A. History and Development of the Company

We were incorporated on September 22, 2011 under the laws of the State of Israel for the purpose of the Reincorporation which merged BTI with and into a wholly-owned subsidiary of BioCancell. BTI was incorporated in the United States under the laws of the State of Delaware on July 26, 2004, and commenced operations on October 1, 2004. The Reincorporation was consummated on August 14, 2012, and BTI survived as a wholly-owned subsidiary of BioCancell until it was formally dissolved in the State of Delaware on December 28, 2012. Following the Reincorporation, BioCancell became a public company with its ordinary shares listed on the TASE. In August 2018, BioCancell changed its name to Anchiano Therapeutics Ltd. and its ordinary shares continue to be traded on the TASE under that name. Our principal executive offices are located at 1/3 High-Tech Village, Givat Ram, P.O. Box 392649, Jerusalem, 9139102 Israel and our telephone number is +972 (2) 548-6555.

We wholly own a subsidiary, Anchiano Therapeutics Israel Ltd. (formerly BioCanCell Therapeutics Israel Ltd.), which itself wholly owns a Delaware-incorporated subsidiary, called Anchiano Therapeutics, Inc. (formerly BioCancell USA, Inc.) for the purpose of operating in the United States. Anchiano Therapeutics, Inc. is subject to the tax laws of the State of Delaware.  Anchiano Therapeutics, Inc. acts as our agent for service of process in the United States, and is located at One Kendall Square, Building 600, Suite 6-106, Cambridge, Massachusetts 02139 and the telephone number for Anchiano Therapeutics, Inc. is +1 (857) 259-4622.

On January 7, 2019, we filed a registration statement in connection with an initial public offering of ADSs in the United States and on February 12, 2019, the ADSs, representing our ordinary shares, commenced trading on the Nasdaq under the symbol “ANCN.”

Our capital expenditures for the years ended December 31, 2018 and 2017 amounted to $0.2 million and $0.03 million, respectively. These capital expenditures were related primarily to laboratory equipment purchases. We anticipate our capital expenditures in 2019 to be financed from the proceeds of our February 2019 initial public offering.

The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Our filings with the SEC are available to the public through this website at http://www.sec.gov. In addition, since our ordinary shares are traded on the TASE, we filed Hebrew language periodic and immediate reports with, and furnished information to, the TASE and the Israeli Securities Authority (the “ISA”) as required under the Israeli Securities Law, 5728-1968. Since the ADSs commenced trading on the Nasdaq, our reporting to the TASE and ISA is generally restricted to copies of our filings with the SEC. Copies of our filings with the ISA can be retrieved electronically through the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and the TASE website (www.maya.tase.co.il).

We maintain a corporate website at www.anchiano.com. Information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report on Form 20-F, and you should not consider information on our website to be part of this Annual Report on Form 20-F.

B. Business Overview

Overview

We are a clinical-stage biotechnology company committed to engineering a targeted gene therapy to improve the standard of care for early-stage bladder cancer. We have discovered and are developing a biologic agent, inodiftagene, that we believe can deliver a new treatment to patients who have options that are limited in effectiveness and problematic in toxicity. Bladder cancer is a disease that typically causes symptoms early in its course and consequently presents the patient and the treating physician with an opportunity to gain control of the malignancy. However, the limitations of existing therapies, developed in the 1970s, often result in a prolonged series of unsuccessful treatments that can end in the radical removal of the bladder.

Our lead product candidate, inodiftagene, is a recombinant DNA construct that will be administered to patients whose therapy for early stage bladder cancer has failed: this is gene therapy for bladder cancer. Preclinical studies and clinical trials completed so far have demonstrated that our product candidate can deliver a lethal gene specifically to bladder cancer cells in a patient’s bladder. We have conducted clinical trials of inodiftagene in several malignancies, including bladder cancer, pancreatic cancer, and ovarian cancer, and observed anti-cancer activity in all of them. Based on our Phase 1 and Phase 2 clinical trial results, we believe its most promising application is in the therapy of NMIBC in which it has the potential to improve patient outcomes substantially by delaying or in some cases eliminating disease progression, and consequently may significantly bettering patient quality of life. Although there can be no assurance, we also believe that the regulatory pathway to approval for commercialization and wide distribution of our product candidate in NMIBC, based on our interactions with the FDA and other international regulators, is an extension of the clinical trial program we have undertaken to date, and that the patient population for which our clinical development program is designed exhibits a significant unmet need for novel therapeutic approaches. Our proposed clinical development plan includes two pivotal clinical studies, either of which we believe may support FDA regulatory approval, and which together will provide access to a large share of this affected population and differentiate us from competitive approaches.

Inodiftagene is a biological agent designed and formulated to deliver a toxic gene to bladder cells in a manner that results in the gene being active only in the bladder tumor with consequent killing of the malignant cells. The engineered gene has been compounded with an agent that enhances and optimizes the efficiency of its delivery to tissue. In experiments we can demonstrate uptake of inodiftagene by 85% of target cells after a single exposure.

We have tested inodiftagene in six clinical trials, three of which involved NMIBC patients, and we have observed substantial anti-tumor activity. The data from the three NMIBC trials demonstrate in Phase 1/2 and Phase 2 studies that: (i) inodiftagene causes complete responses in 33% of bladder cancer patients with unresected measurable tumors; (ii) one-year and two-year recurrence-free survival rates were 46% and 33%, respectively; and (iii) we can administer inodiftagene with BCG, the standard of care for NMIBC, with recurrence-free outcomes of 95% and 78% at three and six months, respectively.

We believe that these studies support the potential for inodiftagene to provide new therapies for NMIBC patients. NMIBC affects a large population in the United States as well as worldwide. In 2018, it was expected that approximately 81,000 new cases of bladder cancer would be diagnosed in the United States. Nearly 141,000 new cases in the European Union are expected to be diagnosed in 2020. 75% of these cases will be NMIBC, the earliest stage in bladder cancer classification. The diagnosis of primary bladder cancer leads to a cycle of cystoscopic evaluation, surgical resection, and medical therapy, that is repeated as treatments fail successively and additional treatments are attempted. The standard medical treatment for NMIBC, BCG, is live tuberculosis bacteria that has been attenuated, or weakened in the laboratory, administered into the bladder. Most treatments with BCG ultimately fail and result in tumor recurrence. Because of this prolonged natural history of early presentation and repeated treatment failures, it was estimated that in the United States in 2015, the latest year good estimates were available, about 710,000 patients will be living with bladder cancer. Moreover, it is the most costly cancer to treat in the United States, with annual costs that were estimated at over $4 billion in 2010, and costs of care for an individual nearing $200,000. Despite the need for new approaches to treat this disease, no drug has been approved by the FDA for the treatment of NMIBC since 1998. Patients with bladder cancer whose therapy has failed make up a large population of patients desperately in need of new therapies.

There are two distinct populations of unmet need in the field of NMIBC treatment: (1) those patients for whom two treatments with standard BCG have failed, who are termed BCG-unresponsive, and (2) those for whom one BCG treatment has failed. Accordingly we are planning two pivotal clinical trials in NMIBC patients: (i) a single-arm Phase 2 study of inodiftagene in patients with BCG-unresponsive disease (the “Codex Clinical Trial”) and (ii) a randomized trial in patients whose disease has recurred after a single course of standard BCG therapy (the “Leo Clinical Trial”). Both of these studies have been reviewed by the FDA and other international regulatory bodies. The FDA has granted our program Fast Track designation for regulatory review. Additionally, the Phase 3 Leo Clinical Trial has been granted a SPA by the FDA as well. While there are several planned and ongoing trials that address the BCG-unresponsive patient population, in our view our clinical development program in patients whose disease recurs after a first course of BCG sets us apart and differentiates us from competitors. Based on market data, including a commissioned independent research study, we believe the potential market for inodiftagene, should it achieve regulatory approval for both indications in the United States, the European Union and Japan, is over $1.5 billion.

We believe that the inodiftagene development program in early-stage bladder cancer may potentially allow us to meet the regulatory requirements for the development of a new therapy for this malignancy.

Our Product Pipeline

We have studied our product candidate inodiftagene, in patients with pancreatic cancer, ovarian cancer, and NMIBC, and we have studied it as a single agent or in combination with BCG. The following table summarizes the clinical development program of inodiftagene:

CR: complete response; DLT: dose-limiting toxicity; MTD: maximum tolerated dose; PFS: progression-free survival; PR: partial response; RFS: recurrence-free survival

The emphasis of our development program is on NMIBC, and at this time, we do not plan additional studies in pancreatic or ovarian cancer. The six completed trials detailed above were conducted in leading academic medical centers in Israel, and the two pivotal studies, the Codex Clinical Trial and Leo Clinical Trial, will be conducted in the United States and internationally.

The clinical trial results we have obtained demonstrate that inodiftagene has anti-cancer activity in bladder cancer, pancreatic cancer and ovarian cancer, all difficult-to-treat malignancies. Inodiftagene is well-tolerated, and side effects have been largely mild to moderate, and in bladder cancer patients involved primarily the lower urinary tract. The data suggests that the most promising application of inodiftagene is in the therapy of early-stage bladder cancer. Thus we have focused the development of inodiftagene in NMIBC.

Non-muscle Invasive Bladder Cancer: The Problem

Bladder cancer affects a very large population of patients in the United States and worldwide. It is the fourth most common cancer in men in the United States, being more common in men than in women, and is the fifth most common cancer in Europe overall. When incidence in the European Union and Japan is also considered, the combined global market encompasses an estimated 260,000 new cases per year. Despite being a common malignancy, it has not been the focus of new drug development. The last drug approved by the FDA for NMIBC was registered in 1998. New therapies are needed.

Source: ACS Facts and Figures 2018.

NMIBC is a cancer that is situated superficially in the lining of the bladder. Typically NMIBC is detected early in its course, when tumors are small, and because it is superficial, the most frequent first symptom of bladder cancer is blood in the patient’s urine. Evaluation by the physician involves visual examination of the inner surface of the bladder using a cystoscope, and diagnosis entails urine cytology, biopsy and pathological examination. Tumors are classified according to the depth they penetrate into the bladder, as illustrated below. The NMIBC subset of tumors is shown below, lettered in green.

