote in the future. If
reimbursement for the products we currently commercialize or promote, any product we may commercialize or promote, or approved therapeutic candidates is substantially reduced or otherwise adversely affected in the future, or rebate
obligations associated with them are substantially increased, it could have a material adverse effect on our reputation, business, financial condition or results of operations.
Extending medical benefits to those who currently lack coverage will likely result in substantial costs to the U.S. federal government, which may force significant additional changes
to the healthcare system in the U.S. Much of the funding for expanded healthcare coverage may be sought through cost savings. While some of these savings may come from realizing greater efficiencies in delivering care, improving the
effectiveness of preventive care and enhancing the overall quality of care, much of the cost savings may come from reducing the cost of care and increased enforcement activities. Cost of care could be reduced further by decreasing
the level of reimbursement for medical services or products (including our current commercial products, our development or commercialization partners or any product we may commercialize or promote, or those therapeutic candidates
currently being developed by us), or by restricting coverage (and, thereby, utilization) of medical services or products. In either case, a reduction in the utilization of, or reimbursement for our current commercial products, any
product we may commercialize or promote, or any therapeutic candidate, or for which we receive marketing approval in the future, could have a material adverse effect on our reputation, business, financial condition or results of
operations.
Several states and private entities initially mounted legal challenges to the Healthcare Reform Law, in particular, the ACA, and they continue to litigate various aspects of the
legislation. On July 26, 2012, the U.S. Supreme Court generally upheld the provisions of the ACA at issue as constitutional. However, the U.S. Supreme Court held that the legislation improperly required the states to expand their
Medicaid programs to cover more individuals. As a result, states have a choice as to whether they will expand the number of individuals covered by their respective state Medicaid programs. Some states have not expanded their
Medicaid programs and have chosen to develop other cost-saving and coverage measures to provide care to currently uninsured individuals. Many of these efforts to date have included the institution of Medicaid-managed care programs.
The manner in which these cost-saving and coverage measures are implemented could have a material adverse effect on our reputation, business, financial condition or results of operations.
Further, the healthcare regulatory environment has seen significant changes in recent years and is still in flux. Legislative initiatives to modify, limit, replace, or repeal the ACA
and judicial challenges have continued. We cannot predict the impact on our business of future legislative and legal challenges to the ACA or other aspects of the Healthcare Reform Law or other changes to the current laws and
regulations. The financial impact of U.S. healthcare reform legislation over the next few years will depend on a number of factors, including the policies reflected in implementing regulations and guidance and changes in sales
volumes for therapeutics affected by the legislation. From time to time, legislation is drafted, introduced and passed in the U.S. Congress that could significantly change the statutory provisions governing coverage, reimbursement,
and marketing of pharmaceutical products. In addition, third-party payor coverage and reimbursement policies are often revised or interpreted in ways that may significantly affect our business and our products.
During his time in office, former President Trump supported the repeal of all or portions of the ACA. President Trump also issued an executive order in which he stated that it is his
administration’s policy to seek the prompt repeal of the ACA and in which he directed executive departments and federal agencies to waive, defer, grant exemptions from, or delay the implementation of the provisions of the ACA to the
maximum extent permitted by law. Congress has enacted legislation that repeals certain portions of the ACA, including but not limited to the Tax Cuts and Jobs Act, passed in December 2017, which included a provision that eliminates
the penalty under the ACA’s individual mandate, effective January 1, 2019, as well as the Bipartisan Budget Act of 2018, passed in February 2018, which, among other things, repealed the Independent Payment Advisory Board (which was
established by the ACA and was intended to reduce the rate of growth in Medicare spending).
Additionally, in December 2018, a district court in Texas held that the individual mandate is unconstitutional and that the rest of the ACA is, therefore, invalid. On appeal, the
Fifth Circuit Court of Appeals affirmed the holding on the individual mandate but remanded the case back to the lower court to reassess whether and how such holding affects the validity of the rest of the ACA. The Fifth Circuit’s
decision on the individual mandate was appealed to the U.S. Supreme Court. On June 17, 2021, the Supreme Court held that the plaintiffs (comprised of the state of Texas, as well as numerous other states and certain individuals) did
not have standing to challenge the constitutionality of the ACA’s individual mandate and, accordingly, vacated the Fifth Circuit’s decision and instructed the district court to dismiss the case. As a result, the ACA will remain
in-effect in its current form for the foreseeable future; however, we cannot predict what additional challenges may arise in the future, the outcome thereof, or the impact any such actions may have on our business.
The Biden administration also introduced various measures in 2021 focusing on healthcare and drug pricing, in particular. For example, on January 28, 2021, President Biden issued an
executive order that initiated a special enrollment period for purposes of obtaining health insurance coverage through the ACA marketplace, which began on February 15, 2021, and remained open through August 15, 2021. The executive
order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs
that include work requirements and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. On the legislative front, the American Rescue Plan Act of 2021 was signed
into law on March 11, 2021, which, in relevant part, eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average manufacturer price, for single source drugs and innovator multiple source drugs,
beginning January 1, 2024. And, in July 2021, the Biden administration released an executive order entitled, “Promoting Competition in the American Economy,” with multiple provisions aimed at prescription drugs. In response, 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 as well as
potential administrative actions HHS can take to advance these principles. On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law. Among other things, the IRA requires manufacturers of certain drugs to
engage in price negotiations with Medicare (beginning in 2026), imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first due in 2023), and replaces the Part D coverage gap
discount program with a new discounting program (beginning in 2025). The IRA also authorizes HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years. We cannot yet assess the
impact that the IRA will have on the pharmaceutical industry, but it will likely be significant.
There is uncertainty as to what healthcare programs and regulations may be implemented or changed at the federal and/or state level in the U.S. or the effect of any future
legislation or regulation. Furthermore, we cannot predict what actions the Biden administration will implement in connection with the Health Reform Law. However, it is possible that such initiatives could have an adverse effect on
our ability to obtain approval and/or successfully commercialize products in the U.S. in the future. For example, any changes that reduce, or impede the ability to obtain, reimbursement for the type of products we currently, or
intend to, commercialize in the U.S. or that reduce medical procedure volumes could adversely affect our operations and/or future business plans.
Third-party payors may not adequately reimburse customers for any of our products that we may commercialize or promote, including our current
commercial products, and may impose coverage restrictions or limitations such as prior authorizations and step edits that affect their use.
Our revenues and profits depend heavily upon the availability of adequate reimbursement for the use of our current commercial products, and any products that we may commercialize or
promote, from governmental or other third-party payors, both in the U.S. and in foreign markets. Reimbursement by a third-party payor may depend upon a number of factors, including, but not limited to, the third-party payor’s
determination that the use of an approved or cleared therapeutic candidate or product is:
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a covered benefit under its health plan;
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safe, effective and medically necessary;
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appropriate for the specific patient;
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neither experimental nor investigational.
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Obtaining reimbursement approval for a product that we may commercialize or promote, including our current commercial products, from any government, commercial or other third-party
payor is a time-consuming and costly process that could require us or our development or commercialization partners to provide supporting scientific, clinical and cost-effectiveness data for the use of our products that we
currently, or may, commercialize or promote to each payor. Even when a payor determines that a product that we currently or may commercialize or promote is eligible for reimbursement under its criteria, the payor may impose coverage
limitations that preclude payment for some uses that are approved by the FDA or other foreign regulatory authorities, or may impose restrictions, such as prior authorization requirements, or may simply deny coverage altogether.
Reimbursement rates may vary according to the use of the product that we commercialize or may commercialize or promote in the future and the clinical setting in which it is used, may be based on payments allowed for lower-cost
products that are already reimbursed, may be incorporated into existing payments for products or services, and may reflect budgetary constraints or imperfections in Medicare, Medicaid or other data used to calculate these rates. In
particular, reimbursement for our products may not be available from Medicare or Medicaid, and reimbursement from other third-party payors may be limited, reduced or revoked. Overall, our ability to get reimbursement coverage for
our commercial products has historically been limited. Successful commercialization of our commercial products requires a conducive reimbursement environment. If our products do not receive adequate reimbursement coverage, or if
reimbursement coverage is reduced or otherwise adversely affected, then their respective commercial prospects could be severely limited. Although certain payors may currently provide some form of coverage for our commercial
products, payors may suspend or discontinue reimbursement at any time, may require or increase co-payments from patients, may impose restrictions or limitations on coverage, or may reduce reimbursement rates for our products. If we
fail to establish broad adoption of and reimbursement for our commercial products, or if we are unable to maintain any existing reimbursement from payors, our ability to generate revenue could be harmed and this could have a
material adverse effect on our reputation, business, financial condition or results of operations. In addition to our existing commercial products, any new product we may commercialize or promote in the future may require that we
expend substantial time and resources in order to obtain and retain reimbursement, and any of these efforts may not be successful.
In the U.S., there have been, and we expect that there will continue to be, federal and state proposals to constrain expenditures for medical products and services, which may affect
payments for any product that we currently or may commercialize or promote in the U.S. In addition, there is a growing emphasis on comparative effectiveness research, both by private payors and by government agencies. To the extent
other drugs or therapies are found to be more effective than our products, payors may elect to cover such therapies in lieu of our products or reimburse our products at a lower rate. Legislation that reduces reimbursement for our
current or future commercial products could adversely impact how much or under what circumstances healthcare providers will prescribe or administer those products. This could materially and adversely impact our reputation, business,
financial condition or results of operations by reducing our ability to continue to generate meaningful revenue, raise capital, obtain additional collaborators and market share. At this stage, we are unable to estimate the extent of
the direct or indirect impact of any such federal and state proposals.
Furthermore, the Centers for Medicare and Medicaid Services frequently change product descriptors, coverage policies, product and service codes, payment methodologies and
reimbursement values. Third-party payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates, and both the Centers for Medicare and Medicaid Services and other third-party payors
may have sufficient market power to demand significant price reductions. Price reductions or other significant coverage policies or payment limitations could materially and adversely affect our reputation, business, financial
condition or results of operations.
We are subject to U.S. federal and state healthcare laws and regulations relating to our business, and our failure to comply with such laws
could have a material adverse effect on our reputation, business, financial condition or results of operations.
We are subject to additional healthcare regulation and enforcement by the U.S. federal government and the states in which we conduct or will conduct our business. Healthcare
providers, physicians, and third-party payors play a primary role in the recommendation and prescription of our current commercial products or any products we may commercialize or promote in the future. Our arrangements with
third-party payors, customers, employees, or others may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through
which we market, sell, and distribute our products. The laws that may affect our ability to operate include, but are not limited to, the following:
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the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce
either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under government healthcare programs such as the Medicare and Medicaid programs;
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the federal Anti-Inducement Law (also known as the Civil Monetary Penalties Law), which prohibits a person from offering or transferring remuneration to a Medicare or State healthcare program beneficiary that the person
knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of any item or service for which payment may be made, in whole or in part, by Medicare or a State
healthcare program;
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the Ethics in Patient Referrals Act of 1989, commonly referred to as the Stark Law, which prohibits physicians from referring Medicare or Medicaid patients for certain designated health services where that physician or
family member has a financial relationship with the entity providing the designated health service, unless an exception applies;
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federal false claims laws that prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other government healthcare
programs that are false or fraudulent;
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the so-called federal “Sunshine Act”, which requires certain pharmaceutical and medical device companies to monitor and report certain financial relationships with physicians and other healthcare providers to the
Centers for Medicare and Medicaid Services for disclosure to the public;
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the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and its implementing regulations, which impose obligations on certain covered entities and their business associates with respect to
safeguarding the privacy, security, and transmission of individually identifiable health information, and require notification to affected individuals, regulatory authorities, and potentially the media of certain breaches
of security of individually identifiable health information;
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HIPAA’s fraud and abuse provision, which imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program, 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;
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the FDCA, which among other things, strictly regulates drug product and medical device marketing, prohibits manufacturers from marketing such products for off-label use and regulates the distribution of samples;
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federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; and
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state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers.
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Compliance efforts may involve substantial costs, and if our operations or business arrangements with third parties are found to be in violation of any such requirements, we may be
subject to penalties, including civil or criminal penalties, monetary damages, the curtailment or restructuring of our operations, or exclusion from participation in government contracting, healthcare reimbursement or other
government programs, including Medicare and Medicaid, any of which could adversely affect our financial results. Although effective compliance programs can help mitigate the risk of investigation and prosecution for violations of
these laws, these risks cannot be entirely eliminated. Any violation of these laws, or any action against us for violation of these laws, even if we successfully defend against it, could result in a material adverse effect on our
reputation, business, financial condition or results of operations.
The Healthcare Reform Law also imposes reporting requirements on certain medical device and pharmaceutical manufacturers, among others, to make annual public disclosures of certain
payments and other transfers of value to physicians and teaching hospitals and ownership or investment interests held by physicians or their immediate family members. Failure to submit required information may result in civil
monetary penalties for all payments, transfers of value or ownership or investment interests that are not reported. In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians
for marketing, medical directorships, and other purposes. Some states impose a legal obligation on companies to adhere to voluntary industry codes of behavior (e.g., the PhRMA Code and the AdvaMed Code of Ethics), which apply to
pharmaceutical and medical device companies’ interactions with healthcare providers; some mandate implementation of corporate compliance programs, along with the tracking and reporting of gifts, compensation and other remuneration
to physicians, and some states limit or prohibit such gifts.
Most recently, there has been heightened governmental scrutiny over the manner in which drug manufacturers set prices for their marketed products, which has resulted in the enactment
(or proposal) of federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program
reimbursement methodologies for drug products. For example, several states have passed or introduced bills designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints,
discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
The scope and enforcement of these laws are uncertain and subject to change in the current environment of healthcare reform, especially in light of the lack of applicable precedent
and guidance. We cannot predict the impact that new legislation or any changes in existing legislation will have on our reputation, business, financial condition, or results of operations. Federal or state regulatory authorities may
challenge our current or future activities under these laws. Any such challenge could have a material adverse effect on our reputation, business, financial condition or results of operations. Any state or federal regulatory review
of us, regardless of the outcome, would be costly and time-consuming and could negatively and adversely affect our business or results of operations.
Our marketing, promotional and business practices, including with respect to pricing, as well as the manner in which sales forces interact with
purchasers, prescribers and patients, are subject to extensive regulation, including but not limited to, state and federal anti-kickback laws and any material failure to comply could result in significant sanctions against us.
The marketing, promotional, and business practices, including with respect to pricing, of pharmaceutical companies, as well as the manner in which companies’ in-house or third-party
sales forces interact with purchasers, prescribers, and patients, are subject to extensive regulation, the enforcement of which may result in the imposition of civil or criminal penalties, injunctions, or limitations on marketing
practices for some of our products or pricing restrictions or mandated price reductions for some of our products. Many companies have been the subject of claims related to these practices asserted by state or federal authorities.
These claims have resulted in fines and other consequences, such as entering into corporate integrity agreements with the U.S. government. Companies may not promote drugs for “off-label” use, that is, uses that are not described in
the product’s labeling and that differ from those approved by the FDA or other applicable regulatory agencies. A company that is found to have improperly promoted drug products for off-label use may be subject to significant
liability, including civil and administrative remedies, as well as criminal sanctions. In addition, enforcement action against us or any of our current or future commercialization partners could cause management’s attention to be
diverted from our business operations and damage our reputation.
We could be exposed to significant drug product liability claims which could be time-consuming and costly to defend, divert management
attention and adversely impact our ability to obtain and maintain insurance coverage.
The clinical trials that we conduct and the testing, manufacturing, marketing, and commercial sale and use or misuse of our therapeutic candidates and any products we may
commercialize or promote, involve and will involve an inherent risk that significant liability claims may be asserted against us or our development or commercial partners. Product liability claims, or other claims related to our
therapeutic candidates and any products we may commercialize or promote, regardless of merit or their outcome, could require us to spend significant time and money in litigation or to pay significant settlement amounts or judgments.
A product liability claim could also significantly harm our reputation and the market price of our shares and decrease demand for any of our current commercial products, products that we commercialize or promote or that are
commercialized or promoted by our commercial partners, and delay market acceptance of our therapeutic candidates or products we may commercialize or promote. In addition, regardless of merit or eventual outcome, product liability
claims may result in:
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decreased demand for approved products;
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impairment of our business reputation;
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withdrawal of clinical trial participants;
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initiation of investigations by regulators;
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distraction of management’s attention from our primary business;
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substantial monetary awards to patients or other claimants;
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the inability to receive regulatory approval for and commercialize our therapeutic candidates, upon approval, if any, in the future.
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We and our research and development or commercialization partners currently have product-liability policies that include coverage for our clinical trials and our commercial
operations. However, our insurance may prove inadequate to cover claims or litigation costs, especially in the case of wrongful death claims. Any successful product liability or other claim may prevent us from obtaining adequate
liability insurance in the future on commercially desirable or reasonable terms. An inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could
prevent or inhibit the commercialization of our current commercial products or products we may commercialize or promote in the future, or the development of our therapeutic candidates.
Our clinical trials may indicate unexpected serious adverse events or other adverse events or undesirable side effects that may harm our
reputation, business, financial condition or results of operations. Serious adverse events identified during one of our Expanded Access Programs (EAPs) may present additional risks that may adversely affect our development of the
therapeutic candidates involved in the applicable EAP.
As is the case with pharmaceuticals generally, certain side effects and adverse events may emerge as safety risks associated with the use of our therapeutic candidates. Similarly,
serious adverse events have occurred and may occur in the future in connection with our clinical trials. Results of our clinical trials could reveal a high and unacceptable severity and prevalence of side effects or unexpected
characteristics. Undesirable side effects caused by our therapeutic candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial
of regulatory approval by the FDA or comparable foreign regulatory authorities. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product
liability claims. Any of these occurrences may have a material adverse effect on our reputation, business, financial condition or results of operations.
Patients who receive access to investigational new drugs that have not yet received regulatory marketing approval through expanded access programs may be suffering from
life-threatening illnesses and poor prognosis and may have exhausted all other available therapies. The risk for serious adverse events in this patient population is high, which could have a negative impact on the prospects of our
therapeutic candidates that are provided under the EAP.
Serious adverse events or other undesirable side effects in connection with the use of our therapeutic candidates provided under the EAP could cause significant delays or an
inability to successfully develop or commercialize such therapeutic candidates, which could materially harm our business. In particular, any such serious adverse events or other undesirable side effects could cause us or regulatory
authorities to interrupt, delay or halt non-clinical studies and clinical trials, or could make it more difficult for us to enroll patients in our clinical trials. If serious adverse events or other undesirable side effects, or
unexpected characteristics of our investigational new drugs that have not yet received regulatory marketing approval are observed in patients who were granted expanded access to our investigational new drugs under the EAP, further
clinical development of such therapeutic candidate may be delayed or we may not be able to continue development of such therapeutic candidates at all, and the occurrence of these events could have a material adverse effect on our
business. Undesirable side effects caused by our therapeutic candidates could also result in the delay or denial of regulatory approval by the FDA or other regulatory authorities or in a more restrictive label than we expect and
could cause us to incur additional costs.
Global economic conditions may make it more difficult for us to commercialize our current commercial products and any products that we may
commercialize or promote in the future and develop our therapeutic candidates.
The pharmaceutical industry, like other industries and businesses, continues to face the effects of the challenging economic environment. Patients experiencing the effects of the
challenging economic environment, including increases in co-pays, may switch to generic products, delay treatments, skip doses or use other less effective treatments to reduce their costs. Challenging economic conditions in the U.S.
include the demands by payors for substantial rebates and formulary restrictions limiting access to brand-name drugs. In addition, in Europe and in a number of emerging markets there are government-mandated reductions in prices for
certain pharmaceutical products, as well as government-imposed access restrictions in certain countries. All of the aforesaid may make it more difficult for us to commercialize our current commercial products, any products that we
may commercialize or promote, and our therapeutic candidates, upon approval, if any.
Our business involves risks related to handling regulated substances, which could severely affect our ability to commercialize our current
commercial products and any products that we may commercialize or promote in the future and to conduct research and development of our therapeutic candidates.
In connection with our or our development or commercialization partners’ research and development activities, as well as the manufacture of commercial products, materials, and
therapeutic candidates and any products that we may commercialize or promote in the future, we and our development or commercialization partners are subject to federal, state and local laws, rules, regulations and policies governing
the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials, biological specimens and waste. We and our research and development or commercialization partners may be
required to incur significant costs to comply with environmental and health and safety regulations in the future. Our research and development, as well as the activities of our commercial and clinical manufacturing and
commercialization partners, both now and in the future, may involve the controlled use of hazardous materials, including, but not limited to, certain hazardous chemicals. We cannot completely eliminate the risk of accidental
contamination or injury from these materials. In the event of such an occurrence, we could be held liable for any damages that could result and any such liability could exceed our resources.
Security breaches, loss of data, and other disruptions could compromise sensitive information and expose us to liability, which would cause our
business and reputation to suffer.
In the ordinary course of our business, we may collect and store sensitive data, including intellectual property, compliance-related data, research data, our proprietary business
information and that of our suppliers and business partners, technical information about our products, clinical trial plans as well as personally identifiable information of patients, clinical trial participants and employees. We
also have outsourced elements of our information technology structure, and as a result, we are managing independent vendor relationships with third parties who may or could have access to our confidential information. Similarly, our
business partners and other third-party providers possess certain of our sensitive data and confidential information. The secure maintenance of this information is critical to our operations and business strategy. Despite the
implementation of security measures, our internal computer systems, and those of third parties on which we rely, are vulnerable to damage from computer viruses, malware, ransomware, cyber-fraud, natural disasters, terrorism, war,
telecommunication and electrical failures, cyber-attacks or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems inside our organization. The risk of a
security breach or disruption, particularly through cyber-attacks or cyber-intrusion, including by computer hackers, foreign governments, and cyber-terrorists, has generally increased as the number, intensity and sophistication of
attempted attacks and intrusions from around the world have increased.
We, our partners, vendors, and other third-party providers could be susceptible to attacks on our and their information security systems, which attacks are of ever-increasing levels
of sophistication and are made by groups and individuals with a wide range of motives and expertise, including criminal groups. Any such breach could compromise our and their networks and the information stored there could be
accessed, publicly disclosed, lost or stolen. Any such access, inappropriate disclosure of confidential or proprietary information or other loss of information, including our data being breached at third-party providers, could
result in legal claims or proceedings, liability or financial loss under laws that protect the privacy of personal information, disrupt our operations, or our product development programs and damage our reputation, any of which
could adversely affect our business. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to
recover or reproduce the data.
We are highly dependent on information technology networks and systems, including the Internet, to securely process, transmit and store this critical information. Security breaches
of this infrastructure, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure or modification of confidential
information. The secure processing, storage, maintenance and transmission of this critical information is vital to our operations and business strategy, and we devote significant resources to protecting such information. Although we
take measures to protect sensitive information from unauthorized access or disclosure, our information technology and infrastructure may be vulnerable to attacks by hackers or viruses or breached due to employee error, malfeasance
or other disruptions.
A security breach or privacy violation that leads to disclosure or modification of or prevents access to consumer information (including personally identifiable information or
protected health information) could harm our reputation, compel us to comply with disparate state breach notification laws, require us to verify the correctness of database contents and otherwise subject us to liability under laws
that protect personal data, resulting in increased costs or loss of revenue. If we are unable to prevent such security breaches or privacy violations or implement satisfactory remedial measures, our operations could be disrupted,
and we may suffer a loss of reputation, financial loss, and other regulatory penalties because of lost or misappropriated information, including sensitive consumer data. In addition, these breaches and other inappropriate access can
be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above.
Any such breach or interruption could compromise our networks, and the information stored there could be inaccessible or could be accessed by unauthorized parties, publicly
disclosed, lost or stolen. Any such interruption in access, improper access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information,
such as HIPAA and the General Data Protection Regulation (GDPR) in connection with our required maintenance of the global safety database for Movantik®,
and regulatory penalties. Unauthorized access, loss or dissemination could also disrupt our operations, including our ability to perform tests, provide test results, bill facilities or patients, process claims and appeals, provide
customer assistance services, conduct research and development activities, collect, process and prepare Company financial information, provide information about our current and future solutions and other patient and clinician
education and outreach efforts through our websites, and manage the administrative aspects of our business and damage our reputation, any of which could adversely affect our reputation, business, financial condition or results of
operations. Any such breach could also result in the compromise of our trade secrets and other proprietary information, which could adversely affect our competitive position.
In addition, the interpretation and application of consumer, health-related, privacy and data protection laws in the U.S. and elsewhere are often uncertain, contradictory, and in
flux. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our practices. If so, this could result in government-imposed fines or orders requiring that we change our practices, which
could adversely affect our reputation, business, financial condition or results of operations. Complying with these various laws could cause us to incur substantial costs or require us to change our business practices and compliance
procedures in a manner adverse to our business.
Risks Related to Intellectual Property
We may be unable to adequately protect or enforce our rights to intellectual property, causing us to lose valuable rights. Loss of patent
rights may lead us to lose market share and anticipated profits.
Our success depends, in part, on our ability, and the ability of our commercialization or development partners to obtain patent protection for our therapeutic candidates and any
products that we may commercialize or promote, maintain the confidentiality of our trade secrets and know-how, operate without infringing or violating on the proprietary rights of others and prevent others from infringing or
violating on our proprietary rights.
We try to protect our proprietary position by, among other things, filing U.S., European, and other patent applications related to our therapeutic candidates, inventions and
improvements that may be important to the continuing development of our commercial products and therapeutic candidates, and we plan to try to do the same with products we may acquire, commercialize or promote in the future, where
this is possible.
Because the patent position of pharmaceutical companies involves complex legal and factual questions, we cannot predict the scope, validity or enforceability of patents with
certainty. Our issued patents and the issued patents of our commercialization or development partners may not provide us with any competitive advantages, may be held invalid or unenforceable as a result of legal challenges by third
parties or could be circumvented. Ownership of the patent rights we in-license from our commercialization or development partners or the patent rights to the products already approved for marketing that we develop, acquire or for
which we acquire commercialization rights may be challenged, and as a result, the rights we in-license and the rights to products we acquire may turn out not to be exclusive or we may not actually have rights under the patents
despite receiving representations from a commercialization or development partner. Our competitors may also independently develop drug delivery technologies or products similar to ours or design around or otherwise circumvent
patents issued to, or licensed by, us. Thus, any patents that we own or license from others may not provide any protection against competitors. Our pending patent applications, those we may file in the future or those we may license
from third parties may not result in patents being issued. If these patents are issued, they may not provide us with proprietary protection or competitive advantages. The degree of future protection to be afforded by our proprietary
rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage.
In the U.S., Europe, and other jurisdictions, patent applications are typically not published until 18 months after filing. In addition, many companies and universities do not
publish their discoveries until after patent filings are made. This makes it difficult to be certain that we were the first to file for protection of the inventions or the first to invent the inventions. As a result, we may not be
able to obtain or maintain protection for certain inventions. Therefore, the enforceability and scope of our patents and patent applications in the U.S., Europe, and other jurisdictions are uncertain and unpredictable. Any patents
that we own may not provide sufficient protection against competitors and may be of insufficient scope to achieve our business objectives. Additionally, the patent filings of others might act as an impediment to our ability to
commercialize our current or future commercial products.
Patent rights are territorial; thus, the patent protection we do have will only extend to those countries in which we have issued patents. Even so, the laws of certain countries do
not protect our intellectual property rights to the same extent as do the laws of the U.S. and the European Union. Competitors may successfully challenge our patents, produce similar drugs or products that do not infringe our
patents or produce drugs in countries where we have not applied for patent protection or that do not respect our patents. Furthermore, it is not possible to know the scope of claims that will be allowed in published applications,
and it is also not possible to know which claims of granted patents, if any, will be deemed enforceable in a court of law.
In some cases, litigation may be necessary to enforce our patent rights. If we choose to take an infringing third party to court, the third party may challenge the validity or
enforceability of our patent rights or may assert that their activities do not infringe our patents. Litigation is expensive and unpredictable, and we may not have the proper resources to pursue such litigation or to protect our
patent rights. Moreover, there is the risk that the court will find that our patents are not valid or enforceable, or that the third party does not infringe our rights in these patents. Adverse results in any such litigation could
materially impair our patent rights and our ability to prevent generic and other competition for our products. Such results might also materially affect our economics and our ability to require third parties to enter a license with
us or to pay us a reasonable royalty for using our technology.
After the completion of the development and registration of our patents, third parties may still manufacture or market products in infringement of our patent-protected rights. Such
manufacture or market of products in infringement of our patent-protected rights is likely to cause us damage and lead to a reduction in the prices of our current commercial products, any product we may commercialize or promote, or
any of our therapeutic candidates, thereby reducing our potential profits.
In addition, due to the extensive time needed to develop, test and obtain regulatory approval for our therapeutic candidates or any product we may commercialize or promote, any
patents that protect our therapeutic candidate or any product we may commercialize or promote may expire early during commercialization. This may reduce or eliminate any market advantages that such patents may give us. Following
patent expiration, we may face increased competition through the entry of generic products into the market and a subsequent decline in market share and profits.
In addition, in some cases, we may rely on our licensors to conduct patent and trademark prosecution, patent and trademark maintenance or patent and trademark defense on our behalf.
Therefore, our ability to ensure that these patents and trademarks are properly prosecuted, maintained, or defended may be limited, which may adversely affect our rights in the commercialization of our commercial products,
development of our therapeutic candidates, and potential approval for marketing of our therapeutic products. Any failure by our licensors or commercialization or development partners to properly conduct patent and trademark
prosecution, patent and trademark maintenance, patent and trademark enforcement, or patent defense could materially harm our ability to obtain suitable patent protection covering our commercial products or therapeutic candidates or
ensure freedom to commercialize the products in view of third-party patent rights, thereby materially reducing our potential profits.
If we are unable to protect the confidentiality of our trade secrets or know-how, such proprietary information may be used by others to compete
against us.
In addition to filing patents, we generally try to protect our trade secrets, know-how, and technology by entering into confidentiality or non-disclosure agreements with parties that
have access to them, such as our development or commercialization partners, employees, contractors, and consultants. We also enter into agreements that purport to require the disclosure and assignment to us of the rights to the
ideas, developments, discoveries and inventions of our employees, advisors, research collaborators, contractors and consultants while we employ or engage them. However, these agreements can be difficult and costly to enforce or may
not provide adequate remedies. Any of these parties may breach the confidentiality agreements and willfully or unintentionally disclose our confidential information, or our competitors might learn of the information in some other
way. The disclosure to, or independent development by, a competitor of any trade secret, know-how or other technology not protected by a patent could materially adversely affect any competitive advantage we may have over any such
competitor.
To the extent that any of our employees, advisors, research collaborators, contractors or consultants independently develop, or use independently developed, intellectual property in
connection with any of our projects, disputes may arise as to the proprietary rights to this type of information. If a dispute arises with respect to any proprietary right, enforcement of our rights can be costly and unpredictable,
and a court may determine that the right belongs to a third party.
Legal proceedings or third-party claims of intellectual property infringement and other challenges may require us to spend substantial time and
money and could prevent us from developing or commercializing any of our commercial products and our therapeutic candidates.
The development, manufacture, use, offer for sale, sale or importation of any of our commercial products or any of our therapeutic candidates may infringe on the claims of
third-party patents or other intellectual property rights. Patentability, invalidity, freedom-to-operate or other opinions may be required to determine the scope and validity of third-party proprietary rights. The nature of claims
contained in unpublished patent filings around the world is unknown to us and it is not possible to know which countries patent holders may choose for an extension of their filings under the Patent Cooperation Treaty or other
mechanisms. We may also be subject to claims based on the actions of employees and consultants with respect to the usage or disclosure of intellectual property learned at other employers. The cost to us of any intellectual property
litigation or other infringement proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively because of their
substantially greater financial resources. Uncertainties resulting from the initiation and continuation or defense of intellectual property litigation or other proceedings could have a material adverse effect on our ability to
compete in the marketplace. Intellectual property litigation and other proceedings may also absorb significant management time. Consequently, we are unable to guarantee that we will be able to manufacture, use, offer for sale, sell
or import any of our commercial products or of our therapeutic candidates in the event of an infringement action.
In the event of patent infringement claims, or to avoid potential claims, we may choose or be required to seek a license from a third party and would most likely be required to pay
license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we were able to obtain a license, the rights may be non-exclusive, which could potentially limit our competitive
advantage. Ultimately, we could be prevented from commercializing a therapeutic candidate and any products that we may commercialize or promote or be forced to cease some aspect of our business operations if, as a result of actual
or threatened patent infringement or other claims, we are unable to enter into licenses on acceptable terms. This inability to enter into licenses or the ability to exclude others using proprietary rights could have a material
adverse effect on our reputation, business, financial condition or results of operations.
On February 22, 2021, Aether Therapeutics Inc. (“Aether”) filed a complaint against RedHill U.S. in the United States District Court for the District of Delaware,
alleging that the Company’s marketing of the Movantik® product infringes certain patents held by Aether. See “Business - Legal Proceedings.” The Aether litigation has been resolved in all respects and on April 6, 2023, a
Stipulation and Order of Dismissal with Prejudice was entered in the matter.
The license agreements we maintain, including our license agreement with Cosmo, may be amended or terminated. If we or the other parties to our
license agreements amend or terminate the license agreements, the development, testing, manufacture, production and sale of our products or product candidates may be delayed or terminated, and our business may be adversely affected.
We are parties to commercialization or license agreements, which may be terminated, subject to conditions set forth in such agreements. For example, on October 17, 2019, we entered
into a strategic collaboration with Cosmo, which included a license agreement (the “Cosmo License Agreement”) with a wholly-owned subsidiary of Cosmo pursuant to which we were granted exclusive rights to commercialize Aemcolo® in the U.S. The Cosmo License Agreement provides that, beginning in October 2022, both parties have the right to terminate the Cosmo License Agreement
unilaterally, subject to certain conditions. In December 2021, the parties signed an amendment to the Cosmo License Agreement providing that either party may terminate the Cosmo License Agreement upon advance notice at any time.
Subject to and following the termination of the Cosmo License Agreement, we would no longer be able to commercialize Aemcolo® and may never recover the
costs we incurred during the term of the Cosmo License Agreement.
We may be subject to other patent-related litigation or proceedings that could be costly to defend and uncertain in their outcome.
In addition to infringement claims against us, we may become a party to other patent litigation or proceedings before regulatory agencies, including post-grant review, inter parties
review, interference or re-examination proceedings filed with the U.S. Patent and Trademark Office or opposition proceedings in other foreign patent offices regarding intellectual property rights with respect to our therapeutic
candidates or any products that we may commercialize or promote, as well as other disputes regarding intellectual property rights with development or commercialization partners, or others with whom we have contractual or other
business relationships. Post-issuance proceedings challenging patent claims validity are not uncommon, and we or our development or commercialization partners will be required to defend these procedures as a matter of course. Such
procedures may be costly, and there is a risk that we may not prevail, which could harm our business significantly.
Risks Related to the ADSs
Our failure to maintain compliance with Nasdaq’s continued listing requirements could result in the delisting of the ADSs.
The ADSs are currently listed for trading on Nasdaq. While we are currently in compliance, we have been in the past unable to comply with
certain of the listing standards that we are required to meet to maintain the listing of the ADSs on Nasdaq which may result in our securities being delisted from Nasdaq. For instance, on May 9, 2023, we received a written
notification from the Nasdaq, indicating that we are not in compliance with the minimum MVPHS set forth in the Nasdaq Listing Rules for continued listing on Nasdaq. Additionally, on September 19, 2023, we received a letter
from Nasdaq indicating that for the thirty consecutive business days from August 7, 2023, to September 18, 2023, the bid price for the ADSs had closed below the minimum $1.00 per ADS requirement for continued listing on Nasdaq
under Nasdaq Listing Rule 5450(a)(1). Both matters have since been closed.
Additionally, in the recent past, we did not meet the minimum closing bid price requirement and only regained compliance with that requirement in April 2023, after completing a
ratio change of the ADSs to our non-traded Ordinary Shares from the previous ratio of one ADS representing ten Ordinary Shares to a new ratio of one ADS representing 400 Ordinary Shares. No assurance can be given that the price of
the ADSs will not again be in violation of Nasdaq’s minimum bid price rule in the future. Our failure to meet these requirements may result in our securities being delisted from Nasdaq.
A delisting could substantially decrease trading in the ADSs, adversely affect the market liquidity of the ADSs as a result of the loss of market efficiencies associated with
Nasdaq and the loss of federal preemption of state securities laws, adversely affect our ability to obtain financing on acceptable terms, if at all, and may result in the potential loss of confidence by investors, suppliers,
customers and employees and fewer business development opportunities. Additionally, the market price of the ADSs may decline further and shareholders may lose some or all of their investment.
U.S. holders of ADSs may suffer adverse tax consequences if we were characterized as a passive foreign investment company.
Based on the current composition of our gross income and assets and on reasonable assumptions and projections no assurance can be given that we will not be treated
as a passive foreign investment company (a “PFIC”), for U.S. federal income tax purposes for 2024. If we were characterized as a PFIC, U.S. holders of the ADSs may suffer adverse tax consequences such as (i) having gains realized
on the sale of the ADSs treated as ordinary income rather than capital gain, not qualifying for the preferential rate otherwise applicable to dividends received in respect of the ADSs by individuals who are U.S. holders, and (ii)
having interest charges apply to certain distributions by us and upon certain sales of the ADSs.
There has been a limited market for the ADSs. We cannot ensure investors that an active market will continue or be sustained
for the ADSs on the Nasdaq and this may limit the ability of our investors to sell the ADSs.
In the past, there was limited trading in the ADSs, and there is no assurance that an active trading market of the ADSs will continue or will be sustained. Limited
or minimal trading in the ADSs has in the past, and may in the future, lead to dramatic fluctuations in market price and investors may not be able to liquidate their investment at all or at a price that reflects the value of the
business.
While the ADSs began trading on the Nasdaq Capital Market in December 2012, on the Nasdaq Global Market in July 2018, and on Nasdaq again in December 2023, we
cannot assure you that we will maintain compliance with all of the requirements for the ADSs to remain listed. Additionally, there can be no assurance that trading of the ADSs will be sustained or desirable.
As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of applicable SEC and
Nasdaq Stock Market requirements, which may result in less protection than is accorded to investors under rules applicable to domestic issuers.
As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of those otherwise required under the Nasdaq Listing Rules for
domestic issuers. For instance, we follow the home country practice in Israel with regard to, among other things, director nomination procedures and quorum at shareholders’ meetings. In addition, we follow our home country law,
instead of the Nasdaq Listing Rules, which require that we obtain shareholder approval for certain dilutive events, such as for the establishment or amendment of certain equity-based compensation plans, an issuance that will result
in a change in control, certain transactions other than a public offering involving issuances of a 20% or more interest in us and certain acquisitions of the stock or assets of another company. Following our home country governance
practices as opposed to the requirements that would otherwise apply to a U.S. domestic issuer listed on the Nasdaq Stock Market may provide less protection than is accorded to investors under the Nasdaq Listing Rules applicable to
domestic issuers.
In addition, as a foreign private issuer, we are exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements, and our
officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file
annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as domestic companies whose securities are registered under the Exchange Act.
We currently do not anticipate paying cash dividends, and accordingly, investors must rely on the appreciation in the ADSs
for any return on their investment.
We currently anticipate that we will retain future earnings, if any, for the development, operation and expansion of our business and do not anticipate declaring or
paying any cash dividends for the foreseeable future. In addition, the terms of our term loan facility prohibit us from paying dividends. Therefore, the success of an investment in the ADSs will depend upon any future appreciation
in their value. There is no guarantee that the ADSs will appreciate in value or even maintain the price at which our investors have purchased their securities.
Investors in the ADSs may not receive the same distributions or dividends as those we make to the holders of our ordinary
shares, par value NIS 0.01 per share (“Ordinary Shares”), and, in some limited circumstances, investors in the ADSs may not receive dividends or other distributions on our Ordinary Shares and may not receive any value for them, if
it is illegal or impractical to make them available to investors in the ADSs.
The depositary for the ADSs has agreed to pay to investors in the ADSs the cash dividends or other distributions it or the custodian receives on Ordinary Shares or
other deposited securities underlying the ADSs, after deducting its fees and expenses. Investors in the ADSs will receive these distributions in proportion to the number of Ordinary Shares such ADSs represent. However, the
depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of
securities that require registration under the Securities Act of 1933, as amended, but that is not properly registered or distributed under an applicable exemption from registration. In these cases, the depositary may determine
not to distribute such property and hold it as “deposited securities” or may seek to effect a substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable
and practicable substitute. We have no obligation to register under U.S. securities laws any ADSs, Ordinary Shares, rights or other securities received through such distributions. We also have no obligation to take any other
action to permit the distribution of ADSs, Ordinary Shares, rights or anything else to holders of ADSs. In addition, the depositary may deduct from such dividends or distributions its fees and may withhold amounts on account of
taxes or other governmental charges to the extent the depositary believes it is required to make such withholding. This means that investors in the ADSs may not receive the same distributions or dividends as those we make to the
holders of our Ordinary Shares, and, in some limited circumstances, investors in the ADSs may not receive any value for such distributions or dividends if it is illegal or impractical for us to make them available to investors in
the ADSs. These restrictions may cause a material decline in the value of the ADSs.
Holders of ADSs must act through the depositary to exercise their rights.
Holders of the ADSs do not have the same rights as our holders of Ordinary Shares and may only exercise the voting rights with respect to the underlying Ordinary
Shares in accordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required to convene a shareholders’ meeting is no less than 35 or 21 calendar days, depending on the
proposals on the agenda for the shareholders’ meeting. When a shareholders’ meeting is convened, holders of the ADSs may not receive sufficient advance notice of a shareholders’ meeting to permit them to cancel the ADSs and
withdraw their Ordinary Shares to allow them to cast their vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of the ADSs or carry out their
voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of the ADSs in a timely manner, but we cannot assure holders that they will receive the voting
materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, the depositary and its agents are not responsible for any failure to carry out any instructions to vote, for the manner in which
any vote is cast or for the effect of any such vote. As a result, holders of the ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested. In addition, in the
capacity as an ADS holder, they are not able to call a shareholders’ meeting.
The depositary for the ADSs gives us a discretionary proxy to vote our Ordinary Shares underlying ADSs if a holder of the
ADSs does not give voting instructions, except in limited circumstances.
Under the deposit agreement for the ADSs, the depositary gives us a discretionary proxy to vote our Ordinary Shares underlying ADSs at shareholders’ meetings if a
holder of the ADSs does not give voting instructions, unless:
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we have instructed the depositary that we do not wish a discretionary proxy to be given;
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we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting; or
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we have informed the depositary that a matter to be voted on at the meeting would have a material adverse impact on shareholders.
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The effect of this discretionary proxy is that a holder of the ADSs cannot prevent our Ordinary Shares underlying such ADSs from being voted by us at our
discretion, absent the situations described above. Holders of our Ordinary Shares are not subject to this discretionary proxy.
Risks Related to our Operations in Israel
We conduct some of our operations in Israel. Conditions in Israel, including the recent attack by Hamas and other terrorist organizations
from the Gaza Strip and Israel’s war against them, may affect our operations.
Because we are incorporated under the laws of the State of Israel and some of our operations are conducted in Israel, our business and operations are directly affected by economic,
political, geopolitical and military conditions in Israel. Since the establishment of the State of Israel in 1948, a number of armed conflicts have occurred between Israel and its neighboring countries and terrorist organizations
active in the region. These conflicts have involved missile strikes, hostile infiltrations and terrorism against civilian targets in various parts of Israel, which have negatively affected business conditions in Israel. In
addition, Israel faces many threats from more distant neighbors, in particular, Iran. Parties with whom we do business have sometimes declined to travel to Israel during periods of heightened unrest or tension, forcing us to make
alternative arrangements when necessary. In addition, the political and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to
perform their commitments under those agreements pursuant to force majeure provisions in such agreements. Any hostilities involving Israel or the interruption or curtailment of trade within Israel or between Israel and its trading
partners could adversely affect our operations or results of operations and could make it more difficult for us to raise capital.
In October 2023, Hamas terrorists infiltrated Israel’s southern border from the Gaza Strip and conducted a series of attacks on civilian and military targets. Hamas also launched
extensive rocket attacks on Israeli population and industrial centers located along Israel’s border with the Gaza Strip and in other areas within the State of Israel. These attacks resulted in extensive deaths, injuries and
kidnapping of civilians and soldiers. Following the attack, Israel’s security cabinet declared war against Hamas and a military campaign against these terrorist organizations commenced in parallel to their continued rocket and
terror attacks. Moreover, the clash between Israel and Hezbollah in Lebanon, and an expansion of the attacks on marine vessels in the Red Sea and surrounding waterways by the Houthi movement, which controls part of Yemen, may
escalate in the future into a greater regional conflict.
Although we currently do not expect the ongoing conflict to affect our customers, manufacturing, research and development, supply chain, commercialization activities and current
clinical studies, which are all located in and/or take place outside of Israel, there can be no assurances that further unforeseen events will not have a material adverse effect on us or our operations in the future.
The Israel Defense Force (the “IDF”), the national military of Israel, is a conscripted military service, subject to certain exceptions. Following the October 7, 2023 attacks, the
IDF called up more than 350,000 of its reserve forces to serve. One member of management is currently subject to military service in the IDF and has been called to serve. It is possible that there will be further military reserve
duty call-ups in the future, which may affect our business due to a shortage of skilled labor and loss of institutional knowledge, and necessary mitigation measures we may take to respond to a decrease in labor availability, such
as overtime and third-party outsourcing, for example, may have unintended negative effects and adversely impact our results of operations, liquidity or cash flows.
Additionally, five members of our management team and 10 of our non-management employees reside in Israel. Four members of our management team and 10 of our non-management
employees are currently located in Israel. Shelter-in-place and work-from-home measures, government-imposed restrictions on movement and travel and other precautions taken to address the ongoing conflict may temporarily disrupt
our management and employees’ ability to effectively perform their daily tasks.
It is currently not possible to predict the duration or severity of the ongoing conflict or its effects on our business, operations and financial conditions. The ongoing conflict
is rapidly evolving and developing, and could disrupt our business and operations, interrupt our sources and availability of supply and hamper our ability to raise additional funds or sell our securities, among others.
Our commercial insurance does not cover losses that may occur as a result of events associated with the security situation in the Middle East. The Israeli
government is currently committed to cover the reinstatement value of direct damages that are caused by terrorist attacks or acts of war. However, there is no assurance that this government coverage will be maintained, or if
maintained, will be sufficient to compensate us fully for damages incurred. Any losses or damages incurred by us could have a material adverse effect on our business.
Several countries, principally in the Middle East, restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with
Israel and Israeli companies. In addition, there have been increased efforts by activists to cause companies and consumers to boycott Israeli goods based on Israeli government policies. Such business restrictions and boycotts,
particularly if they become more widespread, may materially and adversely impact our business.
Furthermore, prior to the attacks by Hamas, the Israeli government was pursuing extensive changes to Israel’s judicial system. This led to protests at various levels domestically,
and investment banks and other investors have voiced concerns that the proposed changes may negatively impact the business environment in Israel. This may, in turn, could slow the flow of international investment and negatively
affect our business, financial condition and prospects.
Because a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed by
currency fluctuations and inflation.
Our reporting and functional currency is the U.S. dollar. Most of our revenues and royalty payments from our agreements with our development or commercialization partners are in U.S.
dollars, and we expect our revenues from future licensing and co-promotion agreements to be denominated mainly in U.S. dollars or in Euros. We pay a substantial portion of our expenses in U.S. dollars; however, a portion of our
expenses, including salaries of our employees in Israel and payment to part of our service providers in Israel and other territories, are paid in NIS and in other currencies. In addition, a portion of our financial assets is held in
NIS and in other currencies. As a result, we are exposed to currency fluctuation risks. For example, if the NIS strengthens against the U.S. dollar, our reported expenses in U.S. dollars may be higher. In addition, if the NIS
weakens against the U.S. dollar, the U.S. dollar value of our financial assets held in NIS will decline.
Provisions of the RedHill Biopharma Ltd. Award Plan, Israeli law, our articles of association and our change in control retention plan may
delay, prevent or otherwise impede a merger with, or an acquisition of, our Company, or an acquisition of a significant portion of our shares, which could prevent a change in control, even when the terms of such a transaction are
favorable to us and our shareholders.
Our Amended and Restated Award Plan (2010) (the “Award Plan”) provides that all options granted by us will be fully accelerated upon a “hostile takeover” of us. A
“hostile takeover” is defined in our Award Plan as an event in which any person, entity or group that was not an “interested party”, as defined in the Israeli Securities Law – 1968, on the date of the initial public offering of
our Ordinary Shares on the TASE, will become a “controlling shareholder” as defined in the Israel Securities Law, 1968, or a “holder,” as defined in the Israeli Securities Law – 1968, of 25% or more of our voting rights or any
merger or consolidation involving us, in each case without a resolution by our board of directors supporting the transaction. In addition, if a “Significant Event” occurs and following which the employment of a grantee with us or
a related company is terminated by us or a related company other than for “Cause”, and unless the applicable agreement provides otherwise, all the outstanding options held by or for the benefit of any such grantee will be
accelerated and immediately vested and exercisable. A “Significant Event” is defined in our Award Plan as a consolidation or merger with or into another corporation approved by our board of directors in which we are the continuing
or surviving corporation or in which the continuing or surviving corporation assumes the option or substitutes it with an appropriate option in the surviving corporation.
The Israeli Companies law, 1999, or the Israeli Companies Law, regulates mergers, requires tender offers for acquisitions of shares or voting rights above specified thresholds,
requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger may not be consummated
unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar of Companies and at least 30 days from the date that the shareholders of both merging companies
approved the merger. In addition, a majority of each class of securities of the target company must approve a merger. Moreover, the Israeli Companies Law provides that certain purchases of securities of a public company are subject
to tender offer rules. As a general rule, the Israeli Companies Law prohibits any acquisition of shares or voting power in a public company that would result in the purchaser holding 25% or more, or more than 45% of the voting power
in the company, if there is no other person holding 25% or more, or more than 45% of the voting power in a company, respectively, without conducting a special tender offer. The Israeli Companies Law further provides that a purchase
of shares or voting power of a public company or a class of shares of a public company which will result in the purchaser’s holding 90% or more of the company’s shares, class of shares or voting rights, is prohibited unless the
purchaser conducts a full tender offer for all of the company’s shares or class of shares. The purchaser will be allowed to purchase all of the company’s shares or class of shares (including those shares held by shareholders who did
not respond to the offer), if either (i) the shareholders who do not accept the offer hold less than 5% of the issued and outstanding share capital of the company or of the applicable class, and more than half of the shareholders
who do not have a personal interest in the offer accept the offer, or (ii) the shareholders who do not accept the offer hold less than 2% of the issued and outstanding share capital of the company or of the applicable class. The
shareholders, including those who indicated their acceptance of the tender offer (except if otherwise detailed in the tender offer document), may, at any time within six months following the completion of the tender offer, petition
the court to alter the consideration for the acquisition. At the request of an offeree of a full tender offer which was accepted, the court may determine that the consideration for the shares purchased under the tender offer was
lower than their fair value and compel the offeror to pay to the offerees the fair value of the shares. Such an application to the court may be filed as a class action.
In addition, the Israeli Companies Law provides for certain limitations on a shareholder that holds more than 90% of the company’s shares, or class of shares.
Pursuant to our articles of association, the size of our board of directors may be no less than five persons and no more than eleven, including any external directors whose
appointment is required under the law. The directors who are not external directors are divided into three classes, as nearly equal in number as possible. At each annual general meeting, the term of one class of directors expires,
and the directors of such class are re-nominated to serve an additional three-year term that expires at the annual general meeting held in the third year following such election (other than any director nominated for election by
Cosmo pursuant to the Company’s subscription agreement with Cosmo, whose term of office may expire earlier depending on the beneficial ownership by the Cosmo investor of the Cosmo shares). This process continues indefinitely. Such
provisions of our articles of association make it more difficult for a third party to effect a change in control or takeover attempt that our management and board of directors oppose.
