As
filed with the Securities and Exchange Commission on February 9, 2024
Registration
No. 333-
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
F-1
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
REDHILL
BIOPHARMA LTD.
(Exact
name of registrant as specified in its charter)
|
Israel
(State
or other jurisdiction of
incorporation
or organization) |
2834
(Primary
Standard Industrial Classification Code Number) |
Not
Applicable
(I.R.S.
Employer
Identification
Number) |
21
Ha'arba'a Street
Tel
Aviv 6473921
Israel
+972
(3) 541-3131
(Address,
including zip code, and telephone number, including area code, of registrant’s principal executive offices)
RedHill
Biopharma Inc.
8045
Arco Corporate Drive, Suite 200
Raleigh,
NC 27617
(984)
444-7010
(Name,
address, including zip code, and telephone number, including area code, of agent for service)
Copies
of all communications, including communications sent to agent for service, should be sent to:
|
Rick
A. Werner, Esq.
Alla
Digilova, Esq.
Haynes
and Boone, LLP
30
Rockefeller Plaza, 26th Floor
New
York, New York 10112
Tel.
(212) 659-7300
Fax
(212) 884-8234 |
Perry
Wildes, Adv.
Goldfarb
Gross Seligman & Co.
One
Azrieli Center
Tel
Aviv 6702100, Israel
+972
(3) 607-4444 |
Approximate
date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement.
If
any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. ☒
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
☐
If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration statement for the same offering. ☐
If
this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate
by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.
Emerging
growth company ☐
If
an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided
pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
†
The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards
Board to its Accounting Standards Codification after April 5, 2012.
The
Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not
complete and may be changed. The selling shareholders named in this prospectus may not sell these securities until the Registration Statement
filed with the Securities and Exchange Commission, of which this prospectus is a part, is effective. This prospectus is not an offer to
sell these securities and the selling shareholders named in this prospectus are not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED FEBRUARY 9,
2024
PROSPECTUS
10,600,000 American Depositary Shares representing 4,240,000,000
Ordinary Shares
REDHILL BIOPHARMA LTD.
This prospectus relates to the resale from time to time by the selling shareholders
named in this prospectus of up to an aggregate of 10,600,000 American Depositary Shares (the “Offered ADSs”), with each American
Depositary Share (“ADS”) representing 400 of our ordinary shares, par value NIS 0.01 per share (the “Ordinary Shares”),
or 4,240,000,000 Ordinary Shares in the aggregate, issued or issuable upon the exercise of warrants (the “Warrants”) that
were issued pursuant to (i) a securities purchase agreement (the “Purchase Agreement”), dated as of January 25, 2024, between
us and the purchasers named on the signature pages thereto and (ii) an engagement letter (the “Engagement Letter”), dated
as of January 24, 2024, between us and H.C. Wainwright & Co., LLC (the “Placement Agent”).
We will not receive any of the proceeds from the sale of the Offered ADSs by the selling
shareholders. However, we will receive the exercise price upon any exercise of the Warrants, to the extent exercised on a cash basis. Any
ADSs subject to resale hereunder will have been issued by us and acquired by the selling shareholders prior to any resale of such shares
pursuant to this prospectus.
The selling shareholders named in this prospectus and any of their pledgees, assignees
and successors-in-interest, may offer or resell the Offered ADSs from time to time through public or private transactions at prevailing
market prices, at prices related to prevailing market prices or at privately negotiated prices. The selling shareholders will bear all
commissions and discounts, if any, attributable to the sale of the Offered ADSs. We will bear all costs, expenses and fees in connection
with the registration of the Ordinary Shares. For additional information on the methods of sale that may be used by the selling shareholders,
see “Plan of Distribution” beginning on page 159 of this prospectus.
The ADSs are listed on the Nasdaq Capital Market (“Nasdaq”) under the
symbol “RDHL”. On February 8, 2024, the last reported sale price of the ADSs was $0.53 per ADS.
Investing in our securities involves a high degree of risk. These
risks are discussed in this prospectus under “Risk Factors” beginning on page 5 and, if any, in any applicable prospectus
supplement.
We are a “foreign private issuer” as defined under
the federal securities laws and, as such, are subject to reduced public company reporting requirements. See “Prospectus Summary
– Implications of Being a Foreign Private Issuer.”
Neither the Securities and Exchange Commission (the “SEC”)
nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus.
Any representation to the contrary is a criminal offense.
The date of this prospectus is ,
2024.
TABLE OF CONTENTS
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F-1 |
ABOUT THIS PROSPECTUS
The selling shareholders named in this prospectus may resell, from time to time, in
one or more offerings, the Offered ADSs. Information about the selling shareholders may change over time. When the selling shareholders
sell Offered ADSs representing Ordinary Shares under this prospectus, we will, if necessary and required by law, provide a prospectus
supplement that will contain specific information about the terms of that offering. Any prospectus supplement may also add to, update,
modify or replace information contained in this prospectus. If a prospectus supplement is provided and the description of the offering
in the prospectus supplement varies from the information in this prospectus, you should rely on the information in the prospectus supplement.
You should carefully read this prospectus and the accompanying prospectus supplement, if any before making an investment decision.
You should rely only on the information contained in this prospectus
or any applicable prospectus supplement. We have not, and the selling shareholders have not, authorized any other person to provide you
with different or additional information. If anyone provides you with different or additional information, you should not rely on it.
This prospectus is not an offer to sell, nor are the selling shareholders seeking an offer to buy, the Offered ADSs in any jurisdiction
where the offer or sale is not permitted. No offers or sales of any of the Offered ADSs are to be made in any jurisdiction in which such
an offer or sale is not permitted. You should assume that the information contained in this prospectus or in any applicable prospectus
supplement is accurate only as of the date on the front cover thereof, regardless of the time of delivery of this prospectus or any applicable
prospectus supplement or any sales of the Offered ADSs offered hereby or thereby.
You should read the entire prospectus and any prospectus supplement and any related
issuer free writing prospectus, as well as any prospectus supplement or any related issuer free writing prospectus, before making an investment
decision. Neither the delivery of this prospectus or any prospectus supplement or any issuer free writing prospectus nor any sale made
hereunder shall under any circumstances imply that the information contained herein or in any prospectus supplement or issuer free writing
prospectus is correct as of any date subsequent to the date hereof or of such prospectus supplement or issuer free writing prospectus,
as applicable. You should assume that the information appearing in this prospectus or any prospectus supplement is accurate only as of
the date of the applicable documents, regardless of the time of delivery of this prospectus or any sale of securities. Our business, financial
condition, results of operations and prospects may have changed since that date.
Unless the context otherwise requires, all references to “RedHill,” “we,”
“us,” “our,” the “Company” and similar designations refer to RedHill Biopharma Ltd. and its wholly-owned
subsidiary, RedHill Biopharma Inc. The term “NIS” refers to New Israeli Shekels, the lawful currency of the State of Israel,
and the terms “dollar,” “US$” or “$” refer to U.S. dollars, the lawful currency of the United States
(“U.S.”). Our functional and presentation currency is the U.S. dollar. Foreign currency transactions in currencies other than
the U.S. dollar are translated in this prospectus into U.S. dollars using exchange rates in effect at the date of the transactions.
CAUTIONARY
STATEMENT REGARDING FORWARD LOOKING STATEMENTS
This prospectus may include forward-looking statements. These statements involve known
and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different
from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify
forward-looking statements by terms, including “anticipates,” “believes,” “could,” “estimates,”
“expects,” “intends,” “may,” “plans,” “potential,” “predicts,”
“projects,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking
statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and are subject
to risks and uncertainties. In addition, certain sections of this prospectus contain information obtained from independent industry and
other sources that we have not independently verified. You should not put undue reliance on any forward-looking statements. Unless we
are required to do so under U.S. federal securities laws or other applicable laws, we do not intend to update or revise any forward-looking
statements.
Our ability to predict our operating results or the effects of various events on our
operating results is inherently uncertain. Therefore, we caution you to consider carefully the matters described under the caption “Risk
Factors” on page 5 of this prospectus and certain other matters discussed in this prospectus and other publicly available sources.
Such factors and many other factors beyond our control could cause our actual results, performance or achievements to be materially different
from any future results, performance or achievements that may be expressed or implied by the forward-looking statements.
ii
Factors that could cause our actual results to differ materially from those expressed
or implied in such forward-looking statements include, but are not limited to:
| ● |
the going concern reference in our financial statements and our ability to obtain additional financing or successfully conclude a
strategic business transaction; |
| ● |
our ability to close a strategic business transactions, including potential divestment of certain of our assets. |
| ● |
our ability to obtain additional financing; |
| ● |
our reduced revenues, business size and scope, market share and opportunities in certain markets following the sale of our rights
to Movantik®; |
| ● |
estimates of our expenses, future revenues, capital requirements and our needs for additional financing; |
| ● |
the commercialization and market acceptance of our commercial products; |
| ● |
our ability to generate sufficient revenues from our commercial products, including obtaining commercial insurance and government
reimbursement; |
| ● |
our ability to advance our therapeutic candidates into clinical trials or to successfully complete our preclinical studies or clinical
trials, and to complete the development of such therapeutic candidates and obtain approval for marketing by the Food and Drug Administration
(“FDA”) or other regulatory authorities; |
| ● |
our reliance on third parties to satisfactorily conduct key portions of our commercial operations, including manufacturing and other
supply chain functions, market analysis services, safety monitoring, regulatory reporting and sales data analysis and the risk that those
third parties may not perform such functions satisfactorily; |
| ● |
our ability to maintain an appropriate sales and marketing infrastructure; |
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our ability to establish and maintain corporate collaborations; |
| ● |
that our current commercial products or commercial products that we may commercialize or promote in the future may be withdrawn from
the market by regulatory authorities and our need to comply with continuing laws, regulations and guidelines to maintain clearances and
approvals for those products; |
| ● |
our exposure to significant drug product liability claims; |
| ● |
the initiation and completion of any postmarketing studies or trials; |
| ● |
our ability to acquire products approved for marketing in the U.S. that achieve commercial success and to maintain our own marketing
and commercialization capabilities; |
| ● |
our estimates of the markets, their size, characteristics and their potential for our commercial products and therapeutic candidates
and our ability to serve those markets; |
| ● |
the successful commercialization of products we in-license or acquire; |
| ● |
our inability to enforce claims relating to a breach of a representation and warranty by a counterparty; |
iii
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the hiring and continued employment of executives, sales personnel, and contractors; |
| ● |
our receipt and timing of regulatory clarity and approvals for our commercial products and therapeutic candidates, and the timing
of other regulatory filings and approvals; |
| ● |
the initiation, timing, progress, and results of our research, development, manufacturing, preclinical studies, clinical trials,
and other commercial efforts and therapeutic candidate development, as well as the extent and number of additional studies that we may
be required to conduct; |
| ● |
our ability to advance our therapeutic candidates into clinical trials or to successfully complete our preclinical studies or clinical
trials; |
| ● |
our ability to develop or obtain approval for RHB-104 may be adversely impacted if a diagnostic test for MAP will not become available;
|
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our reliance on third parties to conduct key portions of our clinical trials, including data management services and the risk that
those third parties may not perform such functions satisfactorily; |
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our reliance on third parties to manufacture and supply our therapeutic candidates and their respective active pharmaceutical ingredients
with the requisite quality and manufacturing standards in sufficient quantities and within the required timeframes and at an acceptable
cost; |
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the research, manufacturing, clinical development, commercialization, and market acceptance of our therapeutic candidates;
|
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the interpretation of the properties and characteristics of our commercial products or therapeutic candidates and of the results
obtained in research, preclinical studies or clinical trials; |
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the implementation of our business model, strategic plans for our business, commercial products, and therapeutic candidates;
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the impact of other companies and technologies that compete with us within our industry; |
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the scope of protection we are able to establish and maintain for intellectual property rights covering our commercial products and
therapeutic candidates, including from existing or future claims of infringement, and our ability to operate our business without infringing
or violating the intellectual property rights of others; |
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parties from whom we license or acquire our intellectual property defaulting in their obligations toward us; |
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the failure by a licensor or a partner of ours to meet their respective obligations under our acquisition, in-license or other development
or commercialization agreements or renegotiate the obligations under such agreements, or if other events occur that are not within our
control, such as bankruptcy of a licensor or a partner; |
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our reliance on the actions of third parties, including sublicensors and their other sublicensees, to maintain our rights under our
in-licenses which are sublicenses; |
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the effect of a potential occurrence of patients suffering serious adverse events using investigative drugs under our Expanded Access
Program; |
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our ability to implement network systems and controls that are effective at preventing cyber-attacks, malware intrusions, malicious
viruses and ransomware threats; |
iv
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our ability to resolve the disputes regarding the alleged events of default under our term loan facility, if not resolved, could
harm our financial condition which could materially adversely affect our financial performance; |
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our ability to maintain compliance with the Nasdaq’s listing standards; |
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the effects of the economic and business environment, including unforeseeable events and the changing market conditions caused by
the COVID-19 global pandemic; and |
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the impact on our business of the political and security situation in Israel, the U.S. and other places in which we operate.
|
We have included important factors in the cautionary statements included in this prospectus,
particularly in the section entitled “Risk Factors”, that we believe could cause actual results or events to differ materially
from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions,
mergers, dispositions, joint ventures or investments we may make. No forward-looking statement is a guarantee of future performance.
You should read this prospectus completely and with the understanding that our actual
future results may be materially different from what we expect. The forward-looking statements in this prospectus represent our views
as of the date of this prospectus. We anticipate that subsequent events and developments will cause our views to change. However, while
we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to
the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as
of any date subsequent to the date of this prospectus.
v
PROSPECTUS
SUMMARY
This summary highlights selected information
about us and information contained in greater detail elsewhere in this prospectus. This summary is not complete and does not contain all
of the information that you should consider before investing in the Offered ADSs. You should carefully read and consider this entire prospectus,
including the financial statements and related notes and “Risk Factors” starting on page 5 of this prospectus, before making
an investment decision. If you invest in our securities, you are assuming a high degree of risk.
Our Business
We are a specialty biopharmaceutical company, primarily focused
on gastrointestinal (“GI”) and infectious diseases. Our primary goal is to become a leading specialty biopharmaceutical company.
We are currently focused primarily on the advancement of our
development pipeline of clinical-stage therapeutic candidates. We also commercialize in the U.S. GI-related products, Talicia® (omeprazole,
amoxicillin, and rifabutin) and Aemcolo® (rifamycin) and continue to explore our strategic plans for such products and activities.
Among the therapeutic candidates, we are exploring opaganib is being
as a potential treatment for various conditions, including gastrointestinal acute radiation syndrome (“GI-ARS”), COVID-19
and other viruses as part of pandemic preparedness, such as the Ebola virus. Inflammatory conditions and solid tumors are additional areas
of focus for opaganib. Furthermore, we are investigating RHB-107 (upamostat) as a potential treatment for COVID-19 and other viruses as
part of pandemic preparedness, including the Ebola virus.
Our current pipeline consists of five therapeutic candidates,
most of which are in clinical development. We generate our pipeline of therapeutic candidates by identifying, validating and in-licensing
or acquiring products that are consistent with our product and corporate strategy and that have the potential to exhibit a favorable probability
of therapeutic and commercial success. We have one product that we primarily developed internally which has been approved for marketing
and, to date, none of our other therapeutic candidates has generated revenues. We have out-licensed one of our commercial products, Talicia®
for specific territories outside the U.S. and we plan to commercialize our therapeutic candidates, upon approval, if any, through licensing
and other commercialization arrangements with pharmaceutical companies on a global and territorial basis or independently with a dedicated
commercial operations or in potential partnership with other commercial-stage companies. We also evaluate, on a case-by-case basis, co-development,
co-promotion, licensing, acquisitions and similar arrangements.
Summary Risk Factors
The following is a summary of some of the principal risks we
face. The list below is not exhaustive, and investors should read the “Risk Factors” section in full.
| • |
Our financial statements include a going concern reference. We will need to raise significant additional capital to finance our losses
and negative cash flows from operations, and if we were to fail to raise sufficient capital or on favorable terms and/or fail to replace
Movantik® with another commercial product on a timely basis or successfully conclude a strategic business transaction, we may need
to cease operations. Management has substantial doubt about our ability to continue as a going concern. |
| • |
We are actively pursuing and in discussions with multiple parties regarding strategic business transactions, including potential
divestment of certain of our assets. There is no assurance that our discussions will result in any strategic business transactions.
|
| • |
Following our sale of our rights to Movantik®, our revenue, business’ size and scope, market share and opportunities in
certain markets, or our ability to compete in certain markets and therapeutic categories is reduced. |
| • |
Our ability to replace Movantik® with another commercial product, either internal or external, may not occur, and we may never
achieve levels of revenue we have achieved through Movantik®. |
| • |
Our failure to maintain compliance with Nasdaq’s continued listing requirements could result in the delisting of the ADSs.
|
| • |
Certain obligations under the Credit Agreement, dated February 23,
2020, as amended, and the Asset Purchase Agreement, dated February 2, 2023, entered into with HCR Collateral Management, LLC (“HCRM”)
and certain of its affiliates in connection with the sale of Movantik® in exchange for extinguishment of all debt obligations under
the Credit Agreement are secured by a lien on Talicia®-related assets. As a result of this security interest, until extinguishment
of such security interest, if we were to become insolvent the Talicia® assets would only be available to satisfy claims of our general
creditors or to holders of our equity securities to the extent the value of such assets exceeded the amount of our indebtedness and other
obligations. In addition, if we lose Talicia® to a foreclosure, we will lose our remaining source of revenue following the sale of
Movantik®, assuming we are not able to replace Movantik® with another commercial product. The existence of these security interests
may also adversely affect our financial flexibility. |
| • |
Our current working capital is not sufficient to commercialize our current commercial products or to complete the research and development
with respect to any or all of our therapeutic candidates. We will need to raise significant additional capital to achieve our strategic
objectives and to execute our business plans. Our failure to raise sufficient capital or on favorable terms would significantly impair
our ability to fund the commercialization of our current commercial products, therapeutic candidates, or the products we may commercialize
or promote in the future, attract development or commercial partners or retain key personnel, and to fund operations and develop our therapeutic
candidates. |
| • |
If we are successful in developing a COVID-19 therapeutic, we may need to devote significant resources to our manufacturing scale-up
and large-scale deployment, including for use by the U.S. or other governments. If one of our COVID-19 therapeutic candidates is approved
for marketing or for Emergency Use, we may also need to devote significant resources to further expand our U.S. and non-U.S. sales and
marketing activities and increase or maintain personnel to accommodate sales in the U.S. and outside the U.S. |
| • |
If we or our future development or commercialization partners are unable to obtain or maintain the FDA or other foreign regulatory
clearance and approval for our commercial products or therapeutic candidates, we or our commercialization partners will be unable to commercialize
our current commercial products, products we may commercialize or promote in the future or our therapeutic candidates, upon approval,
if any. |
Kukbo Proceedings
We continue our litigation against Kukbo Co. Ltd. (“Kukbo”) which was
filed on September 2022 as a result of Kukbo’s default in delivering us a total of $6.5 million under the subscription agreement,
dated October 25, 2021 (the “Subscription Agreement”), and the exclusive license agreement, dated March 14, 2022 (the “Exclusive
License Agreement”). Kukbo thereafter filed counterclaims with various allegations such as breach of contract, misrepresentation,
and the breach of the duty of good faith and failure dealing. The parties are proceeding with discovery and depositions, and we plan to
continue to rigorously pursue the Kukbo litigation. On November 20, 2023, we entered into a Contingency Fee Agreement with our legal firm,
Haynes and Boone, LLP (“H&B”) under which certain legal costs related to the Kukbo litigation will be assumed by H&B.
January 2024 Offering
On January 26, 2024, we issued to certain institutional investors (i) in a registered
direct offering, 10,000,000 ADSs at a purchase price of $0.80 per ADS and (ii) in a concurrent private offering, unregistered Warrants
to purchase 10,000,000 ADSs (the “January 2024 Offering”). The Warrants have an exercise price of $1.00 per ADS, are exercisable
immediately and will expire five years from the date of issuance.
The issuance of the Warrants was exempt from the registration requirements of the
Securities Act of 1933, as amended (the “Securities Act”), pursuant to an exemption provided by Section 4(a)(2) thereof and
Rule 506 of Regulation D promulgated thereunder as a transaction by an issuer not involving a public offering. Pursuant to the Purchase
Agreement with the institutional investors, we agreed, among other things, to file this registration statement with the SEC as soon as
practicable (and in any event within fifteen (15) calendar days of the date of Purchase Agreement) and to keep such registration statement
effective until such time as the investors, their successors and assigns, as applicable, no longer own any Warrants or the ADSs issuable
upon exercise thereof.
As part of the compensation to the Placement Agent in connection with its role as
the placement agent in the January 2024 Offering, pursuant to the Engagement Letter, we issued to the Placement Agent’s designees
unregistered Warrants to purchase up to an aggregate of 600,000 ADSs at an exercise price of $1.00 per ADS. The Warrants issued to the
Placement Agent designees are exercisable immediately and will expire five years from the commencement of the sales pursuant to the January
2024 Offering.
We are registering the resale by the selling shareholders of the ADSs issuable upon
exercise of the Warrants in order to permit the selling shareholders to offer such ADSs for resale from time to time pursuant to this
prospectus. The selling shareholders may also sell, transfer or otherwise dispose of all or a portion of the ADSs in transactions exempt
from the registration requirements of the Securities Act, or pursuant to another effective registration statement covering those.
Implications of Being a Foreign Private Issuer
We are subject to the information reporting requirements of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), that are applicable to “foreign private issuers,” and under those
requirements we file reports with the United States Securities and Exchange Commission, or SEC. As a foreign private issuer, we are not
subject to the same requirements that are imposed upon U.S. domestic issuers by the SEC. Under the Exchange Act, we are subject to reporting
obligations that, in certain respects, are less detailed and less frequent than those of U.S. domestic reporting companies. For example,
although we often report our financial results on a quarterly basis, we are not required to issue quarterly reports, proxy statements
that comply with the requirements applicable to U.S. domestic reporting companies, or individual executive compensation information that
is as detailed as that required of U.S. domestic reporting companies. We also have four months after the end of each fiscal year to file
our annual reports with the SEC and are not required to file current reports as frequently or promptly as U.S. domestic reporting companies.
Furthermore, our officers, directors and principal shareholders are exempt from the
requirements to report transactions in our equity securities and from the short-swing profit liability provisions contained in Section
16 of the Exchange Act. As a foreign private issuer, we are also not subject to the requirements of Regulation FD (Fair Disclosure) promulgated
under the Exchange Act. In addition, as a foreign private issuer, we are permitted, and follow certain home country corporate governance
practices instead of those otherwise required under the listing rules of Nasdaq for domestic U.S. issuers. These exemptions and leniencies
reduce the frequency and scope of information and protections available to you in comparison to those applicable to a U.S. domestic reporting
company.
Corporate Information
We were incorporated as a limited liability company under the laws of the State of
Israel on August 3, 2009. Our principal executive offices are located at 21 Ha’arba’a Street, Tel-Aviv, Israel and our telephone
number is +972 (3) 541-3131. Our website address is http://www.redhillbio.com. The information on, or that can be accessed through, our
website does not constitute part of this prospectus. Our registered agent in the U.S. is RedHill Biopharma Inc. (“Redhill U.S.”).
The address of RedHill Biopharma Inc. is 8045 Arco Corporate Drive, Raleigh, NC 27617, U.S.A.
THE OFFERING
|
Securities offered by the selling shareholders |
Up to 10,600,000 ADSs representing 4,240,000,000 Ordinary Shares. |
|
The ADSs |
Each ADS represents 400 of our Ordinary Shares. The ADSs will be delivered by The
Bank of New York Mellon, as depositary (the “Depositary”).
The Depositary, as depositary, or its nominee,
will be the holder of the Ordinary Shares underlying the ADSs and you will have rights as provided in the Deposit Agreement, dated as
of December 26, 2012, among us, the Depositary and all owners and holders from time to time of ADSs issued thereunder (the “Deposit
Agreement”). Subject to the terms of the Deposit Agreement and in compliance with the relevant
requirements set out in the prospectus, you may turn in the ADSs to the Depositary for cancellation and withdrawal of the Ordinary Shares
underlying the ADSs. The Depositary will charge you fees for such cancellations pursuant to the Deposit Agreement.
You should carefully read the Deposit Agreement to better understand the terms of
the ADSs. |
|
Selling shareholders |
All of the Offered ADSs are being offered by the selling shareholders named herein.
See “Selling Shareholders” on page 130 of this prospectus for more information on the selling shareholders. |
|
Use of proceeds |
We will not receive any proceeds from the sale by the selling shareholders of the
Offered ADSs issued or issuable upon exercise of the Warrants. However, we may receive the proceeds from any exercise of the Warrants
if the holders exercise the Warrants for cash. We intend to use the proceeds from the exercise of the Warrants for cash, if any, for working
capital, research and development and general corporate purposes. See the section of this prospectus titled “Use of Proceeds.”
|
|
Plan of Distribution |
The selling shareholders, and any of their
pledgees, and successors-in-interest, may offer or sell the Offered ADSs from time to time through public or private transactions at prevailing
market prices, at prices related to prevailing market prices or at privately negotiated prices. The selling shareholders may also resell
the Offered ADSs to or through underwriters, broker-dealers or agents, who may receive compensation in the form of discounts, concessions
or commissions. See “Plan of Distribution” beginning on page 159 of this prospectus for additional information on the methods
of sale that may be used by the selling shareholders. |
|
Risk factors |
See “Risk Factors” beginning on page 5 of this prospectus
and the other information included elsewhere in this prospectus for a discussion of factors you should carefully consider before deciding
to invest in the ADSs. |
|
Nasdaq trading symbol for ADSs |
The ADSs are listed on Nasdaq under the symbol “RDHL.”
|
|
Depositary |
The Bank of New York Mellon. |
RISK FACTORS
Investing in our securities involves a high degree of risk. In
addition to the other information contained in this prospectus, you should carefully consider the risks discussed below before making
a decision about investing in our securities. The risks and uncertainties discussed below are not the only ones facing us. Additional
risks and uncertainties not presently known to us, or that we currently see as immaterial, may also harm our business. If any of these
risks occur, our business, financial condition and operating results could be harmed, the trading price of the ADSs could decline, and
you could lose part or all of your investment.
Please also read carefully the section above entitled “Cautionary
Statement Regarding Forward-Looking Statements.”
Risks Related to Our Business
Our financial statements include
a going concern reference. We will need to raise significant additional capital to finance our losses and negative cash flows from
operations, and if we were to fail to raise sufficient capital or on favorable terms and/or fail to replace Movantik® with another
commercial product on a timely basis or successfully conclude a strategic
business transaction, we may need to cease operations. Management has substantial doubt about our ability to continue as a going concern.
Our consolidated financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. During the six months
ended on June 30, 2023, our net cash used in operating activities was $17.8 million leaving a cash balance of $16.3 million, including
$9.1 million of restricted cash under the Credit Agreement, for which HCRM has exercised control rights and to which we do not currently
have access, as of December 31, 2023. Because we do not have sufficient resources to fund our operations for the next twelve months from
the date of this filing, management has substantial doubt of our ability to continue as a going concern. Our operational costs include
the payment of the remaining pre-closing liabilities relating to Movantik®,
which our subsidiary, RedHill U.S., retained under our agreement with HCRM for the extinguishment of all our debt obligations under the
Credit Agreement in exchange for the transfer of our rights in Movantik®
to an affiliate of HCRM. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations –
Liquidity and Capital Resources – Term Loan Facility”. The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should
we be unable to continue as a going concern.
We will need to raise significant additional capital to finance our losses and negative
cash flows from operations. We are also actively pursuing and in discussions with multiple parties regarding strategic business
transactions, including potential divestment of certain of our assets. If we were to fail to raise sufficient capital or on favorable
terms or successfully conclude a strategic business transaction, we may need to cease operations. There are no assurances that we will
be able to raise significant additional capital on terms favorable to us or at all, particularly given the current difficult conditions
in the capital markets and very low market capitalization which makes it more difficult to raise significant amounts of capital. In addition,
following the sale of our rights to Movantik® in
2023, we lost our primary revenue source and our ability to operate as a financially viable commercial business has been significantly
more difficult. See “ - Following our sale of our rights to Movantik®,
our revenue, business’ size and scope, market share and opportunities in certain markets, or our ability to compete in certain markets
and therapeutic categories is reduced”. If we are unsuccessful
in achieving sufficient commercial sales of our products, including replacing Movantik®
with another commercial product on a timely basis, or in raising sufficient capital, or successfully concluding a strategic business transaction,
we will need to reduce activities and curtail or cease operations.
We are actively pursuing and in discussions
with multiple parties regarding strategic business transactions, including potential divestment of certain of our assets. There is no
assurance that our discussions will result in any strategic business transactions.
We are actively pursuing and in discussions with multiple parties
regarding strategic business transactions, including potential divestment of certain of our assets. The success of any such strategic
business transactions, including potential divestment of certain of our assets, is subject to various uncertainties, including but not
limited to, market and other conditions, negotiations with potential buyers, regulatory approvals, and other factors beyond our control.
There is no assurance that our discussions will result in any strategic business transactions. If we are unable to successfully complete
strategic business transactions on favorable terms to us, or at all, our ability to strengthen our balance sheet and enhance our strategic
focus could be impacted and could have a material adverse effect on our ability to continue to operate as a going concern.
Following our sale of our rights
to Movantik®,
our revenue, business’ size and scope, market share and opportunities in certain markets, or our ability to compete in certain markets
and therapeutic categories is reduced. Our ability to replace Movantik®
with another commercial product, either internal or external, may not occur, and we may never achieve levels of revenue we have achieved
through Movantik®, which
could have a material adverse effect on our ability to operate as a going concern.
Following the consummation of our sale of our rights to Movantik®,
our revenue generated from Movantik® sales was eliminated
and our business size and scope, market share and opportunities in certain markets, or our ability to compete in certain markets and therapeutic
categories were substantially reduced. Our ability to realize any value from Movantik®
beyond its price in an asset sale was permanently lost. Additionally, following the sale of our rights to Movantik®,
we lost our primary revenue source and our ability to operate as a financially viable commercial business has been significantly more
difficult. We may not be successful in replacing Movantik®
with another commercial product, and we may never achieve levels of revenue we have achieved through Movantik®.
We also lost economies of scale in our commercial operations that we were able to benefit from by having Movantik®
as a core commercial product. As a result, we have downsized our commercial operations and taken other steps to better align its expenses
and revenues, which has adversely affected our ability to sell our commercial products. If we are not able to replace Movantik®
with another commercial product on a timely basis, this could have a material adverse effect on our ability to continue to operate as
a going concern. In addition, in the event we are not able to replace Movantik®
with another commercial product on a timely basis or are otherwise unable to achieve levels of revenue we have achieved through Movantik®,
we may need to further downsize our commercial operations, which could cause us to incur additional costs and expenses, including severance
expenses, and make it more difficult to sell commercial products in the future. See “Management – Compensation – Change
in Control Retention Plan and Agreements; Severance Arrangements.”
Certain obligations
under the Credit Agreement (as amended), the APA (as defined below) and escrow agreement entered into with HCRM and certain of its affiliates
in connection with the sale of Movantik® in exchange for extinguishment
of all debt obligations under the Credit Agreement are secured by a lien on Talicia® and Aemcolo®-related assets. As a result
of this security interest, until extinguishment of such security interest, if we were to breach our obligations under any of these agreements
or become insolvent, the Talicia® and Aemcolo® assets would only be available to satisfy claims of our general creditors or
to holders of our equity securities to the extent the value of such assets exceeded the amount of our indebtedness and other obligations.
In addition, if we lose these assets to a foreclosure, we will lose our remaining source of revenue following the sale of Movantik®,
assuming we are not able to replace Movantik®
with another commercial product. The existence of these security interests may also adversely affect our financial flexibility.
Certain obligations under the APA (as defined below), the Credit Agreement (as amended) and escrow agreement
entered into with HCRM and certain of its affiliates in connection with the sale of Movantik® in exchange for extinguishment of obligations
under the Credit Agreement are secured by a lien on Talicia® and Aemcolo®-related assets. See “Business –
Business Overview – Sale of Movantik® to HCRM”.
These obligations include the settling of substantially all pre-closing liabilities relating to Movantik as of the closing date of the
transaction, which were estimated at approximately $51 million. To fulfill this obligation, an escrow account was established, utilizing
the remaining accounts receivable related to Movantik that totals around $32 million, in addition to $5.3 million of restricted cash,
and other available resources as required. As of June 30, 2023, the amount held in the escrow account was $9.1 million. These obligations
also included the obligation of RedHill U.S. under the escrow agreement to deposit all cash received from accounts receivable related
to Movantik® accrued as of the closing of the APA
into the escrow account within a certain period of time in order to pay certain scheduled pre-closing liabilities related to Movantik®.
Accordingly, if an event of default were to occur under the APA, Credit Agreement
(as amended) or the escrow agreement, HCRM could foreclose on its security interest and liquidate some or all of the Talicia® and
Aemcolo® assets and would have a prior right to these assets, to the exclusion of our general creditors in the event of our bankruptcy,
insolvency, liquidation or reorganization. In that event, these assets would first be used to repay in full all indebtedness and other
obligations secured by such assets, resulting in a substantial portion of our assets being unavailable to satisfy the claims of our unsecured
indebtedness. Only after satisfying the claims of our unsecured creditors would any amount be available for our equity holders. If we
were to lose these assets to a foreclosure, we will lose our remaining source of revenue following the sale of Movantik®,
assuming we are not able to replace Movantik® with
another commercial product, in which case the loss of these assets could have a material adverse effect on our ability to continue to
operate as a going concern. The pledge of these assets may also limit our flexibility in raising capital for other purposes.
We may never have access to the
cash held in an escrow account established in connection with the sale of Movantik® to
an affiliate of HCR, which jeopardizes our ability to finance our day-to-day operations.
In connection with the sale of our rights in Movantik® to an affiliate
of HCR, the $16 million that was held as restricted cash under the Credit Agreement was deposited into an escrow account to pay pre-closing
liabilities related to Movantik® that have been retained by RedHill U.S. under the terms of the APA (as defined below), and all cash
received from accounts receivable related to Movantik® accrued as of the closing of the Asset Purchase Agreement were also deposited
into the escrow account. See “Business – Business Overview – Sale of Movantik® to HCRM – Escrow Agreement.”
As of June 30, 2023, the amount held in the escrow account was $9.1 million. We are not currently able to access or otherwise use any
of the cash in the escrow account until amounts are released pursuant to the terms of the escrow agreement. In addition, we may never
have access to the cash in the escrow account if all of it is used to resolve pre-closing liabilities related to Movantik®. The possible
lack of future access to the cash in the escrow account jeopardizes our ability to finance our day-to-day operations and may require us
to cease operations.
Our current working capital is
not sufficient to commercialize our current commercial products or to complete the research and development with respect to any or all
of our therapeutic candidates. We will need to raise significant additional
capital to achieve our strategic objectives and to execute our business plans. Our failure to raise sufficient capital or on favorable
terms would significantly impair our ability to fund the commercialization of our current commercial products, therapeutic candidates,
or the products we may commercialize or promote in the future, attract development or commercial partners or retain key personnel, and
to fund operations and develop our therapeutic candidates.
As of June 30, 2023, we had cash, cash equivalents, short-term investments
and restricted cash of approximately $16.3 million, and as of December 31, 2022, we had cash, cash equivalents and short-term investments
of approximately $36.1 million. Our restricted cash as of June 30, 2023, was $9.1 million as required by our Credit Agreement with HCRM.
Following the sale of our rights to Movantik® under our Asset Purchase Agreement with HCRM, the restricted cash was deposited into
an escrow account to pay pre-closing liabilities related to Movantik® that have been retained by RedHill U.S. under the terms of
the Asset Purchase Agreement, and all cash received from accounts receivable related to Movantik® accrued as of the closing of the
Asset Purchase Agreement were also deposited into the escrow account. See “Business – Business Overview – Sale of Movantik®
to HCRM.” We have funded our operations primarily through public and private offerings of our securities, through strategic investments
and our Credit Agreement with HCRM. We will need to raise significant additional capital to achieve our strategic objectives of commercializing
our current commercial products and other products that we may commercialize or promote in the future and acquiring, in-licensing and
developing therapeutic candidates. We plan to fund our future operations through commercialization of Talicia® and Aemcolo®,
out-licensing of our therapeutic candidates and commercialization of in-licensed or acquired products, and we will also need to raise
significant additional capital through equity or debt financing or non-dilutive financing, including government grants. We are also actively
pursuing and in discussions with multiple parties regarding strategic business transactions, including potential divestment of certain
of our assets and/or our commercial operations, which we expect would provide us with additional capital although there is no guarantee
that we will complete such a transaction on favorable terms to us, or at all. We are not yet certain of the financial impact of our commercialization
activities, and the amounts we raise may not be sufficient to complete the research and development of all of our therapeutic candidates.