Non-muscle invasive tumors that involve only the inner surface of the bladder can be flat (“Tis," also known as carcinoma-in-situ (“CIS”)) or raised (“Ta”). A raised tumor can also begin to invade the next layer of the bladder (classed as a T1 lesion) and still be classified as NMIBC. Once tumors invade the inner or outer muscle layers, they are called muscle invasive bladder cancer (“MIBC”). Approximately 75% of bladder cancer cases are initially NMIBC.

The urologist surgically removes the evident tumors that are resectable using the cystoscope by trans-urethral resection (“TUR”). Then, if the tumor characteristics lead it to be classified as intermediate or high risk for recurrence and progression, additional medical therapies are introduced through a catheter into the bladder.

The FDA-approved standard therapeutic agent for intermediate and high-risk NMIBC is BCG, administered into the bladder after TUR over a one- to three-year course of treatment. Although initial results with BCG are good, side effects can be substantial, including urinary symptoms, bleeding from the bladder, bladder inflammation, fever, and in rare instances, contraction by the patient of tuberculosis, sepsis and death. The eventual relapse rates from the first course of therapy are estimated by experts in the field to be 50% by four years and as high as 70% by ten years. After a failed first treatment, urologic practice guidelines recommend that a second course of BCG be attempted. When used a second time, the efficacy of BCG falls. The relapse rate after a second course of BCG was approximately 75% at one year in a recent randomized study. Most patients, therefore, experience a failure of BCG treatment.

As a result of the way BCG is used, there are two populations of unmet need in NMIBC treatment: (1) patients who have experienced recurrence following two courses of BCG, and (2) patients who have experienced recurrence following one course of BCG. This is illustrated below:

The first unmet need in the treatment of the NMIBC is for patients who have been treated with two courses of BCG and then experienced recurrence. In this situation, there are no other medical therapies that are recommended as standard of care. Chemotherapy, immunotherapy and experimental treatments have been tested in these patients, but these are not approved. Patients whose NMIBC has failed to respond after two treatments with BCG are considered to have what is formally termed BCG-unresponsive NMIBC. Lacking a standard, FDA-approved therapeutic agent, treatment guidelines recommend that these patients undergo radical cystectomy, or bladder removal. Thus the first major unmet need in the NMIBC population is for new therapies for patients whose two courses of BCG treatment have been unsuccessful, who therefore need a third line of therapy, and who face the debility and compromised quality of life that accompany the removal of the bladder.

The second unmet need in the treatment of the NMIBC is for patients earlier in their course of treatment, those whose first course of BCG therapy has failed. These patients are at very high risk for the subsequent failure of a second BCG treatment, and for becoming BCG-unresponsive. There is an opportunity to treat patients after their first treatment, in the second line, so as to prevent or delay ultimate recurrence and progression. The population of patients whose single course of BCG has failed comprises a larger population than those patients whose BCG therapies have failed twice.

The FDA and leading urological societies have worked together to formulate an approach to developing new therapeutic agents for BCG-unresponsive disease. This approach has been published in several forums, including the FDA’s Guidance for Industry on BCG-unresponsive Nonmuscle Invasive Bladder Cancer (2018). Our pivotal clinical program has been developed in conjunction with key opinion leaders in the field of urological cancer, and in close consultation with the FDA, and is consistent with the published guidance. We believe our program is consistent with the FDA-delineated path to the regulatory approval of inodiftagene in both of these areas of unmet need.

Our Competitive Strengths

Inodiftagene is a recombinant DNA plasmid-based agent designed and formulated to introduce a toxic gene into cells that is only activated in malignant cells, and when turned on in those cells, is lethal to them. It is a specifically targeted therapy. It is conceived to optimize efficacy and minimize side effects by focusing its cytotoxic effects in cancer cells only. Specifically, we believe our competitive strengths to be the following:

Our Solution: Gene Therapy for NMIBC with Inodiftagene

The biologically active ingredient of inodiftagene is a recombinant DNA plasmid that directs the expression of a potent toxin specifically in malignant cells but not in normal tissue. It has been designed to enable the delivery of a gene for a lethal bacterial toxin from diphtheria so that the toxin is specifically expressed and activated only in bladder cancer. This focuses the anti-cancer activity of the gene to only the cancer cells, and limits the side effects of the gene mainly to the malignant tissue and the bladder. We do this by exploiting the established biology of the H19 gene, which is turned off in most normal adult cells, but turned on at high levels primarily in malignant cells.

The H19 gene has a restricted pattern of expression rendering it potentially useful for the targeted delivery of therapies to cancer. H19 is an example of a class of molecules called long non-coding RNAs that serve as regulatory elements in normal cells. It is also considered an oncofetal RNA gene and is highly expressed in the placenta during pregnancy, but not normally expressed in adult tissues. However, its expression is turned on in malignancy, in human bladder cancers, as well as in many other tumors, including ovarian cancer, pancreatic cancer, lung cancer, breast cancer, colon cancer, melanoma, brain cancer, leukemia, and others. H19 is a gene of fundamental importance to cancer cells. The abnormal upregulation of H19 expression in malignancy is due to alterations in availability and activity of factors in the cell that turn genes on and off, and the regulatory controls of the H19 gene that respond to these factors, the molecular switches, as it were, have been well characterized. These regulatory switches can be used to control whether a gene is turned on or off in a manner that prevents the gene from being on in normal tissues and that turns it on in malignant cells that express H19.

Diphtheria toxin is a potent cellular toxin and is a favorable choice for anti-cancer targeting. Its biology and mechanisms of action are well understood. It is a toxin that potently and completely inhibits the ability of targeted cells to make normal proteins, thereby killing them. Single copies of this toxin are lethal to a cell. Moreover, the inhibitory activity of the toxin is encompassed entirely in the A chain of the molecule (DTA) while the B chain is necessary for cellular entry. The introduction and expression of the gene encoding DTA, as occurs with inodiftagene, is lethal to the target cell, but because it cannot transfer to neighboring tissue, not to surrounding cells.

The structure of inodiftagene is illustrated below. The H19 regulatory sequences, which control the turning on of DTA expression, are represented in blue in the illustration below. They have been isolated and engineered using recombinant DNA techniques so that they are juxtaposed to the gene for DTA. The DTA gene is represented in green on the right in the illustration.

When inodiftagene enters a tumor containing H19 expressing cells, the engineered gene becomes active, producing the lethal diphtheria toxin. Following administration into the bladder, cellular toxicity due to DTA expression is bladder cancer-specific. H19 is expressed in adults mostly in malignant tissue. Plasmid taken up in normal cells remains unexpressed. In addition, due to the absence of the B chain subunit, if toxin is released from dying cells it is not taken up by other normal cells. As a result, inodiftagene is a specifically targeted therapy for bladder cancer.

Inodiftagene DNA is combined with Polyethylenimine (“PEI”). PEI facilitates the entry of inodiftagene into rapidly dividing cells and improves efficiency of transmission. Experiments in the laboratory demonstrate that inodiftagene complexed with PEI is efficiently taken into more than 85% of cells following a single exposure.

Our Pre-clinical Data with Inodiftagene

Laboratory studies have also confirmed that protein synthesis is inhibited in tumor cells treated with inodiftagene, and that inodiftagene attenuates the proliferation of cancer cells in vitro .

In animal models, inodiftagene is active against bladder cancer. Experiments show that DTA is produced in bladder tumors after treatment in the organ. In a rat tumor model, it was shown that bladder tumors growing in the bladder could be effectively treated with two administrations of inodiftagene. In vitro studies with this cell line confirmed that the mechanism of action is via the dose-dependent expression of DTA driven by the H19 regulatory sequences.

Additional studies were performed in a model of bladder carcinogenesis due to the ingestion of nitrosamine by rats. In this experimental model, rats reproducibly develop visible bladder tumors after approximately 20 weeks of nitrosamine dietary supplementation. Administration of inodiftagene is effective in reducing mean tumor dimensions and weight and leads to complete eradication of tumors in some animals. This is illustrated below, in which the animal in the left panel received control (placebo) therapy (see the tumors in the green circles), and the animal in the right panel was treated with inodiftagene. These data formed the basis for the initial clinical development of inodiftagene in patients with bladder cancer.

Clinical studies have demonstrated that inodiftagene DNA is detectable after administration in patients’ bladder tumors and for more than 48 hours after a single two-hour exposure in patients’ urine.

IND-Enabling Studies

IND-enabling studies for inodiftagene included four repeated-dose non-clinical toxicology experiments conducted in accordance with Good Laboratory Practice (“GLP”) Regulations in mice and rats.

In these studies, intraperitoneal (“IP”), intravesical, or intravenous (“IV”) administration of either inodiftagene (plasmid + PEI) or plasmid alone was employed to evaluate the toxicity. Inodiftagene (alone and in combination with PEI) was well tolerated and no mortality occurred in any of the test article-treated animals. In the two studies supporting the bladder cancer indication (inodiftagene administered in complex with PEI via IP or intravesical administration) the “no observed adverse event level” (“NOAEL”) of inodiftagene plasmid was determined to be >10 mg/kg in both mice and rats. Biodistribution and pharmacokinetics were evaluated as part of the GLP toxicology studies of inodiftagene via intravesical administration. Biodistribution of inodiftagene was primarily limited to the bladder and kidneys.

Chemistry, manufacturing and controls studies are ongoing.

Inodiftagene Clinical Trial Experience

Our development of inodiftagene will focus on its utilization in NMIBC. However, we have also studied inodiftagene in other cancers in the clinic, testing it in patients with ovarian cancer and with pancreatic cancer. In both of these clinical settings, inodiftagene has demonstrated evidence of anti-cancer activity, supporting its mechanism of action against cancer. Clinical trials to date have been carried out in leading academic medical centers in Israel.