In addition, we have adopted a change in control employee retention plan and entered into employment agreements providing for compensation to Company officers and employees in the
event of a change in control (as defined by the plan and employment agreements), subject to the satisfaction of various conditions. See “Management – Compensation – Change in Control Retention Plan and
Agreements; Severance Arrangements.”
Furthermore, Israeli tax considerations may, in certain circumstances, make potential transactions unappealing to us or to some of our shareholders. For example, Israeli tax law does
not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of numerous
conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating companies are restricted. Moreover, with respect to certain share swap
transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no actual disposition of the shares has occurred.
These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, or an acquisition of a significant portion of our shares,
even if such an acquisition or merger would be beneficial to us or to our shareholders.
It may be difficult to enforce a U.S. judgment against us and our directors and officers in Israel or the U.S. or to serve process on our
directors and officers.
We are incorporated in Israel. Most of our directors and executive officers reside outside of the U.S., and most of the assets of our directors and executive officers may be located
outside of the U.S. Therefore, a judgment obtained against us or most of our executive officers and our directors in the U.S., including one based on the civil liability provisions of the U.S. federal securities laws, may not be
collectible in the U.S. and may not be enforced by a U.S. or Israeli court. It may also be difficult to effect service of process on these persons in the U.S. or to assert U.S. securities law claims in original actions instituted in
Israel.
The obligations and responsibilities of our shareholders are governed by Israeli law, which may differ in some respects from the obligations
and responsibilities of shareholders of U.S. companies. Israeli law may impose obligations and responsibilities on a shareholder of an Israeli company that are not imposed upon shareholders of corporations in the U.S.
We are incorporated under Israeli law. The obligations and responsibilities of the shareholders are governed by our articles of association and Israeli law. These obligations and
responsibilities differ in some respects from the obligations and responsibilities of shareholders in typical U.S.-based corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith toward the
company and other shareholders and to refrain from abusing its power in the company, including, among other things, in voting at the general meeting of shareholders on matters such as amendments to a company’s articles of
association, increases in a company’s authorized share capital, mergers and acquisitions and interested party transactions requiring shareholder approval. In addition, a shareholder who knows that it possesses the power to determine
the outcome of a shareholder vote or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness toward the company. There is limited case law available to assist us in
understanding the implications of these provisions that govern shareholders’ actions. These provisions may be interpreted to impose additional obligations and responsibilities on our shareholders that are not typically imposed on
shareholders of U.S. corporations.
Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful shareholder claims against us and
may reduce the amount of money available to us.
The Israeli Companies Law and our articles of association permit us to indemnify our directors and officers for acts performed by them in their capacity as directors and officers.
The Israeli Companies Law provides that a company may not exempt or indemnify a director or an officer nor enter into an insurance contract, which would provide coverage for any monetary liability incurred as a result of: (a) a
breach by the director or officer of his duty of loyalty, except for insurance and indemnification where the director or officer acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;
(b) a breach by the director or officer of his duty of care if the breach was done intentionally or recklessly, except if the breach was solely as a result of negligence; (c) any act or omission done with the intent to derive an
illegal personal benefit; or (d) any fine, civil fine, monetary sanctions, or forfeit imposed on the officer or director. Our articles of association provide that we may exempt or indemnify a director or an officer to the maximum
extent permissible under law.
We have issued letters of indemnification to our directors and officers, pursuant to which we have agreed to indemnify them in advance for any liability or expense imposed on or
incurred by them in connection with acts they perform in their capacity as a director or officer, subject to applicable law. The amount of the advance indemnity is limited to the higher of 25% of our then shareholders’ equity, per
our most recent annual financial statements, or $10 million.
Our indemnification obligations limit the personal liability of our directors and officers for monetary damages for breach of their duties as directors by shifting the burden of such
losses and expenses to us. Although we have obtained directors’ and officers’ liability insurance, certain liabilities or expenses covered by our indemnification obligations may not be covered by such insurance or the coverage
limitation amounts may be exceeded. As a result, we may need to use a significant amount of our funds to satisfy our indemnification obligations, which could severely harm our business or financial condition and limit the funds
available to those who may choose to bring a claim against us. These provisions and resultant costs may also discourage us from bringing a lawsuit against directors and officers for breaches of their duties and may similarly
discourage the filing of derivative litigation by our shareholders against the directors and officers even though such actions, if successful, might otherwise benefit our security holders.
Our Amended and Restated Articles of Association designate courts located either within the State of Israel, or the Federal District Courts of
the United States, as the exclusive forum for certain litigation that may be initiated by our shareholders, which could limit our shareholders’ ability to bring a favorable or convenient judicial forum for disputes with us.
Our Amended and Restated Articles of Association provide that, unless we consent in writing to the selection of an alternative forum, the Tel Aviv District Court (Economic Division
in the State of Israel (or, if the Tel Aviv District Court does not have jurisdiction, and no other Israeli court has jurisdiction, the federal district court for the District of New York) shall be the sole and exclusive forum for
(1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our shareholders, and (3) any action
asserting a claim arising pursuant to any provision of the Companies Law or the Israeli Securities Law 5728-1968, in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants.
In addition, the federal district courts of the United States for the District of New York shall be the exclusive forum for any complaint asserting a cause of action arising under the Securities Act of 1933. Any person or entity
purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to these provisions.
This forum selection provision may limit shareholders’ ability to bring a claim in a judicial forum for disputes that it finds favorable or convenient for disputes with us or our
directors, officers, or other employees, which may discourage lawsuits with respect to such claims. Alternatively, a court, including an Israeli court, could find these provisions of our Articles of Association to be inapplicable or
unenforceable in respect of one or more of the specified types of actions or proceedings, which may require us to incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our
business and financial condition.
General Risks
We must comply with the U.S. Foreign Corrupt Practices Act.
The U.S. Foreign Corrupt Practices Act (the “FCPA”) applies to companies, such as us, with a class of securities registered under the Exchange Act. The FCPA to which various of our
operations may be subject generally prohibits companies and their intermediaries from engaging in bribery or making other improper payments to officials for the purpose of obtaining or retaining business. In various jurisdictions,
our operations require that we and third parties acting on our behalf routinely interact with government officials, including medical personnel who may be considered government officials for purposes of these laws because they are
employees of state-owned or controlled facilities. Our policies mandate compliance with these anti-bribery laws; however, we operate in many parts of the world that have experienced governmental or private corruption to some degree.
As a result, the existence and implementation of a robust anti-corruption program cannot eliminate all risks that unauthorized reckless or criminal acts have been or will be committed by our employees or agents. If our employees or
other agents are found to have engaged in such practices, we could suffer severe penalties. Violations of the FCPA, or allegations of such violations, could disrupt our business and result in a material adverse effect on our
reputation, business, financial condition or results of operations.
Future issuances or sales of ADSs could reduce the market price of the ADSs and result in dilution to our shareholders.
As of February 6, 2024, we had outstanding options to purchase up to an aggregate of 39,070,400 Ordinary Shares (equivalent to 97,676 of the ADSs) under our
Award Plan and 177,703 outstanding Restricted Share Units (“RSUs”), each with respect to one of the ADSs, which represents 400 of our Ordinary Shares. In addition, as of February 6, 2024, there were 1,400,658,798 Ordinary Shares
(equivalent to 3,501,647 ADSs) reserved for issuance under our Award Plan (including Ordinary Shares subject to outstanding options and RSUs under such plan). In addition, as of February 6, 2024, we have sold an aggregate of
34,453 ADSs under our current “at-the-market” equity offering program initiated in July 2021, at a weighted average price per ADS of $74.84, generating aggregate net proceeds of approximately $2.5 million.
As of February 6, 2024, we also had outstanding warrants to purchase an aggregate of 11,872,091 ADSs. All warrants are exercisable at any time before January 26,
2029, subject to certain limitations and exceptions. The weighted average exercise price of the warrants is $1.26 per ADS, which is above the current market price of the ADSs, which was $0.53 per share based on the closing price
of the ADS on Nasdaq on February 8, 2024. The likelihood that the holders of our warrants will exercise their warrants, and the amount of any cash proceeds that we would receive upon such exercise, is dependent upon the market
price of the ADSs. However, there is no guarantee that our outstanding warrants will be in the money prior to their respective expirations, and as such, they may expire worthless.
Future substantial issuance or sale of the ADSs or of securities exercisable, convertible or exchangeable into ADSs, or the perception that such sales may occur in
the future, including sales of ADSs issuable upon vesting of RSUs and the exercise of options, warrants or other equity-based securities, may cause the market price of the ADSs to decline. To the extent that our outstanding
options or warrants are exercised, additional shares of the ADSs will be issued, which will result in dilution to the holders of the ADSs and increase the number of shares of the ADSs eligible for resale in the public market.
Sales of substantial numbers of such shares in the public market or the fact that such outstanding options and warrants may be exercised may cause the market price of the ADSs to decline.
The market price of the ADSs is subject to fluctuation, which could result in substantial losses by our investors. Volatility
in the financial market could have a material adverse impact on the market price of the ADSs. This may affect the ability of our investors to sell their ADSs, and the value of an investment in the ADSs may decline.
The stock market in general and the market price of the ADSs on the Nasdaq, in particular, are subject to fluctuation, and changes in the price of our securities
may be unrelated to our operating performance. The market price of the ADSs on the Nasdaq has fluctuated in the past, and we expect they will continue to do so. The market price of the ADSs is and will be subject to a number of
factors, including but not limited to:
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our ability to execute our business plan, including commercialization of our current and future commercial products;
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our ability to satisfy our contractual obligations, including our financial obligations associated with our sale of Movantik®;
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our continued listing on the Nasdaq Capital Market or another securities exchange;
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announcements of technological innovations or new therapeutic candidates or new products approved for marketing by us or others;
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announcements by us of significant acquisitions, strategic partnerships, in-licensing, out-licensing, joint ventures or capital commitments;
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expiration or terminations of licenses, research contracts or other commercialization or development agreements;
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public concern as to the safety of drugs we, our commercialization or development partners or others market or develop;
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the volatility of market prices for shares of biopharmaceutical companies generally;
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success or failure of research and development projects;
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departure of or major events adversely affecting key personnel;
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developments concerning intellectual property rights or regulatory approvals;
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variations in our and our competitors’ results of operations;
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changes in earnings estimates or recommendations by securities analysts, if the ADSs are covered by analysts;
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changes in government regulations or patent proceedings and decisions;
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developments by our development or commercialization partners; and
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general market conditions, geopolitical conditions and other factors, including factors unrelated to our operating performance.
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These factors and any corresponding price fluctuations may materially and adversely affect the market price of the ADSs and result in substantial losses by our
investors.
Additionally, market prices for securities of biotechnology and pharmaceutical companies historically have been very volatile. The market for these securities has
from time to time, experienced significant price and volume fluctuations for reasons unrelated to the operating performance of any one company. The COVID-19 pandemic resulted in significant financial market volatility and
uncertainty. A resurgence of the levels of market disruption and volatility seen in the recent past could have an adverse effect on our ability to access capital, on our business, results of operations and financial condition, and
on the market price of the ADSs. In the past, following periods of market volatility, shareholders have often instituted securities class action litigation and derivative actions. If we were involved in securities or other
litigation, it could have a substantial cost and divert resources and attention of management from our business, even if we are successful.
We incur significant costs as a result of the listing of the ADSs on the Nasdaq, and we may need to devote substantial time
and resources to new and current compliance initiatives and reporting requirements.
As a public company in the U.S., we incur significant accounting, legal and other expenses as a result of the listing of our securities on the Nasdaq. These include costs associated
with the reporting requirements of the SEC and the requirements of the Nasdaq Listing Rules, as well as requirements under Section 404 and other provisions of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). These rules
and regulations have increased our legal and financial compliance costs, introduced new costs such as investor relations, travel costs, stock exchange listing fees, and shareholder reporting, and made some activities more
time-consuming and costly. Any future changes in the laws and regulations affecting public companies in the U.S. and Israel, including Section 404 and other provisions of the Sarbanes-Oxley Act, the rules and regulations adopted by
the SEC and the Nasdaq Listing Rules, as well as applicable Israeli reporting requirements, may result in an increase to our costs as we respond to such changes. These laws, rules, and regulations could make it more difficult and
costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or
similar coverage. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers and may require us
to pay more for such positions.
USE OF PROCEEDS
We will not receive any proceeds from the sale by the selling shareholders of the Offered ADSs issued or issuable upon exercise of the Warrants. All net proceeds from the sale of the
Offered ADSs covered by this prospectus will go to the selling shareholders.
We may receive proceeds from the exercise of the Warrants to the extent that these Warrants are exercised for cash. If all of the Warrants to
purchase 10,600,000 ADSs are exercised for cash in full, the proceeds would be approximately $10,600,000.
We intend to use the proceeds from the exercise of the Warrants for cash, if any, for working capital, research and development and general corporate purposes.
CAPITALIZATION AND INDEBTEDNESS
The following table sets forth our total capitalization as of June 30, 2023:
• on an actual basis; and
• on a pro forma basis, after giving effect to (i)
the sale of 1,084,923 ADSs and pre-funded warrants (the “July 2023 Pre-funded Warrants”) to purchase up to 217,000 ADSs in the registered direct offering consummated in July 2023 (the “July 2023 Offering”), giving effect to the
subsequent exercise in full of the July 2023 Pre-funded Warrants for aggregate cash consideration of $217 and the receipt of the net proceeds of approximately $1.4 million from the July 2023 Offering, after deducting placement
agent fees and expenses payable by us, (ii) the Warrant Amendment Agreements, dated July 21, 2023, between us and the investors signatory thereto, entered into in connection with the July 2023 Offering, reducing the exercise
price of the warrants issued on May 11, 2022 (as amended, the “May 2022 Warrants”), warrants issued on December 6, 2022 (as amended, the “December 2022 Warrants”), and warrants issued on April 3, 2023 (as amended, the “Class B
Warrants”), to $1.80 per ADS, (iii) the exercise of the Class A warrants issued in April 2023 to purchase an aggregate of 1,500,000 ADSs at a reduced exercise price of $1.35 per ADS in July 2023 and issuance of the warrants
issued on July 25, 2023 (the “July 2023 Warrant Exercise Transaction”), after deducting placement agent fees and expenses payable by us, , (iv) the issuance of warrants to purchase up to 78,115 ADSs issued to the Placement Agent
as part of the compensation to the Placement Agent in connection with the July 2023 Offering (the “July 2023 Placement Agent Warrants”), (v) the issuance of warrants to purchase up to 90,000 ADSs issued to the Placement Agent
as part of the compensation to the Placement Agent in connection with the July 2023 Warrant Exercise Transaction (the “July 2023 Placement Agent Exercise Warrants”), (vi) the exercise of certain of the May 2022 Warrants, the
December 2022 Warrants and the Class B Warrants in September 2023 in connection with a warrant reprice and reload letter, dated as of September 28, 2023, and the receipt of net proceeds of approximately $1.8 million (the
“September 2023 Warrant Exercise Transaction”) from the exercise of the May 2022 Warrants, the December 2022 Warrants and the Class B Warrants at a reduced exercise price of $0.47 per ADS for cash, after deducting placement
agent fees and expenses payable by us, and the issuance of new unregistered warrants to purchase up to an aggregate of 8,603,846 ADSs to the exercising holders in the September 2023 Warrant Exercise Transaction (the “September
2023 Warrants”), and the issuance of warrants to purchase up to an aggregate of 258,115 ADSs issued to the Placement Agent as part of the compensation in connection with the September 2023 Warrant Exercise Transaction; (vii)
the exercise in full of the September 2023 Warrants in November 2023 and the receipt of aggregate net proceeds of approximately $4.0 million; (viii) the sale of 10,000,000 ADSs and the Warrants to purchase up to 10,000,000 ADSs
in connection with the January 2024 Offering, and the receipt of the net proceeds of approximately $7.1 million from the January 2024 Offering, after deducting placement agent fees and expenses payable by us and (ix) the
issuance of warrants to purchase up to 600,000 ADSs issued to the Placement Agent’s designees as partial compensation to the Placement Agent in connection with the January 2024 Offering (the “January 2024 Placement Agent
Warrants”) (collectively, the “Pro Forma Adjustments”).
The information set forth in the following table should be read in conjunction with and is qualified in its entirety by reference to the audited and
unaudited financial statements and notes thereto included in this prospectus as well as the description of the use of proceeds set forth in the section entitled “Use of Proceeds” in this prospectus.
(In thousands, except share data)
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Actual
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Pro Forma
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Total debt(1)
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$ |
31,566 |
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$ |
40,580 |
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Ordinary shares, par value NIS 0.01 per share
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4,620
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32,226
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Additional paid-in capital
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380,860
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377,818
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Accumulated deficit
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382,009
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399,352
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Total shareholders' equity
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$ |
3,471 |
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$ |
10,692 |
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Total capitalization and indebtedness
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$ |
35,037 |
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$ |
51,272 |
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(1)
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Includes $28.2 million reported as current liabilities, which mainly consist of allowance for deductions from revenue and accrued expenses and account payable, and $3.4 million reported as
non-current liabilities, which mainly consist of lease liabilities and derivative financial instruments. The warrants granted in the registered direct offering and concurrent private placement of warrants consummated
in May 2022, the underwritten offering consummated in December 2022, the registered direct offering consummated in March 2023, the July 2023 Offering, the July 2023 Warrant Exercise Transaction, the September 2023
Warrant Exercise Transaction and in a concurrent private placement and the Warrants were classified as a financial liability due to a net settlement provision. Therefore, some of the proceeds of the issuances were
classified as derivative financial instruments and increased the total debt accordingly.
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The above discussion and table are based on 1,576,783,694 Ordinary Shares outstanding as of June 30, 2023. As of June 30, 2023, prior to giving effect to the Pro Forma Adjustments
and this offering, we had (i) 44,061,600 Ordinary Shares issuable upon the exercise of outstanding options to purchase Ordinary Shares at a weighted average exercise price of $0.63 per share (equivalent to 110,154 ADSs at a weighted
average exercise price of $252.45 per ADS); (ii) 2,059,112,250 Ordinary Shares issuable upon the exercise of outstanding warrants to purchase Ordinary Shares at a weighted average exercise price of $0.01 per share (equivalent to
5,147,781 ADSs at a weighted average exercise price of $4.50 per ADS), and (iii) 47,837 outstanding RSUs, each RSU representing one ADS.
DIVIDEND POLICY
We have never declared or paid any cash dividends to our shareholders. We currently anticipate that we will retain future earnings for the development, operation and expansion of our
business and do not anticipate declaring or paying any cash dividends for the foreseeable future.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto
included elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the
forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly those in the section entitled “Risk Factors.”
Company Overview
We are a specialty biopharmaceutical company, primarily focused on GI and infectious diseases. Our primary goal is to become a leading specialty biopharmaceutical company.
We are currently focused primarily on the advancement of our development pipeline of clinical-stage therapeutic candidates. We also commercialize in the U.S. GI-related products,
Talicia® (omeprazole, amoxicillin, and rifabutin) and Aemcolo® (rifamycin) and continue to explore our strategic plans for such products and activities.
Among the therapeutic candidates, we are exploring opaganib is being as a potential treatment for various conditions, including GI-ARS, COVID-19 and other viruses
as part of pandemic preparedness, such as the Ebola virus. Inflammatory conditions and solid tumors are additional areas of focus for opaganib. Furthermore, we are investigating RHB-107 (upamostat) as a potential treatment for
COVID-19 and other viruses as part of pandemic preparedness, including the Ebola virus.
Our current pipeline consists of five therapeutic candidates, most of which are in clinical development. We generate our pipeline of therapeutic candidates by identifying, validating
and in-licensing or acquiring products that are consistent with our product and corporate strategy and that have the potential to exhibit a favorable probability of therapeutic and commercial success. We have one product that we
primarily developed internally which has been approved for marketing and, to date, none of our other therapeutic candidates has generated revenues. We have out-licensed one of our commercial products, Talicia® for specific territories outside the U.S. and we plan to commercialize our therapeutic candidates, upon approval, if any, through licensing and other
commercialization arrangements with pharmaceutical companies on a global and territorial basis or independently with a dedicated commercial operations or in potential partnership with other commercial-stage companies. We also
evaluate, on a case-by-case basis, co-development, co-promotion, licensing, acquisitions and similar arrangements.
Since inception, we have funded our operations primarily through public and private offerings of our equity securities, loans and revenues from our commercial activity. As of
December 31, 2022, and June 30, 2023, we had approximately $36.1 million and $16.3 million, respectively, of cash, cash equivalents, short-term investments and restricted cash.
Sale of Rights in Movantik® and Extinguishment of our Debt Obligations under the
Credit Agreement with HCRM
On February 23, 2020, we, through RedHill U.S., entered into a credit agreement (the “Credit Agreement”) with HCRM, and the lenders from time to time party thereto.
Pursuant to the terms of the Credit Agreement, RedHill U.S. received a $30 million loan following the signing of the Credit Agreement. An additional $50 million tranche was used to fund the acquisition of rights to Movantik® from AstraZeneca. On February 2, 2023, we sold our rights in Movantik®
to an affiliate of HCRM and in connection therewith our debt obligations under the Credit Agreement were extinguished. In connection with this sale, RedHill U.S. retained substantially all pre-closing liabilities relating to
Movantik, and $16 million of our cash was deposited into the escrow account to pay pre-closing liabilities related to Movantik®.
Following the sale of our rights to Movantik, we lost our primary revenue source, and our ability to operate as a financially viable commercial business became significantly more
difficult. We are working to replace Movantik® with another commercial product, either internal or external, but this may not occur, and we may never
achieve levels of revenue we have achieved through Movantik. We also lost economies of scale in our commercial operations that we were able to benefit from by having Movantik® as a core commercial product.
In addition, in connection with the sale of Movantik®, the obligation to pay indemnification
obligations and scheduled pre-closing liabilities are Movantik are secured by a lien on Talicia® and Aemcolo®-related assets. If we are not able to satisfy such payment obligations, and HCRM forecloses on these assets, we will lose our remaining source of revenue, assuming we are not able to
replace Movantik® with another commercial product.
Our financial statements include a going concern reference. We will need to raise significant additional capital to finance our losses and negative cash flows from operations, and
if we were to fail to raise sufficient capital or on favorable terms and/or replace Movantik® with another commercial product on a timely basis and/or
divest assets on favorable terms or at all, we may need to cease operations. Management has substantial doubt about our ability to continue as a going concern.
Description of our Products
The following is a description of our three current commercial products and five therapeutic candidates, most of which are in clinical development:
Commercial Products
Talicia® is a proprietary new drug approved for marketing in the U.S. for the treatment of H. pylori bacterial infection in adults. Talicia® is a combination of three approved drugs, omeprazole, which is a
proton pump inhibitor (prevents the secretion of hydrogen ions necessary for the digestion of food in the stomach), amoxicillin and rifabutin, which are antibiotics. Talicia® is administered to patients orally. On November 1, 2019, the FDA approved Talicia® for marketing in the U.S. for the
treatment of H. pylori infection in adults and we launched Talicia® in the U.S. in March 2020. Talicia® is expected to receive a total of eight years of U.S. market exclusivity. Talicia® is the first therapeutic candidate we developed to be approved by the FDA.
Aemcolo® (containing 194 mg of rifamycin), is an orally-administered, minimally absorbed antibiotic
that is delivered to the colon, approved by the FDA in 2018 for the treatment of travelers’ diarrhea caused by non-invasive strains of E. coli in adults. We acquired the rights to market
Aemcolo® in the U.S. from Cosmo pursuant to a license agreement under which we agreed to pay Cosmo a royalty percentage in the high twenties on net
sales generated from the commercialization of Aemcolo® as well as potential regulatory and commercial milestone payments to Cosmo totaling up to $100.0
million, which, based on our current expectations and assumptions, are not currently expected to be made in the next 12 months.
In December 2019, we commenced the commercialization of Aemcolo® in certain territories in the U.S.
Therapeutic Candidates
RHB‑204 is a patented fixed-dose combination product of three antibiotics that will simplify administration and optimize compliance. Each capsule contains the same
components as RHB‑104 (clarithromycin, clofazimine, and rifabutin) but at unique doses, selected based on modeling to provide optimal balance of the potential safety and efficacy in the treatment of NTM infection.
Opaganib is an investigational new drug that is proprietary, first-in-class, orally administered SK2 selective inhibitor, with anti-viral, anti-inflammatory and
anti-cancer activities, targeting multiple oncology, inflammatory and GI indications and also targeting pandemic preparedness and GI-ARS (with a U.S. government collaborations). On March 30,
2015, we entered into an exclusive worldwide license agreement with Apogee, pursuant to which Apogee granted us the exclusive worldwide development and commercialization rights to ABC294640 (which we then renamed to ABC294640
(Yeliva®)) and as noted above, received an international non-proprietary name, opaganib, in 2018) and additional intellectual property for all
indications. Under the terms of the agreement, as amended, we agreed to pay Apogee initial milestone payments of $3 million, of which the total amount has been paid, as well as up to $2 million in potential development milestone
payments, and tiered royalties starting in the low double-digits. For more information regarding this agreement, see “Business – Business Overview – Acquisition, Commercialization and License Agreements – License Agreement for
opaganib.” In March 2022, we entered into the Exclusive License Agreement with Kukbo for opaganib in South Korea. Under the terms of the Exclusive License Agreement, Kukbo was required to pay an upfront payment of $1.5 million,
and we are also eligible for milestone payments and royalties on net sales of oral opaganib. See “Business – Business Overview – Acquisition, Commercialization and License Agreements–- License Agreement with Kukbo” and “Legal
Proceedings”.
RHB‑107 (upamostat; formerly Mesupron) (INN: upamostat) is a proprietary small molecule, first-in-class, potent serine protease inhibitor administered by oral capsule. RHB-107
(upamostat) is being investigated as a potential treatment for COVID-19 outpatients and other viruses as part of pandemic preparedness, including the Ebola virus. Additional indications in the area of inflammatory digestive diseases
and inflammatory lung diseases could be targeted. On June 30, 2014, we acquired from Heidelberg the exclusive development and commercialization rights to RHB‑107, excluding China, Hong Kong, Taiwan, and Macao, for all indications.
We made an upfront payment to Heidelberg of $1.0 million with potential tiered royalties on net revenues, ranging from mid-teens up to 30%. We are responsible for all development, regulatory and commercialization of RHB‑107. See
“Business – Business Overview – Acquisition, Commercialization and License Agreements – License Agreement for RHB‑107.”
RHB-104 is an investigational new drug intended to treat Crohn’s disease, which is a serious inflammatory disease of the GI system that may cause severe
abdominal pain and bloody diarrhea, malnutrition and potentially life-threatening complications. RHB-104 is a patented combination of clarithromycin, clofazimine, and rifabutin, three generic antibiotic ingredients, in a single
capsule. The compound was developed to treat Crohn’s disease through the targeting of MAP infection.
RHB-102 (Bekinda®) is an investigational once-daily bi-modal extended-release oral formulation of
ondansetron, a leading member of the family of 5-HT3 serotonin receptor inhibitors, intended to treat nausea, vomiting and diarrhea symptoms experienced in some people suffering from acute gastroenteritis, gastritis, and IBS-D.
Components of Statements of Comprehensive Income (Loss)
Revenues
Revenues are with respect to commercialization and licensing of our commercial products.
Cost of Revenues
Direct costs related to the revenues, such as cost of goods sold and royalties to third parties. Additionally, includes intangible assets amortization and impairment.
Research and Development Expenses
See “ – Research and Development, Patents and Licenses” below.
General and Administrative Expenses
General and administrative expenses consist primarily of compensation for employees, directors and consultants and professional services. Other significant general and administrative
expenses include medical affairs, office-related expenses, travel, conferences, and others.
Selling, Marketing and Business Development Expenses
Selling, Marketing and Business Development expenses consist primarily of compensation for employees and consultants dedicated to marketing activities with the Company’s
commercialized and promoted products and professional services. Other significant selling, marketing and business development expenses include market research, market access, advertising, printed and digital media, product samples,
car fleet, travel, conferences, office-related expenses, and others.
Financial Income and Expenses
Financial income and expenses consist of non-cash financing expenses in connection with changes in the fair value of derivative financial instruments, interest earned on our cash,
cash equivalents, and short-term bank deposits, bank fees, interest, and finance changes for lease liabilities and other transactional costs and expense or income resulting from fluctuations of the U.S. dollar against other
currencies, in which a portion of our assets and liabilities are denominated like NIS, for example. In addition, as it relates to the extinguishment of all debt obligations of RedHill Inc. under the Credit Agreement in exchange for
the transfer of its rights in Movantik®, the portion of the gain from the debt extinguishment, resulting from the difference between the carrying amount (the amortized cost) of the financial liability to HCRM and the fair value of
the assets transferred, is included within financial income.
Other income
Incorporates the portion of the gain from the sale of Movantik® resulting from the difference between the carrying value and fair value of the assets transferred to HCRM.
Additionally, includes service fees relating to transition services provided as part of the sale of Movantik®.
Operating Results
History of Losses
Since inception in 2009, we have generated significant losses in connection with the research and development of our therapeutic candidates and from our commercial
operations. We may continue to incur additional losses as we continue our commercial activities and expand our research and development activities over time. As a result, we expect to continue incurring operating losses, which may
be substantial over the next several years, and we will need to obtain substantial additional funds. As of December 31, 2022, and June 30, 2023, we had an accumulated deficit of approximately $433.9 million and $382.0 million,
respectively.
We expect to continue to fund our operations over the next several years through revenues generated from the commercialization of our commercial products, public or private equity
offerings, debt financings, non-dilutive financings, including government grants, commercialization of our therapeutic candidates, if approved, or products we may commercialize or promote in the future. Concurrently, we are actively
engaged in discussions to explore potential divestment of certain Company assets.
Going Concern
Our consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal
course of business. During 2022, our net cash used in operating activities was $29.2 million leaving a cash balance of $36.1 million, including $16.0 million of restricted cash under the Credit Agreement as of December 31, 2022.
During the six months ended June 30, 2023, our net cash used in operating activities was $17.8 million leaving a cash balance of $16.3 million, including $9.1 million of restricted cash under the Credit Agreement, as of June 30,
2023. Because we do not have sufficient resources to fund our operations for the next twelve months from the date of this prospectus, management has substantial doubt of our ability to continue as a going concern. Our operational
costs include the payment of substantially all pre-closing liabilities relating to Movantik, which our subsidiary, RedHill U.S., retained under our agreement with HCRM for the extinguishment of all our debt obligations under the
Credit Agreement in exchange for the transfer of our rights in Movantik® to an affiliate of HCRM. See “ –Liquidity and Capital Resources – Term Loan Facility”. The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should we be unable to continue as a going concern.
Following the sale of our rights to Movantik, we lost our primary revenue source. Substantially all of our operating losses result from expenses incurred in connection with our
commercial activities and from general and administrative costs associated with our R&D operations.
We will need to raise significant additional capital to finance our losses and negative cash flows from operations, and if we were to fail to raise sufficient capital or on favorable
terms, we may need to cease operations. There are no assurances that we will be able to raise significant additional capital on terms favorable to us or at all, particularly given the current difficult conditions in the capital
markets and low market capitalization which makes it more difficult to raise significant amounts of capital. In addition, following the sale of our rights to Movantik®, we lost our primary revenue source and our ability to operate
as a financially viable commercial business has been significantly more difficult. If we are unsuccessful in achieving sufficient commercial sales of our products, including replacing Movantik® with another commercial product on a
timely basis, or in raising sufficient capital, we will need to reduce activities and curtail or cease operations.
Segment Information
The Chief Executive Officer is the Company’s Chief Operating Decision Maker (“CODM”). The CODM allocates resources and assesses the Company’s performance based on the following
segmentation: Commercial Operations and Research & Development, both on an Adjusted EBITDA basis. The Commercial Operations segment covers all areas relating to the commercial sales and is being performed by the Company’s U.S.
subsidiary. The Research and Development segment includes all activities related of research and development and licensing of therapeutic candidates and is being performed by the Company.
The Company reports on revenue and segment Adjusted EBITDA. The CODM does not review assets by operating segment. Adjusted EBITDA represents net loss before depreciation,
amortization, and financial (expenses( income, adjusted to exclude share-based compensation, gains from early termination of leases and income from transition services provided to HCRM and gain from the sale of Movantik® presented
as other income. The following table presents segment profitability and a reconciliation to the consolidated net loss and comprehensive loss for the periods indicated:
| |
|
Six Months Ended June 30,
|
|
| |
|
2023
|
|
|
2022
|
|
| |
|
U.S. dollars in thousands
|
|
|
Commercial Operations Segment Adjusted EBITDA
|
|
|
(11,031
|
)
|
|
|
(12,190
|
)
|
|
Research And Development Adjusted EBITDA
|
|
|
(5,550
|
)
|
|
|
(6,620
|
)
|
|
Financial income (expenses), net
|
|
|
26,330
|
|
|
|
(6,451
|
)
|
|
Share-based compensation to employees and service providers
|
|
|
(849
|
)
|
|
|
(2,924
|
)
|
|
Depreciation
|
|
|
(1,055
|
)
|
|
|
(1,154
|
)
|
|
Amortization and impairment of intangible assets
|
|
|
(530
|
)
|
|
|
(2,900
|
)
|
|
Gain from early termination of leases
|
|
|
694
|
|
|
|
—
|
|
|
Other income
|
|
|
42,993
|
|
|
|
—
|
|
|
Consolidated Comprehensive income (loss)
|
|
|
51,002
|
|
|
|
(32,239
|
)
|
| |
|
Year Ended December 31,
|
|
| |
|
2022
|
|
|
2021
|
|
|
2020
|
|
| |
|
U.S. dollars in thousands
|
|
|
Commercial Operations Segment Adjusted EBITDA
|
|
|
(16,595
|
)
|
|
|
(15,527
|
)
|
|
|
(27,236
|
)
|
|
Research And Development Adjusted EBITDA
|
|
|
(12,420
|
)
|
|
|
(37,247
|
)
|
|
|
(23,501
|
)
|
|
Financial expenses, net
|
|
|
(28,825
|
)
|
|
|
(16,609
|
)
|
|
|
(12,489
|
)
|
|
Share-based compensation to employees and service providers
|
|
|
(5,675
|
)
|
|
|
(10,212
|
)
|
|
|
(4,202
|
)
|
|
Depreciation
|
|
|
(2,136
|
)
|
|
|
(1,914
|
)
|
|
|
(1,710
|
)
|
|
Amortization and impairment of intangible assets
|
|
|
(6,018
|
)
|
|
|
(16,235
|
)
|
|
|
(7,035
|
)
|
|
Consolidated Comprehensive loss
|
|
|
(71,669
|
)
|
|
|
(97,744
|
)
|
|
|
(76,173
|
)
|
Except for $2 million licensing revenues reported in the six months ended June 30, 2022, which are allocated to the Research and Development segment, all of the Company’s revenues
are allocated to the Commercial Operations segment.
Comparison of the Six Months Ended June 30, 2023, to the Six Months Ended June 30, 2022
Net Revenues
Net revenues for the six months ended June 30, 2023, were $5.4 million, compared to $31.5 million for the six months ended June 30, 2022. The
decrease was primarily attributable to the divestiture of Movantik, resulting in the discontinuation of revenue recognition from this product starting from February 2, 2023. Talicia net revenues for the six months ended June 30,
2023, were $5.1 million, as compared to $4 million for the six months ended June 30, 2022, primarily due to an increase of 10% in units sold.
Cost of Revenues
Cost of Revenues for the six months ended June 30, 2023, was $2.4 million, compared to $15.3 million for the six months ended June 30, 2022. This
decrease was primarily attributable to the divestiture of Movantik. As a result of this divestiture, both the recognition of revenues and the associated cost of revenues for this product were discontinued starting from February 2,
2023. Additionally, the amortization of the intangible asset related to Movantik was also discontinued as of that date.
Gross Profit
Gross Profit for the six months ended June 30, 2023, was $3 million, compared to $16.2 million for the six months ended June 30, 2022, in line with
the decrease in Net Revenues and Cost of Revenues as explained above and primarily attributable to the divestiture of Movantik.
Research and Development Expenses
Research and Development Expenses for the six months ended June 30, 2023, were $2.3 million, compared to $4.5 million for the six months ended June
30, 2022. The decrease is attributable to completion of clinical trials related to COVID-19 and ongoing cost-reduction measures.
Selling, Marketing and General and Administrative Expenses
Selling, Marketing, and General and Administrative Expenses for the six months ended June 30, 2023, were $19 million, compared to $37.4 million for
the six months ended June 30, 2022. The difference was primarily attributable to the ongoing cost-reduction measures.
Other Income for the six months ended June 30, 2023, was $43 million, compared to no other income recognized for the six months ended June 30, 2022. The other income
was comprised of (i) $35.5 million from the divestiture of Movantik, calculated as the difference between the fair value of the rights and the carrying amount of this asset; and (ii) $7.5 million from transitional services
provided to the buyer of Movantik
Operating Income
Operating Income for the six months ended June 30, 2023, was $24.7 million, compared to an operating loss of $25.8 million for the six months ended
June 30, 2022, primarily attributable to the changes resulting from the divestiture of Movantik, as detailed above.
Financial Income, net
Financial Income, net, for the six months ended June 30, 2023, was $26.3 million, compared to Financial Expenses, net of $6.5 million for the six
months ended June 30, 2022. The income recognized in the six months ended June 30, 2023, was primarily attributable to gain resulting from the extinguishment of the HCRM debt in exchange for the transfer of rights to Movantik,
calculated as the difference between the carrying amount of the financial liability and the fair value of the rights transferred.
Net Income
Net Income for the six months ended June 30, 2023, was $51 million, compared to Net Loss of $32.2 million for the six months ended June 30, 2022, primarily
attributable to the changes resulting from the sale of Movantik, as detailed above.
Total Assets
Total Assets as of June 30, 2023, were $35 million, compared to $158.9 million as of December 31, 2022. The decrease was primarily attributable to the divestiture of Movantik, resulting in the
transfer of the rights to Movantik, as well as to a significant decrease in the Trade Receivables balance (attributed to the fact that the receivables as of December 31, 2022, were primarily associated with Movantik).
Total Liabilities
Total Liabilities as of June 30, 2023, were $31.6 million ,compared to $207.3 million as of December 31, 2022. The decrease was primarily attributable to the
extinguishment of HCR debt in exchange for the transfer of Movantik rights, assumption of certain liabilities by HCR, and payments made towards pre-closing liabilities related to Movantik. Remaining pre-closing liabilities related
to Movantik as of June 30, 2023, are estimated at $14.9 million.
Comparison of the Year Ended December 31, 2022, to the Year Ended December 31, 2021
Net Revenues
Net Revenues for the year ended December 31, 2022, were $61.8 million, compared to $85.8 million for the year ended December 31, 2021. The
difference is attributable to an increase in units sold, along with greater increased gross-to-net allowances mainly related to Movantik®.
Cost of Revenues
Cost of Revenues for the year ended December 31, 2022, was $33.3 million, compared to $49.4 million for the year ended December 31, 2021.
The decrease is mainly attributable to the implementation of cost reduction measures and goes hand-in-hand with the reduction in revenues.
Gross Profit
Gross Profit for the year ended December 31, 2022, was $28.5 million, compared to $36.4 million for the year ended December 31, 2021. The
difference is mostly attributable to a $9 million impairment related to Aemcolo recognized in 2021 and in line with the difference in net revenues.
Research and Development Expenses
Research and Development Expenses were $7.3 million for the year ended December 31, 2022, compared to $29.5 million for the year ended December 31, 2021. The
difference is attributable to the ongoing optimization of R&D costs and completion of components of the opaganib and RHB-107 development programs.
Selling, Marketing and General and Administrative Expenses
Selling, Marketing and General and Administrative Expenses for the year ended December 31, 2022, were $64.0 million,
compared to $88.0 million for the year ended December 31, 2021. The difference is mainly attributable to various cost-control measures implemented during the period.
Operating Loss
Operating Loss for the year ended December 31, 2022, was $42.8 million, compared to $81.1 million for the year ended December 31, 2021. The
difference is primarily attributable to a reduction in operating expenses.
Financial Expenses, net
Financial Expenses, net for the 12 months ended December 31, 2022, was $28.8 million, compared to Financial Expenses, net of $16.6 million for 12 months ended December 31, 2021. The
increase was mainly attributed to an adjustment in the carrying amount of the borrowings under the Credit Agreement to reflect all amounts owing or payable under the Credit Agreement as being immediately due.
Liquidity and Capital Resources
Since inception, we have funded our operations primarily through public and private offerings of our equity securities, loans and revenues from our commercial activity. Other
potential sources of liquidity in the future may include government grants or subordinated indebtedness, other non-dilutive financings, or divestment of certain Company assets. As of December 31, 2022, and June 30, 2023, we had
approximately $36.1 million and $16.3 million, respectively, of cash, cash equivalents, short-term investments and restricted cash.
Through our U.S. subsidiary, we currently commercialize Talicia® and Aemcolo®. However, our ability to generate profits from the commercialization of our commercial products still remains uncertain. To date, our commercial
operations are still generating operational losses. Other than Talicia®, our therapeutic candidates are in research and development stage, and therefore
do not yet generate revenues.
Until its sale to HCRM on February 2, 2023, we also commercialized Movantik® (naloxegol). Following
this sale, we have lost our primary revenue source which will make it more difficult for us to satisfy our payment obligations. In addition, if we are not able to satisfy our payment obligations to HCRM incurred in connection with
the sale of Movantik®, and HCRM forecloses on the lien on Talicia® and Aemcolo®-related assets, which currently secure these payment obligations, we
will lose our remaining source of revenue, assuming we are not able to replace Movantik® with another commercial product. See “- Sale of Rights in
Movantik® and Extinguishment of our Debt Obligations under the Credit Agreement with HCRM”.
Financing Activities
On January 26, 2024, we issued (i) in a registered direct offering 10,000,000 ADSs at a purchase price of $0.80 per ADS and (ii) in a concurrent private offering,
warrants to acquire 10,000,000 ADSs in the aggregate at an exercise price of $1.00 per ADS (the “January 2024 Warrants”). The gross proceeds were approximately $8 million, before fees and expenses. The January 2024 Warrants are
exercisable immediately after the issuance date and have a term of five years. After the mentioned offerings and the November 2023 warrants’ exercise described below, as of January 31, 2024, the Company’s share capital included
29,703,027 ADSs, the January 2024 Warrants, December 2022 Warrants to purchase 755,861 ADSs (as defined below), and placement agent warrants to purchase 1,116,230 ADSs. These placement agent warrants have exercise prices ranging
from $0.5875 per ADS to $5 per ADS and expire between April 3, 2028, and January 25, 2029. These warrants were issued to the placement agent as part of the compensation for the offerings conducted in April, July, and September
2023, as well as January 2024.
Between November 27, 2023, and November 29, 2023, the September 2023 Reload Warrants (as defined below) were exercised for a total of approximately $4 million gross proceeds to the
Company.
On September 28, 2023, we entered into a warrant reprice and reload letter with holders of (i) the May 2022 Warrants (as defined below), as amended as described below, (ii) the
December 2022 Warrants (as defined below), as amended as described below, (iii) warrants issued on April 3, 2023 (as amended, the “Class B Warrants”), and (iv) warrants issued on July 25, 2023 (the “July 2023 Warrants”, and together
with the May 2022 Warrants, the December 2022 Warrants and the Class B Warrants, the “Existing Warrants”) to purchase up to an aggregate of 4,301,923 ADSs, pursuant to which such investors agreed to exercise their Existing Warrants
in full at a reduced exercise price of $0.47 per ADS for aggregate gross proceeds of approximately $2.0 million, before deducting the fees and expenses. In exchange, the exercising holders received new unregistered warrants to
purchase up to an aggregate of 8,603,846 ADSs (the “September 2023 Reload Warrants”) at an exercise price of $0.47 per ADS and with exercise terms ranging from eighteen months to five years.
On July 25, 2023, we issued in a registered direct offering 1,084,923 ADSs and pre-funded warrants to purchase 217,000 ADSs for aggregate gross proceeds to us, together with the proceeds of the
concurrent Reload Agreement described below, of approximately $3.8 million, before deducting fees and expenses. In connection with the offering, on July 21, 2023, we entered into a warrant reprice and reload letter (the “Reload
Agreement”) with a certain holder of Series A Warrants to purchase up to an aggregate of 1,500,000 ADSs and Series B Warrants to purchase up to an aggregate of 1,500,000 ADSs, each issued in April 2023, pursuant to which: (i)
such holder exercised its Series A Warrants in full at a reduced exercise price of $1.35 per ADS (the “Series A Warrant Exercise”) in exchange for new unregistered warrants to purchase up to an aggregate of 1,500,000 ADSs at an
exercise price of $1.80 per ADS exercisable until April 3, 2028 (the “Reload Warrant”), and (ii) the exercise price of the Series B Warrants was reduced to $1.80 per ADS. We also agreed to reduce the exercise price of (i) the
May 2022 Warrants (as defined below), as amended as described below, and (ii) the December 2022 Warrants (defined below) to purchase up to an aggregate of 971,817 ADSs, at an exercise price of $1.80 per ADS (the “Warrant
Amendment”).
On April 3, 2023, we issued in a registered direct offering (i) 270,000 ADSs and pre-funded warrants to purchase 1,230,000 ADSs, (ii) Series A Warrants to purchase up to an aggregate of 1,500,000
ADSs, and (iii) Series B Warrants to purchase up to an aggregate of 1,500,000 ADSs at a combined offering price of $4.00 per ADS (or pre-funded warrant) and accompanying Series A Warrant and Series B Warrant. The Series A
Warrants had an initial exercise price of $4.75 per ADS (subsequently reduced to $1.35 per ADS as described above), were exercisable immediately and had a term of five years following issuance. The Series B Warrants had an
initial exercise price of $4.00 per ADS (subsequently reduced to $1.80 as described above), were exercisable immediately and had a term of nine months following issuance. The gross proceeds were approximately $6 million, before
fees and expenses.
In connection with the April 2023 offering, we reduced the exercise price of the May 2022 Warrants (defined below) to $4.75 per ADS and amended the termination date to April 3, 2028
(subsequently amended in July 2023 as described above).
During the year ended December 31, 2023, we sold 2,625 ADSs under the at-the-market (“ATM”) program for total gross proceeds of approximately $20,000, leaving an
available balance under the ATM program of approximately $97.4 million.
During the year ended December 31, 2022, we sold 30,582 ADSs under the ATM program for total gross proceeds of approximately $2.0 million.
On December 6, 2022, we consummated an underwritten offering of 544,375 ADSs and pre-funded warrants to purchase 255,625 ADSs for gross proceeds of approximately $8 million after deducting the
underwriting discounts and commissions and estimated offering expenses payable by us in connection with the offering. In addition, the investors in this financing received warrants to purchase 1,727,678 ADSs with an exercise
price of $4.6305 per ADS (following a reset on March 31, 2023, in connection with the ratio change of the ADSs to the Company’s ordinary shares) (the “December 2022 Warrants”).
On May 11, 2022, we issued (i) in a registered direct offering a total of 126,492 ADSs and pre-funded warrants to purchase 137,592 ADSs and (ii) in a concurrent
private offering, warrants to acquire 330,106 ADSs at a purchase price of $59.20 per ADS (“May 2022 Warrants”). The gross proceeds were approximately $15 million, before fees and expenses. The warrants were exercisable six months
after the issuance date and had a term of five and one-half years.
On November 18, 2021, we consummated an underwritten offering of 117,150 ADSs. The underwriter purchased the ADSs at a price of $128.04 per ADS, for total net proceeds of approximately $14.8 million,
after deducting the underwriting discounts and commissions and estimated offering expenses payable by us in connection with the offering.
On March 4, 2021, we consummated an underwritten offering of 116,185 ADSs at a public offering price of $320.0 per ADS, for total net proceeds of approximately $34.8
million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us in connection with the offering, including the exercise by the underwriter of its overallotment option.
On January 14, 2021, we consummated an underwritten offering of 79,719 ADSs at a public offering price of $313.6 per share, for total net proceeds of approximately
$23.1 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us in connection with the offering.
Term Loan Facility
On February 23, 2020, we, through our wholly-owned subsidiary, RedHill U.S., entered into the Credit Agreement with HCRM, as Administrative Agent, and the lenders
from time to time party thereto. Pursuant to the terms of the Credit Agreement, RedHill U.S. received a $30 million loan following the signing of the Credit Agreement. An additional $50 million tranche was used to fund the
acquisition of rights to Movantik® from AstraZeneca.
The loans under the Credit Agreement (the “Loans”) bore interest at an annual rate equal to the 3-month LIBOR rate plus 8.20% which was to 6.7% starting April 1,
2021, with a 1.75% 3-month LIBOR floor. The principal and interest under the Credit Agreement were payable quarterly in arrears on the last day of each March, June, September, and December (each an “HCRM Payment Date”). The Loans
maturity date was February 23, 2026 (the “Term Loan Maturity Date”), at which time, if not earlier repaid in full, the outstanding principal amount of the Loans, together with any accrued and unpaid interest, was to be due and
payable in cash. Upon the prepayment or repayment of all or any portion of the Loans, RedHill U.S. was to pay to the lenders under the Credit Agreement an exit fee in an amount equal to 4% of the aggregate principal amount of the
Loans prepaid or repaid on such date. Pursuant to the Credit Agreement, HCRM received a royalty of 4% (on up to $75 million of our annual net revenues (the “Revenue Interest”). Payments of Revenue Interest were to be made
quarterly in arrears for nine years, beginning with the first fiscal quarter of 2021.
Pursuant to the terms of the Credit Agreement, on each HCRM Payment Date, beginning with March 2023 (the “Amortization Date”) through and including the Term Loan
Maturity Date, RedHill U.S. was to repay the Loans in equal installments. We were permitted to prepay the Loans at any time under certain terms.
We also entered into a Security Agreement, a Pledge Agreement, an Israeli-law governed Fixed Charge Debenture and an Israeli-law governed Floating Charge Debenture
in favor of HCRM, pursuant to which our obligations under the Credit Agreement (and those of RedHill U.S.) are secured by a pledge of all of our holdings of the capital stock of RedHill U.S., substantially all of the assets of
RedHill U.S., and all of our assets relating in any material respect to Talicia®. Upon closing of the sale of Movantik® to an affiliate of HCRM and the simultaneous extinguishment of debt obligations under the Credit Agreement,
these collateral documents continued in effect were amended to provide HCRM with security interests in (i) the Escrow Account, (ii) Talicia-related assets, (iii) Aemcolo-related assets and (iv) accounts receivable related to
Movantik® accrued as of the Closing (as defined in the APA) to secure “Go-Forward Obligations” consisting of indemnification obligations under the APA and the Credit Agreement and scheduled pre-closing liabilities relating to
Movantik®. The value of such liens and security interests are capped at the value of the scheduled pre-closing liabilities relating to Movantik®, and all such liens and security interests will be fully released upon the first to
occur of (i) the payment of the scheduled pre-closing liabilities related to Movantik® other than certain specified long-dated liabilities and (ii) the first date 90 days after Closing on which RedHill Israel has at least $16.9
million in cash and cash equivalents on hand.
The Credit Agreement contained certain affirmative covenants and certain negative covenants barring us and our subsidiaries from (with limited exceptions) taking certain actions.
On September 13, 2022, we received a notice of events of default and reservation of rights letter (the “Notice”) from HCRM. The Notice asserted that certain events of default
occurred as a result of alleged breaches by RedHill U.S. of its representations and warranties and financial covenants under the Credit Agreement. As a result of the alleged events of default, the Notice provided that the
outstanding obligations under the Credit Agreement bore interest at the default rate prescribed therein and that the lenders may accelerate the obligations under the Credit Agreement.
On September 29, 2022, HCRM exercised its rights under a Deposit Account Control Agreement to take control of RedHill U.S.’s account at PNC Bank, National Association (“PNC”). HCRM
then instructed PNC to wire $16 million (the “Funds”), which is equivalent to the minimum cash required under the Credit Agreement, from the PNC account to an account held by HCRM. HCRM acknowledged that, despite receipt of the
Funds in an account held in HCRM’s name, the Funds remain the property of RedHill U.S. and are held merely as security for RedHill U.S.’s obligations under the Credit Agreement.