Our business is not yet profitable. As we plan to continue expending funds to commercialize
Talicia® and
Aemcolo®,
out-license Talicia®
and our therapeutic candidates and acquire additional products and therapeutic candidates and expand our efforts in research and development,
we will need to raise significant additional capital in the future through equity or debt financing, non-dilutive financing or pursuant
to development or commercialization agreements with third parties with respect to particular therapeutic candidates and commercial products
approved for sale in the U.S. However, we cannot be certain that we will be able to raise capital on commercially reasonable terms or
at all, or that our actual cash requirements will not be greater than anticipated.
We may have difficulty raising needed capital or securing development or commercialization
partners in the future as a result of, among other factors, present and future market conditions, the very low market capitalization of
our company which makes it more difficult to make large capital raises, unsuccessful commercialization of Talicia®
or Aemcolo®
or products that we may commercialize or promote in the future, as well as the inherent business risks associated with our Company, our
current commercial products, products that we may commercialize or promote in the future and our therapeutic candidates. In addition,
our ability to raise capital would be adversely affected if we are not able to maintain compliance with Nasdaq’s continued listing
requirements. Any financing may also involve significant dilution to our shareholders. We have completed financings in the past which
resulted in significant dilution to our shareholders, and we may complete additional financings in the future with similar dilutive effects
to our shareholders. To the extent we are able to generate meaningful revenues from our current and future commercial products, we may
still need to raise capital because the revenues from our current and future commercial products may not be sufficient to cover all of
our operating expenses and may not be sufficient to cover our commercial operations expenses. In addition, global and local economic conditions
may make it more difficult for us to raise needed capital or secure a development or commercialization partner in the future and may impact
our liquidity. The healthcare industry faced a challenging market during 2023 and may continue to cause difficulties for healthcare companies
to raise capital in the future. If we are unable to obtain sufficient future financing, we will need to reduce activities and curtail
or cease operations.
We may not successfully continue the commercialization
of Talicia® or Aemcolo®.
We may not successfully continue the commercialization of Talicia®
or Aemcolo® and our products may not be, or continue
to be, commercially successful for various reasons, including but not limited to:
| • |
difficulty in large-scale manufacturing, including yield and quality, and in shipping product internationally; |
| • |
low market acceptance by physicians, healthcare payors, patients and the medical community as a result of lower demonstrated clinical
safety or efficacy compared to products, prevalence, and severity of adverse side effects, or other potential disadvantages relative to
alternative treatment methods; |
| • |
changes to the underlying dynamics of the markets for these products; |
| • |
infringement on proprietary rights of others for which we or third parties involved in the development or commercialization of our
products or potential future therapeutic candidates have not received licenses; |
| • |
incompatibility with other marketed products; |
| • |
other potential advantages of alternative treatment methods and competitive forces or advancements that may make it more difficult
for us to penetrate a particular market segment, if at all; |
| • |
ineffective marketing, sales, and distribution activities and support; |
| • |
lack of significant competitive advantages over other products on the market; |
| • |
lack of cost-effectiveness or unfavorable pricing compared to other alternatives available on the market; |
| • |
pressure from commercial payors and government agencies on gross to net margins; |
| • |
inability to generate sufficient revenues to sustain our business operations in accordance with our plan from the sale or marketing
of a product; |
| • |
changes to product labels, indications or other relevant information that may trigger additional regulatory requirements that may
have a direct or indirect impact on the commercialization of our products; |
| • |
our inability or unwillingness, for cost or other reasons, to commercialize Talicia®
and Aemcolo® to the extent any are approved for commercialization
at the time of any such collaboration issues; |
| • |
timing of market introduction of competitive products, including from generic competitors; and |
| • |
changes in any laws, regulations, or other relevant policies related to drug pricing or other marketing conditions and requirements
that may directly or indirectly limit, restrict, or otherwise negatively impact our ability or success in marketing or commercializing.
|
Physicians, various other healthcare providers, patients, payors or the medical community,
in general, may be unwilling to accept, utilize or recommend Talicia®
or Aemcolo®. If we are unable, either on our own
or through third parties, to manufacture, commercialize or market Talicia®,
or to commercialize or market Aemcolo®, we may not
achieve or continue to achieve market acceptance or generate meaningful revenues from Talicia®
and Aemcolo®. In addition, in order to support our
development product portfolio, we will need to achieve revenues from sales of Talicia®
consistent with our business expectations, which may prove more difficult than currently expected. Our reputation, business, financial
condition and results of operations may be materially adversely affected by any failure to meet such expectations. See “ - We are
actively pursuing and in discussions with multiple parties regarding strategic business transactions, including potential divestment of
certain of our assets and/or our commercial operations. There is no assurance that our discussions will result in any strategic business
transactions.”
If we are unable to successfully
continue the commercialization of Talicia®,
our business and results of operations will suffer.
We expect our future success will significantly depend upon our ability to successfully
commercialize Talicia in the U.S. or to find a commercialization partner ng to do so. In addition, there can be no guarantee that we will
be able to establish our own manufacturing capabilities, including through third parties, in order to continue the successful commercialization
of Talicia®. Our success depends on obtaining reimbursement
to patients for our products and there is no guarantee we will be able to secure commercial or government coverage for any of our products.
There is significant pressure within the U.S. healthcare reimbursement system to reduce costs of prescription drugs which could adversely
affect us. In order to support our growing development product portfolio, we will need to achieve revenues from sales of Talicia®
consistent with our business expectations, which may prove more difficult than currently expected. Our reputation, business, financial
condition and results of operations may be materially adversely affected by any failure to meet such expectations. See “ - We are
actively pursuing and in discussions with multiple parties regarding strategic business transactions, including potential divestment of
certain of our assets. There is no assurance that our discussions will result in any strategic business transactions.”
Our management conducted an evaluation of the
effectiveness of our internal control over financial reporting and concluded that our internal control over financial reporting was not
effective as of December 31, 2022. If we fail to maintain an effective system of internal control over financial reporting, we may not
be able to accurately report our financial results or prevent fraud. As a result, shareholders could lose confidence in our financial
and other public reporting, which would harm our business and the trading price of the ADSs.
Effective internal controls over financial reporting are necessary for us to provide
reliable financial reports and, together with adequate disclosure controls and procedures are designed to prevent fraud. Our management
is required to assess the effectiveness of our internal controls and procedures and disclose changes in these controls on an annual basis
and our independent registered public accounting firm is required to attest to the effectiveness of our internal controls over financial
reporting pursuant to Section 404.
Any failure to implement required new or improved controls, or difficulties encountered
in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection
with Section 404, or any subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal
controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to
our financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors
to lose confidence in our reported financial information, which could have a negative effect on the trading price of the ADSs.
Our management conducted an evaluation of the effectiveness of our internal control
over financial reporting and concluded that our internal control over financial reporting was not effective as of December 31, 2022 due
to a lack of sufficient number of financial reporting personnel with an appropriate level of knowledge, experience and training commensurate
with our financial reporting requirements, resulting in a failure to maintain an effective control environment and a failure of segregation
of duties, and also concluded that our disclosure controls and procedures were not effective as of December 31, 2022, due to material
weaknesses in our internal control over financial reporting, all as described in our Annual report on Form 20-F for the year ended December
31, 2022. We have implemented a corrective plan, which we are still monitoring, and we cannot guarantee that our internal control over
financial reporting was effective as of December 31, 2023. As defined in Regulation 12b-2 under the Exchange Act, a “material
weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of our annual financial statements will not be prevented, or detected on a timely basis.
While management has continued the process of remediating the material weaknesses,
as described in Item 15, “Controls and Procedures,” if significant deficiencies or other material weaknesses are identified
in our internal control over financial reporting that we cannot remediate in a timely manner, investors and others may lose confidence
in the reliability of our financial statements and the trading price of our shares and ability to obtain any necessary equity or debt
financing could suffer. The material weaknesses will not be considered remediated until we have completed implementing the necessary controls
and applicable.
We have made, and will continue to make, changes in these and other areas. In any
event, the process of determining whether our existing internal controls are compliant with Section 404 and sufficiently effective will
require the investment of substantial time and resources, including by our chief financial officer and other members of our senior management.
As a result, this process may divert internal resources and take a significant amount of time and effort to complete. In addition, we
cannot predict the outcome of this process and whether we will need to implement remedial actions in order to implement effective controls
over financial reporting. The determination of whether or not our internal controls are sufficient and any remedial actions required could
result in us incurring additional costs that we did not anticipate, including the hiring of outside consultants. We may also fail to complete
our evaluation, testing and any required remediation needed to comply with Section 404 in a timely fashion. Irrespective of compliance
with Section 404, any additional failure of our internal controls could have a material adverse effect on our stated results of operations
and harm our reputation. As a result, we may experience higher than anticipated operating expenses, as well as higher independent auditor
fees during and after the implementation of these changes. If we are unable to implement any of the required changes to our internal control
over financial reporting effectively or efficiently or are required to do so earlier than anticipated, it could adversely affect our operations,
financial reporting or results of operations and could result in an adverse opinion on internal controls from our independent auditors.
Furthermore, if we are unable to certify that our internal control over financial
reporting is effective and in compliance with Section 404, we may be subject to sanctions or investigations by regulatory authorities,
such as the SEC or stock exchanges, and we could lose investor confidence in the accuracy and completeness of our financial reports, which
could hurt our business, the price of the ADSs and our ability to access the capital markets.
We have a history of operating losses. We may
continue to incur significant losses in the coming years.
From our incorporation in 2009 until establishment of our commercial presence in the
U.S., we focused primarily on the development and acquisition of late-stage clinical therapeutic candidates, and since we established
our commercial presence in the U.S., we have focused primarily on the acquisition and commercialization or promotion of products in the
U.S. There is no assurance that we will be able to generate substantial positive cash flow or be profitable in the future.
We plan to further fund our future operations through commercialization and out-licensing
of our therapeutic candidates, commercialization of in-licensed or acquired products and raising significant additional capital through
equity or debt financing or through non-dilutive financing, including government grants. We are also actively pursuing and in discussions
with multiple parties regarding strategic business transactions, including potential divestment of certain of our assets and/or our commercial
operations, which we expect would provide us with additional capital although there is no guarantee that we will complete such a transaction
on favorable terms to us, or at all. Our current cash resources are not sufficient to complete the research and development of any
or all of our therapeutic candidates and to fully support our commercial operations until generation of sustainable positive cash flows.
We expect that we will incur additional losses as we continue to focus our resources on advancing the development of our therapeutic candidates,
as well as advancing our commercial operations, based on a prioritized plan that may result in negative cash flows from operating activities.
Most of our therapeutic candidates are in late-stage clinical development. All of
our therapeutic candidates will likely require successful additional clinical and non-clinical trials before we can obtain the regulatory
approvals in order to initiate commercial sales of them, if at all. We have incurred losses since inception, principally as a result of
research and development, selling, marketing, and business development, and general and administrative expenses in support of our operations.
We experienced net income of approximately $51 million in the first six months of 2023, net loss of $71.7 million for the twelve months
ended December 31, 2022, and net loss of $97.7 million for the twelve months ended December 31, 2021. As of June 30, 2023, we had an accumulated
deficit of approximately $382 million. Our ability to generate sufficient revenues to sustain our business operations in accordance with
our plan and to achieve profitability depends mainly upon our ability, alone and/or with others, to successfully commercialize or promote
our current commercial products and products that we may acquire or for which we may acquire commercialization rights in the future, develop
our therapeutic candidates, obtain the required regulatory approvals in various territories. We may be unable to achieve any or all of
these goals with regard to our current commercial products, our therapeutic candidates or products we may commercialize or promote in
the future. As a result, we may never achieve sufficient revenues to sustain our business operations in accordance with our plan or be
profitable.
Our capital requirements are subject to numerous
risks.
Our long-term capital requirements are expected to depend on many potential factors,
including but not limited to:
| • |
whether we are able to complete a strategic business transaction, including a potential divestment of certain of our assets and/or
our commercial operations, on favorable terms to us, or at all; |
| • |
the progress, success, and cost of our clinical and non-clinical trials and research and development programs, including manufacturing;
|
| • |
the number and type of commercial products we commercialize; |
| • |
our ability to successfully commercialize our current commercial products and products that we may commercialize or promote in the
future, including through securing commercialization agreements with third parties and favorable pricing and market share or through our
own commercialization capabilities; |
| • |
the existence and entrance of generics into the market, including entrances into the market as a result of adverse outcomes in Abbreviated
New Drug Application (“ANDA”) litigation, that could compete with our products and erode the profitability of our commercial
products or products that we may commercialize or promote in the future; |
| • |
the number and type of therapeutic candidates in development; |
| • |
our ability to successfully complete our clinical and non-clinical trials and research and development programs, including recruitment
and completion of relevant pediatric and oncology studies, since the pediatric population and the very advanced disease state and poor
prognosis of the oncology patients in our oncology studies make it particularly difficult to recruit and successfully treat the patients,
and to successfully complete the studies; |
| • |
the identification and acquisition of additional therapeutic candidates and commercial products; |
| • |
the costs, timing, and outcome of regulatory review and obtaining regulatory clarity and approval of our therapeutic candidates and
addressing regulatory and other issues that may arise post-approval; |
| • |
the costs of enforcing our issued patents and defending intellectual property-related claims; |
| • |
the costs of manufacturing, developing and maintaining sales, marketing, and distribution channels for our commercial products;
|
| • |
our consumption of available resources, especially at a more rapid consumption than currently anticipated, resulting in the need
for additional funding sooner than anticipated; |
| • |
the amount and frequency of any milestone or royalty payments for which we are responsible; and |
| • |
the ability and interest of investors to invest in our products and activities. |
We have limited experience achieving regulatory
approval or out-licensing our therapeutic candidates, making it difficult to evaluate our business and prospects.
Talicia®
is our first and only product that was developed internally and approved for marketing by the FDA. We have limited experience in commercializing
products and achieving regulatory approval or out-licensing our therapeutic candidates. Consequently, any predictions about our future
performance may not be accurate, and we may not be able to fully assess our ability to commercialize our current commercial products or
ones we may acquire or develop in the future, complete the development or obtain regulatory approval for our current and future therapeutic
candidates or obtain regulatory approvals, reimbursement by third-party payors, achieve market acceptance or competitive pricing of our
current commercial products or products that we may commercialize or promote in the future.
If we are unable to maintain and train an effective
commercial infrastructure, including sales and marketing infrastructure, or maintain compliant and adequate commercial capabilities, we
will not be able to successfully commercialize and grow our current commercial products and any products we may commercialize or promote
in the future.
We and our employees, as well as our contractors, must comply with applicable regulatory
requirements and restrictions relating to marketing and advertising. If we are unable to maintain compliant and adequate sales and marketing
capabilities, including training our new sales personnel (including sales contractors) regarding applicable regulatory requirements and
restrictions, we may not be able to increase our product revenue, may generate increased expenses, and may be subject to regulatory investigations
and enforcement actions.
Our commercial efforts, including our sales and marketing efforts, must comply with
various laws and regulations. Under applicable FDA marketing regulations, prescription drug promotions must be consistent with and not
contrary to labeling, present “fair balance” between risks and benefits, be truthful and not false or misleading, be adequately
substantiated (when required), and include adequate directions for use. Additionally, our marketing activities may be subject to enforcement
by the Federal Trade Commission, state attorneys general, and consumer class-action liability if we engage in any practices that appear
misleading or deceptive to the applicable agencies or consumers.
In addition to the requirements applicable to approved drug products, we may also
be subject to enforcement action in connection with any promotion of an investigational new drug. A sponsor or investigator, or any person
acting on behalf of a sponsor or investigator, may not represent in a promotional context that an investigational new drug is safe or
effective for the purposes for which it is under investigation or otherwise promote the therapeutic candidate.
If the FDA investigates our marketing and promotional materials or other communications
and finds that any of our current or future commercial products are being marketed or promoted in violation of the applicable regulatory
restrictions, we could be subject to FDA enforcement action. Any enforcement action (or related lawsuit, which could follow such action)
brought against us in connection with alleged violations of applicable drug promotion requirements, or prohibitions, could have an adverse
effect on our reputation, business, financial condition or results of operations, as well as the reputation of any approved drug products
we may commercialize or promote in the future. In addition, we may also be reliant on third parties’ compliance with such regulations.
Moreover, laws and regulations covering commercialization activities in the pharmaceutical
industry are constantly changing, and we will need to continually update and adjust our policies and sales and marketing and commercialization
activities to meet legal and regulatory requirements. Our ability to comply with legal and regulatory requirements at any time in time
does not guarantee we will continue to be able to comply in the future.
In addition to complying with applicable laws and regulations covering commercialization
activities in the pharmaceutical industry, we must also comply with various contractual terms governing our use of third-party intellectual
property in our commercialization materials.
In order to maintain and potentially increase
our commercialization capabilities in the U.S. and outside the U.S., we may need to maintain and potentially expand, among others, our
development, regulatory, manufacturing, sales and marketing capabilities, and to maintain or potentially increase our personnel to accommodate
sales. We may experience difficulties in managing this growth and integrating new personnel.
To maintain and potentially increase our own commercialization capabilities in the
U.S. and outside the U.S. we may need to expand, among others, our development, regulatory, manufacturing, sales and marketing capabilities,
and to maintain or potentially increase our personnel to accommodate sales. We may not be able to secure or retain personnel, organizations
or vendors that are adequate in number or expertise to successfully and lawfully market and sell our products in the U.S. or outside the
U.S. If we are unable to maintain or expand our sales and marketing capabilities, train our sales force or contractors effectively or
provide any other capabilities necessary to commercialize products, we may need to contract with third parties to market and sell our
products which could have an adverse effect on our financial condition and our results of operations.
We may also have difficulty in integrating into our existing U.S. operations sales
and other commercial personnel or contractors that we may hire or engage to support the commercialization of Talicia®
and Aemcolo®. Sales personnel or contractors' productivity
may decrease as we hire new, less experienced sales personnel or contractors who are not yet familiar with our commercial products. In
addition, we may be exposed to greater regulatory and compliance risks with an expanded sales force and activities to the extent applicable.
Future growth may impose significant added responsibilities on members of management,
including the need to identify, recruit, maintain, motivate and integrate additional employees or contractors. Our U.S. subsidiary, RedHill
U.S., has recently experienced high turnover rates due to the overall tightening and increasingly competitive labor market in the U.S.
employment market in response to the COVID-19 pandemic. See “– Our business could suffer
if we are unable to attract and retain key personnel” below. In addition, management may have to divert a disproportionate
amount of its attention away from running our day-to-day activities and devote a substantial amount of time to managing these growth activities.
Although Aemcolo®
was approved by the FDA before we acquired rights to it, such approval is contingent upon the completion of two additional postmarketing
studies in specified pediatric populations.
The Pediatric Research Equity Act (PREA) amended the federal Food, Drug, and Cosmetic
Act (FDCA) by authorizing the FDA to require that NDA submissions must each contain an assessment of the safety and effectiveness of the
product for the claimed indications in all relevant pediatric subpopulations that supports dosing and administration for each pediatric
subpopulation for which the product is safe and effective. The FDA may, in some cases, grant deferrals for submission of some or all pediatric
data until after the product’s approval for use in adults (in addition to full and partial waivers).
Aemcolo®
received FDA approval on November 16, 2018, for the treatment of travelers’ diarrhea caused by non-invasive strains of Escherichia
coli in adults, subject to the completion of the deferred pediatric studies required by PREA as mandatory postmarketing studies.
In acquiring the ownership rights to Aemcolo®, we
assumed responsibility for completing any postmarketing requirements or commitments that may be required to retain approval. Accordingly,
we must conduct two randomized, placebo-controlled studies to evaluate the safety, tolerability, and efficacy of Aemcolo®
for the treatment of travelers’ diarrhea in (i) children from 6 to 11 years of age and (ii) children from 12 to 17 years of age,
respectively.
In conducting the required pediatric postmarketing studies for Aemcolo®,
we must comply with various regulatory requirements set forth in, or pursuant to, PREA (in addition to other FDA regulations to which
clinical trials are subject, more generally). For example, pediatric study sponsors must submit periodic reports to the FDA on the status
of each study and other relevant information, such as (among other things) whether any difficulties have been encountered, as well as
annual reports regarding clinical safety. Such sponsors are also required to submit to the FDA a timetable for completion in connection
with each pediatric postmarketing study, along with a set of milestone dates (which typically include dates for final protocol submission,
clinical study completion, and final report submission) by which the FDA will measure the study’s progress and compliance with applicable
requirements. After submitted to and approved by the FDA, pediatric study sponsors must adhere to the agreed-upon timetables and milestones
in conducting each study. Any failure to meet the deadlines established by the applicable timetable or milestone dates for a given pediatric
study constitutes a violation of the FDCA (per PREA).
The timelines and milestones initially set for the contemplated postmarketing Aemcolo®
studies, in relevant part, required that we complete the study in children from 6 to 11 years of age by June 2022 and the study in children
from 12 to 17 years of age by December 2022, with submission of the final study reports by December 2022 and 2023, respectively. Due to
the impact of COVID-19 and travel restrictions, we submitted a proposal to the FDA and received approval to extend the deadlines for study
completion to January 2025 for each of the studies and to extend the corresponding final report submission deadlines to December 2025.
Upon completion of the Aemcolo® studies, if achieved,
we will submit the required reports containing the safety and efficacy results of each study as supplements to the approved NDA for Aemcolo®,
along with the proposed labeling changes (incorporating the relevant dosage and administration information for the studied pediatric populations)
that we believe to be warranted based on the data derived from such studies. We cannot be certain that the safety and efficacy results
of the pediatric postmarketing studies for Aemcolo®
will be favorable, and it is possible that such study results could ultimately cause the FDA to require certain pediatric-specific labeling
for Aemcolo® that may negatively affect its reputation,
competitive advantages, and/or profitability.
If we fail to complete the required pediatric postmarketing studies for Aemcolo®
in accordance with PREA, we may be subject to the traditional FDA enforcement actions authorized under most other contexts, such as warning
letters, seizure, injunction, and withdrawal or suspension of the marketing approval for Aemcolo®,
among others, any of which may have a material adverse effect on our reputation, business, financial condition or results of operations.
In addition, the FDA is required to issue PREA-Non-Compliance Letters to any sponsors who fail to meet specified PREA requirements and
to publicly post each such Non-Compliance Letter on the designated FDA webpage. The postmarket pediatric obligations we assumed upon acquiring
Aemcolo® could subject us to any of the above-described
actions, as well as more substantial consequences beyond the scope of the FDA’s traditional enforcement authority. In particular,
non-compliance with PREA’s postmarketing pediatric requirements could give rise to civil monetary penalties of up to $250,000 per
violation and up to a total of $10 million for all violations adjudicated in a single proceeding. In addition, failure to fulfill any
postmarketing commitments that we agreed to assume could also result in our breach of the license agreement with Cosmo Pharmaceuticals
N.V. (“Cosmo”) and cause us to lose our rights thereunder.
Any collaborative arrangements that we have
established or may establish may not be successful, or we may otherwise not realize the anticipated benefits from these collaborations,
including commercialization of our current commercial products. We do not control third parties with whom we have or may have collaborative
arrangements, and we rely on such third parties to achieve results which may be significant to us. In addition, any current or future
collaborative arrangements may place the commercialization of our current commercial products or products that we may commercialize or
promote in the future or the development of our therapeutic candidates outside our control and may require us to relinquish important
rights or may otherwise be on terms unfavorable to us.
Each of our collaborative arrangements requires us to rely on external consultants,
advisors, and experts for assistance in several key functions, including clinical development, manufacturing, regulatory, market research,
intellectual property, and commercialization. We do not control these third parties, but we rely on such third parties to achieve results,
which may be significant to us. With respect to Aemcolo®,
we rely on Cosmo, the party responsible for, among others, the manufacture, supply, and other operating responsibilities. With respect
to Talicia®, we rely on Recipharm
Strängnäs AB (“Recipharm”) and other contracting parties for the manufacture of Talicia®
and its components and we rely on Gaelan Medical Trade LLC (“Gaelan Medical”) to obtain necessary approvals and commercialize
Talicia® in the UAE.
Relying upon collaborative arrangements to commercialize our current commercial products
and other products that we may commercialize or promote in the future and to develop our therapeutic candidates, subjects us to a number
of risks, including but not limited to the following:
| • |
we will be responsible for making certain milestones, royalty or other payments under our various in-licenses even if our operating
costs exceed the revenues generated from the relevant products; |
| • |
our collaborators may default on their obligations to us and we may be forced to either terminate, litigate or renegotiate such arrangements;
|
| • |
our collaborators may have claims that we breached our obligations to them which may result in termination, renegotiation, litigation
or delays in performance of such arrangements; |
| • |
we may not be able to control the amount and timing of resources that our collaborators may devote to our current commercial products,
products that we may commercialize or promote in the future or our therapeutic candidates; |
| • |
our collaborators may fail to comply with applicable laws, rules, or regulations when performing services for us, and we could be
held liable for such violations; |
| • |
our collaborators may experience financial difficulties, making it difficult for them to fulfill their obligations to us, including
payment obligations, or they may experience changes in business focus; |
| • |
our collaborators’ partners may fail to secure adequate commercial supplies for our current commercial products or products
that we may commercialize or promote; |
| • |
our collaborators’ partners may have a shortage of qualified personnel; |
| • |
we may be required to relinquish important rights, such as marketing and distribution rights; |
| • |
business combinations or significant changes in a collaborator’s business or business strategy may adversely affect a collaborator’s
willingness or ability to complete its obligations under any arrangement; |
| • |
under certain circumstances, a collaborator could move forward with a competing therapeutic candidate or commercial product developed
either independently or in collaboration with others, including our competitors; |
| • |
collaborative arrangements are often terminated or allowed to expire, which may limit or terminate our rights to commercialize our
current commercial products or products we may commercialize or promote in the future, or could delay the development and may increase
the cost of developing our therapeutic candidates; |
| • |
our collaborators may not wish to extend the terms of our agreements related to our commercial products or therapeutic candidates
beyond the existing terms, in which case, we will not have access to existing rights upon the expiration and will therefore not be able
to develop such therapeutic candidates or commercialize or promote such products following the initial terms of our agreements; and
|
| • |
our collaborators may wish to terminate the collaborative arrangements due to any disagreements or conflicts with us, a change in
their assessment that the arrangement is no longer valuable, a change in control or in management or in strategy, changes in product development
or business strategies of our collaborators. |
In addition, our reliance upon our partners in connection with commercial activities
subjects us to a number of additional risks, including but not limited to, the following:
| • |
we do not generally control our partners’ communications with the FDA or other foreign regulatory authorities, and the FDA
or other foreign regulatory authorities may determine not to approve or elect to withdraw the products from the market due to various
factors including any action or inaction taken by our partners (see “ – Our current commercial products or products which
we may commercialize or promote in the future may be subject to recalls or market withdrawal that could have an adverse effect on our
reputation, business, financial condition or results of operations.”); |
| • |
in many instances, we rely on our partners to take enforcement action to protect the IP and regulatory protections, if any, of some
of our commercial products. Their failure to diligently protect these products could materially affect our commercial success; |
| • |
we rely on our partners to be responsible for the manufacture of some
of our current commercial products, including through third-party manufacturers with the requisite quality and manufacturing standards
as required under applicable laws and regulations, and we also rely on those same partners to supply their respective products and active
pharmaceutical ingredients (“APIs”), which may result in us having those respective products and APIs in insufficient quantities
or not delivered in as timely a manner as is necessary to achieve adequate or successful promotion and sale of their respective products;
|
| • |
our partners relating to our commercial products may significantly create or change reimbursement agreements or increase or decrease
the price of their respective products to a level that could adversely affect our sales or revenues; |
| • |
our partners may make decisions related to the product and take critical actions to support the product, including with respect to
promotion, sales and marketing, medical affairs and pharmacovigilance, and any action or inaction taken by those same partners may adversely
affect the approval, promotion and sales of their respective commercial products; |
| • |
our partners may terminate their agreements with us after an agreed-upon period for reasons set forth in those same partners’
respective agreements with us; |
| • |
our partners for future commercial products may change or create new agreements with wholesalers, Pharmacy Benefit Managers or other
important stakeholders, which may significantly impact our ability to achieve commercial success, or they may fail to negotiate reimbursement
agreements with payors which could also negatively affect our commercial success; |
| • |
our partners may change the price of their respective commercial products to a level that could adversely affect our sales or revenues;
and |
| • |
our partners may not be successful in maintaining or expanding reimbursement from government or third-party payors, such as insurance
companies, health maintenance organizations and other health plan administrators, which may adversely affect the sales of their respective
products. |
If any of these or other scenarios materialize, they could have an adverse effect
on our reputation, business, financial condition or results of operations.
If we acquire products, technologies, companies
or businesses that own rights to, or otherwise acquire commercialization and related rights to, products, such transactions could result
in additional costs, integration or operating difficulties, dilution and other adverse consequences. Such acquired products, technologies
or businesses that own rights to products may not achieve commercial success or further establish our marketing and commercialization
capabilities.
Part of our strategy is to identify and acquire rights to products that have
been cleared or approved for marketing in the U.S. or elsewhere, and in particular, those with a therapeutic focus on GI and infectious
diseases or with therapeutic activities which are overlapping or complementary to our existing commercial activities. Management has evaluated,
and expects to continue to evaluate, a wide array of potential strategic acquisitions. From time to time, management may engage in discussions
regarding potential acquisitions or licensing of rights to certain products that management believes are important to our business. Any
one of these transactions could have a material effect on our reputation, business financial condition or results of operations. In connection
with these acquisitions or licensing transactions, we may:
| • |
issue equity securities that may substantially dilute our shareholders’ percentage of ownership; |
| • |
be obligated to make upfront milestones, royalty or other contingent or non-contingent payments; |
| • |
incur debt or non-recurring and other charges, or assume liabilities; and |
| • |
incur amortization expenses related to intangible assets or incur large and immediate write-offs of assets or goodwill or impairment
charges. |
In addition, the process of integrating an acquired product, technology, company or
business may create operating difficulties and expenditures and pose numerous additional risks to our operations, including:
| • |
difficulty and expense in integrating the acquired product, technology, company or business, and personnel in accordance with our
business strategy and existing operations, including the failure to achieve the expected benefits and synergies; |
| • |
obligations to further develop and commercialize the acquired product, technology, company or business, in particular in jurisdictions
outside of those in which we have experience operating; |
| • |
higher than anticipated acquisition costs and expenses; |
| • |
failure to manufacture or supply, or procure manufacturers or suppliers for, the acquired product, technology, company or business
economically or successfully commercialize or achieve market acceptance of the acquired product; |
| • |
exposure to liabilities of the acquired product, technology, company or business, including contract terms and conditions that are
less favorable to us than our standard contractual terms, known or unknown risks relating to the validity or enforceability of patents,
expiration of patents or exclusivity rights, generic competition, product defects or product liability claims, patent and other litigation
and clinical, development or other liabilities; |
| • |
disruption of our business and diversion of our management’s and technical personnel’s time and attention from their
day-to-day responsibilities; |
| • |
adverse effects on our reputation, business, financial condition or results of operations, including due to expenditures or acquisition-related
costs, costs of commercialization or amortization or impairment costs for acquired goodwill and other intangible assets; |
| • |
impairment of relationships with key suppliers and manufacturers due to changes in management and ownership and difficulty in maintaining
existing agreements, licenses and other arrangements or rights on substantially similar terms as existed prior to the acquisition;
|
| • |
regulatory changes and market dynamics after the acquisition; and |
If any of the above events (or more) occur, or if we cannot effectively manage
or respond to such events following one or more acquisitions, they may have a material adverse effect on our reputation, business, results
of operations or financial condition.
Moreover, there can be no assurance that we will accurately or consistently identify
products approved or cleared for marketing that will achieve commercial success, that we will be able to successfully acquire or commercialize
such products or that such acquisitions would further establish our marketing and commercialization capabilities.
Maintaining and potentially expanding our commercial
infrastructure in the U.S., is a significant undertaking that requires substantial financial and managerial resources, and we may encounter
setbacks or may not be successful in our efforts.
Maintaining and potentially expanding the necessary commercial capabilities is competitive
and time-consuming, and the commercialization of Talicia®
and Aemcolo® requires a significant expenditure of
operating, financial and management resources. Even with those investments, we may not be able to effectively commercialize our current
commercial products, or we may incur more expenditures than anticipated in order to maximize our sales. We cannot guarantee that we will
be able to maintain or expand our sales, marketing, distribution, and market access capabilities and enter into and maintain any agreements
necessary for commercialization with payors and third-party providers on acceptable terms, if at all. If we are unable to maintain or
expand such capabilities, either on our own or by entering into agreements with others, or are unable to do so in an efficient manner
or on a timely basis, we will not be able to maximize the commercialization of our current commercial products or products that we may
commercialize or promote in the future, which would adversely affect our reputation, business, financial condition or results of operations.
Even if the commercialization of our current and future commercial products is successful,
we may fail to further our business strategy as anticipated or to achieve anticipated benefits and success. We may incur higher than expected
costs in connection with the commercialization of our current commercial products, and we may encounter general economic or business conditions
that adversely affect these products.
In addition, if we incur higher than expected costs in connection with the commercialization
of our current and future commercial products, we may need to reduce or terminate our commercial activities, which may have a material
adverse effect on our reputation, business, financial condition or results of operations.
We have a limited history of independently
commercializing products that we developed and for which we obtained regulatory approval, such as Talicia®,
and a limited history of commercializing products in the U.S. Due to our limited experience, we may have difficulty commercializing current
commercial products, including Talicia®
and Aemcolo®,
or promoting or commercializing any products for which we may obtain FDA approval or to which we may acquire commercialization or promotion
rights in the future.
Compared to competitors in the industry, we have relatively limited experience marketing
and selling products in the U.S. In particular, we have limited experience in commercializing products that we developed and for which
we obtained regulatory approval, such as Talicia®,
which may materially increase our marketing and sales expenses or cause us to be ineffective in these efforts. Talicia®
is the first product that we are commercializing that we developed and for which we obtained regulatory approval.
Our prior experience promoting and commercializing several other commercial products
in the U.S. that we no longer commercialize or promote was limited and brief.
There can be no assurance we will successfully commercialize our current commercial
products or any products we may commercialize or promote in the future.
In addition, many companies, both public and private, including well-known pharmaceutical
companies and smaller niche-focused companies, are currently selling, marketing and distributing drug products that directly compete with
our current commercial products and therapeutic candidates that we may seek to commercialize in the future. Many of these companies have
significantly greater financial capabilities, marketing, and sales experience and resources than us. As a result, our competitors may
be more successful than we are in commercializing products, and we may not be able to generate sufficient revenue to achieve or sustain
profitability.
Our failure to accurately forecast demand for
our commercial products, or to quickly adjust to forecast changes, could adversely affect our business and financial results.
Market uncertainty make it difficult for us to accurately forecast future commercial
product demand. We will be setting target levels for the manufacture of our commercial products in advance of purchases based upon our
forecasts of commercial product sales.
If our forecasts exceed demand, we could experience excess inventory
of APIs or of our commercial products, which can increase our inventory costs and result in obsolete inventory. Alternatively, if demand
exceeds our forecasts, this may cause a shortage of commercial products, or the APIs used in our products, which could result in an inability
to satisfy demand for our commercial products and a resulting material loss of market share and potential revenue. A failure to accurately
predict the level of demand for our commercial products could adversely affect our revenues and net income.
In addition, some of our suppliers may require extensive advance notice of our requirements
in order to produce APIs or commercial products in the quantities we desire. Long lead times may require us to place orders far in advance
of the time when the commercial products will be offered for sale, and limitations on our flexibility to change such orders may not only
make it difficult for us to accurately forecast demand for our commercial products, but also expose us to risks relating to shifts in
consumer demand and trends and adversely affecting our operating results.
If third parties do not manufacture, our therapeutic
candidates, upon approval, if any, or products we may commercialize or promote in the future in sufficient quantities, within the required
timeframes, at an acceptable cost and in accordance with applicable quality standards and other regulatory requirements, the commercialization
of our current commercial products or products we may commercialize or promote in the future may be adversely affected, or clinical development
of our therapeutic candidates.
We do not currently own or operate manufacturing facilities. We rely on, and expect
to continue to rely on, third parties to manufacture commercial quantities of our current commercial products and products that we may
commercialize or promote in the future and clinical quantities of our therapeutic candidates. We rely on Recipharm and other contracting
parties to provide sufficient quantities of Talicia®
in the required timeframe. We rely on Cosmo to provide sufficient quantities of Aemcolo®
in the required timeframe. We rely on various third parties to satisfy our supply requirements and there is no guarantee they will be
able to do so successfully or in a timely manner. Our reliance on third parties includes our reliance on them for quality assurance related
to regulatory compliance. Our current and anticipated future reliance upon others for the manufacture of our therapeutic candidates and
any products that we may commercialize or promote may adversely affect our future operations and our ability to commercialize our current
commercial products and any products that we may commercialize or promote on a timely and competitive basis, and to develop therapeutic
candidates.