Studies in ovarian cancer and pancreatic cancer

Our initial experience with ovarian cancer involved a patient diagnosed with ovarian cancer that was metastatic to the abdominal cavity and refractory to treatment, resulting in the accumulation of malignant ascites, or fluid. An ultrasound of her abdomen, showing ascites outlined in red, is shown in the first ultrasound below. Cells from her ascites were isolated and were shown to express H19, and thus she was deemed a candidate for compassionate use treatment with inodiftagene. Inodiftagene was instilled into her abdomen weekly for seven treatments, and then every two weeks for treatments eight through ten. Her initial treatment was associated with nausea, fever, and vomiting, but these symptoms resolved after the third instillation. The fluid decreased after treatment, and resolved completely after treatment ten. This is shown in the second ultrasound below, revealing no residual fluid. Although inodiftagene clearly has activity in this clinical circumstance, it is probable that the large volume of ascites present in most patients suffering from this stage of ovarian cancer precludes achieving effective concentrations of inodiftagene in ovarian cancer cells.

We also have tested the drug in patients with pancreatic cancer. We conducted a Phase 1/2 dose-escalation study in patients with unresectable pancreatic cancer. The study enrolled nine patients with pancreatic cancer that had been deemed unresectable. Patients were administered escalating doses of inodiftagene either via computed-tomography (“CT”) guided injection, or via endoscopic ultrasound injection. Patients were assessed for response and for possible resection after injection. Nine patients completed screening and received treatment. Again the drug injection was well tolerated, and adverse events were mostly mild to moderate, with four adverse events being considered possibly related to the study drug. No serious adverse events occurred in patients treated with inodiftagene. Anti-tumor activity was evident: two of the nine patients, or approximately 22%, demonstrated partial responses following treatment with no other interventions.

We conducted a second study of inodiftagene in patients with advanced localized pancreatic cancer eligible for chemotherapy treatment. In this study, patients were administered standard gemcitabine chemotherapy, and in conjunction received intratumoral injections of inodiftagene. Twelve patients were enrolled. The primary endpoint of the study was PFS, and median PFS was 9.3 months in patients who received 8 milligrams (mg) of inodiftagene, and 7.6 months in patients who received 12 mg of inodiftagene. One of 12 patients demonstrated a partial response, and eight patients had stable disease. In these patients receiving concurrent gemcitabine chemotherapy, Grade 3 (Severe) adverse events were reported in most patients, most attributable to the chemotherapy. Ten patients (83%) reported serious adverse events following treatment in the study, none were considered by the investigator to be related to inodiftagene, and one patient reported a serious adverse event considered to be related to gemcitabine.

Response rates for standard gemcitabine chemotherapy in unresectable pancreatic cancer are typically less than 10%, and PFS is typically in the range of four to six months. Again, activity is present in this difficult-to-treat malignancy. However, it is likely that delivery of inodiftagene uniformly to cells in a large pancreatic tumor will be suboptimal due to the constraints of having to inject the gene into only a subset of tumor cells at any single injection site.

Studies in refractory ovarian cancer and unresectable pancreatic cancer both demonstrated activity of inodiftagene against the malignancy. These data strongly validate the mechanism of directing toxic therapy to tumors using H19.

Studies in NMIBC

NMIBC offers several advantages as a therapeutic target. First, for optimal activity, inodiftagene therapy requires contact with tumors so that the malignant cells internalize the gene. This is difficult to achieve in ovarian cancer with ascites, given the large volume of fluid in the abdomen, or in pancreatic cancer, given the requirement for the injection of inodiftagene into only the part of the tumor that is accessible radiologically. In bladder cancer, inodiftagene can be instilled into the bladder, allowing it to coat the entire lining of the bladder where the tumor resides. Second, the standard of care in bladder cancer is to resect all papillary tumors of grade Ta or T1. The goal of therapy for these tumors is thus not to eradicate established large tumors, but to prevent the emergence of microscopic tumor recurrences; the macroscopic tumor has been removed. Inodiftagene will optimally have access to these microscopic recurrences when it is administered intravesically into the bladder. Third, CIS tumors, which are typically identified but not resected, are flat lesions, only a few cells thick. This tumor geometry is optimal for contact with the DNA of inodiftagene, allowing the gene to access the malignant cells. Finally, the large patient population of NMIBC, coupled with the lack of available new and effective therapeutic agents, creates a substantial unmet need, and an opportunity for the novel approach of inodiftagene. For these reasons, NMIBC is an optimal target for inodiftagene therapy.

We carried out three clinical trials in NMIBC: a Phase 1/2 study and a Phase 2 study of inodiftagene monotherapy, and a Phase 2 study of inodiftagene administered in combination with BCG.

The two monotherapy studies included a unique feature that allowed for assessment of the responses of unresected papillary (Ta and T1) tumors: assessment of marker lesions. The standard approach to treating these tumors is to resect them via TUR so that no residual tumor is left behind. However, following TUR the ability of an investigational agent to cause tumor shrinkage cannot be evaluated directly. The FDA, in its Guidance for Industry on BCG-unresponsive Nonmuscle Invasive Bladder Cancer (2018), recommends that studies should be conducted in which marker lesions are left in place after TUR to assess antitumor activity. This approach was utilized in both the monotherapy studies.

Phase 1/2 study

The initial Phase 1/2 study of inodiftagene was a dose-escalation study that enrolled patients with recurrent low-grade NMIBC. A total of 18 patients were treated with escalating doses. The mean age of patients was 71 years. Patients had a mean of five prior occurrences (range: one to 15 occurrences). Ten out of the 18 patients, or approximately 56%, had two or fewer recurrences in the past two years. 17 of the 18 patients, or approximately 94%, had received prior BCG, and several patients had also received various chemotherapeutic agents. This was a population of patients with multiple recurrent NMIBC refractory to prior BCG.

At entry in this study, patients underwent resection of all disease except one marker lesion 0.5 to 1.0 centimeter, or cm, in size. Patients were then treated with intravesical inodiftagene. The response of the marker lesion was assessed at 12 weeks, and residual tumor was removed at that time.

The primary efficacy assessment was overall response rate (complete and partial) as directly visualized by cystoscopy at week 12. In four of the 18 patients, or approximately 22%, complete responses were observed. A cystoscopic photograph of a lesion demonstrating complete tumor disappearance is shown above. In an additional four of the 18 patients, or approximately 22%, partial responses (>50% shrinkage) were observed. Total responses were observed in eight out of the 18 patients, or approximately 44%. H19 expression was detected in all patients at baseline. 12 of the 18 patients, or approximately 66.7%, were recurrence-free at three months, and approximately 44.4% and 33.3% were recurrence-free at 12 months and 24 months, respectively.

In the initial Phase 1/2 study, inodiftagene was well-tolerated. No dose-limiting toxicities were observed or reported, and no deaths occurred during the study or during the follow-up period. The most frequently reported adverse events considered to be at least possibly related to inodiftagene for any dose cohort were mild to moderate in severity and were most commonly renal and urinary disorders. Mild bladder discomfort and painful urination, or dysuria, were reported in 11.1% and 16.7% of patients, respectively. Moderate dysuria and urination urgency were reported in 5.6% and 16.7% of the patients, respectively. Severe urination urgency was reported by one patient (5.6%) after the fourth intravesical treatment. In total, approximately 44% of patients had a urinary tract infection during the study, of which 17% were considered related to other investigational procedures such as the video-cystoscopy, catheterization, or surgical resection. Mild diarrhea, hypertension, and asthenia (physical weakness) were reported in 11.1%, 16.7 %, and 11.1% of patients, respectively. Laboratory adverse events considered possibly related to treatment included: increased blood creatinine (22.1%); leucopenia, or reduced white blood cells (11.1%); and increased alkaline phosphates, anemia, and leukocytes in the urine (5.6% each). One serious adverse event considered possibly related to study treatment, urinary urgency requiring hospitalization, occurred in the study.

Phase 2 study

Following the Phase 1/2 study, a Phase 2 study of inodiftagene was completed in patients with superficial bladder cancer of intermediate risk. The primary endpoint in this study was to determine tumor recurrence in resected patients. A secondary endpoint was response rate of marker lesions. Patients with histologically confirmed superficial bladder cancer with recurrent stage Ta (any grade) or T1 (low-grade) NMIBC were eligible to enter the study. Patients with CIS lesions were excluded. All patients had tumors that were H19 positive. Patients must have failed at least one prior conventional therapy including either BCG or chemotherapy and, as in the Phase 1 study, have one tumor ≤1.0 cm in diameter to serve as a “marker” tumor after removal of all other tumors.

A total of 47 patients were treated in this study. Approximately 81%, or 38 patients, had received prior BCG therapy, and more than half of the patients received other therapies as well. 45% of the patients had received two or more prior treatments. Eight patients were not evaluable due to protocol violations and early withdrawal.

At the time of primary assessment, 13 patients, or approximately 33% of the per-protocol treatment population, had complete disappearance of the marker lesion, and no new lesions were reported. 26 patients, or approximately 55%, in the intent-to-treat population and 64% of patients in the per-protocol population had no new lesions at three months (the primary endpoint). Median time to recurrence for both the ITT and per-protocol populations was approximately 11.3 months. As shown in the figure below, approximately 46% and 36% of patients were free of recurrence at 12 and 18 months, respectively, and 33% remained recurrence-free at 24 months. Treatment was very well tolerated. No patients discontinued because of treatment-related adverse events.

The most commonly reported adverse events, similar to those experienced in the Phase 1/2 study, were renal and urinary disorders (29.8%), including urinary frequency (14.9%), painful urination (10.6%), urination urgency (6.4%), and urinary retention (6.4%), as well as urinary tract infections (10.6%). Other adverse events included increased blood potassium (10.6%) and lack of energy, chills, fever and nausea (6.4% each). Serious adverse events included urinary retention and a urinary tract infection in a patient who required TUR of the prostate; a myocardial infarction (heart attack), which was not considered to be related to the administration of inodiftagene; and hematuria (blood in urine) (2.1% each). Only the event of hematuria was considered by the treating investigator to be possibly related to the study treatment, though also probably related to study procedure.