On February 2, 2023, we reached an agreement with HCRM for the extinguishment of all our debt obligations (including all principal, interest, revenue interest, prepayment premiums
and exit fees) under the Credit Agreement in exchange for the transfer of our rights in Movantik® to Movantik Acquisition Co., an affiliate of HCRM. HCRM assumed substantially all post-closing liabilities relating to Movantik®, with
RedHill U.S. retaining substantially all pre-closing liabilities relating to Movantik. HCRM retains a lien on Talicia® and Aemcolo®-related assets until substantially all pre-closing liabilities relating to Movantik® have been paid
or other specific conditions are met. The estimated pre-closing liabilities relating to Movantik® as of the closing date of the transaction, and as of
June 30, 2023, are estimated to be approximately $51 million and $14.9 million, respectively. To fulfill this obligation, an escrow account was established. As of June 30, 2023, $9.1 million were held in the escrow account.
Additional Cash Requirements
We are obligated to make various payments upon the achievement of agreed-upon milestones or make certain royalty payments under our in-license agreements with Apogee
with respect to opaganib and with Heidelberg with respect to RHB-107, under our asset purchase agreement with Giaconda Limited with respect to Talicia®, RHB-104, and RHB-106 and under our agreement with UCF or the University of
Minnesota, pursuant to which we are obligated to make various payments upon the achievement of agreed-upon milestones or make certain royalty payments. See “ - Company Overview – Description of Our Products – Therapeutic
Candidates” above. All of our in-licensing agreements are terminable at-will by us upon prior written notice.
In addition, we have future obligations to purchase API, bulk tables and finished goods with respect to Talicia® for an aggregate purchase price of approximately $12.8 million until the end of 2025 in the ordinary course of business. We expect to purchase the inventory in the regular course of business as part of our ongoing
commercialization of Talicia®.
We continue to have negative cash flows from operations, and our ability to generate sufficient revenues for our operations is significantly limited unless we are successful in
replacing Movantik® with another commercial product. We estimate that so long as sufficient revenues to sustain our business operations including to pay
the pre-closing obligations of Movantik as described above, are not generated from our remaining commercial products, we will need to raise substantial additional funds in order to satisfy our payment obligations and continue as a
going concern, as our current cash and short-term investments are not sufficient to continuously fund our commercial operations and satisfy our payment obligations. We may also be forced to significantly reduce our operations or
divest certain assets, which may have a material adverse effect on our reputation, business, financial condition or results of operations.
However, additional financing may not be available on acceptable terms, if at all, including due to the difficult conditions in the capital markets, particularly with respect to
securities of biopharmaceutical companies on the U.S. stock exchanges, including the ADSs, and due to the low market capitalization which makes it more difficult to raise significant amounts of capital. If we are not able to
maintain compliance with Nasdaq’s continued listing requirements this would also adversely affect our ability to raise capital.
Our future capital requirements will depend on many factors including but not limited to:
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our ability to close a strategic business development transaction, including a potential divestiture of certain of our assets;
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our ability to successfully commercialize commercial products and our therapeutic candidates, upon approval, if any, including securing commercialization agreements with third parties and favorable pricing and market
share;
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we may consume available resources more rapidly than currently anticipated, resulting in the need for additional funding sooner than anticipated;
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the regulatory path of each of our therapeutic candidates;
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the progress, success, and cost of our clinical trials and research and development programs;
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the costs, timing, and outcome of regulatory review and obtaining regulatory approval of our therapeutic candidates and addressing regulatory and other issues that may arise post-approval;
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the costs of enforcing our issued patents and defending intellectual property-related claims;
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the costs of developing sales, marketing, and distribution channels; and
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consumption of available resources more rapidly than currently anticipated, resulting in the need for additional funding sooner than anticipated.
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Cash Flow
Net Cash Used in Operating Activities
Net Cash Used in Operating Activities for the six months ended June 30, 2023, was $17.8 million, as compared to $20.7 million for the six months ended June 30, 2022. The difference
was primarily attributable to the ongoing cost reductions. In the six months ended June 30, 2023, the cash used in operating activities was primarily directed towards settling pre-closing liabilities related to Movantik.
Net Cash Used in Operating Activities for the year ended December 31, 2022, was $29.2 million, compared to $65 million for the year ended December 31, 2021. The difference is
attributable to the completion of clinical trials, mainly with respect to COVID-19, which enabled us to spend less cash, as well as various cost reduction measures around our commercial operations.
Net Cash Provided by Financing Activities
Net Cash Provided by Financing Activities for the six months ended June 30, 2023, was $4.8 million, comprised primarily from the net proceeds from the offering completed on April 3,
2023, and the decrease in restricted cash, partially offset by repayment of payables in respect of intangible asset purchase.
Net Cash Provided by Financing Activities for the year ended December 31, 2022, was $11.5 million, comprised primarily of proceeds from equity offerings, which took place in May 2022
and December 2022, offset by payments in respect of intangible assets. Net Cash Provided by Financing Activities for the year ended December 31, 2021, was $73.5 million, primarily from public offerings, strategic investment by
Kukbo, utilization of at-the-market facility and exercise of options.
We did not have any material commitments for capital expenditures, including any anticipated material acquisition of plant and equipment or interests in other companies, as of
December 31, 2022, and June 30, 2023.
Research and Development, Patents and Licenses
Our research and development expenses consist primarily of costs of clinical trials, professional services, share-based payments and payroll, and related expenses. The clinical trial
costs are mainly related to payments to third parties to manufacture our therapeutic candidates, to perform clinical trials with our therapeutic candidates and to provide us with regulatory services. We charge all research and
development expenses to operations as they are incurred. We expect our research and development expenses to remain our primary expense in the near future as we continue to develop our therapeutic candidates.
Due to the inherently unpredictable nature of clinical development processes, we are unable to estimate with any certainty the costs we will incur in the continued development of the
therapeutic candidates in our pipeline for potential commercialization.
Our future research and development expenses will depend on the clinical success of each therapeutic candidate, the rate of patient recruitment and the ongoing assessments of each
therapeutic candidate’s commercial potential. In addition, we cannot forecast with any degree of certainty which therapeutic candidates may be subject to future commercialization arrangements, when such commercialization
arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. See “Risk Factors – Risks Related to Regulatory Matters – If we or our development or
commercialization partners are unable to obtain or maintain FDA or other foreign regulatory clearance and approval for our therapeutic candidates or products we may commercialize or promote, we or our commercialization partners will
be unable to commercialize our therapeutic candidates, upon approval, if any, or products we may commercialize or promote.”
As we obtain results from clinical trials, we may elect to discontinue or delay the development and clinical trials for certain therapeutic candidates in order to focus our resources
on more promising therapeutic candidates or projects. Completion of clinical trials by us or our licensees may take several years or more, but the length of time generally varies according to the type, complexity, novelty and
intended use of a therapeutic candidate. See “Risk Factors – Risks Related to Regulatory Matters.”
We expect our research and development expenses to stay material as we continue the advancement of our clinical trials and therapeutic candidates’ development. The lengthy process of
completing clinical trials and seeking regulatory approvals for our therapeutic candidates requires substantial expenditures. Any failure or delay in completing clinical trials, or in obtaining regulatory approvals, could cause a
delay in generating product revenue and cause our research and development expenses to increase and, in turn, have a material adverse effect on our operations. Due to the factors set forth above, we are not able to estimate with any
high certainty if and when we would recognize any substantial revenues from our projects.
Trend Information
Other than as disclosed elsewhere in this prospectus, we are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material
effect on our net revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or
financial condition.
Critical Accounting Estimates
The preparation of financial statements requires management to make estimates which, by definition, will seldom equal the actual results and will affect the reported amounts in our
consolidated financial statements and the accompanying notes. Some of the policies described in Note 2 of our consolidated financial statements included elsewhere in this prospectus involve a high degree of judgment or complexity.
We believe that the most critical accounting policies and significant areas of judgment and estimation are in:
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Recognition and measurement of allowance for rebates and patient discount programs.
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Impairment reviews of intangible research and development assets.
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Estimated useful economic life of the acquired assets in the Movantik® acquisition.
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Recognition and Measurement of Allowance for Rebates and Patient Discount Programs
We offer various rebate and patient discount programs, which result in discounted prescriptions to qualified patients. Rebates and discounts provided to the
wholesalers and to the patients under these arrangements are accounted for as variable consideration, and recognized as a reduction in revenue, for which unsettled amounts are accrued. The allowance for these rebates is calculated
based on historical and estimated utilization of the rebate and discount programs at the time the revenues are recognized. The main estimates used in recognizing and measuring this allowance relate to the amount of products sold
to customers not yet prescribed to patients (units “in the channel”) and projected duration of the Company to sell the units in the channel. We periodically evaluate our estimates against actual results and, if necessary, updates
the estimates accordingly. The report of our independent auditors with regards to the annual report for the year ended December 31, 2022, contained an adverse opinion on the effectiveness of the Company’s internal control over
financial reporting related to the Company not designing and maintaining effective controls over the calculation of allowance for deductions from revenues.
Impairment Reviews of Intangible Research and Development Assets
We review annually or when events or changes in circumstances indicate the carrying value of the research and development assets may not be recoverable.
When and if necessary, an impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is determined using
discounted cash flow calculations where the asset’s expected post-tax cash flows are risk-adjusted over their estimated remaining useful economic life. The risk-adjusted cash flows are discounted using our estimated post-tax
weighted average cost of capital which was 15.9% as of December 31, 2022.
The main estimates used in calculating the recoverable amount include: outcome of the therapeutic candidates research and development activities; probability of success in gaining
regulatory approval, size of the potential market and our asset’s specific share in it and amount and timing of projected future cash flows.
Estimated Useful Life of the Acquired Assets in the Movantik®
acquisition
In connection with the agreements mentioned in Note 14 of our consolidated financial statements included elsewhere in this prospectus, we accounted for the acquisition of rights to
Movantik® as an asset acquisition. Since all acquired assets are intended to generate revenues from sales of Movantik® and have a similar useful life, the Company attributed this consideration to a single intangible asset representing the acquired rights to Movantik®. The Company determined the asset’s useful life, over which the asset will be amortized on a straight-line from its acquisition. The main estimate used in determining the
useful life was the anticipated duration of sales of the product after its expected patent expiration. During 2021, as a result of reaching a litigation settlement related to Movantik®’s IP, the Company has re-estimated the useful life of these assets to be 12.5 years from the date of acquisition. On February 2, 2023, we sold our rights in Movantik® to HCRM, resulting in a complete derecognition of the acquired assets from the balance sheet. See “Business – Business Overview – Sale of Movantik® to HCRM.”
Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss related to changes in market prices, including interest rates and foreign exchange rates, of financial instruments that may adversely impact our financial position,
results of operations or cash flows. Our overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on our financial performance.
Risk of Interest Rate Fluctuation and Credit Exposure Risk
At present, our exposure to credit risk arises from cash and cash equivalents, deposits with banks, as well as accounts receivable. Some of our liquid instruments are invested in
short-term deposits.
We estimate that because the liquid instruments are invested mainly for the short-term and with highly-rated institutions, the credit risk associated with these balances is low. The
primary objective of our investment activities is to preserve principal while maximizing the income we receive from our investments without significantly increasing risk and loss.
We are no longer exposed to a material risk of interest rate fluctuation due to the extinguishment of our Credit Agreement with HCRM and the limited cash held in short-term deposits.
Foreign Currency Exchange Risk
Although the U.S. dollar is our functional currency and reporting currency, a portion of our expenses is denominated in NIS and in Euro. Our NIS expenses consist
principally of payments to employees or service providers and office-related expenses in Israel. Our Euro expenses primarily involve payments to vendors for our therapeutic candidates and certain manufacturers of APIs for Talicia®. Because only a relatively small portion of our transactions are currently denominated in NIS and Euro and a negligible sum is held in NIS, we do not
believe we are subject to a material risk of foreign currency exchange risk.
BUSINESS
History and Development of the Company
Our legal and commercial name is RedHill Biopharma Ltd. Our company was incorporated on August 3, 2009, and was registered as a private company limited by shares under the laws of
the State of Israel. Our principal executive offices are located at 21 Ha’arba’a Street, Tel-Aviv, Israel, and our telephone number is 972‑3‑541‑3131.
In February 2011, we completed our initial public offering in Israel, pursuant to which we issued 14,302,300 Ordinary Shares, and 7,151,150 tradable Series 1
Warrants to purchase 7,151,150 Ordinary Shares for aggregate gross proceeds of approximately $14 million. On December 27, 2012, we completed the listing of ADSs on the Nasdaq Capital Market, and on July 20, 2018, the ADSs were
listed on the Nasdaq Global Market. On February 13, 2020, our Ordinary Shares were voluntarily delisted from trading on the Tel-Aviv Stock Exchange. On November 15, 2023, the ADSs were transferred from the Nasdaq Global Market to
the Nasdaq Capital Market. The ADSs are currently traded on the Nasdaq Capital Market under the symbol "RDHL."
The Securities and Exchange Commission, or SEC, maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file
electronically with the SEC at http://www.sec.gov.
Our website address is http://www.redhillbio.com. Information contained on, or that can be accessed through, our website does not constitute a part of this prospectus.
Our capital expenditures for the six-month period ended June 30, 2023, and the years ended December 31, 2022, and 2021, were approximately $6,000, $25,000 and
$115,000, respectively. Our current capital expenditure involves basic equipment and leasehold improvements.
Business Overview
We are a specialty biopharmaceutical company, primarily focused on GI and infectious diseases. Our primary goal is to become a leading specialty biopharmaceutical company.
We are currently focused primarily on the advancement of our development pipeline of clinical-stage therapeutic candidates. We also commercialize in the U.S. GI-related products,
Talicia® (omeprazole, amoxicillin, and rifabutin) and Aemcolo® (rifamycin) and continue to explore our strategic plans for such products and activities.
Among the therapeutic candidates, we are exploring opaganib is being as a potential treatment for various conditions, including GI-ARS, COVID-19 and other viruses
as part of pandemic preparedness, such as the Ebola virus. Inflammatory conditions and solid tumors are additional areas of focus for opaganib. Furthermore, we are investigating RHB-107 (upamostat) as a potential treatment for
COVID-19 and other viruses as part of pandemic preparedness, including the Ebola virus.
Our current pipeline consists of five therapeutic candidates, most of which are in clinical development. We generate our pipeline of therapeutic candidates by identifying, validating
and in-licensing or acquiring products that are consistent with our product and corporate strategy and that have the potential to exhibit a favorable probability of therapeutic and commercial success. We have one product that we
primarily developed internally which has been approved for marketing and, to date, none of our other therapeutic candidates has generated revenues. We have out-licensed one of our commercial products, Talicia® for specific territories outside the U.S. and we plan to commercialize our therapeutic candidates, upon approval, if any, through licensing and other
commercialization arrangements with pharmaceutical companies on a global and territorial basis or independently with a dedicated commercial operations or in potential partnership with other commercial-stage companies. We also
evaluate, on a case-by-case basis, co-development, co-promotion, licensing, acquisitions and similar arrangements.
Our Strategy
Our goal is to become a leading specialty pharmaceutical company in the commercialization and development of pharmaceuticals for the treatment of GI and infectious diseases.
Key elements of our strategy are to:
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Identify and acquire rights to products from pharmaceutical companies that have encountered cash flow or operational problems or that decide to divest one or more of their products for various reasons. Specifically, we
evaluate acquiring rights to and develop products that are intended to treat pronounced clinical needs, have patent or other protections, and have target markets with significant potential. Additionally, we seek to
evaluate acquiring rights to and develop products based on different technologies designed to reduce our dependency on any specific product or technology. We identify such opportunities through our broad network of
contacts and other sources in the pharmaceutical field;
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Identify and enter into out-licensing or collaborative agreements with third parties to develop and/or commercialize our commercial products or
therapeutic candidates;
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Enhance existing pharmaceutical products, including broadening their range of indications, or launching innovative and advantageous pharmaceutical products, based on existing active ingredients. Because there is a large
knowledge base regarding existing products, the preclinical, clinical and regulatory requirements needed to obtain marketing approval for enhanced formulations are relatively well-defined. In particular, clinical trial
designs, inclusion criteria and endpoints previously accepted by regulators may sometimes be re-used. In addition to reducing costs and time to market, we believe that targeting therapeutics with proven safety and efficacy
profiles provides us a better prospect of clinical success;
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Where applicable, utilize the FDA’s 505(b)(2) regulatory pathway to potentially obtain more timely and efficient approval of our formulations of previously approved products. Under the 505(b)(2) process, we are able to
seek FDA approval of a new dosage form, strength, route of administration, formulation, dosage regimen, or indication of a pharmaceutical product that has previously been approved by the FDA. This process enables us to
partially rely on the FDA findings of safety or efficacy for previously approved drugs, thus avoiding the duplication of costly and time-consuming preclinical and various human studies. See “ – Business Overview –
Government Regulations and Funding – Section 505(b)(2) New Drug Applications”;
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Cooperate with third parties to develop or commercialize therapeutic candidates in order to share costs and leverage the expertise of others; and
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Consider potential acquisitions of other companies with or without commercial products.
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The pharmaceutical and biotechnology industries are intensely competitive. Our therapeutic candidates, if commercialized, and our approved drugs, compete with existing drugs and
therapies. In addition, there are many pharmaceutical companies, biotechnology companies, medical device companies, public and private universities, government agencies and research organizations actively engaged in the research and
development of products targeting the same markets as our therapeutic candidates. Many of these organizations have substantially greater financial, technical, manufacturing and marketing resources than we do. In certain cases, our
competitors may also be able to use alternative technologies that do not infringe upon our patents to formulate the active materials in our therapeutic candidates. They may, therefore, bring to market products that are able to
compete with our candidates, or other products that we may develop in the future.
Our Approved and Commercial Products in the U.S.
We have established the headquarters of our U.S. commercial operations in Raleigh, North Carolina. Our U.S. operations promote Talicia® for the treatment of H. pylori infection in adults and Aemcolo®
for the treatment of travelers’ diarrhea in adults. We are actively evaluating various strategic pathways, including divestiture of certain of our assets. In the event of sustained operations, our U.S. operations could potentially
serve as the platform for potential launch of our proprietary, late-clinical stage therapeutic candidates in the U.S., if approved by the FDA, and potential in-licensed or acquired commercial-stage products in the U.S.
Our U.S. commercial operations consisted of 38 employees as of December 31, 2023. The net revenues for the six months ended June 30, 2023, and the year ended
December 31, 2022, from the commercial products were approximately $5.4 million and $59.8 million, respectively. We continue to pursue the acquisition of additional commercial products, including, without limitation, through
licensing or promotion transaction, asset purchase, joint venture with, acquisition of, or a merger with or other business combination with, companies with rights to commercial GI and other relevant assets and are continuously
working to expand U.S. managed care access and coverage to our commercial products, where appropriate. We plan to pursue such opportunities in the U.S. and, if available, in other jurisdictions; however, we intend to focus our
commercial activities in the U.S. We currently promote and commercialize three GI products in the U.S.
Talicia® (omeprazole magnesium, amoxicillin, and rifabutin) delayed-release capsules 10 mg/250 mg/12.5 mg
Talicia® is our proprietary new drug approved for marketing in the U.S. for the treatment of H. pylori infection in adults. Talicia® is a combination of three approved drug products – omeprazole, which is a
proton pump inhibitor (prevents the secretion of hydrogen ions necessary for the digestion of food in the stomach), plus amoxicillin and rifabutin, which are antibiotics. Talicia® is administered to patients orally. Talicia® is the first product we developed that was approved for marketing in the
U.S. We launched Talicia® in the U.S. in March 2020 with our dedicated sales force.
Chronic infection with H. pylori irritates the mucosal lining of the stomach and small intestine. The original discovery of the H. pylori bacteria and its association with peptic ulcer disease warranted the Nobel Prize in 2005. H. pylori infection has since been associated with a
variety of outcomes, which include: dyspepsia (non-ulcer or functional), peptic ulcer disease (duodenal ulcer and gastric ulcer), primary gastric B-cell lymphoma, vitamin B12 deficiency, iron deficiency, anemia, and gastric cancer.
Gastric cancer is one of the most prevalent cancers worldwide and one of the most common causes of cancer-related deaths, accounting for approximately 768,800 deaths in 2020,
according to the World Health Organization (“WHO”) GLOBOCAN 2020 estimates. According to a 2010 report by Polk DB et al. published in Nature Reviews Cancer, H.
pylori-induced gastritis is the strongest singular risk factor for cancers of the stomach, and eradication of H. pylori significantly decreases the risk of developing cancer in
infected individuals without pre-malignant lesions.
Talicia® is targeting a significantly broader indication than that of existing H. pylori therapies, as a treatment of H. pylori infection, regardless of ulcer status.
We acquired the rights to Talicia® pursuant to an agreement with Giaconda Limited. See “ – Business
Overview – Acquisition, Commercialization and License Agreements – Acquisition of Talicia®, RHB‑104, and RHB‑106.”
On December 5, 2021, we entered into an exclusive license agreement with Gaelan Medical for Talicia®,
in the UAE. See “ – Business Overview – Acquisition, Commercialization and License Agreements License Agreement with Gaelan Medical”. On August 1, 2023, we announced that Gaelan Medical had received marketing approval for Talicia in
the UAE and that Gaelan Medical had subsequently placed the first commercial order for Talicia, which was dispatched from the CMO in December 2023.
In November 2022, we announced post hoc analyses of the Phase 3 clinical trials of Talicia® supporting
the efficacy and safety of Talicia® as empiric first-line treatment for H. pylori infection in patients
regardless of obesity, body mass index (BMI) or diabetic status.
Regulatory Status
On November 1, 2019, Talicia® was approved by the FDA and is eligible for a total of eight years of
U.S. market exclusivity.
In November 2014, Talicia® was granted QIDP designation by the FDA. The QIDP designation was granted
under the FDA’s Generating Antibiotic Incentives Now (GAIN) Act, which is intended to encourage the development of new antibiotic drugs for the treatment of serious or life-threatening infections that have the potential to pose a
serious threat to public health.
In September 2023, we announced that the FDA had approved our supplemental new drug application (sNDA) for Talicia®, allowing a change to a more flexible dosing regimen, enabling patients to take Talicia three times daily, at least 4 hours apart with food. This enables patients to follow a convenient “breakfast, lunch and
dinner” dosing routine, which may support increased patient adherence and optimize the potential for successful H. pylori eradication.
In November 2023, we announced that the FDA had officially granted Talicia® five years of additional
market exclusivity via QIDP designation as provided by the GAIN Act. This grant is on top of the three years’ exclusivity granted for the approval of Talicia®
under section 505(b)(2). Talicia® is protected by its broad intellectual property suite to 2034.
In January 2024, we announced that U.S. Patent and Trademark Office (USPTO) issued a new patent covering Talicia® as a method for eradicating H. pylori regardless of BMI. The new patent is expected to provide protection for Talicia® until May 2042.
Market and Competition
The 2017 American College of Gastroenterology clinical guidelines for the treatment of H. pylori infection generally recommend against
treating the majority of the U.S. population with current standard-of-care therapies reliant on the antibiotic clarithromycin. The American College of Gastroenterology recommends against using clarithromycin-based triple therapies
in cases where the patient has previously failed treatment with clarithromycin-containing regimens, has prior macrolide exposure, in regions with unknown clarithromycin resistance or regions with 15% or more clarithromycin
resistance. It is estimated that clarithromycin resistance in the U.S. exceeds 20% prevalence (Park JY, Dig Dis Sci. 2016). Such current clarithromycin and metronidazole-based standard-of-care treatments fail in approximately 25‑40%
of the patients due to the development of antibiotic resistance, based on Malfertheiner P. et al. (Gut 2012), O’Connor A. et al. (Helicobacter 2015) and Venerito M. et al. (Digestion 2013). According to a 2015 publication by Shiota
et al., it is estimated that H. pylori resistance to clarithromycin, a standard-of-care antibiotic used for the treatment of H. pylori, more than
doubled between 2009‑2013. According to a 2021 publication by Graham et al., although clarithromycin is still widely used to treat H. pylori, by the year 2000, increasing resistance resulted
in clarithromycin triple therapy becoming generally ineffective. A recent Phase III study demonstrated that treating clarithromycin-resistant patients with a PPI/amoxicillin/clarithromycin combination regimen resulted in only 32%
efficacy.
Talicia® is designed to address the high resistance of H. pylori bacteria
to the antibiotics commonly used in current standard-of-care therapies. Talicia’s approval was supported, in part, by the results of two positive Phase 3 studies in the U.S. for the treatment of H.
pylori-positive adult patients complaining of epigastric pain and/or discomfort. The confirmatory Phase 3 study of Talicia® demonstrated 84%
eradication of H. pylori infection with Talicia® vs. 58% in the active comparator arm (p<0.0001). Further, in
an analysis of data from this study, it was observed that subjects with measurable blood levels of drug at Day 13 had response rates of 90.3% in the Talicia®
arm vs. 64.7% in the active comparator arm.
H. pylori bacterial infection affects over 50% of the adult population worldwide, according to a 2018 report by Kakelar HM et al., published
in Gastric Cancer, and approximately 35% of the U.S. population, according to a report by Hooi JKY et al. published in 2017 in Gastroenterology. In
the U.S., we estimate that approximately 2 million patients per annum are treated for H. pylori eradication, based on a 2021 RedHill-funded market assessment performed by IQVIA.
Talicia® faces competition in the U.S. from certain branded prescription therapies indicated for the
treatment of H. pylori infection including Pylera® (marketed by Allergan plc)and Voquezna (sold by Phathom) as
well as from the generic individual components of these branded therapies (Pylera, PrevPac, -). Additionally, the individual components of Talicia® are
available in generic form, and while rifabutin is not available in an equivalent dose, there is a risk that some physicians may prescribe the individual components of Talicia® in doses that are not equivalent to the approved drug and regimen. We may also be exposed to potential competitive products that may be under development to treat H.
pylori infection.
We believe that Talicia® offers a significant benefit over other marketed drugs in part because of the
efficacy, tolerability, and resistance profile demonstrated in our Phase 3 program, which showed no bacterial resistance to rifabutin and high resistance to clarithromycin and metronidazole.
Aemcolo®
Aemcolo®, containing 194mg of rifamycin, is an orally administered, minimally absorbed antibiotic that
is delivered to the colon, approved by the FDA in 2018 for the treatment of travelers’ diarrhea caused by non-invasive strains of E. coli in adults (“Travelers’ Diarrhea”). In October 2019,
we entered into a license agreement, as amended, with a wholly-owned subsidiary of Cosmo pursuant to which we were granted exclusive rights to commercialize Aemcolo® in the U.S. (the “Cosmo License Agreement”). In December 2019, we launched the commercialization of Aemcolo® in the U.S. See “ –
Business Overview – Acquisition, Commercialization and License Agreements – Exclusive License Agreement for Aemcolo®.”
Regulatory Status
Aemcolo® received FDA approval on November 16, 2018, for the treatment of travelers’ diarrhea caused
by noninvasive strains of Escherichia coli in adults. Cosmo transferred the Aemcolo® NDA and the IND to
RedHill U.S., which were accepted on November 27, 2019. This acceptance also includes a commitment to complete any postmarketing requirements or commitments related to the NDA. There are two pediatric studies that are required to be
completed to satisfy the PREA requirements and also with required milestone dates:
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Conduct a randomized, placebo-controlled study to evaluate the safety, tolerability, and efficacy of Aemcolo® (rifamycin) for the treatment
of travelers’ diarrhea in children from 6 to 11 years of age.
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Conduct a randomized, placebo-controlled study to evaluate the safety, tolerability, and efficacy of Aemcolo® (rifamycin) for the treatment
of travelers’ diarrhea in children from 12 to 17 years of age.
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Market and Competition
Aemcolo® is a new pharmaceutical product employing rifamycin SV engineered with MMX® technology. The application of MMX® technology to rifamycin SV allows the
antibiotic to be delivered directly into the colon, intended to avoid unwanted effects on the beneficial bacterial flora living in the upper portions of the gastrointestinal tract. The specific dissolution profile of Aemcolo® tablets increases the colonic disposition of the antibiotic so that an optimized intestinal concentration is achieved, thus abating its systemic
absorption in the lower intestine.
In October 2017, the FDA granted QIDP and Fast Track designations for Aemcolo®. With the QIDP
designation, intended for antibacterial or antifungal drugs that treat serious or life-threatening infections, together with new chemical entity (NCE) designation, Aemcolo® enjoys marketing exclusivity until 2028.
Due to the significant decrease in travel as a result of the COVID-19 pandemic, the travelers’ diarrhea market was significantly impacted in 2020 and 2021, and we have not generated
meaningful revenues from the sale of Aemcolo® since then. We do not expect Aemcolo® to generate meaningful revenues, and there can be no assurance that we will generate meaningful revenues upon return of U.S. international travel to pre-pandemic levels.
In December 2021, we and Cosmo amended the Cosmo License Agreement such that either party may terminate the Cosmo License Agreement upon advance notice at any time.
We have implemented plans, including re-launching active field promotion of Aemcolo®, to support, and
build on, the initial momentum that Aemcolo® was generating pre-COVID-19 travel restrictions. According to the National Travel and Tourism Office
(NTTO), U.S. citizen air passenger departures from the U.S. to foreign countries reached 4.3 million in February 2023 which reflects a 9.3% increase when compared to the February 2019 volume. This data suggests that U.S.
international travel is returning to pre-COVID-19 pandemic levels.
Travelers’ Diarrhea is the most common travel-related illness according to the Centers for Disease Control and Prevention (CDC). The CDC Yellow Book states that attack rates of
Travelers’ Diarrhea range up to 70% of travelers, depending on the destination and season of travel. Travelers’ Diarrhea may often result in short-term morbidity adversely impacting travel plans. Untreated diarrhea can also lead to
an underappreciated risk of chronic complications, including functional bowel disorders.
There are several competing drugs marketed in the U.S. intended for the treatment of Travelers’ Diarrhea. One of the leading competitors is Xifaxan® (rifaximin, marketed by Salix Pharmaceuticals), a prescription drug approved for the treatment of Travelers’ Diarrhea caused by non-invasive strains of E. coli in adults and pediatric patients, treatment of IBS-D and reduction in risk of overt hepatic encephalopathy recurrence in adults. Aemcolo® also competes with generic antibiotics such as fluoroquinolones and azithromycin. Aemcolo® also competes with
prescription and OTC anti-diarrheal medications such as loperamide and bismuth subsalicylate, as well as probiotics and medical foods which may offer symptomatic relief. We may also be exposed to potentially competitive products,
which may be under development to treat or prevent Travelers’ Diarrhea, including new antibiotics, anti-diarrheal medications, and vaccines.
Our Therapeutic Candidates
Summary
The ongoing development programs of our five therapeutic candidates, most in clinical development, include “opaganib”, “RHB-107” (upamostat), “RHB-104”, “RHB-102 (Bekinda®)”, “RHB-204”, and related research and development programs, the most advanced of which are described below.
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Potential Advantages
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Over Most Existing
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Name of Therapeutic
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Treatments, if
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Development
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Candidate
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Proposed Indication
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Approved
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Rights to the Product
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opaganib
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Patients hospitalized with SARS-CoV-2 severe COVID-19 pneumonia
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Oral administration, first-in-class SK2 selective inhibitor, with anti-inflammatory and anti-cancer activities
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U.S. Phase 2 study completed and top-line data received; global Phase 2/3 completed and top-line data received and submitted regulatory packages to regulatory authorities
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We filed patent applications to protect the proposed commercial use
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opaganib
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Advanced unresectable cholangiocarcinoma
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Oral administration, first-in-class SK2 selective inhibitor, with anti-inflammatory and anti-cancer activities
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Phase 2 study in the U.S. patient follow up completed (ABC-108)
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Worldwide exclusive license
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opaganib
opaganib
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Prostate cancer
Nuclear radiation protection
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Oral administration, first-in-class SK2 selective inhibitor, with anti-inflammatory and anti-cancer activities in addition to failing treatment with abiraterone or
enzalutamide
Oral, small molecule pill that is stable with a more than five-year shelf-life, easy to administer and distribute, supporting, if approved, potential central stockpiling by
governments
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Investigator-sponsored Phase 2 study in the U.S patient follow up completed
U.S. government-funded in vivo studies completed, and additional validation experiments underway
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Worldwide exclusive license
Worldwide exclusive license
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RHB-107 (upamostat; formerly Mesupron)
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Outpatients infected with SARS-Co-V-2 (COVID-19 disease)
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Oral administration, inhibitor of human serine proteases with antiviral activity and established safety profile
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Part A of Phase 2/3 study completed
Multi-site Phase 2 platform trial ongoing with US governmental funding
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We filed patent applications
to protect the proposed commercial use
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RHB-107 (upamostat; formerly Mesupron) and opaganib
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Advanced unresectable cholangiocarcinoma
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Combination of (RHB-107 (upamostat)) and (opaganib )
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Preclinical
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We filed patent applications internationally directed to the proposed commercial use
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RHB-104
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Crohn’s disease
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Novel mechanism of action and improved clinical benefit (targeting suspected underlying cause of Crohn’s disease)
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First Phase 3 study completed; supportive results from the open-label extension
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We filed patent applications internationally directed to the proposed commercial formulation and use
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RHB-102 (Bekinda®) 24 mg
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Acute gastroenteritis and gastritis
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No other approved 5-HT3 serotonin receptor inhibitor for this indication; once-daily dosing
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First Phase 3 study in the U.S. completed; confirmatory Phase 3 study in planning
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We filed patent applications internationally to protect the proposed commercial formulation and its use
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RHB-102 (Bekinda®) 12 mg
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IBS-D
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Potential 5-HT3 serotonin receptor inhibitor with improved safety, while maintaining efficacy
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Phase 2 in the U.S. completed; Phase 3 program in planning
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We filed patent applications internationally to protect the proposed commercial formulation and its use
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RHB-102 (Bekinda®) 24 mg
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Oncology support anti-emetic
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Reduced number of drug administrations, improved compliance and adherence
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MAA pursued in the U.K Additional data required for U.S.
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We filed patent applications internationally to protect the proposed commercial formulation and its use.
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RHB‑204
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Pulmonary nontuberculous mycobacteria (NTM) infections caused by Mycobacterium avium complex (MAC) |
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Oral formulation targeting a major cause of pulmonary NTM infections
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Phase 3 terminated early due to low enrolment rate
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We filed patent applications internationally directed to the proposed commercial formulation and use
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Opaganib
Opaganib, a new chemical entity, is a proprietary, first-in-class, orally-administered, sphingosine kinase-2 (SK2) selective inhibitor with observed anticancer, anti-inflammatory,
and antiviral activities, targeting multiple oncology, viral, inflammatory, and gastrointestinal indications. The compound originally designated as ABC294640 received an international non-proprietary name, opaganib, in the
Recommended INN: List 79, 2018.
Opaganib inhibits SK2, a lipid kinase that catalyzes the formation of the lipid signaling molecule sphingosine 1-phosphate (“S1P”). S1P promotes cancer growth and proliferation and
pathological inflammation, including TNFα signaling and other inflammatory cytokine production. Specifically, by inhibiting the SK2 enzyme, opaganib blocks the synthesis of S1P which regulates fundamental biological processes such
as cell proliferation, migration, immune cell trafficking and angiogenesis, and is also involved in immune-modulation and suppression of innate immune responses from T cells.
Opaganib’s proposed antiviral mechanism, based on pre-clinical studies conducted with the molecule, inhibits the replication of positive-strand single-stranded ribonucleic acid
(“RNA”) viruses, of which coronavirus, and specifically SARS-CoV-2, is a member. By binding to SK2, opaganib inhibits SK2 recruited to the viral replication-transcription complex and thus blocks the intracellular viral replication
process. Because SK2 is a human host factor, opaganib’s proposed action is expected to maintain effect against known and emerging SARS-CoV-2 variants of concern irrespective of mutations in the viral spike-protein. Additionally,
preclinical in vivo studies have demonstrated opaganib's potential to decrease renal fibrosis, have shown decreased fatality rates from influenza virus infection, and amelioration of
bacteria-induced pneumonia lung injury by reducing the levels of IL-6 and TNF-alpha in bronchoalveolar lavage fluids.
On March 30, 2015, we entered into an exclusive worldwide license agreement with Apogee Biotechnology Corporation (“Apogee”), pursuant to which Apogee granted us the exclusive
worldwide development and commercialization rights to ABC294640 (which we then renamed to opaganib and, as noted above, received an international non-proprietary name, opaganib, in 2018) and additional intellectual property for all
indications. See “ – Business Overview – Acquisition, Commercialization and License Agreements – License Agreement for opaganib.”
In March 2022, we entered into the Exclusive License Agreement with Kukbo for opaganib for the treatment of COVID-19 in South Korea. See “ – Business Overview – Acquisition,
Commercialization and License Agreements – License Agreement with Kukbo”.
The development of opaganib has been supported by grants and contracts from U.S. federal and state government agencies awarded to Apogee, including from the NCI, BARDA, the U.S.
Department of Defense and the FDA Office of Orphan Products Development.
Market and Competition
Opaganib is currently being developed for several potential indications, including for the treatment of severe COVID-19 pneumonia, cholangiocarcinoma (bile duct cancer), prostate
cancer and for nuclear radiation protection.
COVID-19 is a disease caused by a coronavirus virus, SARS-CoV-2. The clinical spectrum has not yet been well defined and ranges from asymptomatic infection to pneumonia and Acute
Respiratory Distress Syndrome (ARDS) with multiorgan failure, that may lead to death. Patients over 65 years and those with significant comorbidities, such as diabetes, cardiac or pulmonary disease, are more susceptible to
developing severe disease and have a relatively higher mortality rate compared to younger, otherwise healthy patients. As of April 6, 2023, there have been over 762 million confirmed cases of COVID-19 worldwide, including over 6.8
million reported deaths according to WHO. Several therapies have been approved by the FDA for the treatment of COVID-19, some under emergency use authorization. These therapies include antiviral drugs such as Veklury® (remdesivir),
immune modulators and monoclonal antibodies. The FDA granted Emergency Use Authorization for two oral antiviral drugs intended for patients with mild-to-moderate COVID-19, including Lagevrio™ (molnupiravir) and Paxlovid™
(nirmatrelvir co-packaged with ritonavir). These therapies are intended for the outpatient setting and require treatment initiation within a limited window of five days from symptom onset. As of the filing of this report, no
orally-administered antiviral therapy has been approved by the FDA to date for treatment of hospitalized patients with severe disease. Several vaccines for SARS-CoV-2 have also been approved by the FDA and other regulatory agencies
to date. Multiple additional drug therapies and vaccines are currently under development for COVID-19.
Cholangiocarcinoma (bile duct cancer) is a highly lethal malignancy. According to the American Cancer Society report, approximately 8,000 people are diagnosed with intrahepatic and
extrahepatic bile duct cancers annually in the U.S., with studies reporting an increased incidence of cholangiocarcinoma, mainly attributed to advancements in the diagnosis of this disease (Gores GJ, Hepatology, 2003). Surgery with
complete resection is currently known to be the only curative therapy for cholangiocarcinoma; however, only a minority of patients are classified as having a resectable tumor at the time of diagnosis. Additional treatment options
include radiation therapy and chemotherapy, but the efficacy of these treatments in cholangiocarcinoma patients is also limited and the prognosis for relapse patients who have failed initial chemotherapy is very poor, with an
overall median survival of approximately one year (Valle J, et al. New Eng J, Med 2010). In recent years, the FDA has approved several targeted drug therapies specifically for
cholangiocarcinoma. In April 2020, the FDA approved Pemazyre® (pemigatinib, Incyte Corporation), the first drug approved specifically for
cholangiocarcinoma, indicated for adults with advanced bile duct cancer whose cancer has grown after at least one previous chemotherapy treatment and whose tumors have a mutation in the FGFR2 gene. FGFR2 gene fusions are found in
patients with intrahepatic cholangiocarcinoma, and have a reported incidence rate of 14% to 23% (Prete MG, Explor Target Antitumor Ther., 2021). In August 2021, the FDA approved Tibsovo® (ivosidenib, Servier Pharmaceuticals LLC) for
adult patients with previously treated, locally advanced or metastatic cholangiocarcinoma with an isocitrate dehydrogenase-1 (IDH1) mutation as detected by an FDA-approved test. IDH1 mutations are also found in patients with
intrahepatic cholangiocarcinoma, and have a reported incidence rate of 7% to 20% (Prete, 2021). In September 2022, the FDA approved the first immunotherapy option, Imfinzi® (durvalumab, AstraZeneca Plc) in combination with
gemcitabine and cisplatin for the treatment of patients with metastatic or locally advanced cholangiocarcinoma. We believe there remains a high unmet medical need for new therapies for the majority of cholangiocarcinoma patients.
There are several drugs in late-stage clinical development for cholangiocarcinoma. The 5-year relative survival rates of intrahepatic and extrahepatic cholangiocarcinoma patients range between 2% to 24%, depending on the tumor type
and stage at diagnosis, according to the American Cancer Society.
Prostate cancer is the second most common cancer and the second leading cause of cancer death in American men. The American Cancer Society estimates that approximately 288,300 new
cases of prostate cancer will be diagnosed in 2023. Prostate cancer is more likely to develop in older men and in African-American men. Treatment options depend on each case and include surgery, radiotherapy, cryotherapy,
chemotherapy, hormone therapy, and immunotherapy. There are several approved drugs indicated for treatment of prostate cancer, as well as several drugs in development for U.S. approval.
Acute Radiation Syndrome (ARS) is an acute illness caused by irradiation of the body by a high dose of penetrating radiation in a short period of time. The clinical manifestations of
ARS are categorized into several sub-syndromes which include but are not limited to the hematopoietic (H-ARS) and gastrointestinal (GI-ARS) sub-syndromes.
ARS is rare, however, radiation exposure due to a radiological or nuclear event has the potential to affect a large number of people. The U.S. government has recognized the need to
develop and expand the availability of suitable medical countermeasures (MCMs) to address radiation injuries, including those of ARS.
The FDA has approved five MCMs for the H-ARS sub-syndrome to date. Neupogen® (filgrastim, Amgen Inc., FDA-approved in 2015), Neulasta® (pegfilgrastim, Amgen Inc., FDA-approved in
2015), and Leukine® (sargramostim, Partner Therapeutics Inc. and originally Sanofi, FDA-approved in 2018) are leukocyte growth factors that stimulate the recovery of neutrophils, while the fourth agent, Nplate® (romiplostim, Amgen
Inc., FDA-approved in 2021) is a thrombopoietin receptor agonist that stimulates the body’s production of platelets. In November 2022, the FDA approved the fifth MCM for H-ARS known as Udenyca® (pegfilgrastim-cbqv, Coherus
BioSciences, Inc.), also a leukocyte growth factor, and a biosimilar to Neulasta®.
The five MCMs approved by the FDA for the H-ARS sub-syndrome are radiomitigators, or agents administered after radiation exposure (and before the development of ARS symptoms) to
stimulate the recovery of injured tissues. To the best of our knowledge, there are no agents approved by the FDA for the H-ARS sub-syndrome that are radioprotectors or agents administered before radiation exposure to prevent tissue
injury, or MCMs approved for the GI-ARS sub-syndrome.
In addition to the MCMs approved by the FDA for the H-ARS sub-syndrome, there are additional candidates in development for ARS.
Clinical Development
COVID-19
Preclinical data have demonstrated both anti-inflammatory and antiviral activities of opaganib, with the potential to reduce inflammatory lung disorders, such as pneumonia, and
mitigate pulmonary fibrotic damage. In September 2020, we announced that opaganib demonstrated potent inhibition of SARS-CoV-2, the virus that causes COVID-19, achieving complete blockage of viral replication in an in vitro model of human lung bronchial tissue. Additionally, preclinical in vivo studies have demonstrated that opaganib decreased fatality rates from
influenza virus infection and ameliorated Pseudomonas aeruginosa-induced lung injury by reducing the levels of IL-6 and TNF-alpha in bronchoalveolar lavage fluids.
Preliminary results from a preclinical study with opaganib, administered at 250 mg/kg, demonstrated a reduction of thrombosis (blood clotting) in an acute respiratory distress
syndrome (ARDS) animal model. The preclinical study was designed to assess the efficacy of opaganib in reducing the incidence of adverse thromboembolic events in situ in the lipopolysaccharide (LPS)-induced model of pulmonary
inflammation, a reliable model of ARDS that can mimic COVID-19 inflammation. The preliminary results from our study show opaganib 250 mg/kg reduced blood clot length, weight and total thrombus score in a preclinical model of ARDS.
We believe such preliminary results add to the known antiviral and anti-inflammatory activities of opaganib and provide the potential for a unique triple-action effect on the pathophysiological processes associated with COVID-19
disease.
In September 2020, Apogee was awarded a grant from Pennsylvania's COVID-19 Vaccines, Treatments and Therapies Program, which supports the rapid advancement of promising novel
COVID-19 therapies.
ABC-201: Global Phase 2/3 Study
In July 2020, we initiated a global Phase 2/3 clinical trial evaluating opaganib in hospitalized patients with severe COVID-19 pneumonia. This global multi-center, randomized,
double-blind, parallel-arm, placebo-controlled trial enrolled a total of 475 patients requiring hospitalization and treatment with supplemental oxygen. The study was approved in ten countries.
In September 2021, we reported that preliminary top-line data from the opaganib (ABC294640) global Phase 2/3 study in hospitalized patients with severe COVID-19 pneumonia showed that
the study did not meet its primary endpoint. Analysis of the study efficacy endpoints did show trends in favor of the opaganib arm as compared to placebo across multiple endpoints, including the primary endpoint, despite not
achieving statistical significance.
In October 2021, we reported new data from a further analysis of this study, showing that treatment with oral opaganib as compared to the placebo-controlled arm resulted in a 62%
statistically significant reduction in mortality as well as statistically significant improved outcomes in time to room air and median time to hospital discharge in a group of 251 hospitalized, moderately severe COVID-19 patients,
comprising 54% of the study participants.
These results were from a post-hoc analysis of data from the 251 study participants requiring a Fraction of inspired Oxygen (FiO2) up to 60% at baseline. Patients with FiO2 ≤ 60% are
still considered to be severely affected and typically require oxygen supplementation via a nasal cannula or face mask.
Analyses of the FiO2 up to 60% patient subset from the opaganib Phase 2/3 study, the median for FiO2 levels in the study, who were treated with either opaganib or placebo in addition
to standard-of-care (including dexamethasone and/or remdesivir) demonstrated consistent benefit across endpoints, in this subset of hospitalized moderately severe patients. Given the post-hoc characteristics of this subset,
statistical inferences of significance cannot be formally attributed (nominal values presented). We also conducted a sensitivity analysis to account for missing data interpretability:
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Mortality: Opaganib treatment resulted in a statistically significant 62% reduction in mortality (7/117 patients treated with opaganib vs. 21/134 for placebo; nominal
p-value=0.019, Relative Risk 2.6) (Sensitivity Analysis: 5/117 vs. 16/134, 64% efficacy benefit; nominal p-value=0.033, Relative Risk - 2.8).
A detailed analysis of baseline risk factors and their potential impact on the mortality outcome in the sensitivity analysis group has also been undertaken, showing that the benefit is
robustly maintained irrespective of the subgroups/risk factors, confirming that the positive outcome observed is due to opaganib.
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Reaching Room Air by Day 14 (primary endpoint of the study): 77% of opaganib-treated patients reached room air by Day 14 vs. 63.5% for placebo – an efficacy benefit of 21% with
opaganib (nominal p-value=0.033).
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Median time to discharge: Patients treated with opaganib showed median time of 10 days to discharge vs. 14 days for the placebo arm, resulting in a saving of four days
hospitalization per opaganib patient and saving a total of 524 cumulative days of hospitalization across the group by Day 42, nominal p-value=0.0195.
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Safety: Overall adverse events were balanced between the opaganib and placebo groups, suggesting good safety, with no new safety signals emerging, further supporting potential use
in this patient population and earlier stage populations.
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In January 2022, we reported new data from a prespecified analysis of all Phase 2/3 study patients with positive PCR at screening, demonstrating that opaganib improved the median
time to viral RNA clearance by at least 4 days. Treatment with opaganib resulted in viral RNA clearance in a median of 10 days while the median for clearance in the placebo arm was not reached by the end of 14-days treatment for
placebo (hazard ratio 1.34; nominal p-value=0.043, N=437/463). To the best of our knowledge, opaganib is the first oral novel drug candidate to show improved viral RNA clearance in patients with severe COVID-19 pneumonia. This data
provides clinical evidence supporting opaganib's potential antiviral activity.
In February 2022, we reported additional results from two prespecified analyses from the Phase 2/3 study. The first analysis showed that opaganib significantly reduced mortality when
given to patients who received remdesivir and corticosteroids, the best available standard-of-care (SoC) for hospitalized patients. This analysis, undertaken for all patients from the study who were receiving remdesivir and
corticosteroids at baseline, demonstrated a significant 70.2% mortality benefit for opaganib-treated patients, with a mortality rate of 6.98% (n=3/43) for the opaganib arm + SoC versus 23.4% (n=11/47) for placebo + SoC by Day 42
(p-value=0.034).
The second analysis further showed that opaganib delivered a significant benefit in time to recovery, defined as achieving a score of 1 or less on the WHO Ordinal Scale by Day 14.
The prespecified analysis showed opaganib delivered a significant 34% benefit in time to recovery, with 37.4% of opaganib-treated patients (n=86/230) reaching this event versus 27.9% of patients (n=65/233) treated with placebo + SoC
(p-value=0.013, Hazard Ratio 1.49).
Safety data for the Phase 2/3 clinical trial showed good tolerability of opaganib, with balanced adverse events between the study arms.
Guidance on the potential path to approval including the requirement of a confirmatory study for future emergency use approvals has been received from the EU's EMA, the U.S. FDA,
UK's MHRA and others.
We are continuing discussions and work with U.S. and other government agencies and non-governmental organizations to support the ongoing development of opaganib in areas of public
health interest, including pandemic preparedness and medical countermeasures. These are currently undergoing pre-clinical evaluation. Discussions are also ongoing with potential partners who are interested in the rights to opaganib
in various territories.
ABC-110: U.S. Phase 2 Study
In December 2020, we announced that our randomized, double-blind, placebo-controlled U.S. Phase 2 trial with opaganib in patients hospitalized with COVID-19 pneumonia demonstrated
positive safety and efficacy data. The trial, which was not powered for statistical significance, enrolled 40 patients requiring hospitalization and supplemental oxygen.
The data from the study was published in May 2022 in Open Forum Infectious Diseases.
Preclinical studies
In September 2021, we announced results of a preclinical study demonstrating opaganib’s efficacy in significantly decreasing renal fibrosis in a unilateral ureteral
obstruction-induced renal interstitial fibrosis model. Reports suggest that over 20% of hospitalized COVID-19 patients experience acute renal failure. The aim of the in vivo efficacy study
was to verify the effect of opaganib on kidney inflammation and fibrosis in a unilateral ureteral obstruction (UUO) model – a well characterized model for renal fibrosis. Results from the study showed that opaganib significantly
decreased renal fibrosis.
Opaganib demonstrated potent antiviral activity against SARS-CoV-2, the virus that causes COVID-19, completely inhibiting viral replication in an in
vitro model of human lung bronchial tissue. In June 2021, we announced that preliminary results from a preclinical study demonstrated potent inhibition of the Beta and Gamma COVID-19 variants of concern by opaganib at
non-cytotoxic doses. We further announced in August 2021 that opaganib demonstrated strong inhibition of the Delta variant replication while maintaining cell viability at relevant concentrations in a 3D tissue model of human
bronchial epithelial cells. Based on opaganib’s unique host-targeted mechanism and the preliminary results of this study, we believe opaganib is likely to also maintain its activity against emerging variants of COVID-19.
In April 2022, we announced study results in which opaganib was observed to have potent in vitro efficacy against the Omicron SARS-CoV-2 variant, while maintaining host cell viability, and in October 2022, we announced study results showing preliminary evidence of in vitro efficacy against
the Omicron COVID-19 sub-variant BA.5 by opaganib and RHB-107.