We may not be able to maintain our existing or future third-party manufacturing arrangements
on acceptable terms, if at all. If for some reason our manufacturers or our development or commercialization partners’ manufacturers
do not perform as agreed or expected or terminate or fail to renew the agreements for any reason, we or our partners may be required to
replace them, in which event we may incur added costs and delays in identifying, engaging, qualifying under applicable regulatory requirements
and training any such replacements and entering into agreements with such replacements on acceptable terms. In addition, our ability to
enter into such alternative arrangements within a reasonable period of time, if at all, may be contractually limited by the terms of our
manufacturing agreements existing at that time. Obtaining the necessary FDA or other regulatory approvals or other qualifications required
for changes in manufacturing sites, methods or processes under applicable regulatory requirements could result in a significant interruption
of supply. In the case of the manufacturer of Talicia®,
in particular, the delay in identifying, engaging, qualifying and training its replacement may be extended, leading to a significant interruption
of supply. Any such additional costs and delays may adversely impact our ability to obtain regulatory clearances and approvals for our
therapeutic candidates or any product we may commercialize or promote or make such commercialization or marketing economically unfeasible.
We rely on third parties to manufacture and
supply us with high-quality APIs and their starting materials in the quantities and quality we require on a timely basis.
We currently do not manufacture any APIs ourselves. Instead, we rely on third-party
vendors for the development, manufacture, and supply of our APIs that are used to formulate our current commercial products and products
we may commercialize or promote in the future and our therapeutic candidates. If these suppliers are incapable or unwilling to meet our
current or future needs on acceptable terms or at all, we could experience delays in supplying product to market or commercial supply
shortages that would adversely affect our sales of products we currently or may commercialize or promote in the future, or delays in obtaining
regulatory clearances or approvals for our therapeutic candidates.
While there may be several alternative suppliers of APIs on the market, for most of
our products we have yet to conclude extensive investigations into the quality or availability of their APIs. Changing API suppliers or
finding and qualifying new API suppliers can be costly and take a significant amount of time. Many APIs require significant lead-time
to manufacture. There can also be challenges in maintaining similar quality or technical standards from one manufacturing batch to the
next.
If we are not able to find stable, affordable, high quality, or reliable supplies
of our APIs, we may not be able to produce enough supplies of our current commercial products or products we may commercialize or promote
in the future, or of our therapeutic candidates, which could have a material adverse effect on our reputation, business, financial condition
or results of operations.
In addition, while to date there have been no significant disruptions to our supply
chain, including to the manufacture of our APIs or their starting materials, there may be unfavorable changes in the availability or cost
of raw materials, intermediates, and other materials necessary for production, which may result in disruptions in our supply chain.
We anticipate continued reliance on third party
manufacturers for our current commercial products, and we expect to rely on third-party manufacturers if we are successful in obtaining
marketing approval from the FDA and other regulatory agencies for any of our therapeutic candidates.
We rely on, and we expect to continue to rely on, third-party manufacturers to produce
commercial quantities of our current commercial products. In addition, we expect to rely on third-party manufacturers to produce products
that we may commercialize or promote in the future. To date, other than Talicia®,
which the FDA has approved for marketing in the U.S., our therapeutic candidates have been manufactured in relatively small quantities
for preclinical testing and clinical trials, as well as for other regulatory purposes by third-party manufacturers. If the FDA or other
regulatory agencies approve any of our current or future therapeutic candidates for commercial sale, we expect that we would rely, at
least initially, on third-party manufacturers to produce commercial quantities of our approved therapeutic candidates. These manufacturers
may not be able to successfully increase or maintain the manufacturing capacity for our current commercial products or any product we
may commercialize or promote in the future or any of our therapeutic candidates that may be approved in the future, in a timely or economic
manner, or at all. The significant scale-up of manufacturing may require additional validation studies, which the FDA must review and
approve. Foreign regulatory agencies may also require the approval of additional validation studies for scaling up the manufacturing process
of any of our therapeutic candidates or current or future commercial products. If the third-party manufacturers are unable to successfully
increase or maintain the manufacturing capacity for a therapeutic candidate, current commercial products or for products that we may commercialize
or promote in the future, or if we are unable to secure replacement third-party manufacturers or unable to establish our own manufacturing
capabilities, the commercial launch of any approved products may be delayed or there may be a shortage in supply. A supply disruption
from any of our third-party manufacturers could have a material adverse effect on our reputation, business, financial condition or results
of operations.
Reliance on third party manufacturers entails risks, including, but not limited to:
| • |
manufacturing delays if our third-party manufacturers give greater priority to the supply of other products over our current or future
commercial products, including Talicia® and Aemcolo®,
or any future therapeutic candidates, if approved, or otherwise do not satisfactorily perform according to the terms of their agreements
with us; |
| • |
the possible termination or nonrenewal of manufacturing agreements by the third-party manufacturers at a time that is costly or inconvenient
for us; |
| • |
the possible breach of manufacturing agreements by third-party manufacturers; |
| • |
inability to fulfill all or part of our undertakings and commitments to our current or future commercialization partners in the U.S.
and other territories, such as our partner Gaelen Medical, due to, among other things, delays or lack of supply by manufacturers of commercial
products or the supply of such products in quantity or quality which is inadequate or not in line with the required regulatory standards
or our agreements; |
| • |
delays in obtaining regulatory approval for any future therapeutic candidates, if our third-party manufacturers fail to satisfy FDA
inspection requirements in connection with pre-approval inspections or otherwise fail to comply with regulatory requirements; and
|
| • |
product loss or serious adverse events due to contamination, equipment failure, or improper installation or operation of equipment
or operator error. |
If we are unable to establish collaborations
for our therapeutic candidates or products we may commercialize or promote, or otherwise not be able to raise substantial additional capital,
we will likely need to alter or abandon our development and commercialization plans.
Our drug development programs and the potential commercialization of
our approved products or our therapeutic candidates and products that we may commercialize or promote in the future will require additional
cash to fund expenses. As such, our strategy includes either selectively partnering or collaborating with multiple pharmaceutical and
biotechnology companies to assist us in furthering the development or potential commercialization of our approved products and therapeutic
candidates, if approved, promoting or commercializing products, in whole or in part, in some or all jurisdictions or through our own commercialization
capabilities, such as our partnership with Gaelan Medical. With respect to potential new third-party partners for the development or commercialization
of our approved products and therapeutic candidates, if approved, and development or commercialization of products that we may commercialize
or promote in the future, we may not be successful in entering into collaborations with third parties on acceptable terms, or at all.
In addition, if we fail to negotiate and maintain suitable development, commercialization or promotion agreements or otherwise raise substantial
additional capital to secure our own commercialization capabilities, we may have to limit the size or scope of our activities or we may
have to delay or terminate one or more of our development or commercialization programs. Any failure to enter into (or in the case of
Gaelen Medical, any failure to maintain) development or commercialization agreements with respect to the development, marketing and commercialization
of any therapeutic candidates or products we may commercialize or promote or failure to develop, market and commercialize such commercial
products or therapeutic candidates or products we may commercialize or promote independently may have an adverse effect on our reputation,
business, financial condition or results of operations.
We may depend on our ability to identify, consummate
and integrate in-licenses or acquire additional therapeutic candidates to achieve commercial success, including products approved or cleared
for marketing in the U.S. or elsewhere.
Talicia®,
Aemcolo® and our five clinical-stage development
therapeutic candidates were all acquired or licensed by us from third parties and we may in the future pursue in-licenses or acquisitions
of additional therapeutic candidates or products and seek to integrate them into our operations as well. We evaluate internally and with
external consultants each therapeutic candidate we in-license or acquire. However, there can be no assurance as to our ability to accurately
or consistently identify therapeutic candidates or products that have been approved or cleared for marketing in the U.S. or elsewhere
that are likely to achieve commercial success. In addition, even if we identify additional therapeutic candidates or products that have
been approved or cleared for marketing in the U.S. or elsewhere that are likely to achieve commercial success, there can be no assurance
as to our ability to in-license or acquire such therapeutic candidates or products under favorable terms or at all. In-licenses and acquisitions
of therapeutic candidates and products involve risks that could adversely affect our future results of operations.
We compete with other entities for some in-license
or acquisition opportunities.
As part of our overall strategy, we pursue opportunities to in-license or acquire
therapeutic candidates and products that have been approved or cleared for marketing in the U.S. We may compete for in-license and acquisition
opportunities with other companies, including established and well-capitalized companies. As a result, we may be unable to in-license
or acquire additional therapeutic candidates or products that have been approved or cleared for marketing in the U.S. at all or on favorable
terms. Our failure to further in-license or acquire therapeutic candidates or products that have been approved or cleared for marketing
in the U.S. in the future may materially hinder our ability to grow and could materially harm our reputation, business, financial condition
or results of operations.
If we or a licensor or a partner of ours cannot
meet our or their respective obligations under our acquisition, in-license or other development or commercialization agreements or renegotiate
the obligations under such agreements, or if other events occur that are not within our control, such as bankruptcy of a licensor or a
partner, we could lose the rights to our therapeutic candidates or products we may commercialize or promote, experience delays in developing
or commercializing our therapeutic candidates or products we may commercialize or promote or incur additional costs, which could have
a material adverse effect on our reputation, business, financial condition or results of operations.
We acquired our rights to Talicia®
and two of our other therapeutic candidates, RHB-104, and RHB-106, from a third party pursuant to an asset purchase agreement. In
addition, we in-licensed our rights to three other therapeutic candidates, RHB-102 (Bekinda®),
opaganib, and RHB-107 (upamostat), pursuant to license agreements in which we received exclusive perpetual licenses to certain patent
rights and know-how related to these therapeutic candidates. We have also obtained the exclusive U.S. rights to commercialize Aemcolo®
pursuant to a license agreement. These agreements require us to make payments and satisfy various performance obligations in order to
maintain our rights and licenses with respect to these marketed products and therapeutic candidates. If we or our collaborators do not
meet our or their respective obligations under these or future agreements, or if other events occur that are not within our control, such
as the bankruptcy of a licensor, we could lose the rights to commercialize our current and future commercial products or to our therapeutic
candidates, experience delays in developing our therapeutic candidates or incur additional costs.
In addition, we are responsible for the cost of filing and prosecuting certain patent
applications and maintaining certain issued patents licensed to us. If we do not meet our obligations under these agreements in a timely
manner or if other events occur that are not within our control, such as the bankruptcy of a licensor, which impact our ability to prosecute
certain patent applications and maintain certain issued patents licensed to us, we could lose the rights to our current and future commercial
products or our therapeutic candidates which could have a material adverse effect on our reputation, business, financial condition or
results of operations. We manage a large portfolio of patents and may decide to discontinue maintaining certain patents in certain territories
for various reasons, including costs, such as a current belief that the commercial market for the therapeutic candidate will not be large
or that there is a near-term patent expiration that may reduce the value of the therapeutic candidate. In the event we discontinue maintaining
such patents, we may not be able to enforce rights for our therapeutic candidates or protect our therapeutic candidates from competition
in those territories.
Disputes may arise between
us and third parties from whom we have acquired assets or commercialization rights, with which we have license agreements or with which
we have commercialization agreement. Any conflict, dispute or disagreement with such third parties may result in disruptions to our business
relationships, require us to pay damages and incur costs, adversely affect our results of operations and may lead to loss of rights that
are important to our business or costly litigation.
Our existing agreements impose, and we expect that future acquisition, commercialization
or license agreements will impose, various diligence, milestone payments, royalty or other obligations on us. Such agreements require,
or may in the future require, us to remit upfront and royalty payments or performance milestone payments, for commercial products that
we in-license and to supply and delivery of know-how for products that we out-license. Any failure on our part to perform our obligations
could lead to us losing rights under our licenses or commercialization agreements and could thereby adversely affect our business. If
there is any conflict, dispute, disagreement or issue of non-performance between us and our third-party partners regarding our rights
or obligations under the acquisition, commercialization or license agreements, including any such conflict, dispute or disagreement arising
from our failure to satisfy payment obligations under any such agreement or to perform certain activities or to adhere to any contractual
obligation, we may be liable to pay damages and incur costs, and it could lead to delays in the research, development, collaboration,
and commercialization of our commercial products, products we may promote or commercialize in the future or our therapeutic candidates.
The resolution of such disputes could require or result in litigation or arbitration, which could be time-consuming and expensive. Such
third-party partner may have a right to terminate the affected license or commercialization agreement subject to a dispute. If our existing
agreements are terminated, it would have a material adverse effect on our reputation, business, financial condition or results of operations.
Our business could suffer if we are unable
to attract and retain key and other personnel.
The loss of the services of members of senior management or other key personnel could
delay or otherwise adversely impact the successful completion of our planned clinical trials or the commercialization of our current commercial
products and therapeutic candidates, if approved, and any product we may commercialize or promote in the future, or otherwise affect our
ability to manage our company effectively and to carry out our business plan. These key personnel are Dror Ben-Asher, our Chief Executive
Officer, Reza Fathi, Ph.D., our Senior Vice President for Research and Development, Gilead Raday, our Chief Operating Officer, Adi Frish,
our Chief Corporate and Business Development Officer, Guy Goldberg, our Chief Business Officer, Razi Ingber, our Chief Financial Officer,
Rick D. Scruggs, our President, RedHill Biopharma Inc. & Chief Commercial Officer, Dr. Mark Levitt, our Chief Scientific Officer and
Rob Jackson, our Senior VP, Sales & Marketing. We do not maintain key-man life insurance. Although we have entered into employment
or consultancy agreements with all of the members of our senior management team, members of our senior management team may resign at any
time. High demand exists for senior management and other key personnel in the pharmaceutical industry. There can be no assurance that
we will be able to continue to retain and attract such personnel.
Our growth and success also depend on our ability to attract and retain additional
highly qualified scientific, technical, business development, marketing, sales, managerial and finance personnel. We experience intense
competition for qualified personnel, and the existence of non-competition agreements between prospective employees and their former employers
may prevent us from hiring those individuals or subject us to liability from their former employers. Our U.S. subsidiary, RedHill U.S.,
has recently experienced high turnover rates. A sustained labor shortage or increased turnover rates within our employee base, caused
by the COVID-19 pandemic or as a result of general macroeconomic or other factors, could lead to increased costs, such as increased overtime
to meet demand and increased wage rates to attract and retain employees, and could negatively affect our ability to efficiently operate
our manufacturing and distribution facilities and overall business. If we are unable to hire and retain employees capable of performing
at a high-level, or if mitigation measures we may take to respond to a decrease in labor availability, such as overtime and third-party
outsourcing, have unintended negative effects, our business could be adversely affected. An overall labor shortage, lack of skilled labor,
increased turnover or labor inflation, caused by the COVID-19 pandemic or as a result of general macroeconomic factors, could have a material
adverse impact on our operations, results of operations, liquidity or cash flows.
In addition, so long as we continue to promote our current commercial
products and in the event we promote additional commercial products we may develop, we need to maintain and may need to expand our marketing
and sales capabilities and retain key personnel and talented commercial employees including sales representatives. While we attempt to
provide competitive compensation packages to attract and retain key personnel, many of our competitors are likely to have greater resources
and more experience than we have. This has made it more difficult for us to successfully retain and attract key and other personnel that
are key to our growth and even the viability of our commercial operations, particularly given the numerous challenges we face, including
management’s substantial doubt about our ability to continue as a going concern. Many of our sales representatives, including
some of our must successful ones, have departed our company over time to pursue more lucrative employment opportunities. We believe
this trend may continue in the future and could pose a major challenge to our ability to operate our commercial operations. If we cannot
attract and retain sufficiently qualified suitable employees on acceptable terms, we may not be able to develop and commercialize our
commercialized products and competitive therapeutic candidates. Further, any failure to effectively integrate new personnel could materially
prevent us from successfully growing our company.
We face several risks associated with international
business.
We operate our business in multiple international jurisdictions. Such operations could
be materially affected by changes in foreign exchange rates, capital and exchange controls, expropriation and other restrictive government
actions, changes in intellectual property legal protections and remedies, changes in data privacy laws, trade regulations and procedures
and actions affecting approval, production, pricing, and marketing of, reimbursement for and access to, our current commercial products
and products we may commercialize or promote, or our therapeutic candidates, as well as by political unrest, unstable governments and
legal systems, and inter-governmental disputes. For example, though we entered into an exclusive license agreement with Gaelan Medical
for Talicia® in the UAE and the Exclusive License
Agreement for opaganib in South Korea (see “ – We face risks associated with the lawsuit we initiated against Kukbo. Regardless
of if we prevail in the lawsuit against Kukbo, we may not receive the payments due to us under certain of our license agreements). We
may not be able to obtain regulatory approval in South Korea, may experience a termination of the agreements, or may be unable to sell
the product or sell the product in sufficient quantities to generate meaningful revenues. In addition, we are subject to global events
beyond our control, including war, public health crises, such as pandemics and epidemics (as described above), trade disputes and other
international events. In the UAE, for example, threats to the stability of the Abraham Accords between the UAE, the U.S. and Israel may
disrupt our ability to supply Talicia®. Any of these
changes could have a material adverse effect on our reputation, business, financial condition or results of operations. In addition, the
current armed conflict in Ukraine and the subsequent economic sanctions imposed by some countries on Russia and certain territories in
Ukraine may negatively impact the supply chain for our commercial products, our R&D activities and our business development activities.
We face risks associated with the lawsuit we
initiated against Kukbo. Even if we prevail in the lawsuit against Kukbo, we may need to enforce the judgment in South Korea if Kukbo
does not promptly pay the judgment.
On September 2, 2022, we filed a lawsuit against Kukbo in the Supreme Court of the
State of New York, County of New York, Commercial Division, as a result of Kukbo’s default in delivering to us $5.0 million under
the Subscription Agreement, in exchange for the ADSs we were to issue to Kukbo, and in delivering to us the further payment of $1.5 million
due under the Exclusive License Agreement. Kukbo thereafter filed counterclaims alleging breach of contract, misrepresentation, and the
breach of the duty of good faith and failure dealing. Due to the uncertainties of litigation, we can give no assurance that we will prevail,
or that we will be able to collect some or all of the damages awarded to us in the event of a favorable outcome. If we do not prevail
in the lawsuit against Kukbo and receive the payments due to us under the Subscription Agreement and Exclusive License Agreement, we may
not receive any of the $6.5 million owed to us, or may have to pay associated damages and related expenses and legal fees if Kukbo receives
a favorable judgment against us in their counterclaim. The lawsuit against Kukbo may additionally divert management’s attention
and resources in preparing for litigation and defending our claim, result in disruptions to our business, and require us to pay legal
fees, damages, or associated expenses, all of which could adversely affect our ability to conduct our business.
Risks Related to Regulatory Matters
If we or our future development or commercialization
partners are unable to obtain or maintain the FDA or other foreign regulatory clearance and approval for our commercial products or therapeutic
candidates, we or our commercialization partners will be unable to commercialize our current commercial products, products we may commercialize
or promote in the future or our therapeutic candidates, upon approval, if any.
Our current commercial products must maintain, and the products we may commercialize
or promote in the future may be required to obtain and maintain, FDA and other foreign regulatory clearance and approval.
Aemcolo®
was approved by the FDA in 2018 for the treatment of travelers’ diarrhea caused by non-invasive strains of E.
coli in adults, and Talicia® was approved
for marketing in the U.S. for the treatment of H. pylori infection in adults in November 2019.
Pursuant to our license agreement with Gaelan Medical, Gaelan Medical received marketing approval for Talicia in the UAE and that Gaelan
Medical had subsequently placed the first commercial order for Talicia, which was dispatched from the contract manufacturing organization
(“CMO”) in December 2023. However, future regulatory developments may lead to a loss of the right to commercialize Talicia®
or Aemcolo® or any product we may commercialize or
promote in the future.
We currently have five therapeutic candidates in development, most of which are in
clinical stage development, with the goal of eventually seeking FDA or other foreign regulatory approvals. Our commercial products and
therapeutic candidates are subject to extensive governmental laws, regulations, and guidelines relating to the development, clinical trials,
manufacturing, marketing, promotion, and commercialization of pre- and post-approval prescription drugs. We may not be able to submit
for or obtain marketing approval for any of our therapeutic candidates in a timely manner or at all.
Any material delay in obtaining or maintaining, or the failure to obtain or maintain,
required regulatory clearances and approvals will increase our costs and may materially adversely affect our ability to continue to generate
meaningful revenues and could adversely impact our reputation, business, financial condition, results of operations or ability to attain
or sustain revenues from other markets. We also are, and will be, subject to numerous regulatory requirements from both the FDA and other
foreign regulatory authorities that govern the conduct of clinical trials, manufacturing and marketing authorization, pricing and third-party
reimbursement. Moreover, clearance or approval by one regulatory authority does not ensure clearance or approval by other regulatory authorities
in separate jurisdictions. Each jurisdiction may have different approval processes and requirements and may impose additional testing,
development and manufacturing requirements for our current commercial products and products that we may commercialize or promote in the
future and for or our therapeutic candidates.
Additionally, the FDA or other foreign regulatory authorities may require, or companies
may pursue, additional clinical trials after a product is approved for marketing. Such postmarketing studies may be mandated by the FDA
or other foreign regulatory authorities as conditions for initial or continued approval for marketing. The FDA or other foreign regulatory
authorities have expressed statutory authority to require holders of NDAs to conduct postmarketing trials to specifically address safety
and other issues identified by the regulatory authority.
Certain changes related to an approved drug, including changes to the product labeling,
manufacturing process, indications and other certain specifications set forth within the product’s NDA, may not be made until a
new NDA or NDA supplement reflecting the applicable changes is submitted to and approved by the FDA. An NDA supplement for a new indication
typically requires clinical data similar to that in the original application, including relevant pediatric data, and the FDA typically
uses the same procedures and standards in reviewing NDA supplements as it does in reviewing NDAs.
Even if a therapeutic candidate receives regulatory marketing approval, such approval
will be limited to a specific disease state(s) and might contain significant limitations on use in the form of warnings, precautions or
contraindications, or in the form of onerous risk management plans, restrictions on distribution, among other possible restrictions. Further,
even after regulatory approval is obtained, later discovery of previously unknown information, such as safety risks, problems with a product
or such information, the extent or severity of which were previously unknown, may result in restrictions on the product’s ability
to be marketed as initially approved or even complete withdrawal of the product’s NDA approval and, in effect, its removal from
the market.
Additionally, the FDA or other foreign regulatory authorities may change their clearance
or approval policies or adopt new laws, regulations or guidelines that materially delay or impair our ability to commercialize our current
commercial products and products that we may commercialize or promote in the future, or our ability to obtain the necessary regulatory
clearances or approvals for any of our current or future therapeutic candidates.
Our current commercial products or products
which we may commercialize or promote in the future may be subject to recalls or market withdrawal that could have an adverse effect on
our reputation, business, financial condition or results of operations.
The FDA and similar foreign governmental authorities have the authority to require
the recall of regulated products in the event of material deficiencies or defects in design or manufacture. In the case of the FDA, the
authority to require a recall must be based on an FDA finding that there is a reasonable probability that the product would cause serious
injury or death. In addition, foreign governmental bodies have the authority to require the recall of our products in the event of material
deficiencies or defects in design or manufacture.
Product manufacturers or owners, as applicable, may, on their own initiative, recall
a product if any material deficiency in a product is found. A government-mandated or voluntary recall by us or one of our collaborators,
as applicable, could occur as a result of manufacturing errors, design or labeling defects or other deficiencies and issues. Recalls of
any of our products would divert managerial and financial resources and will have an adverse effect on our reputation, business, financial
condition or results of operations. The FDA requires that certain classifications of recalls be reported to the FDA within 10 working
days after the recall is initiated. Companies are required to maintain certain records of recalls even if they are not reportable to the
FDA. We may initiate voluntary recalls involving our products in the future that we determine do not require notification of the FDA.
If the FDA disagrees with our determinations, they could require us to report those actions as recalls. A future recall announcement could
harm our reputation with customers and negatively affect our sales. In addition, the FDA could take enforcement action for failing to
report the recalls when they were conducted.
Regulatory authorities in other jurisdictions may have similar procedures that may
subject any product we may commercialize or promote to limitations or withdrawal requests. In addition, the FDA or other foreign regulatory
authorities may determine that the chemistry, manufacturing and controls (“CMC”) of marketed products that we develop, acquire
or to which we acquire commercialization rights, such as our current commercial products, is unsatisfactory due to the manufacturing standards
of the products. If either of these or any regulatory action is taken, our current commercial products or any product we commercialize
or promote in the future could be withdrawn from the market at any time. In addition, we may suffer from delays in further commercialization
of any product we commercialize or promote.
We and our third-party manufacturers or our
partners’ manufacturers are, and will be, subject to regulations of the FDA and other foreign regulatory authorities, such as applicable
current good manufacturing practices and other quality-based regulations.
We and our third-party manufacturers or our partners’ manufacturers are, and
will be, required to adhere to laws, regulations, and guidelines of the FDA and other foreign regulatory authorities setting forth current
good manufacturing practices (“cGMP”). These laws, regulations, and guidelines cover all aspects of the manufacturing, testing,
quality control and recordkeeping relating to our current commercial products and any products we may commercialize or promote, and our
therapeutic candidates with varying cGMP rigors depending on what phase each of our respective therapeutic candidates is in with respect
to its drug development process. We and our third-party manufacturers and our partners’ manufacturers may not be able to comply
with applicable laws, regulations, and guidelines. We and our third-party manufacturers and our partners’ manufacturers are, and
will be, subject to unannounced inspections by the FDA, state regulators and similar foreign regulatory authorities outside the U.S. Our
failure, or the failure of our third-party manufacturers or our partners’ manufacturers, to comply with applicable laws, regulations
and guidelines could result in the imposition of sanctions on us, including fines, injunctions, civil penalties, failure of regulatory
authorities to grant marketing approval of our therapeutic candidates, delays, suspension or withdrawal of approvals, license revocation,
seizures or recalls of our current and future commercial products and therapeutic candidates, operating restrictions and criminal prosecutions,
any of which could significantly and adversely affect regulatory approval and supplies of our current and future commercial products and
therapeutic candidates, and materially and adversely affect our reputation, business, financial condition or results of operations.
Furthermore, changes in the manufacturing process or procedure, including a change
in the location where the product is manufactured or a change of a third-party manufacturer, will require prior FDA or other regulatory
review or approval of the manufacturing process and procedures in accordance with the FDA’s regulations or comparable foreign requirements.
This review may be costly and time-consuming and could delay or prevent the launch or commercial production of a product. The new facility
will also be subject to pre-approval inspection. In addition, we will have to demonstrate that the product made at the new facility is
equivalent to the product made at the former facility by physical and chemical methods, which are costly and time-consuming. It is also
possible that the FDA may require clinical testing as a way to prove equivalency, which would result in additional costs and delay, and
may also result in delays in approval or commercialization of a product or render it unfeasible.
Our current commercial products, and any product
we may commercialize or promote in the future, even if all regulatory clearances and approvals are obtained, will be subject to ongoing
regulatory review. If we fail to comply with continuing U.S. and applicable foreign laws, regulations, and guidelines, we could lose those
clearances and approvals, and our reputation, business, financial condition or results of operations may be materially and adversely affected.
We or our commercialization partners, as applicable, are and will be subject to ongoing
reporting obligations with respect to our current commercial products and any cleared or approved product that we may commercialize or
promote in the future, including pharmacovigilance, and with respect to our therapeutic candidates, even if they receive regulatory clearance
or approval. In addition, the manufacturing of our current commercial products, and any other product we may commercialize or promote,
whether currently or in the future, and our therapeutic candidates, will be subject to continuing regulatory review and approval, including
inspections by the FDA and other foreign regulatory authorities. The results of any ongoing review may result in withdrawal from the market
of one of our current commercial products or products we may commercialize or promote in the future, interruption of manufacturing operations
or imposition of labeling or marketing limitations for such commercial product or therapeutic candidate, or other potentially significant
enforcement actions. Since many more patients are exposed to drugs following their marketing clearance or approval, serious adverse reactions
that were not observed in clinical trials may occur during the commercial marketing of our current commercial products or any product
we may commercialize or promote in the future, including therapeutic candidates.
If a product receives regulatory approval, the approval is limited to the specific
indications for use identified in the approved marketing application and by any additional requirements, restrictions, and limitations
identified at the time of the product’s approval or thereafter, which could restrict the commercial value of the product. As a condition
of approval or after approval (if the FDA becomes aware of new safety information), the FDA may require us to implement a Risk Evaluation
and Mitigation Strategy (REMS), which may include distribution or use restrictions to manage a known or potential serious risk associated
with the product. REMS can include medication guides, communication plans for healthcare professionals, and elements to assure safe use
(ETASU). ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under
certain circumstances, special monitoring, and the use of patient registries. The requirement for a REMS can materially affect the potential
market and profitability of a given drug. Once adopted, REMS are subject to periodic assessment and modification. Additionally, the FDA
may require post-approval, “Phase 4” clinical trials to generate additional information on safety or efficacy. The results
of such postmarketing studies may be negative and could cause the FDA to, among other things, further limit marketing efforts or a product’s
approved uses or even withdraw approval.
If we or our current or future commercialization partners, as applicable, are required
to conduct additional clinical trials or other testing of our current commercial products, or any other product we may commercialize or
promote, or of our therapeutic candidates, we may face substantial additional expenses, be delayed in obtaining marketing clearance or
approval, if required by the FDA, or may never obtain marketing clearance or approval for such product we may commercialize or promote
or therapeutic candidate.
Third-party manufacturers and the manufacturing facilities that we and our development
or commercialization partners use to manufacture any of our current commercial products and any other products that we may commercialize
or promote, and therapeutic candidate, will be subject to periodic review and inspection by the FDA and may be subject to similar review
by other regulatory authorities. Later discovery of previously unknown problems with any of our current commercial products and product
we may commercialize or promote, or any therapeutic candidate, manufacturer or manufacturing process, or failure to comply with rules
and regulatory requirements, may result in actions, including but not limited to the following:
| • |
restrictions on such therapeutic candidate, marketed product, manufacturer or manufacturing process; |
| • |
warning letters from the FDA or other foreign regulatory authorities; |
| • |
withdrawal of the marketed product from the market; |
| • |
withdrawal of the therapeutic candidate from use in a clinical trial; |
| • |
suspension or withdrawal of regulatory approvals; |
| • |
refusal to approve pending applications or supplements to approved applications that we or our development or commercialization partners
submit; |
| • |
voluntary or mandatory recall; |
| • |
fines; |
| • |
refusal to permit the import or export of our current commercial products or products that we may commercialize or promote in the
future or our therapeutic candidates; |
| • |
product seizure or detentions; |
| • |
injunctions or the imposition of civil or criminal penalties; and |
| • |
adverse publicity. |
If we or our current or future commercialization partners, suppliers, third-party
contractors or clinical investigators are slow to adapt, or are unable to adapt, to changes in existing regulatory requirements or the
adoption of new regulatory requirements or policies, we and our development or commercialization partners may lose marketing clearance
or approval for any products already cleared or approved for marketing in any jurisdiction, resulting in decreased or lost revenue from
such products and could also result in other civil or criminal sanctions, including fines and penalties, and we may lose marketing clearance
or approval of any of our therapeutic candidates, if any of our therapeutic candidates are approved for marketing.
We may encounter delays in receipt of FDA approval,
if any, for our therapeutic candidates due to CMC, clinical, efficacy, safety, or regulatory or other issues.
We may encounter significant delays in receipt of FDA approval, if any, for our therapeutic
candidates. For example, the FDA may determine that the CMC of one of our therapeutic candidates is not satisfactory due to the manufacturing
standards of the products or that additional CMC work, information or quality assurances are needed. The FDA may also consider the clinical
studies conducted with a therapeutic candidate and the additional information provided to be inadequate, or insufficient, or require us
to provide additional information, which may require us to conduct additional studies or otherwise significantly delay potential FDA approval
of the potential NDA for a therapeutic candidate, if at all. In addition, we cannot guarantee that potential future manufacturers or other
vendors related to manufacturing will be able to perform as required, will not terminate their agreements with us, or otherwise will not
perform satisfactorily. The potential delay in identifying, engaging, qualifying and training an alternative manufacturer may be extended,
leading to a significant delay. Furthermore, the FDA may also change its clearance or approval policies or adopt new laws, regulations
or guidelines in a manner that materially delays or impairs our ability to obtain approval of the potential NDA for a therapeutic candidate,
if any.
If any of these or other issues occur, we may face substantial additional expenses
and otherwise experience delays in obtaining FDA approval of the NDAs we may file in the future for our therapeutic candidates, including
RHB-104 for Crohn’s disease, or may never obtain the FDA approval for such NDAs.
Clinical trials and related non-clinical studies
may involve a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive
of future trial results. We or our development or commercialization partners may not be able to obtain regulatory approvals for our therapeutic
candidates or commercialize products we may commercialize or promote without completing such trials in accordance with the applicable
regulatory standards, even products that may have already been cleared or approved for marketing.
We have limited resources and experience in conducting and managing the clinical trials
that are required to obtain or maintain regulatory approvals and commence or continue commercial sales. Clinical trials and related non-clinical
studies are expensive, complex, can take many years and have uncertain outcomes. We cannot predict whether we, independently or through
third parties, will encounter problems with any of the completed, ongoing or planned clinical trials that will cause delays, including
suspension of a clinical trial, delay of data analysis or release of the final report. The clinical trials of our therapeutic candidates
may take significantly longer to complete than estimated. Failure can occur at any stage of the testing, and we may experience numerous
unforeseen events during, or as a result of, the clinical trial process that could materially delay or prevent the obtainment of a regulatory
approval of current or future therapeutic candidates and delay or prevent their commercialization.
In connection with the clinical trials for our therapeutic candidates and other therapeutic
candidates that we may seek to develop in the future, either on our own or through licensing or partnering agreements, we face various
risks and uncertainties, including but not limited to:
| • |
delays or failure in securing clinical investigators or trial sites for the clinical trials; |
| • |
delays or failure in receiving import or other government approvals to ensure appropriate drug supply; |
| • |
delays or failure in obtaining institutional review board (IRB) and other regulatory approvals to commence or continue a clinical
trial; |
| • |
expiration of clinical trial material before or during our trials as a result of delays, including suspension of a clinical trial,
degradation of, or other damage to, the clinical trial material; |
| • |
negative or inconclusive results or results that are not sufficiently positive from clinical trials; |
| • |
the FDA or other foreign regulatory authorities may disagree with the number, design, size, conduct or implementation of our clinical
studies; |
| • |
the FDA or other foreign regulatory authorities may require us to conduct additional clinical trials or studies in connection with
therapeutic candidates in development, as well as for products that have already been cleared and approved for marketing; |
| • |
inability to monitor patients adequately during or after treatment; |
| • |
inability to retain patients; |
| • |
lack of technology to support clinical trials results; |
| • |
problems with investigator or patient compliance with the trial protocols; |
| • |
a therapeutic candidate may not prove safe or efficacious; there may be unexpected or even serious adverse events and side effects
from the use of a therapeutic candidate; |
| • |
the results with respect to any therapeutic candidate may not confirm the positive results from earlier preclinical studies or clinical
trials; |
| • |
the results may not meet the level of statistical significance required by the FDA or other foreign regulatory authorities;
|
| • |
the results may justify only limited or restrictive uses, including the inclusion of warnings and contraindications, which could
significantly limit the marketability and profitability of a therapeutic candidate; |
| • |
the clinical trials may be delayed or not completed due to the failure to recruit suitable candidates or if there is a lower rate
of suitable candidates than anticipated or if there is a delay in recruiting suitable candidates; and |
| • |
changes to the current regulatory requirements related to clinical trials, which can delay, hinder or lead to unexpected costs in
connection with our receiving the applicable regulatory clearances or approvals. |
A number of companies in the pharmaceutical and biotechnology industries, including
those with greater resources and experience than us, have suffered significant setbacks in advanced clinical trials, even after seeing
promising results in earlier clinical trials. As such, despite the results reported in earlier clinical trials or related non-clinical
studies of our therapeutic candidates, we do not know if we will be able to complete the clinical trials or related non-clinical studies
we conduct or if such clinical trials will demonstrate adequate safety and efficacy sufficient to request and obtain regulatory approval
to market our therapeutic candidates. If any of the clinical trials or related non-clinical studies of any of our current or future therapeutic
candidates do not produce favorable results or are found to have been conducted in violation of the FDA’s or other regulatory body’s
standards governing such studies, our ability to request and obtain regulatory approval for the therapeutic candidate may be adversely
impacted, which could have a material adverse effect on our reputation, business, financial condition or results of operations.
If a diagnostic test for MAP will not become
available, our ability to develop or obtain approval for RHB-104 may be adversely impacted.
A companion diagnostic for the detection of MAP bacteria in Crohn’s disease
patients is required in order to advance this development program. We do not know if and when such a diagnostic test for MAP will become
available and we depend on third parties’ resources and expertise in this area. If such a diagnostic test for MAP will not become
available, our ability to develop or obtain regulatory approval to market RHB-104 may be adversely impacted.
We rely on third parties to conduct our clinical
trials and related non-clinical studies and those third parties may not perform satisfactorily, including but not limited to failing to
meet established deadlines and compliance with applicable laws and regulations for the completion of such clinical trials.