We also tested inodiftagene in combination with BCG. We carried out a Phase 2 study in 38 patients eligible for BCG treatment. Three different combination schedules were evaluated with a primary objective of evaluating the safety of the combination. The administration of inodiftagene in combination with BCG was feasible and well tolerated, with three severe adverse events reported, none of which were considered related to inodiftagene.

Tumor recurrence rate and progressive disease rate were not statistically significantly different among the three regimens. The overall recurrence-free survival rate was 54%, and the progression-free survival (PFS) rate was 76%. At 18 months, the median time to recurrence and its confidence limits could not be calculated according to Kaplan-Meier survival analysis because a large percentage of patients had no recurrence. The overall recurrence-free survival and progression-free survival are illustrated in the table below. The three- and six-month RFS of the combination was 95% and 78%, respectively. These results compare favorably with the historical experience of BCG alone, which report three-month RFS of 51% to 85%.

Administration of inodiftagene and BCG was well tolerated. Overall, 25 of the 38 patients, or approximately 65.8%, experienced adverse events during the study. The incidence of adverse events was similar among the treatment groups and most adverse events were mild. These included urinary tract infection (29%), dysuria (21%) and hematuria (13%). One patient (3%) had a serious event which occurred on the study after initiation of treatment. That patient had heart palpitations that were not considered related to either inodiftagene or BCG nor related to study procedures. Overall, 26% of patients experienced an adverse event related to BCG, while 11% of patients experienced an adverse event related to inodiftagene, which we believe suggests a relative advantage in safety profile of inodiftagene compared to the standard therapy of BCG.

Summary of results in NMIBC clinical trials

We conducted three clinical trials in patients with NMIBC and observed the following significant findings:

Although there can be no assurance, taken together and based on our discussions with regulators, we believe positive results in the pivotal clinical trials will likely support a path to FDA and wider regulatory approval for inodiftagene.

Regulatory Pathway

Because of the significant unmet need of patients with NMIBC whose therapy with BCG has failed, the FDA and the American Urological Association (the “AUA”) have worked together to devise guidelines for developing new agents for NMIBC. We have closely followed this guidance. Furthermore, we believe that the clear prescriptions provided by the FDA in this arena create a fertile landscape for the development of new agents in general, and inodiftagene in particular.

Most BCG therapy for patients with NMIBC ultimately fails. A subgroup of patients whose BCG treatment fails repeatedly are defined in the literature and by the FDA as “BCG-unresponsive.” BCG-unresponsive patients are those patients with either persistent or recurrent high-grade NMIBC tumors who have been adequately treated, typically twice, with BCG. Apart from BCG therapy, no other standard-of-care medical treatments exist, and the currently recommended therapy for BCG-unresponsive NMIBC is cystectomy, either partial or radical. However, because of concomitant conditions, many patients are not candidates for major surgery such as cystectomy. These patients must currently rely on options with minimal effectiveness in this situation (such as instillations of chemotherapeutic agents or repeat TURs).

The FDA and the AUA together convened a workshop to address the development of new therapies for patients with NMIBC in 2014. The workshop participants addressed the BCG-unresponsive patient population. They agreed that there was no consensus standard-of-care approach for these patients apart from cystectomy and that no therapy could be agreed upon to serve as a control for randomized clinical studies in this setting. Lacking the ability for investigators to conduct randomized controlled clinical trials, the participants recommended that single-arm Phase 2 studies could support regulatory approval for these patients. Moreover, for patients with CIS lesions, guidance on the desired endpoint was provided as well. It was recommended that a study achieving at least a 30% recurrence-free survival at 18 to 24 months, with a sample size with statistical confidence that excluded a lower boundary of 20%, would be appropriate.

A more detailed FDA draft guidance document was published in November 2016 and finalized in February 2018, entitled BCG-Unresponsive Nonmuscle Invasive Bladder Cancer: Developing Drugs and Biologics for Treatment: Guidance for Industry , which re-states and extends the recommendations of the FDA/AUA workshop. The FDA recommends that early-stage development of agents for NMIBC should involve demonstration of activity against extant disease, for example, in marker lesion studies. The guidance defines BCG-unresponsive patients. Furthermore, the guidance states that for patients with unresponsive NMIBC for whom no standard therapy apart from radical cystectomy exists, a single-arm study design is appropriate, and the complete response rate and duration of complete response are relevant efficacy endpoints in patients with CIS. The final guidance further emphasized the study of CIS patients in single-arm trials and provides more detailed definitions of BCG-unresponsive disease and adequate BCG therapy. The definition provided for the BCG-unresponsive population was clarified, with the FDA recommending that the definition of treatment failure apply to patients who had failed one induction and one maintenance course of BCG at a minimum. In addition, it specified that a single-arm trial in the BCG-unresponsive patient population should employ a primary endpoint of complete response in CIS patients.

Finally, the FDA has recommended that a development program that assesses response rate in a single arm trial design may require a confirmatory trial after approval. They commented that a randomized trial in a different population, and a design that tests BCG plus/minus the investigational drug, might be appropriate.

These recommendations have provided, in essence, a road map to drug development and approval in this setting. We have followed this road map. We have employed marker lesions trial designs to demonstrate a complete response rate over 30%. We have also demonstrated RFS of over 30% at 24 months in our two monotherapy trials. Additionally, we have tested inodiftagene in combination with BCG as the foundation for a trial that could be confirmatory. We believe these initial clinical data are suggestive of antitumor activity that could attain FDA approval for BCG-unresponsive disease.

Our Clinical Trial Program

Our pivotal clinical trial program was developed with input from the FDA and from regulatory agencies in Canada, the United Kingdom, France, Spain and Germany.

We submitted our IND application for inodiftagene in 2008. In 2015, the FDA granted Fast Track designation to inodiftagene. We undertook discussion with the FDA regarding our Phase 2 path to development at an “End of Phase 2” meeting in 2014. We also discussed our Phase 3 study of inodiftagene in combination with BCG with the FDA in 2014, and were granted an SPA at that time. In 2016, we discussed our program with Health Canada. We also met with the AEMPS (Spanish Agency of Medicines) in 2015, the Paul Ehrlich Institute in Germany in 2014, the MHRA (Medicines and Healthcare Regulatory Agency) in the United Kingdom in 2017, and the ANSM (French Medicines Regulatory Agency) in 2018. All of these discussions have resulted in concurrence with our proposed development plans.

The feedback from the regulatory agencies on our proposed registrational program in NMIBC has been positive. The Phase 2 Codex Clinical Trial in BCG-unresponsive patients was reviewed by the FDA. In 2014, the FDA indicated that the single-arm trial might provide evidence of effectiveness to support a marketing application. In addition, the FDA’s guidance entitled BCG-Unresponsive Nonmuscle Invasive Bladder Cancer: Developing Drugs and Biologics for Treatment Guidance for Industry (2018), states a single-arm clinical trial with complete response rate and duration of response as the primary endpoint can provide primary evidence of effectiveness to support a marketing application in BCG-unresponsive NMIBC. In September 2018, we updated the endpoint of the trial to reflect this FDA guidance, and the Codex Clinical Trial therefore embodies this design.

The granting of an SPA by the FDA is also important to the proposed clinical development program. While standard protocol review and acceptance by the FDA does not necessarily indicate concurrence by the FDA that the protocol will support a marketing application, an SPA agreement indicates concurrence by the FDA with the adequacy and acceptability of specific critical elements of overall protocol design for a study intended to support a future marketing application. In granting the SPA in October 2014, the FDA indicated that the Codex Clinical Trial is adequately designed to provide necessary data to support a license application submission. The SPA is not an endorsement of protocol details, does not affect approval, and does not guarantee that our trial results will lead to approval.

European regulators have been supportive of the study conduct as well. The Agencia Española de Medicamentos y Productos Sanitarios (“AEMPS”) in Spain (in 2015), Health Canada (in 2016) and Medicines and Healthcare Products Regulatory Agency (“MHRA”) in the United Kingdom (in 2017) all concurred with the conduct of the trials. The Paul-Ehrlich-Institut (“EI”) in Germany stated that depending on robustness of the studies, the combination of studies may form the basis for approval. Additionally, the Agence Nationale de Sécurité du Médicament et des Produits de Santé (“ANSM”) in France (in 2018), stated in regard to the Phase 2 Codex Clinical Trial that the single-arm trial design can be considered to support an approval in the pursued indication, and that the same applies to the Phase 3 Leo Clinical Trial.

For both the Codex Clinical Trial and Leo Clinical Trial, approval will ultimately depend on the final results of the studies concerning the efficacy and safety of our product candidate.

Our clinical development program addresses two unmet needs of patients undergoing therapy with BCG for NMIBC. We are studying inodiftagene in the third line, BCG-unresponsive setting, with our Phase 2 Codex Clinical Trial. We are also studying inodiftagene in second line utilization, with our Phase 3 Leo Clinical Trial. These two studies provide pathways to regulatory approval in two discrete indications. The two trials are summarized below.

The Codex Clinical Trial is a single-arm Phase 2 study designed in compliance with the FDA Guidance for Industry. It is a single-arm, open label study. The trial is illustrated below. Patients will be enrolled with BCG-unresponsive disease as defined by the FDA guidance. They will have received prior adequate BCG therapy, also defined in accordance with FDA specifications. Patients will undergo resection of all papillary tumors by TUR, and then receive inodiftagene administered intravesically. The agent will be given once weekly for ten weeks, followed by administration every three weeks for up to two years. The primary endpoint of the trial is complete response in CIS as assessed at 12 weeks and up to 48 weeks, supported by durability of response. Assessments will be performed by cystoscopy every 12 weeks. The trial is enrolling approximately 140 patients.

An interim analysis for futility is planned after the first 35 patients, all of whom will have CIS. At least ten complete responses must be observed to move forward with the trial.

The trial was initiated in December 2018. Depending upon patient enrollment, open label data is expected to be available in mid-2019, enrollment of the full interim analysis cohort is expected to be complete in the third quarter of 2019, and the full interim analysis is expected to be complete approximately in the fourth quarter of 2019.