In September 2022, we announced new in vitro data demonstrating opaganib’s potential to significantly decrease renal fibrosis in a unilateral
ureteral obstruction-induced renal interstitial fibrosis model.
In an in-vitro study sponsored by NIAID, opaganib demonstrated activity against Influenza A H1N1 in a human airway epithelial cell line. Upon successful completion of the above
assay, further in-vivo studies of opaganib for treatment of influenza A/CA/04/2009 (H1N1pdm) virus infection in C57BL/6 mice were initiated at Utah State University to determine the efficacy of opaganib. The experiment was
technically flawed as the positive control was also only minimally effective. Discussion is underway to repeat the experiment using the more standard Balb-C mice and a higher dose of oseltamivir in Q1/2023.
In October 2023, we announced that opaganib delivered a statistically significant increase in survival time when given at 150 mg/kg twice a day (BID) in a United States Army Medical
Research Institute of Infectious Diseases (USAMRIID) in vivo Ebola virus study, making it the first host-directed molecule to show activity in Ebola virus disease. The U.S. Army study tested three doses of opaganib (50, 100 and 150
mg/kg BID), against an inactive vehicle control arm. The in vivo study results showed a statistically significant survival increase in mean (SE) survival time of 11.2 (2.6) days in the 150 mg/kg opaganib group (p=0.0279) compared to
a mean (SE) survival time of 5.5 (0.4) days in the inactive vehicle control group. A 30% mice survival benefit was observed in the 150 mg/kg treated group compared to the vehicle control. In December 2023, we further announced that
opaganib demonstrated a robust synergistic effect when combined with Veklury® (remdesivir, Gilead Sciences, Inc), significantly improving viral inhibition while maintaining cell viability, in a new U.S. Army-funded and conducted
Ebola virus in vitro study.
ABC‑108: Advanced Unresectable Cholangiocarcinoma
A Phase 2a clinical study with opaganib in patients with advanced, unresectable, intrahepatic, perihilar and extrahepatic cholangiocarcinoma is ongoing at Mayo Clinic’s major
campuses in Arizona and Minnesota, the Huntsman Cancer Institute, University of Utah Health and at Emory University. In September 2018, we announced that the study achieved its pre-specified efficacy goal for the first stage of the
two-stage study design, and as a result, the study has continued to its second stage. Treatment with opaganib, Part 1 of the study, designed to enroll 39 evaluable patients, completed enrollment in January 2020. Preliminary data
from this cohort indicated a signal of activity in a number of subjects with advanced cholangiocarcinoma.
In October 2019, an expansion cohort for cotreatment of opaganib and hydroxychloroquine sulfate (HCQ), an anti-autophagy agent, was submitted to the FDA. Enrollment of this
cotreatment cohort, Part 2 of the study, began in July 2020. The cohort consists of two phases: Phase 1, an accelerated dose escalation run-in with enrollment of up to 15 patients evaluable for safety and tolerability, and Phase 2,
treatment of 20 patients evaluable in the Phase 1 determined dose to determine safety and tolerability. In May 2022, RedHill closed the enrollment to the second dose tier, 500 mg BID of opaganib and 200 mg of HCQ BID. The main
reason for the study’s early closure was a significant slowdown in enrollment since the start of the COVID-19 pandemic. The last patient that was enrolled demonstrated stable disease for 10 cycles and tolerated the treatment very
well. Accordingly, RedHill in collaboration with the treating physician in Mayo, AZ, arranged to continue the patient’s treatment under a Single Patient IND.
A total of 65 patients have been enrolled in the study, 7 of those in the Phase I safety run-in of Part 2. Of the 7 patients that were enrolled in Part 2 (4 evaluable for efficacy),
one subject has demonstrated durable stable disease for 10 months and has transitioned to a Single Patient IND.
The primary objective of Part 1 is to determine the response rate (RR) of cholangiocarcinoma defined as objective responses (OR), i.e. complete and partial responses (CR, PR) plus
stable disease (SD) of at least four months to treatment with opaganib. The primary endpoint of Part 2 is to determine Durable Disease Control Rate (DDCR), defined as Disease Control Rate (DCR) of at least four months’ duration to
treatment with opaganib and HCQ.
In April 2017, the FDA granted to opaganib orphan drug designation for the treatment of cholangiocarcinoma. The orphan drug designation allows us to benefit from various development
incentives to develop opaganib for this indication, including tax credits for qualified clinical testing, the waiver of a prescription drug user fee (PDUFA) upon submission of a potential NDA and, if approved, a seven-year marketing
exclusivity period (subject to certain exceptions) for the treatment of cholangiocarcinoma.
EAP for the Treatment of Advanced Unresectable Cholangiocarcinoma
An EAP is for eligible participants who do not qualify for participation in, or who are otherwise unable to access, the ongoing clinical trial ABC-108 for advanced unresectable
cholangiocarcinoma. This program is designed to provide access to opaganib for the treatment of cholangiocarcinoma prior to approval by the local regulatory agency. As noted in the section above, one subject from study ABC-108 has
transitioned to a Single Patient IND with the termination of study ABC-108. We cannot predict how long this program will continue, and we may decide for various reasons, including but not limited to resources and availability of
opaganib, not to continue with the EAP.
ABC‑101: Advanced Solid Tumors
A Phase 1 study, first-in-man evaluation of opaganib in advanced solid tumors was completed in the summer of 2015. Final results demonstrated that the study, conducted at the Medical
University of South Carolina (MUSC), successfully met its primary and secondary endpoints, demonstrating that the compound is well tolerated and can be safely administered to cancer patients at doses predicted to have therapeutic
activity.
Twenty-one patients with advanced solid tumors were treated with opaganib in the study, the majority of who were GI cancer patients, including pancreatic, colorectal and
cholangiocarcinoma cancers.
The study included the first-ever longitudinal analysis of plasma S1P levels as a potential pharmacodynamic biomarker for activity of a sphingolipid-targeted drug. Administration of
opaganib resulted in a rapid and pronounced decrease in levels of S1P with several patients having prolonged stabilization of disease.
The study was supported by grants from the U.S. National Cancer Institute (NCI) awarded to MUSC Hollings Cancer Center, an NCI-Designated Cancer Center, and from the FDA Office of
Orphan Products Development (OOPD) awarded to Apogee.
ABC‑107: Prostate Cancer
The investigator-sponsored study “A Phase 2 Study of the Addition of opaganib to Androgen Antagonists in Patients with Prostate Cancer Progression on Enzalutamide or Abiraterone” was
initiated in March 2020 at MUSC Hollings Cancer Center and at Emory University. The study is led by Dr. Michael B. Lilly. The study is supported by the National Cancer Institute grant awarded to MUSC.
This is a Phase 2 efficacy study of opaganib in patients with metastatic castration-resistant prostate cancer that is progressing during treatment with androgen signaling blockers,
abiraterone or enzalutamide. The study will consist of an initial safety “run in” cohort in which patients will receive opaganib along with continuation of prior abiraterone or enzalutamide to document tolerability in this new
patient population and to document the effects of opaganib on blood prostate-specific antigen (PSA) levels. Provided that there is no untoward toxicity in these patients, there will be two additional cohorts with up to 27 patients,
with each of patients with worsening disease during abiraterone or enzalutamide treatment. These patients will continue previous androgen blocking agents (abiraterone or enzalutamide, and gonadotropin-releasing hormone GnRH receptor
agonist/antagonist). The primary objective of the study is to measure the proportion of patients with disease control during opaganib plus abiraterone or enzalutamide treatment using a composite metric based on PSA, bone scan, and
RECIST measurements per Prostate Cancer Working Group 3 (PCWG3) criteria.
First patient was enrolled in March 2020 and the last patient was enrolled in December 2022, completing enrollment of 66 patients: 3 in cohort 1a (abiraterone + opaganib 250 mg BID),
3 in cohort 1b (enzalutamide + opaganib 250 mg BID), 26 in cohort 2 (abiraterone + opaganib 500 mg BID), 34 in cohort 3 (enzalutamide + opaganib 500 mg BID). All patients are now off study. Disease control, the primary endpoint of
the study, was defined as progression-free for at least 16 weeks and was assessed primarily in the 500 mg opaganib bid cohorts, cohorts 2 and 3. A total of 11 patients achieved disease control: 3 in the lead-in cohorts combined; 4
(15%; 95% CI 4-35%) in cohort 2 (abiraterone, and 4 (12%; 95% CI 3-27%) in cohort 3 (enzalutamide). Treatment was generally well tolerated; toxicity was similar to that noted in prior studies of opaganib, mainly
neuropsychiatric. A new toxicity, subretinal fluid accumulation which manifest as visual disturbance, was noted in one patient who received opaganib and abiraterone. This resolved in several days after the patient stopped taking
opaganib. While not previously recognized, this toxicity may have been misinterpreted in the past as visual hallucinations. Additional investigator initiated clinical studies of opaganib in prostate cancer are being pursued in
possible collaboration with pharma partners.
ABC‑104: Oncology Support, Radioprotectant: Prevention of Radiation-Associated Mucositis in the Treatment of Head and
Neck Cancer
A Phase 1b study to evaluate opaganib as a radioprotectant in head and neck cancer patients undergoing therapeutic radiotherapy is currently on hold.
Nuclear Radiation Protection Development Program
In November 2022, we announced acceleration of opaganib’s nuclear radiation protection development program, with newly published data from eight U.S. government-funded in vivo studies, and additional experiments, indicating that opaganib was associated with:
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Protection of normal tissue, including gastrointestinal, from radiation damage due to ionizing radiation exposure or cancer radiotherapy.
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Improvement of antitumor activity, response to chemoradiation, and enhancement of tolerability and survival.
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Radioprotective capacity in bone marrow, with opaganib showing enhanced survival in mice irradiated with both lethal and half-lethal whole-body radiation.
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In addition, in November 2022, we announced additional positive in vivo results from a new pre-clinical study evaluating the effects of
opaganib on radiation-induced hematologic and renal toxicity, which suggests that opaganib exerts a protective impact on key hematological and kidney function parameters following total body irradiation (TBI).Development of opaganib
as a homeland security nuclear medical countermeasure is currently expected to follow the Animal Rule under which human efficacy studies may not be required, and if approved, may be eligible for a Medical Countermeasure Priority
Review Voucher.
In February 2023, we announced that the Radiation and Nuclear Countermeasures Program (RNCP), of the National Institute of Allergy and Infectious Diseases, part of the National
Institutes of Health, had selected opaganib for the nuclear medical countermeasures product development pipeline as a potential treatment for ARS. As part of this collaboration, contractors directed and supported by the RNCP will
undertake studies, designed in collaboration with us, to test opaganib in established ARS models.
In July 2023, we announced that Apogee had been awarded a further $1.7 million in U.S. government funding, via a Small Business Innovation Research (SBIR) grant, which will support
research to further the development of opaganib as an MCM for GI-ARS. This grant is in addition and complementary to the multimillion dollar-valued U.S. government RNCP product pipeline development contract awarded to opaganib
following its selection by the RNCP for ARS development.
Ebola
In October 2023, we announced that opaganib delivered a statistically significant increase in survival time when given at 150 mg/kg twice a day (BID) in a United States Army Medical
Research Institute of Infectious Diseases (USAMRIID) in vivo Ebola virus study, making it the first host-directed molecule to show activity in Ebola virus disease. The U.S. Army study tested
three doses of opaganib (50, 100 and 150 mg/kg BID), against an inactive vehicle control arm. The in vivo study results showed a statistically significant survival increase in mean (SE) survival time of 11.2 (2.6) days in the 150
mg/kg opaganib group (p=0.0279) compared to a mean (SE) survival time of 5.5 (0.4) days in the inactive vehicle control group. A 30% mice survival was observed in the 150 mg/kg treated group compared to the vehicle control.
In December 2023, we announced opaganib and RHB-107 (upamostat) demonstrated robust synergistic effect when combined individually with remdesivir (a leading COVID-19 therapy sold
under the brand name Veklury® by Gilead Sciences, Inc.), significantly improving viral inhibition while maintaining cell viability, in a new U.S.
Army-funded and conducted Ebola virus in vitro study.
ABC‑105: Moderate to Severe Ulcerative Colitis (“UC”)
A Phase 2 study to evaluate the efficacy of opaganib in patients with moderate to severe UC by the proportion of patients who are in remission at the end of treatment is currently on
hold.
ABC‑109: Food Effect Study in Healthy Subjects
A Phase 1, randomized, open-label, single-dose, 3-treatment, 3-period, 6-sequence crossover study designed primarily to evaluate the effect of a standardized meal on the absorption
and bioavailability of opaganib in healthy subjects, was completed in the U.S. in January 2018. The study also evaluated the effect of the administration of a solution of opaganib via nasogastric (NG) tube on the absorption and
bioavailability of opaganib. Twenty-three eligible, healthy, male and female adult subjects were randomized to receive opaganib orally in a state of fast, fed or as a solution by NG tube (after tube feeding). Seventeen subjects
received all three treatments. All three treatments, though maximum concentration was lower when the drug was given orally in the fed state as compared to fasted, nasogastric administration after tube feeding led to intermediate
results. Subjects experienced fewer gastrointestinal side effects when the drug was given in the fed state than fasted, but the pharmacodynamic effect, as reflected in the decrease in sphingosine-1-phosphate, the product of the
target enzyme, was no lower after fed than fasted administration. Thus, the results indicated that opaganib may be given after eating, with improved tolerance and no loss of pharmacodynamic effect.
The following chart summarizes the clinical trial history and status of opaganib:
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Planned
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Development
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Purpose of
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number of
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Nature and
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Clinical trial
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phase of the
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the clinical
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Clinical
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subjects of
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status of
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name
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clinical trial
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trial
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trial site
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the trial
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the trial
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Schedule
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ABC-201
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Phase 2/3
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A study for the treatment of Opaganib in patients with severe COVID-19 pneumonia
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Multicenter study
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464
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Completed
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Results reported in 2022
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ABC-110
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Phase 2
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A study for the treatment of opaganib in patients with severe COVID-19 pneumonia
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Multicenter study across the U.S.
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40
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Completed
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Results reported in 2021
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ABC‑108
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Phase 2a
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A study for the treatment of advanced, unresectable intrahepatic, perihilar and extrahepatic cholangiocarcinoma with opaganib and co-treatment with opaganib and HCQ
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Multicenter study across the U.S.
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65
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Completed
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Results expected H2/2024
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ABC‑107 (103193 MUSC Study ID)
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Phase 2
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An add-on study for prostate cancer patients who progressed on enzalutamide or abiraterone. The proportion of patients with disease control during treatment with opaganib and
enzalutamide or abiraterone will be measured
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Medical University of South Carolina, Charleston, U.S. and Emory University, Atlanta, Georgia, U.S.
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65
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Ongoing
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Results expected H2/2024
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ABC‑103
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Phase 1b/2
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Safety and efficacy study in patients with refractory or relapsed multiple myeloma that have previously been treated with proteasome inhibitors and immunomodulatory drugs
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Duke University, North Carolina, U.S.
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Ended
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Ended after Phase 1
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Ended
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ABC‑101
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Phase 1
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Safety, PK and pharmacodynamic study in patients with advanced solid tumors
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Medical University of South Carolina, Charleston, U.S.
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22
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Completed. Final results indicate the study drug is well tolerated and can be safely administered to cancer patients
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Completed 2015
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ABC-106
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Phase 2
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Investigator-Sponsored Safety and Efficacy Study in Patients with Advanced Hepatocellular Carcinoma Who Have Progressed on Sorafenib
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Medical University of South Carolina, Charleston, U.S. and collaborating sites (Multicenter, U.S.)
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From 12 to 39
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Withdrawn and replaced with ABC-107 in prostate cancer (103193 MUSC Study ID)
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Withdrawn
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ABC-104
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Phase 1b
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Safety and efficacy study in the prevention of mucositis in combination with radiotherapy for treatment of squamous head and neck carcinoma
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Multicenter study across the U.S.
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Up to 32
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TBD
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TBD
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ABC‑105
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Phase 2
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A study for the treatment of moderate to severe ulcerative colitis
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Multicenter study
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Up to 94
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TBD
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TBD
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ABC‑109
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Phase 1
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Assessment of the effect of food on the absorption and bioavailability of opaganib; also as a solution via nasogastric (NG) tube under fed conditions
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ICON Early Phase Services, San-Antonio, TX, U.S.
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23
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Completed
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Completed 2018
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We cannot predict with certainty our development costs, and such costs may be subject to changes. See “Risk Factors – Risks Related to Our Financial Condition and Capital
Requirements.”
RHB‑107 (upamostat; formerly Mesupron)
As mentioned under “ – Business Overview – Acquisition, Commercialization and License Agreements – License Agreement for RHB-107” (upamostat;
formerly Mesupron)”, on June 30, 2014, we signed an exclusive license agreement with Wilex AG (which later changed its name to Heidelberg Pharma AG) for RHB-107 (INN: upamostat; formerly Mesupron) for all indications and
for all uses. Under this agreement, we are responsible for all development, regulatory and commercialization of RHB-107 in the entire world, excluding China, Taiwan, Macao, and Hong Kong.
RHB-107 is a proprietary, first-in-class, orally-administered potent inhibitor of several serine proteases, with a unique potency and specificity. In addition to its original
development as a potential cancer therapy, work completed by us demonstrated its potential use in inflammatory digestive diseases, inflammatory lung diseases and infectious diseases. Furthermore, RHB-107 shows promise as a potential
host-directed anti-viral with applications in pandemic preparedness, including COVID-19 and possibly also ebola.
Market and Competition
RHB-107 is currently being developed for the treatment of non-hospitalized symptomatic COVID-19, and has previously undergone non-clinical and clinical studies in several oncology
indications, including metastatic breast cancer and advanced non-metastatic pancreatic cancer.
Non-Clinical and Clinical Development
Data from non-clinical studies conducted by us indicate that WX-UK1, the active metabolite of RHB-107, is a specific and potent inhibitor of several human serine proteases (e.g.,
trypsin-3, trypsin-2, trypsin-1, matriptase-1, and trypsin-6), some of which have been shown to play a role in inflammatory digestive diseases and lung diseases. Additional non-clinical studies indicated that several members of the
type II transmembrane serine proteases (TTSPs), some of which are important factors in the spread of infectious diseases, were inhibited by WX-UK1.
RHB-107’s safety profile has been demonstrated in approximately 300 participants, including in Phase 2 studies in oncology indications and COVID-19.
Oncology
Several Phase 1 studies and two Phase 2 proof-of-concept studies have been completed with RHB-107 in cancer patients. The first Phase 2 trial in locally advanced non-metastatic
pancreatic cancer and the second trial in metastatic breast cancer established the therapeutic candidate’s safety and tolerability profile. The Phase 2 trials with RHB-107 in both indications failed to demonstrate significant
improvement in either progression-free survival or overall survival.
None of the prior studies used any molecular markers to target certain patient populations. Using technologies developed since the original clinical trials were performed, we are
currently planning several preclinical studies, including biomarker analysis and mechanism of action studies We expect that the findings from these studies can help us determine the patient populations to be studied in subsequent
clinical trials.
In October 2017, the FDA granted RHB-107 orphan drug designation for the treatment of pancreatic cancer. The orphan drug designation allows us to benefit from various development
incentives to develop RHB-107 for this indication, including tax credits for qualified clinical testing, waiver of a PDUFA upon submission of a potential marketing application and, if approved, a seven-year marketing exclusivity
period (subject to certain exceptions) for the treatment of pancreatic cancer.
COVID-19
RHB-107 was studied in a 3D tissue model of human bronchial epithelial cells (EpiAirway™) which morphologically and functionally resembles the human airway and is similar to the
model used to discover SARS-CoV-2. The study was designed to evaluate the in vitro efficacy of RHB-107 in inhibiting SARS-CoV-2 infection and included a positive control of camostat. Results
from the study demonstrated strong inhibition of SARS-CoV-2 viral replication.
In October 2022, we announced study results showing preliminary evidence of in vitro efficacy against the Omicron COVID-19 sub-variant BA.5
by opaganib and RHB-107.
RHB-107-01: Global Phase 2/3 Study
A 2-part, Phase 2/3 multicenter, randomized, double-blind, placebo-controlled, parallel-group study with RHB-107 randomized its last patient into Part A of the study November 12,
2021. The study aimed at evaluating treatment in patients with symptomatic COVID-19 early in the course of the disease, with a once-daily oral treatment that can be prescribed and used in the non-hospitalized patient population. The
Phase 2 part of the study was designed to evaluate safety for dose selection and to provide preliminary assessment of parameters to be used for efficacy evaluation in Part B. A total of 61 patients were enrolled in Part A and
randomized on a 1:1:1 basis to receive one of two dose levels of RHB-107 or a placebo control and was predominantly conducted in the U.S. (60/61 patients) as well as South Africa.
RHB-107 was administered once daily for 14 days, with patients receiving follow-up for eight weeks from first dosing. The primary endpoints were time to sustained recovery from
symptomatic illness compared to placebo, as well as safety and tolerability of RHB-107. Several secondary and exploratory endpoints are also being assessed. In February 2021, we announced that the first patient had been dosed in the
study.
In March 2022, we announced the positive Phase 2 study results of Part A of the Phase 2/3 study. Although not powered for efficacy assessment, the study showed highly promising
efficacy results delivering a 100% reduction in hospitalization due to COVID-19, with zero patients on RHB-107 hospitalized with COVID-19 (0/41) compared to 15% on the placebo-controlled arm requiring hospitalization (3/20) (nominal
p-value=0.0317). Furthermore, the study showed an 87.8% reduction in reported new severe COVID-19 symptoms, with only one patient on RHB-107 (2.4%, 1/41) compared to 20% (4/20) of patients on the placebo-controlled arm experiencing
new COVID-19 related severe symptoms (nominal p-value=0.036).
The study met its primary outcome measure, demonstrating a favorable safety and tolerability profile of RHB-107. Study arms were well balanced with respect to baseline disease
severity, risk factors and vaccination status. Patients were also tested for the specific viral strain, with the most common variant being Delta, found in 62.5% of the patients that had next generation sequencing (NGS).
In July 2023, we announced that RHB-107 had been accepted for inclusion in the U.S. Department of Defense- supported Austere environments Consortium for Enhanced Sepsis Outcomes’
(ACESO) PROTECT multinational platform trial for early COVID-19 outpatient treatment. The 300-patient Phase 2 study has received FDA clearance. The study is being conducted in the U.S., Thailand, Ivory Coast, South Africa and
Uganda, and is estimated to be completed by end of 2024.
The ACESO PROTECT study is an adaptive, randomized, double blind, multi-site Phase 2 platform trial, being conducted by researchers from ACESO and partner organizations, and
administered by the Henry M. Jackson Foundation for the Advancement of Military Medicine (HJF). The study will compare investigational products (Ips) to control, in standard-risk, non-hospitalized adult SARS-CoV-2 infected
participants with at least two moderate-severe symptoms at baseline. RHB-107 is the initial drug being evaluated in the early treatment arm of the study. The primary efficacy assessment in the early treatment indication will be time
to sustained alleviation or resolution of COVID-19 symptoms. Participants will be followed for a period of up to 12 weeks.
In December 2023, we announced the receipt of non-dilutive external funding, additional to the previously announced U.S. Government funding, which now covers the entirety of the
RHB-107 (upamostat) arm of the ACESO PROTECT adaptive platform trial.
In conjunction with the initiation of the said ACESO PROTECT study, the previously planned part B of study RHB-107-01 was cancelled.
Ebola Virus Disease Therapy
In 2022, in collaboration with the Therapeutic Discovery Branch of the USAMRIID (US Army Medical Research Institute of Infectious Diseases) to evaluate opaganib and RHB-107 in high
throughput antiviral screening. We completed in-vitro studies against different strains of Ebola virus, including SUDV, Sudan ebolavirus (Boniface), Ebola Virus Disease, EBOV (Makona), and additional viral infectious diseases,
including Marburg virus disease, MARV (Ci67), and Rift Valley fever RVFZ (ZH-501). Initial data from high-content imaging assays, provided further support for activities of Redhill candidates against these viral diseases.
In December 2023, we announced opaganib and RHB-107) demonstrated robust synergistic effect when combined individually with remdesivir (a leading COVID-19 therapy sold under the
brand name Veklury® by Gilead Sciences, Inc.), significantly improving viral inhibition while maintaining cell viability, in a new U.S. Army-funded and
conducted Ebola virus in vitro study.
RHB-104
Crohn’s Disease
RHB-104 is an investigational new drug intended to treat Crohn’s disease, which is a serious inflammatory disease of the GI system that may cause severe abdominal pain and bloody
diarrhea, malnutrition and potentially life-threatening complications.
RHB-104 is a patented combination of clarithromycin, clofazimine, and rifabutin, three generic antibiotic ingredients, in a single capsule. The compound was developed to treat MAP
infections in Crohn’s disease.
To date, Crohn’s disease has been considered an autoimmune disease, but the exact pathological mechanism is unclear. Dr. Robert J. Greenstein suggested in The Lancet Infectious Diseases, 2003, that Crohn’s disease is caused by MAP, the same organism responsible for causing a major disease in animal agriculture production, domestic and wild animals. This hypothesis is
supported by an expanding number of scientific and clinical studies published in peer-reviewed journals since a National Institute of Allergy and Infectious Diseases conference that focused on MAP in Crohn’s disease took place in
1998. Specific genetic loci like NOD2/CARD15 have been implicated in the pathogenesis of Crohn’s disease with mutations in NOD2 suspected of leading to defective recognition of MAP and increased compensatory immune activation in
patients with Crohn’s disease. Advances in diagnostic technology have led to increasingly higher identification of MAP, with studies, such as Naser S et al. The Lancet, 2004, Bull TJ et al. J Clin Microbiol, 2003 and Shafran I et al. Dig Dis Sci, 2002, demonstrating a high prevalence of MAP in Crohn’s disease patients. However, there is
currently no FDA-approved commercial diagnostic test for MAP.
In 2011, we obtained FDA “Orphan Drug” status for RHB-104 for the treatment of Crohn’s disease in the pediatric population. See “ – Business Overview – Government Regulations and
Funding – Orphan Drug Designation.”
The formulation for RHB-104 and manufacturing of the all-in-one capsules for our clinical trials have been completed. Multiple batches of RHB-104 hard shell capsules packaged in 250
cc bottles with a cap and induction seal child resistant closure have been evaluated in long-term and accelerated stability studies under International Conference on Harmonization (“ICH”) specified conditions.
We acquired the rights to RHB-104 pursuant to an asset purchase agreement with Giaconda Limited, an Australian company. See “ – Business Overview – Acquisition, Commercialization and
License Agreements – Acquisition of Talicia®, RHB-104, and RHB-106.”
A companion diagnostic for the detection of MAP bacteria in Crohn’s disease patients is required in order to advance this development program. We do not know if or
when such a diagnostic test would become available.
Market and Competition
According to GlobalData, a provider of market intelligence for the pharmaceutical sector, there were approximately 3 million diagnosed prevalent cases of Crohn’s disease in the
sixteen major pharmaceutical markets (the U.S., France, Germany, Italy, Spain, the UK, Japan, Australia, Brazil, Canada, China, India, Mexico, Russia, South Africa and South Korea) in 2022. This number of diagnosed prevalent cases
is expected to increase to 3.4 million by 2029.
Therapeutic interventions in Crohn’s disease patients are based on the disease location, severity, and associated complications. Therapeutic approaches for the treatment of Crohn’s
disease are individualized according to the patient’s symptomatic response and tolerance to the prescribed treatment. Since the existing treatments are not curative, the current therapeutic approaches are sequential and involve
treatment of an acute disease or inducing clinical remission followed by maintenance of the response or remission to improve the patient’s quality of life.
Currently, available drugs on the market for the treatment of Crohn’s disease offer symptomatic relief, the effects of which are largely temporary or partial and are accompanied by
numerous adverse effects. The most commonly prescribed drugs for treatment of Crohn’s disease include 5 Aminosalicylates (5-ASA, such as mesalamine), corticosteroids (such as prednisone), antibiotics, immunomodulators (such as
azathioprine and methotrexate) and biologic agents, including TNF-α inhibitors (such as Remicade®, Humira®, and Cimzia®), integrin inhibitors (such as Tysabri® and Entyvio®) and an IL-12 and IL-23 antagonist (such as Stelara®). Additionally, several companies have developed for approval, or are in the process of developing, biosimilar drugs to compete with the approved biologic agents once their patent has expired. In July
2022, AbbVie Inc (“AbbVie”) announced that it has submitted an application for a new indication to the FDA for Rinvoq® (upadacitinib), a selective and
reversible Janus kinase inhibitor for the treatment of moderate to severe Crohn’s disease in adult patients who had an inadequate response or were intolerant to one or more TNF blockers. AbbVie anticipates receiving an approval
decision in the second quarter of 2023. If approved, it will be the first Janus kinase inhibitor approved for the treatment of Crohn’s disease. Rinvoq® label includes an FDA black box warning for other approved indications due to
safety concerns relating to serious heart-related side effects and cancer risks.
There are other companies currently conducting clinical trials with drug candidates in Crohn’s disease. We may also be exposed to potentially competitive products, which may be under
development to treat Crohn’s disease, including new biological therapies and other new therapies.
Unlike drugs currently on the market for the treatment of Crohn’s disease, which are immunosuppressive agents, RHB- 104 is intended to address the suspected cause of the disease -
MAP bacterial infection. To the best of our knowledge, there are no drugs approved for marketing that target infections caused by MAP bacteria in Crohn’s disease patients.
Clinical Development
A Phase 3 clinical trial for RHB-104 was conducted in Australia, sponsored by Pharmacia, a Swedish company (which merged with Pfizer), with the primary endpoint of evaluating the
ratio of patients with recurrent symptoms of Crohn’s disease following the initial induction of remission with 16 weeks of treatment with prednisolone initiated at 40 mg/day and weaned over the 16-week period. Subjects were
subsequently assessed at 52, 104 and 156 weeks. The main secondary objective was the percentage of patients who achieved clinical remission at 16 weeks. The results of the trial were published by Professor Warwick Selby et al. in 2007 in the medical journal Gastroenterology. Although the study did not meet the main objective of showing a difference in relapse rate with
long-term treatment, there was a statistically significant difference between the treatment groups in the percentage of subjects in remission at week 16. Professor Marcel Behr and Professor James Hanley from McGill University
published a re-analysis of the study in The Lancet Infectious Diseases in June 2008, based on the intent-to-treat (ITT) principle and found that there was a significant statistical advantage
for the active therapy over the placebo throughout the two-year period of administration that disappeared once the active therapy was discontinued.
In June 2011, we entered into an agreement with our Canadian service provider, which entered into a back-to-back agreement with PharmaNet Canada Inc. for the provision of clinical
trial services for the RHB-104 adult studies in North America and Europe. PharmaNet was subsequently acquired by inVentiv Health which became Syneos Health (“Syneos”), and our agreements were transferred to Syneos.
In October 2012, we entered into an agreement with our Canadian service provider, which, in turn, entered into a back-to-back agreement with a Canadian manufacturer to complete the
manufacturing and supply of RHB-104 for our clinical trials. In addition, we entered into additional manufacturing agreements directly with the Canadian manufacturer.
In July 2018, we announced positive top-line results from the first Phase 3 study with RHB-104 for Crohn’s disease (the “MAP US study”), a randomized, double-blind,
placebo-controlled first Phase 3 study with RHB-104 for Crohn’s disease. The Phase 3 study enrolled 331 subjects with moderately to severely active Crohn’s disease (defined as Crohn’s Disease Active Index (“CDAI”) between 220 and
450) in the U.S., Canada, Europe, Australia, New Zealand, and Israel. Subjects were randomized 1:1 to receive RHB-104 or placebo as an add-on therapy to baseline standard-of-care medications, including 5-ASAs, corticosteroids,
immunomodulators or anti-TNF agents.
Our MAP US study successfully met its primary endpoint, as well as key secondary endpoints. Top-line results in the intent-to-treat (ITT) population demonstrated superiority of
RHB-104 over placebo in achieving remission at week 26, defined as CDAI value of less than 150, the primary endpoint of the study. The proportion of patients meeting the primary endpoint was significantly greater in the RHB-104
group compared to placebo at week 26 (37% vs. 23%, p= 0.007). Moreover, while the secondary endpoints were not powered for significance in this induction of remission trial, key secondary endpoints were nevertheless met with
statistically and clinically meaningful outcomes, demonstrating consistent benefit to Crohn’s disease patients treated with RHB-104. RHB-104 was found to be generally safe and well tolerated.
In October 2018, we reported additional positive data from the MAP US study, including subgroup analysis of treatment with and without anti-TNF agents, presented at the United
European Gastroenterology Week 2018.
In October 2019, we announced full week 52 results of blinded treatment in the MAP US study at the American College of Gastroenterology, which were consistent with the previously
reported interim positive outcomes from the study. The study continued to meet its primary endpoint of clinical remission, defined as CDAI value of less than 150, at week 26 (36.7% vs. 22.4%, p=0.0048), key secondary endpoints of
maintenance of remission at weeks 16 and 52 (25.9% vs. 12.1%, p=0.0016) and, notably, durable clinical remission on all visits, week 16 through 52 (18.7% vs. 8.5%, p=0.0077) (in all cases, data presented as RHB-104 vs. placebo).
RHB-104 was found to be generally safe and well tolerated, with an overall balance in the type and frequency of adverse events between RHB-104 and placebo. RHB-104 was associated
with a lower incidence of Clostridiodies (Clostridium) difficile infections compared with placebo. In the analysis of the complete safety information for the study, a top-line electrocardiogram monitoring report for the MAP US
study, which was shared with the FDA, demonstrated evidence of progressive prolongation of the QTcF (corrected QT interval by Frederica’s formula) interval across visits, with the largest mean placebo-corrected ΔQTcF (∆∆QTcF) of
30.6ms at week 52 of treatment. Clofazimine, as well as clarithromycin (another active component of RHB-104), are known to be associated with QT prolongation.
In October 2019, we also announced supportive top-line results from an open-label extension Phase 3 study (the “MAP US2 study”), which was conducted to evaluate the safety and
efficacy of RHB-104 in subjects who remain with active Crohn’s disease (CDAI ≥ 150) after 26 weeks of blinded study therapy in the Phase 3 MAP US study. These subjects had the opportunity to receive treatment with RHB-104 for a
52-week period in the open-label MAP US2 study. A total of 54 subjects entered the open-label extension study in the U.S., Canada, Europe, Israel, and New Zealand, and 30 subjects completed 52 weeks of treatment with RHB-104. The
MAP US2 study’s primary endpoint is disease remission at week 16, defined as CDAI of less than 150. Top-line results from the MAP US2 study demonstrated 28% clinical remission with RHB-104 at week 16 and 22% remission at week 52. Of
the MAP US2 subjects who were previously randomized to the placebo arm (as an add-on to standard-of-care therapies) in the MAP US study and treated with RHB-104 for the first time in the MAP US2 study, 32% achieved remission at week
16.
We further announced in September 2019 that following additional guidance received from the FDA on the path for potential approval of RHB-104 for the treatment of Crohn’s disease, we
have intensified our collaborations with leading laboratories in the field of detection of MAP bacteria in Crohn’s disease patients. We do not know if and when a diagnostic test for MAP would become available. Additional FDA
guidance on the potential path to approval of RHB-104 is to be obtained prior to initiation of further clinical studies.
We have conducted several supportive studies with the current formulation of RHB-104, including a population pharmacokinetic study that was conducted as part of the Phase 3 MAP US
study.
We believe that additional clinical studies will be required to support an NDA for RHB-104, if filed.
The following chart summarizes the clinical trial history and status of RHB-104 studies and its earlier individual active agents:
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Planned
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Development
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number of
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Nature and
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Clinical trial
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phase of the
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Purpose of the
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Clinical
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subjects of
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status of
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author/designation
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clinical trial
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clinical trial
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trial site
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the trial
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the trial
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Schedule
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Borody 2002
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Phase 2a
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Examining the effect of the treatment on Crohn’s disease patients
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Center for Digestive Disease, Australia
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12
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Performed
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Completed 2002
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Borody 2005
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Phase 2
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Examining the effect of the treatment on Crohn’s disease patients
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Center for Digestive Disease, Australia
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52
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Performed
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Completed 2005
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Selby
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Phase 3
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Examining the effect of the treatment with the product on Crohn’s disease patients
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20 clinical centers in Australia
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213
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The trial was performed and indicated promising improvement rates, although it did not meet the main trial objective, as defined
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Published in 2007
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Biovail PK Study 2007
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PK Study
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Optimize the formulation of RHB‑104 on a PK basis
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Toronto, Ontario
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24
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The trial compared two formulations to determine the optimum formulation for RHB‑104
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Completed 2007
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MAP US Study
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Phase 3
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Assess the safety and efficacy of RHB‑104 in Crohn’s disease patients
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U.S., Canada. Israel, Australia, New Zealand, and Europe
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331
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Completed
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Completed 2020
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MAP US2 Study
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Phase 3
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Assess the safety and efficacy of RHB‑104 in Crohn’s disease patients
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U.S., Canada, Israel, New Zealand, and Europe
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54
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Completed
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Completed 2021
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Drug-Drug Interaction Study
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PK Study
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To assess the net PK effect of multiple doses of RHB‑104 on CYP3A4 enzymes in healthy volunteers
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Algorithme Pharma, Canada
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36
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Ended
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Ended 2014
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Food Effect Study
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PK Study
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Determine the effect of food on the bioavailability of RHB‑104 in healthy volunteers
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Algorithme Pharma, Canada
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84
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Completed
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Completed 2014
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We cannot predict with certainty our development costs, and such costs may be subject to change. See “Risk Factors – Risks Related to Our Financial Condition and Capital
Requirements.”
Multiple Sclerosis (“MS”)
MS is an inflammatory, demyelinating, and neurodegenerative disease of the central nervous system of uncertain etiology that exhibits characteristics of both infectious and
autoimmune pathology.
We had previously conducted a Phase 2a proof-of-concept study with RHB-104 for relapsing-remitting multiple sclerosis. At the current stage, we have no intention to pursue the
development of RHB-104 for this indication.
RHB-102 (Bekinda®)
RHB-102 (Bekinda®) is an investigational, once-daily, bi-modal release, oral
formulation of ondansetron, a leading member of the family of 5-HT3 serotonin receptor inhibitors. We are developing RHB-102 (Bekinda®)
in multiple dosage strengths. RHB-102 (Bekinda®) is under development for the intended use in the following indications, which are
novel and not yet FDA-approved indications for ondansetron targeting large potential markets:
1) Acute gastroenteritis and gastritis – 24 mg strength
2) Irritable Bowel Syndrome with Diarrhea (IBS-D) – lower dose strength for long-term administration
RedHill is also exploring the development of RHB-102 (Bekinda®) 24 mg for oncology
support (management of nausea and vomiting induced by cytotoxic chemotherapy and radiotherapy, also referred to as CINV and RINV) in the UK. On February 16, 2023, the Company announced that following a positive pre-MAA meeting and
subject to manufacturing-related activities it is considering plans and path to submit a Marketing Authorisation Application (MAA) to the UK Medicines & Healthcare products Regulatory Agency (MHRA) seeking approval for RHB-102
(Bekinda®) for oncology support in adults and children over the age of 12. Data to support the submission was generated from several
clinical studies, including the successful U.S. Phase III GUARD study with RHB-102 24 mg for acute gastroenteritis and gastritis.
RHB-102 (Bekinda®) utilizes a technology called CDT® that uses salts to provide an extended-release of ondansetron. The CDT® platform enables
extended drug release (i.e., the measured rate of introduction of active drug) at a relatively low manufacturing cost. The proposed commercial formulation and its use are protected by Company-filed patents and pending patent
applications and are being pursued internationally.
Acute Gastroenteritis and Gastritis
Acute gastroenteritis and gastritis both involve inflammation of the mucous membranes of the GI tract. Symptoms of gastroenteritis and gastritis include nausea, vomiting, diarrhea,
and abdominal pain. Acute gastroenteritis and gastritis are major causes of emergency room visits, particularly for pediatrics. If approved, RHB-102 (Bekinda®) could potentially decrease the number of emergency room visits for patients suffering from acute gastroenteritis and gastritis by offering them an effective and long-lasting treatment, which can be
taken in the comfort of their home.
Market and Competition
A single dose of RHB-102 (Bekinda®) is intended to treat nausea and vomiting over
a time window of approximately 24 hours. If approved for such use, this would be potentially advantageous for acute gastroenteritis and gastritis patients as it could help eliminate the need to take additional drugs (tablets) during
the day or receiving intravenously administered drugs.
If RHB-102 (Bekinda®) is approved for the treatment of acute gastroenteritis and
gastritis, it could potentially hold substantial advantages over existing treatments. If approved, RHB-102 (Bekinda®) could be
prescribed by primary care physicians to patients early on, potentially preventing emergency room visits, dehydration and the need to provide IV fluids. There are an estimated 179 million cases of gastroenteritis in the U.S.
annually (Scallan E et al. 2011).
To the best of our knowledge, there are no other 5-HT3 serotonin receptor inhibitors indicated or in the advanced clinical stage of development in the U.S. for this indication.
Patients presenting at hospitals with gastroenteritis and gastritis are often treated primarily in IV administration with antiemetic drugs not indicated or approved for this condition, off-label, including 5-HT3 serotonin receptor
inhibitors. If approved, RHB-102 (Bekinda®) will compete with several prescription and OTC antiemetic drugs, including but not limited to,
dimenhydrinate, Nauzene®, and Emetrol®, as well as off-label use of
ondansetron and other 5-HT3 inhibitors.
We may also be exposed to potentially competitive products which may be under development to treat acute gastroenteritis. To the best of our knowledge, a product that potentially
directly competes with RHB-102 (Bekinda®) is EUR-1025 for controlled release of ondansetron, based on a different technology of
controlled release originally developed by Eurand N.V. (now owned by Adare Pharma Solutions) and which completed two pivotal pharmacokinetic studies intended to establish the bioequivalence of EUR-1025 versus Zofran® (ondansetron hydrochloride). To the best of our knowledge, there has not been further clinical development of EUR-1025 since the completion of the
above-mentioned pharmacokinetic studies.
Clinical Development
In June 2017, we announced positive top-line results from the randomized, double-blind, placebo-controlled Phase 3 study (the “GUARD study”) with RHB-102 (Bekinda®) 24 mg for acute gastroenteritis and gastritis. The study successfully met its primary endpoint and RHB-102 (Bekinda®) 24 mg was found to be safe and well tolerated in this indication. The GUARD study evaluated the efficacy and safety of RHB-102 (Bekinda®) 24 mg in treating acute gastroenteritis and gastritis in 321 adults and children over the age of 12. The primary endpoint of the study was the proportion of patients without further vomiting,
without rescue medication, and who were not given intravenous hydration from 30 minutes post first dose of the study drug until 24 hours post-dose, compared to placebo. In September 2017, we met with the FDA to discuss the study
results and the clinical and regulatory path toward potential marketing approval of RHB-102 (Bekinda®) 24 mg in the U.S. Following the guidance provided
at the meeting and additional guidance provided thereafter, we are currently advancing preparations toward a confirmatory Phase 3 study to support a potential NDA with RHB-102 (Bekinda®) 24 mg for acute gastroenteritis and gastritis.
Final results from the GUARD study showed improvement to the primary efficacy outcome by 21% in the ITT population; 65.6% of RHB-102 (Bekinda®) treated patients as compared to 54.3% of placebo patients (p=0.04; n=192 in the RHB-102 (Bekinda®) group and n=129 in the placebo group). In the Per Protocol (PP) population, which included patients who met all protocol entry criteria and for which the diagnosis of gastroenteritis was confirmed
(n=177 in the RHB-102 (Bekinda®) group and n=122 in the placebo group), RHB-102 (Bekinda®) improved the efficacy outcome by 27%; 69.5% of patients in the RHB-102 (Bekinda®) group vs. 54.9% in the placebo group, (p=0.01). An imbalance in baseline nausea was noted, with worse nausea in the RHB-102 (Bekinda®) treated group. In a post hoc analysis, when results were adjusted for baseline nausea, the p-value for the ITT population was 0.0152, and for the PP population was 0.0037. RHB-102
(Bekinda®) 24 mg was also shown to be safe and well tolerated; electrocardiogram results showed no adverse changes with treatment.
The benefit observed with RHB-102 (Bekinda®) is evident across the spectrum of severity of nausea at baseline, including in patients with very severe
nausea, suggesting that the drug works regardless of the initial severity of gastroenteritis.
The lead investigator for the Phase 3 study was Dr. Robert A. Silverman, MD, MS, Associate Professor at the Hofstra North Shore-LIJ School of Medicine and an emergency medicine
specialist.
In September 2019, we had a follow-up meeting with the FDA regarding our efforts to design a study acceptable to the agency to seek the FDA’s approval for pediatric labeling for
RHB-102 (Bekinda®), as required by the FDA pursuant to the Pediatric Research Equity Act. The September 2019 meeting provided further clarity on the
designs of the pediatric studies required by FDA, but the details have not yet been finalized.
The following chart summarizes the clinical trial history and status of RHB-102 (Bekinda®) for gastroenteritis and gastritis:
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Planned
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Development
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number of
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Nature and
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Clinical trial
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phase of the
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Purpose of the
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Clinical
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subjects
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status of
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name
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clinical trial
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clinical trial
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trial site
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of the trial
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the trial
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Schedule
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GUARD Study
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Phase 3
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Randomized double-blind placebo-controlled Phase 3 study in acute gastroenteritis and gastritis
|
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21 sites in the U.S.
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321
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Evaluated the safety and efficacy of RHB‑102 (Bekinda®) in acute gastroenteritis and gastritis
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Completed 2017
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TBD
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Confirmatory Phase 3
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Support a potential NDA with RHB‑102 (Bekinda®) 24 mg for acute gastroenteritis and gastritis
|
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TBD
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TBD
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TBD
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TBD
|
We cannot predict with certainty our development costs, and such costs may be subject to changes. See “Risk Factors – Risks Related to Our Financial Condition and Capital
Requirements.”
Irritable Bowel Syndrome with Diarrhea (IBS-D)
Irritable bowel syndrome (IBS) is a multifactorial disorder marked by recurrent abdominal pain or discomfort and altered bowel function. According to the Mayo Clinic, certain factors
that alter GI function can contribute to IBS symptoms, including stress, prior gastroenteritis, and changes in the gut microbiome, bile acids and short-chain fatty acids, which may stimulate 5-HT3 serotonin release and increase
colonic permeability and motility.
In preliminary studies, ondansetron has demonstrated activity in IBS-D (Garsed K, Chernova J, Hastings M, et al. Gut Published Online First December 12, 2013). Unlike alosetron (a
currently approved 5-HT3 antagonist in IBS-D), ondansetron has not been noted to cause ischemic colitis (FDA labeling for Lotronex® (alosetron), 2010;
FDA labeling for Zofran® (ondansetron), 2014).
In light of the activity of ondansetron demonstrated in the preliminary studies described above, and because of its extended-release properties and once-daily dosing, we believe
RHB-102 (Bekinda®) is a promising candidate for the treatment of IBS-D.
Market and Competition
IBS is one of the most common GI disorders. According to Datamonitor Healthcare, there were approximately 558 million prevalent cases of IBS worldwide (age >=15) in 2023 and
estimated that the number of prevalent cases will increase to approximately 604 million by 2030. Of the three subtypes of IBS, IBS-D is the most prevalent diagnosed subtype according to Pimentel M (Am J Manag Care, 2018), accounting
for 40% of the patient population.
To the best of our knowledge, there is one other 5-HT3 serotonin receptor inhibitor indicated for this indication in the U.S. known as alosetron marketed under the brand name
Lotronex® by Sebela Pharmaceuticals and is also available in generic versions marketed by other companies. However, alosetron is approved only for the
treatment of IBS in women with severe chronic IBS-D and has been associated with serious gastrointestinal side effects. The active ingredient in RHB-102 (Bekinda®), ondansetron, is approved by the U.S. FDA as an oncology support antiemetic and has a good safety profile. Therefore, we believe that RHB-102 (Bekinda®), if approved for the treatment of IBS-D in the U.S., may provide improved safety while maintaining efficacy and has the potential to be a preferred 5-HT3 serotonin receptor inhibitor treatment for
patients suffering from IBS-D. Ramosetron, another 5-HT3 serotonin receptor inhibitor is marketed for the treatment of IBS in Japan, South Korea, China and India (marketed under the brand name Irribow® by Astellas Pharma Inc. (in
Japan and South Korea) and is available in generic versions marketed by other companies). Ramosetron is also marketed for the treatment of chemotherapy-induced nausea and vomiting in Japan, South Korea, China, India and Indonesia
and for postoperative nausea and vomiting in South Korea and India. To the best of our knowledge, there is currently no clinical development of ramosetron for marketing approval in the U.S. for any indication.
If approved, RHB-102 (Bekinda®) will compete with several prescription drugs indicated for IBS-D,
including but not limited to Xifaxan® (rifaximin), marketed in the U.S. by Salix Pharmaceuticals, and Viberzi® (eluxadoline), marketed in the U.S. by Allergan plc., now AbbVie Inc, as well as additional prescription drugs, generic drugs, and over-the-counter products indicated for IBS-D or for
symptomatic relief of diarrhea and pain.
In addition, we may also be exposed to potentially competitive products that may be under development by other companies to treat IBS-D in the U.S.
Clinical Development
In January 2018, we announced positive final results from the Phase 2 clinical study of RHB-102 (Bekinda®)
12 mg for the treatment of IBS-D. The randomized, double-blind, placebo-controlled Phase 2 study evaluated the efficacy and safety of RHB-102 (Bekinda®)
12 mg in 126 subjects over 18 years old at 16 clinical sites in the U.S. The study successfully met its primary endpoint, improving the primary efficacy outcome of stool consistency.
RHB-102 (Bekinda®) was also shown to be safe and well tolerated in this indication. No serious adverse
events or new or unexpected safety issues were noted in the study. In September 2018, we announced that we concluded a positive End-of-Phase 2 Type B meeting with the FDA discussing the clinical and regulatory pathway toward
potential FDA approval of RHB-102 (Bekinda®) for the treatment of IBS-D. We are currently finalizing the design of two pivotal Phase 3 studies with
RHB-102 (Bekinda®) for the treatment of IBS-D.
The primary endpoint of the trial was the proportion of patients in each treatment group with response in stool consistency on study drug as compared to baseline. Response was
defined as per FDA guidelines for the indication. Additional endpoints were analyzed including:
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• |
proportion of patients in each treatment group who are pain responders, per FDA guidance definition;
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• |
proportion of patients in each treatment group who are overall responders, per FDA guidance definition; and
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• |
differences between treatment groups in:
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o |
frequency of defecation
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o |
incidence and severity of adverse events.
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The RHB-102 (Bekinda®)12 mg Phase 2 study successfully met its primary endpoint, improving the primary
efficacy outcome of stool consistency response (in accordance with the FDA guidance definition) by an absolute difference of 20.7%, with 56.0% responders of subjects treated with RHB-102 (Bekinda®) (n=75) vs. 35.3% responders of the placebo subjects (n=51) (p=0.036). While not powered for statistical significance of the secondary efficacy endpoints, the study suggested clinically
meaningful improvement in both secondary efficacy endpoints of abdominal pain response and overall response (combined stool consistency and abdominal pain response). Final results from the Phase 2 study demonstrated that RHB-102
(Bekinda®) 12 mg improved the overall worst abdominal pain response rate by 11.5% vs. placebo (50.7% with RHB-102 (Bekinda®) 12 mg (n=75) vs. 39.2% with placebo (n=51); (p=0.278)) and the overall response improved by an absolute difference of 14.5% in favor of the RHB-102 (Bekinda®) 12 mg arm (40.0% with RHB-102 (Bekinda®) 12 mg (n=75) vs. 25.5% with
placebo (n=51); (p=0.135)).
RHB-102 (Bekinda®) 12 mg was also shown to be safe and well tolerated. No serious adverse events or
new or unexpected safety issues were noted in the study. In September 2018, we announced that we concluded a positive End-of-Phase 2/Pre-Phase 3 (Type B) meeting with the FDA discussing the clinical and regulatory pathway toward
potential FDA approval of RHB-102 (Bekinda®) 12 mg for the treatment of IBS-D. We plan to finalize the design of two pivotal Phase 3 studies with
RHB-102 (Bekinda®) for the treatment of IBS-D.