We currently do not have the ability to independently conduct clinical trials and
related non-clinical studies for our therapeutic candidates, and we rely on third parties, such as contract research organizations, medical
institutions, contract laboratories, development and commercialization partners, clinical investigators and independent study monitors
to perform these functions. Our reliance on these third parties for research and development activities reduces our control over these
activities. Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. Although
we have, in the ordinary course of business, entered into agreements with such third parties, we continue to be responsible for confirming
that each of our clinical trials and related non-clinical studies is conducted in accordance with its general investigational plan and
protocol, as well as all applicable laws and regulations. For example, the FDA requires us to comply with regulations and standards, commonly
referred to as good clinical practices (“GCP”), for conducting, recording and reporting the results of clinical trials to
assure that data and reported results are credible and accurate and that the trial participants are adequately protected, and regulatory
authorities in other jurisdictions may have similar responsibilities and requirements. Our reliance on third parties does not relieve
us of these responsibilities and requirements. If these third parties do not successfully carry out their contractual duties or meet expected
deadlines, we may be required to replace them or perform such functions independently. Although we believe that there are a number of
other third-party contractors we could engage to continue these activities, it may result in a delay of the affected trial and additional
costs. Accordingly, we may be materially delayed in obtaining regulatory approvals, if any, for our therapeutic candidates and may be
materially delayed in our commercialization efforts for the targeted indications.
In addition, our ability to bring our therapeutic candidates to market depends on
the quality and integrity of data that we present to regulatory authorities in order to obtain marketing authorizations. Although we attempt
to audit and control the quality of third-party data, we cannot guarantee the authenticity or accuracy of such data, nor can we be certain
that such data has not been fraudulently generated. Furthermore, the FDA may consider clinical studies inadequate where steps have not
been taken in the design, conduct, reporting, and analysis of the studies to minimize bias. For example, one potential source of bias
in clinical studies is a clinical investigator with a financial stake in the outcome of the study. Accordingly, we (or the applicant of
the IND or Biologics License Application, as applicable) must submit for all applicable clinical investigators either: (i) a completed
Form FDA 3454 attesting to the absence of financial interests and arrangements described in the regulations, dated and signed by the chief
financial officer or another responsible corporate official; or (ii) for any investigators for whom a Form FDA 3454 is not submitted,
a Form FDA 3455 disclosing completely and accurately the following:
| • |
any financial arrangement entered into between the sponsor of the covered study and the clinical investigator involved in the conduct
of a covered clinical trial, whereby the value of the compensation to the clinical investigator for conducting the study could be influenced
by the outcome of the study; |
| • |
any significant payments of other sorts from the sponsor of the covered study, such as a grant to fund ongoing research, compensation
in the form of equipment, retainer for ongoing consultation, or honoraria; |
| • |
any proprietary interest in the tested product held by any clinical investigator involved in a study; |
| • |
any significant equity interest in the sponsor of the covered study held by any clinical investigator involved in any study; and
|
| • |
any steps taken to minimize the potential for bias resulting from any of the disclosed arrangements, interests, or payments.
|
The FDA may refuse to accept a filing of an NDA that does not contain the required
certifications and disclosures or attestations by the applicant that the applicant has acted with due diligence to obtain the information
but was unable to do so and stating the reason. Additionally, FDA refusal of an NDA on potential bias grounds may have a material adverse
effect on our reputation, business, financial condition or results of operations and the credibility of our other commercial products
or therapeutic candidates.
We rely on contract research organizations
for the management of clinical data generated from our studies, and such contract research organizations may not perform satisfactorily.
We rely on contract research organizations to provide monitors for and to manage data
for our studies. Our reliance on these contract research organizations for data management reduces our control over clinical data management.
While we have agreements governing their activities, we have limited influence over their actual performance. If these contract research
organizations do not successfully carry out their contractual duties or obligations or meet expected deadlines, or if the quality or accuracy
of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or for other reasons, we may be
required to replace them, or our clinical studies may be extended, delayed or terminated. In addition, such failure of our contract research
organizations would pose risks to the accuracy and usability of clinical data from our clinical studies. Replacing a contract research
organization may result in a delay in our clinical studies and generation of data from such studies. In addition, we face the risk of
potential unauthorized disclosure or misappropriation of our intellectual property by contract research organizations, which may reduce
our trade secret protection and allow our potential competitors to access and exploit our proprietary technology.
We may fail to receive or maintain the benefits
from the orphan drug and QIDP designations granted by the FDA for our applicable products or therapeutic candidates, as applicable.
In the U.S., under the Orphan Drug Act, the FDA may grant orphan drug
designation to a drug or biologic intended to treat a rare disease or condition, which is defined as one occurring in a patient population
of fewer than 200,000 in the U.S., or a patient population greater than 200,000 in the U.S. where there is no reasonable expectation that
the cost of developing the drug or biologic will be recovered from sales in the U.S. In 2011, the FDA granted RHB-104 orphan drug designation
for the treatment of Crohn’s disease in the pediatric population; in 2017, the FDA granted opaganib orphan drug designation for
the treatment of cholangiocarcinoma and granted RHB-107 (upamostat, formerly Mesupron) orphan drug designation for the treatment of pancreatic
cancer, and in 2020 the FDA granted orphan drug designation to RHB-204 for the treatment of nontuberculous mycobacteria (“NTM”)
infections.
In the U.S., the orphan drug designation entitles a party to financial incentives,
such as opportunities for grant funding toward clinical trial costs, tax advantages and user-fee waivers. In addition, if a product that
has the orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product
is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications, including an NDA, to market the
same drug or biologic for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority
to the product with orphan drug exclusivity or where the original manufacturer is unable to assure sufficient product quantity.
Exclusive marketing rights from a given orphan drug designation may be limited if
we seek approval for an indication broader than the orphan-designated indication or may be lost if the FDA later determines that the request
for designation was materially defective, or if we are unable to assure sufficient quantities of the product to meet the needs of patients
with the orphan-designated disease or condition. Further, even if we obtain orphan drug exclusivity for a product, that exclusivity may
not effectively protect the product from competition because different drugs with different active moieties may receive and be approved
for the same condition, and only the first applicant to receive approval will receive the benefits of marketing exclusivity. Even after
an orphan-designated product is approved, the FDA can subsequently approve a later drug with the same active moiety for the same condition
if the FDA concludes that the later drug is clinically superior if it is shown to be safer, more effective or makes a major contribution
to patient care. Orphan drug designation neither shortens the development time or regulatory review time of a drug nor gives the drug
any advantage in the regulatory review or approval process.
In addition, in 2017, we announced that RHB-204 had been granted QIDP designation
by the FDA for the treatment of pulmonary NTM infections. Like orphan drugs, QIDPs may take advantage of market exclusivity, which in
the case of QIDPs is five years (total period of twelve years together with the orphan drug designation). However, the five-year exclusivity
extension does not apply to a supplement to an application under Section 505(b) of the FDCA for any QIDP for which an extension is in
effect or has expired; a subsequent application submitted with respect to a product approved by the FDA for a change that results in a
new indication, route of administration, dosing schedule, dosage form, delivery system, delivery device or strength; or a product that
does not meet the definition of a QIDP under Section 505(g) based upon its approved uses.
Modifications to our current commercial products
or to any product that we may commercialize or promote in the future, or our therapeutic candidates, may require new regulatory clearances
or approvals or may require us or our development or commercialization partners, as applicable, to recall or cease marketing any of our
approved products, or delay further studies of our therapeutic candidates in human subjects until clearances or approvals are obtained.
Modifications to our current commercial products and any products we may commercialize
or promote, or to our therapeutic candidates, after they have been cleared or approved for marketing, if at all, may require new regulatory
clearance or approvals, in particular, if we seek or are required to expand our operations to jurisdictions outside of the U.S., and,
if necessitated by a problem with a marketed product, may result in the recall or suspension of marketing of the previously approved and
marketed product until clearances or approvals of the modified product are obtained. The FDA and other regulatory authorities require
pharmaceutical product and device manufacturers to initially make and document a determination of whether or not a modification requires
a new approval, supplement or clearance. A manufacturer may determine in conformity with applicable laws, regulations, and guidelines
that a modification may be implemented without pre-clearance by the FDA or other regulatory authorities. However, the FDA or other regulatory
authorities can review a manufacturer’s decision and may disagree. The FDA or other regulatory authorities may also, on their own
initiative, determine that a new clearance or approval is required. If the FDA or other regulatory authorities require new clearances
or approvals of any pharmaceutical product for which we or our partners, including development or commercialization partners, previously
received marketing approval, we or our partners, including development or commercialization partners, may be required to recall and stop
marketing such marketed product, which could require us or our partners, including development or commercialization partners, to redesign
the marketed product and may cause a material adverse effect on our reputation, business, financial condition or results of operations.
Risks Related to Our COVID-19 Therapeutic Candidates and COVID-19
Impact on Our Business
Government involvement may limit the commercial
success of our COVID-19 therapeutic candidate.
The COVID-19 endemic has been previously classified as a pandemic by
public health authorities, and it is possible that one or more government entities may take actions that directly or indirectly have the
effect of abrogating some of our rights or opportunities. If we were to develop an anti-viral therapeutic to COVID-19, the economic value
of such therapeutic to us could be limited.
Separately, various government entities, including the U.S. and or other governments,
have offered, and may continue offering incentives, such as those we received, grants and contracts to encourage additional investment
by commercial organizations and drug development companies into preventative and therapeutic agents against COVID-19, which may have the
effect of increasing the number of competitors and/or providing advantages to competitors. Accordingly, there can be no assurance that
we will be able to successfully establish a competitive market share for our COVID-19 candidates.
If we are successful in developing a COVID-19
therapeutic, we may need to devote significant resources to our manufacturing scale-up and large-scale deployment, including for use by
the U.S. or other governments. If one of our COVID-19 therapeutic candidates is approved for marketing or for Emergency Use, we may also
need to devote significant resources to further expand our U.S. and non-U.S. sales and marketing activities and increase or maintain personnel
to accommodate sales in the U.S. and outside the U.S.
In the event that the clinical studies of opaganib and/or RHB-107 as a COVID-19 therapeutic
candidate are perceived to be successful, we may need to work toward the large-scale manufacturing scale-up and larger-scale deployment
of the potential therapeutic through a variety of U.S. and foreign government or other agency mechanisms, such as an Expanded Access Program
or an Emergency Use Authorization program. In this case, we may need to devote significant resources to this program, which would require
diversion of resources from our other programs. In addition, since the path to licensure of any COVID-19 therapeutic is unclear, if use
of the therapeutic is approved by the U.S. or other governments, we may have a widely used therapeutic in circulation in the U.S. or any
another country prior to our full validation of the overall long-term safety and efficacy profile of our therapeutic. Unexpected safety
issues in these circumstances could lead to significant reputational damage for us and our therapeutic candidates going forward and other
issues, including delays in our other programs, the need for re-design of our clinical trials and the need for significant additional
financial resources.
In addition, in the event one of our COVID-19 therapeutic candidates is approved for
marketing we may also need to further expand our sales and marketing activities in the U.S. and outside the U.S. and increase or maintain
personnel to accommodate sales. In this case, we may need to devote significant additional resources to this program, which would require
diversion of additional resources from our other programs.
Since the beginning of 2020, we have entered into several collaborations with leading manufacturers, including
with U.S.-based partners, to expand manufacturing capacity of opaganib for COVID-19 in preparation for potential emergency use applications
and to gradually meet subsequent large-scale demand and distribution that could follow potential emergency use authorization and/or full
marketing approval, if at all. We cannot guarantee that our ongoing efforts in relation to the drug candidates or their manufacturing,
including the scale-up of manufacturing will be successful or that we will be able to supply the potential high demand for opaganib for
COVID-19 that could follow potential emergency use authorization and/or full marketing approval, if at all. The exercise of march-in rights
by the U.S. government may also adversely affect our ability to supply sufficient quantities of opaganib. See “ – The
development of opaganib and RHB 107 have been supported by government-funded programs and thus may be subject to federal regulations such
as “march-in” rights and certain reporting requirements, and compliance with such regulations may limit our exclusive rights
and our ability to contract with manufacturers. In addition, the government is under no obligation
to continue to support development of our products and can cease such support at any time which could be irreplaceable to the development
process of our products. ” below.
The COVID-19 endemic and its ongoing effects may adversely affect
our business, revenues, results of operations and financial condition.
In May 2023, the World Health Organization determined that COVID-19 no longer fit the definition of a public
health emergency and the declaration of a public health emergency associated with COVID-19 subsequently expired on May 11, 2023. The COVID-19
endemic and its ongoing effects are expected to remain a serious endemic threat for an indefinite future period and may continue to create
significant economic uncertainty and volatility in the credit and capital markets, supply chain issues, global shortages of supplies,
materials and products, and contribute to rising global inflation. Outbreaks of epidemic, pandemic or contagious diseases, or a resurgence
of COVID-19, may adversely affect our business, revenues, financial condition and results of operations. The various precautionary measures
taken by many governmental authorities around the world in order to limit the spread of SARS-CoV-2 had and may sometime in the future
have an adverse effect on the global markets and its economy and demand for pharmaceutical products, including on the availability and
pricing of employees, resources, materials, manufacturing and delivery efforts and other aspects of the global economy. The spread of
the pandemic caused significant volatility and uncertainty in U.S. and international markets and resulted in increased risks to our operations.
Specifically, there are a number of risks that affected our business
related to the pandemic and may in the future in the event of a resurgence of the coronavirus, including the following:
| • |
Commercial Operations:
An extended pandemic would have a material adverse effect on sales of our commercial products. In the past, the COVID-19 pandemic decreased
commercial activities, which affected the sales of some of our commercial products due to slower initiation of some promotional activities
associated with a significant decrease in in-clinic patient visits, tests and treatments and the impact on our sales force’s ability
to engage with healthcare providers in an in-person setting, cancellation of events such as industry conferences and limited local and
international travel. In addition, there was a negative impact on our business as a result of COVID-19 within our commercial organization,
including reductions in our sales force. The ability to successfully commercialize Aemcolo®
and Talicia® depends on in-clinic patient visits
and the availability of diagnostics, both of which were negatively affected by the pandemic, especially with respect to Aemcolo®
and Talicia®, which we launched shortly before or
at the time of the COVID-19 outbreak. In addition, the significant decrease in travel significantly reduced the demand and sales of Aemcolo®
for travelers’ diarrhea. We continue to expect a decreased level of demand and sales of Aemcolo®
to continue over the coming quarters due to the very limited resources we are investing in the growth of this product. The COVID-19 pandemic
also adversely affected our ability to attract commercial partners, our relationships with commercial partners and our ability to sell
our commercial products outside the U.S., including sales of Talicia®
in the UAE. |
| • |
Supply Chain: A resurgence
of the coronavirus could result in broad supply disruptions of the supply of commercial products and difficulty in finding alternative
sources in the future which may adversely affect our ability to distribute certain of our commercial products for commercial supply and
our therapeutic candidates for clinical supply. For example, if quarantines, shelter-in-place and similar government orders, travel restrictions
characteristic of the COVID-19 pandemic are reinstated, the impact, availability or productivity of personnel at third-party manufacturers,
distributors, freight carriers and other necessary components of our supply chain could be disrupted. In addition, there may be unfavorable
changes in the availability or cost of raw materials, intermediates and other materials necessary for production, which may result in
disruptions in our supply chain and could significantly and adversely affect our business if one or more of our manufacturers or suppliers
are impacted by any interruption at a particular location or in relation to a particular material. To the extent there are disruptions
in the global supply chain (especially those connected to COVID-19-related supply and logistics issues), our business could be adversely
affected. |
| • |
Clinical Trials: In
the past, the COVID-19 pandemic adversely affected our clinical and preclinical trials, including our ability to initiate and complete
our clinical and preclinical trials within the anticipated timelines, and delays or difficulties in enrolling patients in our clinical
trials and recruiting clinical site investigators and clinical site staff. Interruption of key clinical trial activities, such as clinical
trial site data monitoring, due to limitations on travel imposed or recommended by government officials or entities, employers and others
or interruption of clinical trial patient visits and study procedures (particularly any procedures that may be deemed non-essential) due
to a resurgence of the pandemic, may impact the completeness of clinical trial data and clinical study endpoints. As a result, our previously
anticipated filing and marketing timelines may be adversely impacted. For example, the enrollment of patients for our Phase 3 study with
RHB-204 in first-line pulmonary NTM infections was slow, which slowed the progress of the study. In addition, we may be unable to meet the timelines and milestones established for the contemplated postmarketing
studies we are required to conduct for Aemcolo®, in which case we could be subject to FDA enforcement actions and civil monetary
penalties, among others, unless the FDA agrees to an extension of the timelines and milestones.
Our clinical trials can also be adversely affected by the reduction or diversion of healthcare resources
away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff
supporting the conduct of our clinical trial. Any delays or interruption of our clinical trials could have an adverse effect on our development
efforts of our therapeutic candidates, and failure to fulfill any postmarketing commitments could subject us to FDA enforcement actions
or result in our breach of certain license agreements and cause us to lose our rights thereunder. |
| • |
Regulatory Reviews: The operations of the FDA or other regulatory agencies may be
adversely affected. We may also experience delays in necessary interactions with regulatory authorities around the world, including with
respect to any anticipated filings. |
Additionally, because our corporate headquarters are in Israel while our commercial
office is in the U.S., there is additional risk in our ability as a company to control the activities occurring in the U.S., due to the
geographic separation within our company.
Assessment of the complete extent of the impact of COVID-19 endemic and its ongoing effects on our results
will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning
the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. The ongoing effects of the COVID-19 endemic
could materially disrupt our business and operations and have an adverse effect on the global markets and global economy generally, including
on the availability and cost of employees, resources, materials, manufacturing and delivery efforts, and other aspects of the economy.
A resurgence of COVID-19 could also in particular materially affect the sales of our commercial products, making it more difficult for
us to meet our financial obligations.
Supply chain and shipping disruptions may result
in shipping delays, a significant increase in shipping costs, and could increase product costs and result in lost sales and reputational
damage, which may have a material adverse effect on our business, operating results and financial condition.
Our third-party manufacturers and suppliers have experienced in the
past, supply chain disruption and shipping disruptions, including disruptions or delays in loading container cargo in ports of origin
or off-loading cargo at ports of destination, congestion in port terminal facilities, labor supply and shipping container shortages, inadequate
equipment and persons to load, dock and offload container vessels, as a result of the COVID-19 pandemic, among others.
In addition, recently there have been shipping disruptions in the Red Sea and surrounding
waterways due to attacks on marine vessels by the Houthi movement, which controls part of Yemen. These disruptions may impact our
ability to receive APIs and other materials and products from our manufacturers and suppliers, to distribute our products to our customers
in a cost-effective and timely manner and to meet customer demand, all of which could have an adverse effect on our financial condition
and results of operations. There can be no assurance that further unforeseen events impacting the supply chain will not have a material
adverse effect on us in the future. Additionally, the impacts that supply chain disruptions have on our third-party manufacturers and
suppliers are not within our control. It is not currently possible to predict how long it will take for these supply chain disruptions
to cease or ease. Prolonged supply chain disruption that may impact us or our manufacturers and suppliers could interrupt product manufacturing,
increase raw material and product lead times, increase raw material and product costs, impact our ability to meet customer demand and
result in lost sales and reputational damage, all of which could have a material adverse effect on our business, financial condition and
results of operations.
Risks Related to Our Industry
The market for our current commercial products,
for any product we may commercialize or promote in the future and for our therapeutic candidates is rapidly changing and competitive,
and new drug delivery mechanisms, drug delivery technologies, new drugs, generic products, treatments and products which may be developed
by others could impair our ability to maintain and grow our business and remain competitive.
The pharmaceutical and biotechnology industry is highly competitive, and we face significant
competition from many pharmaceutical, biopharmaceutical and biotechnology companies that are researching, developing and marketing products
designed to address the indications for which we are currently developing therapeutic candidates or may develop therapeutic candidates
in the future or for which we may commercialize or promote products. There are various other companies that currently market, are in the
process of developing or may develop in the future products that address all of the indications or diseases treated by our current commercial
products, products that we may commercialize or promote in the future, and our therapeutic candidates.
New drug delivery mechanisms, drug delivery technologies, new drugs and new treatments
that have been developed or that are in the process of being developed or will be developed by others may render our current commercial
products, products we may commercialize or promote in the future and our therapeutic candidates noncompetitive or obsolete, or we may
be unable to keep pace with technological developments or other market factors. Some of these technologies may have an entirely different
approach or means of accomplishing similar therapeutic effects compared to our current commercial products, products we may commercialize
or promote in the future and our therapeutic candidates. In addition, our current commercial products and products we may commercialize
or promote in the future may compete with products of third parties for market share, and generic drugs or products that treat the same
indications as our current commercial products or products we may commercialize or promote in the future, which can have an adverse effect
on our revenues by reducing our market share or requiring us to reduce the price of the products we market.
Talicia®
primarily competes with several branded and generic therapies already approved and used extensively to treat H.
pylori.
Aemcolo®
primarily competes with several competing drugs marketed in the U.S. intended for the treatment of travelers’ diarrhea, including
Xifaxan® (marketed by Salix Pharmaceuticals). Aemcolo®
also competes with generic antibiotics such as fluoroquinolones and azithromycin. Aemcolo®
also competes with prescription and OTC anti-diarrheal medications such as loperamide and bismuth subsalicylate, as well as probiotics
and medical foods which may offer symptomatic relief. We may also be exposed to potentially competitive products, which may be under development
to treat or prevent travelers’ diarrhea, including new antibiotics, anti-diarrheal medications, and vaccines.
Technological competition from, and commercial capabilities of, pharmaceutical and
biotechnology companies, universities, governmental entities, and others is intense and is expected to increase. Many of these entities
have significantly greater research and development capabilities, human resources, and budgets than we do, as well as substantially more
marketing, manufacturing, financial and managerial resources. These entities represent significant competition for us. Acquisitions of,
or investments in, competing pharmaceutical or biotechnology companies by large corporations could increase such competitors’ financial,
marketing, manufacturing, and other resources.
The potential widespread acceptance of therapies that are alternatives to ours may
limit market acceptance of our formulations, current commercial products or products we may commercialize or promote in the future, even
if commercialized and therapeutic candidates. Many of our targeted diseases and conditions can also be treated by other medications or
drug delivery technologies. These treatments may be widely accepted in medical communities and have a longer history of use, among other
possible advantages. The established use of these competitive drugs may limit the potential for widespread acceptance of our current commercial
products and products we may commercialize or promote in the future and may limit the potential for our commercial products and therapeutic
candidates to receive widespread acceptance, if commercialized.
Talicia®
or any product for which we may obtain regulatory approval or acquire commercialization rights may not become or continue to be commercially
viable products.
Other than Talicia®,
none of our therapeutic candidates have been cleared or approved for marketing, and none of our therapeutic candidates are currently being
marketed or commercialized in any jurisdiction. Even if any of our therapeutic candidates or any product we may commercialize or promote
receives regulatory clearance or approval, such as Talicia®,
or do not require regulatory clearance or approval, it may not become a commercially viable product. For example, even if we or our development
or commercialization partners receive regulatory clearance or approval to market a therapeutic candidate or receive regulatory clearance
or approval to commercialize or promote any product, the clearance or approval may be subject to limitations on the indicated uses or
subject to labeling or marketing restrictions, which could materially and adversely affect their marketability and profitability. In addition,
a new therapeutic candidate may appear promising at an early stage of development or after clinical trials but never reach the market,
or it may reach the market but not result in sufficient product sales, if any. A therapeutic candidate or any product that we may commercialize
or promote, may not result in commercial success for various reasons, including but not limited to:
| • |
difficulty in large-scale manufacturing, including yield and quality; |
| • |
low market acceptance by physicians, healthcare payors, patients and the medical community as a result of lower demonstrated clinical
safety or efficacy compared to products, prevalence, and severity of adverse side effects, or other potential disadvantages relative to
alternative treatment methods; |
| • |
insufficient or unfavorable levels of reimbursement from government or third-party payors, such as insurance companies, health maintenance
organizations and other health plan administrators; |
| • |
infringement on proprietary rights of others for which we or our development or commercialization partners have not received licenses;
|
| • |
incompatibility with other therapeutic candidates or marketed products; |
| • |
other potential advantages of alternative treatment methods and competitive forces that may make it more difficult for us to penetrate
a particular market segment, if at all; |
| • |
ineffective marketing, sales, and distribution activities and support; |
| • |
lack of significant competitive advantages over existing products on the market; |
| • |
lack of cost-effectiveness or unfavorable pricing compared to other alternatives available on the market; |
| • |
inability to generate sufficient revenues to sustain our business operations in accordance with our plan from the sale or marketing
of a product in view of the economic arrangements that we have with commercialization or other partners; |
| • |
changes to labels, indications or other regulatory requirements as they relate to the commercialization of our products; |
| • |
inability to establish collaborations with third-party development or commercialization partners on acceptable terms, or at all,
and our inability or unwillingness for cost or other reasons to commercialize the therapeutic candidates or any product we may commercialize
or promote on our own; and |
| • |
timing of market introduction of competitive products, such as Voquezna. |
Physicians, various other healthcare providers, patients, payors or the medical community,
in general, may be unwilling to accept, utilize or recommend Talicia®
and any product we may commercialize or promote. If we are unable, either on our own or through third parties, to manufacture, commercialize
or market Talicia®, our proposed formulations, therapeutic
candidates or any product we may commercialize or promote when planned, or to develop them commercially, we may not achieve any market
acceptance or generate meaningful revenue.
Unexpected product safety or efficacy concerns
may arise and cause any product we may commercialize or promote to fail to gain or lose market acceptance.
Unexpected safety or efficacy concerns can arise with respect to any product we may
commercialize or promote, whether or not scientifically justified, potentially resulting in product recalls, withdrawals or declining
sales, as well as product liability, consumer fraud or other claims. The market perception and reputation of any product we commercialize
or may commercialize or promote in the future, and their safety and efficacy are important to our business and the continued acceptance
of any such product. Any negative publicity about any of our current or future commercial products, such as the pricing of any product,
discovery of safety issues, adverse events, or even public rumors about such events, could have a material adverse effect on our reputation,
business, financial condition or results of operations. In addition, the discovery of one or more significant problems with a product
similar to any of our current commercial products or products we may commercialize or promote in the future that implicate (or are perceived
to implicate) an entire class of products or the withdrawal or recall of such similar products could have an adverse effect on the current
or future commercialization of any product we may commercialize or promote. New data about any of our current commercial products or products
that we may commercialize or promote in the future, or products similar to any of our current commercial products or those we may commercialize
or promote in the future, could cause us reputational harm and could negatively impact demand for such products due to real or perceived
side effects or uncertainty regarding safety or efficacy and, in some cases, could result in product withdrawal. Any of the foregoing
could have a material adverse effect on our reputation, business, financial condition or results of operations.
The development of opaganib and RHB 107 have
been supported by government-funded programs and thus may be subject to federal regulations such as “march-in” rights and
certain reporting requirements, and compliance with such regulations may limit our exclusive rights and our ability to contract with manufacturers.
In addition, the government is under no obligation to continue to support development of our products and can cease such support at any
time which could be irreplaceable to the development process of our products.
Our intellectual property rights to opaganib, which we in-licensed from Apogee Biotechnology
Corporation, have been generated through the use of U.S. federal and state government funding and are therefore subject to certain federal
regulations. As a result, the U.S. government may have certain rights to intellectual property embodied in opaganib pursuant to the Bayh-Dole
Act of 1980, or the Bayh-Dole Act. These U.S. government rights include a non-exclusive, non-transferable, irrevocable worldwide license
to use inventions for any governmental purpose. In addition, the U.S. government has the right, under certain limited circumstances, to
require the licensor to grant exclusive, partially exclusive or non-exclusive licenses to any of these inventions to a third party if
it determines that (i) adequate steps have not been taken to commercialize the invention, (ii) government action is necessary to meet
public health or safety needs or (iii) government action is necessary to meet requirements for public use under federal regulations (also
collectively referred to as “march-in rights”). The U.S. government also has the right to take title to these inventions if
the licensor fails to disclose the invention to the government or fails to file an application to register the intellectual property within
specified time limits. These rights of the government may affect us even though the U.S. government has not previously contacted us with
respect to these intellectual property rights. Any exercise by the government of such rights could harm our competitive position, business,
financial condition, results of operations and prospects. Intellectual property generated under a government-funded program is also subject
to certain reporting requirements, compliance with which may require us to expend substantial resources.
In addition, the U.S. government requires that any products embodying any of these
inventions or produced through the use of any of these inventions be manufactured substantially in the U.S. The manufacturing preference
requirement can be waived if the owner of the intellectual property can show that reasonable but unsuccessful efforts have been made to
grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the U.S. or that under the
circumstances domestic manufacture is not commercially feasible. This preference for having products covered by such intellectual property
be substantially manufactured in the U.S. may limit our ability to contract with non-U.S. product manufacturers or even U.S. product manufacturers
whose manufacturing capacity is offshore.
The development of opaganib and RHB-107 has relied on support by the National Institutes
of Health and the U.S. Department of Defense and other government bodies. These government bodies can withdraw, reduce or end their support
of our products at any time, and this would significantly impair our ability to develop them further. In addition, the government is under
no obligation to continue to support development of our products and can cease such support at any time which could be irreplaceable to
the development process of our products.
We could be adversely affected if healthcare
reform measures substantially change the market for medical care or healthcare coverage in the U.S.
On March 23, 2010, President Obama signed the “Patient Protection and Affordable
Care Act” (P.L. 111‑148) (the “ACA”) and on March 30, 2010, he signed the “Health Care and Education
Reconciliation Act” (P.L. 111‑152), collectively commonly referred to as the “Healthcare Reform Law.” The Healthcare
Reform Law included a number of new rules regarding health insurance, the provision of healthcare, conditions to reimbursement for
healthcare services provided to Medicare and Medicaid patients, and other healthcare policy reforms. Through the law-making process, substantial
changes have been and continue to be made to the current system for paying for healthcare in the U.S., including changes made to extend
medical benefits to certain Americans who lacked insurance coverage and to contain or reduce healthcare costs (such as by reducing or
conditioning reimbursement amounts for healthcare services and drugs, and imposing additional taxes, fees, and rebate obligations on pharmaceutical
and medical device companies). This legislation was one of the most comprehensive and significant reforms ever experienced by the U.S.
in the healthcare industry and has significantly changed the way healthcare is financed by both governmental and private insurers. This
legislation has impacted the scope of healthcare insurance and incentives for consumers and insurance companies, among others. Additionally,
the Healthcare Reform Law’s provisions were designed to encourage providers to find cost savings in their clinical operations. Pharmaceuticals
represent a significant portion of the cost of providing care. This environment has caused changes in the purchasing habits of consumers
and providers and resulted in specific attention to the pricing negotiation, product selection and utilization review surrounding pharmaceuticals.
This attention may result in our current commercial products, products we may commercialize or promote in the future, and our therapeutic
candidates, being chosen less frequently or the pricing being substantially lowered. At this stage, it is difficult to estimate the
full extent of the direct or indirect impact of the Healthcare Reform Law on us.
These structural changes could entail further modifications to the existing system
of private payors and government programs (such as Medicare, Medicaid, and the State Children’s Health Insurance Program), creation
of government-sponsored healthcare insurance sources, or some combination of both, as well as other changes. Restructuring the coverage
of medical care in the U.S. could impact the reimbursement for prescribed drugs and pharmaceuticals, including our current commercial
products, those we and our development or commercialization partners are currently developing or those that we may commercialize or promote
in the future. If reimbursement for the products we currently commercialize or promote, any product we may commercialize or promote, or
approved therapeutic candidates is substantially reduced or otherwise adversely affected in the future, or rebate obligations associated
with them are substantially increased, it could have a material adverse effect on our reputation, business, financial condition or results
of operations.
Extending medical benefits to those who currently lack coverage will likely result
in substantial costs to the U.S. federal government, which may force significant additional changes to the healthcare system in the U.S.
Much of the funding for expanded healthcare coverage may be sought through cost savings. While some of these savings may come from realizing
greater efficiencies in delivering care, improving the effectiveness of preventive care and enhancing the overall quality of care, much
of the cost savings may come from reducing the cost of care and increased enforcement activities. Cost of care could be reduced further
by decreasing the level of reimbursement for medical services or products (including our current commercial products, our development
or commercialization partners or any product we may commercialize or promote, or those therapeutic candidates currently being developed
by us), or by restricting coverage (and, thereby, utilization) of medical services or products. In either case, a reduction in the utilization
of, or reimbursement for our current commercial products, any product we may commercialize or promote, or any therapeutic candidate, or
for which we receive marketing approval in the future, could have a material adverse effect on our reputation, business, financial condition
or results of operations.
Several states and private entities initially mounted legal challenges to the Healthcare
Reform Law, in particular, the ACA, and they continue to litigate various aspects of the legislation. On July 26, 2012, the U.S. Supreme
Court generally upheld the provisions of the ACA at issue as constitutional. However, the U.S. Supreme Court held that the legislation
improperly required the states to expand their Medicaid programs to cover more individuals. As a result, states have a choice as to whether
they will expand the number of individuals covered by their respective state Medicaid programs. Some states have not expanded their Medicaid
programs and have chosen to develop other cost-saving and coverage measures to provide care to currently uninsured individuals. Many of
these efforts to date have included the institution of Medicaid-managed care programs. The manner in which these cost-saving and coverage
measures are implemented could have a material adverse effect on our reputation, business, financial condition or results of operations.
Further, the healthcare regulatory environment has seen significant changes in recent
years and is still in flux. Legislative initiatives to modify, limit, replace, or repeal the ACA and judicial challenges have continued.
We cannot predict the impact on our business of future legislative and legal challenges to the ACA or other aspects of the Healthcare
Reform Law or other changes to the current laws and regulations. The financial impact of U.S. healthcare reform legislation over the next
few years will depend on a number of factors, including the policies reflected in implementing regulations and guidance and changes in
sales volumes for therapeutics affected by the legislation. From time to time, legislation is drafted, introduced and passed in the U.S.
Congress that could significantly change the statutory provisions governing coverage, reimbursement, and marketing of pharmaceutical products.
In addition, third-party payor coverage and reimbursement policies are often revised or interpreted in ways that may significantly affect
our business and our products.
During his time in office, former President Trump supported the repeal of all or portions
of the ACA. President Trump also issued an executive order in which he stated that it is his administration’s policy to seek the
prompt repeal of the ACA and in which he directed executive departments and federal agencies to waive, defer, grant exemptions from, or
delay the implementation of the provisions of the ACA to the maximum extent permitted by law. Congress has enacted legislation that repeals
certain portions of the ACA, including but not limited to the Tax Cuts and Jobs Act, passed in December 2017, which included a provision
that eliminates the penalty under the ACA’s individual mandate, effective January 1, 2019, as well as the Bipartisan Budget Act
of 2018, passed in February 2018, which, among other things, repealed the Independent Payment Advisory Board (which was established by
the ACA and was intended to reduce the rate of growth in Medicare spending).
Additionally, in December 2018, a district court in Texas held that the individual
mandate is unconstitutional and that the rest of the ACA is, therefore, invalid. On appeal, the Fifth Circuit Court of Appeals affirmed
the holding on the individual mandate but remanded the case back to the lower court to reassess whether and how such holding affects the
validity of the rest of the ACA. The Fifth Circuit’s decision on the individual mandate was appealed to the U.S. Supreme Court.
On June 17, 2021, the Supreme Court held that the plaintiffs (comprised of the state of Texas, as well as numerous other states and certain
individuals) did not have standing to challenge the constitutionality of the ACA’s individual mandate and, accordingly, vacated
the Fifth Circuit’s decision and instructed the district court to dismiss the case. As a result, the ACA will remain in-effect in
its current form for the foreseeable future; however, we cannot predict what additional challenges may arise in the future, the outcome
thereof, or the impact any such actions may have on our business.
The Biden administration also introduced various measures in 2021 focusing on healthcare
and drug pricing, in particular. For example, on January 28, 2021, President Biden issued an executive order that initiated a special
enrollment period for purposes of obtaining health insurance coverage through the ACA marketplace, which began on February 15, 2021, and
remained open through August 15, 2021. The executive order also instructed certain governmental agencies to review and reconsider their
existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver
programs that include work requirements and policies that create unnecessary barriers to obtaining access to health insurance coverage
through Medicaid or the ACA. On the legislative front, the American Rescue Plan Act of 2021 was signed into law on March 11, 2021, which,
in relevant part, eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average manufacturer price,
for single source drugs and innovator multiple source drugs, beginning January 1, 2024. And, in July 2021, the Biden administration released
an executive order entitled, “Promoting Competition in the American Economy,” with multiple provisions aimed at prescription
drugs. In response, on September 9, 2021, HHS released a “Comprehensive Plan for Addressing High Drug Prices” that outlines
principles for drug pricing reform and sets out a variety of potential legislative policies that Congress could pursue as well as potential
administrative actions HHS can take to advance these principles. On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”)
was signed into law. Among other things, the IRA requires manufacturers of certain drugs to engage in price negotiations with Medicare
(beginning in 2026), imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first
due in 2023), and replaces the Part D coverage gap discount program with a new discounting program (beginning in 2025). The IRA also authorizes
HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years. We cannot yet assess the
impact that the IRA will have on the pharmaceutical industry, but it will likely be significant.