The Codex Clinical Trial is designed to gain approval for the indication of patients with high-grade, BCG-unresponsive NMIBC, those with third line disease.

The Leo Clinical Trial is our second pivotal clinical trial, designed for registration in second line patients. It is an open-label randomized controlled clinical trial. It is illustrated below. Patients will be enrolled with intermediate-or high-grade NMIBC that is persistent or recurrent following a single course of BCG. This is a second line patient population. Subjects will be randomly assigned treatment with the standard regimen of BCG, which is the standard of care for their condition, or a regimen of inodiftagene plus BCG. In the latter treatment, they will receive a standard administration of BCG. They will concurrently receive inodiftagene administered once weekly for ten weeks, then every three weeks. The treatment will last up to three years. The primary endpoint will be median time to high-grade recurrence, and the trial is designed to demonstrate an improvement in median time to high-grade recurrence with the combination of inodiftagene and BCG as compared with BCG alone. Assessments will be performed by cystoscopy every 12 weeks. The trial is expected to enroll approximately 495 patients, or 297 patients per arm.

Depending upon our ability to raise additional funding, the trial is expected to be initiated in the fourth quarter of 2019 and to begin enrolling patients in the first half of 2020.

Pivotal developmental program summary

The Codex Clinical Trial and Leo Clinical Trial are designed together to meet the FDA’s published guidance regarding development of novel therapies for NMIBC. The Codex Clinical Trial is directed at the BCG-unresponsive, third line indication. As the FDA has stipulated that a single-arm trial design is appropriate, and has also provided guidance about the requisite response rate that will support approval, this trial is an uncontrolled Phase 2 for approval, and will enroll 140 patients. The results from this trial might ultimately support either full or accelerated approval. We believe that in either instance, our having available an ongoing confirmatory trial will improve the likelihood of approval. Thus we will also conduct the Phase 3 Leo Clinical Trial. The Leo Clinical Trial will thus serve two regulatory aims, providing data for a discrete indication in patients whose first course of BCG has failed, and also confirming the activity of inodiftagene in support of our Phase 2 data from the Codex Clinical Trial.

Our Growth Strategy

The key elements of our growth strategy are as follows:

Manufacturing

We do not own or operate manufacturing facilities for the production of our product candidate, nor do we have plans to develop our own manufacturing operations in the foreseeable future. We rely on third-party contract manufacturers for all of our required raw materials and finished products for our preclinical research and clinical trials. We do not have any current contractual relationships for the manufacture of commercial supply of our product candidate. However, our current contract manufacturing partners have the ability to manufacture commercial quantities of our product candidate, and have expressed their interest in doing so.

We intend to enter into agreements with third-party contract manufacturers for the commercial production of inodiftagene.

Development and commercial quantities of any products that we develop need to be manufactured in facilities utilizing processes that comply with the requirements of the FDA and the regulatory agencies of other jurisdictions in which we are seeking approval. We currently employ internal resources to manage our manufacturing contractors. The manufacturers with whom we have contracted have advised us that they are compliant with cGMP. We and our contract manufacturers are subject to extensive governmental regulation, and must ensure that all of the processes, methods and equipment are compliant with cGMP for drugs on an ongoing basis, in accordance with the requirements relevant for the clinical development phase.

Intellectual Property

Our intellectual property and proprietary technology are crucial to the development, manufacture, and sale of our therapeutic products. We seek to protect our intellectual property, core technologies and other know-how through a combination of patents, trade secrets, non-disclosure and confidentiality agreements, licenses, assignments of invention and other contractual arrangements with our employees, consultants, scientific advisors, contractors and commercial partners. Additionally, we rely on our research and development program, clinical trials and know-how to advance our products.

Patents

Our patent portfolio includes a total of 57 granted patents (including allowed patents) in five patent families (including divisional and continuing application patents), as well as 20 pending national phase applications. We also have 22 patents that have expired.

Patents on the original active formulation of our lead product candidate, inodiftagene, expired during 2017 and 2018. New patent applications have been filed for new formulations that may comprise the active ingredient in inodiftagene, but may alternatively comprise other active materials. A formulation pursued in a priority application filed in 2015, which was followed by an international application that claims priority therefrom under the Patent Cooperation Treaty (the “PCT”) is based on a new complex, among others, of inodiftagene. This new complex was developed to improve the previous generation of inodiftagene that we had been using. The previous generation drug was administrated after mixing it with PEI at the patient’s bedside. The procedure demanded strict training and was very sensitive stability-wise. Our new ready to use complex of inodiftagene will make the administration process less complex and improve the stability of the drug. In 2017, the application entered the national phase. Approval of this patent in the selected jurisdictions would ensure product exclusivity until 2036.

Pursuant to a license agreement with Yissum, described below, we have an exclusive, worldwide license for the development, use, manufacture and commercialization of products arising out of patents owned by, and patent applications filed by, Yissum in connection with the H19 gene. All of our patents and patent applications were licensed to us from Yissum and are subject to the Yissum license agreement.

Our patent portfolio includes the following:

Product under development

Inodiftagene (new formulation complex) — The patents covering the original inodiftagene formulation have expired. Prior to their expiration, we filed a priority application in 2015, which was followed by an international application under the PCT disclosing a new complex, among others, for inodiftagene. The new complex was developed to improve the original formulation of inodiftagene, which was administered after mixing it with PEI at the patient’s bedside, in order to prevent destabilization. This procedure demanded strict personnel training. The new formulation is distributed ready to use, which simplifies the administration process and improves the stability of the drug. In 2017, the application entered the national phase. It was filed in Australia, Brazil, Canada, China, Hong Kong, Indonesia, Israel, Japan, Malaysia, Mexico, New Zealand, Philippines, Russia, Singapore, South Korea, Thailand, United States, Vietnam and the European Patent Office (“EPO”). Following EPO approval, the patent would be granted in each individual EU member state to which we would apply, which would ensure product exclusivity until 2036.

Additional technologies

BC-821 — Composition of matter and/or method claims patents have been granted in Australia, Austria, Belgium, Canada (allowance), China, Cyprus, France, Germany, Greece, India, Ireland, Israel, Italy, Japan, Latvia, Lithuania, Luxembourg, Monaco, Netherlands, Russia, Slovenia, South Korea, Spain, Sweden, Switzerland, United Kingdom and the United States, and are pending in Brazil.

Cancer-Specific TNF-α and DTA mutual expression vector — Composition of matter and/or method claims patents were granted in France, Germany, Israel, Switzerland, United Kingdom and the United States.

H19 targeted siRNA for cancer — Composition of matter and/or method claims patents were granted in Australia, Canada, China, France, Germany, India, Ireland, Israel, Italy, Japan, Spain, Switzerland, United Kingdom and the United States.

H19 targeted siRNA for rheumatoid arthritis — Use patents were granted in Canada, France, Germany, Ireland, Israel, Switzerland, United Kingdom, and the United States.

The expected expiration dates for our various patents may also be subject to extensions or adjustments of term available under applicable law that provide for longer periods of protection.

While our policy is to obtain patents by application, license or otherwise, to maintain trade secrets and to seek to operate without infringing on the intellectual property rights of third parties, technologies related to our business have been rapidly developing in recent years. Additionally, patent applications that we may file or license from third parties may not result in the issuance of patents, and our current or future issued patents may be challenged, invalidated or circumvented. Therefore, we cannot predict the extent of claims that may be allowed or enforced against our patents, nor be certain of the priority of inventions covered by pending third-party patent applications. If third parties prepare and file patent applications that also claim technology or therapeutics to which we have rights, we may have to engage in proceedings to determine priority of invention, which could result in substantial costs to us, even if the eventual outcome is favorable. Moreover, because of the extensive time required for clinical development and regulatory review of products we may develop, it is possible that the patent or patents on which we rely to protect such products could expire or be close to expiration by the commencement of commercialization, thereby reducing the value of such patent. Loss or invalidation of certain of our patents, or a finding of unenforceability or limited scope of certain of our intellectual property, could have a material adverse effect on us. See “Item 3.—Key Information—Risk Factors—Risks Related to Our Intellectual Property and Potential Litigation.”

In addition to patents, we rely on trade secrets and know-how to develop and maintain our competitive position. Trade secrets and know-how can be difficult to protect. We seek to protect our proprietary processes, in part, by confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors and commercial partners. These agreements are designed to protect our proprietary information. We also seek to preserve the integrity and confidentiality of our data, trade secrets and know-how by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, such agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors or others.

Exclusive license agreement with Yissum

Yissum has granted us an exclusive, worldwide license for the development, use, manufacture and commercialization of products arising out of patents owned by, and patent applications filed by, Yissum in connection with the H19 and IGF2-P4 genes. Our latest patent applications were filed in 2016, and their approval would ensure product exclusivity for all our programs will range from 2026 to 2036.

On November 14, 2005, we entered into a license agreement with Yissum, which was subsequently amended several times, most recently in November 2013. Yissum has granted us an exclusive, worldwide license for the development, use, manufacture and commercialization of products arising out of patents owned by, and patent applications filed by, Yissum in connection with the H19 and IGF2-P4 genes. Yissum retains right, title and interest in the products, technologies or other inventions arising out of our research and development of these patents and patent applications, except for intellectual property developed with funding from the IIA which will be owned by us and transferred to Yissum only upon our dissolution or upon a decision by the IIA that it no longer requires us to own the intellectual property developed with its funding. We have the right to grant sub-licenses to third parties in accordance with the terms set forth in the Yissum license agreement.

We have agreed to pay Yissum 4% of all “net sales” as royalties and 10% of the income that we receive from granting sub-licenses to third parties. We will pay half of these royalties on sales in countries in which no patent has been granted and a third party is selling identical products.