We have initiated formulation work to formulate RHB-102 at lower dosages to help support planned pediatric studies. In December 2019, we received confirmation from the FDA that it
has agreed with our Initial Pediatric Study Plan (iPSP).
The following chart summarizes the clinical trial history and status of RHB-102 (Bekinda®) for IBS-D:
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Planned
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Development
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number of
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Nature and
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Clinical trial
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phase of the
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Purpose of the
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Clinical
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subjects
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status of
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name
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clinical trial
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clinical trial
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trial site
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of the trial
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the trial
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Schedule
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-
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Phase 2
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Randomized double-blind placebo-controlled Phase 2 study in IBS-D
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16 sites in the U.S.
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126
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Evaluating the safety and efficacy of RHB‑102 (Bekinda®) 12 mg in IBS-D
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Completed 2018
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TBD
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Phase 3
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Randomized double-blind placebo-controlled Phase 3 study in IBS-D
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TBD
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TBD
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TBD
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TBD
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We cannot predict with certainty our development costs and such costs may be subject to change. See “Risk Factors – Risks Related to Our Financial Condition and Capital Requirements.”
RHB-204
Nontuberculous Mycobacteria Infections
In November 2020, we initiated a Phase 3 study in RHB-204 for the treatment of pulmonary Mycobacterium avium complex (MAC)
disease in adults with nodular bronchiectasis (also referred to hereafter as pulmonary NTM disease caused by MAC).
The study was intended to assess the efficacy and safety of RHB-204 as a potential first-line, stand-alone treatment for pulmonary NTM infections caused by MAC. In May 2023, we
announced the termination of the study due to a very low accrual rate, and the shifting of our resources to advance once-daily, oral RHB-107’s late-stage development for outpatient treatment of COVID-19. We continue to explore
potential partnerships for RHB-204.
In January 2017, we announced that RHB-204 had been granted QIDP designation by the FDA for the treatment of pulmonary NTM infections, including eligibility for Accelerated Approval
and Priority Review and an extended market exclusivity period, if approved for marketing in the U.S.
In October 2020, we announced that RHB-204 had been granted Orphan Drug designation by the FDA for the treatment of pulmonary NTM infections which would extend market exclusivity
period to a total of 12 years, if approved for marketing in the U.S.
In January 2021 we announced that the FDA granted RHB-204 Fast Track designation, allowing RedHill access to early and frequent communications with the FDA, to expedite the RHB-204
development program, and to a rolling review of an NDA.
In August 2022, we announced that the European Commission granted Orphan Drug Designation to RHB-204 for the treatment of NTM disease, following a positive opinion recommendation by
the European Medicines Agency’s (EMA) Committee for Orphan Medicinal Products (COMP), providing eligibility for 10 years post-approval EU market exclusivity.
RHB-204 is a patented fixed-dose combination product of three antibiotics intended to simplify administration and optimize compliance, selected based on modelling to provide optimal
balance of the potential safety and efficacy. Each capsule contains the same three antibiotics as RHB-104 (clarithromycin, clofazimine, and rifabutin), but at doses unique from RHB-104. Clarithromycin and rifabutin were selected
because mycobacteria live within host cells, and these agents have intracellular activity against MAC. Further, rifabutin enhances the antimicrobial activity of clarithromycin due to increased levels of clarithromycin's active
metabolite. Selection of clofazimine was based on its activity against MAC, preferential accumulation in macrophages and bactericidal activity demonstrated in a mouse model of tuberculosis. Moreover, the inclusion of rifabutin and
clofazimine has shown to mitigate the emergence of resistance to clarithromycin compared to clarithromycin alone or in combination with only rifabutin or clofazimine in a clarithromycin-susceptible M.avium
lung infection mouse model as well as exhibiting significant reductions in bacterial counts in the lung after four and eight weeks of treatment.
Market and Competition
Pulmonary NTM is an orphan disease and is expected to affect approximately 111,000 patients in the U.S. in 2025, according to a 2021 analysis by Foster Rosenblatt. Although rare, the
incidence and number of deaths from NTM disease have been steadily increasing globally, according to Ratnatunga CN et al. (Front. Immunol. 2020), with a rise in the number of globally
documented NTM infections leading to NTM being recognized as an emerging threat causing significant morbidity and mortality in both immune competent and immune compromised populations. Treatment options remain limited, lengthy and
challenging (Ryu YJ et al. Tuberc Respir Dis, 2016; Ratnatunga CN et al. Front. Immunol. 2020).
NTM are naturally occurring organisms found in water and soil, which can cause chronic pulmonary infection. According to Prevots DR (Am J Respir Crit Care Med, 2010) and Winthrop KL
(Am J Respir Crit Care Med, 2010), approximately 80% of pulmonary NTM cases in the U.S. are associated with MAC. In some people, infection with NTM may lead to a progressive lung disease characterized by fever, weight loss, chest
pain, and blood in sputum. NTM disease is more common in the older adult population and individuals with a compromised immune system or underlying lung disease.
According to the American Lung Association, NTM are relatively resistant to antibiotics and can become more resistant if only one antibiotic is used. Effective treatment of NTM
caused by MAC requires three drugs for at least 12 months of treatment. Currently recommended treatment regimens, drug resistance patterns, and treatment outcomes differ according to the NTM species, and management is a lengthy
complicated process with limited therapeutic options (Ryu YJ et al. 2016). There is currently no approved first-line therapy for NTM lung disease. Treatment is determined based on guidelines and includes multi-drug regimens with
antibiotics not approved for NTM. Adherence to the guidelines for treating NTM lung disease is suboptimal, and potentially harmful antibiotic regimens are commonly prescribed. Management of NTM disease requires prolonged use of
costly combinations of multiple drugs with a significant potential for toxicity.
In September 2018, the FDA approved Arikayce® (amikacin liposome inhalation suspension), a new drug
developed by Insmed Incorporated, for the treatment of lung disease caused by MAC in a limited population of refractory patients which does not respond to conventional treatment. To the best of our knowledge, this is the first
treatment approved specifically for pulmonary NTM infections caused by MAC. Arikayce® is indicated as a second-line therapy in refractory patients as
part of a combination antibacterial drug regimen. The Arikayce® prescribing information includes a Boxed Warning regarding the increased risk of
respiratory conditions, including hypersensitivity pneumonitis, bronchospasm, exacerbation of underlying lung disease and hemoptysis that have led to hospitalizations in some cases.
Several drug candidates are currently under development for the treatment of NTM infections, including but not limited to, epetraborole (AN2 Therapeutics), an oral antibiotic agent,
LungFit® GO (Beyond Air Inc.), an inhaled Nitric Oxide, SPR720 (Spero Therapeutics, Inc.), an oral antimicrobial agent and Nuzyra® (Paratek
Pharmaceuticals), an oral antibacterial agent. Additionally, Insmed Incorporated is conducting a clinical trial program with Arikayce® as a first-line
treatment for patients with MAC lung disease. According to www.clinicaltrials.gov, there are several additional ongoing clinical studies evaluating treatments for NTM infections.
Clinical Development
Although each of the three components of RHB-204 is approved individually and has been tested extensively in humans (e.g. see RHB-104), the formulation and doses represented by
RHB-204 is novel and has not previously been tested in humans. Initiation of the trial for pulmonary NTM lung infections was in November 2020, and in May 2023, we announced the termination of the study due to a very low accrual
rate, and the shifting of our resources to advance once-daily, oral RHB-107’s late-stage development for outpatient treatment of COVID-19.
The following chart summarizes the development history and status of RHB-204:
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Planned
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number of
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Development
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Purpose of
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Clinical
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subjects of
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Status of
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Trial name
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phase
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the trial
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trial sites
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the trial
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the trial
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CleaR-MAC Trial
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Phase 3
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Evaluate the efficacy and safety of RHB-204 in adult subjects with documented MAC lung infection.
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Up to 40
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125
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Terminated
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Acquisition, Commercialization and License Agreements
Acquisition of Talicia®, RHB‑104, and RHB‑106
On August 11, 2010, we entered into an asset purchase agreement with Giaconda Limited, a publicly-traded Australian company, pursuant to which Giaconda Limited transferred all of its
patents, tangible assets, production files, regulatory approvals and other data related to the “Heliconda”, “Myoconda” and “Picoconda” products to us. We renamed these products Talicia®, RHB‑104, and RHB‑106, respectively. Giaconda Limited further transferred to us products in process, product samples and raw materials, as well as certain rights of first refusal with
respect to intellectual property in relation to digestive condition treatments. The agreement excluded the transfer of the rights to two products of Giaconda Limited that are not related to Talicia®, RHB‑104, and RHB‑106. However, to the extent that the intellectual property associated with these two other products may be required for the research, development,
manufacture, registration, import/export, use, commercialization, distribution, sale or offer for sale of any of Talicia®, RHB‑104, and RHB‑106,
Giaconda Limited granted us an exclusive worldwide assignable right to such intellectual property for such purposes. The closing of this transaction occurred on August 26, 2010.
We paid Giaconda Limited in consideration for the assets purchased by us an initial amount of $500,000. We and Giaconda Limited also agreed that, until the expiration of the last
patent transferred to us with respect to each product, we will pay to Giaconda Limited 7% of net sales from the sale of the relevant product/s by us and 20% of the consideration (including royalties received by us) from
sublicensees, in each case, only after we recoup the amounts and expenses exceeding an approved budget.
Under the agreement, Giaconda Limited agreed that neither it, nor the developer of the products, nor any of their respective affiliates may compete with us or assist others to
compete with us with respect to the products and acquired technology for the period provided for in the agreement.
The agreement provides that, should we elect not to proceed with the registration proceedings, or the maintenance of any patent transferred to us, we will notify Giaconda Limited and
Giaconda Limited will have the right to proceed with the registration, maintenance, development and commercialization of such patent at its expense. Should Giaconda Limited exercise such right, it will be entitled to all amounts
received in connection with sales relating to such patent.
The agreement also requires us to make a good faith, continuous and commercially reasonable effort to allocate appropriate financial resources to prepare, initiate and complete the
clinical development of the products (with the exception of Picoconda by virtue of the Salix license agreement dated February 27, 2014) and file an application for regulatory marketing approval in accordance with industry standards.
Development failures, negative regulatory decisions, or other reasons beyond our control will not constitute a breach of this obligation. Should we breach this obligation with respect to the development of any of the products and
fail to cure the breach within 90 Days from the date that Giaconda Limited sends us a default notice, Giaconda Limited may buy back all of the intellectual property rights with respect to such product for the original purchase
price, plus the related development costs incurred by us through the date of the buy-back.
In connection with the license agreement with Salix (later acquired by Bausch Health), dated February 27, 2014, described below, we amended the asset purchase agreement and related
agreements by excluding from the non-compete undertakings of Giaconda Limited and certain of its affiliate products, technology, and related activities in the purgative field and excluded from such non-compete undertakings certain
of Giaconda Limited’s affiliates. Subsequently, we recognized revenues in 2014 and paid Giaconda Limited an additional amount of $1 million. On February 27, 2014, we amended the asset purchase agreement with Giaconda Limited to
cancel the buyback right and agreed that we would pay Giaconda Limited 20% of all amounts received by us from Bausch Health under the license agreement, without first recouping amounts and expenses and notwithstanding the expiration
of any relevant patents.
License Agreement with Kukbo
In March 2022, we entered into the Exclusive License Agreement with Kukbo for opaganib in South Korea. Under the terms of the Exclusive License Agreement, Kukbo was required to pay
an upfront payment of $1.5 million and we are also eligible for milestone payments and royalties on net sales of oral opaganib in South Korea.
On September 2, 2022, we filed a lawsuit against Kukbo in the Supreme Court of the State of New York, County of New York, Commercial Division, as a result of Kukbo’s default in delivering to us $5.0
million under a Subscription Agreement, dated October 25, 2021, in exchange for the ADSs we were to issue to Kukbo, and in delivering to us the $1.5 million due under the Kukbo Agreement. Kukbo thereafter filed counterclaims with
various allegations such as breach of contract, misrepresentation, and the breach of the duty of good faith and failure dealing. The parties continue to proceed with discovery and depositions, and we plan to continue to rigorously
pursue the Kukbo litigation. On November 20, 2023, we entered into a Contingency Fee Agreement with our legal firm, H&B under which certain legal costs related to the Kukbo litigation will be assumed by H&B.
License Agreement with Gaelan Medical
In December 2021, we entered into an exclusive license agreement (the “License Agreement”) with Gaelan Medical for Talicia in the United Arab Emirates (UAE). Under the terms of the
License Agreement, we received in April 2022 an upfront payment of $2 million. In addition, we are eligible for additional milestone payments as well as tiered royalties up to mid-teens on net sales of Talicia in the UAE. Gaelan
Medical received the exclusive rights to commercialize Talicia in the UAE. Gaelan Medical shall be responsible for obtaining and maintaining regulatory approvals, as well as to conduct any and all required clinical and other
studies. In March 2022, we signed an amendment to the License Agreement, according to which Gaelan Medical may sublicense or assign any of its rights or obligations under the License Agreement. In connection with the License
Agreement, we and Gaelan Medical entered into a supply agreement, according to which, we will exclusively manufacture (by a third party CMO) and supply Talicia to Gaelan Medical during the term of the agreement. On August 1, 2023,
we announced that Gaelan Medical had received marketing approval for Talicia in the UAE and that Gaelan Medical has subsequently placed the first commercial order for Talicia, which was dispatched from the CMO in December 2023.
Additional License Agreement related to MAP diagnostic test for RHB-104
On December 27, 2014, we entered into a license agreement with the University of Minnesota (UoM) pursuant to which we were granted an exclusive license for all indications and
medical uses to a patent-protected designation of certain DNA sequencing.
Sale of Movantik® to HCRM
On February 2, 2023, RedHill US and the Company (together, “RedHill Group”) entered into an Asset Purchase Agreement (the “APA”) and related agreements with HCRM. The APA provides
for the sale of RedHill Group’s assets exclusively related to RedHill Group’s exploitation of Movantik® to an
affiliate of HCRM in exchange for the extinguishment and termination of all Obligations (as defined in the Credit Agreement) (other than certain indemnification obligations), including the loans, all accrued and unpaid interest
thereon, the revenue interest, the prepayments premiums and exit fees (the “Transaction”). The related agreements, each dated as of February 2, 2023, included the Sixth Amendment to the Credit Agreement and Collateral Documents
(the “Collateral Amendment”), the Escrow Agreement (the “Escrow Agreement”), the Transition Services Agreement (the “TSA”) and the Supply Agreement (the “Supply Agreement”). The closing of the transaction occurred on February 2,
2023.
Asset Purchase Agreement. HCRM acquired all assets exclusively related to RedHill Group’s exploitation of Movantik® and, generally, assumed all liabilities related to the business arising after the Closing (as defined in the
APA). Pursuant to the Supply Agreement (described in more detail below), certain supply contracts will either be terminated or assigned to Movantik Acquisition Co., an affiliate of HCRM (“Movantik Acquisition” or “Buyer”), after
Closing. The APA extinguished all Obligations under the Credit Agreement (other than certain indemnification obligations that survive) including the loans, all accrued and unpaid interest thereon, the revenue interest, the
prepayment premiums, and exit fees.
Collateral Amendment. All Obligations under the Credit Agreement (including the loans, all accrued and unpaid interest thereon, the revenue
interest, the prepayment premiums and exit fees) terminated as of the Closing (as defined in the APA), except for those obligations that are expressly intended to survive termination of the Credit Agreement, including certain
indemnification obligations. Upon Closing, collateral, consisting of (i) the Escrow Account, (ii) Talicia-related assets, (iii) Aemcolo-related assets and (iv) accounts receivable related to Movantik® accrued as of the Closing, continues to secure “Go-Forward Obligations” consisting of indemnification obligations under the APA and the Credit Agreement and scheduled
pre-closing liabilities relating to Movantik®. The value of such liens and security interests are capped at the value of our pre-closing liabilities
relating to Movantik®, and all such liens and security interests will be fully released upon the first to occur of (i) the payment of scheduled
pre-closing liabilities related to Movantik® other than certain specified long-dated liabilities and (ii) the first date 90 days after Closing on which
RedHill Israel has at least $16.9 million in cash and cash equivalents on hand. Both HCRM and its affiliates and RedHill Group provided each other with a broad release of any claims they have against each other arising prior to
Closing.
Escrow Agreement. At the Closing, Buyer deposited $16 million, which was equal to the amount of cash collateral against which HCRM exercised
remedies under the Credit Agreement, into an escrow account (the “Escrow Account”) overseen by the Bank of New York Mellon, acting as an escrow agent (the “Escrow Agent”). Additionally, from and after the Closing, RedHill U.S. was
required to deposit all cash received from accounts receivable related to Movantik accrued as of the Closing of the APA into the Escrow Account. Funds from the Escrow Account can only be used to pay certain scheduled pre-closing
liabilities related to Movantik® that are retained by RedHill U.S. under the terms of the APA. RedHill U.S. and Buyer established a “Joint Escrow
Committee” to oversee the release of funds from the Escrow Account to pay the scheduled liabilities in an agreed order of priority. Unless earlier terminated by mutual agreement of RedHill U.S. and Buyer, the Escrow Agreement will
remain in effect until the time that all scheduled pre-Closing liabilities relating to Movantik® have been paid. As of June 30, 2023, the amount held
in the escrow account was $9.1 million. Upon termination of the Escrow Agreement, any residual escrow amounts will be released to RedHill U.S.
Transition Services Agreement. RedHill U.S. agreed to provide Buyer certain services, including financial services, regulatory services,
pharmacovigilance services, medical information services, quality assurance services, commercial services (including calls by sales agents), project management services, contract transfer services and supply chain services. RedHill
U.S. received payment of fees for each service type, calculated as a specified FTE rate plus out-of-pocket costs and pass-through costs incurred during the term of the TSA in which services were provided, in addition to certain
pre-determined milestone payments. Effective October 1, 2023, all services under the agreement were terminated.
Supply Agreement. RedHill U.S. facilitated supply of Movantik®
from third-party suppliers at cost to Buyer on Buyer’s behalf to provide Buyer with the opportunity to establish, with the assistance of RedHill U.S., its own manufacturing capabilities and supply chain for Movantik. Effective
October 2, 2023, the Supply Agreement was terminated.
Expanded Access Program (EAP)
We have adopted an Expanded Access Program (“EAP”), allowing patients with life-threatening diseases potential access to our investigational new drugs that have not yet received
regulatory marketing approval. Expanded access (sometimes referred to as “compassionate use”) is possible outside of our clinical trials, under certain eligibility criteria, when a certain investigational new drug is needed to treat
a life-threatening condition and when there is some clinical evidence suggesting that the drug might be effective for that condition. Patients who qualify for our EAP do not meet the eligibility criteria or are incapable of
participating in our clinical trials for such therapeutic candidate or there is no clinical trial accessible to such patients. Following the adoption of the program, we continue to receive patient requests to obtain access to our
investigational drugs. Subject to the evaluation of eligibility and all other necessary regulatory, reporting and other conditions and approvals required in all relevant jurisdictions, we provide certain patients with access to an
investigational new drug under the EAP.
Intellectual Property
Our success depends in part on our ability to obtain and maintain proprietary protection for our technology and therapeutic candidates, its therapeutic applications, and related
technology and know-how, to operate without infringing the proprietary rights of others and to prevent others from infringing our proprietary rights. Our policy is to seek to protect our proprietary position by, among other methods,
filing U.S. and foreign patent applications related to our proprietary technology, inventions, and improvements that are important to the development of our business. We also rely on our trade secrets, know-how, and continuing
technological innovation to develop and maintain our proprietary position. We vigorously defend our intellectual property to preserve our rights and gain the benefit of our technological investments.
Patents and Patent Applications
We have rights, either through assignment, asset purchase or in-licensing, to a total of approximately 239 issued patents and 60 patent applications. The patents and patent
applications are registered in the U.S. and other key jurisdictions, the details of each family of patents being provided below. In addition, we have licensed rights to various platform technologies on a non-exclusive basis.
The patent positions of companies such as ours are generally uncertain and involve complex legal and factual questions. Our ability to maintain and solidify our proprietary position
for our technology will depend on our success in obtaining effective claims and enforcing those claims once granted.
Talicia®
The patent portfolio protecting Talicia® currently includes seven U.S. patents, two pending U.S.
patent applications, and over 20 foreign patents and patent applications. The patents currently provide patent protection through 2034 and 2040. The Orange Book currently lists five U.S. patents.
Aemcolo®
This patent portfolio was in-licensed by us from Cosmo Technologies Ltd. as part of our license agreement for Aemcolo®. The U.S. patent portfolio consists of five issued patents. Four U.S. patents protect the commercial product and its approved method of use. The Orange Book currently lists four U.S. patents.
RHB‑104 – Inflammatory Bowel Disease
The patent portfolio protecting RHB-104 and its use in treating inflammatory bowel disease currently includes nine U.S. patents, and 22 foreign patents, providing patent protection
through 2029.
We have also in-licensed U.S. Patent No. 7,867,704 from The University of Minnesota entitled “Mycobacterial Diagnostics”, expiring in 2026. The acquired diagnostic technology is
intended for the detection of Mycobacterium avium subspecies paratuberculosis (MAP) bacterium.
RHB‑104 – Multiple Sclerosis (“MS”)
The patent portfolio protecting the use of RHB‑104 for treating relapsing-remitting multiple sclerosis includes one U.S. patent and over 12 foreign patents, providing patent
protection through 2032.
RHB‑204 – Nontuberculous Mycobacterium (NTM) Infections
The patent portfolio protecting RHB-204 currently includes one U.S. patent and 12 pending foreign patent applications.
RHB‑102 (Bekinda®) - Gastritis, Gastroenteritis, IBS-D and Oncology support
The patent portfolio protecting RHB‑102 (Bekinda®) and its use currently includes three U.S. patents
and over 29 foreign patents, providing patent protection through 2035.
RHB‑106 - Bowel Preparation
The patent portfolio protecting RHB-106 and its use currently includes two U.S. patents, and 9 foreign patents, providing patent protection through 2033.
Opaganib - Oncology, inflammatory and GI Indications
This patent portfolio was in-licensed by us from Apogee. Opaganib is a first-in-class, proprietary SK2 inhibitor, administered orally, with anti-cancer and anti-inflammatory
activities, targeting a number of potential oncology, inflammatory and GI indications. These patents relate to sphingosine kinase inhibitors, pharmaceutical compositions, methods of preparing the inhibitors, methods of treating
inflammatory diseases using the inhibitors, methods of treating cancer using the inhibitors, and methods for inhibiting sphingosine kinase.
The patent portfolio covering opaganib includes six U.S. patents and over 28 foreign patents, providing patent protection through 2030.
A new patent family seeking to protect the use of opaganib plus checkpoint inhibitors to treat cancer is pending in the U.S. as well as 13 foreign jurisdictions. If patents are
granted, it will provide protection for the combination treatment through 2040.
RHB‑107 (upamostat; formerly Mesupron) – Oncology
The primary patent portfolio protecting the new chemical entity (WX-UK1), the pro-drug (“WX-671” or “RHB-107” or “upamostat”), formulations comprising upamostat, methods of
synthesizing the compounds, and methods of using upamostat to treat cancer, was in-licensed by us from Wilex AG, now known as Heidelberg Pharma AG. RHB-107 is a first-in-class protease inhibitor administered by oral capsule. The
portfolio includes seven issued U.S. patents and over forty foreign patents and patent applications, providing patent protection through 2027.
Ebola
The patent portfolio covers RedHill’s proprietary experimental therapy for the treatment of the Ebola virus disease. The portfolio consists of four U.S. patents, one pending U.S.
patent application, five foreign patents and two pending foreign patent applications.
SARS-CoV-2
This patent portfolio covers the use of opaganib and RHB-107 for treating or preventing coronavirus infections. The portfolio currently consists of four issued U.S. patents, four
pending U.S. patent applications, one foreign patent and 12 pending foreign patent applications, providing patent protection through 2041.
RHB‑108 – Combination Cancer Therapy
RedHill has also pursued patent protection in cancer therapy for various combination of drugs with different mechanisms of action which achieve synergistic effects. Currently, the
portfolio includes four U.S. patents, three foreign patents and four foreign pending patent applications.
Trademarks
Our principal trademarks, including RedHill, Redhill Biopharma, Talicia, Bekinda, Yeliva®, and their applicable logos, are registered or have applications
pending with the United States Patent and Trademark Office. We also own registrations and pending applications for non-U.S. trademarks in other countries in which we do or plan to do business. Brand names appearing in this
prospectus are trademarks of RedHill Biopharma Ltd. except for:
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trademarks used or that may be or have been used under license by RedHill or its affiliates, such as Aemcolo®, a trademark of Cosmo
Technologies Ltd.
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trademarks used or that may be or have been used under license by RedHill or its affiliates, such as Movantik®, a trademark of AstraZeneca
AB.
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Not all trademarks related to investigational agents have been authorized as of the date of this prospectus by the relevant health authorities; for instance,
the Bekinda® and Yeliva® trade names have not been approved by the FDA.
Government Regulations and Funding
Pharmaceutical companies are subject to extensive regulation by national, state and local agencies such as the FDA in the U.S., the Ministry of Health in Israel, or the EMA. The
manufacture, clinical trials, distribution, marketing and sale of pharmaceutical products are subject to government regulation in the U.S. and various foreign countries. To manufacture both new therapeutic drug candidates for
clinical trials and approved therapeutic drugs for sale and distribution in the U.S., we must follow the rules and regulations in accordance with current cGMP codified in 21 CFR 210 and 211. Additionally, we are responsible for
ensuring that the API in each therapeutic drug or therapeutic drug candidate is manufactured in accordance with ICH Q7 guidance that has been adopted by the FDA. Further, we are required to conduct clinical trials that present data
indicating that our therapeutic drug candidates are safe and efficacious in accordance with the current good clinical practice and codified in 21 CFR 312. If we do not comply with applicable requirements, we may be fined, the
government may refuse to approve our marketing applications or not allow us to manufacture or market our products, and we may be criminally prosecuted. We and our contract manufacturers and clinical research organizations may also
be subject to regulations under other federal, state and local laws, including, but not limited to, the U.S. Occupational Safety and Health Act, the Resource Conservation and Recovery Act, the Clean Air Act and import, export and
customs regulations as well as the laws and regulations of other countries. Further, the U.S. government has increased its enforcement activity regarding fraud and abuse and illegal marketing practices in the healthcare industry. As
a result, pharmaceutical companies must ensure their compliance with the Foreign Corrupt Practices Act and federal healthcare fraud and abuse laws, including the False Claims Act.
These regulatory requirements impact our operations and differ in one country to another, so that securing the applicable regulatory approvals of one country does not imply the
approval in another country. However, securing the approval of a more stringent body, i.e., the FDA, may facilitate receiving the approval by a regulatory authority in a different country
where the regulatory requirements are similar or less stringent. The approval procedures involve high costs and are manpower intensive, usually extend over many years and require highly skilled and professional resources.
FDA Approval Process for New Molecular Entities
Our therapeutic drug candidates are classified as New Molecular Entities. The steps required to be taken before therapeutic drug candidate may be marketed in the U.S. generally
include:
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completion of preclinical laboratory and animal testing;
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the submission to the FDA of an investigational new drug, or IND, application which must be evaluated and found acceptable by the FDA before human clinical trials may commence;
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performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed drug therapeutic candidate for its intended use; and
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the submission and approval of an NDA.
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Clinical studies are conducted under protocols detailing, among other things, the objectives of the study, what types of patients may enter the study, schedules of tests and
procedures, drugs, dosages, and length of study, as well as the parameters to be used in monitoring safety, and the efficacy criteria to be evaluated. A protocol for each clinical study and any subsequent protocol amendments must be
submitted to the FDA as part of the IND.
In all the countries that are signatories of the Helsinki Declaration (including Israel), the prerequisite for conducting clinical trials (on human subjects) is securing the
preliminary approval of the competent authorities of that country to conduct medical experiments on human subjects in compliance with the other principles established by the Helsinki Declaration.
The clinical testing of a therapeutic drug candidate generally is conducted in three sequential phases prior to approval, but the phases may overlap or be combined. However, safety
information should be submitted before the initiation of a subsequent clinical phase. A fourth, or post-approval phase may include additional clinical studies. The phases are generally as follows:
Phase 1. In Phase 1 clinical studies, the therapeutic drug candidate is tested in a small number of healthy volunteers, though in cases where
the therapeutic drug candidate may make the volunteer ill, clinical patients with the targeted condition may be used. These “dose-escalation” studies are designed to evaluate the safety, dosage tolerance, metabolism and
pharmacologic actions of the therapeutic drug candidate in humans, side effects associated with increasing doses, and, in some cases, to gain early evidence on efficacy. The number of participants included in Phase 1 studies is
generally in the range of 20 to 80.
Phase 2. In Phase 2 studies, in addition to safety, the sponsor evaluates the efficacy of the therapeutic drug candidate on targeted
indications to determine dosage tolerance and optimal dosage and to identify possible adverse effects and safety risks. Phase 2 studies typically are larger than Phase 1 but smaller than Phase 3 studies and may involve several
hundred participants.
Phase 3. Phase 3 studies typically involve an expanded patient population at geographically-dispersed test sites and involve control groups
taking a reference compound or a placebo (an inactive compound identical in appearance to the study compound). They are performed after preliminary evidence suggesting the effectiveness of the therapeutic candidate has been obtained
and are designed to evaluate clinical safety and efficacy further, to establish the overall benefit-risk relationship of the therapeutic candidate and to provide an adequate basis for a potential product approval. Phase 3 studies
usually involve several hundred to several thousand participants.
Phase 4. Phase 4 clinical trials are postmarketing studies designed to collect additional safety data as well as potentially expand a product
indication. Postmarketing commitments may be required of, or agreed to by, a sponsor after the FDA has approved a therapeutic drug candidate for marketing. These studies are used to gain additional information from the treatment of
patients in the intended therapeutic indication and to verify a clinical benefit in the case of drugs approved under accelerated approval regulations. If the FDA approves a product while a company has ongoing clinical trials that
were not necessary for approval, a company may be able to use the data from these clinical trials to meet all or part of any Phase 4 clinical trial requirement. These clinical trials are often referred to as Phase 4 post-approval or
postmarketing commitments. Failure to promptly conduct Phase 4 clinical trials could result in the inability to deliver the product into interstate commerce, misbranding charges, and civil monetary penalties.
Clinical trials must be conducted in accordance with the FDA’s GCP requirements. The FDA may order the temporary or permanent discontinuation of a clinical study at any time or
impose other sanctions if it believes that the clinical study is not being conducted in accordance with FDA requirements or that the participants are being exposed to an unacceptable health risk. An institutional review board, or
IRB, generally must approve the clinical trial design and patient informed consent at study sites that the IRB oversees and also may halt a study, either temporarily or permanently, for failure to comply with the IRB’s requirements,
or may impose other conditions. Additionally, some clinical studies are overseen by an independent group of qualified experts organized by the clinical study sponsor, known as a data safety monitoring board or committee. The FDA
recommends that a data safety monitoring board should be used to perform regular interim analysis for long-term clinical studies where safety concerns may be unusually high. This group recommends whether or not a trial may move
forward at designated checkpoints based on access to certain data from the study. The clinical study sponsor may also suspend or terminate a clinical trial based on evolving business objectives or competitive climate.
As a therapeutic candidate moves through the clinical testing phases, manufacturing processes are further defined, refined, controlled and validated. The level of control and
validation required by the FDA would generally increase as clinical studies progress. We and the third-party manufacturers on which we rely for the manufacture of our therapeutic drugs and therapeutic drug candidates and their
respective API are subject to requirements that drugs be manufactured, packaged and labeled in conformity with cGMP. In addition to our third-party API manufacturers, we are responsible for ensuring that our third-party excipient
manufacturers conform to cGMP requirements. To comply with cGMP requirements, manufacturers must continue to spend time, money and effort to meet requirements relating to personnel, facilities, equipment, production and process,
labeling and packaging, quality control, recordkeeping, and other requirements.
Assuming completion of all required testing in accordance with all applicable regulatory requirements, detailed information on the therapeutic candidate is submitted to the FDA in
the form of an NDA, requesting approval to market the product for one or more indications, together with payment of a user fee, unless waived. An NDA includes all relevant data available from pertinent nonclinical and clinical
studies, including negative or ambiguous results as well as positive findings, together with detailed information on the chemistry, manufacture, control and proposed labeling, among other things. To support marketing approval, the
data submitted must be sufficient in quality and quantity to establish the safety and efficacy of the therapeutic candidate for its intended use to the satisfaction of the FDA.
If an NDA submission is accepted for filing, the FDA begins an in-depth review of the NDA. Under the Prescription Drug User Fee Act, or PDUFA, the FDA’s goal is to complete its
initial review and respond to the applicant within ten months of a completed submission for 90% of the submissions received, unless the application relates to an unmet medical need in a serious or life-threatening indication, in
which case the goal may be within six months of a completed NDA submission. However, PDUFA goal dates are not legal mandates, and the FDA response may occur several months beyond the original PDUFA goal date. Further, the review
process and the target response date under PDUFA may be extended if the FDA requests or the NDA sponsor otherwise provides additional information or clarification regarding information already provided in the NDA. The NDA review
process can, accordingly, be very lengthy. During its review of an NDA, the FDA may refer the application to an advisory committee for review, evaluation, and recommendation as to whether the application should be approved. The FDA
is not bound by the recommendation of an advisory committee, but it typically follows such recommendations. Data from clinical studies are not always conclusive, and the FDA or any advisory committee it appoints may interpret data
differently than the applicant.
After the FDA evaluates the NDA and conducts a pre-approval inspection of all manufacturing facilities where the drug therapeutic candidate or its API will be produced, it will
either approve commercial marketing of the drug therapeutic candidate with prescribing information for specific indications or issue a complete response letter indicating that the application is not ready for approval and stating
the conditions that must be met in order to secure approval of the NDA. If the complete response letter requires additional data and the applicant subsequently submits that data, the FDA nevertheless may ultimately decide that the
NDA does not satisfy its criteria for approval. The FDA could also approve the NDA with a Risk Evaluation and Mitigation Strategies, or REMS, plan to mitigate risks, which could include medication guides, physician communication
plans, or elements to assure safe use, such as restricted distribution methods, patient registries, and other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling,
development of adequate controls and specifications, or a commitment to conduct postmarketing testing. The FDA may also request a Phase 4 clinical trial to further assess and monitor the product’s safety and efficacy after approval.
Regulatory approval of products for serious or life-threatening indications may require that participants in clinical studies be followed for long periods to determine the overall survival benefit of the drug therapeutic candidate.
If the FDA approves one of our therapeutic drug candidates, we will be required to comply with a number of post-approval regulatory requirements. We would be required to report to
the FDA, among other things, certain adverse reactions and production problems, and provide updated safety and efficacy information and comply with requirements concerning advertising and promotional labeling for any of our
products. Also, quality control and manufacturing procedures must continue to conform to cGMP after approval, and the FDA periodically inspects manufacturing facilities to assess compliance with cGMP, which imposes extensive
procedural, substantive and recordkeeping requirements. If we seek to make certain changes to an approved therapeutic drug, such as certain manufacturing changes, we may need the FDA to review and approve before the change can be
implemented. For example, if we change the manufacturer of a product or its API, the FDA may require stability or other data from the new manufacturer, which will take time and is costly to generate, and the delay associated with
generating this data may cause interruptions in our ability to meet commercial demand, if any. At their discretion, physicians may prescribe approved pharmaceutical products for indications that pharmaceutical products have not been
approved for use by the FDA. However, we may not label or promote pharmaceutical products for an indication that has not been approved. Securing FDA approval for new indications of an approved therapeutic drug requires a
Section 505(b)(2) filing, is similar to the process for approval of the original indication and requires, among other things, submitting data from adequate and well-controlled studies that demonstrate the product’s safety and
efficacy in the new indication. Even if such studies are conducted, the FDA may not approve any change in a timely fashion, or at all.
We rely on, and expect to continue to rely on, third parties for the manufacture of clinical and future commercial, quantities of our therapeutic candidates. Future FDA and state
inspections may identify compliance issues at these third-party facilities that may disrupt production or distribution or require substantial resources to correct. In addition, discovery of previously unknown problems with a product
or the failure to comply with applicable requirements may result in restrictions on a product, manufacturer or holder of an approved NDA, including withdrawal or recall of the product from the market or other voluntary,
FDA-initiated or judicial action that could delay or prohibit further marketing. Newly discovered or developed safety or efficacy data may require changes to a product’s approved labeling, including the addition of new warnings and
contraindications, and may also require the implementation of other risk management measures. Many of the foregoing could limit the commercial value of an approved product or require us to commit substantial additional resources in
connection with the approval of a product. Also, new government requirements, including those resulting from new legislation, may be established, or the FDA’s policies may change, which could delay or prevent regulatory approval of
our products under development.
Section 505(b)(2) New Drug Applications
As an alternate path to FDA approval of new indications or new formulations of previously-approved therapeutic drugs, a company may file a Section 505(b)(2) NDA, instead of a
“stand-alone” or “full” NDA, somewhat similar to the process for approval of the original indication or reference drug and requires, among other things, submitting data from adequate and well-controlled studies that demonstrate the
product’s safety and efficacy in the new indication. Even if such studies are conducted, the FDA may not approve any change in a timely fashion, or at all. Section 505(b)(2) of the Food, Drug, and Cosmetic Act was enacted as part of
the Drug Price Competition and Patent Term Restoration Act of 1984, otherwise known as the Hatch-Waxman Amendments. Section 505(b)(2) was enacted to allow a company to avoid duplicative testing by permitting the applicant to
leverage previously performed pertinent clinical and non-clinical studies into the current NDA submission. Some examples of therapeutic drug candidates that may be allowed to follow a 505(b)(2) path to approval are candidates that
have a new dosage form, strength, route of administration, formulation or indication.
The Hatch-Waxman Amendments permit the applicant to rely upon certain published nonclinical or clinical studies conducted for an approved product or the FDA’s conclusions from a
prior review of such studies. The FDA may require companies to perform additional studies or measurements to support any changes from the approved product. The FDA may then approve the new product for all or some of the labeled
indications for which the reference product has been approved, as well as for any new indication supported by the NDA. While references to nonclinical and clinical data not generated by the applicant or for which the applicant does
not have a right of reference are allowed, all development, process, stability, qualification and validation data related to the manufacturing and quality of the new product must be included in an NDA submitted under
Section 505(b)(2).
To the extent that the Section 505(b)(2) applicant is relying on the FDA’s conclusions regarding studies conducted for an already approved product, the applicant is required to
certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book publication. Specifically, the applicant must certify that: (i) the required patent information has not been filed; (ii) the listed
patent has expired; (iii) the listed patent has not expired but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. The
Section 505(b)(2) application also will not be approved until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the reference product has expired. Thus,
the Section 505(b)(2) applicant may invest a significant amount of time and expense in the development of its products only to be subject to significant delay and patent litigation before its products may be commercialized.
Orphan Drug Designation
The Orphan Drug Act of 1983, or Orphan Drug Act, encourages manufacturers to seek approval for products intended to treat “rare diseases and conditions” with a prevalence of fewer
than 200,000 patients in the U.S. or for which there is no reasonable expectation of recovering the development costs for the product. For products that receive orphan drug designation by the FDA, the Orphan Drug Act provides tax
credits for clinical research, FDA assistance with protocol design, eligibility for FDA grants to fund clinical studies, waiver of the FDA application fee, and a period of seven years of marketing exclusivity for the product
following FDA marketing approval.
GAIN Act
The FDA’s GAIN Act is intended to encourage the development of new antibiotic drug therapeutic candidates for the treatment of serious or life-threatening
infections. For products that receive QIDP designation under the Act, the Act provides Fast-Track development status with an expedited development pathway and Priority Review status, which potentially provides shorter review time
by the FDA of a future potential marketing application. Following FDA approval, an additional five years of U.S. market exclusivity applies, received on top of the standard exclusivity period.
Other Healthcare Laws and Compliance Requirements
In the U.S., we are subject to various federal and state laws and regulations regarding fraud and abuse in the healthcare industry, as well as industry standards and guidance, such
as the codes issued by the Pharmaceutical Research and Manufacturers of America (or “PhRMA Codes”), which some states reference or incorporate in their statutes and regulations. These laws, regulations, standards, and guidance may
impact, among other things, our sales and marketing activities and our relationships with healthcare providers and patients. In addition, we may be subject to patient privacy regulations by both the federal government and the states
in which we conduct our business. The laws that may affect our ability to operate include but are not limited to:
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• |
the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in cash or in kind, to induce
or reward, or in return for, either the referral of an individual for, or the purchase, order, or recommendation of, an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid
programs;
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• |
federal civil and criminal false claims laws and civil monetary penalty laws, including the False Claim Act, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be
presented, claims for payment from the federal government, including Medicare, Medicaid, or other third-party payors, that are false or fraudulent;
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|
• |
HIPAA, which imposes federal criminal and civil liability for executing, or attempting to execute, a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters;
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|
• |
the federal transparency laws, including the Physician Payments Sunshine Act, that requires applicable manufacturers of covered drugs to disclose payments and other transfers of value provided to physicians and teaching
hospitals and physician ownership and investment interests;
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|
• |
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and its implementing regulations, also imposes certain requirements relating to the privacy, security, and transmission of
individually identifiable health information; and
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|
• |
state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers, state laws
that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines, state laws that require pharmaceutical manufacturers to report certain pricing or payment information, and
state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and are not preempted by HIPAA, thus complicating compliance efforts.
|
The Healthcare Reform Law broadened the reach of the fraud and abuse laws by, among other things, amending the intent requirement of the federal Anti-Kickback Statute and certain
other criminal healthcare fraud statutes. Specifically, a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the Healthcare
Reform Law provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act
or the civil monetary penalties statute. Many states have adopted laws similar to the federal Anti-Kickback Statute, some of which apply to the referral of patients for healthcare items or services reimbursed by any source, not only
federal healthcare programs such as the Medicare and Medicaid programs.
Due to the breadth of some of these laws, it is possible that some of our current or future practices might be challenged under one or more of these laws. In addition, there can be
no assurance that we would not be required to alter one or more of our practices to comply with these laws. Evolving interpretations of current laws or the adoption of new federal or state laws or regulations could adversely affect
the arrangements we may have with sales personnel, healthcare providers, and patients. Our risk of being found in violation of these laws is increased by the fact that some of these laws are open to a variety of interpretations. If
our past or present operations, practices, or activities are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and
criminal penalties, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, imprisonment, damages, fines, disgorgement, contractual remedies, reputational harm, diminished profits, and future
earnings, if any, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
C. Organizational Structure
Our wholly-owned and only subsidiary, Redhill Biopharma Inc., was incorporated in Delaware on January 19, 2017.
D. Property, Plant and Equipment
We lease approximately 826 square meters of office space and eleven parking spaces in the “Platinum” building at 21 Ha’arba’a Street, Tel-Aviv, Israel. The projected yearly gross
rental expenses are approximately $470,000 per year. Since 2018, we have been subleasing a portion of the office space to a tenant, and the lease payment is approximately $79,000 per year. The term under our lease agreement will
expire on January 31, 2026. These offices have served as our corporate headquarters since April 2011.
We currently hold a U.S. office lease set to expire on July 31, 2024, with approximately $0.2 million in remaining rental expenses as of January 31, 2024. In June 2023, we terminated
another U.S. office lease signed in March 2022 that was originally set to expire on July 31, 2034.
MANAGEMENT
Directors and Senior Management1
The following table sets forth the name, age and position of each of our executive officers and directors as of the date of this prospectus.
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Name
|
|
Age
|
|
Position(s)
|
|
Executive Officers
|
|
|
|
|
|
Dror Ben-Asher
|
|
58
|
|
Chief Executive Officer and Chairman of the Board of Directors
|
|
Razi Ingber
|
|
40
|
|
Chief Financial Officer
|
|
Reza Fathi, Ph.D.
|
|
68
|
|
Senior Vice President Research and Development
|
|
Gilead Raday
|
|
49
|
|
Chief Operating Officer
|
|
Adi Frish
|
|
54
|
|
Chief Corporate and Business Development Officer
|
|
Guy Goldberg
|
|
48
|
|
Chief Business Officer
|
|
Rick D. Scruggs
|
|
64
|
|
Chief Commercial Officer and Director
|
| |
|
|
|
|
|
Directors
|
|
|
|
|
|
Dr. Shmuel Cabilly (3)
|
|
74
|
|
Director
|
|
Eric Swenden (1) (3)
|
|
80
|
|
Director
|
|
Dr. Kenneth Reed (1), (2) (3)
|
|
70
|
|
Director
|
|
Ofer Tsimchi (1), (2) (3)
|
|
64
|
|
Director
|
|
Alla Felder (1), (2), (3)
|
|
50
|
|
Director
|
________________________________
| (1) |
Member of our audit committee; also serves as our financial statements committee.
|
| (2) |
Member of our compensation committee.
|
| (3) |
Independent director under Nasdaq Listing Rules.
|
Executive officers
Dror Ben-Asher has served as our Chief Executive Officer and as a director since August 2009. Since May 2011, Mr. Ben-Asher has also served as
Chairman of our board of directors. From January 2002 to November 2010, Mr. Ben-Asher served as a manager at P.C.M.I. Ltd., an affiliate of ProSeed Capital Holdings CVA. Mr. Ben-Asher holds an LLB from the University of Leicester,
U.K., an Mjur. From Oxford University, U.K. and completed LLM studies at Harvard University.
Razi Ingber has served as our Chief Financial Officer since May 1, 2023, and between February 2018 and May 2023 served in various financial
positions at the Company. Mr. Ingber has extensive financial experience, specializing in financial reporting and accounting, financial planning, transactions and business analytics. Between 2011 and 2018, Mr. Ingber held several
positions at PwC Israel, ultimately serving as an audit manager responsible for leading audit teams of several public and private companies. Mr. Ingber holds an M.A. and a B.A. from Tel-Aviv University and is a Certified public
Accountant.
| 1 |
Senior management includes members of the Company’s administrative, supervisory or management bodies, or nominees for such positions.
|
Reza Fathi, Ph.D., has served as our Senior Vice President Research and Development since May 2010. From 2005 to 2009, Dr. Fathi served as a
Director of Research in XTL Biopharmaceuticals Inc., a biotechnology company engaged in developing small molecule clinical candidates for infectious diseases. Prior to that, from 2000‑2005, Dr. Fathi served as Director of Research
at Vivoquest, Inc. where he was responsible for developing a number of novel natural product-based combinatorial technologies for infectious diseases such as HCV and HIV. Between 1998‑2000, he served as a Manager of Chemical Biology
Research at the Institute of Chemistry and Chemical Biology (ICCB) at Harvard Medical School, pioneering chemical genetics to identify small molecules in cancer biology, and from 1991‑1998 headed the Discovery Group at
PharmaGenics, Inc. Dr. Fathi holds a Postdoctoral and Ph.D. in Chemistry from Rutgers University.
Gilead Raday has served as our Chief Operating Officer since April 2016. From December 2012 until March 2016, Mr. Raday served as Senior Vice
President Corporate and Product Development. From November 2010 to December 2012, Mr. Raday served as our Vice President Corporate and Product Development. From January 2010 until October 2010, Mr. Raday served as Interim Chief
Executive Officer of Sepal Pharma Plc., an oncology drug development company, and from January 2009 to December 2009, he was an independent consultant, specializing in business development and project management in the field of life
sciences. From 2004 to 2008, Mr. Raday was a partner in Charles Street Securities Europe, LLP, an investment banking firm, where he was responsible for the field of life sciences. Mr. Raday previously served on the boards of Sepal
Pharma Plc., ViDAC Limited, Morria Biopharmaceuticals Plc., Vaccine Research International Plc., Tksignal Plc., and Miras Medical Imaging Plc. He received his M.Sc. in Neurobiology from the Hebrew University of Jerusalem, Israel,
and an M.Phil. in Bioscience Enterprise from Cambridge University, U.K.
Adi Frish has served as our Chief Corporate and Business Development Officer since October 2020. From December 2012 to October 2020 Mr. Frish
served as our Senior Vice President Business Development and Licensing. From October 2010 to December 2012, Mr. Frish served as our Vice President Business Development and Licensing. From 2006 to 2010, Mr. Frish served as the Chief
Business Development at Medigus Ltd., a medical device company in the endoscopic field, and from 1998 to 2006, Mr. Frish was an associate and a partner at the law firm of Y. Ben Dror & Co. Mr. Frish holds an LLB from Essex
University, U.K. and an LLM in Business Law from the Bar-Ilan University, Israel.
Guy Goldberg has served as our Chief Business Officer since 2012. From 2007 to 2012, Mr. Goldberg served as Vice President and then as Senior
Vice President of Business Operations at Eagle Pharmaceuticals, a specialty injectable drug development company, based in New Jersey. From 2004 to 2007, Mr. Goldberg was an associate at ProQuest Investments, a healthcare-focused
venture capital firm, and from 2002 to 2004, Mr. Goldberg was a consultant at McKinsey & Company. Mr. Goldberg holds a B.A. in Economics and Philosophy from Yale University and a J.D. from Harvard Law School.
Rick D. Scruggs has served as our Chief Commercial Officer since February 2020 and served as our Chief Operations Officer, U.S. Operations
since January 1, 2019, and as a member of our board of directors since January 1, 2016. Mr. Scruggs most recently served as Executive Vice President of Business Development at Salix until its acquisition by Valeant (now Bausch
Health) in March 2015. Mr. Scruggs joined Salix in 2000, after working at Oclassen Pharmaceuticals Inc. and Watson Pharmaceuticals, and helped build Salix’s commercial organization, serving in various sales and commercial
trade-related positions. Mr. Scruggs was appointed as Executive Vice President in 2011 and was responsible for all business development activities as well as the worldwide distribution of Salix’s innovative products and intellectual
property. Mr. Scruggs also served as the Head of the board of directors of Oceana Therapeutics, Salix’s European subsidiary. Mr. Scruggs holds a B.S. in Criminal Justice from the Appalachian State University in North Carolina.
Directors
Dr. Shmuel Cabilly has served as a member of our board of directors since August 2010. Dr. Cabilly is a scientist and inventor in the field of
immunology. In the Backman Research Institute of the City of Hope, Dr. Cabilly initiated the development of a new breakthrough technology for recombinant antibody production, which was patented and known as the “Cabilly Patent.” Dr.
Cabilly was also a co-founder and a Chief Scientist of Ethrog Biotechnology, where he invented dry buffer technologies enabling the production of a liquid-free disposable apparatus for gel electrophoresis and a technology that
enables the condensation of molecular separation zones to a small gel area. This technology was sold to Invitrogen in 2001. Dr. Cabilly serves as a board member at several companies, including BioKine Therapeutics Ltd., Minovia
Ltd., Alonbio Ltd. and Raziel Therapeutics Ltd. Dr. Cabilly holds a B.Sc. in Biology from the Ben Gurion University of Beer Sheva, Israel, an M.Sc. in Immunology and Microbiology from the Hebrew University of Jerusalem, Israel, and
a Ph.D. in Immunology and Microbiology from the Hebrew University of Jerusalem, Israel.
Eric Swenden has served as a member of our board of directors since May 2010 and has served on our investment committee since May 2011. From
1966 until 2001 Mr. Swenden served in various positions including Chief Executive Officer (since 1985) and Executive Chairman (since 1990) of Vandemoortele Food Group, a privately held Belgium-based European food group with revenue
of approximately EUR 2 billion. Mr. Swenden holds an M.A. in Commercial Science from the University of Antwerp, Belgium. The board of directors has determined that Mr. Swenden is a financial and accounting expert under Israeli law.