There is uncertainty as to what healthcare programs and regulations may be implemented
or changed at the federal and/or state level in the U.S. or the effect of any future legislation or regulation. Furthermore, we cannot
predict what actions the Biden administration will implement in connection with the Health Reform Law. However, it is possible that such
initiatives could have an adverse effect on our ability to obtain approval and/or successfully commercialize products in the U.S. in the
future. For example, any changes that reduce, or impede the ability to obtain, reimbursement for the type of products we currently, or
intend to, commercialize in the U.S. or that reduce medical procedure volumes could adversely affect our operations and/or future business
plans.
Third-party payors may not adequately reimburse
customers for any of our products that we may commercialize or promote, including our current commercial products, and may impose coverage
restrictions or limitations such as prior authorizations and step edits that affect their use.
Our revenues and profits depend heavily upon the availability of adequate reimbursement
for the use of our current commercial products, and any products that we may commercialize or promote, from governmental or other third-party
payors, both in the U.S. and in foreign markets. Reimbursement by a third-party payor may depend upon a number of factors, including,
but not limited to, the third-party payor’s determination that the use of an approved or cleared therapeutic candidate or product
is:
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a covered benefit under its health plan; |
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safe, effective and medically necessary; |
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appropriate for the specific patient; |
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cost-effective; and |
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neither experimental nor investigational. |
Obtaining reimbursement approval for a product that we may commercialize or promote,
including our current commercial products, from any government, commercial or other third-party payor is a time-consuming and costly process
that could require us or our development or commercialization partners to provide supporting scientific, clinical and cost-effectiveness
data for the use of our products that we currently, or may, commercialize or promote to each payor. Even when a payor determines that
a product that we currently or may commercialize or promote is eligible for reimbursement under its criteria, the payor may impose coverage
limitations that preclude payment for some uses that are approved by the FDA or other foreign regulatory authorities, or may impose restrictions,
such as prior authorization requirements, or may simply deny coverage altogether. Reimbursement rates may vary according to the use of
the product that we commercialize or may commercialize or promote in the future and the clinical setting in which it is used, may be based
on payments allowed for lower-cost products that are already reimbursed, may be incorporated into existing payments for products or services,
and may reflect budgetary constraints or imperfections in Medicare, Medicaid or other data used to calculate these rates. In particular,
reimbursement for our products may not be available from Medicare or Medicaid, and reimbursement from other third-party payors may be
limited, reduced or revoked. Overall, our ability to get reimbursement coverage for our commercial products has historically been limited.
Successful commercialization of our commercial products requires a conducive reimbursement environment. If our products do not receive
adequate reimbursement coverage, or if reimbursement coverage is reduced or otherwise adversely affected, then their respective commercial
prospects could be severely limited. Although certain payors may currently provide some form of coverage for our commercial products,
payors may suspend or discontinue reimbursement at any time, may require or increase co-payments from patients, may impose restrictions
or limitations on coverage, or may reduce reimbursement rates for our products. If we fail to establish broad adoption of and reimbursement
for our commercial products, or if we are unable to maintain any existing reimbursement from payors, our ability to generate revenue could
be harmed and this could have a material adverse effect on our reputation, business, financial condition or results of operations. In
addition to our existing commercial products, any new product we may commercialize or promote in the future may require that we expend
substantial time and resources in order to obtain and retain reimbursement, and any of these efforts may not be successful.
In the U.S., there have been, and we expect that there will continue to be, federal
and state proposals to constrain expenditures for medical products and services, which may affect payments for any product that we currently
or may commercialize or promote in the U.S. In addition, there is a growing emphasis on comparative effectiveness research, both by private
payors and by government agencies. To the extent other drugs or therapies are found to be more effective than our products, payors may
elect to cover such therapies in lieu of our products or reimburse our products at a lower rate. Legislation that reduces reimbursement
for our current or future commercial products could adversely impact how much or under what circumstances healthcare providers will prescribe
or administer those products. This could materially and adversely impact our reputation, business, financial condition or results of operations
by reducing our ability to continue to generate meaningful revenue, raise capital, obtain additional collaborators and market share. At
this stage, we are unable to estimate the extent of the direct or indirect impact of any such federal and state proposals.
Furthermore, the Centers for Medicare and Medicaid Services frequently change product
descriptors, coverage policies, product and service codes, payment methodologies and reimbursement values. Third-party payors often follow
Medicare coverage policy and payment limitations in setting their own reimbursement rates, and both the Centers for Medicare and Medicaid
Services and other third-party payors may have sufficient market power to demand significant price reductions. Price reductions or other
significant coverage policies or payment limitations could materially and adversely affect our reputation, business, financial condition
or results of operations.
We are subject to U.S. federal and state healthcare
laws and regulations relating to our business, and our failure to comply with such laws could have a material adverse effect on our reputation,
business, financial condition or results of operations.
We are subject to additional healthcare regulation and enforcement by the U.S. federal
government and the states in which we conduct or will conduct our business. Healthcare providers, physicians, and third-party payors play
a primary role in the recommendation and prescription of our current commercial products or any products we may commercialize or promote
in the future. Our arrangements with third-party payors, customers, employees, or others may expose us to broadly applicable fraud and
abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which
we market, sell, and distribute our products. The laws that may affect our ability to operate include, but are not limited to, the following:
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the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving,
offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the
purchase, order or recommendation of, any good or service for which payment may be made under government healthcare programs such as the
Medicare and Medicaid programs; |
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the federal Anti-Inducement Law (also known as the Civil Monetary Penalties Law), which prohibits a person from offering or transferring
remuneration to a Medicare or State healthcare program beneficiary that the person knows or should know is likely to influence the beneficiary’s
selection of a particular provider, practitioner or supplier of any item or service for which payment may be made, in whole or in part,
by Medicare or a State healthcare program; |
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the Ethics in Patient Referrals Act of 1989, commonly referred to as the Stark Law, which prohibits physicians from referring Medicare
or Medicaid patients for certain designated health services where that physician or family member has a financial relationship with the
entity providing the designated health service, unless an exception applies; |
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federal false claims laws that prohibit, among other things, individuals or entities from knowingly presenting, or causing to be
presented, claims for payment from Medicare, Medicaid or other government healthcare programs that are false or fraudulent; |
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the so-called federal “Sunshine Act”, which requires certain pharmaceutical and medical device companies to monitor and
report certain financial relationships with physicians and other healthcare providers to the Centers for Medicare and Medicaid Services
for disclosure to the public; |
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the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and its implementing regulations, which
impose obligations on certain covered entities and their business associates with respect to safeguarding the privacy, security, and transmission
of individually identifiable health information, and require notification to affected individuals, regulatory authorities, and potentially
the media of certain breaches of security of individually identifiable health information; |
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HIPAA’s fraud and abuse provision, which imposes criminal and civil liability for executing a scheme to defraud any healthcare
benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement
in connection with the delivery of or payment for healthcare benefits, items or services; |
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the FDCA, which among other things, strictly regulates drug product and medical device marketing, prohibits manufacturers from marketing
such products for off-label use and regulates the distribution of samples; |
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federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating
to healthcare matters; and |
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state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or
services reimbursed by any third-party payor, including commercial insurers. |
Compliance efforts may involve substantial costs, and if our operations or business
arrangements with third parties are found to be in violation of any such requirements, we may be subject to penalties, including civil
or criminal penalties, monetary damages, the curtailment or restructuring of our operations, or exclusion from participation in government
contracting, healthcare reimbursement or other government programs, including Medicare and Medicaid, any of which could adversely affect
our financial results. Although effective compliance programs can help mitigate the risk of investigation and prosecution for violations
of these laws, these risks cannot be entirely eliminated. Any violation of these laws, or any action against us for violation of these
laws, even if we successfully defend against it, could result in a material adverse effect on our reputation, business, financial condition
or results of operations.
The Healthcare Reform Law also imposes reporting requirements on certain medical device
and pharmaceutical manufacturers, among others, to make annual public disclosures of certain payments and other transfers of value to
physicians and teaching hospitals and ownership or investment interests held by physicians or their immediate family members. Failure
to submit required information may result in civil monetary penalties for all payments, transfers of value or ownership or investment
interests that are not reported. In addition, there has been a recent trend of increased federal and state regulation of payments made
to physicians for marketing, medical directorships, and other purposes. Some states impose a legal obligation on companies to adhere to
voluntary industry codes of behavior (e.g., the PhRMA Code and the AdvaMed Code of Ethics), which apply to pharmaceutical and medical
device companies’ interactions with healthcare providers; some mandate implementation of corporate compliance programs, along with
the tracking and reporting of gifts, compensation and other remuneration to physicians, and some states limit or prohibit such gifts.
Most recently, there has been heightened governmental scrutiny over the manner in
which drug manufacturers set prices for their marketed products, which has resulted in the enactment (or proposal) of federal and state
legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer
patient programs, and reform government program reimbursement methodologies for drug products. For example, several states have passed
or introduced bills designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints,
discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed
to encourage importation from other countries and bulk purchasing.
The scope and enforcement of these laws are uncertain and subject to change in the
current environment of healthcare reform, especially in light of the lack of applicable precedent and guidance. We cannot predict the
impact that new legislation or any changes in existing legislation will have on our reputation, business, financial condition, or results
of operations. Federal or state regulatory authorities may challenge our current or future activities under these laws. Any such challenge
could have a material adverse effect on our reputation, business, financial condition or results of operations. Any state or federal regulatory
review of us, regardless of the outcome, would be costly and time-consuming and could negatively and adversely affect our business or
results of operations.
Our marketing, promotional and business practices,
including with respect to pricing, as well as the manner in which sales forces interact with purchasers, prescribers and patients, are
subject to extensive regulation, including but not limited to, state and federal anti-kickback laws and any material failure to comply
could result in significant sanctions against us.
The marketing, promotional, and business practices, including with respect to pricing,
of pharmaceutical companies, as well as the manner in which companies’ in-house or third-party sales forces interact with purchasers,
prescribers, and patients, are subject to extensive regulation, the enforcement of which may result in the imposition of civil or criminal
penalties, injunctions, or limitations on marketing practices for some of our products or pricing restrictions or mandated price reductions
for some of our products. Many companies have been the subject of claims related to these practices asserted by state or federal authorities.
These claims have resulted in fines and other consequences, such as entering into corporate integrity agreements with the U.S. government.
Companies may not promote drugs for “off-label” use, that is, uses that are not described in the product’s labeling
and that differ from those approved by the FDA or other applicable regulatory agencies. A company that is found to have improperly promoted
drug products for off-label use may be subject to significant liability, including civil and administrative remedies, as well as criminal
sanctions. In addition, enforcement action against us or any of our current or future commercialization partners could cause management’s
attention to be diverted from our business operations and damage our reputation.
We could be exposed to significant drug product
liability claims which could be time-consuming and costly to defend, divert management attention and adversely impact our ability to obtain
and maintain insurance coverage.
The clinical trials that we conduct and the testing, manufacturing, marketing, and
commercial sale and use or misuse of our therapeutic candidates and any products we may commercialize or promote, involve and will involve
an inherent risk that significant liability claims may be asserted against us or our development or commercial partners. Product liability
claims, or other claims related to our therapeutic candidates and any products we may commercialize or promote, regardless of merit or
their outcome, could require us to spend significant time and money in litigation or to pay significant settlement amounts or judgments.
A product liability claim could also significantly harm our reputation and the market price of our shares and decrease demand for any
of our current commercial products, products that we commercialize or promote or that are commercialized or promoted by our commercial
partners, and delay market acceptance of our therapeutic candidates or products we may commercialize or promote. In addition, regardless
of merit or eventual outcome, product liability claims may result in:
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decreased demand for approved products; |
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impairment of our business reputation; |
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withdrawal of clinical trial participants; |
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initiation of investigations by regulators; |
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litigation costs; |
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distraction of management’s attention from our primary business; |
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substantial monetary awards to patients or other claimants; |
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loss of revenues; and |
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the inability to receive regulatory approval for and commercialize our therapeutic candidates, upon approval, if any, in the future.
|
We and our research and development or commercialization partners currently have product-liability
policies that include coverage for our clinical trials and our commercial operations. However, our insurance may prove inadequate to cover
claims or litigation costs, especially in the case of wrongful death claims. Any successful product liability or other claim may prevent
us from obtaining adequate liability insurance in the future on commercially desirable or reasonable terms. An inability to obtain sufficient
insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or inhibit the
commercialization of our current commercial products or products we may commercialize or promote in the future, or the development of
our therapeutic candidates.
Our clinical trials may indicate unexpected
serious adverse events or other adverse events or undesirable side effects that may harm our reputation, business, financial condition
or results of operations. Serious adverse events identified during one of our Expanded Access Programs (EAPs) may present additional risks
that may adversely affect our development of the therapeutic candidates involved in the applicable EAP.
As is the case with pharmaceuticals generally, certain side effects and adverse events
may emerge as safety risks associated with the use of our therapeutic candidates. Similarly, serious adverse events have occurred and
may occur in the future in connection with our clinical trials. Results of our clinical trials could reveal a high and unacceptable severity
and prevalence of side effects or unexpected characteristics. Undesirable side effects caused by our therapeutic candidates could cause
us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or
denial of regulatory approval by the FDA or comparable foreign regulatory authorities. The drug-related side effects could affect patient
recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences
may have a material adverse effect on our reputation, business, financial condition or results of operations.
Patients who receive access to investigational new drugs that have not yet received
regulatory marketing approval through expanded access programs may be suffering from life-threatening illnesses and poor prognosis and
may have exhausted all other available therapies. The risk for serious adverse events in this patient population is high, which could
have a negative impact on the prospects of our therapeutic candidates that are provided under the EAP.
Serious adverse events or other undesirable side effects in connection with the use
of our therapeutic candidates provided under the EAP could cause significant delays or an inability to successfully develop or commercialize
such therapeutic candidates, which could materially harm our business. In particular, any such serious adverse events or other undesirable
side effects could cause us or regulatory authorities to interrupt, delay or halt non-clinical studies and clinical trials, or could make
it more difficult for us to enroll patients in our clinical trials. If serious adverse events or other undesirable side effects, or unexpected
characteristics of our investigational new drugs that have not yet received regulatory marketing approval are observed in patients who
were granted expanded access to our investigational new drugs under the EAP, further clinical development of such therapeutic candidate
may be delayed or we may not be able to continue development of such therapeutic candidates at all, and the occurrence of these events
could have a material adverse effect on our business. Undesirable side effects caused by our therapeutic candidates could also result
in the delay or denial of regulatory approval by the FDA or other regulatory authorities or in a more restrictive label than we expect
and could cause us to incur additional costs.
Global economic conditions may make it more
difficult for us to commercialize our current commercial products and any products that we may commercialize or promote in the future
and develop our therapeutic candidates.
The pharmaceutical industry, like other industries and businesses, continues to face
the effects of the challenging economic environment. Patients experiencing the effects of the challenging economic environment, including
increases in co-pays, may switch to generic products, delay treatments, skip doses or use other less effective treatments to reduce their
costs. Challenging economic conditions in the U.S. include the demands by payors for substantial rebates and formulary restrictions limiting
access to brand-name drugs. In addition, in Europe and in a number of emerging markets there are government-mandated reductions in prices
for certain pharmaceutical products, as well as government-imposed access restrictions in certain countries. All of the aforesaid may
make it more difficult for us to commercialize our current commercial products, any products that we may commercialize or promote, and
our therapeutic candidates, upon approval, if any.
Our business involves risks related to handling
regulated substances, which could severely affect our ability to commercialize our current commercial products and any products that we
may commercialize or promote in the future and to conduct research and development of our therapeutic candidates.
In connection with our or our development or commercialization partners’ research
and development activities, as well as the manufacture of commercial products, materials, and therapeutic candidates and any products
that we may commercialize or promote in the future, we and our development or commercialization partners are subject to federal, state
and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge,
handling and disposal of certain materials, biological specimens and waste. We and our research and development or commercialization partners
may be required to incur significant costs to comply with environmental and health and safety regulations in the future. Our research
and development, as well as the activities of our commercial and clinical manufacturing and commercialization partners, both now and in
the future, may involve the controlled use of hazardous materials, including, but not limited to, certain hazardous chemicals. We cannot
completely eliminate the risk of accidental contamination or injury from these materials. In the event of such an occurrence, we could
be held liable for any damages that could result and any such liability could exceed our resources.
Security breaches, loss of data, and other
disruptions could compromise sensitive information and expose us to liability, which would cause our business and reputation to suffer.
In the ordinary course of our business, we may collect and store sensitive data, including
intellectual property, compliance-related data, research data, our proprietary business information and that of our suppliers and business
partners, technical information about our products, clinical trial plans as well as personally identifiable information of patients, clinical
trial participants and employees. We also have outsourced elements of our information technology structure, and as a result, we are managing
independent vendor relationships with third parties who may or could have access to our confidential information. Similarly, our business
partners and other third-party providers possess certain of our sensitive data and confidential information. The secure maintenance of
this information is critical to our operations and business strategy. Despite the implementation of security measures, our internal computer
systems, and those of third parties on which we rely, are vulnerable to damage from computer viruses, malware, ransomware, cyber-fraud,
natural disasters, terrorism, war, telecommunication and electrical failures, cyber-attacks or cyber-intrusions over the Internet, attachments
to emails, persons inside our organization, or persons with access to systems inside our organization. The risk of a security breach or
disruption, particularly through cyber-attacks or cyber-intrusion, including by computer hackers, foreign governments, and cyber-terrorists,
has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.
We, our partners, vendors, and other third-party providers could be susceptible to
attacks on our and their information security systems, which attacks are of ever-increasing levels of sophistication and are made by groups
and individuals with a wide range of motives and expertise, including criminal groups. Any such breach could compromise our and their
networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, inappropriate disclosure
of confidential or proprietary information or other loss of information, including our data being breached at third-party providers, could
result in legal claims or proceedings, liability or financial loss under laws that protect the privacy of personal information, disrupt
our operations, or our product development programs and damage our reputation, any of which could adversely affect our business. For example,
the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval
efforts and significantly increase our costs to recover or reproduce the data.
We are highly dependent on information technology networks and systems, including
the Internet, to securely process, transmit and store this critical information. Security breaches of this infrastructure, including physical
or electronic break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized
disclosure or modification of confidential information. The secure processing, storage, maintenance and transmission of this critical
information is vital to our operations and business strategy, and we devote significant resources to protecting such information. Although
we take measures to protect sensitive information from unauthorized access or disclosure, our information technology and infrastructure
may be vulnerable to attacks by hackers or viruses or breached due to employee error, malfeasance or other disruptions.
A security breach or privacy violation that leads to disclosure or modification of
or prevents access to consumer information (including personally identifiable information or protected health information) could harm
our reputation, compel us to comply with disparate state breach notification laws, require us to verify the correctness of database contents
and otherwise subject us to liability under laws that protect personal data, resulting in increased costs or loss of revenue. If we are
unable to prevent such security breaches or privacy violations or implement satisfactory remedial measures, our operations could be disrupted,
and we may suffer a loss of reputation, financial loss, and other regulatory penalties because of lost or misappropriated information,
including sensitive consumer data. In addition, these breaches and other inappropriate access can be difficult to detect, and any delay
in identifying them may lead to increased harm of the type described above.
Any such breach or interruption could compromise our networks, and the information
stored there could be inaccessible or could be accessed by unauthorized parties, publicly disclosed, lost or stolen. Any such interruption
in access, improper access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws
that protect the privacy of personal information, such as HIPAA and the General Data Protection Regulation (GDPR) in connection with our
required maintenance of the global safety database for Movantik®,
and regulatory penalties. Unauthorized access, loss or dissemination could also disrupt our operations, including our ability to perform
tests, provide test results, bill facilities or patients, process claims and appeals, provide customer assistance services, conduct research
and development activities, collect, process and prepare Company financial information, provide information about our current and future
solutions and other patient and clinician education and outreach efforts through our websites, and manage the administrative aspects of
our business and damage our reputation, any of which could adversely affect our reputation, business, financial condition or results of
operations. Any such breach could also result in the compromise of our trade secrets and other proprietary information, which could adversely
affect our competitive position.
In addition, the interpretation and application of consumer, health-related, privacy
and data protection laws in the U.S. and elsewhere are often uncertain, contradictory, and in flux. It is possible that these laws may
be interpreted and applied in a manner that is inconsistent with our practices. If so, this could result in government-imposed fines or
orders requiring that we change our practices, which could adversely affect our reputation, business, financial condition or results of
operations. Complying with these various laws could cause us to incur substantial costs or require us to change our business practices
and compliance procedures in a manner adverse to our business.
Risks Related to Intellectual Property
We may be unable to adequately protect or enforce
our rights to intellectual property, causing us to lose valuable rights. Loss of patent rights may lead us to lose market share and anticipated
profits.
Our success depends, in part, on our ability, and the ability of our commercialization
or development partners to obtain patent protection for our therapeutic candidates and any products that we may commercialize or promote,
maintain the confidentiality of our trade secrets and know-how, operate without infringing or violating on the proprietary rights of others
and prevent others from infringing or violating on our proprietary rights.
We try to protect our proprietary position by, among other things, filing U.S., European,
and other patent applications related to our therapeutic candidates, inventions and improvements that may be important to the continuing
development of our commercial products and therapeutic candidates, and we plan to try to do the same with products we may acquire, commercialize
or promote in the future, where this is possible.
Because the patent position of pharmaceutical companies involves complex legal and
factual questions, we cannot predict the scope, validity or enforceability of patents with certainty. Our issued patents and the issued
patents of our commercialization or development partners may not provide us with any competitive advantages, may be held invalid or unenforceable
as a result of legal challenges by third parties or could be circumvented. Ownership of the patent rights we in-license from our commercialization
or development partners or the patent rights to the products already approved for marketing that we develop, acquire or for which we acquire
commercialization rights may be challenged, and as a result, the rights we in-license and the rights to products we acquire may turn out
not to be exclusive or we may not actually have rights under the patents despite receiving representations from a commercialization or
development partner. Our competitors may also independently develop drug delivery technologies or products similar to ours or design around
or otherwise circumvent patents issued to, or licensed by, us. Thus, any patents that we own or license from others may not provide any
protection against competitors. Our pending patent applications, those we may file in the future or those we may license from third parties
may not result in patents being issued. If these patents are issued, they may not provide us with proprietary protection or competitive
advantages. The degree of future protection to be afforded by our proprietary rights is uncertain because legal means afford only limited
protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage.
In the U.S., Europe, and other jurisdictions, patent applications are typically not
published until 18 months after filing. In addition, many companies and universities do not publish their discoveries until after
patent filings are made. This makes it difficult to be certain that we were the first to file for protection of the inventions or the
first to invent the inventions. As a result, we may not be able to obtain or maintain protection for certain inventions. Therefore, the
enforceability and scope of our patents and patent applications in the U.S., Europe, and other jurisdictions are uncertain and unpredictable.
Any patents that we own may not provide sufficient protection against competitors and may be of insufficient scope to achieve our business
objectives. Additionally, the patent filings of others might act as an impediment to our ability to commercialize our current or future
commercial products.
Patent rights are territorial; thus, the patent protection we do have will only extend
to those countries in which we have issued patents. Even so, the laws of certain countries do not protect our intellectual property rights
to the same extent as do the laws of the U.S. and the European Union. Competitors may successfully challenge our patents, produce similar
drugs or products that do not infringe our patents or produce drugs in countries where we have not applied for patent protection or that
do not respect our patents. Furthermore, it is not possible to know the scope of claims that will be allowed in published applications,
and it is also not possible to know which claims of granted patents, if any, will be deemed enforceable in a court of law.
In some cases, litigation may be necessary to enforce our patent rights. If we choose
to take an infringing third party to court, the third party may challenge the validity or enforceability of our patent rights or may assert
that their activities do not infringe our patents. Litigation is expensive and unpredictable, and we may not have the proper resources
to pursue such litigation or to protect our patent rights. Moreover, there is the risk that the court will find that our patents are not
valid or enforceable, or that the third party does not infringe our rights in these patents. Adverse results in any such litigation could
materially impair our patent rights and our ability to prevent generic and other competition for our products. Such results might also
materially affect our economics and our ability to require third parties to enter a license with us or to pay us a reasonable royalty
for using our technology.
After the completion of the development and registration of our patents, third parties
may still manufacture or market products in infringement of our patent-protected rights. Such manufacture or market of products in infringement
of our patent-protected rights is likely to cause us damage and lead to a reduction in the prices of our current commercial products,
any product we may commercialize or promote, or any of our therapeutic candidates, thereby reducing our potential profits.
In addition, due to the extensive time needed to develop, test and obtain regulatory
approval for our therapeutic candidates or any product we may commercialize or promote, any patents that protect our therapeutic candidate
or any product we may commercialize or promote may expire early during commercialization. This may reduce or eliminate any market advantages
that such patents may give us. Following patent expiration, we may face increased competition through the entry of generic products into
the market and a subsequent decline in market share and profits.
In addition, in some cases, we may rely on our licensors to conduct patent and trademark
prosecution, patent and trademark maintenance or patent and trademark defense on our behalf. Therefore, our ability to ensure that these
patents and trademarks are properly prosecuted, maintained, or defended may be limited, which may adversely affect our rights in the commercialization
of our commercial products, development of our therapeutic candidates, and potential approval for marketing of our therapeutic products.
Any failure by our licensors or commercialization or development partners to properly conduct patent and trademark prosecution, patent
and trademark maintenance, patent and trademark enforcement, or patent defense could materially harm our ability to obtain suitable patent
protection covering our commercial products or therapeutic candidates or ensure freedom to commercialize the products in view of third-party
patent rights, thereby materially reducing our potential profits.
If we are unable to protect the confidentiality
of our trade secrets or know-how, such proprietary information may be used by others to compete against us.
In addition to filing patents, we generally try to protect our trade secrets, know-how,
and technology by entering into confidentiality or non-disclosure agreements with parties that have access to them, such as our development
or commercialization partners, employees, contractors, and consultants. We also enter into agreements that purport to require the disclosure
and assignment to us of the rights to the ideas, developments, discoveries and inventions of our employees, advisors, research collaborators,
contractors and consultants while we employ or engage them. However, these agreements can be difficult and costly to enforce or may not
provide adequate remedies. Any of these parties may breach the confidentiality agreements and willfully or unintentionally disclose our
confidential information, or our competitors might learn of the information in some other way. The disclosure to, or independent development
by, a competitor of any trade secret, know-how or other technology not protected by a patent could materially adversely affect any competitive
advantage we may have over any such competitor.
To the extent that any of our employees, advisors, research collaborators, contractors
or consultants independently develop, or use independently developed, intellectual property in connection with any of our projects, disputes
may arise as to the proprietary rights to this type of information. If a dispute arises with respect to any proprietary right, enforcement
of our rights can be costly and unpredictable, and a court may determine that the right belongs to a third party.
Legal proceedings or third-party claims of
intellectual property infringement and other challenges may require us to spend substantial time and money and could prevent us from developing
or commercializing any of our commercial products and our therapeutic candidates.
The development, manufacture, use, offer for sale, sale or importation of any of our
commercial products or any of our therapeutic candidates may infringe on the claims of third-party patents or other intellectual property
rights. Patentability, invalidity, freedom-to-operate or other opinions may be required to determine the scope and validity of third-party
proprietary rights. The nature of claims contained in unpublished patent filings around the world is unknown to us and it is not possible
to know which countries patent holders may choose for an extension of their filings under the Patent Cooperation Treaty or other mechanisms.
We may also be subject to claims based on the actions of employees and consultants with respect to the usage or disclosure of intellectual
property learned at other employers. The cost to us of any intellectual property litigation or other infringement proceeding, even if
resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation or proceedings
more effectively because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation
or defense of intellectual property litigation or other proceedings could have a material adverse effect on our ability to compete in
the marketplace. Intellectual property litigation and other proceedings may also absorb significant management time. Consequently, we
are unable to guarantee that we will be able to manufacture, use, offer for sale, sell or import any of our commercial products or of
our therapeutic candidates in the event of an infringement action.
In the event of patent infringement claims, or to avoid potential claims, we may choose
or be required to seek a license from a third party and would most likely be required to pay license fees or royalties or both. These
licenses may not be available on acceptable terms, or at all. Even if we were able to obtain a license, the rights may be non-exclusive,
which could potentially limit our competitive advantage. Ultimately, we could be prevented from commercializing a therapeutic candidate
and any products that we may commercialize or promote or be forced to cease some aspect of our business operations if, as a result of
actual or threatened patent infringement or other claims, we are unable to enter into licenses on acceptable terms. This inability to
enter into licenses or the ability to exclude others using proprietary rights could have a material adverse effect on our reputation,
business, financial condition or results of operations.
On February 22, 2021, Aether Therapeutics Inc. (“Aether”)
filed a complaint against RedHill U.S. in the United States District Court for the District of Delaware, alleging that the Company’s
marketing of the Movantik® product infringes certain patents held by Aether. See “Business - Legal Proceedings.” The
Aether litigation has been resolved in all respects and on April 6, 2023, a Stipulation and Order of Dismissal with Prejudice was entered
in the matter.
The license agreements we maintain, including
our license agreement with Cosmo, may be amended or terminated. If we or the other parties to our license agreements amend or terminate
the license agreements, the development, testing, manufacture, production and sale of our products or product candidates may be delayed
or terminated, and our business may be adversely affected.
We are parties to commercialization or license agreements, which may be terminated,
subject to conditions set forth in such agreements. For example, on October 17, 2019, we entered into a strategic collaboration with Cosmo,
which included a license agreement (the “Cosmo License Agreement”) with a wholly-owned subsidiary of Cosmo pursuant to which
we were granted exclusive rights to commercialize Aemcolo®
in the U.S. The Cosmo License Agreement provides that, beginning in October 2022, both parties have the right to terminate the Cosmo License
Agreement unilaterally, subject to certain conditions. In December 2021, the parties signed an amendment to the Cosmo License Agreement
providing that either party may terminate the Cosmo License Agreement upon advance notice at any time. Subject to and following the termination
of the Cosmo License Agreement, we would no longer be able to commercialize Aemcolo®
and may never recover the costs we incurred during the term of the Cosmo License Agreement.
We may be subject to other patent-related litigation
or proceedings that could be costly to defend and uncertain in their outcome.
In addition to infringement claims against us, we may become a party to other patent
litigation or proceedings before regulatory agencies, including post-grant review, inter parties review, interference or re-examination
proceedings filed with the U.S. Patent and Trademark Office or opposition proceedings in other foreign patent offices regarding intellectual
property rights with respect to our therapeutic candidates or any products that we may commercialize or promote, as well as other disputes
regarding intellectual property rights with development or commercialization partners, or others with whom we have contractual or other
business relationships. Post-issuance proceedings challenging patent claims validity are not uncommon, and we or our development or commercialization
partners will be required to defend these procedures as a matter of course. Such procedures may be costly, and there is a risk that we
may not prevail, which could harm our business significantly.
Risks Related to the ADSs
Our failure to maintain compliance with Nasdaq’s
continued listing requirements could result in the delisting of the ADSs.
The ADSs are currently listed for trading on Nasdaq.
While we are currently in compliance, we have been in the past unable to comply with certain of the listing standards that we are required
to meet to maintain the listing of the ADSs on Nasdaq which may result in our securities being delisted from Nasdaq. For instance, on
May 9, 2023, we received a written notification from the Nasdaq, indicating that we are not in compliance with the minimum MVPHS set forth
in the Nasdaq Listing Rules for continued listing on Nasdaq. Additionally, on September 19, 2023, we received a letter from Nasdaq indicating
that for the thirty consecutive business days from August 7, 2023, to September 18, 2023, the bid price for the ADSs had closed below
the minimum $1.00 per ADS requirement for continued listing on Nasdaq under Nasdaq Listing Rule 5450(a)(1). Both matters have since been
closed.
Additionally, in the recent past, we did not meet the minimum closing bid price requirement
and only regained compliance with that requirement in April 2023, after completing a ratio change of the ADSs to our non-traded Ordinary
Shares from the previous ratio of one ADS representing ten Ordinary Shares to a new ratio of one ADS representing 400 Ordinary Shares.
No assurance can be given that the price of the ADSs will not again be in violation of Nasdaq’s minimum bid price rule in the future.
Our failure to meet these requirements may result in our securities being delisted from Nasdaq.
A delisting could substantially decrease trading in the ADSs, adversely affect the
market liquidity of the ADSs as a result of the loss of market efficiencies associated with Nasdaq and the loss of federal preemption
of state securities laws, adversely affect our ability to obtain financing on acceptable terms, if at all, and may result in the potential
loss of confidence by investors, suppliers, customers and employees and fewer business development opportunities. Additionally, the market
price of the ADSs may decline further and shareholders may lose some or all of their investment.
U.S. holders of ADSs may suffer adverse tax
consequences if we were characterized as a passive foreign investment company.
Based on the current composition of our gross income and assets and
on reasonable assumptions and projections no assurance can be given that we will not be treated as a passive foreign investment company
(a “PFIC”), for U.S. federal income tax purposes for 2024. If we were characterized as a PFIC, U.S. holders of the ADSs
may suffer adverse tax consequences such as (i) having gains realized on the sale of the ADSs treated as ordinary income rather than capital
gain, not qualifying for the preferential rate otherwise applicable to dividends received in respect of the ADSs by individuals
who are U.S. holders, and (ii) having interest charges apply to certain distributions by us and upon certain sales of the ADSs.
There has been a limited market
for the ADSs. We cannot ensure investors that an active market will continue or be sustained for the ADSs on the Nasdaq and this may limit
the ability of our investors to sell the ADSs.
In the past, there was limited trading in the ADSs, and there is no
assurance that an active trading market of the ADSs will continue or will be sustained. Limited or minimal trading in the ADSs has in
the past, and may in the future, lead to dramatic fluctuations in market price and investors may not be able to liquidate their investment
at all or at a price that reflects the value of the business.
While the ADSs began trading on the Nasdaq Capital Market in December 2012,
on the Nasdaq Global Market in July 2018, and on Nasdaq again in December 2023, we cannot assure you that we will maintain compliance
with all of the requirements for the ADSs to remain listed. Additionally, there can be no assurance that trading of the ADSs will be sustained
or desirable.
As a foreign private issuer, we are permitted
to follow certain home country corporate governance practices instead of applicable SEC and Nasdaq Stock Market requirements, which may
result in less protection than is accorded to investors under rules applicable to domestic issuers.
As a foreign private issuer, we are permitted to follow certain home country corporate
governance practices instead of those otherwise required under the Nasdaq Listing Rules for domestic issuers. For instance, we follow
the home country practice in Israel with regard to, among other things, director nomination procedures and quorum at shareholders’
meetings. In addition, we follow our home country law, instead of the Nasdaq Listing Rules, which require that we obtain shareholder approval
for certain dilutive events, such as for the establishment or amendment of certain equity-based compensation plans, an issuance that will
result in a change in control, certain transactions other than a public offering involving issuances of a 20% or more interest in us and
certain acquisitions of the stock or assets of another company. Following our home country governance practices as opposed to the requirements
that would otherwise apply to a U.S. domestic issuer listed on the Nasdaq Stock Market may provide less protection than is accorded to
investors under the Nasdaq Listing Rules applicable to domestic issuers.
In addition, as a foreign private issuer, we are exempt from the rules and regulations
under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders
are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition,
we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently
or as promptly as domestic companies whose securities are registered under the Exchange Act.
We currently do not anticipate
paying cash dividends, and accordingly, investors must rely on the appreciation in the ADSs for any return on their investment.
We currently anticipate that we will retain future earnings, if any,
for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable
future. In addition, the terms of our term loan facility prohibit us from paying dividends. Therefore, the success of an investment in
the ADSs will depend upon any future appreciation in their value. There is no guarantee that the ADSs will appreciate in value or even
maintain the price at which our investors have purchased their securities.
Investors in the ADSs may not
receive the same distributions or dividends as those we make to the holders of our ordinary shares, par value NIS 0.01 per share (“Ordinary
Shares”), and, in some limited circumstances, investors in the ADSs may not receive dividends or other distributions on our Ordinary
Shares and may not receive any value for them, if it is illegal or impractical to make them available to investors in the ADSs.
The depositary for the ADSs has agreed to pay to investors in the
ADSs the cash dividends or other distributions it or the custodian receives on Ordinary Shares or other deposited securities underlying
the ADSs, after deducting its fees and expenses. Investors in the ADSs will receive these distributions in proportion to the number of
Ordinary Shares such ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make
a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists
of securities that require registration under the Securities Act of 1933, as amended, but that is not properly registered or distributed
under an applicable exemption from registration. In these cases, the depositary may determine not to distribute such property and hold
it as “deposited securities” or may seek to effect a substitute dividend or distribution, including net cash proceeds from
the sale of the dividends that the depositary deems an equitable and practicable substitute. We have no obligation to register under U.S.
securities laws any ADSs, Ordinary Shares, rights or other securities received through such distributions. We also have no obligation
to take any other action to permit the distribution of ADSs, Ordinary Shares, rights or anything else to holders of ADSs. In addition,
the depositary may deduct from such dividends or distributions its fees and may withhold amounts on account of taxes or other governmental
charges to the extent the depositary believes it is required to make such withholding. This means that investors in the ADSs may not receive
the same distributions or dividends as those we make to the holders of our Ordinary Shares, and, in some limited circumstances, investors
in the ADSs may not receive any value for such distributions or dividends if it is illegal or impractical for us to make them available
to investors in the ADSs. These restrictions may cause a material decline in the value of the ADSs.