We are required to indemnify Yissum, the Hebrew University of Jerusalem, their employees, directors, officers, representatives and any other persons acting on their behalf under the license against any liability, including without limitation product liability, damages, losses or expenses, including reasonable legal fees and litigation expenses arising out of our actions or omissions in performing the Yissum license, including the use, development and manufacturing of patents arising out of it and the granting of sub-licenses thereunder, provided that any such loss was not caused by the intentional misconduct or gross negligence of the indemnitees.

We have the right to terminate the Yissum license upon three months’ prior written notice provided that we have paid all amounts owing to Yissum under the license. Yissum has the right to terminate the license in the event that we become bankrupt, liquidated or insolvent, or if our business is placed in the hands of a receiver, liquidator, or trustee. In addition, Yissum has the right to terminate the license for any material breach of it by us in the event that we fail to remedy such material breach within ninety days of Yissum’s notice of our material breach, provided that the material breach is curable within 90 days. In the event that the material breach cannot be remedied within ninety days, Yissum may not terminate the license if we take reasonable commercial action to cure such breach as promptly as practicable. The termination of the license also entails termination of all licenses granted thereunder. Any termination of the license shall not terminate any of our obligations, including our obligation to pay royalties that matured prior to the effective date of termination.

Marketing, Sales and Distribution

Given our stage of development, we do not have any internal sales, marketing or distribution infrastructure or capabilities. In the event we receive regulatory approval for our product candidate, we intend, where appropriate, to pursue commercialization relationships, including strategic alliances and licensing, with pharmaceutical companies and other strategic partners, which are equipped to market and/or sell our product candidate, if any, through their well-developed sales, marketing and distribution organizations in order to gain access to global markets. In addition, we may out-license some or all of our worldwide patent rights to more than one party to achieve the fullest development, marketing and distribution of any products we develop. Over the longer term, we may consider ultimately building an internal marketing, sales and commercial infrastructure.

Competition

The pharmaceutical industry is characterized by rapidly evolving biotechnology and intense competition, which we expect will continue. Many companies are engaged in research and development of products that are similar to ours. In the event that one or more of our competitor’s programs are successful, the market for some of our drug products could be reduced or eliminated. Any product for which we obtain FDA approval must also compete for market acceptance and market share.

We are aware of several products in the development pipeline targeted for NMIBC patients who have failed BCG treatment. Companies including Merck Sharp & Dohme Corp., Sesen Bio Inc., Telesta Therapeutics Inc., Heat Biologics, Inc., Viralytics Limited, AADi, LLC, UroGen Pharma Ltd., Halozyme Therapeutics, Inc., Astellas Pharma Inc., Cold Genesys, Inc., Altor BioScience Corporation, FKD Therapies Oy, Nippon Kayaku Co., Ltd., Spectrum Pharmaceuticals, Inc., Taris Biomedical LLC and Handok Inc. are conducting or have recently conducted clinical trials for products for the treatment of NMIBC. In addition, we are aware of several pharmaceutical companies developing drugs for muscle-invasive bladder cancer. We do not know whether these potential competitors are developing, or plan to develop, treatments or other indications that we are pursuing.

In addition, we face competition from existing standards of treatment for bladder cancer. If we are not able to demonstrate that our products are at least as safe and effective as such courses of treatment, medical professionals may not adopt our products to replace or supplement the existing standard of care.

The biopharmaceutical industry is intensely competitive and subject to rapid and significant technological change. Our potential competitors include large and experienced companies that enjoy significant competitive advantages over us, such as greater financial, research and development, manufacturing, personnel and marketing resources, greater brand recognition, and more experience and expertise in obtaining marketing approvals from the FDA and foreign regulatory authorities. These companies may develop new drugs to treat the indications that we target, or seek to have existing drugs approved for use for the treatment of the indications that we target.

These potential competitors may therefore introduce competing products without our prior knowledge and without our ability to take preemptive measures in anticipation of their commercial launch. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in this industry. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis products that are more effective, easier to administer or less costly than our products.

Government Regulation

As a clinical-stage company, we are subject to extensive regulation by the various national health regulatory authorities, such as the FDA, Health Canada and other national, state and provincial regulatory agencies.

U.S. Food and Drug Administration . The research, development, and marketing authorization of drugs and other pharmaceutical products in the United States is subject to the Federal Food, Drug, and Cosmetic Act (the “FFDCA”) which empowers the FDA to require extensive non-clinical and clinical toxicity testing before a new drug or biologic is deemed safe and effective and receives marketing authorization. Biologic products, including cellular products, gene therapy products, and vaccines, are generally licensed under section 351 of the U.S. Public Health Service Act (the “PHSA”). Prior to commercialization, section 351 of the PHSA requires biologic manufacturers to submit a biologic license application to the FDA for review and approval. Under section 351 of the PHSA, all FFDCA provisions applicable to drug products also apply to biologic products, with the exception of the requirement to submit a new drug application (“NDA”). Following initial laboratory and animal testing that show that investigational use in humans is reasonably safe, biological products (like other drugs), can be studied in clinical trials in humans under an IND in accordance with the regulations at 21 CFR 312. If the data generated by the studies demonstrate that the product is safe and effective for its intended use, the data are submitted as part of the BLA.

As indicated above, the FDA regulates gene therapy products as biologics and assigns primary review authority for such products to the Center for Biologics Evaluation and Research (“CBER”). The FDA defines human gene therapy products as all products that mediate their effects by transcription or translation of transferred genetic material, or by specifically altering host (human) genetic sequences. Based on this definition, we believe our product candidate, inodiftagene, is a gene therapy product and will require us to obtain a biologic license through the BLA process prior to commercialization.

In order to satisfy FDA data requirements, an extensive battery of preclinical experiments to assess the safety of such new drugs are conducted, followed by two or three phases of clinical trials before they are considered for widespread human use. We seek to complete our pivotal clinical trials program successfully and to be in a position to manufacture and market our prospective pharmaceutical products. The marketing authorization of our products would be conditional upon obtaining the approval of health authorities in each country in which they would be marketed, including, but not limited to, the FDA and the EMA. FDA regulations govern the following activities that we may perform, or that have been performed on our behalf, to ensure that drugs that we develop are safe and effective for their intended uses:

Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include any of the following sanctions:

The FDA’s pre-clinical and IND requirements. The first step to obtaining FDA approval of a new drug involves development, purification and pre-clinical testing of a pharmaceutically active agent in laboratory animals. Once appropriate pre-clinical data has been generated to demonstrate that the drug is reasonably safe for initial testing in humans, an IND can be prepared and submitted to the FDA for review. In the IND review process, FDA physicians and scientists evaluate the proposed clinical trial protocol, chemistry and manufacturing controls, pharmacologic mechanisms of action of the drug and toxicological effects of the drug in animals and in vitro . Within 30 days of the IND submission, the drug review division of the FDA may contact the filer regarding potential concerns and, if necessary, implement a clinical hold until certain issues are resolved satisfactorily. If the FDA does not take any action, the filer may proceed with clinical trials on the 31st day.

Clinical trials. Clinical trials represent the pre-market testing ground for unapproved drugs, generally taking several years to complete. Before testing can begin, an IRB must have been reviewed and approved for the use of human subjects in the clinical trial. During clinical trials, an investigational compound is administered to humans and evaluated for its safety and effectiveness in treating, preventing or diagnosing a specific disease or condition. The clinical trials generally consist of Phase 1, Phase 2, and Phase 3 testing. During clinical trials, the FDA and IRB closely monitor the studies and may suspend or terminate trials at any time for a number of reasons, such as finding that patients are being exposed to an unacceptable health risk. The results of clinical trials are critical factors in the approval or disapproval of a new drug.

Special Protocol Assessment. The SPA process is designed to facilitate the FDA’s review and approval of drugs by allowing the FDA to evaluate the proposed design and size of Phase 3 clinical trials that are intended to form the primary basis for determining a drug product’s efficacy. Upon specific request by a clinical trial sponsor, the FDA will evaluate the protocol and respond to a sponsor’s questions regarding, among other things, primary efficacy endpoints, trial design and data analysis plans, within 45 days of receipt of the request.

The FDA ultimately assesses whether the protocol design and planned analysis of the trial are acceptable to support regulatory approval of the drug with respect to effectiveness of the indication studied. All agreements and disagreements between the FDA and the sponsor regarding an SPA must be clearly documented in an SPA letter or the minutes of a meeting between the sponsor and the FDA. Even if the FDA agrees to the design, execution and analyses proposed in protocols reviewed under the SPA process, the FDA may revoke or alter its agreement under the following circumstances:

A documented SPA may be modified, and such modification will be deemed binding on the FDA review division, except under the circumstances described above, if FDA and the sponsor agree in writing to modify the protocol and such modification is intended to improve the study. We have obtained an SPA with the FDA for our Phase 3 trial of inodiftagene in patients who failed BCG but are eligible for further BCG therapy. Agreement by the FDA to an SPA does not guarantee that the results of a study conducted in accordance with the agreement will be successful.

BLA review. A BLA, requesting approval to market the drug for one or more indications, may be submitted to the FDA once sufficient data has been gathered through pre-clinical and clinical testing. A BLA includes all animal and human testing data and analyses of the data, as well as information about how the drug behaves in the human body and how it is manufactured. The BLA is reviewed by an interdisciplinary team of FDA physicians, chemists, statisticians, microbiologists, pharmacologists and other experts, who evaluate whether the studies submitted show that the drug is safe and effective for its proposed use. The FDA reviewers may request further information, consult with outside experts or disagree with the filer’s findings or interpretation of the data. Each reviewer prepares a written evaluation, and the reviewing team discusses the evaluations. The FDA may assemble an external Oncology Drug Advisory Committee (“ODAC”) to review and provide an opinion on whether the product under review has an acceptable safety and efficacy profile. ODAC’s opinions are not binding on the FDA, but often have significant influence on the final FDA decision. Accelerated approval may be given to some new drugs for serious and life-threatening illnesses that lack satisfactory treatments. At the end of its review, the FDA may approve the new drug to be marketed or provide a “complete response” letter, in which case the filer may meet with FDA officials to discuss and correct deficiencies.