Dr. Kenneth Reed has served as a member of our board of directors since December 2009. Dr. Reed is a board certified dermatologist and Mohs
surgeon. Dr. Reed currently serves on the board of directors of Minerva Biotechnologies Corporation. Dr. Reed received his B.A. from Brown University in the U.S. and an M.D from the University of Medicine and Dentistry of New Jersey
in the U.S. Dr. Reed is a board-certified dermatologist with over 25 years of clinical experience since completing the Harvard Medical School Residency Program in Dermatology. Dr. Reed is also a co-founder of Early Cell, a prenatal
diagnostics company, Prescient Pharma and Lispiro.
Ofer Tsimchi has served as a director on our board of directors, a member of our audit committee and as the Chairman of our compensation
committee since May 2011. From 2008 to 2012, Mr. Tsimchi served as the Chairman of the board of directors of Polysack Plastic Industries Ltd. and Polysack-Agriculture Products, served as a board member of Caesarstone Ltd. and Danbar
Group Ltd and since 2006, he has served as a Partner in the Danbar Group Ltd., a holding company. Mr. Tsimchi currently serves on the board of directors of Maabarot Products Ltd. Mr. Tsimchi received his BA in Economics and
Agriculture from the Hebrew University of Jerusalem, Israel. The board of directors has determined that Mr. Tsimchi is a financial and accounting expert under Israeli law.
Alla Felder has served as a director on our board of directors and a chairperson of our audit committee and a member of our compensation
committee since May 2019. Ms. Felder currently serves as a Director in numerous publicly listed leading Israeli companies across several industries, such as Ashtrom Properties Ltd., Israel Shipyards Ltd, Carmit Industries Ltd.
Biolight Ltd. Photomyne Ltd. and IdoMoo Ltd. Ms. Felder also serves as the CFO of Weebit Nano Ltd, a high-tech company traded on the Australian stock exchange (ASX), and also provides financial services and business advisory. Ms.
Felder also served on the board of REE Automotive Ltd. and Enlight Renewable Energy Ltd., both traded on NASDAQ. From 1997 to 2010 Ms. Felder was with PriceWaterhouseCoopers where she served in her last role as a Senior Manager. Ms.
Felder received a degree in Business Administration and Accounting from the College of Management Academic Studies Division in Rishon Lezion, Israel and an Executive Master’s degree in the Science of Finance from the City University
of New York.
Compensation
The aggregate compensation paid, and benefits-in-kind granted to or accrued on behalf of all of our directors and executive officers for their services, in all capacities, to us
during the year ended December 31, 2023, was approximately $2.3 million. Out of that amount approximately $1.9 million was paid as salary, approximately $0.04 million was attributed to the value of the RSUs granted to senior
management and the directors during 2023, approximately $0.3 million was attributed to retirement plans and approximately $0.1 million was attributed to other long-term benefits. No additional amounts have been set aside or accrued
by us to provide pension, retirement or similar benefits.
The compensation terms for our directors and officers are derived from their employment agreements and directors’ compensation arrangements and comply with our Compensation Policy
for Executive Officers and Directors as approved by our shareholders (the “Compensation Policy”).
The table and summary below outline the compensation granted to our five highest compensated directors and officers during the year ended December 31, 2023. The compensation detailed
in the table below refers to the actual compensation granted or paid to the director or officer during the year 2023.
| |
|
|
|
|
|
|
|
Value of Equity-
|
|
|
|
|
|
|
|
| |
|
Base Salary
|
|
|
Value of
|
|
|
Based
|
|
|
|
|
|
|
|
| |
|
or Other
|
|
|
Social
|
|
|
Compensation
|
|
|
All Other
|
|
|
|
|
|
Name and Position of Director or Officer
|
|
Payment (1)
|
|
|
Benefits (2)
|
|
|
Granted (3)
|
|
|
Compensation (4)
|
|
|
Total
|
|
|
Dror Ben-Asher, Chief Executive Officer, and Chairman of the Board of Directors (5)
|
|
|
473,081
|
|
|
|
102,154
|
|
|
|
-
|
|
|
|
19,377
|
|
|
|
594,612
|
|
|
Rick Scruggs, Chief Commercial Officer (6)
|
|
|
441,167
|
|
|
|
28,635
|
|
|
|
-
|
|
|
|
-
|
|
|
|
469,802
|
|
|
Razi Ingber, Chief Financial Officer
|
|
|
259,062
|
|
|
|
66,894
|
|
|
|
14,400
|
|
|
|
13,863
|
|
|
|
354,219
|
|
|
Gilead Raday, Chief Operating Officer
|
|
|
288,027
|
|
|
|
58,152
|
|
|
|
14,400
|
|
|
|
19,377
|
|
|
|
379,957
|
|
|
Adi Frish, Chief Corporate and Business Development Officer
|
|
|
251,580
|
|
|
|
68,809
|
|
|
|
14,400
|
|
|
|
18,911
|
|
|
|
353,700
|
|
______________________________
| (1) |
“Base Salary or Other Payment” means the aggregate yearly gross monthly salaries or other payments with respect to the Company’s Executive Officers and members of the board of directors for the year 2023. Messrs.
Ben-Asher and Scruggs do not receive extra compensation for their service as members of the board of directors.
|
| (2) |
“Social Benefits” include payments to the National Insurance Institute, advanced education funds, managers’ insurance and pension funds; vacation pay; and recuperation pay as mandated by Israeli and U.S. laws.
|
| (3) |
Consists of the fair value of the equity-based compensation granted during 2023 in exchange for the directors and officers services recognized as an expense in profit or loss and is carried to the accumulated deficit
under equity. The total amount is recognized as an expense over the vesting period of the RSUs. See “Management - Share Ownership” for further information regarding the RSUs.
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| (4) |
“All Other Compensation” includes, among other things, car-related expenses (including tax gross-up), communication expenses, and basic health insurance.
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Mr. Ben-Asher’s employment terms as the Company’s Chief Executive Officer provide that Mr. Ben-Asher is currently entitled to a monthly base gross salary of NIS 124,740 (approximately $34,186). Mr. Ben-Asher is further
entitled to vacation days, sick days and convalescence pay in accordance with the market practice and applicable law, monthly remuneration for a study fund, contribution by the Company to an insurance policy and pension
fund, and additional benefits, including communication expenses. In addition, Mr. Ben-Asher is entitled to reimbursement of car-related expenses from the Company. Mr. Ben-Asher’s employment terms include an advance notice
period of 12 months by the Company and 90 days by Mr. Ben-Asher. During such an advance notice period, Mr. Ben-Asher will be entitled to all of the compensation elements, and to the continuation of vesting of any options or
restricted shares granted to him. Additionally, in the event Mr. Ben-Asher’s employment is terminated in connection with a “change in control” he will be entitled to a special one-time payment equal to his then-current
monthly salary and retirement benefits, including payments to an advanced study fund and pension arrangement and car expense reimbursement, multiplied by 18. A “change in control” is defined under the change in control
employee retention plan (the "CIC Plan") as follows: (1) the consummation of any merger, consolidation, reorganization, or similar transaction or series of related transactions of the Company with another entity, other than
a merger, consolidation, reorganization, or similar transaction or series of related transactions which would result in the shareholders of the Company immediately preceding the transaction beneficially owning, immediately
after the transaction, at least 50% of the combined voting power of the outstanding securities of the surviving or resulting entity (or its parent); (2) any “person” (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act or “group” (two or more persons acting as a partnership, limited partnership, syndicate or other group for the purpose of acquiring, holding, or disposing of the applicable securities referred to herein) becomes
the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s
then-outstanding voting securities; (3) the election of a board of directors over a three-year period or less, the majority of which is not supported by at least a majority of the then existing board of directors of the
Company; or (4) any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company (other than to an entity controlled by the
Company).
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Mr. Rick Scruggs' employment term as the Company's Chief Commercial Officer provide that Mr. Scruggs is currently entitled to a monthly base gross salary of approximately $33,858. Mr. Scruggs is further entitled to
vacation days, sick days and convalescence pay in accordance with the market practice and applicable law, monthly remuneration for a study fund, contribution by the Company to an insurance policy and pension fund, and
additional benefits, including communication expenses. Mr. Scruggs will be entitled to payment of severance in the amount of 12 months’ base salary at the time of termination in the event Mr. Scruggs’ employment is
terminated without cause by the Company. Mr. Scruggs’s employment terms also include an advance notice period of 60 days by either party. During such an advance notice period, Mr. Scruggs will be entitled to all of the
compensation elements, and to the continuation of vesting of any options or restricted shares granted to him. Additionally, in the event Mr. Scruggs’s employment is terminated in connection with a “change in control” he will
be entitled to a special one-time payment equal to his then-current monthly salary and retirement benefits, including payments to an advanced study fund and pension arrangement, multiplied by 12. A “change in control” is
defined in the same manner as defined for Mr. Ben-Asher as described in footnote (5) above.
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Employment Agreements
We have entered into employment or consultant agreements with each of our executive officers. All of these agreements contain customary provisions regarding non-competition,
confidentiality of information and assignment of inventions. However, the enforceability of the non-competition provisions may be limited under applicable laws.
For information on exemption and indemnification letters granted to our directors and officers, please see “Management - Board Practices – Exemption, Insurance and Indemnification of
Directors and Officers.”
Director Compensation
We currently pay our non-executive directors (i) an annual cash fee retainer of $32,000, (ii) a committee membership annual cash fee retainer of $10,000 to each Audit Committee
member, $6,400 to each Compensation Committee member, and $1,200 to each Investment Committee member, and (iii) a committee chairperson annual cash fee retainer in an amount that is higher than the annual cash fee payable to other
members of that committee (as described in clause (ii) above) by 50% to each of the Audit Committee and Compensation Committee chairs and by 10% to the Investment Committee chair (without duplication of the fees paid under clause
(ii)).
Change in Control Retention Plan and Agreements; Severance Arrangements
We have adopted a change in control employee retention plan and entered into employment agreements providing for compensation to Company employees, in the event of a change in
control (as defined by the plan and the employment agreements), subject to the satisfaction of various conditions. Compensation to employees would be up to 12 months’ salary depending on employee seniority and years with the
Company.
Certain executives in the U.S. have employment agreements that provide for 12 months of severance pay upon termination from the Company without cause. Severance pay is base pay
only and does not include continuation of employee welfare benefits or bonus. The aggregate estimated amount of such severance is approximately $2.8 million.
Compensation Policy
On May 13, 2022, our shareholders approved the Compensation Policy for our directors and officers in accordance with the Israeli Companies Law, pursuant to which we are required to
determine the compensation of our directors and officers, and which must be approved by our shareholders every three years. The policy was previously approved by our board of directors, upon the recommendation of our compensation
committee.
The Compensation Policy is in effect for three years from the 2022 annual general meeting. Our Compensation Policy principles were designed to grant proper, fair and well-considered
remuneration to our officers, in alignment with our long-term best interests and overall organizational strategy. Part of the rationale is that our Compensation Policy should encourage our officers to identify with our objectives,
and an increase in officer satisfaction and motivation should retain the employment of high-quality officers in our service over the long term.
Board Practices
Appointment of Directors and Terms of Officers
Pursuant to our articles of association, the size of our board of directors shall be no less than five persons and no more than eleven persons, including any external directors whose
appointment is required by law. The directors who are not external directors are divided into three classes, as nearly equal in number as possible. At each annual general meeting, which is required to be held annually, but not more
than fifteen months after the prior annual general meeting, the term of one class of directors expires, and the directors of such class are re-nominated to serve an additional three-year term that expires at the annual general
meeting held in the third year following such election (other than any director nominated for election by Cosmo pursuant to the Company’s subscription agreement with Cosmo, whose term of office may expire earlier depending on the
beneficial ownership by the Cosmo investor of the Cosmo shares). This process continues indefinitely. A simple majority shareholder vote may elect directors for a term of less than three years in order to ensure that the three
groups of directors have as equal a number of directors as possible as provided above. The directors of the first class, currently consisting of Eric Swenden and Ofer Tsimchi, will hold office until our annual general meeting to be
held in the year 2024. The directors of the second class, currently consisting of Dror Ben-Asher, Dr. Kenneth Reed and Alla Felder, will hold office until our annual general meeting to be held in the year 2025. The directors of the
third class, currently consisting of Dr. Shmuel Cabilly and Rick Scruggs, will hold office until our annual general meeting to be held in the year 2026. Until the next annual general meeting, the board of directors may elect new
directors to fill vacancies or increase the number of members of the board of directors up to the maximum number provided in our articles of association. Any director so appointed may hold office until the first general
shareholders’ meeting convened after the appointment. See “Management - Board Practices – Independent and External Directors – Israeli Companies Law Requirements” below for a description of the adoption by the Company of the
corporate governance exemptions set forth in Regulation 5D of the Israeli Companies Regulations (Relief for Public Companies with Shares Listed for Trading on a Stock Market Outside of Israel), 5760-2000, including with respect to
external directors.
Pursuant to the Israeli Companies Law, one may not be elected and may not serve as a director in a public company if he or she does not have the required qualifications and the
ability to dedicate an appropriate amount of time for the performance of his duties as a director in the company, taking into consideration, among other things, the special needs and size of the company. In addition, a public
company may convene an annual general meeting of shareholders to elect a director, and may elect such director, only if prior to such shareholders meeting, the nominee declares, among other things, that he or she possesses all of
the required qualifications to serve as a director (and lists such qualifications in such declaration) and has the ability to dedicate an appropriate amount of time for the performance of his duties as a director of the company.
Under the Israeli Companies Law, entry by a public company into a contract with a non-controlling director as to the terms of his office, including exculpation, indemnification or
insurance, requires the approval of the compensation committee, the board of directors and the shareholders of the company.
The Israeli Companies Law requires that the terms of service and engagement of the chief executive officer, directors or controlling shareholders (or a relative thereof) receive the
approval of the compensation committee, board of directors, and shareholders, subject to limited exceptions. The appointment and terms of office of a company’s officers, other than directors and the general manager (i.e., chief
executive officer) are subject to the approval by first, the company’s compensation committee; second, the company’s board of directors, in each case subject to the company’s compensation policy, and then approved by its
shareholders. However, in special circumstances, they may approve the appointment and terms of office of officers inconsistent with such policy, provided that (i) they have considered those provisions that must be included in the
compensation policy according to the Israeli Companies Law and (ii) shareholder approval is obtained (by a majority of shareholders that does not include the controlling shareholders of the company and any shareholders interested in
the approval of the compensation). However, if the shareholders of the company do not approve a compensation arrangement with an officer inconsistent with the company’s compensation policy, in special situations the compensation
committee and the board of directors may override the shareholders’ decision if each of the compensation committee and the board of directors provide detailed reasons for their decision. In addition, non-material amendments to the
compensation of a public company’s officers (other than the chief executive officer and the directors) may be approved by the chief executive officer of the company if the company’s compensation policy establishes that non-material
amendments within the parameters established in the compensation policy may be approved by the chief executive officer, so long as the compensation is consistent with the company’s compensation policy. An amendment to the Israeli
Companies Law requires that the board and shareholders (with approval by a “special majority” as further discussed below) adopt a compensation policy applicable to the company’s directors and officers which must take into account,
among other things, providing proper incentives to directors and officers, the risk management of the company, the officer’s contribution to achieving corporate objectives and increasing profits, and the function of the officer or
director. Under the Israeli Companies Law, a “special majority” requires (i) the vote of at least a majority of the shares held by shareholders who are not controlling shareholders or have a personal interest in the proposal (shares
held by abstaining shareholders are not taken into account); or (ii) that the aggregate number of shares voting against the proposal held by such shareholders does not exceed 2% of the company’s voting shareholders.
The compensation paid to a public company’s chief executive officer is required to be approved by, first, the company’s compensation committee; second, the company’s board of
directors; and third, unless exempted under the regulations promulgated under the Israeli Companies Law, by the company’s shareholders (by a special majority vote as discussed above with respect to the approval of director
compensation). However, if the shareholders of the company do not approve the compensation arrangement with the chief executive officer, the compensation committee and board of directors may override the shareholders’ decision if
each of the compensation committee and the board of directors provide a detailed report for their decision. The renewal or extension of the engagement with a public company’s chief executive officer need not be approved by the
shareholders of the company if the terms and conditions of such renewal or extension are no more beneficial than the previous engagement or there is no substantial difference in the terms and conditions under the circumstances, and
the terms and conditions of such renewal or extension are in accordance with the company’s compensation policy. The compensation committee and board of directors approval should be in accordance with the company’s stated
compensation policy; however, in special circumstances, they may approve compensation terms of a chief executive officer that are inconsistent with such policy provided that they have considered those provisions that must be
included in the compensation policy according to the Israeli Companies Law and that shareholder approval was obtained (by a special majority vote as discussed above with respect to the approval of director compensation). The
compensation committee may waive the shareholder approval requirement with regards to the approval of the initial engagement terms of a candidate for the chief executive officer position, if they determine that the compensation
arrangement is consistent with the company’s stated compensation policy, and that the chief executive officer did not have a prior business relationship with the company or a controlling shareholder of the company and that
subjecting the approval of the engagement to a shareholder vote would impede the company’s ability to employ the chief executive officer candidate. The engagement with a public company’s chief executive officer need not be approved
by the shareholders of the company with respect to the period from the commencement of the engagement until the next shareholder meeting convened by the company, if the terms and conditions of such engagement were approved by the
compensation committee and the board of directors of the company, the terms and conditions of such engagement are in accordance with the company’s compensation policy approved in accordance with the Israeli Companies Law, and if the
terms and conditions of such engagement are no more beneficial than the terms and conditions of the person previously serving in such role or there is no substantial difference in the terms and conditions of the previous engagement
versus the new one under the circumstances, including the scope of engagement.
We have service contracts with two of our directors, Dror Ben-Asher and Rick Scruggs, that provide for benefits upon termination of their employment. For more information, see
“Management – Compensation.”
In June 2022, our directors and officers voluntarily deferred 20% of their fees or salary (as the case may be), which amounts may be fully or partially paid at a later date, subject
to several conditions. In June 2023 (only the officers) and October 2023, our directors and officers voluntarily deferred an additional sum of the cash compensation due to them under their respective employment agreements or
compensation arrangements, as the case may be. The Company's compensation committee and board of directors agreed to include a mechanism of a partial repayment of the deferred compensation upon certain terms. The execution of the
letters with the Company's directors is subject to shareholders approval.
Independent and External Directors – Israeli Companies Law Requirements
We are subject to the provisions of the Israeli Companies Law. The Israeli Minister of Justice has adopted regulations exempting companies like us whose shares are traded outside of
Israel from some provisions of the Israeli Companies Law.
Under the Israeli Companies Law, except as provided below, companies incorporated under the laws of Israel whose shares are either (i) listed for trading on a stock exchange or
(ii) have been offered to the public in or outside of Israel and are held by the public (Public Company) are required to appoint at least two external directors.
Our board of directors has resolved to adopt the corporate governance exception set forth in Regulation 5D of the Israeli Companies Regulations (the “Regulation”). In accordance with
the Regulation, a public company with securities listed on certain foreign exchanges, including the Nasdaq Stock Market, that satisfies the applicable foreign country laws and regulations that apply to companies organized in that
country relating to the appointment of independent directors and composition of audit and compensation committees and have no controlling shareholder are exempt from the requirement to appoint external directors or comply with the
audit committee and compensation committee composition requirements under the Israeli Companies Law. In accordance with our board of directors’ resolution, pursuant to the Regulation, we intend to comply with the Nasdaq Listing
Rules in connection with a majority of independent directors on the board of directors and in connection with the composition of each of the audit committee and the compensation committee, in lieu of such requirements of the Israeli
Companies Law.
The Israeli Companies Law provides that a person may not be appointed as an external director if the person is a relative of the controlling shareholder or if the person or the
person’s relative, partner, employer, someone to whom he is subordinated directly or indirectly or any entity under the person’s control, has, as of the date of the person’s appointment to serve as external director, or had, during
the two years preceding that date, any affiliation with us, our controlling shareholder, any relative of our controlling shareholder, as of the date of the person’s appointment to serve as external director, or any entity in which,
currently or within the two years preceding the appointment date, the controlling shareholder was the company or the company’s controlling shareholder; and in a company without a controlling shareholder or without a shareholder
holding 25% or more of the voting rights in the company, any affiliation to the chairman of the board of directors, to the general manager (Chief Executive Officer), to a shareholder holding 5% or more of the company’s shares or
voting rights, or to the chief officer in the financial or economic field as of the date of the person’s appointment. The term “affiliation” includes:
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an employment relationship;
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a business or professional relationship maintained on a regular basis;
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service as an officer, other than service as a director who was appointed in order to serve as an external director of a company when such company was about to make an initial public offering.
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Under the Israeli Companies Law, an “officer” is defined as a general manager, chief business manager, deputy general manager, vice general manager, any person filing any of these
positions in a company even if he holds a different title, director or any manager directly subordinate to the general manager.
However, a person may not serve as an external director if the person or the person’s relative, partner, employer, someone to whom he is subordinated directly or indirectly or any
entity under the person’s control has a business or professional relationship with an entity which has an affiliation with is prohibited as detailed above, even if such relationship is not on a regular basis (excluding negligible
relationship). In addition, an external director may not receive any compensation other than the compensation permitted by the Israeli Companies Law.
Regulations under the Israeli Companies Law provide for various instances and kinds of relationships in which an external director will not be deemed to have “affiliation” with the
public company for which he serves or is a candidate for serving as an external director.
No person can serve as an external director if the person’s positions or other businesses create, or may create, a conflict of interests with the person’s responsibilities as a
director or may impair his ability to serve as a director. In addition, a person who is a director of a company may not be elected as an external director of another company if, at that time, a director of the other company is
acting as an external director of the first company.
Except for the cessation of classification of directors as external directors in connection with the adoption by certain companies listed on foreign stock exchanges, including the
Nasdaq Stock Market, of the corporate governance exceptions set forth in the Regulation, as described above, until the lapse of two years from termination of office, a company, its controlling shareholder, or a company controlled by
him may not engage an external director, his spouse, or child to serve as an officer in the company or in any entity controlled by the controlling shareholder and cannot employ or receive professional services for consideration from
that person, and may not grant such person any benefit either directly or indirectly, including through a corporation controlled by that person. The same restrictions apply to relatives other than a spouse or a child, but such
limitations may only apply for one year from the date such external director ceased to be engaged in such capacity. In addition, if at the time an external director is appointed all current members of the board of directors who are
neither controlling shareholders nor relatives of controlling shareholders are of the same gender, then the external director to be appointed must be of the other gender.
Under the Israeli Companies Law, a public company is required to appoint as an external director, a person who has “professional expertise” or a person who has “financial and
accounting expertise,” provided that at least one of the external directors must have “financial and accounting expertise.” However, if at least one of our other directors (1) meets the independence requirements of the Exchange Act,
(2) meets the standards of the Nasdaq Stock Market for membership on the audit committee and (3) has financial and accounting expertise as defined in the Israeli Companies Law and applicable regulations, then neither of our external
directors is required to possess financial and accounting expertise as long as both possess other requisite professional qualifications. The determination of whether a director possesses financial and accounting expertise is made by
the board of directors.
Under the Israeli Companies Law regulations, a director having financial and accounting expertise is a person who, due to his education, experience and qualifications is highly
skilled in respect of, and understands, business-accounting matters and financial reports in a manner that enables him to understand in depth the company’s financial statements and to stimulate discussion regarding the manner in
which the financial data is presented. Under the Israeli Companies Law regulations, a director having professional expertise is a person who has an academic degree in either economics, business administration, accounting, law or
public administration or another academic degree or has completed other higher education studies, all in an area relevant to the main business sector of the company or in a relevant area of the board of directors position, or has at
least five years of experience in one of the following or at least five years of aggregate experience in two or more of the following: a senior management position in the business of a corporation with a substantial scope of
business, in a senior position in the public service or a senior position in the main field of the company’s business.
Under the Israeli Companies Law, each Israeli public company is required to determine the minimum number of directors with “accounting and financial expertise” that such company
believes appropriate in light of the company’s type, size, the scope and complexity of its activities and other factors. Once a company has made this determination, it must ensure that the necessary appointments to the board of
directors are made in accordance with this determination. Our board of directors determined that two directors with “accounting and financial expertise” is appropriate for us. Our board of directors currently has three directors
with such “accounting and financial expertise.”
External directors are to be elected by a majority vote at a shareholders’ meeting, provided that either (1) the majority of shares voted at the meeting, including at least a
majority of the votes of the shareholders who are not controlling shareholders (as defined in the Israeli Companies Law), do not have a personal interest in the appointment (excluding a personal interest which did not result from
the shareholder’s relationship with the controlling shareholder), vote in favor of the election of the director without taking abstentions into account; or (2) the total number of shares of the above-mentioned shareholders who voted
against the election of the external director does not exceed two percent of the aggregate voting rights in the company.
The initial term of an external director is three years and may be extended for two additional three-year terms under certain circumstances and conditions. Nevertheless, regulations
under the Israeli Companies Law provide that companies, whose shares are listed for trading the Nasdaq Stock Market, may appoint an external director for additional three-year terms, under certain circumstances and conditions.
External directors may be removed only in a general meeting, by the same percentage of shareholders as is required for their election, or by a court, and in both cases only if the external directors cease to meet the statutory
qualifications for their appointment or if they violate their duty of loyalty to us. Each committee authorized to exercise any of the powers of the board of directors is required to include at least one external director and the
audit committee is required to include all of the external directors.
An external director is entitled to compensation and reimbursement of expenses in accordance with regulations promulgated under the Israeli Companies Law and is otherwise prohibited
from receiving any other compensation, directly or indirectly, in connection with serving as a director except for certain exculpation, indemnification and insurance provided by the company.
Committees
Israeli Companies Law Requirements
Our board of directors has established three standing committees, the audit committee, the compensation committee, and the investment committee.
Audit Committee
Under the Israeli Companies Law, the board of directors of a public company must appoint an audit committee. Except in the case of companies listed on foreign stock exchanges,
including the Nasdaq Stock Market, which have adopted the corporate governance exceptions set forth in the Regulation, such as us, as described under “- Independent and External Directors – Israeli Companies Law Requirements”, who
are exempt from the audit committee composition requirements under the Companies Law, an audit committee of a public company under the Israeli Companies Law must be comprised of at least three directors including all of the external
directors.
In addition, the Israeli Companies Law provides that the majority of the members of the audit committee, as well as the majority of members present at audit committee meetings, must
be “independent” (as such term is defined below) and the chairman of the audit committee must be an external director. In addition, the following are disqualified from serving as members of the audit committee: the chairman of the
board of directors, the controlling shareholder and her or his relatives, any director employed by the company or by its controlling shareholder or by an entity controlled by the controlling shareholder, a director who regularly
provides services to the company or to its controlling shareholder or to an entity controlled by the controlling shareholder, and any director who derives most of its income from the controlling shareholder. Any persons not
qualified from serving as a member of the audit committee may not be present at the audit committee meetings during the discussion and at the time decisions are made, unless the chairman of the audit committee determines that the
presence of such person is required to present a matter to the meeting or if such person qualifies under an available exemption in the Israeli Companies Law.
An “independent director” is defined as an external director or a director who meets the following conditions: (i) satisfies certain conditions for appointment as an external
director (as described above) and the audit committee has determined that such conditions have been met and (ii) has not served as a director of the company for more than nine consecutive years, with any interruption of up to
two years in service not being deemed a disruption in the continuity of such service.
The role of the audit committee under the Israel Companies Law is to examine suspected flaws in our business management, in consultation with the internal auditor or our independent
accountants and suggest an appropriate course of action in order to correct such flaws. In addition, the approval of the audit committee is required to effect specified actions and related party transactions.
Additional functions to be performed by the audit committee include, among others, the following:
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the determination whether certain related party actions and transactions are “material” or “extraordinary” for purposes of the requisite approval procedures;
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to determine whether to approve actions and transactions that require audit committee approval under the Israel Companies Law;
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to assess the scope of work and compensation of the company’s independent accountant;
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to assess the company’s internal audit system and the performance of its internal auditor and if the necessary resources have been made available to the internal auditor considering the company’s needs and size; and
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to determine arrangements for handling complaints of employees in relation to suspected flaws in the business management of the company and the protection of the rights of such employees.
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Our audit committee also serves as our financial statements committee. The members of our audit committee are Alla Felder (chairperson), Ofer Tsimchi, Eric Swenden and Dr. Kenneth
Reed.
An amendment to the Israeli Companies Law allows a company whose audit committee’s composition meets the requirements set for the composition of a compensation committee (as further
detailed below) to have one committee acting as both audit and compensation committees. As of the date of this prospectus, we have not elected to have one committee acting as both the audit and the compensation committees.
Compensation Committee
According to the Israeli Companies Law, the board of directors of a public company must establish a compensation committee. Except in the case of companies listed on foreign stock
exchanges, including the Nasdaq Stock Market, which have adopted the corporate governance exceptions set forth in the Regulation, such as us, as described under “- Independent and External Directors – Israeli Companies Law
Requirements”, who are exempt from the compensation committee composition requirements under the Companies Law, the Israeli Companies Law requires that the compensation committee must consist of at least three directors and include
all of the external directors who must constitute a majority of its members. The remaining members must be qualified to serve on the audit committee pursuant to the Israeli Companies Law requirements described above. The
compensation committee chairman must be an external director and any persons not qualified from serving as a member of the compensation committee may not be present at the compensation committee meetings during the discussion and at
the time decisions are made, unless the chairman of the compensation committee determines that the presence of such person is required to present a matter to the meeting or if such person qualifies under an available exemption in
the Israeli Companies Law.
Our compensation committee, which consists of Ofer Tsimchi (chairman), Dr. Kenneth Reed and Alla Felder, administers issues relating to our global compensation plan with respect to
our employees, directors, and consultants. Our compensation committee is responsible for making recommendations to the board of directors regarding the issuance of share options and compensation terms for our directors and officers
and for determining salaries and incentive compensation for our executive officers and incentive compensation for our other employees and consultants. Each of the members of the compensation committee is “independent” as such term
is defined in the Nasdaq Listing Rules.
Investment Committee
Our investment committee, which consists of Eric Swenden (chairman), Alla Felder and Ofer Tsimchi, assists the board in fulfilling its responsibilities with respect to our financial
and investment strategies and policies, including determining policies and guidelines on these matters and monitoring implementation. It is also authorized to approve certain financial transactions and review risk factors associated
with management of our finances and the mitigation of such risks, as well as financial controls and reporting and various other finance-related matters.
Nasdaq Stock Market Requirements
Under the Nasdaq Listing Rules, we are required to maintain an audit committee consisting of at least three members, all of whom are independent and are financially literate and one
of whom has accounting or related financial management expertise.
The independence requirements of Rule 10A‑3 of the Exchange Act implement two basic criteria for determining independence:
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audit committee members are barred from accepting directly or indirectly any consulting, advisory or other compensatory fee from the issuer or an affiliate of the issuer, other than in the member’s capacity as a member
of the board of directors and any board committee; and
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audit committee members may not be an “affiliated person” of the issuer or any subsidiary of the issuer apart from her or his capacity as a member of the board of directors and any board committee.
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The SEC has defined “affiliate” for non-investment companies as “a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under
common control with, the person specified.” The term “control” is intended to be consistent with the other definitions of this term under the Exchange Act, as “the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.” A safe harbor has been adopted by the SEC, under which a person who is not an executive officer or
10% shareholder of the issuer would be deemed not to have control of the issuer.
In accordance with the Sarbanes-Oxley Act of 2002 and the Nasdaq Listing Rules, the audit committee is directly responsible for the appointment, compensation, and performance of our
independent auditors. In addition, the audit committee is responsible for assisting the board of directors in reviewing our annual financial statements, the adequacy of our internal control and our compliance with legal and
regulatory requirements. The audit committee also oversees our major financial risk exposures and policies for managing such potential risks, discusses with management and our independent auditor significant risks or exposure and
assesses the steps management has taken to minimize such risk.
As noted above, the members of our audit committee include Alla Felder, Ofer Tsimchi Eric Swenden and Dr. Kenneth Reed, with Ms. Felder serving as chairperson. All members of our
audit committee meet the requirements for financial literacy under the Nasdaq Listing Rules. Our board of directors has determined that each of Ms. Alla Felder, Mr. Ofer Tsimchi, Mr. Eric Swenden and Dr. Kenneth Reed is an audit
committee financial expert as defined by the SEC rules and all members of the audit committee have the requisite financial experience as defined by the Nasdaq Listing Rules. 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.
Diversity of the Board of Directors
We are committed to diversity among our Board. The ability to incorporate a wide range of viewpoints, backgrounds, skills, and experience is critical to our success. By bringing
together individuals with varying backgrounds, expertise, and perspectives into an inclusive and collaborative work environment, we believe we can better achieve our corporate objectives and deliver long-term, sustained value for
our shareholders.
We recognize that gender diversity is a significant aspect of diversity and acknowledge the important role that women with appropriate and relevant skills and experience can play in
contributing to the diversity of thought on the Board. As such, when reviewing and assessing the qualifications of possible nominees to the Board, our Board is guided by the following considerations:
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the competencies and skills necessary for the Board as a whole should possess;
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the experience and skill each new nominee will bring to the Board;
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the diversity of the Board as a whole and whether the new nominee would enhance such diversity; and
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whether the nominees can devote sufficient time and resources to his or her duties as a Board member.
|
Due to the size of the Company and Board, our activities, and our current number of employees across two geographies, we have not yet set measurable objectives or adopted a formal
policy for achieving gender diversity on the Board. However, our Board and the Company continues to monitor and consider the level of female representation on the Board and, where appropriate, aim to recruit qualified female
candidates as part of the selection process to fill vacancies. We will consider establishing measurable objectives as it develops further.
Internal Auditor
Under the Israeli Companies Law, the board of directors must appoint an internal auditor proposed by the audit committee. The role of the internal auditor is, among others, to
examine whether our actions comply with the law and orderly business procedure. Under the Israeli Companies Law, the internal auditor may not be an interested party, an officer or a director, a relative of an interested party, or a
relative of an officer or a director, nor may the internal auditor be our independent accountant or its representative. In January 2018, Ms. Sharon Cohen, Lead Engagement Partner, Head of LS & HC Industry at Deloitte Israel, was
elected to serve as our internal auditor. In May 2023, Ms. Sharon Cohen was substituted auditor by a different member of Deloitte Israel, Ms. Tal Yaron.
Duties of Directors and Officers and Approval of Specified Related Party Transactions under the Israeli Companies Law
Fiduciary Duties of Officers
The Israeli Companies Law imposes a duty of care and a duty of loyalty on all directors and officers of a company, including directors and executive officers. The duty of care
requires a director or an officer to act with the level of care, according to which a reasonable director or officer 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 on the appropriateness of a given action brought for the directors’ or officer’s approval or performed by such person by virtue of such person’s position; and
|
|
• |
all other important information pertaining to the previous actions.
|
The duty of loyalty requires a director or an officer to act in good faith and for the benefit of the company and includes a duty to:
|
• |
refrain from any action involving a conflict of interest between the performance of the director’s or officer’s duties in the company and such person’s personal affairs;
|
|
• |
refrain from any activity that is competitive with the company’s business;
|
|
• |
refrain from usurping any business opportunity of the company to receive a personal gain for the director, officer or others; and
|
|
• |
disclose to the company any information or documents relating to a company’s affairs which the director or officer has received due to such person’s position as a director or an officer.
|
Under the Israeli Companies Law, subject to certain exceptions, directors’ compensation arrangements require the approval of the compensation committee, the board of directors and
the shareholders.
The Israeli Companies Law requires that a director or an officer of a company promptly and, in any event, not later than the first board meeting at which the transaction is
discussed, disclose any personal interest that he may have, and all related material facts or document known to such person, in connection with any existing or proposed transaction by the company. A personal interest of a director
or an officer (which includes a personal interest of the director’s or officer’s relative) is in a company in which the director or officer or the director’s or officer’s relative is: (i) a shareholder which holds 5% or more of a
company’s share capital or its voting rights, (ii) a director or a general manager, or (iii) in which the director or officer has the right to appoint at least one director or the general manager. A personal interest also includes a
personal interest of a person who votes according to a proxy of another person, even if the other person has no personal interest, and a personal interest of a person who gave a proxy to another person to vote on his behalf – in
each case, regardless whether discretion with respect to how to vote lies with the person voting or not. In the case of an extraordinary transaction, the director’s or the officer’s duty to disclose also applies to a personal
interest of the director or officer’s relative.
Under the Israeli Companies Law, an extraordinary transaction is a transaction:
|
• |
other than in the ordinary course of business;
|
|
• |
other than on market terms; or
|
|
• |
that is likely to have a material impact on the company’s profitability, assets or liabilities.
|
Under the Israeli Companies Law, once a director or an officer complies with the above disclosure requirement, the board of directors may approve an ordinary transaction between the
company and a director or an officer, or a third party in which a director or an officer has a personal interest, unless the articles of association provide otherwise. A transaction that does not benefit the company’s interest
cannot be approved. Subject to certain exceptions, the compensation committee and the board of directors must approve the conditions and term of office of an officer (who is not a director).
If the transaction is an extraordinary transaction, both the audit committee and the board of directors, in that order, must approve the transaction. Under specific circumstances,
shareholder approval may also be required. Whoever has a personal interest in a matter, which is considered at a meeting of the board of directors or the audit committee, may not be present at this meeting or vote on this matter.
However, if the chairman of the board of directors or the chairman of the audit committee has determined that the presence of such person is required to present a matter at the meeting; such officer holder may be present at the
meeting. Notwithstanding the foregoing, if the majority of the directors have a personal interest in a matter, a director who has the personal interest in this matter may be present at this meeting or vote on this matter, but the
board of directors’ decision requires the shareholder approval.
Controlling Shareholder Transactions and Actions
Under the Israeli Companies Law, the disclosure requirements which apply to a director or an officer also apply to a controlling shareholder of a public company and to a person who
would become a controlling shareholder as a result of a private placement. A controlling shareholder includes a person who has the ability to direct the activities of a company, other than if this power derives solely from his/her
position on the board of directors or any other position with the company. In addition, for such purposes, a controlling shareholder includes a shareholder that holds 25% or more of the voting rights in a public company if no other
shareholder owns more than 50% of the voting rights in the company. Extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, including a private placement in which a
controlling shareholder has a personal interest; and the terms of engagement of the company, directly or indirectly, with a controlling shareholder or his or her relative (including through a corporation controlled by a controlling
shareholder), regarding the company’s receipt of services from the controlling shareholder, and if such controlling shareholder is also a director or an officer of the company or an employee, regarding his or her terms of office and
employment, require the approval of the audit committee, the board of directors and the shareholders of the company, in that order. The shareholders’ approval must include either:
|
• |
a majority of the shareholders who have no personal interest in the transaction and who are participating in the voting, in person, by proxy or by written ballot, at the meeting (votes abstaining not being taken into
account); or
|
|
• |
the total number of shares voted against the proposal by shareholders without a personal interest does not exceed 2% of the aggregate voting rights in the Company.
|
In addition, any such transaction whose term is more than three years requires the above-mentioned approval every three years, unless, with respect to transactions not involving the
receipt of services or compensation, the audit committee approves a longer term as reasonable under the circumstances.
However, under regulations, promulgated pursuant to the Israeli Companies Law, certain transactions between a company and its controlling shareholders, or the controlling
shareholder’s relative, do not require shareholder approval.
For information concerning the direct and indirect personal interests of certain of our directors or officers and principal shareholders in certain transactions with us, see “Major
Shareholders – Related Party Transactions.”
The Israeli Companies Law requires that every shareholder that participates, either by proxy or in person, in a vote regarding a transaction with a controlling shareholder indicate
whether or not that shareholder has a personal interest in the vote in question, the failure of which results in the invalidation of that shareholder’s vote.
The Israeli Companies Law further provides that an acquisition of shares or voting rights in a public company must be made by means of a tender offer if as a result of the
acquisition the purchaser would become a holder of 45% of the voting rights of the company, unless there is a holder of more than 45% of the voting rights of the company or would become a holder of 25% of the voting rights unless
there is another person holding 25% of the voting rights. This restriction does not apply to:
|
• |
an acquisition of shares in a private placement, if the acquisition had been approved in a shareholders meeting under certain circumstances;
|
|
• |
an acquisition of shares from a holder of at least 25% of the voting rights, as a result of which a person would become a holder of at least 25% of the voting rights; and
|
|
• |
an acquisition of shares from a holder of more than 45% of the voting rights, as a result of which the acquirer would become a holder of more than 45% of the voting rights in the company.
|
The Israeli Companies Law further provides that a shareholder has a duty to act in good faith toward the company and other shareholders when exercising his rights and duties and must
refrain from oppressing other shareholders, including in connection with the voting at a shareholders’ meeting on:
|
• |
any amendment to the articles of association;
|
|
• |
an increase in the company’s authorized share capital;
|
|
• |
approval of certain transactions with control persons and other related parties, which require shareholder 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 a director or an officer in the company, or has any other power over the company, is under a duty to act with fairness toward
the company. Under the Israeli Companies Law, the laws that apply to a breach of a contract will generally also apply to a breach of the duty of fairness.
Exemption, Insurance, and Indemnification of Directors and Officers
Exemption of Officers and Directors
Under the Israeli Companies Law, a company may not exempt an officer or director from liability with respect to a breach of his duty of loyalty, but may exempt in advance an officer
or director from liability to the company, in whole or in part, with respect to a breach of his duty of care, except in connection with a prohibited distribution made by the company, if so provided in its articles of association.
Our articles of association provide for this exemption from liability for our directors and officers.
Directors’ and Officers’ Insurance
The Israeli Companies Law and our articles of association provide that, subject to the provisions of the Israeli Companies Law, we may obtain insurance for our directors and officers
for any liability stemming from any act performed by an officer or director in his capacity as an officer or director, as the case may be with respect to any of the following:
|
• |
a breach of such officer’s or director’s duty of care to us or to another person;
|
|
• |
a breach of such officer’s or director’s duty of loyalty to us, provided that such officer or director acted in good faith and had reasonable cause to assume that his act would not prejudice our interests;
|
|
• |
a financial liability imposed upon such officer or director in favor of another person;
|
|
• |
financial liability imposed on the officer or director for payment to persons or entities harmed as a result of violations in administrative proceedings as described in Section 52(54)(a)(1)(a) of the Israeli Securities
Law (“Party Harmed by the Breach”);
|
|
• |
expenses incurred by such officer or director in connection with an administrative proceeding conducted in this matter, including reasonable litigation expenses, including legal fees; or
|
|
• |
a breach of any duty or any other obligation, to the extent insurance may be permitted by law.
|
Pursuant to the Compensation Policy, we may obtain a directors’ and officers’ liability insurance policy, which would apply to our or our subsidiaries’ directors and officers, as
they may be, from time to time, subject to the following terms and conditions: (a) the total insurance coverage under the insurance policy may not exceed $100 million; and (b) the purchase of such policy must be approved by the
Compensation Committee (and, if required by law, by the board of directors) which shall determine that such policy reflects the current market conditions and that it does not materially affect the Company's profitability, assets or
liabilities. In addition, pursuant to our Compensation Policy, should we sell our operations (in whole or in part) or in case of a merger, spin-off or any other significant business combination involving us or part or all of our
assets, we may obtain a director’s and officers’ liability insurance policy (run-off) for our directors and officers in office with regard to the relevant operations, subject to the following terms and conditions: (a) the insurance
term may not exceed seven years; (b) the coverage amount may not exceed $100 million. ; and (c) the purchase of such policy must be approved by the Compensation Committee (and, if required by law, by the board of directors) which
shall determine that such policy reflects the current market conditions and that it does not materially affect the Company's profitability, assets or liabilities. The Compensation Policy is in effect for three years from the 2022
annual general meeting.
Pursuant to the foregoing approvals, we carry directors’ and officers’ liability insurance. This insurance is renewed on an annual basis.
Indemnification of Officers and Directors
The Israeli Companies Law provides that a company may indemnify an officer or director for payments or expenses associated with acts performed in his capacity as an officer or
director of the company, provided the company’s articles of association include the following provisions with respect to indemnification:
|
• |
a provision authorizing the company to indemnify an officer or director for future events with respect to a monetary liability imposed on him in favor of another person pursuant to a judgment (including a judgment given
in a settlement or an arbitrator’s award approved by the court), so long as such indemnification is limited to types of events which, in the board of directors’ opinion, are foreseeable at the time of granting the
indemnity undertaking given the company’s actual business, and in such amount or standard as the board of directors deems reasonable under the circumstances. Such undertaking must specify the events that, in the board of
directors’ opinion, are foreseeable in view of the company’s actual business at the time of the undertaking and the amount or the standards that the board of directors deemed reasonable at the time;
|
|
• |
a provision authorizing the company to indemnify an officer or director for future events with respect to reasonable litigation expenses, including counsel fees, incurred by an officer or director in which he is ordered
to pay by a court, in proceedings that the company institutes against him or instituted on behalf of the company or by another person, or in a criminal charge of which he was acquitted, or a criminal charge in which he was
convicted of a criminal offense that does not require proof of criminal intent;
|
|
• |
a provision authorizing the company to indemnify an officer or director for future events with respect to reasonable litigation fees, including attorney’s fees, incurred by an officer or director due to an investigation
or proceeding filed against him by an authority that is authorized to conduct such investigation or proceeding, and that resulted without filing an indictment against him and without imposing on him financial obligation in
lieu of a criminal proceeding, or that resulted without filing an indictment against him but with imposing on him a financial obligation as an alternative to a criminal proceeding in respect of an offense that does not
require the proof of criminal intent or in connection with a monetary sanction;
|
|
• |
a provision authorizing the company to indemnify an officer or director for future events with respect to a Party Harmed by the Breach;
|
|
• |
a provision authorizing the company to indemnify an officer or director for future events with respect to expenses incurred by such officer or director in connection with an administrative proceeding, including
reasonable litigation expenses, including legal fees; and
|
|
• |
a provision authorizing the company to indemnify an officer or director retroactively.
|
Limitations on Insurance, Exemption and Indemnification
The Israeli Companies Law and our articles of association provide that a company may not exempt or indemnify a director or an officer nor enter into an insurance contract, which
would provide coverage for any monetary liability incurred as a result of any of the following:
|
• |
a breach by the officer or director of his duty of loyalty, except for insurance and indemnification where the officer or director acted in good faith and had a reasonable basis to believe that the act would not
prejudice the company;
|
|
• |
a breach by the officer or director of his duty of care if the breach was done intentionally or recklessly, except if the breach was solely as a result of negligence;
|
|
• |
any act or omission done with the intent to derive an illegal personal benefit; or
|
|
• |
any fine, civil fine, monetary sanctions, or forfeit imposed on the officer or director.
|
In addition, under the Israeli Companies Law, exemption of, indemnification of, and procurement of insurance coverage for, our directors and officers must be approved by our audit
committee and board of directors and, in specified circumstances, by our shareholders.
Letters of Indemnification
We may provide a commitment to indemnify in advance any director or officer of ours in the course of such person’s position as our director or officer, all subject to the letter of
indemnification, as approved by our shareholders from time to time and in accordance with our articles of association. We may provide retroactive indemnification to any officer to the extent allowed by the Israeli Companies Law. As
approved by our shareholders on May 13, 2022, the amount of the advance indemnity is limited to the higher of 25% of our then shareholders’ equity, per our most recent annual financial statements, or $10 million.
As part of the indemnification letters, we exempted our directors and officers, in advance, to the extent permitted by law, from any liability for any damage incurred by them, either
directly or indirectly, due to the breach of an officer’s or director’s duty of care vis-à-vis us, within his acts in his capacity as an officer or director. The letter provides that so long
as not permitted by law, we do not exempt an officer or director in advance from his liability to us for a breach of the duty of care upon distribution, to the extent applicable to the officer or director, if any. The letter also
exempts an officer or director from any liability for any damage incurred by him, either directly or indirectly, due to the breach of the officer or director’s duty of care vis-à-vis us, by
his acts in his capacity as an officer or director prior to the letter of exemption and indemnification becoming effective.
Employees
As of December 31, 2023, we had 53 employees, of which 15 provide services in Israel and 38 in the U.S. In addition, we also receive services from 8 consultants, of which 2 are in
the U.S., 4 in Canada and 2 in Israel.
| |
|
As of December 31,
|
|
| |
|
2023
|
|
|
2022
|
|
|
2021
|
|
| |
|
Company
|
|
|
|
|
|
Company
|
|
|
|
|
|
Company
|
|
|
|
|
| |
|
Employees
|
|
|
Consultants
|
|
|
Employees
|
|
|
Consultants
|
|
|
Employees
|
|
|
Consultants
|
|
|
Management and administration
|
|
|
14
|
|
|
|
—
|
|
|
|
15
|
|
|
|
—
|
|
|
|
17
|
|
|
|
—
|
|
|
Research and development
|
|
|
1
|
|
|
|
8
|
|
|
|
2
|
|
|
|
10
|
|
|
|
2
|
|
|
|
10
|
|
|
Commercial operations
|
|
|
38
|
|
|
|
—
|
|
|
|
96
|
|
|
|
—
|
|
|
|
182
|
|
|
|
—
|
|
While none of our employees are party to a collective bargaining agreement, certain provisions of the collective bargaining agreements between the Histadrut (General Federation of
Labor in Israel) and the Coordination Bureau of Economic Organizations (including the Industrialists’ Associations) are applicable to our employees by order of the Israel Ministry of Labor. These provisions primarily concern the
length of the workday, minimum daily wages for professional workers, pension fund benefits for all employees, insurance for work-related accidents, procedures for dismissing employees, determination of severance pay and other
conditions of employment. We generally provide our employees with benefits and working conditions beyond the required minimums.
We have never experienced any employment-related work stoppages and believe our relationship with our employees is good.
Legal Proceedings
From time to time, we may become a party to legal proceedings and claims in the ordinary course of business. On February 22, 2021, Aether filed a complaint against RedHill U.S. in
the United States District Court for the District of Delaware. We refer to this matter as the Aether Litigation. The complaint asserts that our marketing of the Movantik® product infringes certain U.S. Patents held by Aether (the
"Aether Patents"). Aether has asserted the Aether Patents against other entities previously involved in the marketing of Movantik®. The complaint requests customary remedies for patent infringement. In November 2022, the Company and
AstraZeneca signed a settlement agreement, according to which AstraZeneca will be solely responsible for any costs incurred in the defense of this litigation, including any settlement amounts, damages awarded, and legal fees.
On September 2, 2022, the Company filed a lawsuit against Kukbo in the Supreme Court of the State of New York, County of New York, Commercial Division, as a result of Kukbo’s default
in delivering us $5.0 million under the Subscription Agreement, dated October 25, 2021, in exchange for ADSs we were to issue to Kukbo, and in delivering to us the $1.5 million due under the Exclusive License Agreement. Kukbo
thereafter filed counterclaims with various allegation, such as breach of contract, misrepresentation and the breach of the duty of good faith and failure dealing. The parties continue to proceed with discovery and depositions, and
we plan to continue to rigorously pursue the Kukbo litigation. On November 20, 2023 we entered into a Contingency Fee Agreement with our legal firm, H&B under which certain legal costs related to the Kukbo litigation will be
assumed by H&B. The Company strongly believes in the merits of its lawsuit against Kukbo and will continue to decisively pursue a favorable judgment.