Holders of ADSs must act through the depositary
to exercise their rights.
Holders of the ADSs do not have the same rights as our holders of
Ordinary Shares and may only exercise the voting rights with respect to the underlying Ordinary Shares in accordance with the provisions
of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required to convene a shareholders’ meeting
is no less than 35 or 21 calendar days, depending on the proposals on the agenda for the shareholders’ meeting. When a shareholders’
meeting is convened, holders of the ADSs may not receive sufficient advance notice of a shareholders’ meeting to permit them to
cancel the ADSs and withdraw their Ordinary Shares to allow them to cast their vote with respect to any specific matter. In addition,
the depositary and its agents may not be able to send voting instructions to holders of the ADSs or carry out their voting instructions
in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of the ADSs in a timely
manner, but we cannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary
to vote their ADSs. Furthermore, the depositary and its agents are not responsible for any failure to carry out any instructions to vote,
for the manner in which any vote is cast or for the effect of any such vote. As a result, holders of the ADSs may not be able to exercise
their right to vote and they may lack recourse if their ADSs are not voted as they requested. In addition, in the capacity as an ADS holder,
they are not able to call a shareholders’ meeting.
The depositary for the ADSs
gives us a discretionary proxy to vote our Ordinary Shares underlying ADSs if a holder of the ADSs does not give voting instructions,
except in limited circumstances.
Under the deposit agreement for the ADSs, the depositary gives us
a discretionary proxy to vote our Ordinary Shares underlying ADSs at shareholders’ meetings if a holder of the ADSs does not give
voting instructions, unless:
| • |
we have instructed the depositary that we do not wish a discretionary proxy to be given; |
| • |
we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting; or |
| • |
we have informed the depositary that a matter to be voted on at the meeting would have a material adverse impact on shareholders.
|
The effect of this discretionary proxy is that a holder of the ADSs
cannot prevent our Ordinary Shares underlying such ADSs from being voted by us at our discretion, absent the situations described above.
Holders of our Ordinary Shares are not subject to this discretionary proxy.
Risks Related to our Operations in Israel
We conduct some of our operations in Israel.
Conditions in Israel, including the recent attack by Hamas and other terrorist organizations from the Gaza Strip and Israel’s war
against them, may affect our operations.
Because we are incorporated under the laws of the State of Israel and some of our
operations are conducted in Israel, our business and operations are directly affected by economic, political, geopolitical and military
conditions in Israel. Since the establishment of the State of Israel in 1948, a number of armed conflicts have occurred between Israel
and its neighboring countries and terrorist organizations active in the region. These conflicts have involved missile strikes, hostile
infiltrations and terrorism against civilian targets in various parts of Israel, which have negatively affected business conditions in
Israel. In addition, Israel faces many threats from more distant neighbors, in particular, Iran. Parties with whom we do business
have sometimes declined to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements
when necessary. In addition, the political and security situation in Israel may result in parties with whom we have agreements involving
performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure
provisions in such agreements. Any hostilities involving Israel or the interruption or curtailment of trade within Israel or between Israel
and its trading partners could adversely affect our operations or results of operations and could make it more difficult for us to raise
capital.
In October 2023, Hamas terrorists infiltrated Israel’s southern border from
the Gaza Strip and conducted a series of attacks on civilian and military targets. Hamas also launched extensive rocket attacks on Israeli
population and industrial centers located along Israel’s border with the Gaza Strip and in other areas within the State of Israel.
These attacks resulted in extensive deaths, injuries and kidnapping of civilians and soldiers. Following the attack, Israel’s security
cabinet declared war against Hamas and a military campaign against these terrorist organizations commenced in parallel to their continued
rocket and terror attacks. Moreover, the clash between Israel and Hezbollah in Lebanon, and an expansion of the attacks on marine vessels
in the Red Sea and surrounding waterways by the Houthi movement, which controls part of Yemen, may escalate in the future into a
greater regional conflict.
Although we currently do not expect the ongoing conflict to affect our customers,
manufacturing, research and development, supply chain, commercialization activities and current clinical studies, which are all located
in and/or take place outside of Israel, there can be no assurances that further unforeseen events will not have a material adverse effect
on us or our operations in the future.
The Israel Defense Force (the “IDF”), the national military of Israel,
is a conscripted military service, subject to certain exceptions. Following the October 7, 2023 attacks, the IDF called up more than 350,000
of its reserve forces to serve. One member of management is currently subject to military service in the IDF and has been called to serve.
It is possible that there will be further military reserve duty call-ups in the future, which may affect our business due to a shortage
of skilled labor and loss of institutional knowledge, and necessary mitigation measures we may take to respond to a decrease in labor
availability, such as overtime and third-party outsourcing, for example, may have unintended negative effects and adversely impact our
results of operations, liquidity or cash flows.
Additionally, five members of our management team and 10 of our non-management employees
reside in Israel. Four members of our management team and 10 of our non-management employees are currently located in Israel. Shelter-in-place
and work-from-home measures, government-imposed restrictions on movement and travel and other precautions taken to address the ongoing
conflict may temporarily disrupt our management and employees’ ability to effectively perform their daily tasks.
It is currently not possible to predict the duration or severity of the ongoing conflict
or its effects on our business, operations and financial conditions. The ongoing conflict is rapidly evolving and developing, and could
disrupt our business and operations, interrupt our sources and availability of supply and hamper our ability to raise additional funds
or sell our securities, among others.
Our commercial insurance does not cover losses that may occur as a
result of events associated with the security situation in the Middle East. The Israeli government is currently committed to cover the
reinstatement value of direct damages that are caused by terrorist attacks or acts of war. However, there is no assurance that this government
coverage will be maintained, or if maintained, will be sufficient to compensate us fully for damages incurred. Any losses or damages incurred
by us could have a material adverse effect on our business.
Several countries, principally in the Middle East, restrict doing business with Israel
and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies. In addition,
there have been increased efforts by activists to cause companies and consumers to boycott Israeli goods based on Israeli government policies.
Such business restrictions and boycotts, particularly if they become more widespread, may materially and adversely impact our business.
Furthermore, prior to the attacks by Hamas, the Israeli government was pursuing extensive
changes to Israel’s judicial system. This led to protests at various levels domestically, and investment banks and other investors
have voiced concerns that the proposed changes may negatively impact the business environment in Israel. This may, in turn, could slow
the flow of international investment and negatively affect our business, financial condition and prospects.
Because a certain portion of our expenses is
incurred in currencies other than the U.S. dollar, our results of operations may be harmed by currency fluctuations and inflation.
Our reporting and functional currency is the U.S. dollar. Most of our revenues and
royalty payments from our agreements with our development or commercialization partners are in U.S. dollars, and we expect our revenues
from future licensing and co-promotion agreements to be denominated mainly in U.S. dollars or in Euros. We pay a substantial portion of
our expenses in U.S. dollars; however, a portion of our expenses, including salaries of our employees in Israel and payment to part of
our service providers in Israel and other territories, are paid in NIS and in other currencies. In addition, a portion of our financial
assets is held in NIS and in other currencies. As a result, we are exposed to currency fluctuation risks. For example, if the NIS strengthens
against the U.S. dollar, our reported expenses in U.S. dollars may be higher. In addition, if the NIS weakens against the U.S. dollar,
the U.S. dollar value of our financial assets held in NIS will decline.
Provisions of the RedHill Biopharma Ltd.
Award Plan, Israeli law, our articles of association and our change in control retention plan may delay, prevent or otherwise impede a
merger with, or an acquisition of, our Company, or an acquisition of a significant portion of our shares, which could prevent a change
in control, even when the terms of such a transaction are favorable to us and our shareholders.
Our Amended and Restated Award Plan (2010) (the “Award Plan”)
provides that all options granted by us will be fully accelerated upon a “hostile takeover” of us. A “hostile takeover”
is defined in our Award Plan as an event in which any person, entity or group that was not an “interested party”, as defined
in the Israeli Securities Law – 1968, on the date of the initial public offering of our Ordinary Shares on the TASE, will
become a “controlling shareholder” as defined in the Israel Securities Law, 1968, or a “holder,” as defined
in the Israeli Securities Law – 1968, of 25% or more of our voting rights or any merger or consolidation involving us, in each
case without a resolution by our board of directors supporting the transaction. In addition, if a “Significant Event” occurs
and following which the employment of a grantee with us or a related company is terminated by us or a related company other than for “Cause”,
and unless the applicable agreement provides otherwise, all the outstanding options held by or for the benefit of any such grantee will
be accelerated and immediately vested and exercisable. A “Significant Event” is defined in our Award Plan as a consolidation
or merger with or into another corporation approved by our board of directors in which we are the continuing or surviving corporation
or in which the continuing or surviving corporation assumes the option or substitutes it with an appropriate option in the surviving corporation.
The Israeli Companies law, 1999, or the Israeli Companies Law, regulates mergers,
requires tender offers for acquisitions of shares or voting rights above specified thresholds, requires special approvals for transactions
involving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions.
For example, a merger may not be consummated unless at least 50 days have passed from the date that a merger proposal was filed by
each merging company with the Israel Registrar of Companies and at least 30 days from the date that the shareholders of both merging
companies approved the merger. In addition, a majority of each class of securities of the target company must approve a merger. Moreover,
the Israeli Companies Law provides that certain purchases of securities of a public company are subject to tender offer rules. As a general
rule, the Israeli Companies Law prohibits any acquisition of shares or voting power in a public company that would result in the purchaser
holding 25% or more, or more than 45% of the voting power in the company, if there is no other person holding 25% or more, or more than
45% of the voting power in a company, respectively, without conducting a special tender offer. The Israeli Companies Law further provides
that a purchase of shares or voting power of a public company or a class of shares of a public company which will result in the purchaser’s
holding 90% or more of the company’s shares, class of shares or voting rights, is prohibited unless the purchaser conducts a full
tender offer for all of the company’s shares or class of shares. The purchaser will be allowed to purchase all of the company’s
shares or class of shares (including those shares held by shareholders who did not respond to the offer), if either (i) the shareholders
who do not accept the offer hold less than 5% of the issued and outstanding share capital of the company or of the applicable class, and
more than half of the shareholders who do not have a personal interest in the offer accept the offer, or (ii) the shareholders who
do not accept the offer hold less than 2% of the issued and outstanding share capital of the company or of the applicable class. The shareholders,
including those who indicated their acceptance of the tender offer (except if otherwise detailed in the tender offer document), may, at
any time within six months following the completion of the tender offer, petition the court to alter the consideration for the acquisition.
At the request of an offeree of a full tender offer which was accepted, the court may determine that the consideration for the shares
purchased under the tender offer was lower than their fair value and compel the offeror to pay to the offerees the fair value of the shares.
Such an application to the court may be filed as a class action.
In addition, the Israeli Companies Law provides for certain limitations on a shareholder
that holds more than 90% of the company’s shares, or class of shares.
Pursuant to our articles of association, the size of our board of directors may be
no less than five persons and no more than eleven, including any external directors whose appointment is required under the law. The directors
who are not external directors are divided into three classes, as nearly equal in number as possible. At each annual general meeting,
the term of one class of directors expires, and the directors of such class are re-nominated to serve an additional three-year term that
expires at the annual general meeting held in the third year following such election (other than any director nominated for election
by Cosmo pursuant to the Company’s subscription agreement with Cosmo, whose term of office may expire earlier depending on the beneficial
ownership by the Cosmo investor of the Cosmo shares). This process continues indefinitely. Such provisions of our articles of association
make it more difficult for a third party to effect a change in control or takeover attempt that our management and board of directors
oppose.
In addition, we have adopted a change in control employee retention plan and entered
into employment agreements providing for compensation to Company officers and employees in the event of a change in control (as defined
by the plan and employment agreements), subject to the satisfaction of various conditions. See “Management – Compensation
– Change in Control Retention Plan and Agreements; Severance Arrangements.”
Furthermore, Israeli tax considerations may, in certain circumstances, make potential
transactions unappealing to us or to some of our shareholders. For example, Israeli tax law does not recognize tax-free share exchanges
to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes
the deferral contingent on the fulfillment of numerous conditions, including a holding period of two years from the date of the transaction
during which sales and dispositions of shares of the participating companies are restricted. Moreover, with respect to certain share swap
transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no actual disposition of
the shares has occurred.
These and other similar provisions could delay, prevent or impede an acquisition of
us or our merger with another company, or an acquisition of a significant portion of our shares, even if such an acquisition or merger
would be beneficial to us or to our shareholders.
It may be difficult to enforce a U.S. judgment
against us and our directors and officers in Israel or the U.S. or to serve process on our directors and officers.
We are incorporated in Israel. Most of our directors and executive officers reside
outside of the U.S., and most of the assets of our directors and executive officers may be located outside of the U.S. Therefore, a judgment
obtained against us or most of our executive officers and our directors in the U.S., including one based on the civil liability provisions
of the U.S. federal securities laws, may not be collectible in the U.S. and may not be enforced by a U.S. or Israeli court. It may also
be difficult to effect service of process on these persons in the U.S. or to assert U.S. securities law claims in original actions instituted
in Israel.
The obligations and responsibilities of our
shareholders are governed by Israeli law, which may differ in some respects from the obligations and responsibilities of shareholders
of U.S. companies. Israeli law may impose obligations and responsibilities on a shareholder of an Israeli company that are not imposed
upon shareholders of corporations in the U.S.
We are incorporated under Israeli law. The obligations and responsibilities of the
shareholders are governed by our articles of association and Israeli law. These obligations and responsibilities differ in some respects
from the obligations and responsibilities of shareholders in typical U.S.-based corporations. In particular, a shareholder of an
Israeli company has a duty to act in good faith toward the company and other shareholders and to refrain from abusing its power in the
company, including, among other things, in voting at the general meeting of shareholders on matters such as amendments to a company’s
articles of association, increases in a company’s authorized share capital, mergers and acquisitions and interested party transactions
requiring shareholder approval. In addition, a shareholder who knows that it possesses the power to determine the outcome of a shareholder
vote or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness toward the company.
There is limited case law available to assist us in understanding the implications of these provisions that govern shareholders’
actions. These provisions may be interpreted to impose additional obligations and responsibilities on our shareholders that are not typically
imposed on shareholders of U.S. corporations.
Claims for indemnification by our directors
and officers may reduce our available funds to satisfy successful shareholder claims against us and may reduce the amount of money available
to us.
The Israeli Companies Law and our articles of association permit us to indemnify our
directors and officers for acts performed by them in their capacity as directors and officers. The Israeli Companies Law provides that
a company may not exempt or indemnify a director or an officer nor enter into an insurance contract, which would provide coverage for
any monetary liability incurred as a result of: (a) a breach by the director or officer of his duty of loyalty, except for insurance
and indemnification where the director or officer acted in good faith and had a reasonable basis to believe that the act would not prejudice
the company; (b) a breach by the director or officer of his duty of care if the breach was done intentionally or recklessly, except
if the breach was solely as a result of negligence; (c) any act or omission done with the intent to derive an illegal personal benefit;
or (d) any fine, civil fine, monetary sanctions, or forfeit imposed on the officer or director. Our articles of association provide
that we may exempt or indemnify a director or an officer to the maximum extent permissible under law.
We have issued letters of indemnification to our directors and officers, pursuant
to which we have agreed to indemnify them in advance for any liability or expense imposed on or incurred by them in connection with acts
they perform in their capacity as a director or officer, subject to applicable law. The amount of the advance indemnity is limited to
the higher of 25% of our then shareholders’ equity, per our most recent annual financial statements, or $10 million.
Our indemnification obligations limit the personal liability of our directors and
officers for monetary damages for breach of their duties as directors by shifting the burden of such losses and expenses to us. Although
we have obtained directors’ and officers’ liability insurance, certain liabilities or expenses covered by our indemnification
obligations may not be covered by such insurance or the coverage limitation amounts may be exceeded. As a result, we may need to use a
significant amount of our funds to satisfy our indemnification obligations, which could severely harm our business or financial condition
and limit the funds available to those who may choose to bring a claim against us. These provisions and resultant costs may also discourage
us from bringing a lawsuit against directors and officers for breaches of their duties and may similarly discourage the filing of derivative
litigation by our shareholders against the directors and officers even though such actions, if successful, might otherwise benefit our
security holders.
Our Amended and Restated Articles of Association
designate courts located either within the State of Israel, or the Federal District Courts of the United States, as the exclusive forum
for certain litigation that may be initiated by our shareholders, which could limit our shareholders’ ability to bring a favorable
or convenient judicial forum for disputes with us.
Our Amended and Restated Articles of Association provide that, unless we consent in
writing to the selection of an alternative forum, the Tel Aviv District Court (Economic Division in the State of Israel (or, if the Tel
Aviv District Court does not have jurisdiction, and no other Israeli court has jurisdiction, the federal district court for the District
of New York) shall be the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting
a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our shareholders, and (3) any
action asserting a claim arising pursuant to any provision of the Companies Law or the Israeli Securities Law 5728-1968, in all cases
subject to the court’s having personal jurisdiction over the indispensable parties named as defendants. In addition, the federal
district courts of the United States for the District of New York shall be the exclusive forum for any complaint asserting a cause of
action arising under the Securities Act of 1933. Any person or entity purchasing or otherwise acquiring any interest in shares of our
capital stock shall be deemed to have notice of and consented to these provisions.
This forum selection provision may limit shareholders’ ability to bring a claim
in a judicial forum for disputes that it finds favorable or convenient for disputes with us or our directors, officers, or other employees,
which may discourage lawsuits with respect to such claims. Alternatively, a court, including an Israeli court, could find these provisions
of our Articles of Association to be inapplicable or unenforceable in respect of one or more of the specified types of actions or proceedings,
which may require us to incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect
our business and financial condition.
General Risks
We must comply with the U.S. Foreign Corrupt
Practices Act.
The U.S. Foreign Corrupt Practices Act (the “FCPA”) applies to companies,
such as us, with a class of securities registered under the Exchange Act. The FCPA to which various of our operations may be subject generally
prohibits companies and their intermediaries from engaging in bribery or making other improper payments to officials for the purpose of
obtaining or retaining business. In various jurisdictions, our operations require that we and third parties acting on our behalf routinely
interact with government officials, including medical personnel who may be considered government officials for purposes of these laws
because they are employees of state-owned or controlled facilities. Our policies mandate compliance with these anti-bribery laws; however,
we operate in many parts of the world that have experienced governmental or private corruption to some degree. As a result, the existence
and implementation of a robust anti-corruption program cannot eliminate all risks that unauthorized reckless or criminal acts have been
or will be committed by our employees or agents. If our employees or other agents are found to have engaged in such practices, we could
suffer severe penalties. Violations of the FCPA, or allegations of such violations, could disrupt our business and result in a material
adverse effect on our reputation, business, financial condition or results of operations.
Future issuances or sales of
ADSs could reduce the market price of the ADSs and result in dilution to our shareholders.
As of February 6, 2024, we had outstanding options to purchase
up to an aggregate of 39,070,400 Ordinary Shares (equivalent to 97,676 of the ADSs) under our Award Plan and 177,703 outstanding Restricted
Share Units (“RSUs”), each with respect to one of the ADSs, which represents 400 of our Ordinary Shares. In addition, as of
February 6, 2024, there were 1,400,658,798 Ordinary Shares (equivalent to 3,501,647 ADSs) reserved for issuance under our Award Plan (including
Ordinary Shares subject to outstanding options and RSUs under such plan). In addition, as of February 6, 2024, we have sold an aggregate
of 34,453 ADSs under our current “at-the-market” equity offering program initiated in July 2021, at a weighted average price
per ADS of $74.84, generating aggregate net proceeds of approximately $2.5 million.
As of February 6, 2024, we also had outstanding warrants to purchase
an aggregate of 11,872,091 ADSs. All warrants are exercisable at any time before January 26, 2029, subject to certain limitations and
exceptions. The weighted average exercise price of the warrants is $1.26 per ADS, which is above the current market price of the ADSs,
which was $0.53 per share based on the closing price of the ADS on Nasdaq on February 8, 2024. The likelihood that the holders of
our warrants will exercise their warrants, and the amount of any cash proceeds that we would receive upon such exercise, is dependent
upon the market price of the ADSs. However, there is no guarantee that our outstanding warrants will be in the money prior to their respective
expirations, and as such, they may expire worthless.
Future substantial issuance or sale of the ADSs or of securities exercisable,
convertible or exchangeable into ADSs, or the perception that such sales may occur in the future, including sales of ADSs issuable upon
vesting of RSUs and the exercise of options, warrants or other equity-based securities, may cause the market price of the ADSs to decline.
To the extent that our outstanding options or warrants are exercised, additional shares of the ADSs will be issued, which will result
in dilution to the holders of the ADSs and increase the number of shares of the ADSs eligible for resale in the public market. Sales of
substantial numbers of such shares in the public market or the fact that such outstanding options and warrants may be exercised may cause
the market price of the ADSs to decline.
The market price of the ADSs
is subject to fluctuation, which could result in substantial losses by our investors. Volatility in the financial market could have a
material adverse impact on the market price of the ADSs. This may affect the ability of our investors to sell their ADSs, and the value
of an investment in the ADSs may decline.
The stock market in general and the market price of the ADSs on the
Nasdaq, in particular, are subject to fluctuation, and changes in the price of our securities may be unrelated to our operating performance.
The market price of the ADSs on the Nasdaq has fluctuated in the past, and we expect they will continue to do so. The market price of
the ADSs is and will be subject to a number of factors, including but not limited to:
| • |
our ability to execute our business plan, including commercialization of our current and future commercial products; |
| • |
our ability to satisfy our contractual obligations, including our financial obligations associated with our sale of Movantik®;
|
| • |
our continued listing on the Nasdaq Capital Market or another securities exchange; |
| • |
announcements of technological innovations or new therapeutic candidates or new products approved for marketing by us or others;
|
| • |
announcements by us of significant acquisitions, strategic partnerships, in-licensing, out-licensing, joint ventures or capital commitments;
|
| • |
expiration or terminations of licenses, research contracts or other commercialization or development agreements; |
| • |
public concern as to the safety of drugs we, our commercialization or development partners or others market or develop; |
| • |
the volatility of market prices for shares of biopharmaceutical companies generally; |
| • |
success or failure of research and development projects; |
| • |
departure of or major events adversely affecting key personnel; |
| • |
developments concerning intellectual property rights or regulatory approvals; |
| • |
variations in our and our competitors’ results of operations; |
| • |
changes in earnings estimates or recommendations by securities analysts,
if the ADSs are covered by analysts; |
| • |
changes in government regulations or patent proceedings and decisions; |
| • |
developments by our development or commercialization partners; and |
| • |
general market conditions, geopolitical conditions and other factors, including factors unrelated to our operating performance.
|
These factors and any corresponding price fluctuations may materially
and adversely affect the market price of the ADSs and result in substantial losses by our investors.
Additionally, market prices for securities of biotechnology and pharmaceutical
companies historically have been very volatile. The market for these securities has from time to time, experienced significant price and
volume fluctuations for reasons unrelated to the operating performance of any one company. The COVID-19 pandemic resulted in significant
financial market volatility and uncertainty. A resurgence of the levels of market disruption and volatility seen in the recent past could
have an adverse effect on our ability to access capital, on our business, results of operations and financial condition, and on the market
price of the ADSs. In the past, following periods of market volatility, shareholders have often instituted securities class action litigation
and derivative actions. If we were involved in securities or other litigation, it could have a substantial cost and divert resources and
attention of management from our business, even if we are successful.
We incur significant costs
as a result of the listing of the ADSs on the Nasdaq, and we may need to devote substantial time and resources to new and current compliance
initiatives and reporting requirements.
As a public company in the U.S., we incur significant accounting, legal and other
expenses as a result of the listing of our securities on the Nasdaq. These include costs associated with the reporting requirements of
the SEC and the requirements of the Nasdaq Listing Rules, as well as requirements under Section 404 and other provisions of the Sarbanes-Oxley
Act of 2002 (the “Sarbanes-Oxley Act”). These rules and regulations have increased our legal and financial compliance costs,
introduced new costs such as investor relations, travel costs, stock exchange listing fees, and shareholder reporting, and made some activities
more time-consuming and costly. Any future changes in the laws and regulations affecting public companies in the U.S. and Israel, including
Section 404 and other provisions of the Sarbanes-Oxley Act, the rules and regulations adopted by the SEC and the Nasdaq Listing Rules,
as well as applicable Israeli reporting requirements, may result in an increase to our costs as we respond to such changes. These laws,
rules, and regulations could make it more difficult and costly for us to obtain certain types of insurance, including director and officer
liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the
same or similar coverage. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons
to serve on our board of directors, our board committees or as executive officers and may require us to pay more for such positions.
USE OF PROCEEDS
We will not receive any proceeds from the sale by the selling shareholders of the
Offered ADSs issued or issuable upon exercise of the Warrants. All net proceeds from the sale of the Offered ADSs covered by this prospectus
will go to the selling shareholders.
We may receive proceeds from the exercise of the Warrants
to the extent that these Warrants are exercised for cash. If all of the Warrants to purchase 10,600,000 ADSs are exercised for cash in
full, the proceeds would be approximately $10,600,000.
We intend to use the proceeds from the exercise of the Warrants for cash, if any,
for working capital, research and development and general corporate purposes.
CAPITALIZATION
AND INDEBTEDNESS
The following table sets forth our total capitalization as of June 30, 2023:
• on an actual basis; and
• on
a pro forma basis, after giving effect to (i) the sale of 1,084,923 ADSs and pre-funded warrants (the “July 2023 Pre-funded Warrants”)
to purchase up to 217,000 ADSs in the registered direct offering consummated in July 2023 (the “July 2023 Offering”), giving
effect to the subsequent exercise in full of the July 2023 Pre-funded Warrants for aggregate cash consideration of $217 and the receipt
of the net proceeds of approximately $1.4 million from the July 2023 Offering, after deducting placement agent fees and expenses payable
by us, (ii) the Warrant Amendment Agreements, dated July 21, 2023, between us and the investors signatory thereto, entered into in connection
with the July 2023 Offering, reducing the exercise price of the warrants issued on May 11, 2022 (as amended, the “May 2022 Warrants”),
warrants issued on December 6, 2022 (as amended, the “December 2022 Warrants”), and warrants issued on April 3, 2023 (as amended,
the “Class B Warrants”), to $1.80 per ADS, (iii) the exercise of the Class A warrants issued in April 2023 to purchase an
aggregate of 1,500,000 ADSs at a reduced exercise price of $1.35 per ADS in July 2023 and issuance of the warrants issued on July 25,
2023 (the “July 2023 Warrant Exercise Transaction”), after deducting placement agent fees and expenses payable by us, , (iv)
the issuance of warrants to purchase up to 78,115 ADSs issued to the Placement Agent as part of the compensation to the Placement Agent
in connection with the July 2023 Offering (the “July 2023 Placement Agent Warrants”), (v) the issuance of warrants to purchase
up to 90,000 ADSs issued to the Placement Agent as part of the compensation to the Placement Agent in connection with the
July 2023 Warrant Exercise Transaction (the “July 2023 Placement Agent Exercise Warrants”), (vi) the exercise of certain of
the May 2022 Warrants, the December 2022 Warrants and the Class B Warrants in September 2023 in connection with a warrant reprice and
reload letter, dated as of September 28, 2023, and the receipt of net proceeds of approximately $1.8 million (the “September 2023
Warrant Exercise Transaction”) from the exercise of the May 2022 Warrants, the December 2022 Warrants and the Class B Warrants at
a reduced exercise price of $0.47 per ADS for cash, after deducting placement agent fees and expenses payable by us, and the issuance
of new unregistered warrants to purchase up to an aggregate of 8,603,846 ADSs to the exercising holders in the September 2023 Warrant
Exercise Transaction (the “September 2023 Warrants”), and the issuance of warrants to purchase up to an aggregate of 258,115
ADSs issued to the Placement Agent as part of the compensation in connection with the September 2023 Warrant Exercise Transaction;
(vii) the exercise in full of the September 2023 Warrants in November 2023 and the receipt of aggregate net proceeds of approximately
$4.0 million; (viii) the sale of 10,000,000 ADSs and the Warrants to purchase up to 10,000,000 ADSs in connection with the January 2024
Offering, and the receipt of the net proceeds of approximately $7.1 million from the January 2024 Offering, after deducting placement
agent fees and expenses payable by us and (ix) the issuance of warrants to purchase up to 600,000 ADSs issued to the Placement Agent’s
designees as partial compensation to the Placement Agent in connection with the January 2024 Offering (the “January 2024 Placement
Agent Warrants”) (collectively, the “Pro Forma Adjustments”).
The information set forth in the following table should be read
in conjunction with and is qualified in its entirety by reference to the audited and unaudited financial statements and notes thereto
included in this prospectus as well as the description of the use of proceeds set forth in the section entitled “Use of Proceeds”
in this prospectus.
| (In thousands, except share data) |
Actual |
Pro
Forma |
||||||
| Total debt(1) |
$ | 31,566 | $ | 40,580 | ||||
| Ordinary shares, par value NIS 0.01 per share |
4,620 |
32,226 |
||||||
| Additional paid-in capital |
380,860 |
377,818 |
||||||
| Accumulated deficit |
382,009 |
399,352 |
||||||
| Total shareholders' equity |
$ | 3,471 | $ | 10,692 | ||||
| Total capitalization and indebtedness |
$ | 35,037 | $ | 51,272 | ||||
|
(1) |
Includes $28.2 million reported as current liabilities, which mainly consist of allowance for deductions
from revenue and accrued expenses and account payable, and $3.4 million reported as non-current liabilities, which mainly consist of lease
liabilities and derivative financial instruments. The warrants granted in the registered direct offering and concurrent private placement
of warrants consummated in May 2022, the underwritten offering consummated in December 2022, the registered direct offering consummated
in March 2023, the July 2023 Offering, the July 2023 Warrant Exercise Transaction, the September 2023 Warrant Exercise Transaction and
in a concurrent private placement and the Warrants were classified as a financial liability due to a net settlement provision. Therefore,
some of the proceeds of the issuances were classified as derivative financial instruments and increased the total debt accordingly.
|
The above discussion and table are based on 1,576,783,694 Ordinary Shares outstanding
as of June 30, 2023. As of June 30, 2023, prior to giving effect to the Pro Forma Adjustments and this offering, we had (i) 44,061,600
Ordinary Shares issuable upon the exercise of outstanding options to purchase Ordinary Shares at a weighted average exercise price of
$0.63 per share (equivalent to 110,154 ADSs at a weighted average exercise price of $252.45 per ADS); (ii) 2,059,112,250 Ordinary Shares
issuable upon the exercise of outstanding warrants to purchase Ordinary Shares at a weighted average exercise price of $0.01 per share
(equivalent to 5,147,781 ADSs at a weighted average exercise price of $4.50 per ADS), and (iii) 47,837 outstanding RSUs, each RSU representing
one ADS.
DIVIDEND POLICY
We have never declared or paid any cash dividends to our shareholders. We currently
anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring
or paying any cash dividends for the foreseeable future.
MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition
and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this prospectus. The
following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ
materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include
those discussed below and elsewhere in this prospectus, particularly those in the section entitled “Risk Factors.”
Company Overview
We are a specialty biopharmaceutical company, primarily focused on GI and infectious
diseases. Our primary goal is to become a leading specialty biopharmaceutical company.
We are currently focused primarily on the advancement of our development pipeline
of clinical-stage therapeutic candidates. We also commercialize in the U.S. GI-related products, Talicia® (omeprazole, amoxicillin,
and rifabutin) and Aemcolo® (rifamycin) and continue to explore our strategic plans for such products and activities.
Among the therapeutic candidates, we are exploring opaganib is being
as a potential treatment for various conditions, including GI-ARS, COVID-19 and other viruses as part of pandemic preparedness, such as
the Ebola virus. Inflammatory conditions and solid tumors are additional areas of focus for opaganib. Furthermore, we are investigating
RHB-107 (upamostat) as a potential treatment for COVID-19 and other viruses as part of pandemic preparedness, including the Ebola virus.
Our current pipeline consists of five therapeutic candidates, most of which are in
clinical development. We generate our pipeline of therapeutic candidates by identifying, validating and in-licensing or acquiring products
that are consistent with our product and corporate strategy and that have the potential to exhibit a favorable probability of therapeutic
and commercial success. We have one product that we primarily developed internally which has been approved for marketing and, to date,
none of our other therapeutic candidates has generated revenues. We have out-licensed one of our commercial products, Talicia®
for specific territories outside the U.S. and we plan to commercialize our therapeutic candidates, upon approval, if any, through licensing
and other commercialization arrangements with pharmaceutical companies on a global and territorial basis or independently with a dedicated
commercial operations or in potential partnership with other commercial-stage companies. We also evaluate, on a case-by-case basis, co-development,
co-promotion, licensing, acquisitions and similar arrangements.
Since inception, we have funded our operations primarily through public and private
offerings of our equity securities, loans and revenues from our commercial activity. As of December 31, 2022, and June 30, 2023, we had
approximately $36.1 million and $16.3 million, respectively, of cash, cash equivalents, short-term investments and restricted cash.
Sale of Rights in Movantik®
and Extinguishment of our Debt Obligations under the Credit Agreement with HCRM
On February 23, 2020, we, through RedHill U.S., entered into a credit
agreement (the “Credit Agreement”) with HCRM, and the lenders from time to time party thereto. Pursuant to the terms of the
Credit Agreement, RedHill U.S. received a $30 million loan following the signing of the Credit Agreement. An additional $50 million tranche
was used to fund the acquisition of rights to Movantik®
from AstraZeneca. On February 2, 2023, we sold our rights in Movantik®
to an affiliate of HCRM and in connection therewith our debt obligations under the Credit Agreement were extinguished. In connection
with this sale, RedHill U.S. retained substantially all pre-closing liabilities relating to Movantik, and $16 million of our cash was
deposited into the escrow account to pay pre-closing liabilities related to Movantik®.
Following the sale of our rights to Movantik, we lost our primary revenue source,
and our ability to operate as a financially viable commercial business became significantly more difficult. We are working to replace
Movantik® with another commercial product, either
internal or external, but this may not occur, and we may never achieve levels of revenue we have achieved through Movantik. We also lost
economies of scale in our commercial operations that we were able to benefit from by having Movantik®
as a core commercial product.
In addition, in connection with the sale of Movantik®,
the obligation to pay indemnification obligations and scheduled pre-closing liabilities are Movantik are secured by a lien on Talicia®
and Aemcolo®-related assets. If we are not able to
satisfy such payment obligations, and HCRM forecloses on these assets, we will lose our remaining source of revenue, assuming we are not
able to replace Movantik® with another commercial
product.
Our financial statements include a going concern reference. We will need to
raise significant additional capital to finance our losses and negative cash flows from operations, and if we were to fail to raise sufficient
capital or on favorable terms and/or replace Movantik®
with another commercial product on a timely basis and/or divest assets on favorable terms or at all, we may need to cease operations.
Management has substantial doubt about our ability to continue as a going concern.
Description of our Products
The following is a description of our three current commercial products and five therapeutic
candidates, most of which are in clinical development:
Commercial Products
Talicia®
is a proprietary new drug approved for marketing in the U.S. for the treatment of H. pylori bacterial
infection in adults. Talicia® is a combination of
three approved drugs, omeprazole, which is a proton pump inhibitor (prevents the secretion of hydrogen ions necessary for the digestion
of food in the stomach), amoxicillin and rifabutin, which are antibiotics. Talicia®
is administered to patients orally. On November 1, 2019, the FDA approved Talicia®
for marketing in the U.S. for the treatment of H. pylori infection in adults and we launched Talicia®
in the U.S. in March 2020. Talicia® is expected to
receive a total of eight years of U.S. market exclusivity. Talicia®
is the first therapeutic candidate we developed to be approved by the FDA.
Aemcolo®
(containing 194 mg of rifamycin), is an orally-administered, minimally absorbed antibiotic that is delivered to the colon, approved by
the FDA in 2018 for the treatment of travelers’ diarrhea caused by non-invasive strains of E. coli
in adults. We acquired the rights to market Aemcolo®
in the U.S. from Cosmo pursuant to a license agreement under which we agreed to pay Cosmo a royalty percentage in the high twenties on
net sales generated from the commercialization of Aemcolo®
as well as potential regulatory and commercial milestone payments to Cosmo totaling up to $100.0 million, which, based on our current
expectations and assumptions, are not currently expected to be made in the next 12 months.
In December 2019, we commenced the commercialization of Aemcolo®
in certain territories in the U.S.