Expedited review and approval. We have requested and received Fast Track Designation for the development of inodiftagene to treat bladder cancer. NDAs and BLAs receive either standard or priority review. A drug representing a significant improvement in the treatment, prevention or diagnosis of a disease may receive priority review. The FDA has various specific programs, including Fast Track, Breakthrough Therapy, Accelerated Approval and Priority Review, each of which is intended to expedite the process for reviewing drugs, and in certain cases involving Accelerated Review, permit approval of a drug on the basis of a surrogate endpoint. Even if a drug qualifies for one or more of these programs, the FDA may later decide that the drug no longer meets the conditions for qualification or that the time period for FDA review or approval will be shortened.

Fast Track designation facilitates the development and expedites the review of drugs to treat serious or life-threatening diseases or conditions and fill unmet medical needs. Although this designation does not affect the standards for approval, the FDA will attempt to facilitate early and frequent meetings with a sponsor of a Fast Track designated drug.

If a product receives regulatory approval, the approval may be significantly limited to specific diseases, subpopulations, and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. In addition, the FDA may require us to conduct Phase 4 testing, which involves clinical trials designed to further assess a drug’s safety and/or effectiveness after BLA approval and may require testing and surveillance programs to monitor the safety of approved products which have been commercialized.

Pervasive and continuing regulation in the United States. After a drug is approved for marketing and enters the marketplace, numerous regulatory requirements continue to apply. These include, but are not limited to:

After a drug receives approval, any modification in conditions of use, active ingredient(s), route of administration, dosage form, strength or bioavailability, will require a new clearance or approval, for which it may be possible to submit a supplemental BLA, referring to pre-clinical and certain clinical studies presented in the drug’s original BLA, accompanied by additional clinical data necessary to demonstrate the safety and effectiveness of the product with the proposed changes. Additional clinical studies may be required for proposed changes.

Fraud and abuse laws in the United States. A variety of U.S. federal and state laws apply to the sale, marketing and promotion of drugs that are paid for, directly or indirectly, by U.S. federal or state healthcare programs such as Medicare and Medicaid. The restrictions imposed by these laws are in addition to those imposed by the FDA, the U.S. Federal Trade Commission and corresponding state agencies. Some of these laws significantly restrict or prohibit certain types of sales, marketing and promotional activities by drug manufacturers. Violation of these laws may result in significant criminal, civil and administrative penalties, including imprisonment of individuals, fines and penalties and exclusion or debarment from United States federal and state healthcare and other programs. Many private health insurance companies also prohibit payment to entities that have been sanctioned, excluded or debarred by U.S. federal agencies.

Anti-kickback statutes in the United States. The U.S. federal anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing, arranging for or recommending of a good or service, for which payment may be made in whole or in part under a United States federal healthcare program such as the Medicare and Medicaid programs. The definition of “remuneration” has been broadly interpreted to include anything of value, including gifts, discounts, the furnishing of supplies or equipment, payments of cash and waivers of payments. Several courts have interpreted the statute’s intent requirement to mean that, if any one purpose of an arrangement involving remuneration is to induce referrals or otherwise generate business involving goods or services reimbursed in whole or in part under federal healthcare programs, the statute has been violated. Penalties for violations include criminal penalties and civil sanctions such as fines, imprisonment and possible exclusion from Medicare, Medicaid and other U.S. federal healthcare programs. In addition, some kickback allegations have been claimed to violate the U.S. False Claims Act (as discussed below).

The federal anti-kickback statute is broad and prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry. Recognizing that the statute is broad and may technically prohibit many innocuous or beneficial arrangements, the Office of Inspector General of the Department of Health and Human Services (“OIG”) has issued a series of regulations, known as “safe harbors.” These safe harbors set forth provisions which, if met in form and substance, will assure healthcare providers and other parties that they will not be prosecuted under the federal anti-kickback statute. The failure of a transaction or arrangement to fit precisely within one or more safe harbors does not necessarily mean that it is illegal or that prosecution will be pursued. However, conduct and business arrangements that do not fully satisfy an applicable safe harbor may result in increased scrutiny by government enforcement authorities such as the OIG or the United States Department of Justice.

Many states have adopted laws similar to the U.S. federal anti-kickback statute. Some of these state prohibitions are broader than the U.S. federal statute, and apply to the referral of patients and recommendations for healthcare items or services reimbursed by any source, not only the Medicare and Medicaid programs. Government officials have focused certain enforcement efforts on marketing of healthcare items and services, among other activities, and have brought cases against individuals or entities with sales personnel who allegedly offered unlawful inducements to potential or existing physician customers in an attempt to procure their business.

U.S. False Claims Act. The U.S. False Claims Act prohibits any person from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment by a federal healthcare program or knowingly making, or causing to be made, a false statement or record in order to have a false claim paid or avoiding, decreasing or concealing an obligation to pay money to the federal government. The federal government’s interpretation of the scope of the law has in recent years grown increasingly broad. Most states also have statutes or regulations similar to the U.S. False Claims Act, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Sanctions under these federal and state laws may include civil monetary penalties, exclusion of a manufacturer’s products from reimbursement under government programs, criminal fines and imprisonment. Several drug manufacturers have been prosecuted under the false claims laws for allegedly providing free drugs to physician customers with the expectation that the physician customers would bill federal programs for the product. In addition, several recent cases against drug manufacturers have alleged that the manufacturers improperly promoted their products for “off-label” use, outside of the scope of the FDA-approved labeling.

U.S. Health Insurance Portability and Accountability Act of 1996 (HIPAA). HIPAA created a new federal healthcare fraud statute that prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private payors. A violation of this statute is a felony and may result in fines, imprisonment or exclusion from government-sponsored programs. Among other things, HIPAA also imposes new criminal penalties for knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services, along with theft or embezzlement in connection with a healthcare benefits program and willful obstruction of a criminal investigation involving a federal healthcare offense.

U.S. Affordable Care Act Section 6002 (the Sunshine Act). Enacted in 2010 under the Affordable Care Act of 2010, Public Law No. 111-148 (the “ACA”), the Sunshine Act is a national disclosure program that promotes transparency by publishing data on the financial relationships between the healthcare industry (applicable manufacturers) and healthcare providers (physicians and teaching hospitals) on a publicly accessible website. The Sunshine Act requires that certain manufacturers of drugs, devices, biologicals, or medical supplies report payments or other transfers of value made to physicians and teaching hospitals as well as certain ownership or investment interests held by physicians or their immediate family members to the Centers for Medicare & Medicaid Services (CMS). A violation of this act may result in fines and/or civil liabilities. Any payment or transfer of value that is currently prohibited under the anti-kickback statute, the U.S. False Claims Act, or other health care fraud and abuse laws may still be subject to fines, sanctions, or lawsuit.

Non-U.S. regulation. Marketing authorization requests outside of the United States are subject to regulatory approval of the respective authorities in the country in which we would like to market. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary widely from country to country. No action can be taken to market any product in a country until an appropriate application has been approved by the regulatory authorities in that country. The current approval process varies from country to country, and the time spent in gaining approval varies from that required for FDA approval. In certain countries, the sales price of a product must also be approved prior to its marketing application approval. The pricing review period often begins after market approval is granted. Even if a product is approved by a regulatory authority, satisfactory prices might not be approved for such product. In Europe, authorization can be obtained through one of the following pathways: (i) the “centralized” procedure, described in greater detail below, with applications made directly to the EMA leading to the grant of a European marketing authorization by the European Commission, (ii) the “decentralized procedure,” whereby companies may apply for simultaneous authorization in more than one EU country of medicinal products that have not yet been authorized in any EU country, or do not fall within the mandatory scope of the centralized procedure, (iii) the “mutual recognition” procedure, in which applications are made to one or more member states, leading to national marketing authorizations mutually recognized by other member states, or (iv) a “national authorization” application made to a single EU member state. Based on the nature of our products, the marketing authorization will be through the centralized procedure.

The EMA is responsible for the centralized procedure, which results in a single marketing authorization that is valid across the European Union. Applications through the centralized procedure are submitted directly to the EMA. The procedure consists of three milestones:

Even after a company receives marketing authorization, EU law regulates the distribution, classification for supply, labeling and packaging, and advertising of medicinal products for human use. The European Union also regulates the manufacture of medicinal products, requiring cGMP, set forth in the EU Guidelines to Good Manufacturing Practice — Medicinal Products for Human and Veterinary Use.

EU pharmacovigilance directives and regulations require a company to establish post-market surveillance systems that include individual adverse reaction case reports, periodic safety update reports, and company-sponsored post-authorization safety studies. If a medicinal product’s overall risk and benefit profile is found to have changed significantly for any reason, it may be required to be varied, withdrawn, or have its use suspended.

Regulations in Israel. Our clinical operations in Israel also are subject to approval by Israel’s Ministry of Health, as well as the Helsinki Committee of each medical institution in which a clinical study is conducted. All phases of clinical studies conducted in Israel must be conducted in accordance with the Public Health Regulations (Medical Studies Involving Human Subjects, 1980), including amendments and addenda thereto, the Guidelines for Clinical Trials in Human Subjects issued by the Israel Ministry of Health (the “Guidelines”) and the International Conference for Harmonized Tripartite Guideline for Good Clinical Practice. The regulations and the Guidelines stipulate that a medical study on humans will only be approved after the Helsinki Committee (“IRB”) at the hospital intending to perform the study has approved the medical study and notified the relevant hospital director in writing. In addition, certain clinical studies require the approval of the Ministry of Health. The Helsinki Committee will not approve the performance of the medical study unless it is satisfied that it has advantages to the study participants and society at large that justify the risk and inconvenience for the participants and that the medical and scientific information justifies the performance of the requested medical study. The relevant hospital director, and the Ministry of Health, if applicable, also must be satisfied that the study is not contrary to the Helsinki Declaration or to other regulations. The Ministry of Health also licenses and regulates the marketing of pharmaceuticals in Israel, requiring the relevant pharmaceutical to meet internationally recognized cGMP standards. A mutual recognition agreement, known as the Conformity Assessment and Acceptance of Industrial Products Agreement (the “ACAA”) covering inter alia medicinal products for human use, has been signed and became effective in 2013 between Israel and the European Community.