BENEFICIAL OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth information regarding the beneficial ownership of our outstanding Ordinary Shares as of February 5, 2024, of each of our directors
and executive officers individually and as a group based on information provided to us by our directors and executive officers. As of the date of this prospectus, there is no person or entity known to us to beneficially own 5.0%
or more of our outstanding Ordinary Shares. The information in this table is based on 11,881,211,000 Ordinary Shares outstanding as of such date. The number of Ordinary Shares beneficially owned by a person includes Ordinary
Shares subject to RSUs that due to vest within 60 days of February 5, 2024, and to options held by that person that were currently exercisable at, or exercisable within 60 days of February 5, 2024. The Ordinary Shares issuable
under these options are treated as if they were outstanding for purposes of computing the percentage ownership of the person holding these options but not the percentage ownership of any other person. None of the holders of the
Ordinary Shares listed in this table have voting rights different from other holders of the Ordinary Shares.
| |
|
Number of
|
|
|
|
|
| |
|
Shares
|
|
|
|
|
| |
|
Beneficially
|
|
|
Percent of
|
|
| |
|
Held
|
|
|
Class
|
|
|
Directors
|
|
|
|
|
|
|
|
Dr. Kenneth Reed (1)
|
|
|
8,364,450
|
|
|
|
*
|
|
|
Dr. Shmuel Cabilly (2)
|
|
|
5,746,070
|
|
|
|
*
|
|
|
Eric Swenden (3)
|
|
|
1,755,890
|
|
|
|
*
|
|
|
Ofer Tsimchi (4)
|
|
|
852,800
|
|
|
|
*
|
|
|
Alla Felder (5)
|
|
|
542,800
|
|
|
|
*
|
|
|
Executive officers
|
|
|
|
|
|
|
|
|
|
Dror Ben-Asher (6)
|
|
|
7,835,420
|
|
|
|
*
|
|
|
Reza Fathi, Ph.D. (7)
|
|
|
4,516,400
|
|
|
|
*
|
|
|
Adi Frish (8)
|
|
|
5,138,320
|
|
|
|
*
|
|
|
Gilead Raday (9)
|
|
|
4,980,800
|
|
|
|
*
|
|
|
Guy Goldberg (10)
|
|
|
4,480,400
|
|
|
|
*
|
|
|
Razi Ingber (11)
|
|
|
2,054,000
|
|
|
|
*
|
|
|
Rick D. Scruggs (12)
|
|
|
2,880,400
|
|
|
|
*
|
|
| |
|
|
|
|
|
|
|
|
|
All directors and executive officers as a group (12 persons)
|
|
|
49,147,750
|
|
|
|
0.41
|
%
|
| (1) |
Includes RSUs which are scheduled to vest into ADSs equivalent to 8,000 ordinary shares within 60 days of February 5, 2024, and options to purchase 559,200 Ordinary Shares exercisable within 60 days of February 5, 2024.
The exercise price of these options ranges between $194.8 and $280 per share and the options expire between 2024 and 2031. Number of shares beneficially held also includes shares held by family members.
|
| (2) |
Includes RSUs which are scheduled to vest into ADSs equivalent to 8,400 ordinary shares within 60 days of February 5, 2024, and options to purchase 544,800 Ordinary Shares exercisable within 60 days of February 5, 2024.
The exercise price of these options ranges between $194.8 and $283.2 per share and the options expire between 2024 and 2031.
|
| (3) |
Includes RSUs which are scheduled to vest into ADSs equivalent to 8,000 ordinary shares within 60 days of February 5, 2024, and options to purchase 534,800 Ordinary Shares exercisable within 60 days of February 5, 2024.
The exercise price of these options ranges between $194.8 and $283.2 per share and the options expire between 2024 and 2031.
|
| (4) |
Includes RSUs which are scheduled to vest into ADSs equivalent to 8,400 ordinary shares within 60 days of February 5, 2024, and options to purchase 694,800 Ordinary Shares exercisable within 60 days of February 5, 2024.
The exercise price of these options ranges between $194.8 and $283.2 per share and the options expire between 2024 and 2031.
|
| (5) |
Includes RSUs which are scheduled to vest into ADSs equivalent to 8,400 ordinary shares within 60 days of February 5, 2024, and options to purchase 374,800 Ordinary Shares exercisable within 60 days of February 5, 2024.
The exercise price of these options ranges between $194.8 and $283.2 per share and the options expire between 2029 and 2031.
|
| (6) |
Includes options to purchase 3,924,800 Ordinary Shares exercisable within 60 days of February 5, 2024. The exercise price of these options ranges between $194.8 and $283.2 per share and the options expire between 2024 and
2031.
|
| (7) |
Includes RSUs which are scheduled to vest into ADSs equivalent to 289,600 ordinary shares within 60 days of February 5, 2024, and options to purchase 2,715,600 Ordinary Shares exercisable within 60 days of February 5,
2024. The exercise price of these options ranges between $194.8 and $283.2 per share, and the options expire between 2024 and 2031.
|
| (8) |
Includes RSUs which are scheduled to vest into ADSs equivalent to 532,800 ordinary shares within 60 days of February 5, 2024, and options to purchase 2,487,600 Ordinary Shares exercisable within 60 days of February 5,
2024. The exercise price of these options ranges between $194.8 and $283.2 per share and the options expire between 2024 and 2031.
|
| (9) |
Includes RSUs which are scheduled to vest into ADSs equivalent to 534,400 ordinary shares within 60 days of February 5, 2024, and options to purchase 2,532,400 Ordinary Shares exercisable within 60 days of February 5,
2024. The exercise price of these options ranges between $194.8 and $283.2 per share and the options expire between 2024 and 2031.
|
| (10) |
Includes RSUs which are scheduled to vest into ADSs equivalent to 340,000 ordinary shares within 60 days of February 5, 2024, and options to purchase 2,225,200 Ordinary Shares exercisable within 60 days of February 5,
2024. The exercise price of these options ranges between $194.8 and $283.2 per share, and the options expire between 2024 and 2031.
|
| (11) |
Includes RSUs which are scheduled to vest into ADSs equivalent to 448,000 ordinary shares within 60 days of February 5, 2024, and options to purchase 375,200 Ordinary Shares exercisable within 60 days of February 5, 2024.
The exercise price of these options ranges between $200 and $308.8 per share and the options expire between 2024 and 2031.
|
| (12) |
Includes options to purchase 1,735,600 Ordinary Shares exercisable within 60 days of February 5, 2024. The exercise price of these options ranges between $264.8 and $280 per share and the options expire between 2024 and
2031.
|
Award Plans
Amended and Restated Award Plan
Our Award Plan provides for the granting of Ordinary Shares, ADSs, stock options under various tax regimes in Israel and the U.S., RSUs, restricted shares, and
other share-based awards to our directors, officers, employees, consultants and service providers and individuals who are their employees, and to the directors, officers, employees, consultants and service providers of our
subsidiaries and affiliates. The Award Plan provides for awards to be issued at the determination of our board of directors in accordance with applicable laws. As of February 6, 2024, there were 110,151,600 Ordinary Shares
issuable upon the exercise or vesting of outstanding awards under the Award Plan and 1,290,507,198 Ordinary Shares available for future issuance under the Award Plan. Our Award Plan provides that the maximum number of Ordinary
Shares that may be issued under the Award Plan will automatically be increased on January 1, April 1, July 1 and October 1 of each calendar year such that immediately following such increase the maximum number of Ordinary Shares
that may be issued under the Award Plan will be equal to sixteen and a half percent (16.5%) of the number of outstanding Ordinary Shares on a fully-diluted basis on the last day of immediately preceding fiscal quarter.
SELLING SHAREHOLDERS
January 2024 Offering
On January 26, 2024, we issued to certain institutional investors (i) in a registered direct offering, 10,000,000 ADSs at a purchase price of $0.80 per ADS and (ii) in a concurrent
private offering, Warrants to purchase 10,000,000 ADSs. The Warrants have an exercise price of $1.00 per ADS, are exercisable immediately and will expire five years from the date of issuance.
The issuance of the Warrants was exempt from the registration requirements of the Securities Act pursuant to an exemption provided by Section 4(a)(2) thereof and Rule 506 of
Regulation D promulgated thereunder as a transaction by an issuer not involving a public offering. Pursuant to the Purchase Agreement with the institutional investors, we agreed, among other things, to file a registration statement
with the SEC for purposes of registering the resale of the ADSs issuable upon exercise of the Warrants as soon as practicable (and in any event within fifteen (15) calendar days of the date of Purchase Agreement) and to keep such
registration statement effective until such time as the investors, their successors and assigns, as applicable, no longer own any Warrants or the ADSs issuable upon exercise thereof.
We are registering the resale by the selling shareholders of the ADSs issuable upon exercise of the Warrants in order to permit the selling shareholders to offer such ADSs for resale
from time to time pursuant to this prospectus. The selling shareholders may also sell, transfer or otherwise dispose of all or a portion of the ADSs in transactions exempt from the registration requirements of the Securities Act, or
pursuant to another effective registration statement covering those.
Placement Agent Warrants
As part of the compensation to the Placement Agent in connection with the January 2024 Offering, pursuant to the Engagement
Letter, we issued to the Placement Agent’s designees unregistered Warrants to purchase up to an aggregate of 600,000 ADSs at an exercise price of $1.00 per ADS. The Warrants issued to the Placement Agent are exercisable
immediately and will expire five years from the commencement of the sales pursuant to the January 2024 Offering.
The resale of the ADSs issuable upon exercise of the Warrants issued to the Placement Agent and the Ordinary Shares underlying the ADSs is being registered in this registration
statement.
Relationships with the Selling Shareholders
Except for the investment by Armistice Capital Master Fund Ltd. (“Armistice Capital”) in the registered direct offering and concurrent private placement of warrants consummated in
May 2022, the registered direct offering consummated in April 2023, the July 2023 Offering, the July 2023 Warrant Amendment, the July 2023 Warrant Exercise Transaction and the September 2023 Warrant Exercise Transaction, Armistice
Capital has not had any material relationship with us within the past three years. Except for the investment by each of Sabby Volatility Warrant Master Fund, Ltd. (“Sabby”) and Lind Global Fund II LP (“Lind”) in the underwritten
offering consummated in December 2022, the July 2023 Offering, the July 2023 Warrant Exercise Transaction and the September 2023 Warrant Exercise Transaction, neither Sabby nor Lind has had any material relationship with us within
the past three years. Neither Intracoastal Capital LLC (“Intracoastal”) nor CVI Investments, Inc. (“CVI”) has had any material relationship with us within the past three year.
The Placement Agent has been engaged in investment banking, advisory and other commercial dealings in the ordinary course of business with us or our affiliates for which it has
received customary compensation. The Placement Agent acted as the placement agent in connection with several offerings of our securities in the past three years, and it received compensation for each such offering.
Information About Selling Shareholders Offering
The Ordinary Shares represented by the Offered ADSs being offered by the selling shareholders are those issued or issuable upon exercise of the Warrants described above. We are
registering the Offered ADSs in order to permit the selling shareholders to offer the Offered ADSs for resale from time to time.
Throughout this prospectus, when we refer to the Offered ADSs being registered on behalf of the selling shareholder, we are referring to the Offered ADSs issued or issuable upon cash
exercise of the Warrants, and when we refer to the selling shareholders in this prospectus we are referring to each selling shareholder identified below, and, as applicable, permitted transferees or other successors-in-interest of
the selling shareholders that may be identified in a supplement to this prospectus or, if required, a post-effective amendment to the registration statement of which this prospectus is a part.
The table below provides information regarding the beneficial ownership of the Ordinary Shares represented by the Offered ADSs by the selling shareholders. The second column lists
the number of Ordinary Shares represented by the Offered ADSs beneficially owned by the selling shareholders, based on their beneficial ownership of the Offered ADSs, as of February 7, 2024, assuming the exercise of the Warrants
held by each selling shareholder on that date, without regard to any limitations on the exercise of the Warrants. The fourth column lists the maximum number of Ordinary Shares represented by the Offered ADSs being offered in this
prospectus by each selling shareholder, issuable upon exercise of the Warrants, respectively, without regard to any limitations on the exercise of the Warrants. The fifth and sixth columns list the number of Ordinary Shares
represented by the Offered ADSs owned after the Offering and the percentage of outstanding Ordinary Shares, assuming in both cases the exercise of the Warrants held by that selling shareholder, without regard to any limitations on
the exercise of the Warrants and the sale of all of the Ordinary Shares represented by the Offered ADSs offered by that selling shareholder pursuant to this prospectus.
The selling shareholders may sell some, all or none of their Offered ADSs. We do not know when or whether the selling shareholders will exercise their Warrants nor do we know how
long the selling shareholders will hold their Offered ADSs before selling them, and we currently have no agreements, arrangements or understandings with the selling shareholders regarding the exercise of any Warrants, or the sale or
other disposition of any of the Offered ADSs. The Offered ADSs covered hereby may be offered from time to time by the selling shareholders.
Unless otherwise indicated, all information contained in the table below and the footnotes thereto is based upon information provided to us by the
selling shareholders. The percentage of shares owned prior to and after the offering is based on 11,881,211,000 of our Ordinary Shares outstanding as of February 5, 2024. Unless otherwise indicated in the footnotes to this table,
we believe that each selling shareholder has sole voting and investment power with respect to the Ordinary Shares indicated as beneficially owned. Except as otherwise indicated below, based on the information provided to us by the
selling shareholders, and to the best of our knowledge, no selling shareholder is a broker-dealer or an affiliate of a broker-dealer.
|
|
|
Ordinary Shares Beneficially Owned
Before Offering
|
|
|
|
|
|
Ordinary Shares Beneficially Owned
After Offering
|
|
|
Selling Shareholders
|
|
Number(1)
|
|
|
Percentage
|
|
|
Maximum Number of Ordinary Shares
Offered(1)
|
|
|
Number
|
|
|
Percentage
|
|
|
Armistice Capital, LLC(2)
|
|
|
2,300,000,000
|
(3)
|
|
|
14.27
|
%**
|
|
|
1,150,000,000
|
(4)
|
|
|
1,150,000,000
|
(5)
|
|
|
7.13
|
%**
|
|
Sabby Volatility Master Fund, Ltd.(6)
|
|
|
2,334,000,000
|
(7)
|
|
|
14.44
|
%**
|
|
|
1,150,000,000
|
(8)
|
|
|
1,184,000,000
|
(9)
|
|
|
7.30
|
%**
|
|
Lind Global Fund II LP(10)
|
|
|
1,000,000,000
|
(11)
|
|
|
6.20
|
%**
|
|
|
500,000,000
|
(12)
|
|
|
500,000,000
|
(13)
|
|
|
3.10
|
%
|
|
Intracoastal Capital LLC(14)
|
|
|
1,000,000,000
|
(15)
|
|
|
6.20
|
%**
|
|
|
500,000,000
|
(16)
|
|
|
500,000,000
|
(17)
|
|
|
3.10
|
%
|
|
CVI Investments, Inc.(18)
|
|
|
1,400,000,000
|
(19)
|
|
|
8.68
|
%**
|
|
|
700,000,000
|
(20)
|
|
|
700,000,000
|
(21)
|
|
|
4.34
|
%
|
|
|
|
|
286,313,200
|
(23)
|
|
|
1.78
|
%
|
|
|
153,900,000
|
(24)
|
|
|
132,413,200
|
(25)
|
|
|
*
|
|
|
Noam Rubinstein(22)
|
|
|
98,228,000
|
(26)
|
|
|
*
|
|
|
|
52,800,000
|
(27)
|
|
|
45,428,000
|
(28)
|
|
|
*
|
|
|
Aileen Gibbons(22)
|
|
|
42,416,800
|
(29)
|
|
|
*
|
|
|
|
22,800,000
|
(30)
|
|
|
19,616,800
|
(31)
|
|
|
*
|
|
|
Craig Schwabe(22)
|
|
|
15,069,600
|
(32)
|
|
|
*
|
|
|
|
8,100,000
|
(33)
|
|
|
6,969,600
|
(34)
|
|
|
*
|
|
|
Charles Worthman(22)
|
|
|
4,464,800
|
(35)
|
|
|
*
|
|
|
|
2,400,000
|
(36)
|
|
|
2,064,800
|
(37)
|
|
|
*
|
|
* Less than 1%.
** The Warrants held by the Holders are subject to a 4.99% blocker according to which the Holders (together with their affiliates) may not exercise any portion of the Warrants to the
extent that the holder would own more than 4.99% (or, at the holder’s option upon initial issuance, 9.99%) of our outstanding Ordinary Shares immediately after the exercise. However, upon at least 61 days’ prior notice from the
holder to us, a holder with a 4.99% ownership blocker may increase the amount of ownership of outstanding Ordinary Shares after exercising the warrants up to 9.99% of the number of our Ordinary Shares outstanding immediately after
giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the warrants (the “Blocker”). Assumes that all Warrants acquired by the selling shareholders in the January 2024 Offering are
exercised.
| (1) |
Number of Ordinary Shares includes Ordinary Shares represented by ADSs. Each ADS represents four hundred (400) Ordinary Shares.
|
| (2) |
The securities are directly held by Armistice Capital Master Fund Ltd., a Cayman Islands exempted company (the “Master Fund”), and may be deemed to be beneficially owned by: (i) Armistice Capital, LLC (“Armistice
Capital”), as the investment manager of the Master Fund; and (ii) Steven Boyd, as the Managing Member of Armistice Capital. The Warrants are subject to a beneficial ownership limitation of 4.99%, which such limitation
restricts the selling shareholder from exercising that portion of the Warrants that would result in the selling shareholder and its affiliates owning, after exercise, a number of Ordinary Shares in excess of the beneficial
ownership limitation. The address of Armistice Capital Master Fund Ltd. is c/o Armistice Capital, LLC, 510 Madison Avenue, 7th Floor, New York, NY 10022.
|
| (3) |
Represents 2,300,000,000 Ordinary Shares represented by 5,750,000 ADSs consisting of (i) 2,875,000 ADSs acquired pursuant to the January 2024 Offering and (ii) 2,875,000 ADSs issuable upon exercise of the Warrants. The
exercise of the Warrants is subject to the Blocker. Consequently, as of the date set forth above, Armistice may not necessarily be able to exercise all of these warrants due to the Blocker. The number of Ordinary Shares set
forth in the above table does not reflect the application of this limitation.
|
| (4) |
Represents 1,150,000,000 Ordinary Shares represented by 2,875,000 ADSs issuable upon exercise of the Warrants, without regard to any limitations on the exercise of such warrants. The exercise of the foregoing warrants is
subject to the Blocker.
|
| (5) |
Represents 1,150,000,000 Ordinary Shares represented by 2,875,000 ADSs acquired pursuant to the January 2024 Offering.
|
| (6) |
The securities are directly held by Sabby. Sabby Management, LLC, the investment manager of Sabby, has discretionary authority to vote and dispose of the shares held by Sabby and may be deemed to be the beneficial owner
of these shares. Hal Mintz, in his capacity as manager of Sabby Management, LLC, may also be deemed to have investment discretion and voting power over the shares held by Sabby. Each of Sabby Management, LLC and Hal Mintz
disclaims beneficial ownership over the securities listed except to the extent of their pecuniary interest therein. The Warrants are subject to a beneficial ownership limitation of 4.99%, which such limitation restricts the
selling shareholder from exercising that portion of the Warrants that would result in the selling shareholder and its affiliates owning, after exercise, a number of Ordinary Shares in excess of the beneficial ownership
limitation.
|
| (7) |
Represents 2,334,000,000 Ordinary Shares represented by 5,835,000 ADSs consisting of (i) 85,000 ADSs beneficially owned by Sabby, (iii) 2,875,000 ADSs acquired pursuant to the January 2024 Offering and (ii) 2,875,000 ADSs
issuable upon exercise of the Warrants. The exercise of the Warrants is subject to the Blocker. Consequently, as of the date set forth above, Sabby may not necessarily be able to exercise all of these warrants due to the
Blocker. The number of Ordinary Shares set forth in the above table does not reflect the application of this limitation.
|
| (8) |
Represents 1,150,000,000 Ordinary Shares represented by 2,875,000 ADSs issuable upon exercise of the Warrants, without regard to any limitations on the exercise of such warrants. The exercise of the Warrants is subject to
the Blocker.
|
| (9) |
Represents 1,184,000,000 Ordinary Shares represented by 2,960,000 ADSs consisting of (i) 85,000 ADSs beneficially owned by Sabby and (ii) 2,875,000 ADSs acquired pursuant to the January 2024 Offering.
|
| (10) |
The securities are directly held by Lind. Jeff Easton is the Managing Member of Lind Global Partners, LLC, which is the General Partner and the Investment Manager of Lind Global Fund II LP, and in such capacity has the
right to vote and dispose of the securities held by Lind. Mr. Easton disclaims beneficial ownership over the securities listed except to the extent of his pecuniary interest therein. The address for Lind Global Fund II LP is
444 Madison Avenue, 41st Floor, New York, NY 10022. The Warrants are subject to a beneficial ownership limitation of 4.99%, which such limitation restricts the selling shareholder from exercising that portion of the Warrants
that would result in the selling shareholder and its affiliates owning, after exercise, a number of Ordinary Shares in excess of the beneficial ownership limitation.
|
| (11) |
Represents 1,000,000,000 Ordinary Shares represented by 2,500,000 ADSs consisting of (i) 1,250,000 ADSs acquired pursuant to the January 2024 Offering and (ii) 1,250,000 ADSs issuable upon exercise of the Warrants.
Consequently, as of the date set forth above, Lind may not necessarily be able to exercise all of the Warrants due to the Blocker. The number of Ordinary Shares set forth in the above table does not reflect the application
of this limitation.
|
| (12) |
Represents 500,000,000 Ordinary Shares represented by 1,250,000 ADSs issuable upon exercise of the Warrants, without regard to any limitations on the exercise of such warrants. The exercise of the Warrants is subject to
the Blocker.
|
| (13) |
Represents 500,000,000 Ordinary Shares represented by 1,250,000 ADSs acquired pursuant to the January 2024 Offering.
|
| (14) |
The securities are directly held by Intracoastal. Mitchell P. Kopin (“Mr. Kopin”) and Daniel B. Asher (“Mr. Asher”), each of whom are managers of Intracoastal Capital LLC (“Intracoastal”), have shared voting control and
investment discretion over the securities reported herein that are held by Intracoastal. As a result, each of Mr. Kopin and Mr. Asher may be deemed to have beneficial ownership (as determined under Section 13(d) of the
Exchange Act) of the securities reported herein that are held by Intracoastal. The address for Intracoastal is 245 Palm Trail, Delray Beach, FL 33483. The Warrants are subject to a beneficial ownership limitation of 4.99%,
which such limitation restricts the selling shareholder from exercising that portion of the Warrants that would result in the selling shareholder and its affiliates owning, after exercise, a number of Ordinary Shares in
excess of the beneficial ownership limitation.
|
| (15) |
Represents 1,000,000,000 Ordinary Shares represented by 2,500,000 ADSs consisting of (i) 1,250,000 ADSs acquired pursuant to the January 2024 Offering and (ii) 1,250,000 ADSs issuable upon exercise of the Warrants. The
exercise of the Warrants is subject to the Blocker. Consequently, as of the date set forth above, Intracoastal may not necessarily be able to exercise all of these warrants due to the Blocker. The number of Ordinary Shares
set forth in the above table does not reflect the application of this limitation,
|
| (16) |
Represents 500,000,000 Ordinary Shares represented by 1,250,000 ADSs issuable upon exercise of the Warrants, without regard to any limitations on the exercise of such warrants. The exercise of the Warrants is subject to
the Blocker.
|
| (17) |
Represents 500,000,000 Ordinary Shares represented by 1,250,000 ADSs acquired pursuant to the January 2024 Offering.
|
| (18) |
The securities are held directly by CVI. Heights Capital Management, Inc., which serves as investment manager of CVI, may also be deemed to have investment discretion and voting power over the shares held by CVI and may
be deemed to be the beneficial owner of these shares. Each of CVI and Heights Capital Management, Inc. disclaims beneficial ownership over the securities listed except to the extent of their pecuniary interest therein. The
address for CVI is P.O. Box 309GT, Ugland House, South Church Street, George Town, Grand Cayman, KY1-1104, Cayman Islands. The Warrants are subject to a beneficial ownership limitation of 4.99%, which such limitation
restricts the selling shareholder from exercising that portion of the Warrants that would result in the selling shareholder and its affiliates owning, after exercise, a number of Ordinary Shares in excess of the beneficial
ownership limitation.
|
| (19) |
Represents 1,400,000,000 Ordinary Shares represented by 3,500,000 ADSs consisting of (i) 1,750,000 ADSs acquired pursuant to the January 2024 Offering and (ii) 1,750,000 ADSs issuable upon exercise of the Warrants. The
exercise of the Warrants is subject to the Blocker. Consequently, as of the date set forth above, CVI may not necessarily be able to exercise all of these warrants due to the Blocker. The number of Ordinary Shares set forth
in the above table does not reflect the application of this limitation,
|
| (20) |
Represents 700,000,000 Ordinary Shares represented by 1,750,000 ADSs issuable upon exercise of the Warrants, without regard to any limitations on the exercise of such warrants. The exercise of the Warrants is subject to
the Blocker.
|
| (21) |
Represents 700,000,000 Ordinary Shares represented by 1,750,000 ADSs acquired pursuant to the January 2024 Offering.
|
| (22) |
The selling shareholders were issued compensation warrants as a designee of the Placement Agent in connection with each of (i) the registered direct offering consummated in March 2023 (the “March 2023 Placement Agent
Warrants”), (ii) the July 2023 Offering, (iii) July 2023 Warrant Exercise Transaction, (iv) the September 2023 Warrant Exercise Transaction and (v) the January 2024 Offering. Each selling shareholder is affiliated with the
Placement Agent, a registered broker dealer with a registered address of H.C. Wainwright & Co., LLC, 430 Park Avenue, 3rd Floor, New York, New York 10022, and has sole voting and dispositive power over the securities
held. Each selling shareholder may not exercise the March 2023 Placement Agent Warrants, the July 2023 Placement Agent Warrants, the July 2023 Placement Agent Exercise Warrants, the September 2023 Placement Agent Warrants or
the January 2024 Placement Agent Warrants issued in connection with the January 2024 Offering to the extent such exercise would cause each selling shareholders, together with his affiliates and attribution parties, to
beneficially own a number of Ordinary Shares which would exceed 4.99% of our then outstanding Ordinary Shares following such exercise, or, upon notice to us, 9.99% of our then outstanding Ordinary Shares following such
exercise, excluding for purposes of such determination shares of Ordinary Shares issuable upon exercise of such securities which have not been so exercised. The selling shareholder acquired the warrants in the ordinary
course of business and, at the time the warrants were acquired, the selling shareholder had no agreement or understanding, directly or indirectly, with any person to distribute such securities.
|
| (23) |
Represents 286,313,200 Ordinary Shares represented by 715,783 ADSs issuable upon exercise of the March 2023 Placement Agent Warrants, the July 2023 Placement Agent Warrants, the July 2023 Placement Agent Exercise
Warrants, the September 2023 Placement Agent Warrants and the January 2024 Placement Agent Warrants, without regard to any limitations on the exercise of such warrants.
|
| (24) |
Represents 153,900,000 Ordinary Shares represented by 384,750 ADSs issuable upon exercise of the January 2024 Placement Agent Warrants, without regard to any limitations on the exercise of such warrants.
|
| (25) |
Represents 132,413,200 Ordinary Shares represented by 331,033 ADSs issuable upon exercise of the March 2023 Placement Agent Warrants, the July 2023 Placement Agent Warrants, the July 2023 Placement Agent Exercise Warrants
and the September 2023 Placement Agent Warrants without regard to any limitations on the exercise of such warrants.
|
| (26) |
Represents 98,228,000 Ordinary Shares represented by 245,570 ADSs issuable upon exercise of the March 2023 Placement Agent Warrants, the July 2023 Placement Agent Warrants, the July 2023 Placement Agent Exercise Warrants
the September 2023 Placement Agent Warrants and the January 2024 Placement Agent Warrants, without regard to any limitations on the exercise of such warrants.
|
| (27) |
Represents 52,800,000 Ordinary Shares represented by 132,000 ADSs issuable upon exercise of the January 2024 Placement Agent Warrants, without regard to any limitations on the exercise of such warrants.
|
| (28) |
Represents 45,428,000 Ordinary Shares represented by 113,570 ADSs issuable upon exercise of the March 2023 Placement Agent Warrants, the July 2023 Placement Agent Warrants, the July 2023 Placement Agent Exercise Warrants
and the September 2023 Placement Agent Warrants, without regard to any limitations on the exercise of such warrants.
|
| (29) |
Represents 42,416,800 Ordinary Shares represented by 106,042 ADSs issuable upon exercise of the March 2023 Placement Agent Warrants, the July 2023 Placement Agent Warrants, the July 2023 Placement Agent Exercise Warrants,
the September 2023 Placement Agent Warrants and the January 2024 Placement Agent Warrants, without regard to any limitations on the exercise of such warrants.
|
| (30) |
Represents 22,800,000 Ordinary Shares represented by 57,000 ADSs issuable upon exercise of the January 2024 Placement Agent Warrants, without regard to any limitations on the exercise of such warrants.
|
| (31) |
Represents 19,616,800 Ordinary Shares represented by 49,042 ADSs issuable upon exercise of the March 2023 Placement Agent Warrants, the July 2023 Placement Agent Warrants, the July 2023 Placement Agent Exercise Warrants
and the September 2023 Placement Agent Warrants without regard to any limitations on the exercise of such warrants.
|
| (32) |
Represents 15,069,600 Ordinary Shares represented 37,674 ADSs issuable upon exercise of the March 2023 Placement Agent Warrants, the July 2023 Placement Agent Warrants, the July 2023 Placement Agent Exercise Warrants, the
September 2023 Placement Agent Warrants and the January 2024 Placement Agent Warrants, without regard to any limitations on the exercise of such warrants.
|
| (33) |
Represents 8,100,000 Ordinary Shares represented 20,250 ADSs issuable upon exercise of the January 2024 Placement Agent Warrants, without regard to any limitations on the exercise of such warrants.
|
| (34) |
Represents 6,969,600 Ordinary Shares represented by 17,424 ADSs issuable upon exercise of the March 2023 Placement Agent Warrants, the July 2023 Placement Agent Warrants, the July 2023 Placement Agent Exercise Warrants
and the September 2023 Placement Agent Warrants without regard to any limitations on the exercise of such warrants.
|
| (35) |
Represents 4,464,800 Ordinary Shares represented 11,162 ADSs issuable upon exercise of the March 2023 Placement Agent Warrants, the July 2023 Placement Agent Warrants, the July 2023 Placement Agent Exercise Warrants, the
September 2023 Placement Agent Warrants and the January 2024 Placement Agent Warrants, without regard to any limitations on the exercise of such warrants.
|
| (36) |
Represents 2,400,000 Ordinary Shares represented by 6,000 ADSs issuable upon exercise of the January 2024 Placement Agent Warrants, without regard to any limitations on the exercise of such warrants.
|
| (37) |
Represents 2,064,800 Ordinary Shares represented by 5,162 ADSs issuable upon exercise of the March 2023 Placement Agent Warrants, the July 2023 Placement Agent Warrants, the July 2023 Placement Agent Exercise Warrants and
the September 2023 Placement Agent Warrants without regard to any limitations on the exercise of such warrants.
|
RELATED PARTY TRANSACTIONS
The Company is party to ordinary course employment arrangements with its officers. See “Management – Compensation – Employment Agreements” and See “Management – Compensation – Change in Control Retention
Plan and Agreements; Severance Arrangements.”
DESCRIPTION OF SHARE CAPITAL
The following description of our share capital summarizes certain provisions of our articles of association. Such summaries do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all of the provisions of our articles of association, a copy of which has been filed as exhibits to the registration statement of which this prospectus forms a part.
General
As of the date of this prospectus, our registered share capital is NIS 200,000,000 divided into (i) 19,994,000,000 registered Ordinary Shares of NIS 0.01 par value each, and
(ii) 6,000,000 preferred shares of NIS 0.01 par value each.
The Ordinary Shares do not have preemptive rights, preferred rights or any other right to purchase our securities. Neither our articles of association nor the laws of the State of
Israel restrict the ownership or voting of Ordinary Shares by non-residents of Israel, except for subjects of countries that are enemies of Israel.
Articles of Association
Securities Registrar. The transfer agent and registrar for the ADSs is The Bank of New York Mellon, and its address is 101
Barclay Street, New York, NY.
Objects and Purposes. According to Section 4 of our articles of association, we shall engage in any legal business. Our number with the
Israeli Registrar of Companies is 514304005.
Private Placements. Under the Israeli Companies Law, if (i) as a result of a private placement a person would become a controlling shareholder
or (ii) a private placement will entitle investors to receive 20% or more of the voting rights of a company as calculated before the private placement, and all or part of the private placement consideration is not in cash or in
public traded securities or is not in market terms and if as a result of the private placement the holdings of a substantial shareholder will increase or as a result of it a person will become a substantial shareholder, then, in
either case, the allotment must be approved by the board of directors and by the shareholders of the company. A “substantial shareholder” is defined as a shareholder who holds five percent or more of the company’s outstanding share
capital, assuming the exercise of all of the securities convertible into shares held by that person. In order for the private placement to be on “market terms” the board of directors has to determine, on the basis of detailed
explanation, that the private placement is on market terms, unless proven otherwise.
Board of Directors. Under our articles of association, resolutions by the board of directors are decided by a majority of votes of the
directors present, or participating, in the case of voting by media, and voting, each director having one vote.
In addition, the Israeli Companies Law requires that certain transactions, actions, and arrangements be approved as provided for in a company’s articles of association and in certain
circumstances by the compensation or audit committee and by the board of directors itself. Those transactions that require such approval pursuant to a company’s articles of association must be approved by its board of directors. In
certain circumstances, compensation or audit committee and shareholder approval are also required. See “Management – Board Practices.”
The Israeli Companies Law requires that a member of the board of directors or senior management of the company promptly and, in any event, not later than the first board meeting at
which the transaction is discussed, disclose any personal interest that he or she may have, either directly or by way of any corporation in which he or she is, directly or indirectly, a 5% or greater shareholder, director or general
manager or in which he or she has the right to appoint at least one director or the general manager, as well as 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, (that is, a transaction other than in the ordinary course of business, otherwise than on market terms, or is likely to have a material impact on the company’s
profitability, assets or liabilities), the member of the board of directors or senior management must also disclose any personal interest held by his or her spouse, siblings, parents, grandparents, descendants, spouse’s descendants,
siblings and parents, and the spouses of any of the foregoing.
Once the member of the board of directors or senior management complies with the above disclosure requirement, a company may approve the transaction in accordance with the provisions
of its articles of association. Under the provisions of the Israeli Companies Law, whoever has a personal interest in a matter, which is considered at a meeting of the board of directors or the audit committee, may not be present at
this meeting or vote on this matter, unless it is not an extraordinary transaction as defined in the Israeli Companies Law. However, if the chairman of the board of directors or the chairman of the audit committee has determined
that the presence of a director or an officer with a personal interest is required for the presentation of a matter, such officer holder may be present at the meeting. Notwithstanding the foregoing, if the majority of the directors
have a personal interest in a matter, they will be allowed to participate and vote on this matter, but an approval of the transaction by the shareholders in the general meeting will be required.
Our articles of association provide that, subject to the Israeli Companies Law, all actions executed in good faith by the board of directors or by a committee thereof or by any
person acting as a director or a member of a committee of the board of directors, will be deemed to be valid even if, after their execution, it is discovered that there was a flaw in the appointment of these persons or that any one
of these persons was disqualified from serving in his or her office.
Our articles of association provide that, subject to the provisions of the Israeli Companies Law, the board of directors may appoint board of directors’ committees. The committees of
the board of directors report to the board of directors their resolutions or recommendations on a regular basis, as prescribed by the board of directors. The board of directors may cancel the resolution of a committee that has been
appointed by it; however, such cancellation will not affect the validity of any resolution of a committee, pursuant to which we acted, vis-à-vis another person, who was not aware of the cancellation thereof. Decisions or
recommendations of the committee of the board which require the approval of the board of directors will be brought to the directors’ attention at a reasonable time prior to the discussion at the board of directors.
According to the Israeli Companies Law, a contract of a company with its directors, regarding their conditions of service, including the grant to them of exemption from liability
from certain actions, insurance, and indemnification as well as the company’s contract with its directors on conditions of their employment, in other capacities, require the approval of the compensation committee, the board of
directors, and the shareholders by a Special Majority.
Transfer of Shares. Fully paid Ordinary Shares are issued in registered form and may be freely transferred pursuant to our articles of
association unless that transfer is restricted or prohibited by another instrument.
Notices. Under the Israeli Companies Law and our articles of association, we are required to publish notices in two Hebrew-language daily
newspapers or our website at least 21 calendar days prior notice of a shareholders’ meeting. However, under regulations promulgated under the Israeli Companies Law, we are required to publish a notice in two daily newspapers at
least 35 calendar days prior any shareholders’ meeting in which the agenda includes matters which may be voted on by voting instruments. Regulations under the Israeli Companies Law exempt companies whose shares are listed for
trading both on a stock exchange in and outside of Israel, from some provisions of the Israeli Companies Law. An amendment to these regulations exempts us from the requirements of the Israeli proxy regulation, under certain
circumstances.
According to the Israeli Companies Law and the regulations promulgated thereunder, for purposes of determining the shareholders entitled to notice and to vote at such meeting, the
board of directors may fix the record date not more than 40 nor less than four calendar days prior to the date of the meeting, provided that an announcement regarding the general meeting be given prior to the record date.
Election of Directors. The number of directors on the board of directors shall be no less than five and no more than eleven, including any
external directors whose appointment is required by law. The general meeting is entitled, at any time and from time to time, in a resolution approved by a majority of 75% or more of the votes cast by those shareholders present and
voting at the meeting in person, by proxy or by a voting instrument, not taking into consideration abstaining votes, to change the minimum or maximum number of directors as stated above as well as to amend the board classification
under our Articles. A simple majority shareholder vote is required to elect a director for a term of less than three years. For more information, please see “Management - Board Practices – Appointment of Directors and Terms of
Office.”
Dividend and Liquidation Rights. Our profits, in respect of which a resolution was passed to distribute them as a dividend or bonus shares,
are to be paid pro rata to the amount paid or credited as paid on account of the nominal value of shares held by the shareholders. In the event of our liquidation, the liquidator may, with the general meeting’s approval, distribute
parts of our property in specie among the shareholders and he may, with similar approval, deposit any part of our property with trustees in favor of the shareholders as the liquidator, with the approval mentioned above deems fit.
The terms of our term loan facility prohibit us from paying dividends.
Voting, Shareholders’ Meetings and Resolutions. Holders of Ordinary Shares are entitled to one vote for each Ordinary Share held on all
matters submitted to a vote of shareholders. The quorum required for an ordinary meeting of shareholders consists of at least two shareholders present, in person or by proxy, or who has sent us a voting instrument indicating the way
in which he is voting, who hold or represent, in the aggregate, at least 25% of the voting rights of our outstanding share capital. A meeting adjourned for lack of a quorum is adjourned to the following day at the same time and
place or any time and place as prescribed by the board of directors in the notice to the shareholders. At the reconvened meeting one shareholder at least, present in person or by proxy constitutes a quorum except where such meeting
was called at the demand of shareholders. With the agreement of a meeting at which a quorum is present, the chairman may, and on the demand of the meeting he must, adjourn the meeting from time to time and from place to place, as
the meeting resolves. Annual general meetings of shareholders are held once every year within a period of not more than 15 months after the last preceding annual general shareholders’ meeting. The board of directors may call special
general meetings of shareholders. The Israeli Companies Law provides that a special general meeting of shareholders may be called by the board of directors or by a request of two directors or 25% of the directors in office,
whichever is the lower, or by shareholders holding at least 5% of our issued share capital and at least 1% of the voting rights, or of shareholders holding at least 5% of our voting rights.
An ordinary resolution requires approval by the holders of a majority of the voting rights present, in person or by proxy, at the meeting and voting on the resolution.
Allotment of Shares. Our board of directors has the power to allot or to issue shares to any person, with restrictions and conditions as it
deems fit.
Acquisitions under Israeli Law
Full Tender Offer
A person wishing to acquire shares of an Israeli public company and who would as a result hold over 90% of the target company’s issued and outstanding share capital is required by
the Israeli Companies Law to make a tender offer to all of the company’s shareholders for the purchase of all of the issued and outstanding shares of the company.
A person wishing to acquire shares of an Israeli public company and who would as a result hold over 90% of the issued and outstanding share capital of a certain class of shares is
required to make a tender offer to all of the shareholders who hold shares of the same class for the purchase of all of the issued and outstanding shares of the same class.
If the shareholders who do not respond to or accept the offer hold less than 5% of the issued and outstanding share capital of the company or of the applicable class of the shares,
and more than half of the shareholders who do not have a personal interest in the offer accept the offer, all of the shares that the acquirer offered to purchase will be transferred to the acquirer by operation of law. However, a
tender offer will be accepted if the shareholders who do not accept it hold less than 2% of the issued and outstanding share capital of the company or of the applicable class of the shares.
Upon a successful completion of such a full tender offer, any shareholder that was an offeree in such tender offer, whether such shareholder accepted the tender offer or not, may,
within six months from the date of acceptance of the tender offer, petition the Israeli court to determine whether the tender offer was for less than fair value and that the fair value should be paid as determined by the court.
However, under certain conditions, the offeror may determine in the terms of the tender offer that an offeree who accepted the offer will not be entitled to petition the Israeli court as described above.
If the shareholders who did not respond or accept the tender offer hold at least 5% of the issued and outstanding share capital of the company or of the applicable class, the
acquirer may not acquire shares of the company that will increase its holdings to more than 90% of the company’s issued and outstanding share capital or of the applicable class from shareholders who accepted the tender offer.
The description above regarding a full tender offer will also apply, with necessary changes, when a full tender offer is accepted, and the offeror has also offered to acquire all of
the company’s securities.
Special Tender Offer
The Israeli Companies Law provides that an acquisition of shares of an Israeli public company must be made by means of a special tender offer if as a result of the acquisition the
purchaser would become a holder of at least 25% of the voting rights in the company. This rule does not apply if there is already another holder of at least 25% of the voting rights in the company.
Similarly, the Israeli Companies Law provides that an acquisition of shares of a public company must be made by means of a special tender offer if as a result of the acquisition the
purchaser would become a holder of more than 45% of the voting rights in the company, if there is no other shareholder of the company who holds more than 45% of the voting rights in the company.
These requirements do not apply if the acquisition (i) occurs in the context of a private offering, on the condition that the shareholders meeting approved the acquisition as a
private offering whose purpose is to give the acquirer at least 25% of the voting rights in the company if there is no person who holds at least 25% of the voting rights in the company, or as a private offering whose purpose is to
give the acquirer 45% of the voting rights in the company, if there is no person who holds 45% of the voting rights in the company; (ii) was from a shareholder holding at least 25% of the voting rights in the company and resulted in
the acquirer becoming a holder of at least 25% of the voting rights in the company; or (iii) was from a holder of more than 45% of the voting rights in the company and resulted in the acquirer becoming a holder of more than 45% of
the voting rights in the company.
The special tender offer may be consummated only if (i) at least 5% of the voting power attached to the company’s outstanding shares will be acquired by the offeror and (ii) the
special tender offer is accepted by a majority of the votes of those offerees who gave notice of their position in respect of the offer; in counting the votes of offerees, the votes of a holder in control of the offeror, a person
who has personal interest in acceptance of the special tender offer, a holder of at least 25% of the voting rights in the company, or any person acting on their or on the offeror’s behalf, including their relatives or companies
under their control, are not taken into account.
In the event that a special tender offer is made, a company’s board of directors is required to express its opinion on the advisability of the offer or must abstain from expressing
any opinion if it is unable to do so, provided that it gives the reasons for its abstention.
An officer in a target company who, in his or her capacity as an officer, performs an action the purpose of which is to cause the failure of an existing or foreseeable special tender
offer or is to impair the chances of its acceptance, is liable to the potential purchaser and shareholders for damages resulting from his acts, unless such officer acted in good faith and had reasonable grounds to believe he or she
was acting for the benefit of the company. However, officers of the target company may negotiate with the potential purchaser in order to improve the terms of the special tender offer and may further negotiate with third parties in
order to obtain a competing offer.
If a special tender offer was accepted by a majority of the shareholders who announced their stand on such offer, then shareholders who did not respond to the special offer or had
objected to the special tender offer may accept the offer within four days of the last day set for the acceptance of the offer. In the event that a special tender offer is accepted, then the purchaser or any person or entity
controlling it and any corporation controlled by them must refrain from making a subsequent tender offer for the purchase of shares of the target company and may not execute a merger with the target company for a period of one year
from the date of the offer unless the purchaser or such person or entity undertook to effect such an offer or merger in the initial special tender offer.
Merger
The Israeli Companies Law permits merger transactions if approved by each party’s board of directors and, unless certain requirements described under the Israeli Companies Law are
met, a majority of each party’s shareholders, by a majority of each party’s shares that are voted on the proposed merger at a shareholders’ meeting.
The board of directors of a merging company is required pursuant to the Israeli Companies Law to discuss and determine whether in its opinion there exists a reasonable concern that,
as a result of a proposed merger, the surviving company will not be able to satisfy its obligations toward its creditors, taking into account the financial condition of the merging companies. If the board of directors has determined
that such a concern exists, it may not approve a proposed merger. Following the approval of the board of directors of each of the merging companies, the boards of directors must jointly prepare a merger proposal for submission to
the Israeli Registrar of Companies.
For purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the shares voting at the shareholders meeting (excluding
abstentions) that are held by parties other than the other party to the merger, any person who holds 25% or more of the means of control (see “Management – Audit Committee – Approval of Transactions with Related Parties” for a
definition of means of control) of the other party to the merger or anyone on their behalf including their relatives (see “Management – External Directors – Qualifications of External Directors” for a definition of relatives) or
corporations controlled by any of them, vote against the merger.
In addition, if the non-surviving entity of the merger has more than one class of shares, the merger must be approved by each class of shareholders. If the transaction would have
been approved but for the separate approval of each class of shares or the exclusion of the votes of certain shareholders as provided above, a court may still rule that the company has approved the merger upon the request of holders
of at least 25% of the voting rights of a company, if the court holds that the merger is fair and reasonable, taking into account the appraisal of the merging companies’ value and the consideration offered to the shareholders.
Under the Israeli Companies Law, each merging company must send a copy of the proposed merger plan to its secured creditors. Unsecured creditors are entitled to receive notice of the
merger, as provided by the regulations promulgated under the Israeli Companies Law. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists a
reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy the obligations of the target company. The court may also give instructions in order to secure the rights of creditors.
In addition, a merger may not be completed unless at least 50 days have passed from the date that a proposal for approval of the merger was filed with the Israeli Registrar of
Companies and 30 days from the date that shareholder approval of both merging companies was obtained.
Anti-takeover Measures
The Israeli Companies Law allows us to create and issue shares having rights different from those attached to our Ordinary Shares, including shares providing
certain preferred or additional rights to voting, distributions or other matters and shares having preemptive rights. We have 6,000,000 authorized unissued preferred shares. Our authorized preferred shares, and any other class of
shares other than Ordinary Shares that we may create and issue in the future, depending on the specific rights that may be attached to them, may delay or prevent a takeover or otherwise prevent our shareholders from realizing a
potential premium over the market value of their Ordinary Shares. The authorization of a new class of shares will require an amendment to our articles of association which requires the prior approval of a majority of our shares
represented and voting at a general meeting. Shareholders voting at such a meeting will be subject to the restrictions under the Israeli Companies Law described in “– Voting.” In addition, provisions of our articles of our
association relating to the election of our directors for terms of three years make it more difficult for a third party to effect a change in control or takeover attempt that our management and board of directors oppose. See
“Management - Board Practices – Appointment of Directors and Terms of Officers.”
History of Share Capital
For information regarding the history of changes to our share capital since January 1, 2021, please see “Management’s Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources – Financing Activities”.
Warrants
The following summary of certain terms and provisions of the Warrants that are being offered hereby is not complete and is subject to, and qualified in its entirety by, the
provisions of the Warrants, the form of which is filed as Exhibit 1.2 to our Report on Form 6-K filed on January 26, 2024. Prospective investors should carefully review the terms and provisions of the form of Warrant for a complete
description of the terms and conditions of the Warrants.
Exercisability. Each Warrant is immediately exercisable on the issuance date and has a term of exercise equal to five (5) years from the date
on which first exercisable. The Warrants are exercisable, at the option of the holder, in whole or in part by delivering to us a duly executed exercise notice accompanied by payment in full for the number of ADSs purchased upon such
exercise, together with applicable charges and taxes. A holder of the Warrants will not have the right to exercise any portion of its Warrants if the holder, together with its affiliates, would beneficially own in excess of 4.99%
(or 9.99% at the election of the holder) of the number of shares of our Ordinary Shares outstanding immediately after giving effect to such exercise. If following the date that is sixty (60) days following the issuance date, a
registration statement registering the issuance of the ADSs underlying the Warrants under the Securities Act is not then effective or available, the holder may exercise the Warrant through a cashless exercise, in whole or in part,
in which case the holder would receive upon such exercise the number of ordinary shares needed to deliver the equivalent net number of ADSs determined according to the formula set forth in the Warrant. No fractional ADSs are to be
issued in relation to the issuance and deposit of ordinary shares upon the exercise of the Warrants. If any fractional ADS would be deliverable upon the exercise of the Warrants, we, in lieu of arranging the delivery of such
fractional ADS, may elect to either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by then current exercise price or round up to the next whole ADS.
Transfer. Such securities were issued and sold without registration under the Securities Act, or state securities laws, in reliance on the
exemptions provided by Section 4(a)(2) of the Act and/or Regulation D promulgated thereunder and in reliance on similar exemptions under applicable state laws. Accordingly, the investors may exercise those Warrants and sell the
underlying shares only pursuant to an effective registration statement under the Securities Act covering the resale of those shares, an exemption under Rule 144 under the Securities Act, or another applicable exemption under the
Securities Act.
Exercise Price. The initial exercise price per ADS purchasable upon exercise of the Warrants is equal to $1.00 per full ADS (which may be
adjusted as set forth below). In addition to the exercise price per ADS, other applicable charges and taxes are due and payable upon exercise.
Adjustment Provisions. The exercise price and the number of ADSs issuable upon exercise are subject to appropriate
adjustment in the event of certain share dividends and distributions, share splits, rights offerings, share subdivisions and combinations, reclassifications or similar events affecting the ADSs.
Exchange Listing. There is no established public trading market for the Warrants, and we do not intend to apply to list the Warrants on any
securities exchange or automated quotation system.
Fundamental Transaction. If, at any time while the Warrants are outstanding, (1) we, directly or indirectly, consolidate or merge with or into
another person, (2) we, directly or indirectly, sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of our assets, (3) any direct or indirect purchase offer, tender offer or exchange offer
(whether by us or another person) is completed pursuant to which holders of our Ordinary Shares and/or ADSs are permitted to sell, tender or exchange their Ordinary Shares for other securities, cash or property and has been accepted
by the holders of 50% or more of our outstanding shares of Ordinary Shares (including any Ordinary Shares underlying ADSs), (4) we, directly or indirectly, effect any reclassification, reorganization or recapitalization of our
Ordinary Shares or any compulsory share exchange pursuant to which our Ordinary Shares are converted into or exchanged for other securities, cash or property, or (5) we, directly or indirectly, consummate a stock or share purchase
agreement or other business combination with another person whereby such other person acquires 50% or more of our outstanding Ordinary Shares (including any Ordinary Shares underlying ADSs), each, a “Fundamental Transaction”, then
upon any subsequent exercise of the Warrants, the holders thereof will have the right to receive the same amount and kind of securities, cash or property as it would have been entitled to receive upon the occurrence of such
Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the number of ordinary shares then issuable upon exercise of the warrant, and any additional consideration payable as part of
the Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the holder will have the right to require us or a successor entity to repurchase its Warrants at the Black Scholes
value; provided, however, that if the Fundamental Transaction is not within our control, including not approved by our board of directors, then the holder shall only be entitled to receive the same type or form of consideration (and
in the same proportion), at the Black Scholes value of the unexercised portion of its Warrants, that is being offered and paid to the holders of our Ordinary Shares (including any Ordinary Shares underlying ADSs) in connection with
the Fundamental Transaction.
Rights as a Shareholder. Except as otherwise provided in the Warrants or by virtue of such holder’s ownership of ADSs or Ordinary Shares, the
holder of Warrants does not have rights or privileges of a holder of ADSs or Ordinary Shares, including any voting rights or dividends, until the holder exercises the Warrants.
Placement Agent Warrants
The January 2024 Placement Agent Warrants have an exercise price of $1.00 per ADS and a term of five years from the commencement of the sales pursuant to the January 2024 Offering.