Therapeutic Candidates
RHB‑204 is a patented fixed-dose combination product of three
antibiotics that will simplify administration and optimize compliance. Each capsule contains the same components as RHB‑104 (clarithromycin,
clofazimine, and rifabutin) but at unique doses, selected based on modeling to provide optimal balance of the potential safety and efficacy
in the treatment of NTM infection.
Opaganib is an investigational new drug that is proprietary, first-in-class,
orally administered SK2 selective inhibitor, with anti-viral, anti-inflammatory and anti-cancer activities, targeting multiple oncology,
inflammatory and GI indications and also targeting pandemic preparedness and GI-ARS (with a U.S. government
collaborations). On March 30, 2015, we entered into an exclusive worldwide license agreement with Apogee, pursuant to which Apogee
granted us the exclusive worldwide development and commercialization rights to ABC294640 (which we then renamed to ABC294640 (Yeliva®))
and as noted above, received an international non-proprietary name, opaganib, in 2018) and additional intellectual property for all indications.
Under the terms of the agreement, as amended, we agreed to pay Apogee initial milestone payments of $3 million, of which the total amount
has been paid, as well as up to $2 million in potential development milestone payments, and tiered royalties starting in the low double-digits.
For more information regarding this agreement, see “Business – Business Overview – Acquisition, Commercialization and
License Agreements – License Agreement for opaganib.” In March 2022, we entered into the Exclusive License Agreement
with Kukbo for opaganib in South Korea. Under the terms of the Exclusive License Agreement, Kukbo was required to pay an upfront payment
of $1.5 million, and we are also eligible for milestone payments and royalties on net sales of oral opaganib. See “Business –
Business Overview – Acquisition, Commercialization and License Agreements–- License Agreement with Kukbo” and “Legal
Proceedings”.
RHB‑107 (upamostat; formerly Mesupron) (INN: upamostat) is a proprietary small
molecule, first-in-class, potent serine protease inhibitor administered by oral capsule. RHB-107 (upamostat) is being investigated as
a potential treatment for COVID-19 outpatients and other viruses as part of pandemic preparedness, including the Ebola virus. Additional
indications in the area of inflammatory digestive diseases and inflammatory lung diseases could be targeted. On June 30, 2014, we acquired
from Heidelberg the exclusive development and commercialization rights to RHB‑107, excluding China, Hong Kong, Taiwan, and Macao,
for all indications. We made an upfront payment to Heidelberg of $1.0 million with potential tiered royalties on net revenues, ranging
from mid-teens up to 30%. We are responsible for all development, regulatory and commercialization of RHB‑107. See “Business
– Business Overview – Acquisition, Commercialization and License Agreements – License Agreement for RHB‑107.”
RHB-104 is an investigational new drug intended to treat Crohn’s
disease, which is a serious inflammatory disease of the GI system that may cause severe abdominal pain and bloody diarrhea, malnutrition
and potentially life-threatening complications. RHB-104 is a patented combination of clarithromycin, clofazimine, and rifabutin, three
generic antibiotic ingredients, in a single capsule. The compound was developed to treat Crohn’s disease through the targeting of
MAP infection.
RHB-102 (Bekinda®)
is an investigational once-daily bi-modal extended-release oral formulation of ondansetron, a leading member of the family of 5-HT3 serotonin
receptor inhibitors, intended to treat nausea, vomiting and diarrhea symptoms experienced in some people suffering from acute gastroenteritis,
gastritis, and IBS-D.
Components of Statements of Comprehensive Income (Loss)
Revenues
Revenues are with respect to commercialization and licensing of our commercial products.
Cost of Revenues
Direct costs related to the revenues, such as cost of goods sold and royalties to
third parties. Additionally, includes intangible assets amortization and impairment.
Research and Development Expenses
See “ – Research and Development, Patents and Licenses” below.
General and Administrative Expenses
General and administrative expenses consist primarily of compensation for employees,
directors and consultants and professional services. Other significant general and administrative expenses include medical affairs, office-related
expenses, travel, conferences, and others.
Selling, Marketing and Business Development
Expenses
Selling, Marketing and Business Development expenses consist primarily of compensation
for employees and consultants dedicated to marketing activities with the Company’s commercialized and promoted products and professional
services. Other significant selling, marketing and business development expenses include market research, market access, advertising,
printed and digital media, product samples, car fleet, travel, conferences, office-related expenses, and others.
Financial Income and Expenses
Financial income and expenses consist of non-cash financing expenses in connection
with changes in the fair value of derivative financial instruments, interest earned on our cash, cash equivalents, and short-term bank
deposits, bank fees, interest, and finance changes for lease liabilities and other transactional costs and expense or income resulting
from fluctuations of the U.S. dollar against other currencies, in which a portion of our assets and liabilities are denominated like NIS,
for example. In addition, as it relates to the extinguishment of all debt obligations of RedHill Inc. under the Credit Agreement in exchange
for the transfer of its rights in Movantik®, the portion of the gain from the debt extinguishment, resulting from the difference
between the carrying amount (the amortized cost) of the financial liability to HCRM and the fair value of the assets transferred, is included
within financial income.
Other income
Incorporates the portion of the gain from the sale of Movantik® resulting from
the difference between the carrying value and fair value of the assets transferred to HCRM. Additionally, includes service fees relating
to transition services provided as part of the sale of Movantik®.
Operating Results
History of Losses
Since inception in 2009, we have generated significant losses in connection
with the research and development of our therapeutic candidates and from our commercial operations. We may continue to incur additional
losses as we continue our commercial activities and expand our research and development activities over time. As a result, we expect to
continue incurring operating losses, which may be substantial over the next several years, and we will need to obtain substantial additional
funds. As of December 31, 2022, and June 30, 2023, we had an accumulated deficit of approximately $433.9 million and $382.0 million, respectively.
We expect to continue to fund our operations over the next several years through revenues
generated from the commercialization of our commercial products, public or private equity offerings, debt financings, non-dilutive financings,
including government grants, commercialization of our therapeutic candidates, if approved, or products we may commercialize or promote
in the future. Concurrently, we are actively engaged in discussions to explore potential divestment of certain Company assets.
Going Concern
Our consolidated financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. During 2022, our net
cash used in operating activities was $29.2 million leaving a cash balance of $36.1 million, including $16.0 million of restricted cash
under the Credit Agreement as of December 31, 2022. During the six months ended June 30, 2023, our net cash used in operating activities
was $17.8 million leaving a cash balance of $16.3 million, including $9.1 million of restricted cash under the Credit Agreement, as of
June 30, 2023. Because we do not have sufficient resources to fund our operations for the next twelve months from the date of this prospectus,
management has substantial doubt of our ability to continue as a going concern. Our operational costs include the payment of substantially
all pre-closing liabilities relating to Movantik, which our subsidiary, RedHill U.S., retained under our agreement with HCRM for the extinguishment
of all our debt obligations under the Credit Agreement in exchange for the transfer of our rights in Movantik® to an affiliate of
HCRM. See “ –Liquidity and Capital Resources – Term Loan Facility”. The consolidated financial statements
do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities
that might be necessary should we be unable to continue as a going concern.
Following the sale of our rights to Movantik, we lost our primary revenue source.
Substantially all of our operating losses result from expenses incurred in connection with our commercial activities and from general
and administrative costs associated with our R&D operations.
We will need to raise significant additional capital to finance our losses and negative
cash flows from operations, and if we were to fail to raise sufficient capital or on favorable terms, we may need to cease operations.
There are no assurances that we will be able to raise significant additional capital on terms favorable to us or at all, particularly
given the current difficult conditions in the capital markets and low market capitalization which makes it more difficult to raise significant
amounts of capital. In addition, following the sale of our rights to Movantik®, we lost our primary revenue source and our ability
to operate as a financially viable commercial business has been significantly more difficult. If we are unsuccessful in achieving sufficient
commercial sales of our products, including replacing Movantik® with another commercial product on a timely basis, or in raising
sufficient capital, we will need to reduce activities and curtail or cease operations.
Segment Information
The Chief Executive Officer is the Company’s Chief Operating Decision Maker
(“CODM”). The CODM allocates resources and assesses the Company’s performance based on the following segmentation: Commercial
Operations and Research & Development, both on an Adjusted EBITDA basis. The Commercial Operations segment covers all areas relating
to the commercial sales and is being performed by the Company’s U.S. subsidiary. The Research and Development segment includes all
activities related of research and development and licensing of therapeutic candidates and is being performed by the Company.
The Company reports on revenue and segment Adjusted EBITDA. The CODM does not review
assets by operating segment. Adjusted EBITDA represents net loss before depreciation, amortization, and financial (expenses( income, adjusted
to exclude share-based compensation, gains from early termination of leases and income from transition services provided to HCRM and gain
from the sale of Movantik® presented as other income. The following table presents segment profitability and a reconciliation to
the consolidated net loss and comprehensive loss for the periods indicated:
|
Six Months Ended June 30, |
||||||||
|
2023 |
2022 |
|||||||
|
U.S. dollars in thousands |
||||||||
|
Commercial Operations Segment Adjusted EBITDA |
(11,031 |
) |
(12,190 |
) | ||||
|
Research And Development Adjusted EBITDA |
(5,550 |
) |
(6,620 |
) | ||||
|
Financial income (expenses), net |
26,330 |
(6,451 |
) | |||||
|
Share-based compensation to employees and service providers |
(849 |
) |
(2,924 |
) | ||||
|
Depreciation |
(1,055 |
) |
(1,154 |
) | ||||
|
Amortization and impairment of intangible assets |
(530 |
) |
(2,900 |
) | ||||
|
Gain from early termination of leases |
694 |
— |
||||||
|
Other income |
42,993 |
— |
||||||
|
Consolidated Comprehensive income (loss) |
51,002 |
(32,239 |
) | |||||
|
Year Ended December 31, |
||||||||||||
|
2022 |
2021 |
2020 |
||||||||||
|
U.S. dollars in thousands |
||||||||||||
|
Commercial Operations Segment Adjusted EBITDA |
(16,595 |
) |
(15,527 |
) |
(27,236 |
) | ||||||
|
Research And Development Adjusted EBITDA |
(12,420 |
) |
(37,247 |
) |
(23,501 |
) | ||||||
|
Financial expenses, net |
(28,825 |
) |
(16,609 |
) |
(12,489 |
) | ||||||
|
Share-based compensation to employees and service providers |
(5,675 |
) |
(10,212 |
) |
(4,202 |
) | ||||||
|
Depreciation |
(2,136 |
) |
(1,914 |
) |
(1,710 |
) | ||||||
|
Amortization and impairment of intangible assets |
(6,018 |
) |
(16,235 |
) |
(7,035 |
) | ||||||
|
Consolidated Comprehensive loss |
(71,669 |
) |
(97,744 |
) |
(76,173 |
) | ||||||
Except for $2 million licensing revenues reported in the six months ended June 30,
2022, which are allocated to the Research and Development segment, all of the Company’s revenues are allocated to the Commercial
Operations segment.
Comparison of the Six Months Ended June 30, 2023,
to the Six Months Ended June 30, 2022
Net Revenues
Net revenues for the six months ended June 30, 2023,
were $5.4 million, compared to $31.5 million for the six months ended June 30, 2022. The decrease was primarily attributable to the divestiture
of Movantik, resulting in the discontinuation of revenue recognition from this product starting from February 2, 2023. Talicia net revenues
for the six months ended June 30, 2023, were $5.1 million, as compared to $4 million for the six months ended June 30, 2022, primarily
due to an increase of 10% in units sold.
Cost of Revenues
Cost of Revenues for the six months ended June 30,
2023, was $2.4 million, compared to $15.3 million for the six months ended June 30, 2022. This decrease was primarily attributable to
the divestiture of Movantik. As a result of this divestiture, both the recognition of revenues and the associated cost of revenues for
this product were discontinued starting from February 2, 2023. Additionally, the amortization of the intangible asset related to Movantik
was also discontinued as of that date.
Gross Profit
Gross Profit for the six months ended June 30, 2023,
was $3 million, compared to $16.2 million for the six months ended June 30, 2022, in line with the decrease in Net Revenues and Cost of
Revenues as explained above and primarily attributable to the divestiture of Movantik.
Research and Development Expenses
Research and Development Expenses for the six months
ended June 30, 2023, were $2.3 million, compared to $4.5 million for the six months ended June 30, 2022. The decrease is attributable
to completion of clinical trials related to COVID-19 and ongoing cost-reduction measures.
Selling, Marketing and General and Administrative Expenses
Selling, Marketing, and General and Administrative
Expenses for the six months ended June 30, 2023, were $19 million, compared to $37.4 million for the six months ended June 30, 2022. The
difference was primarily attributable to the ongoing cost-reduction measures.
Other Income for the six months ended June 30, 2023, was $43 million,
compared to no other income recognized for the six months ended June 30, 2022. The other income was comprised of (i) $35.5 million from
the divestiture of Movantik, calculated as the difference between the fair value of the rights and the carrying amount of this asset;
and (ii) $7.5 million from transitional services provided to the buyer of Movantik
Operating Income
Operating Income for the six months ended June 30,
2023, was $24.7 million, compared to an operating loss of $25.8 million for the six months ended June 30, 2022, primarily attributable
to the changes resulting from the divestiture of Movantik, as detailed above.
Financial Income, net
Financial Income, net, for the six months ended June
30, 2023, was $26.3 million, compared to Financial Expenses, net of $6.5 million for the six months ended June 30, 2022. The income recognized
in the six months ended June 30, 2023, was primarily attributable to gain resulting from the extinguishment of the HCRM debt in exchange
for the transfer of rights to Movantik, calculated as the difference between the carrying amount of the financial liability and the fair
value of the rights transferred.
Net Income
Net Income for the six months ended June 30, 2023, was $51 million,
compared to Net Loss of $32.2 million for the six months ended June 30, 2022, primarily attributable to the changes resulting from the
sale of Movantik, as detailed above.
Total Assets
Total Assets as of June 30, 2023, were $35 million, compared to $158.9 million as of December 31, 2022.
The decrease was primarily attributable to the divestiture of Movantik, resulting in the transfer of the rights to Movantik, as well as
to a significant decrease in the Trade Receivables balance (attributed to the fact that the receivables as of December 31, 2022, were
primarily associated with Movantik).
Total Liabilities
Total Liabilities as of June 30, 2023, were $31.6 million ,compared
to $207.3 million as of December 31, 2022. The decrease was primarily attributable to the extinguishment of HCR debt in exchange for the
transfer of Movantik rights, assumption of certain liabilities by HCR, and payments made towards pre-closing liabilities related to Movantik.
Remaining pre-closing liabilities related to Movantik as of June 30, 2023, are estimated at $14.9 million.
Comparison of the Year Ended December 31, 2022, to the Year Ended
December 31, 2021
Net Revenues
Net Revenues for the year ended December
31, 2022, were $61.8 million, compared to $85.8 million for the year ended December 31, 2021. The difference is attributable to an increase
in units sold, along with greater increased gross-to-net allowances mainly related to Movantik®.
Cost of Revenues
Cost of Revenues for the year ended December
31, 2022, was $33.3 million, compared to $49.4 million for the year ended December 31, 2021. The decrease is mainly attributable to the
implementation of cost reduction measures and goes hand-in-hand with the reduction in revenues.
Gross Profit
Gross Profit for the year ended December
31, 2022, was $28.5 million, compared to $36.4 million for the year ended December 31, 2021. The difference is mostly attributable to
a $9 million impairment related to Aemcolo recognized in 2021 and in line with the difference in net revenues.
Research and Development
Expenses
Research and Development Expenses were $7.3 million for the year ended
December 31, 2022, compared to $29.5 million for the year ended December 31, 2021. The difference is attributable to the ongoing optimization
of R&D costs and completion of components of the opaganib and RHB-107 development programs.
Selling, Marketing and
General and Administrative Expenses
Selling, Marketing and General and
Administrative Expenses for the year ended December 31, 2022, were $64.0 million, compared to $88.0 million for the year ended
December 31, 2021. The difference is mainly attributable to various cost-control measures implemented during the period.
Operating Loss
Operating Loss for the year ended December
31, 2022, was $42.8 million, compared to $81.1 million for the year ended December 31, 2021. The difference is primarily attributable
to a reduction in operating expenses.
Financial Expenses, net
Financial Expenses, net for the 12 months ended December 31, 2022, was $28.8 million,
compared to Financial Expenses, net of $16.6 million for 12 months ended December 31, 2021. The increase was mainly attributed to an adjustment
in the carrying amount of the borrowings under the Credit Agreement to reflect all amounts owing or payable under the Credit Agreement
as being immediately due.
Liquidity and Capital Resources
Since inception, we have funded our operations primarily through public and private
offerings of our equity securities, loans and revenues from our commercial activity. Other potential sources of liquidity in the future
may include government grants or subordinated indebtedness, other non-dilutive financings, or divestment of certain Company assets. As
of December 31, 2022, and June 30, 2023, we had approximately $36.1 million and $16.3 million, respectively, of cash, cash equivalents,
short-term investments and restricted cash.
Through our U.S. subsidiary, we currently commercialize Talicia®
and Aemcolo®. However, our ability to generate profits
from the commercialization of our commercial products still remains uncertain. To date, our commercial operations are still generating
operational losses. Other than Talicia®, our therapeutic
candidates are in research and development stage, and therefore do not yet generate revenues.
Until its sale to HCRM on February 2, 2023, we also commercialized Movantik®
(naloxegol). Following this sale, we have lost our primary revenue source which will make it more difficult for us to satisfy our payment
obligations. In addition, if we are not able to satisfy our payment obligations to HCRM incurred in connection with the sale of
Movantik®, and HCRM forecloses on the lien on Talicia®
and Aemcolo®-related assets, which currently secure these payment obligations, we will lose our remaining source of revenue, assuming
we are not able to replace Movantik® with another
commercial product. See “- Sale of Rights in Movantik®
and Extinguishment of our Debt Obligations under the Credit Agreement with HCRM”.
Financing Activities
On January 26, 2024, we issued (i) in a registered direct offering
10,000,000 ADSs at a purchase price of $0.80 per ADS and (ii) in a concurrent private offering, warrants to acquire 10,000,000 ADSs in
the aggregate at an exercise price of $1.00 per ADS (the “January 2024 Warrants”). The gross proceeds were approximately $8
million, before fees and expenses. The January 2024 Warrants are exercisable immediately after the issuance date and have a term of five
years. After the mentioned offerings and the November 2023 warrants’ exercise described below, as of January 31, 2024, the Company’s
share capital included 29,703,027 ADSs, the January 2024 Warrants, December 2022 Warrants to purchase 755,861 ADSs (as defined below),
and placement agent warrants to purchase 1,116,230 ADSs. These placement agent warrants have exercise prices ranging from $0.5875 per
ADS to $5 per ADS and expire between April 3, 2028, and January 25, 2029. These warrants were issued to the placement agent as part of
the compensation for the offerings conducted in April, July, and September 2023, as well as January 2024.
Between November 27, 2023, and November 29, 2023, the September 2023 Reload Warrants
(as defined below) were exercised for a total of approximately $4 million gross proceeds to the Company.
On September 28, 2023, we entered into a warrant reprice and reload letter with holders
of (i) the May 2022 Warrants (as defined below), as amended as described below, (ii) the December 2022 Warrants (as defined below), as
amended as described below, (iii) warrants issued on April 3, 2023 (as amended, the “Class B Warrants”), and (iv) warrants
issued on July 25, 2023 (the “July 2023 Warrants”, and together with the May 2022 Warrants, the December 2022 Warrants and
the Class B Warrants, the “Existing Warrants”) to purchase up to an aggregate of 4,301,923 ADSs, pursuant to which such investors
agreed to exercise their Existing Warrants in full at a reduced exercise price of $0.47 per ADS for aggregate gross proceeds of approximately
$2.0 million, before deducting the fees and expenses. In exchange, the exercising holders received new unregistered warrants to
purchase up to an aggregate of 8,603,846 ADSs (the “September 2023 Reload Warrants”) at an exercise price of $0.47 per ADS
and with exercise terms ranging from eighteen months to five years.
On July 25, 2023, we issued in a registered direct offering 1,084,923 ADSs and pre-funded warrants to purchase
217,000 ADSs for aggregate gross proceeds to us, together with the proceeds of the concurrent Reload Agreement described below, of approximately
$3.8 million, before deducting fees and expenses. In connection with the offering, on July 21, 2023, we entered into a warrant reprice
and reload letter (the “Reload Agreement”) with a certain holder of Series A Warrants to purchase up to an aggregate of 1,500,000
ADSs and Series B Warrants to purchase up to an aggregate of 1,500,000 ADSs, each issued in April 2023, pursuant to which: (i) such holder
exercised its Series A Warrants in full at a reduced exercise price of $1.35 per ADS (the “Series A Warrant Exercise”) in
exchange for new unregistered warrants to purchase up to an aggregate of 1,500,000 ADSs at an exercise price of $1.80 per ADS exercisable
until April 3, 2028 (the “Reload Warrant”), and (ii) the exercise price of the Series B Warrants was reduced to $1.80 per
ADS. We also agreed to reduce the exercise price of (i) the May 2022 Warrants (as defined below), as amended as described below, and (ii)
the December 2022 Warrants (defined below) to purchase up to an aggregate of 971,817 ADSs, at an exercise price of $1.80 per ADS (the
“Warrant Amendment”).
On April 3, 2023, we issued in a registered direct offering (i) 270,000 ADSs and pre-funded warrants to
purchase 1,230,000 ADSs, (ii) Series A Warrants to purchase up to an aggregate of 1,500,000 ADSs, and (iii) Series B Warrants to purchase
up to an aggregate of 1,500,000 ADSs at a combined offering price of $4.00 per ADS (or pre-funded warrant) and accompanying Series A Warrant
and Series B Warrant. The Series A Warrants had an initial exercise price of $4.75 per ADS (subsequently reduced to $1.35 per ADS as described
above), were exercisable immediately and had a term of five years following issuance. The Series B Warrants had an initial exercise price
of $4.00 per ADS (subsequently reduced to $1.80 as described above), were exercisable immediately and had a term of nine months following
issuance. The gross proceeds were approximately $6 million, before fees and expenses.
In connection with the April 2023 offering, we reduced the exercise price of the May
2022 Warrants (defined below) to $4.75 per ADS and amended the termination date to April 3, 2028 (subsequently amended in July 2023 as
described above).
During the year ended December 31, 2023, we sold 2,625 ADSs under
the at-the-market (“ATM”) program for total gross proceeds of approximately $20,000, leaving an available balance under the
ATM program of approximately $97.4 million.
During the year ended December 31, 2022, we sold 30,582 ADSs under
the ATM program for total gross proceeds of approximately $2.0 million.
On December 6, 2022, we consummated an underwritten offering of 544,375 ADSs and pre-funded warrants to
purchase 255,625 ADSs for gross proceeds of approximately $8 million after deducting the underwriting discounts and commissions and estimated
offering expenses payable by us in connection with the offering. In addition, the investors in this financing received warrants to purchase
1,727,678 ADSs with an exercise price of $4.6305 per ADS (following a reset on March 31, 2023, in connection with the ratio change of
the ADSs to the Company’s ordinary shares) (the “December 2022 Warrants”).
On May 11, 2022, we issued (i) in a registered direct offering a total
of 126,492 ADSs and pre-funded warrants to purchase 137,592 ADSs and (ii) in a concurrent private offering, warrants to acquire 330,106
ADSs at a purchase price of $59.20 per ADS (“May 2022 Warrants”). The gross proceeds were approximately $15 million, before
fees and expenses. The warrants were exercisable six months after the issuance date and had a term of five and one-half years.
On November 18, 2021, we consummated an underwritten offering of 117,150 ADSs. The underwriter purchased
the ADSs at a price of $128.04 per ADS, for total net proceeds of approximately $14.8 million, after deducting the underwriting discounts
and commissions and estimated offering expenses payable by us in connection with the offering.
On March 4, 2021, we consummated an underwritten offering of 116,185
ADSs at a public offering price of $320.0 per ADS, for total net proceeds of approximately $34.8 million, after deducting underwriting
discounts and commissions and estimated offering expenses payable by us in connection with the offering, including the exercise by the
underwriter of its overallotment option.
On January 14, 2021, we consummated an underwritten offering of 79,719
ADSs at a public offering price of $313.6 per share, for total net proceeds of approximately $23.1 million, after deducting underwriting
discounts and commissions and estimated offering expenses payable by us in connection with the offering.
Term Loan Facility
On February 23, 2020, we, through our wholly-owned subsidiary, RedHill
U.S., entered into the Credit Agreement with HCRM, as Administrative Agent, and the lenders from time to time party thereto. Pursuant
to the terms of the Credit Agreement, RedHill U.S. received a $30 million loan following the signing of the Credit Agreement. An additional
$50 million tranche was used to fund the acquisition of rights to Movantik®
from AstraZeneca.
The loans under the Credit Agreement (the “Loans”) bore
interest at an annual rate equal to the 3-month LIBOR rate plus 8.20% which was to 6.7% starting April 1, 2021, with a 1.75% 3-month LIBOR
floor. The principal and interest under the Credit Agreement were payable quarterly in arrears on the last day of each March, June, September,
and December (each an “HCRM Payment Date”). The Loans maturity date was February 23, 2026 (the “Term Loan Maturity Date”),
at which time, if not earlier repaid in full, the outstanding principal amount of the Loans, together with any accrued and unpaid interest,
was to be due and payable in cash. Upon the prepayment or repayment of all or any portion of the Loans, RedHill U.S. was to pay to the
lenders under the Credit Agreement an exit fee in an amount equal to 4% of the aggregate principal amount of the Loans prepaid or repaid
on such date. Pursuant to the Credit Agreement, HCRM received a royalty of 4% (on up to $75 million of our annual net revenues (the “Revenue
Interest”). Payments of Revenue Interest were to be made quarterly in arrears for nine years, beginning with the first fiscal quarter
of 2021.
Pursuant to the terms of the Credit Agreement, on each HCRM Payment
Date, beginning with March 2023 (the “Amortization Date”) through and including the Term Loan Maturity Date, RedHill U.S.
was to repay the Loans in equal installments. We were permitted to prepay the Loans at any time under certain terms.
We also entered into a Security Agreement, a Pledge Agreement, an Israeli-law
governed Fixed Charge Debenture and an Israeli-law governed Floating Charge Debenture in favor of HCRM, pursuant to which our obligations
under the Credit Agreement (and those of RedHill U.S.) are secured by a pledge of all of our holdings of the capital stock of RedHill
U.S., substantially all of the assets of RedHill U.S., and all of our assets relating in any material respect to Talicia®. Upon closing
of the sale of Movantik® to an affiliate of HCRM and the simultaneous extinguishment of debt obligations under the Credit Agreement,
these collateral documents continued in effect were amended to provide HCRM with security interests in (i) the Escrow Account, (ii) Talicia-related
assets, (iii) Aemcolo-related assets and (iv) accounts receivable related to Movantik® accrued as of the Closing (as defined in the
APA) to secure “Go-Forward Obligations” consisting of indemnification obligations under the APA and the Credit Agreement and
scheduled pre-closing liabilities relating to Movantik®. The value of such liens and security interests are capped at the value of
the scheduled pre-closing liabilities relating to Movantik®, and all such liens and security interests will be fully released upon
the first to occur of (i) the payment of the scheduled pre-closing liabilities related to Movantik® other than certain specified
long-dated liabilities and (ii) the first date 90 days after Closing on which RedHill Israel has at least $16.9 million in cash and cash
equivalents on hand.
The Credit Agreement contained certain affirmative covenants and certain negative
covenants barring us and our subsidiaries from (with limited exceptions) taking certain actions.
On September 13, 2022, we received a notice of events of default and reservation of
rights letter (the “Notice”) from HCRM. The Notice asserted that certain events of default occurred as a result of alleged
breaches by RedHill U.S. of its representations and warranties and financial covenants under the Credit Agreement. As a result of the
alleged events of default, the Notice provided that the outstanding obligations under the Credit Agreement bore interest at the default
rate prescribed therein and that the lenders may accelerate the obligations under the Credit Agreement.
On September 29, 2022, HCRM exercised its rights under a Deposit Account Control Agreement
to take control of RedHill U.S.’s account at PNC Bank, National Association (“PNC”). HCRM then instructed PNC
to wire $16 million (the “Funds”), which is equivalent to the minimum cash required under the Credit Agreement, from the PNC
account to an account held by HCRM. HCRM acknowledged that, despite receipt of the Funds in an account held in HCRM’s name,
the Funds remain the property of RedHill U.S. and are held merely as security for RedHill U.S.’s obligations under the Credit Agreement.
On February 2, 2023, we reached an agreement with HCRM for the extinguishment of all
our debt obligations (including all principal, interest, revenue interest, prepayment premiums and exit fees) under the Credit Agreement
in exchange for the transfer of our rights in Movantik® to Movantik Acquisition Co., an affiliate of HCRM. HCRM assumed substantially
all post-closing liabilities relating to Movantik®, with RedHill U.S. retaining substantially all pre-closing liabilities relating
to Movantik. HCRM retains a lien on Talicia® and Aemcolo®-related assets until substantially all pre-closing liabilities relating
to Movantik® have been paid or other specific conditions are met. The estimated pre-closing liabilities relating to Movantik®
as of the closing date of the transaction, and as of June 30, 2023, are estimated to be approximately $51 million and $14.9 million, respectively.
To fulfill this obligation, an escrow account was established. As of June 30, 2023, $9.1 million were held in the escrow account.
Additional Cash Requirements
We are obligated to make various payments upon the achievement of agreed-upon
milestones or make certain royalty payments under our in-license agreements with Apogee with respect to opaganib and with Heidelberg with
respect to RHB-107, under our asset purchase agreement with Giaconda Limited with respect to Talicia®, RHB-104, and RHB-106 and under
our agreement with UCF or the University of Minnesota, pursuant to which we are obligated to make various payments upon the achievement
of agreed-upon milestones or make certain royalty payments. See “ - Company Overview – Description of Our Products –
Therapeutic Candidates” above. All of our in-licensing agreements are terminable at-will by us upon prior written notice.
In addition, we have future obligations to purchase API, bulk tables and finished
goods with respect to Talicia® for an aggregate purchase
price of approximately $12.8 million until the end of 2025 in the ordinary course of business. We expect to purchase the inventory in
the regular course of business as part of our ongoing commercialization of Talicia®.
We continue to have negative cash flows from operations, and our ability to generate
sufficient revenues for our operations is significantly limited unless we are successful in replacing Movantik®
with another commercial product. We estimate that so long as sufficient revenues to sustain our business operations including to pay the
pre-closing obligations of Movantik as described above, are not generated from our remaining commercial products, we will need to
raise substantial additional funds in order to satisfy our payment obligations and continue as a going concern, as our current cash and
short-term investments are not sufficient to continuously fund our commercial operations and satisfy our payment obligations. We may also
be forced to significantly reduce our operations or divest certain assets, which may have a material adverse effect on our reputation,
business, financial condition or results of operations.
However, additional financing may not be available on acceptable terms, if at all,
including due to the difficult conditions in the capital markets, particularly with respect to securities of biopharmaceutical companies
on the U.S. stock exchanges, including the ADSs, and due to the low market capitalization which makes it more difficult to raise significant
amounts of capital. If we are not able to maintain compliance with Nasdaq’s continued listing requirements this would also adversely
affect our ability to raise capital.
Our future capital requirements will depend on many factors including but not limited
to:
| • |
our ability to close a strategic business development transaction, including a potential divestiture of certain of our assets;
|
| • |
our ability to successfully commercialize commercial products and our therapeutic candidates, upon approval, if any, including securing
commercialization agreements with third parties and favorable pricing and market share; |
| • |
we may consume available resources more rapidly than currently anticipated, resulting in the need for additional funding sooner than
anticipated; |
| • |
the regulatory path of each of our therapeutic candidates; |
| • |
the progress, success, and cost of our clinical trials and research and development programs; |
| • |
the costs, timing, and outcome of regulatory review and obtaining regulatory approval of our therapeutic candidates and addressing
regulatory and other issues that may arise post-approval; |
| • |
the costs of enforcing our issued patents and defending intellectual property-related claims; |
| • |
the costs of developing sales, marketing, and distribution channels; and |
| • |
consumption of available resources more rapidly than currently anticipated, resulting in the need for additional funding sooner than
anticipated. |
Cash Flow
Net Cash Used in Operating Activities
Net Cash Used in Operating Activities for the six months ended June 30, 2023, was
$17.8 million, as compared to $20.7 million for the six months ended June 30, 2022. The difference was primarily attributable to the ongoing
cost reductions. In the six months ended June 30, 2023, the cash used in operating activities was primarily directed towards settling
pre-closing liabilities related to Movantik.
Net Cash Used in Operating Activities for the year ended December 31, 2022, was $29.2
million, compared to $65 million for the year ended December 31, 2021. The difference is attributable to the completion of clinical trials,
mainly with respect to COVID-19, which enabled us to spend less cash, as well as various cost reduction measures around our commercial
operations.
Net Cash Provided by Financing Activities
Net Cash Provided by Financing Activities for the six months ended June 30, 2023,
was $4.8 million, comprised primarily from the net proceeds from the offering completed on April 3, 2023, and the decrease in restricted
cash, partially offset by repayment of payables in respect of intangible asset purchase.
Net Cash Provided by Financing Activities for the year ended December 31, 2022, was
$11.5 million, comprised primarily of proceeds from equity offerings, which took place in May 2022 and December 2022, offset by payments
in respect of intangible assets. Net Cash Provided by Financing Activities for the year ended December 31, 2021, was $73.5 million, primarily
from public offerings, strategic investment by Kukbo, utilization of at-the-market facility and exercise of options.
We did not have any material commitments for capital expenditures, including any anticipated
material acquisition of plant and equipment or interests in other companies, as of December 31, 2022, and June 30, 2023.
Research and Development, Patents and Licenses
Our research and development expenses consist primarily of costs of clinical trials,
professional services, share-based payments and payroll, and related expenses. The clinical trial costs are mainly related to payments
to third parties to manufacture our therapeutic candidates, to perform clinical trials with our therapeutic candidates and to provide
us with regulatory services. We charge all research and development expenses to operations as they are incurred. We expect our research
and development expenses to remain our primary expense in the near future as we continue to develop our therapeutic candidates.
Due to the inherently unpredictable nature of clinical development processes, we are
unable to estimate with any certainty the costs we will incur in the continued development of the therapeutic candidates in our pipeline
for potential commercialization.
Our future research and development expenses will depend on the clinical success of
each therapeutic candidate, the rate of patient recruitment and the ongoing assessments of each therapeutic candidate’s commercial
potential. In addition, we cannot forecast with any degree of certainty which therapeutic candidates may be subject to future commercialization
arrangements, when such commercialization arrangements will be secured, if at all, and to what degree such arrangements would affect our
development plans and capital requirements. See “Risk Factors – Risks Related to Regulatory Matters – If we or our development
or commercialization partners are unable to obtain or maintain FDA or other foreign regulatory clearance and approval for our therapeutic
candidates or products we may commercialize or promote, we or our commercialization partners will be unable to commercialize our therapeutic
candidates, upon approval, if any, or products we may commercialize or promote.”
As we obtain results from clinical trials, we may elect to discontinue or delay the
development and clinical trials for certain therapeutic candidates in order to focus our resources on more promising therapeutic candidates
or projects. Completion of clinical trials by us or our licensees may take several years or more, but the length of time generally varies
according to the type, complexity, novelty and intended use of a therapeutic candidate. See “Risk Factors – Risks Related
to Regulatory Matters.”
We expect our research and development expenses to stay material as we continue the
advancement of our clinical trials and therapeutic candidates’ development. The lengthy process of completing clinical trials and
seeking regulatory approvals for our therapeutic candidates requires substantial expenditures. Any failure or delay in completing clinical
trials, or in obtaining regulatory approvals, could cause a delay in generating product revenue and cause our research and development
expenses to increase and, in turn, have a material adverse effect on our operations. Due to the factors set forth above, we are not able
to estimate with any high certainty if and when we would recognize any substantial revenues from our projects.
Trend Information
Other than as disclosed elsewhere in this prospectus, we are not aware of any trends,
uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our net revenues, income from continuing
operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative
of future operating results or financial condition.
Critical Accounting Estimates
The preparation of financial statements requires management to make estimates which,
by definition, will seldom equal the actual results and will affect the reported amounts in our consolidated financial statements and
the accompanying notes. Some of the policies described in Note 2 of our consolidated financial statements included elsewhere in this prospectus
involve a high degree of judgment or complexity. We believe that the most critical accounting policies and significant areas of judgment
and estimation are in:
| • |
Recognition and measurement of allowance for rebates and patient discount programs. |
| • |
Impairment reviews of intangible research and development assets. |
| • |
Estimated useful economic life of the acquired assets in the Movantik® acquisition. |
Recognition and Measurement of Allowance for
Rebates and Patient Discount Programs
We offer various rebate and patient discount programs, which result
in discounted prescriptions to qualified patients. Rebates and discounts provided to the wholesalers and to the patients under these arrangements
are accounted for as variable consideration, and recognized as a reduction in revenue, for which unsettled amounts are accrued. The allowance
for these rebates is calculated based on historical and estimated utilization of the rebate and discount programs at the time the revenues
are recognized. The main estimates used in recognizing and measuring this allowance relate to the amount of products sold to customers
not yet prescribed to patients (units “in the channel”) and projected duration of the Company to sell the units in the channel.