Under the Israeli Law for the Encouragement of Industrial Research and Development, 1984 and related regulations (the “Research Law”) recipients of grants from the IIA (“Recipient Companies”) are subject to certain obligations under the Research Law. The pertinent obligations currently are as follows: (i) the Recipient Company, is obligated to pay the IIA royalties from the revenues generated from the sale of products (and related services) or services developed (in all or in part) according to, or as a result of, a research and development program funded by the IIA (at rates which are determined under the Research Law, up to the aggregate amount of the total grants received by the IIA, plus annual interest (as determined in the Research Law)); (ii) products developed as a result of IIA-funded research and development must, as a general matter, be manufactured in Israel. The Recipient Company is prohibited from manufacturing products developed using these IIA grants outside of Israel without receiving the prior approval of the IIA (except for the transfer of less than 10% of the manufacturing capacity in the aggregate). If the Recipient Company receives approval to manufacture the products developed with government grants outside of Israel, it may be required to pay an increased total amount of royalties to the IIA, up to 300% of the grant amounts plus interest, depending on the manufacturing volume that is performed outside of Israel, as well as at a possibly increased royalty rate. A Recipient Company also has the option of declaring in its IIA grant application its intention to exercise a portion of the manufacturing capacity abroad, thus avoiding the need to obtain additional approval for manufacture abroad and increased royalty amounts. Even where approval has been granted to manufacture outside Israel within the framework of approval of a research and development plan and in the case of the transfer of manufacturing at a rate that does not require the approval of the research committee (i.e., at a rate of up to 10%), a company is obligated to pay increased royalties to the State of Israel, at the rates set forth in the Research Law, with regard to the transfer of manufacturing outside of Israel; (iii) under the Research Law, the Recipient Company is prohibited from transferring IIA-financed technologies and related intellectual property rights outside of Israel except under limited circumstances, and only with the approval of the Research Committee of the IIA and subject to certain payment to the IIA calculated according to formulae provided under the Research Law (as further detailed below); and (iv) any change of control in the Recipient Company and any change of ownership of the Recipient Company’s ordinary shares that would make a non-Israeli citizen or resident an “interested party,” as defined in the Research Law, requires a prior written notice to the IIA.

The restrictions under the Research Law will continue to apply even after we repay the full amount of royalties payable pursuant to the grants.

We may not receive the required approvals for any proposed transfer. If we do receive the approvals, we may be required to pay the IIA a portion of the consideration that we receive upon any sale of such technology to a non-Israeli entity. The scope of the support received, the royalties that we have already paid to the IIA, the amount of time that has elapsed between the date on which the know-how was transferred and the date on which the IIA grants were received and the sale price and the form of transaction will be taken into account in order to calculate the amount of the payment to the IIA (as further detailed below). No assurances can be made that approval of any such transfer, if requested, will be granted.

In general, the Research Committee may approve transfer of know-how created in whole or in part in connection with IIA-funded projects to third parties outside of Israel, in limited circumstances as follows:

The State of Israel does not own intellectual property rights in technology developed with IIA funding and there is no restriction on the export of products manufactured using technology developed with IIA funding. The technology is, however, subject to transfer of technology and manufacturing rights restrictions as described above. IIA approval is not required for the export of any products resulting from the research or development. In addition, the IIA is in the process of exploring the possibility of promulgating regulations, including the consideration due to the State of Israel for the granting of licenses to use know-how developed as a result of research financed by the IIA. Such regulations may have an effect on us in respect of the amount of our payments to the IIA for the grant of sub-licenses to third parties. We are currently unable to assess the effect, if any, of the promulgation of such regulations on us.

A recent amendment to the Research Law made in August 2015 (“Amendment Seven”) has made it unclear whether the transfer of manufacturing rights and transfer of know-how will continue to be subject to the same limitations and obligations as described above after 2016. Amendment Seven came into effect on January 1, 2016. There are certain savings provisions under Amendment Seven, which provide that until one year after the members of the new council are appointed (which is created by virtue of Amendment Seven), the Research Law as it was in effect before the effective date of Amendment Seven and certain regulations, including inter alia, the regulations relating to royalty rates and transfer of know-how overseas will remain in effect. It is not possible to assess at this time the effect of Amendment Seven until implementing regulations will be promulgated.

Patent term restoration and extension. A patent claiming a new drug product may be eligible for a limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman Act”) which permits a patent restoration of up to five years for patent term lost during product development and FDA regulatory review. The restoration period granted is typically one-half the time between the effective date of an IND and the submission date of a BLA, plus the time between the submission date of a BLA and the ultimate approval date. Patent term restoration cannot be used to extend the remaining term of a patent past a total of 14 years from the product’s approval date. Only one patent applicable to an approved drug product is eligible for the extension, and the application for the extension must be submitted prior to the expiration of the patent in question. A patent that covers multiple drugs for which approval is sought can only be extended in connection with one of the approvals. The PTO reviews and approves the application for any patent term extension or restoration in consultation with the FDA.

Biosimilar products. As part of the ACA, under the subtitle of Biologics Price Competition and Innovation Act of 2009 (“BPCI”) a statutory pathway has been created for licensure, or approval, of biological products that are biosimilar to, and possibly interchangeable with, earlier biological products licensed under the Public Health Service Act. Also, under the BPCI, innovator manufacturers of original reference biological products are granted 12 years of exclusive use before biosimilars can be approved for marketing in the United States. The objectives of the BPCI are conceptually similar to those of the Hatch-Waxman Act, which established abbreviated pathways for the approval of drug products. The implementation of an abbreviated approval pathway for biological products is under the direction of the FDA and is currently subject to ongoing development. The FDA has published draft and final guidance documents on biosimilar product development. A biosimilar is defined in the BPCI and these documents as a biological product that is highly similar to an already approved biological product, notwithstanding minor differences in clinically inactive components, and for which there are no clinically meaningful differences between the biosimilar and the approved biological product in terms of safety, purity and potency. Under this proposed approval pathway, biological products are approved based on demonstrating they are biosimilar to, and in addition possibly interchangeable with, a biological product that is already approved by the FDA, which is called a reference product. The approval of a biologic product biosimilar to our prospective products could have a materially adverse impact on our business, may be significantly less costly to bring to the market and may be priced significantly lower than our products, but such approval may only occur after our twelve-year exclusivity period.

Pharmaceutical coverage, pricing and reimbursement. Significant uncertainty exists as to the coverage and reimbursement status of any products for which we may obtain regulatory approval. In the United States and other markets, sales of any products for which we receive regulatory approval for commercial sale will depend in part on the availability of reimbursement from third-party payors. Third-party payors include government health administrative authorities, managed care providers, private health insurers and other organizations. The process for determining whether a payor will provide coverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product. Third-party payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the FDA-approved drug products for a particular indication. Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our prospective products, in addition to the costs required to obtain the FDA approvals. Additionally, our products may not be considered medically necessary or cost-effective. A payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.

In March 2010, a significant healthcare reform was signed into law in the United States. The healthcare reform law substantially changes the way healthcare will be financed by both governmental and private insurers, and significantly impacts the pharmaceutical industry. The comprehensive $940 billion dollar overhaul is expected to extend coverage to approximately 32 million previously uninsured Americans. The healthcare reform law contains a number of provisions, including those governing enrollment in federal healthcare programs, reimbursement changes and fraud and abuse, which will impact existing government healthcare programs and will result in the development of new programs, including Medicare payment for performance initiatives and improvements to the physician quality reporting system and feedback program.

Additionally, the healthcare reform law, as limited by the United States Supreme Court’s decision in June 2012:

There have been proposed in Congress a number of legislative initiatives regarding healthcare, including possible repeal of the healthcare reform law. At this time, it remains unclear whether there will be any changes made to the healthcare reform law, whether to certain provisions or its entirety.

In the European Union, pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after agreeing on a reimbursement price. Some countries may require the completion of additional studies that compare the cost-effectiveness of a particular drug to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states may approve a specific price for a drug product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug product on the market. Other member states allow companies to set their own prices for drug products, but monitor and control company profits. The downward pressure on health care costs in general, particularly prescription drugs, has become intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert competitive pressure that may reduce pricing within a country. Any country that has price controls or reimbursement limitations for drug products may not allow favorable reimbursement and pricing arrangements.

Environmental, Health and Safety Matters

We, our agents and our service providers, including our manufacturers, may be subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges, noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. We believe that our business, operations and facilities, including, to our knowledge, those of our agents and service providers, are being operated in compliance in all material respects with applicable environmental and health and safety laws and regulations. All information with respect to any chemical substance is filed and stored as a Material Safety Data Sheet, as required by applicable environmental regulations. Based on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on us. However, significant expenditures could be required in the future if we, our agents or our service providers are required to comply with new or more stringent environmental or health and safety laws, regulations or requirements.

D. Property, Plant and Equipment

Our corporate headquarters are located at 1/3 High-Tech Park, Givat Ram, Jerusalem, Israel, where we lease and occupy approximately 2,600 square feet of space that includes a laboratory where we perform potency assays. We or our lessor may terminate the lease by giving three months’ notice to the other party.

The annual rent is approximately $60 thousand. We are also renting a laboratory where most of our research and development activities are conducted, and an office space in Jerusalem’s Har Hotzvim neighborhood where we intend to relocate our Israeli office. The Har Hotzvim laboratory and office space total approximately 15,400 square feet. The lease will expire in 2023, and we have an option to extend another five years. The current annual rent (including management fees) is approximately $0.4 million, and rent increases are linked to the Israeli Consumer Price Index.

Our U.S. subsidiary’s office is located at 1 Kendall Square, Building 600, Suite 6-106, Cambridge, Massachusetts 02139, where we lease and occupy approximately 1,850 square feet of space. The lease term will expire at the end of 2021. The annual rent is approximately $0.1 million.

We believe that our facilities are suitable and adequate for our current needs, however, we may need to obtain additional work area to address growth in the future.