Except as provided above, the January 2024 Placement Agent Warrants have substantially the same terms as the Warrants issued to the investors in the concurrent private placement. The summary of certain terms and provisions of the
January 2024 Placement Agent Warrants is not complete and is subject to, and qualified in its entirety by, the provisions of the January 2024 Placement Agent Warrants, the form of which is filed as Exhibit 1.3 to our Report on
Form 6-K filed on January 26, 2024. Prospective investors should carefully review the terms and provisions of the form of January 2024 Placement Agent Warrant for a complete description of the terms and conditions of the January
2024 Placement Agent Warrants.
American Depositary Shares
The Bank of New York Mellon, as depositary, will register and deliver American Depositary Shares. Each American Depositary Share will represent four hundred of our ordinary shares
(or a right to receive four hundred of our ordinary shares) deposited with the principal Tel Aviv office ofrati either of Bank Leumi Le-Israel or Bank Hapoalim B.M., as custodian for the depositary. Each American Depositary Share
will also represent any other securities, cash or other property which may be held by the depositary. The depositary’s corporate trust office at which the American Depositary Shares will be administered is located at 101 Barclay
Street, New York, New York 10286. The Bank of New York Mellon’s principal executive office is located at One Wall Street, New York, New York 10286.
You may hold American Depositary Shares either (A) directly (i) by having an American Depositary Receipt, which is a certificate evidencing a specific number of American Depositary
Shares, registered in your name, or (ii) by having American Depositary Shares registered in your name in the Direct Registration System, or (B) indirectly by holding a security entitlement in American Depositary Shares through your
broker or other financial institution. If you hold American Depositary Shares directly, you are a registered American Depositary Share holder. This description assumes you are an American Depositary Share holder. If you hold the
American Depositary Shares indirectly, you must rely on the procedures of your broker or other financial institution to assert the rights of American Depositary Share holders described in this section. You should consult with your
broker or financial institution to find out what those procedures are.
The Direct Registration System, or DRS, is a system administered by The Depository Trust Company, also referred to as DTC, pursuant to which the depositary may register the ownership
of uncertificated American Depositary Shares, which ownership is confirmed by periodic statements sent by the depositary to the registered holders of uncertificated American Depositary Shares.
As an American Depositary Share holder, we will not treat you as one of our shareholders and you will not have shareholder rights. Israeli law governs shareholder rights. The
depositary will be the holder of the ordinary shares underlying your American Depositary Shares. As a registered holder of American Depositary Shares, you will have American Depositary Share holder rights. A deposit agreement among
us, the depositary and you, as an American Depositary Share holder, and all other persons indirectly holding American Depositary Shares sets out American Depositary Share holder rights as well as the rights and obligations of the
depositary. New York law governs the deposit agreement and the American Depositary Shares.
On December 8, 2022, we filed a Registration Statement on Form F-6 (the “Form F-6”) with the SEC to register our American Depositary Shares, as amended, under the Securities Act of
1933.
The following is a summary of the material provisions of the deposit agreement. For more complete information, you should read the entire deposit agreement and the form of American
Depositary Receipt, each of which has been filed as an exhibit to the Form F-6.
Dividends and Other Distributions
How will you receive dividends and other distributions on the shares?
The depositary has agreed to pay to American Depositary Share holders the cash dividends or other distributions it or the custodian receives on shares or other deposited securities,
after deducting its fees and expenses. You will receive these distributions in proportion to the number of shares your American Depositary Shares represent.
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Cash. The depositary will convert any cash dividend or other cash distribution we pay on the shares into U.S. dollars, if it can do so on a reasonable basis and
can transfer the U.S. dollars to the U.S. If that is not possible or if any government approval is needed and cannot be obtained, the deposit agreement allows the depositary to distribute the foreign currency only to those
American Depositary Share holders to whom it is possible to do so. It will hold the foreign currency it cannot convert for the account of the American Depositary Share holders who have not been paid. It will not invest the
foreign currency and it will not be liable for any interest.
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Before making a distribution, any withholding taxes, or other governmental charges that must be paid will be deducted. See “Material Tax Considerations – U.S. Federal Income Tax Considerations – Distributions.” It will
distribute only whole U.S. dollars and cents and will round fractional cents to the nearest whole cent. If the exchange rates fluctuate during a time when the depositary cannot convert the
foreign currency, you may lose some or all of the value of the distribution.
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Shares. The depositary may, and will if we so request, distribute additional American Depositary Shares representing any
shares we distribute as a dividend or free distribution. The depositary will only distribute whole American Depositary Shares. It will sell shares which would require it to deliver a fractional American Depositary Share and
distribute the net proceeds in the same way as it does with cash. If the depositary does not distribute additional American Depositary Shares, the outstanding American Depositary Shares will also represent the new shares.
The depositary may sell a portion of the distributed shares sufficient to pay its fees and expenses in connection with that distribution.
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Rights to purchase additional shares. If we offer holders of our securities any rights to subscribe for additional shares
or any other rights, the depositary may make these rights available to American Depositary Share holders. If the depositary decides it is not legal and practical to make the rights available but that it is practical to sell
the rights, the depositary will use reasonable efforts to sell the rights and distribute the proceeds in the same way as it does with cash. The depositary will allow rights that are not distributed or sold to lapse. In that case, you will receive no value for them.
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If the depositary makes rights available to American Depositary Share holders, it will exercise the rights and purchase the shares on your behalf. The depositary
will then deposit the shares and deliver American Depositary Shares to the persons entitled to them. It will only exercise rights if you pay it the exercise price and any other charges the rights require you to pay.
U.S. securities laws may restrict transfers and cancellation of the American Depositary Shares represented by shares purchased upon exercise of rights. For
example, you may not be able to trade these American Depositary Shares freely in the U.S. In this case, the depositary may deliver restricted depositary shares that have the same terms as the American Depositary Shares described in
this section except for changes needed to put the necessary restrictions in place.
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Other Distributions. The depositary will send to American Depositary Share holders anything else we distribute on
deposited securities by any means it thinks is legal, fair and practical. If it cannot make the distribution in that way, the depositary has a choice. After consultation with us to the extent practicable, it may decide to
sell what we distributed and distribute the net proceeds, in the same way as it does with cash. Or, it may decide to hold what we distributed, in which case American Depositary Shares will also represent the newly
distributed property. However, the depositary is not required to distribute any securities (other than American Depositary Shares) to American Depositary Share holders unless it receives satisfactory evidence from us that it
is legal to make that distribution. The depositary may sell a portion of the distributed securities or property sufficient to pay its fees and expenses in connection with that distribution.
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The depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any American Depositary Share holders. We
have no obligation to register American Depositary Shares, shares, rights or other securities under the Securities Act. We also have no obligation to take any other action to permit the distribution of American Depositary Shares,
shares, rights or anything else to American Depositary Share holders. This means that you may not receive the distributions we make on our shares or any value for them if it is illegal or impractical
for us to make them available to you.
Deposit, Withdrawal and Cancellation
How are American Depositary Shares issued?
The depositary will deliver American Depositary Shares if you or your broker deposits shares or evidence of rights to receive shares with the custodian. Upon payment of its fees and
expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will register the appropriate number of American Depositary Shares in the names you request and will deliver the American
Depositary Shares to or upon the order of the person or persons that made the deposit.
How can American Depositary Share holders withdraw the deposited securities?
You may surrender your American Depositary Shares at the depositary’s corporate trust office. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes
or stock transfer taxes or fees, the depositary will deliver the shares and any other deposited securities underlying the American Depositary Shares to the American Depositary Share holder or a person the American Depositary Share
holder designates at the office of the custodian. Or, at your request, risk and expense, the depositary will deliver the deposited securities at its corporate trust office, if feasible.
How do American Depositary Share holders interchange between certificated American Depositary Shares and uncertificated American Depositary Shares?
You may surrender your American Depositary Receipt to the depositary for the purpose of exchanging your American Depositary Receipt for uncertificated American Depositary Shares. The
depositary will cancel that American Depositary Receipt and will send to the American Depositary Share holder a statement confirming that the American Depositary Share holder is the registered holder of uncertificated American
Depositary Shares. Alternatively, upon receipt by the depositary of a proper instruction from a registered holder of uncertificated American Depositary Shares requesting the exchange of uncertificated American Depositary Shares for
certificated American Depositary Shares, the depositary will execute and deliver to the American Depositary Share holder an American Depositary Receipt evidencing those American Depositary Shares.
Voting Rights
How do you vote?
American Depositary Share holders may instruct the depositary to vote the number of deposited shares their American Depositary Shares represent. The depositary will notify American
Depositary Share holders of shareholders’ meetings and arrange to deliver our voting materials to them if we ask it to. Those materials will describe the matters to be voted on and explain how American Depositary Share holders may
instruct the depositary how to vote. For instructions to be valid, they must reach the depositary by a date set by the depositary. Otherwise, you won’t be able to exercise your right to vote unless
you withdraw the shares. However, you may not know about the meeting enough in advance to withdraw the shares.
The depositary will try, as far as practical, subject to the laws of Israel and of our articles of association or similar documents, to vote or to have its agents vote the shares or
other deposited securities as instructed by American Depositary Share holders. The depositary will only vote or attempt to vote as instructed.
If the depositary solicited your voting instructions but does not receive instructions by the date specified, the depositary will consider you to have instructed it to give a proxy
to a person designated by us to vote the deposited shares, unless we notify the depositary that:
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we do not wish to receive a proxy;
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substantial opposition exists; or
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the matter would materially and adversely affect the rights of holders of our ordinary shares.
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We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition, the depositary and its agents
are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise your right to vote and there
may be nothing you can do if your shares are not voted as you requested.
In order to give you a reasonable opportunity to instruct the depositary as to the exercise of voting rights relating to deposited securities, if we request the depositary to act, we
agree to give the depositary notice of any such meeting and details concerning the matters to be voted upon at least 30 days in advance of the meeting date.
Fees and Expenses
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Persons depositing or withdrawing shares or American Depositary Share holders must pay:
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For:
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$5.00 (or less) per 100 American Depositary Shares (or portion of 100 American Depositary Shares)
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Issuance of American Depositary Shares, including issuances resulting from a distribution of shares or rights or other property
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Cancellation of American Depositary Shares for the purpose of withdrawal, including if the deposit agreement terminates
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$.05 (or less) per American Depositary Share
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Any cash distribution to American Depositary Share holders
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A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of American Depositary
Shares
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Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to American Depositary Share holders
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$.05 (or less) per American Depositary Shares per calendar year
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Depositary services
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Registration or transfer fees
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Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares
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Expenses of the depositary
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Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement)
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converting foreign currency to U.S. dollars
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Taxes and other governmental charges the depositary or the custodian have to pay on any American Depositary Share or share underlying an American Depositary Share, for
example, stock transfer taxes, stamp duty or withholding taxes
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As necessary
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Any charges incurred by the depositary or its agents for servicing the deposited securities
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As necessary
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The depositary collects its fees for delivery and surrender of American Depositary Shares directly from investors depositing shares or surrendering American Depositary Shares for the
purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property
to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them.
The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.
From time to time, the depositary may make payments to us to reimburse and/or share revenue from the fees collected from American Depositary Share holders, or waive fees and expenses
for services provided, generally relating to costs and expenses arising out of establishment and maintenance of the American Depositary Share program. In performing its duties under the deposit agreement, the depositary may use
brokers, dealers or other service providers that are affiliates of the depositary and that may earn or share fees or commissions.
Payment of Taxes
You will be responsible for any taxes or other governmental charges payable on your American Depositary Shares or on the deposited securities represented by any of your American
Depositary Shares. The depositary may refuse to register any transfer of your American Depositary Shares or allow you to withdraw the deposited securities represented by your American Depositary Shares until such taxes or other
charges are paid. It may apply payments owed to you or sell deposited securities represented by your American Depositary Shares to pay any taxes owed and you will remain liable for any deficiency. If the depositary sells deposited
securities, it will, if appropriate, reduce the number of American Depositary Shares to reflect the sale and pay to American Depositary Share holders any proceeds, or send to American Depositary Share holders any property, remaining
after it has paid the taxes.
Reclassifications, Recapitalizations and Mergers
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If we:
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Then:
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Change the nominal or par value of our shares
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The cash, shares or other securities received by the depositary will become deposited securities.
Each American Depositary Share will automatically represent its equal share of the new deposited securities.
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Reclassify, split up or consolidate any of the deposited securities
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The depositary may, and will if we ask it to, distribute some or all of the cash, shares or other securities it received. It may also deliver new American Depositary Receipts
or ask you to surrender your outstanding American Depositary Receipts in exchange for new American Depositary Receipts identifying the new deposited securities.
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Distribute securities on the shares that are not distributed to you
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Recapitalize, reorganize, merge, liquidate, sell all or substantially all of our assets, or take any similar action
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Amendment and Termination
How may the deposit agreement be amended?
We may agree with the depositary to amend the deposit agreement and the American Depositary Receipts without your consent for any reason. If an amendment adds or increases fees or
charges, except for taxes and other governmental charges or expenses of the depositary for registration fees, facsimile costs, delivery charges or similar items, or prejudices a substantial right of American Depositary Share
holders, it will not become effective for outstanding American Depositary Shares until 30 days after the depositary notifies American Depositary Share holders of the amendment. At the time an amendment becomes effective, you are
considered, by continuing to hold your American Depositary Shares, to agree to the amendment and to be bound by the American Depositary Receipts and the deposit agreement as amended.
How may the deposit agreement be terminated?
The depositary will terminate the deposit agreement at our direction by mailing notice of termination to the American Depositary Share holders then outstanding at least 30 days prior
to the date fixed in such notice for such termination. The depositary may also terminate the deposit agreement by mailing notice of termination to us and the American Depositary Share holders if 60 days have passed since the
depositary told us it wants to resign but a successor depositary has not been appointed and accepted its appointment.
After termination, the depositary and its agents will do the following under the deposit agreement but nothing else: collect distributions on the deposited securities, sell rights
and other property, and deliver shares and other deposited securities upon cancellation of American Depositary Shares. Four months after termination, the depositary may sell any remaining deposited securities by public or private
sale. After that, the depositary will hold the money it received on the sale, as well as any other cash it is holding under the deposit agreement for the pro rata benefit of the American Depositary Share holders that have not
surrendered their American Depositary Shares. It will not invest the money and has no liability for interest. The depositary’s only obligations will be to account for the money and other cash. After termination our only obligations
will be to indemnify the depositary and to pay fees and expenses of the depositary that we agreed to pay.
Limitations on Obligations and Liability
Limits on our Obligations and the Obligations of the Depositary; Limits on Liability to Holders of American Depositary Shares
The deposit agreement expressly limits our obligations and the obligations of the depositary. It also limits our liability and the liability of the depositary. We and the depositary:
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are only obligated to take the actions specifically set forth in the deposit agreement without negligence or bad faith;
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are not liable if we are or it is prevented or delayed by law or circumstances beyond our control from performing our or its obligations under the deposit agreement;
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are not liable if we or it exercises discretion permitted under the deposit agreement;
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are not liable for the inability of any holder of American Depositary Shares to benefit from any distribution on deposited securities that is not made available to holders of American Depositary Shares under the terms of
the deposit agreement, or for any special, consequential or punitive damages for any breach of the terms of the deposit agreement;
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have no obligation to become involved in a lawsuit or other proceeding related to the American Depositary Shares or the deposit agreement on your behalf or on behalf of any other person; and
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may rely upon any documents we believe or it believes in good faith to be genuine and to have been signed or presented by the proper person.
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In the deposit agreement, we and the depositary agree to indemnify each other under certain circumstances.
Requirements for Depositary Actions
Before the depositary will deliver or register a transfer of an American Depositary Share, make a distribution on an American Depositary Share, or permit withdrawal of shares, the
depositary may require:
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payment of stock transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for the transfer of any shares or other deposited securities;
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satisfactory proof of the identity and genuineness of any signature or other information it deems necessary; and
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compliance with regulations it may establish, from time to time, consistent with the deposit agreement, including presentation of transfer documents.
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The depositary may refuse to deliver American Depositary Shares or register transfers of American Depositary Shares generally when the transfer books of the
depositary or our transfer books are closed or at any time if the depositary or we think it advisable to do so.
Your Right to Receive the Shares Underlying your American Depositary Shares
American Depositary Share holders have the right to cancel their American Depositary Shares and withdraw the underlying shares at any time except:
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when temporary delays arise because: (i) the depositary has closed its transfer books or we have closed our transfer books; (ii) the transfer of shares is blocked to permit voting at a shareholders’ meeting; or (iii) we
are paying a dividend on our shares;
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when you owe money to pay fees, taxes and similar charges; or
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when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to American Depositary Shares or to the withdrawal of shares or other deposited securities.
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This right of withdrawal may not be limited by any other provision of the deposit agreement.
Pre-release of American Depositary Shares
The deposit agreement permits the depositary to deliver American Depositary Shares before deposit of the underlying shares. This is called a pre-release of the American Depositary
Shares. The depositary may also deliver shares upon cancellation of pre-released American Depositary Shares (even if the American Depositary Shares are canceled before the pre-release transaction has been closed out). A pre-release
is closed out as soon as the underlying shares are delivered to the depositary. The depositary may receive American Depositary Shares instead of shares to close out a pre-release. The depositary may pre-release American Depositary
Shares only under the following conditions: (1) before or at the time of the pre-release, the person to whom the pre-release is being made represents to the depositary in writing that it or its customer owns the shares or American
Depositary Shares to be deposited; (2) the pre-release is fully collateralized with cash or other collateral that the depositary considers appropriate; and (3) the depositary must be able to close out the pre-release on not more
than five business days’ notice. In addition, the depositary will limit the number of American Depositary Shares that may be outstanding at any time as a result of pre-release, although the depositary may disregard the limit from
time to time, if it thinks it is appropriate to do so.
Direct Registration System
In the deposit agreement, all parties to the deposit agreement acknowledge that the DRS and Profile Modification System, or Profile, will apply to uncertificated American Depositary
Shares upon acceptance thereof to DRS by DTC. DRS is the system administered by DTC under which the depositary may register the ownership of uncertificated American Depositary Shares, which ownership will be evidenced by periodic
statements sent by the depositary to the registered holders of uncertificated American Depositary Shares. Profile is a required feature of DRS that allows a DTC participant, claiming to act on behalf of a registered holder of
American Depositary Shares, to direct the depositary to register a transfer of those American Depositary Shares to DTC or its nominee and to deliver those American Depositary Shares to the DTC account of that DTC participant without
receipt by the depositary of prior authorization from the American Depositary Share holder to register that transfer.
In connection with and in accordance with the arrangements and procedures relating to DRS/Profile, the parties to the deposit agreement understand that the depositary will not
determine whether the DTC participant that is claiming to be acting on behalf of an American Depositary Share holder in requesting registration of transfer and delivery described in the paragraph above has the actual authority to
act on behalf of the American Depositary Share holder (notwithstanding any requirements under the Uniform Commercial Code). In the deposit agreement, the parties agree that the depositary’s reliance on and compliance with
instructions received by the depositary through the DRS/Profile System and in accordance with the deposit agreement will not constitute negligence or bad faith on the part of the depositary.
Shareholder communications; inspection of register of holders of American Depositary Shares
The depositary will make available for your inspection at its office all communications that it receives from us as a holder of deposited securities that we make generally available
to holders of deposited securities. The depositary will send you copies of those communications if we ask it to. You have a right to inspect the register of holders of American Depositary Shares, but not for the purpose of
contacting those holders about a matter unrelated to our business or the American Depositary Shares.
Disclosure of beneficial ownership
Each holder of American Depositary Shares must comply with applicable laws and reasonable requests made by us that the holder disclose information regarding beneficial ownership of
American Depositary Shares as if the American Depositary Shares were the ordinary shares they represent. Applicable law may require disclosure to us of beneficial ownership of 5% or more of our outstanding ordinary shares.
MATERIAL TAX CONSIDERATIONS
Israeli Tax Considerations
General
The following is a summary of the material tax consequences under Israeli law concerning the purchase, ownership and disposition of American Depositary Shares representing Ordinary Shares (collectively, the “Shares”) by persons who
acquired the Shares in this offering.
This discussion does not purport to constitute a complete analysis of all potential tax consequences applicable to investors upon purchasing, owning or disposing of our Shares. In
particular, this discussion does not take into account the specific circumstances of any particular investor (such as tax-exempt entities, financial institutions, certain financial companies, broker-dealers, investors that own,
directly or indirectly, 10% or more of our outstanding voting rights, all of whom are subject to special tax regimes not covered under this discussion). To the extent that issues discussed herein are based on legislation that has
yet to be subject to judicial or administrative interpretation, there can be no assurance that the views expressed herein will accord with any such interpretation in the future.
Potential investors are urged to consult their own tax advisors as to the Israeli or other tax consequences of the purchase, ownership, and disposition of the Shares, including, in
particular, the effect of any foreign, state or local taxes.
General Corporate Tax Structure in Israel
Israeli companies are generally subject to corporate tax on their taxable income at the rate of 23% for the 2024 tax year.
Taxation of Shareholders
Capital Gains
Capital gains tax is imposed on the disposition of capital assets by an Israeli resident and on the disposition of such assets by a non-Israeli resident if those assets are either
(i) located in Israel; (ii) are shares or a right to a share in an Israeli resident corporation, or (iii) represent, directly or indirectly, rights to assets located in Israel, unless an exemption is available or unless an
applicable double tax treaty between Israel and the seller’s country of residence provides otherwise. The Israeli Income Tax Ordinance distinguishes between “Real Gain” and the “Inflationary Surplus”. “Real Gain” is the excess of
the total capital gain over Inflationary Surplus generally computed on the basis of the increase in the Israeli Consumer Price Index between the date of purchase and the date of disposition. Inflationary Surplus is not subject to
tax.
Real Gain accrued by individuals on the sale of the Shares will be taxed at the rate of 25%. However, if the individual shareholder is a “Controlling Shareholder” (i.e., a person who
holds, directly or indirectly, alone or together with another, 10% or more of one of the Israeli resident company’s means of control) at the time of sale or at any time during the preceding 12-month period, such gain will be taxed
at the rate of 30%.
Corporate and individual shareholders dealing in securities in Israel are taxed at the tax rates applicable to business income (23% for companies), and a marginal tax rate of up to
50% in 2024 for individuals, including an excess tax (as discussed below).
Notwithstanding the foregoing, capital gains generated from the sale of our Shares by a non-Israeli shareholder may be exempt from Israeli tax under the Israeli Income Tax Ordinance
provided (among other conditions) that seller does not have a permanent establishment in Israel to which the generated capital gain is attributed. However, non-Israeli resident corporations will not be entitled to the foregoing
exemption if Israeli residents: (i) have a 25% or more interest in such non-Israeli corporation or (ii) are the beneficiaries of, or are entitled to, 25% or more of the income or profits of such non-Israeli corporation, whether
directly or indirectly. In addition, such exemption would not be available to a person whose gains from selling or otherwise disposing of the securities are deemed to be business income.
In addition, the sale of the Shares may be exempt from Israeli capital gains tax under the provisions of an applicable double tax treaty. For example, the Convention Between the
Government of the United States of America and the Government of the State of Israel with Respect to Taxes on Income, or the U.S.-Israel Double Tax Treaty, exempts a U.S. resident (for purposes of the U.S.-Israel Double Tax Treaty)
from Israeli capital gain tax in connection with the sale of the Shares, provided (among other conditions) that: (i) the U.S. resident owned, directly or indirectly, less than 10% of the voting power of the company at any time
within the 12-month period preceding such sale; (ii) the U.S. resident, being an individual, is present in Israel for a period or periods of less than 183 days during the taxable year; and (iii) the capital gain from the sale was
not derived through a permanent establishment of the U.S. resident in Israel; however, under the U.S.-Israel Double Tax Treaty, the taxpayer should be permitted to claim a credit for such taxes against the U.S. federal income tax
imposed with respect to such sale, exchange or disposition, subject to the limitations under U.S. law applicable to foreign tax credits. The U.S.-Israel Double Tax Treaty does not relate to U.S. state or local taxes.
Payers of consideration for the Ordinary Shares, including the purchaser, the Israeli stockbroker or the financial institution through which the Shares are held, are obligated,
subject to certain exemptions, to withhold tax upon the sale of Shares at a rate of 25% of the consideration for individuals and corporations.
Upon the sale of traded securities, a detailed return, including a computation of the tax due, must be filed and an advance payment must be paid to the Israeli Tax Authority on
January 31 and July 31 of every tax year in respect of sales of traded securities made within the previous six months. However, if all tax due was withheld at source according to applicable provisions of the Israeli Income Tax
Ordinance and regulations promulgated thereunder, such return need not be filed, and no advance payment must be paid. Capital gains are also reportable on annual income tax returns.
Dividends
Dividends distributed by a company to a shareholder who is an Israeli resident individual will generally be subject to income tax at a rate of 25%. However, a 30% tax rate will apply
if the dividend recipient is a Controlling Shareholder, as defined above, at the time of distribution or at any time during the preceding 12-month period. If the recipient of the dividend is an Israeli resident corporation, such
dividend will generally be exempt from Israeli income tax provided that the income from which such dividend is distributed, derived or accrued within Israel.
Dividends distributed by an Israeli resident company to a non-Israeli resident (either an individual or a corporation) are generally subject to Israeli withholding tax on the receipt
of such dividends at the rate of 25% (30% if the dividend recipient is a Controlling Shareholder at the time of distribution or at any time during the preceding 12-month period). These rates may be reduced under the provisions of an
applicable double tax treaty. For example, under the U.S.-Israel Double Tax Treaty, the following tax rates will apply in respect of dividends distributed by an Israeli resident company to a U.S. resident: (i) if the U.S. resident
is a corporation that holds during that portion of the taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any), at least 10% of the outstanding shares of the voting
stock of the Israeli resident paying corporation and not more than 25% of the gross income of the Israeli resident paying corporation for such prior taxable year (if any) consists of certain types of interest or dividends the tax
rate is 12.5%; (ii) if both the conditions mentioned in clause (i) above are met and the dividend is paid from an Israeli resident company’s income which was entitled to a reduced tax rate under The Law for the Encouragement of
Capital Investments, 1959, the tax rate is 15%; and (iii) in all other cases, the tax rate is 25%. The aforementioned rates under the U.S.-Israel Double Tax Treaty will not apply if the dividend income is attributed to a permanent
establishment of the U.S. resident in Israel.
Excess Tax
Individual holders who are subject to tax in Israel (whether any such individual is an Israeli resident or non-Israeli resident) and who have taxable income that exceeds a certain
threshold in a tax year (NIS 721,560 for 2024, linked to the Israeli Consumer Price Index) will be subject to an additional tax at the rate of 3% on his or her taxable income for such tax year that is in excess of such amount. For
this purpose, taxable income includes taxable capital gains from the sale of securities and taxable income from interest and dividends, subject to the provisions of an applicable double tax treaty.
Estate and Gift Tax
Israel does not currently impose estate or gift taxes if the Israeli Tax Authority is satisfied that the gift was made in good faith and on condition that the recipient of the gift
is not a non-Israeli resident.
Foreign Exchange Regulations
Non-residents of Israel who hold our Shares are able to receive any dividends, and any amounts payable upon the dissolution, liquidation and winding up of our affairs, repayable in
non-Israeli currency at the rate of exchange prevailing at the time of conversion. However, Israeli income tax is generally required to have been paid or withheld on these amounts. In addition, the statutory framework for the
potential imposition of currency exchange control has not been eliminated and may be restored at any time by administrative action.
Material U.S. Federal Income Tax Considerations
The following is a summary of the material U.S. federal income tax consequences relating to the acquisition, ownership, and disposition of the ADSs by U.S. Holders, as defined below.
This summary addresses solely U.S. Holders who acquire the Securities pursuant to this offering and who hold the Securities as capital assets for tax purposes. This summary is based on current provisions of the Internal Revenue Code
of 1986, as amended (the “Code”), current and proposed U.S. Treasury regulations promulgated thereunder, and administrative and judicial decisions as of the date hereof, all of which are subject to change, possibly on a retroactive
basis. In addition, this section is based in part upon representations of the depositary and the assumption that each obligation in the Deposit Agreement and any related agreement will be performed in accordance with its terms. This
summary does not address all U.S. federal income tax matters that may be relevant to a particular holder or all tax considerations that may be relevant with respect to an investment in the ADSs.
This summary does not address tax considerations applicable to a holder of the ADSs that may be subject to special tax rules including, without limitation, the following:
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dealers or traders in securities, currencies, or notional principal contracts;
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banks, insurance companies, and other financial institutions;
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real estate investment trusts or regulated investment companies;
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persons or corporations subject to an alternative minimum tax;
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tax-exempt organizations;
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traders that have elected mark-to-market accounting;
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corporations that accumulate earnings to avoid U.S. tax;
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investors that hold the ADSs as part of a “straddle,” “hedge,” or “conversion transaction” with other investments;
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persons that actually or constructively own 10 percent or more of our Ordinary Shares outstanding by vote or by value;
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persons that are treated as partnerships or other pass-through entities for U.S. federal income purposes; and
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U.S. Holders whose functional currency is not the U.S. dollar.
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This summary does not address the effect of any U.S. federal taxation other than U.S. federal income taxation, and does not include any discussion of state, local, or foreign tax
consequences to a holder of the ADSs. In addition, this summary does not include any discussion of the U.S. federal income tax consequences to any holder of ADSs that is not a U.S. Holder.
You are urged to consult your own tax advisor regarding the foreign and U.S. federal, state, and local income and other tax consequences of an investment in the
ADSs, including the potential effects of any proposed legislation, if enacted.
For purposes of this summary, a “U.S. Holder” means a beneficial owner of a Security that is for U.S. federal income tax purposes:
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an individual who is a citizen or resident of the U.S.;
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a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in the U.S. or under the laws of the U.S., any state thereof, or the District of Columbia;
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an estate, the income of which is subject to U.S. federal income tax regardless of its source; or
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a trust (1) if (a) a court within the U.S. is able to exercise primary supervision over the administration of the trust and (b) one or more U.S. persons have the authority to control all substantial decisions of the trust
or (2) that has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.
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If an entity or arrangement that is classified as a partnership for U.S. federal tax purposes holds any ADSs, the U.S. federal tax treatment of its partners will generally depend
upon the status of the partners and the activities of the partnership. Entities or arrangements that are classified as partnerships for U.S. federal tax purposes and persons holding any ADSs through such entities should consult
their own tax advisors.
In general, and assuming that all obligations under the Deposit Agreement will be satisfied in accordance with the terms of the Deposit Agreement, if you hold ADSs, you will be
treated as the holder of the underlying Ordinary Shares represented by those ADSs for U.S. federal income tax purposes. Accordingly, gain or loss generally will not be recognized if you exchange ADSs for the underlying Ordinary
Shares represented by those ADSs.
Distributions
If we make any distribution with respect to the Securities, subject to the discussion under “- Passive Foreign Investment Companies” below, the gross amount of any distribution
actually or constructively received by a U.S. Holder (through the Depositary) with respect to a Security will generally be taxable to the U.S. Holder as foreign-source dividend income to the extent of our current and accumulated
earnings and profits as determined under U.S. federal income tax principles. The amount distributed will include the amount of any Israeli taxes withheld from such distribution, as described above under the caption “Material Tax
Considerations-Israeli Tax Considerations.” A U.S. Holder will not be eligible for any dividends received deduction in respect of the dividends paid by us, which deduction is otherwise available to a corporate U.S. Holder in respect
of dividends received from a domestic corporation. Distributions in excess of earnings and profits will be non-taxable to the U.S. Holder to the extent of the U.S. Holder’s adjusted tax basis in its Securities. Distributions in
excess of such adjusted tax basis will generally be taxable to a U.S. Holder as capital gain from the sale or exchange of property as described below under “-Sale or Other Disposition of ADSs.” If we do not report to a U.S. Holder
the portion of a distribution that exceeds earnings and profits, then the distribution will generally be taxable as a dividend. The amount of any distribution of property other than cash will be the fair market value of that
property on the date of distribution.
Under the Code, certain qualified dividends received by non-corporate U.S. Holders will be subject to U.S. federal income tax at the preferential long-term capital gains of,
currently, a maximum of 20%. This preferential income tax rate is applicable only to dividends paid by a “qualified foreign corporation” that is not a PFIC (as defined below under “- Passive Foreign Investment Companies,”) for the
year in which the dividend is paid or for the preceding taxable year, and only with respect to the Securities held by a qualified U.S. Holder (i.e., a non-corporate holder) for a minimum holding period (generally 61 days during the
121-day period beginning 60 days before the ex-dividend date) and certain other holding period requirements are met. If such holding period requirements are met, dividends we pay with respect to the Securities generally will be
qualified dividend income. However, if we were a PFIC, dividends paid by us to individual U.S. Holders would not be eligible for the reduced income tax rate applicable to qualified dividends. As discussed below under “- Passive
Foreign Investment Companies,” we do not anticipate being treated as a PFIC for this year; however, there can be no assurance that we will not be treated as a PFIC for our current taxable or future taxable years. You should consult
your own tax advisor regarding the availability of this preferential tax rate under your particular circumstances.
The amount of any distribution paid in a currency other than U.S. dollars (a “foreign currency”), including the amount of any withholding tax thereon, will be included in the gross
income of a U.S. Holder in an amount equal to the U.S. dollar value of the foreign currency calculated by reference to the exchange rate in effect on the date of the U.S. Holder’s (or, in the case of ADSs, the Depositary’s) receipt
of the dividend, actively or constructively, regardless of whether the foreign currency is converted into U.S. dollars. If the foreign currency is converted into U.S. dollars on the date of receipt, a U.S. Holder generally should
not be required to recognize a foreign currency gain or loss in respect of the dividend. If the foreign currency received in the distribution is not converted into U.S. dollars on the date of receipt, a U.S. Holder will have a basis
in the foreign currency equal to its U.S. dollar value on the date of receipt. Any gain or loss on a subsequent conversion or other disposition of the foreign currency will be treated as U.S. source ordinary income or loss and will
not be eligible for the preferential rate applicable to qualified dividend income.
Subject to certain conditions and limitations, any Israeli taxes withheld on dividends may be creditable against a U.S. Holder’s U.S. federal income tax liability, subject to
generally applicable limitations. The rules relating to foreign tax credits and the timing thereof are complex. You should consult your own tax advisors regarding the availability of a foreign tax credit in your particular
situation.
Sale, Exchange, or Other Disposition of ADSs
Subject to the discussion under “- Passive Foreign Investment Companies” below, a U.S. Holder that sells or otherwise disposes of its Securities will recognize gain or loss for U.S.
federal income tax purposes in an amount equal to the difference between the amount realized on the sale or other disposition and such U.S. Holder’s adjusted basis in the Securities. Such gain or loss generally will be capital gain
or loss and will be a long-term capital gain or loss if the U.S. Holder’s holding period of the Securities exceeds one year at the time of the sale or other disposition. Long-term capital gains realized by non-corporate U.S. Holders
are generally subject to a preferential U.S. federal income tax rate. In general, gain or loss recognized by a U.S. Holder on the sale or other disposition of the Securities will be U.S. source gain or loss for purposes of the
foreign tax credit limitation. However, if we are a PFIC, any such gain will be subject to the PFIC rules, as discussed below, rather than being taxed as a capital gain. As discussed below in “-Passive Foreign Investment Companies,”
we do not anticipate being a PFIC for this year; however, there can be no assurance that we will not be treated as a PFIC for our current taxable year and future taxable years.
If a U.S. Holder receives foreign currency upon a sale or exchange of the Securities, gain or loss will be recognized in the manner described above under “- Distributions.” However,
if such foreign currency is converted into U.S. dollars on the date received by the U.S. Holder, the U.S. Holder generally should not be required to recognize any foreign currency gain or loss on such conversion.
As discussed above under the heading “Material Tax Considerations-Israeli Tax Considerations-Taxation of Shareholders,” a U.S. Holder who holds Securities through an Israeli broker
or other Israeli intermediary may be subject to Israeli withholding tax on any capital gains recognized on a sale or other disposition of the Securities. Any Israeli tax paid under circumstances in which an exemption from (or a
refund of or a reduction in) such tax was available will not be creditable for U.S. federal income tax purposes. U.S. Holders are advised to consult their Israeli broker or intermediary regarding the procedures for obtaining an
exemption or reduction.
Medicare Tax on Unearned Income
Non-corporate U.S. Holders whose income exceeds certain thresholds are required to pay an additional 3.8% tax on their net investment income, which includes dividends paid on the
Securities and capital gains from the sale or other disposition of the Securities.
Passive Foreign Investment Companies
The treatment of the Company as a PFIC is based on the value and composition of our assets, and no assurance can be given that we will not be treated as a PFIC for U.S. federal
income tax purposes for our current taxable year or future taxable years. We will be considered a PFIC for any taxable year if:
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at least 75% of our gross income for such taxable year is passive income; or
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at least 50% of the value of our assets (based on an average of the fair market values of the assets determined at the end of each quarter during a
taxable year) is attributable to assets that produce or are held for the production of passive income.
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For purposes of the above calculations, if we own, directly or indirectly, 25% or more of the total value of the outstanding shares of another corporation, we will be treated as if
we (a) held a proportionate share of the assets of such other corporation and (b) received a proportionate share of the income of such other corporation directly. Passive income generally includes, among other things, dividends,
interest, rents, royalties and certain capital gain, but generally excludes rents and royalties that are derived in the active conduct of a trade or business and which are received from a person other than a related person.
A separate determination must be made each taxable year as to whether we are a PFIC (after the close of each such taxable year). Because the value of our assets for purposes of the
asset test will generally be determined by reference to the market price of the ADSs, our PFIC status will also depend in large part on the market price of the Securities, which may fluctuate significantly.
If we are a PFIC for any year during which a U.S. Holder holds any Securities, we generally will be treated as a PFIC with respect to such U.S. Holder for all succeeding years during
which such U.S. Holder holds the Securities, unless we cease to be a PFIC and such U.S. Holder makes a “deemed sale” election with respect to the Securities that such U.S. Holder holds. A U.S. Holder that makes such an election will
be deemed to have sold the Securities it holds at their fair market value on the last day of the last taxable year in which we qualified as a PFIC, and any gain from such deemed sale will be subject to the U.S. federal income tax
treatment described below. After the deemed sale election, the Securities with respect to which the deemed sale election was made will not be treated as shares in a PFIC unless we subsequently become a PFIC.
For each taxable year for which we are treated as a PFIC with respect to a U.S. Holder, such U.S. Holder will be subject to special tax rules with respect to any “excess
distribution” it receives and any gain it realizes from a sale or other disposition (including a pledge) of the Securities, unless it makes a “mark-to-market” election or a “qualified electing fund” election discussed below.
Distributions that a U.S. Holder receives in a taxable year that are greater than 125% of the average annual distributions it received during the shorter of the three preceding taxable years or its holding period for the Securities
will be treated as an excess distribution. Under these special tax rules, if a U.S. Holder receives any excess distribution or realizes any gain from a sale or other disposition of the Securities:
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the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the Securities;
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the amount of excess distribution or gain allocated to the current taxable year, and any taxable year before the first taxable year in which we were a PFIC, must be included in the U.S. Holder’s gross income (as ordinary
income) for the tax year of the sale or disposition; and
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the amount allocated to each other year will be subject to the highest marginal tax rate in effect with respect to such U.S. Holder for that year and the interest charge generally applicable to underpayments of tax will
be imposed on the resulting tax attributable to such amounts allocated to each other year.
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The tax liability for amounts allocated to years before the year of disposition or “excess distribution” cannot be offset by any losses for such years. Additionally, any gains
realized on the sale of the Securities cannot be treated as capital gains.
If we are treated as a PFIC with respect to a U.S. Holder for any taxable year, to the extent any of our subsidiaries are also PFICs, such U.S. Holder will be deemed to own its
proportionate share of any such subsidiaries that are PFICs, and such U.S. Holder may be subject to the rules described in the preceding two paragraphs with respect to the shares of such subsidiaries that are PFICs it will be deemed
to own. As a result, a U.S. Holder may incur liability for any “excess distribution” described above if we receive a distribution from such subsidiaries that are PFICs or if we dispose of, or are deemed to dispose of, any shares in
such subsidiaries that are PFICs. You should consult your own tax advisor regarding the application of the PFIC rules to any of our subsidiaries.
Alternatively, a U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election for such stock to elect out of the general tax treatment for PFICs
discussed above. If a U.S. Holder makes a mark-to-market election for the ADSs, such U.S. Holder will include in income for each year we are a PFIC an amount equal to the excess, if any, of the fair market value of the ADSs as of
the close of such U.S. Holder’s taxable year over such U.S. Holder’s adjusted basis in such ADSs. A U.S. Holder is allowed a deduction for the excess, if any, of the adjusted basis of the ADSs over their fair market value as of the
close of the taxable year. However, deductions are allowable only to the extent of any net mark-to-market gains on the ADSs included in a U.S. Holder’s income for prior taxable years. Amounts included in a U.S. Holder’s income under
a mark-to-market election, as well as gain on the actual sale or other disposition of the ADSs, are treated as ordinary income. Ordinary loss treatment also applies to the deductible portion of any mark-to-market loss on the ADSs,
as well as to any loss realized on the actual sale or disposition of the ADSs to the extent the amount of such loss does not exceed the net mark-to-market gains previously included for the ADSs. A U.S. Holder’s basis in the ADSs
will be adjusted to reflect any such income or loss amounts. If a U.S. Holder makes a valid mark-to-market election, the tax rules that apply to distributions by corporations that are not PFICs will apply to distributions by us,
except the lower applicable tax rate for qualified dividend income will not apply. If we cease to be a PFIC when a U.S. Holder has a mark-to-market election in effect, gain or loss realized by such U.S. Holder on the sale of the
ADSs will be a capital gain or loss and taxed in the manner described above under “- Sale, Exchange, or Other Disposition of ADSs.”
The mark-to-market election is available only for “marketable stock,” which is a stock that is traded in other than de minimis quantities on at least 15 days during each calendar
quarter, or regularly traded, on a qualified exchange or another market, as defined in applicable U.S. Treasury regulations. Any trades that have as their principal purpose meeting this requirement will be disregarded. The ADSs are
listed on Nasdaq and, accordingly, provided the ADSs are regularly traded, the mark-to-market election will be available to a U.S. Holder of ADSs if we are a PFIC. Once made, the election cannot be revoked without the consent of the
IRS unless the ADSs cease to be marketable stock. If we are a PFIC for any year in which the U.S. Holder owns the ADSs but before a mark-to-market election is made, the interest charge rules described above will apply to any
mark-to-market gain recognized in the year the election is made. If any of our subsidiaries are or become PFICs, the mark-to-market election will not be available with respect to the shares of such subsidiaries that are treated as
owned by a U.S. Holder. Consequently, a U.S. Holder could be subject to the PFIC rules with respect to income of the lower-tier PFICs the value of which already had been taken into account indirectly via mark-to-market adjustments.
You should consult your own tax advisors as to the availability and desirability of a mark-to-market election, as well as the impact of such election on interests in any lower-tier PFICs.
In certain circumstances, a U.S. Holder of stock in a PFIC can make a “qualified electing fund” election to mitigate some of the adverse tax consequences of holding stock in a PFIC
by including in income its share of the corporation’s income on a current basis. However, we do not currently intend to prepare or provide the information that would enable a U.S. Holder to make a qualified electing fund election.
Unless otherwise provided by the U.S. Treasury, each U.S. shareholder of a PFIC is required to file an annual information return on IRS Form 8621 (Information Return by a Shareholder
of a Passive Foreign Investment Company or Qualifying Electing Fund) containing such information as the U.S. Treasury may require. A U.S. Holder’s failure to file such annual information return could result in the imposition of
penalties and the extension of the statute of limitations with respect to U.S. federal income tax. You should consult your own tax advisors regarding the requirements of filing such information returns under these rules, taking into
account the uncertainty as to whether we are currently treated as or may become a PFIC.
YOU ARE STRONGLY URGED TO CONSULT YOUR OWN TAX ADVISOR REGARDING THE IMPACT AND APPLICATION OF THE PFIC RULES ON YOUR INVESTMENT IN THE SECURITIES.
Backup Withholding and Information Reporting
Payments of dividends with respect to the Securities and the proceeds from the sale, retirement, or other disposition of the Securities made by a U.S. paying agent or other U.S.
intermediary will generally be reported to the IRS and to the U.S. Holder as may be required under applicable U.S. Treasury regulations. We, or an agent, a broker, or any paying agent, as the case may be, may be required to withhold
tax (backup withholding), currently at the rate of 24%, if a non-corporate U.S. Holder that is not otherwise exempt fails to provide an accurate taxpayer identification number and comply with other IRS requirements concerning
information reporting. Certain U.S. Holders (including, among others, corporations and tax-exempt organizations) are not subject to backup withholding. Backup withholding is not an additional tax. Any amount of backup withholding
withheld may be used as a credit against your U.S. federal income tax liability or may be refunded provided that the required information is timely furnished to the IRS. U.S. Holders should consult their own tax advisors as to their
qualification for exemption from backup withholding and the procedure for obtaining an exemption.
Foreign Asset Reporting
Certain U.S. Holders who are individuals are required to report information relating to an interest in the Securities, subject to certain exceptions (including an exception for
shares held in accounts maintained by financial institutions) by filing IRS Form 8938 (Statement of Specified Foreign Financial Assets) with their federal income tax return. U.S. Holders are urged to consult their tax advisors
regarding their information reporting obligations, if any, with respect to their ownership and disposition of the Securities.
EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT ITS OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF AN INVESTMENT IN THE SECURITIES IN LIGHT OF SUCH INVESTOR’S PARTICULAR
CIRCUMSTANCES.
PLAN OF DISTRIBUTION
The selling shareholders of the securities and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of the securities covered hereby on
the principal trading market or any other stock exchange, market or trading facility on which the securities are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling shareholders may use
any one or more of the following methods when selling securities:
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ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
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block trades in which the broker-dealer will attempt to sell the securities as an agent but may position and resell a portion of the block as principal to facilitate the transaction;
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purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
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an exchange distribution in accordance with the rules of the applicable exchange;
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privately negotiated transactions;
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settlement of short sales made after the effective date of the registration statement;
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in transactions through broker-dealers that agree with the selling shareholders to sell a specified number of such securities at a stipulated price per security;
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through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
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a combination of any such methods of sale; or
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any other method permitted pursuant to applicable law.
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The selling shareholders may also sell securities under Rule 144 or any other exemption from registration under the Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged by the selling shareholders may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling
shareholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction
not in excess of a customary brokerage commission in compliance with FINRA Rule 2121, and in the case of a principal transaction a markup or markdown in compliance with FINRA Rule 2121.
In connection with the sale of the securities or interests therein, the selling shareholders may enter into hedging transactions with broker-dealers or other financial institutions,
which may, in turn, engage in short sales of the securities in the course of hedging the positions it assumes. The selling shareholders may also sell securities short and deliver these securities to close out its short positions, or
loan or pledge the securities to broker-dealers that in turn may sell these securities. The selling shareholders may also enter into option or other transactions with broker- dealers or other financial institutions or create one or
more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell
pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The selling shareholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in
connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under
the Securities Act. The selling shareholders have informed the Company that they do not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities.
We are required to pay certain fees and expenses incurred by us incident to the registration of the securities. We have agreed to indemnify the selling shareholders against certain
losses, claims, damages and liabilities, including liabilities under the Securities Act.
We agreed to keep this prospectus effective until the selling shareholders do not own any Warrants or do not own any Ordinary Shares represented by the Offered ADSs issuable upon
exercise of the Warrants. The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered
hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market-making
activities with respect to the Offered ADSs for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling shareholders will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the Offered ADSs by the selling shareholders or any other person. We will make
copies of this prospectus available to the selling shareholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172
under the Securities Act).
EXPENSES
The following table sets forth the estimated costs and expenses payable by the registrant expected to be incurred in connection with the issuance and distribution of the Offered ADSs
being registered hereby. All of such expenses are estimates, except for the SEC registration fee.
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Accountants’ fees and expenses
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Miscellaneous
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Each of the amounts set forth above, other than the registration fee, is an estimate.
LEGAL MATTERS
Certain legal matters with respect to Israeli law and with respect to the validity of the offered securities under Israeli law will be passed upon for us by Goldfarb Gross Seligman & Co. Certain
legal matters with respect to U.S. federal securities law and New York law will be passed upon for us by Haynes and Boone, LLP.
EXPERTS
The financial statements included in this prospectus as of December 31, 2022 and 2021 and for each of the three years in the period for the year ended December 31, 2022 and
management’s assessment of the effectiveness of internal control over financial reporting (which is included in Management’s Report on Internal Control over Financial Reporting) as of December 31, 2022 included in this prospectus,
have been so included in reliance on the report of Kesselman & Kesselman, Certified Public Accountants (Isr.) (which contains an adverse opinion on the effectiveness of the Company’s internal control over financial reporting and
includes an explanatory paragraph regarding the existence of substantial doubt about the Company’s ability to continue as a going concern as described in Note 1a(3) to the financial statements), a member firm of
PricewaterhouseCoopers International Limited, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith file annual and special reports with, and furnish
other information to, the SEC. The SEC maintains a website that contains reports, information statements and other information regarding registrants that file electronically with the SEC. The address of the SEC’s website is
www.sec.gov.
We make available free of charge on or through our website at www.redhillbio.com, our Annual Reports on Form 20-F, Reports on Form 6-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with or otherwise furnish it to the SEC.
We have filed with the SEC a registration statement under the Securities Act of 1933, as amended, relating to the offering of these securities. The registration statement, including
the attached exhibits, contains additional relevant information about us and the securities. This prospectus does not contain all of the information set forth in the registration statement. You can obtain a copy of the registration
statement for free at www.sec.gov. The registration statement is also available on our website, www.redhillbio.com.
ENFORCEABILITY OF CIVIL LIABILITIES
We are incorporated under the laws of the State of Israel. Service of process upon us and upon our directors and officers and the Israeli experts named in this prospectus, a majority
of whom reside outside the United States, may be difficult to obtain within the United States. Furthermore, because many of our assets 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 our directors and officers may not be collectible within the United States.
It may be difficult to assert U.S. securities law claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on a violation of U.S. securities
laws because Israel is not the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is
found to be applicable, the content of applicable U.S. law must be proved as a fact which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law.
Subject to specified time limitations and legal procedures, Israeli courts may enforce a United States judgment in a civil matter which, subject to certain exceptions, is
non-appealable, including judgments based upon the civil liability provisions of the Securities Act and the Exchange Act and including a monetary or compensatory judgment in a non-civil matter, provided that:
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the judgments are obtained after due process before a court of competent jurisdiction, according to the laws of the state in which the judgment is given and the rules of private international law currently prevailing in
Israel;
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the prevailing law of the foreign state in which the judgments were rendered allows the enforcement of judgments of Israeli courts (however, the Israeli courts may waive this requirement following a request by the
attorney general);
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adequate service of process has been effected and the defendant has had a reasonable opportunity to be heard and to present his or her evidence;
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the judgments are not contrary to public policy, and the enforcement of the civil liabilities set forth in the judgment does not impair the security or sovereignty of the State of Israel;
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the judgments were not obtained by fraud and do not conflict with any other valid judgment in the same matter between the same parties;
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an action between the same parties in the same matter is not pending in any Israeli court at the time the lawsuit is instituted in the foreign court;
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the obligations under the judgment are enforceable according to the laws of the State of Israel and according to the law of the foreign state in which the relief was granted;
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We have irrevocably appointed RedHill Biopharma Inc. as our agent to receive service of process in any action against us in any United States federal or state court arising out of this offering or any purchase or sale of
securities in connection with this offering; and
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If a foreign judgment is enforced by an Israeli court, it generally will be payable in Israeli currency, which can then be converted into non-Israeli currency and transferred out of Israel. The usual practice in an action
before an Israeli court to recover an amount in a non-Israeli currency is for the Israeli court to issue a judgment for the equivalent amount in Israeli currency at the rate of exchange in force on the date of the judgment,
but the judgment debtor may make payment in foreign currency. Pending collection, the amount of the judgment of an Israeli court stated in Israeli currency ordinarily will be linked to the Israeli consumer price index plus
interest at the annual statutory rate set by Israeli regulations prevailing at the time. Judgment creditors must bear the risk of unfavorable exchange rates.
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10,600,000 American Depositary Shares representing 4,240,000,000 Ordinary Shares
REDHILL BIOPHARMA LTD.
PROSPECTUS