We periodically evaluate our estimates against actual results and, if necessary, updates the estimates accordingly. The report of our
independent auditors with regards to the annual report for the year ended December 31, 2022, contained an adverse opinion on the effectiveness
of the Company’s internal control over financial reporting related to the Company not designing and maintaining effective controls
over the calculation of allowance for deductions from revenues.
Impairment Reviews of Intangible Research and
Development Assets
We review annually or when events or changes in circumstances indicate the carrying
value of the research and development assets may not be recoverable.
When and if necessary, an impairment loss is recognized for the amount by which the
asset’s carrying amount exceeds its recoverable amount. The recoverable amount is determined using discounted cash flow calculations
where the asset’s expected post-tax cash flows are risk-adjusted over their estimated remaining useful economic life. The risk-adjusted
cash flows are discounted using our estimated post-tax weighted average cost of capital which was 15.9% as of December 31, 2022.
The main estimates used in calculating the recoverable amount include: outcome of
the therapeutic candidates research and development activities; probability of success in gaining regulatory approval, size of the potential
market and our asset’s specific share in it and amount and timing of projected future cash flows.
Estimated Useful Life of the Acquired Assets
in the Movantik® acquisition
In connection with the agreements mentioned in Note 14 of our consolidated financial
statements included elsewhere in this prospectus, we accounted for the acquisition of rights to Movantik®
as an asset acquisition. Since all acquired assets are intended to generate revenues from sales of Movantik®
and have a similar useful life, the Company attributed this consideration to a single intangible asset representing the acquired rights
to Movantik®. The Company determined the asset’s
useful life, over which the asset will be amortized on a straight-line from its acquisition. The main estimate used in determining the
useful life was the anticipated duration of sales of the product after its expected patent expiration. During 2021, as a result of reaching
a litigation settlement related to Movantik®’s
IP, the Company has re-estimated the useful life of these assets to be 12.5 years from the date of acquisition. On February 2, 2023, we
sold our rights in Movantik® to HCRM, resulting in
a complete derecognition of the acquired assets from the balance sheet. See “Business – Business Overview – Sale of
Movantik® to HCRM.”
Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss related to changes in market prices, including interest rates and foreign
exchange rates, of financial instruments that may adversely impact our financial position, results of operations or cash flows. Our overall
risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on our financial
performance.
Risk of Interest Rate Fluctuation and Credit Exposure Risk
At present, our exposure to credit risk arises from cash and cash equivalents, deposits
with banks, as well as accounts receivable. Some of our liquid instruments are invested in short-term deposits.
We estimate that because the liquid instruments are invested mainly for the short-term
and with highly-rated institutions, the credit risk associated with these balances is low. The primary objective of our investment activities
is to preserve principal while maximizing the income we receive from our investments without significantly increasing risk and loss.
We are no longer exposed to a material risk of interest rate fluctuation due to the
extinguishment of our Credit Agreement with HCRM and the limited cash held in short-term deposits.
Foreign Currency Exchange Risk
Although the U.S. dollar is our functional currency and reporting
currency, a portion of our expenses is denominated in NIS and in Euro. Our NIS expenses consist principally of payments to employees or
service providers and office-related expenses in Israel. Our Euro expenses primarily involve payments to vendors for our therapeutic candidates
and certain manufacturers of APIs for Talicia®. Because
only a relatively small portion of our transactions are currently denominated in NIS and Euro and a negligible sum is held in NIS, we
do not believe we are subject to a material risk of foreign currency exchange risk.
BUSINESS
History and Development of the Company
Our legal and commercial name is RedHill Biopharma Ltd. Our company was incorporated
on August 3, 2009, and was registered as a private company limited by shares under the laws of the State of Israel. Our principal
executive offices are located at 21 Ha’arba’a Street, Tel-Aviv, Israel, and our telephone number is 972‑3‑541‑3131.
In February 2011, we completed our initial public offering in
Israel, pursuant to which we issued 14,302,300 Ordinary Shares, and 7,151,150 tradable Series 1 Warrants to purchase 7,151,150 Ordinary
Shares for aggregate gross proceeds of approximately $14 million. On December 27, 2012, we completed the listing of ADSs on the Nasdaq
Capital Market, and on July 20, 2018, the ADSs were listed on the Nasdaq Global Market. On February 13, 2020, our Ordinary Shares
were voluntarily delisted from trading on the Tel-Aviv Stock Exchange. On November 15, 2023, the ADSs were transferred from the Nasdaq
Global Market to the Nasdaq Capital Market. The ADSs are currently traded on the Nasdaq Capital Market under the symbol "RDHL."
The Securities and Exchange Commission, or SEC, maintains an internet site that contains
reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.
Our website address is http://www.redhillbio.com. Information contained on, or that
can be accessed through, our website does not constitute a part of this prospectus.
Our capital expenditures for the six-month period ended June 30, 2023,
and the years ended December 31, 2022, and 2021, were approximately $6,000, $25,000 and $115,000, respectively. Our current capital expenditure
involves basic equipment and leasehold improvements.
Business Overview
We are a specialty biopharmaceutical company, primarily focused on GI and infectious
diseases. Our primary goal is to become a leading specialty biopharmaceutical company.
We are currently focused primarily on the advancement of our development pipeline
of clinical-stage therapeutic candidates. We also commercialize in the U.S. GI-related products, Talicia® (omeprazole, amoxicillin,
and rifabutin) and Aemcolo® (rifamycin) and continue to explore our strategic plans for such products and activities.
Among the therapeutic candidates, we are exploring opaganib is being
as a potential treatment for various conditions, including GI-ARS, COVID-19 and other viruses as part of pandemic preparedness, such as
the Ebola virus. Inflammatory conditions and solid tumors are additional areas of focus for opaganib. Furthermore, we are investigating
RHB-107 (upamostat) as a potential treatment for COVID-19 and other viruses as part of pandemic preparedness, including the Ebola virus.
Our current pipeline consists of five therapeutic candidates, most of which are in
clinical development. We generate our pipeline of therapeutic candidates by identifying, validating and in-licensing or acquiring products
that are consistent with our product and corporate strategy and that have the potential to exhibit a favorable probability of therapeutic
and commercial success. We have one product that we primarily developed internally which has been approved for marketing and, to date,
none of our other therapeutic candidates has generated revenues. We have out-licensed one of our commercial products, Talicia®
for specific territories outside the U.S. and we plan to commercialize our therapeutic candidates, upon approval, if any, through licensing
and other commercialization arrangements with pharmaceutical companies on a global and territorial basis or independently with a dedicated
commercial operations or in potential partnership with other commercial-stage companies. We also evaluate, on a case-by-case basis, co-development,
co-promotion, licensing, acquisitions and similar arrangements.
Our Strategy
Our goal is to become a leading specialty pharmaceutical company in the commercialization
and development of pharmaceuticals for the treatment of GI and infectious diseases.
Key elements of our strategy are to:
| • |
Identify and acquire rights to products from pharmaceutical companies that have encountered cash flow or operational problems or
that decide to divest one or more of their products for various reasons. Specifically, we evaluate acquiring rights to and develop products
that are intended to treat pronounced clinical needs, have patent or other protections, and have target markets with significant potential.
Additionally, we seek to evaluate acquiring rights to and develop products based on different technologies designed to reduce our dependency
on any specific product or technology. We identify such opportunities through our broad network of contacts and other sources in the pharmaceutical
field; |
| • |
Identify and enter into out-licensing or collaborative agreements
with third parties to develop and/or commercialize our commercial products or therapeutic candidates; |
| • |
Enhance existing pharmaceutical products, including broadening their range of indications, or launching innovative and advantageous
pharmaceutical products, based on existing active ingredients. Because there is a large knowledge base regarding existing products, the
preclinical, clinical and regulatory requirements needed to obtain marketing approval for enhanced formulations are relatively well-defined.
In particular, clinical trial designs, inclusion criteria and endpoints previously accepted by regulators may sometimes be re-used. In
addition to reducing costs and time to market, we believe that targeting therapeutics with proven safety and efficacy profiles provides
us a better prospect of clinical success; |
| • |
Where applicable, utilize the FDA’s 505(b)(2) regulatory pathway to potentially obtain more timely and efficient approval
of our formulations of previously approved products. Under the 505(b)(2) process, we are able to seek FDA approval of a new dosage
form, strength, route of administration, formulation, dosage regimen, or indication of a pharmaceutical product that has previously been
approved by the FDA. This process enables us to partially rely on the FDA findings of safety or efficacy for previously approved drugs,
thus avoiding the duplication of costly and time-consuming preclinical and various human studies. See “ – Business Overview –
Government Regulations and Funding – Section 505(b)(2) New Drug Applications”; |
| • |
Cooperate with third parties to develop or commercialize therapeutic candidates in order to share costs and leverage the expertise
of others; and |
| • |
Consider potential acquisitions of other companies with or without commercial products. |
The pharmaceutical and biotechnology industries are intensely competitive. Our therapeutic
candidates, if commercialized, and our approved drugs, compete with existing drugs and therapies. In addition, there are many pharmaceutical
companies, biotechnology companies, medical device companies, public and private universities, government agencies and research organizations
actively engaged in the research and development of products targeting the same markets as our therapeutic candidates. Many of these organizations
have substantially greater financial, technical, manufacturing and marketing resources than we do. In certain cases, our competitors may
also be able to use alternative technologies that do not infringe upon our patents to formulate the active materials in our therapeutic
candidates. They may, therefore, bring to market products that are able to compete with our candidates, or other products that we may
develop in the future.
Our Approved and Commercial Products in the U.S.
We have established the headquarters of our U.S. commercial operations in Raleigh,
North Carolina. Our U.S. operations promote Talicia®
for the treatment of H. pylori infection in adults and Aemcolo®
for the treatment of travelers’ diarrhea in adults. We are actively evaluating various strategic pathways, including divestiture
of certain of our assets. In the event of sustained operations, our U.S. operations could potentially serve as the platform for potential
launch of our proprietary, late-clinical stage therapeutic candidates in the U.S., if approved by the FDA, and potential in-licensed or
acquired commercial-stage products in the U.S.
Our U.S. commercial operations consisted of 38 employees as of December
31, 2023. The net revenues for the six months ended June 30, 2023, and the year ended December 31, 2022, from the commercial products
were approximately $5.4 million and $59.8 million, respectively. We continue to pursue the acquisition of additional commercial products,
including, without limitation, through licensing or promotion transaction, asset purchase, joint venture with, acquisition of, or a merger
with or other business combination with, companies with rights to commercial GI and other relevant assets and are continuously working
to expand U.S. managed care access and coverage to our commercial products, where appropriate. We plan to pursue such opportunities in
the U.S. and, if available, in other jurisdictions; however, we intend to focus our commercial activities in the U.S. We currently promote
and commercialize three GI products in the U.S.
Talicia®
(omeprazole magnesium, amoxicillin, and rifabutin) delayed-release capsules 10 mg/250
mg/12.5 mg
Talicia®
is our proprietary new drug approved for marketing in the U.S. for the treatment of H. pylori
infection in adults. Talicia® is a combination of
three approved drug products – omeprazole, which is a proton pump inhibitor (prevents the secretion of hydrogen ions necessary
for the digestion of food in the stomach), plus amoxicillin and rifabutin, which are antibiotics. Talicia®
is administered to patients orally. Talicia® is the
first product we developed that was approved for marketing in the U.S. We launched Talicia®
in the U.S. in March 2020 with our dedicated sales force.
Chronic infection with H. pylori irritates
the mucosal lining of the stomach and small intestine. The original discovery of the H. pylori
bacteria and its association with peptic ulcer disease warranted the Nobel Prize in 2005. H. pylori
infection has since been associated with a variety of outcomes, which include: dyspepsia (non-ulcer or functional), peptic ulcer disease
(duodenal ulcer and gastric ulcer), primary gastric B-cell lymphoma, vitamin B12 deficiency, iron deficiency, anemia, and gastric cancer.
Gastric cancer is one of the most prevalent cancers worldwide and one of the most
common causes of cancer-related deaths, accounting for approximately 768,800 deaths in 2020, according to the World Health Organization
(“WHO”) GLOBOCAN 2020 estimates. According to a 2010 report by Polk DB et al. published
in Nature Reviews Cancer, H. pylori-induced gastritis is the strongest singular risk factor for
cancers of the stomach, and eradication of H. pylori significantly decreases the risk of developing
cancer in infected individuals without pre-malignant lesions.
Talicia®
is targeting a significantly broader indication than that of existing H. pylori therapies, as
a treatment of H. pylori infection, regardless of ulcer status.
We acquired the rights to Talicia®
pursuant to an agreement with Giaconda Limited. See “ – Business Overview – Acquisition, Commercialization
and License Agreements – Acquisition of Talicia®,
RHB‑104, and RHB‑106.”
On December 5, 2021, we entered into an exclusive license agreement with Gaelan Medical
for Talicia®, in the UAE. See “ – Business
Overview – Acquisition, Commercialization and License Agreements License Agreement with Gaelan Medical”. On August 1, 2023,
we announced that Gaelan Medical had received marketing approval for Talicia in the UAE and that Gaelan Medical had subsequently placed
the first commercial order for Talicia, which was dispatched from the CMO in December 2023.
In November 2022, we announced post hoc analyses of the Phase 3 clinical trials of
Talicia® supporting the efficacy and safety of Talicia®
as empiric first-line treatment for H. pylori infection in patients regardless of obesity, body
mass index (BMI) or diabetic status.
Regulatory Status
On November 1, 2019, Talicia®
was approved by the FDA and is eligible for a total of eight years of U.S. market exclusivity.
In November 2014, Talicia®
was granted QIDP designation by the FDA. The QIDP designation was granted under the FDA’s Generating Antibiotic Incentives Now (GAIN)
Act, which is intended to encourage the development of new antibiotic drugs for the treatment of serious or life-threatening infections
that have the potential to pose a serious threat to public health.
In September 2023, we announced that the FDA had approved our supplemental new drug
application (sNDA) for Talicia®, allowing a change
to a more flexible dosing regimen, enabling patients to take Talicia three times daily, at least 4 hours apart with food. This enables
patients to follow a convenient “breakfast, lunch and dinner” dosing routine, which may support increased patient adherence
and optimize the potential for successful H. pylori eradication.
In November 2023, we announced that the FDA had officially granted Talicia®
five years of additional market exclusivity via QIDP designation as provided by the GAIN Act. This grant is on top of the three years’
exclusivity granted for the approval of Talicia® under
section 505(b)(2). Talicia® is protected by its broad
intellectual property suite to 2034.
In January 2024, we announced that U.S. Patent and Trademark Office (USPTO) issued
a new patent covering Talicia® as a method for eradicating
H. pylori regardless of BMI. The new patent is expected to provide protection for Talicia®
until May 2042.
Market and Competition
The 2017 American College of Gastroenterology clinical guidelines for the treatment
of H. pylori infection generally recommend against treating the majority of the U.S. population
with current standard-of-care therapies reliant on the antibiotic clarithromycin. The American College of Gastroenterology recommends
against using clarithromycin-based triple therapies in cases where the patient has previously failed treatment with clarithromycin-containing
regimens, has prior macrolide exposure, in regions with unknown clarithromycin resistance or regions with 15% or more clarithromycin resistance.
It is estimated that clarithromycin resistance in the U.S. exceeds 20% prevalence (Park JY, Dig Dis Sci. 2016). Such current clarithromycin
and metronidazole-based standard-of-care treatments fail in approximately 25‑40% of the patients due to the development of antibiotic
resistance, based on Malfertheiner P. et al. (Gut 2012), O’Connor A. et al. (Helicobacter 2015) and Venerito M. et al. (Digestion
2013). According to a 2015 publication by Shiota et al., it is estimated that H. pylori resistance
to clarithromycin, a standard-of-care antibiotic used for the treatment of H. pylori, more than
doubled between 2009‑2013. According to a 2021 publication by Graham et al., although clarithromycin is still widely used to treat
H. pylori, by the year 2000, increasing resistance resulted in clarithromycin triple therapy becoming
generally ineffective. A recent Phase III study demonstrated that treating clarithromycin-resistant patients with a PPI/amoxicillin/clarithromycin
combination regimen resulted in only 32% efficacy.
Talicia®
is designed to address the high resistance of H. pylori bacteria to the antibiotics
commonly used in current standard-of-care therapies. Talicia’s approval was supported, in part, by the results of two positive Phase
3 studies in the U.S. for the treatment of H. pylori-positive adult patients complaining
of epigastric pain and/or discomfort. The confirmatory Phase 3 study of Talicia®
demonstrated 84% eradication of H. pylori infection with Talicia®
vs. 58% in the active comparator arm (p<0.0001). Further, in an analysis of data from this study, it was observed that subjects
with measurable blood levels of drug at Day 13 had response rates of 90.3% in the Talicia®
arm vs. 64.7% in the active comparator arm.
H. pylori bacterial infection affects
over 50% of the adult population worldwide, according to a 2018 report by Kakelar HM et al., published in Gastric
Cancer, and approximately 35% of the U.S. population, according to a report by Hooi JKY et al. published in 2017 in Gastroenterology.
In the U.S., we estimate that approximately 2 million patients per annum are treated for H. pylori eradication,
based on a 2021 RedHill-funded market assessment performed by IQVIA.
Talicia®
faces competition in the U.S. from certain branded prescription therapies indicated for the treatment of H.
pylori infection including Pylera® (marketed
by Allergan plc)and Voquezna (sold by Phathom) as well as from the generic individual components of these branded therapies (Pylera, PrevPac,
-). Additionally, the individual components of Talicia®
are available in generic form, and while rifabutin is not available in an equivalent dose, there is a risk that some physicians may prescribe
the individual components of Talicia® in doses that
are not equivalent to the approved drug and regimen. We may also be exposed to potential competitive products that may be under development
to treat H. pylori infection.
We believe that Talicia®
offers a significant benefit over other marketed drugs in part because of the efficacy, tolerability, and resistance profile demonstrated
in our Phase 3 program, which showed no bacterial resistance to rifabutin and high resistance to clarithromycin and metronidazole.
Aemcolo®
Aemcolo®,
containing 194mg of rifamycin, is an orally administered, minimally absorbed antibiotic that is delivered to the colon, approved by the
FDA in 2018 for the treatment of travelers’ diarrhea caused by non-invasive strains of E. coli
in adults (“Travelers’ Diarrhea”). In October 2019, we entered into a license agreement, as amended, with a wholly-owned
subsidiary of Cosmo pursuant to which we were granted exclusive rights to commercialize Aemcolo®
in the U.S. (the “Cosmo License Agreement”). In December 2019, we launched the commercialization of Aemcolo®
in the U.S. See “ – Business Overview – Acquisition, Commercialization and License Agreements – Exclusive License
Agreement for Aemcolo®.”
Regulatory Status
Aemcolo®
received FDA approval on November 16, 2018, for the treatment of travelers’ diarrhea caused by noninvasive strains of Escherichia
coli in adults. Cosmo transferred the Aemcolo® NDA
and the IND to RedHill U.S., which were accepted on November 27, 2019. This acceptance also includes a commitment to complete any
postmarketing requirements or commitments related to the NDA. There are two pediatric studies that are required to be completed to satisfy
the PREA requirements and also with required milestone dates:
| • |
Conduct a randomized, placebo-controlled study to evaluate the safety, tolerability, and efficacy of Aemcolo®
(rifamycin) for the treatment of travelers’ diarrhea in children from 6 to 11 years of age. |
| • |
Conduct a randomized, placebo-controlled study to evaluate the safety, tolerability, and efficacy of Aemcolo®
(rifamycin) for the treatment of travelers’ diarrhea in children from 12 to 17 years of age. |
Market and Competition
Aemcolo®
is a new pharmaceutical product employing rifamycin SV engineered with MMX®
technology. The application of MMX® technology to
rifamycin SV allows the antibiotic to be delivered directly into the colon, intended to avoid unwanted effects on the beneficial bacterial
flora living in the upper portions of the gastrointestinal tract. The specific dissolution profile of Aemcolo®
tablets increases the colonic disposition of the antibiotic so that an optimized intestinal concentration is achieved, thus abating its
systemic absorption in the lower intestine.
In October 2017, the FDA granted QIDP and Fast Track designations for Aemcolo®.
With the QIDP designation, intended for antibacterial or antifungal drugs that treat serious or life-threatening infections, together
with new chemical entity (NCE) designation, Aemcolo®
enjoys marketing exclusivity until 2028.
Due to the significant decrease in travel as a result of the COVID-19 pandemic, the
travelers’ diarrhea market was significantly impacted in 2020 and 2021, and we have not generated meaningful revenues from the sale
of Aemcolo® since then. We do not expect Aemcolo®
to generate meaningful revenues, and there can be no assurance that we will generate meaningful revenues upon return of U.S. international
travel to pre-pandemic levels.
In December 2021, we and Cosmo amended the Cosmo License Agreement such that either
party may terminate the Cosmo License Agreement upon advance notice at any time.
We have implemented plans, including re-launching active field promotion of Aemcolo®,
to support, and build on, the initial momentum that Aemcolo®
was generating pre-COVID-19 travel restrictions. According to the National Travel and Tourism Office (NTTO), U.S. citizen air passenger
departures from the U.S. to foreign countries reached 4.3 million in February 2023 which reflects a 9.3% increase when compared to the
February 2019 volume. This data suggests that U.S. international travel is returning to pre-COVID-19 pandemic levels.
Travelers’ Diarrhea is the most common travel-related illness according to the
Centers for Disease Control and Prevention (CDC). The CDC Yellow Book states that attack rates of Travelers’ Diarrhea range up to
70% of travelers, depending on the destination and season of travel. Travelers’ Diarrhea may often result in short-term morbidity
adversely impacting travel plans. Untreated diarrhea can also lead to an underappreciated risk of chronic complications, including functional
bowel disorders.
There are several competing drugs marketed in the U.S. intended for the treatment
of Travelers’ Diarrhea. One of the leading competitors is Xifaxan®
(rifaximin, marketed by Salix Pharmaceuticals), a prescription drug approved for the treatment of Travelers’ Diarrhea caused by
non-invasive strains of E. coli in adults and pediatric patients, treatment of IBS-D and reduction
in risk of overt hepatic encephalopathy recurrence in adults. Aemcolo®
also competes with generic antibiotics such as fluoroquinolones and azithromycin. Aemcolo®
also competes with prescription and OTC anti-diarrheal medications such as loperamide and bismuth subsalicylate, as well as probiotics
and medical foods which may offer symptomatic relief. We may also be exposed to potentially competitive products, which may be under development
to treat or prevent Travelers’ Diarrhea, including new antibiotics, anti-diarrheal medications, and vaccines.
Our Therapeutic Candidates
Summary
The ongoing development programs of our five therapeutic candidates, most in clinical
development, include “opaganib”, “RHB-107” (upamostat), “RHB-104”, “RHB-102 (Bekinda®)”,
“RHB-204”, and related research and development programs, the most advanced of which are described below.
|
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Potential Advantages |
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Over Most Existing |
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Name of Therapeutic
|
Treatments, if |
Development |
|||||||||||
|
Candidate |
Proposed Indication |
Approved |
Stage |
Rights to the Product | |||||||||
|
opaganib |
Patients hospitalized with SARS-CoV-2 severe COVID-19 pneumonia |
Oral administration, first-in-class SK2 selective inhibitor, with anti-inflammatory
and anti-cancer activities |
U.S. Phase 2 study completed and top-line data received; global Phase 2/3 completed
and top-line data received and submitted regulatory packages to regulatory authorities |
We filed patent applications to protect the proposed commercial use | |||||||||
|
opaganib |
Advanced unresectable cholangiocarcinoma |
Oral administration, first-in-class SK2 selective inhibitor, with anti-inflammatory
and anti-cancer activities |
Phase 2 study in the U.S. patient follow up completed (ABC-108) |
Worldwide exclusive license | |||||||||
|
opaganib
opaganib |
Prostate cancer
Nuclear radiation protection |
Oral administration, first-in-class SK2 selective inhibitor, with anti-inflammatory
and anti-cancer activities in addition to failing treatment with abiraterone or enzalutamide
Oral, small molecule pill that is stable with a more than five-year shelf-life, easy
to administer and distribute, supporting, if approved, potential central stockpiling by governments |
Investigator-sponsored Phase 2 study in the U.S patient follow up completed
U.S. government-funded in vivo studies completed,
and additional validation experiments underway |
Worldwide exclusive license
Worldwide exclusive license | |||||||||
|
RHB-107 (upamostat; formerly Mesupron)
|
Outpatients infected with SARS-Co-V-2 (COVID-19 disease) |
Oral administration, inhibitor of human serine proteases with antiviral activity and
established safety profile |
Part A of Phase 2/3 study completed
Multi-site Phase 2 platform trial ongoing with US governmental funding |
We filed patent applications
to protect the proposed commercial use | |||||||||
|
RHB-107 (upamostat; formerly Mesupron) and opaganib |
Advanced unresectable cholangiocarcinoma |
Combination of (RHB-107 (upamostat)) and (opaganib ) |
Preclinical |
We filed patent applications internationally directed to the proposed commercial use
| |||||||||
|
RHB-104 |
Crohn’s disease |
Novel mechanism of action and improved clinical benefit (targeting suspected underlying
cause of Crohn’s disease) |
First Phase 3 study completed; supportive results from the open-label extension
|
We filed patent applications internationally directed to the proposed commercial formulation
and use | |||||||||
|
RHB-102 (Bekinda®)
24 mg |
Acute gastroenteritis and gastritis |
No other approved 5-HT3 serotonin receptor inhibitor for this indication; once-daily
dosing |
First Phase 3 study in the U.S. completed; confirmatory Phase 3 study in planning
|
We filed patent applications internationally to protect the proposed commercial formulation
and its use | |||||||||
|
RHB-102 (Bekinda®)
12 mg |
IBS-D |
Potential 5-HT3 serotonin receptor inhibitor with improved safety, while maintaining
efficacy |
Phase 2 in the U.S. completed; Phase 3 program in planning |
We filed patent applications internationally to protect the proposed commercial formulation
and its use | |||||||||
|
RHB-102 (Bekinda®) 24 mg |
Oncology support anti-emetic
|
|
Reduced number of drug administrations, improved compliance and adherence |
|
MAA pursued in the U.K Additional data required for U.S. |
|
We filed patent applications internationally to protect the proposed commercial formulation
and its use. | ||||||
|
RHB‑204 |
Pulmonary nontuberculous mycobacteria (NTM) infections caused by Mycobacterium avium complex (MAC) |
Oral formulation targeting a major cause of pulmonary NTM infections |
Phase 3 terminated early due to low enrolment rate |
We filed patent applications internationally directed to the proposed commercial formulation
and use | |||||||||
Opaganib
Opaganib, a new chemical entity, is a proprietary, first-in-class, orally-administered,
sphingosine kinase-2 (SK2) selective inhibitor with observed anticancer, anti-inflammatory, and antiviral activities, targeting multiple
oncology, viral, inflammatory, and gastrointestinal indications. The compound originally designated as ABC294640 received an international
non-proprietary name, opaganib, in the Recommended INN: List 79, 2018.
Opaganib inhibits SK2, a lipid kinase that catalyzes the formation of the lipid signaling
molecule sphingosine 1-phosphate (“S1P”). S1P promotes cancer growth and proliferation and pathological inflammation, including
TNFα signaling and other inflammatory cytokine production. Specifically, by inhibiting the SK2 enzyme, opaganib blocks the synthesis
of S1P which regulates fundamental biological processes such as cell proliferation, migration, immune cell trafficking and angiogenesis,
and is also involved in immune-modulation and suppression of innate immune responses from T cells.
Opaganib’s proposed antiviral mechanism, based on pre-clinical studies conducted
with the molecule, inhibits the replication of positive-strand single-stranded ribonucleic acid (“RNA”) viruses, of which
coronavirus, and specifically SARS-CoV-2, is a member. By binding to SK2, opaganib inhibits SK2 recruited to the viral replication-transcription
complex and thus blocks the intracellular viral replication process. Because SK2 is a human host factor, opaganib’s proposed action
is expected to maintain effect against known and emerging SARS-CoV-2 variants of concern irrespective of mutations in the viral spike-protein.
Additionally, preclinical in vivo studies have demonstrated opaganib's potential to decrease renal
fibrosis, have shown decreased fatality rates from influenza virus infection, and amelioration of bacteria-induced pneumonia lung injury
by reducing the levels of IL-6 and TNF-alpha in bronchoalveolar lavage fluids.
On March 30, 2015, we entered into an exclusive worldwide license agreement with Apogee
Biotechnology Corporation (“Apogee”), pursuant to which Apogee granted us the exclusive worldwide development and commercialization
rights to ABC294640 (which we then renamed to opaganib and, as noted above, received an international non-proprietary name, opaganib,
in 2018) and additional intellectual property for all indications. See “ – Business Overview – Acquisition, Commercialization
and License Agreements – License Agreement for opaganib.”
In March 2022, we entered into the Exclusive License Agreement with Kukbo for opaganib
for the treatment of COVID-19 in South Korea. See “ – Business Overview – Acquisition, Commercialization and License
Agreements – License Agreement with Kukbo”.
The development of opaganib has been supported by grants and contracts from U.S. federal
and state government agencies awarded to Apogee, including from the NCI, BARDA, the U.S. Department of Defense and the FDA Office of Orphan
Products Development.
Market and Competition
Opaganib is currently being developed for several potential indications, including
for the treatment of severe COVID-19 pneumonia, cholangiocarcinoma (bile duct cancer), prostate cancer and for nuclear radiation protection.
COVID-19 is a disease caused by a coronavirus virus, SARS-CoV-2. The clinical spectrum
has not yet been well defined and ranges from asymptomatic infection to pneumonia and Acute Respiratory Distress Syndrome (ARDS) with
multiorgan failure, that may lead to death. Patients over 65 years and those with significant comorbidities, such as diabetes, cardiac
or pulmonary disease, are more susceptible to developing severe disease and have a relatively higher mortality rate compared to younger,
otherwise healthy patients. As of April 6, 2023, there have been over 762 million confirmed cases of COVID-19 worldwide, including over
6.8 million reported deaths according to WHO. Several therapies have been approved by the FDA for the treatment of COVID-19, some under
emergency use authorization. These therapies include antiviral drugs such as Veklury® (remdesivir), immune modulators and monoclonal
antibodies. The FDA granted Emergency Use Authorization for two oral antiviral drugs intended for patients with mild-to-moderate COVID-19,
including Lagevrio™ (molnupiravir) and Paxlovid™ (nirmatrelvir co-packaged with ritonavir). These therapies are intended for
the outpatient setting and require treatment initiation within a limited window of five days from symptom onset. As of the filing of this
report, no orally-administered antiviral therapy has been approved by the FDA to date for treatment of hospitalized patients with severe
disease. Several vaccines for SARS-CoV-2 have also been approved by the FDA and other regulatory agencies to date. Multiple additional
drug therapies and vaccines are currently under development for COVID-19.
Cholangiocarcinoma (bile duct cancer) is a highly lethal malignancy. According to
the American Cancer Society report, approximately 8,000 people are diagnosed with intrahepatic and extrahepatic bile duct cancers annually
in the U.S., with studies reporting an increased incidence of cholangiocarcinoma, mainly attributed to advancements in the diagnosis of
this disease (Gores GJ, Hepatology, 2003). Surgery with complete resection is currently known to be the only curative therapy for cholangiocarcinoma;
however, only a minority of patients are classified as having a resectable tumor at the time of diagnosis. Additional treatment options
include radiation therapy and chemotherapy, but the efficacy of these treatments in cholangiocarcinoma patients is also limited and the
prognosis for relapse patients who have failed initial chemotherapy is very poor, with an overall median survival of approximately one
year (Valle J, et al. New Eng J, Med 2010). In recent years, the FDA has approved several targeted
drug therapies specifically for cholangiocarcinoma. In April 2020, the FDA approved Pemazyre®
(pemigatinib, Incyte Corporation), the first drug approved specifically for cholangiocarcinoma, indicated for adults with advanced bile
duct cancer whose cancer has grown after at least one previous chemotherapy treatment and whose tumors have a mutation in the FGFR2 gene.
FGFR2 gene fusions are found in patients with intrahepatic cholangiocarcinoma, and have a reported incidence rate of 14% to 23% (Prete
MG, Explor Target Antitumor Ther., 2021). In August 2021, the FDA approved Tibsovo® (ivosidenib, Servier Pharmaceuticals LLC) for
adult patients with previously treated, locally advanced or metastatic cholangiocarcinoma with an isocitrate dehydrogenase-1 (IDH1) mutation
as detected by an FDA-approved test. IDH1 mutations are also found in patients with intrahepatic cholangiocarcinoma, and have a reported
incidence rate of 7% to 20% (Prete, 2021). In September 2022, the FDA approved the first immunotherapy option, Imfinzi® (durvalumab,
AstraZeneca Plc) in combination with gemcitabine and cisplatin for the treatment of patients with metastatic or locally advanced cholangiocarcinoma.
We believe there remains a high unmet medical need for new therapies for the majority of cholangiocarcinoma patients. There are several
drugs in late-stage clinical development for cholangiocarcinoma. The 5-year relative survival rates of intrahepatic and extrahepatic cholangiocarcinoma
patients range between 2% to 24%, depending on the tumor type and stage at diagnosis, according to the American Cancer Society.
Prostate cancer is the second most common cancer and the second leading cause of cancer
death in American men. The American Cancer Society estimates that approximately 288,300 new cases of prostate cancer will be diagnosed
in 2023. Prostate cancer is more likely to develop in older men and in African-American men. Treatment options depend on each case and
include surgery, radiotherapy, cryotherapy, chemotherapy, hormone therapy, and immunotherapy. There are several approved drugs indicated
for treatment of prostate cancer, as well as several drugs in development for U.S. approval.
Acute Radiation Syndrome (ARS) is an acute illness caused by irradiation of the body
by a high dose of penetrating radiation in a short period of time. The clinical manifestations of ARS are categorized into several sub-syndromes
which include but are not limited to the hematopoietic (H-ARS) and gastrointestinal (GI-ARS) sub-syndromes.
ARS is rare, however, radiation exposure due to a radiological or nuclear event has
the potential to affect a large number of people. The U.S. government has recognized the need to develop and expand the availability of
suitable medical countermeasures (MCMs) to address radiation injuries, including those of ARS.
The FDA has approved five MCMs for the H-ARS sub-syndrome to date. Neupogen®
(filgrastim, Amgen Inc., FDA-approved in 2015), Neulasta® (pegfilgrastim, Amgen Inc., FDA-approved in 2015), and Leukine® (sargramostim,
Partner Therapeutics Inc. and originally Sanofi, FDA-approved in 2018) are leukocyte growth factors that stimulate the recovery of neutrophils,
while the fourth agent, Nplate® (romiplostim, Amgen Inc., FDA-approved in 2021) is a thrombopoietin receptor agonist that stimulates
the body’s production of platelets. In November 2022, the FDA approved the fifth MCM for H-ARS known as Udenyca® (pegfilgrastim-cbqv,
Coherus BioSciences, Inc.), also a leukocyte growth factor, and a biosimilar to Neulasta®.
The five MCMs approved by the FDA for the H-ARS sub-syndrome are radiomitigators,
or agents administered after radiation exposure (and before the development of ARS symptoms) to stimulate the recovery of injured tissues.
To the best of our knowledge, there are no agents approved by the FDA for the H-ARS sub-syndrome that are radioprotectors or agents administered
before radiation exposure to prevent tissue injury, or MCMs approved for the GI-ARS sub-syndrome.
In addition to the MCMs approved by the FDA for the H-ARS sub-syndrome, there are
additional candidates in development for ARS.
Clinical Development
COVID-19
Preclinical data have demonstrated both anti-inflammatory and antiviral activities
of opaganib, with the potential to reduce inflammatory lung disorders, such as pneumonia, and mitigate pulmonary fibrotic damage. In September
2020, we announced that opaganib demonstrated potent inhibition of SARS-CoV-2, the virus that causes COVID-19, achieving complete blockage
of viral replication in an in vitro model of human lung bronchial tissue. Additionally, preclinical
in vivo studies have demonstrated that opaganib decreased fatality rates from influenza virus
infection and ameliorated Pseudomonas aeruginosa-induced lung injury by reducing the levels of IL-6 and TNF-alpha in bronchoalveolar lavage
fluids.
Preliminary results from a preclinical study with opaganib, administered at 250 mg/kg,
demonstrated a reduction of thrombosis (blood clotting) in an acute respiratory distress syndrome (ARDS) animal model. The preclinical
study was designed to assess the efficacy of opaganib in reducing the incidence of adverse thromboembolic events in situ in the lipopolysaccharide
(LPS)-induced model of pulmonary inflammation, a reliable model of ARDS that can mimic COVID-19 inflammation. The preliminary results
from our study show opaganib 250 mg/kg reduced blood clot length, weight and total thrombus score in a preclinical model of ARDS. We believe
such preliminary results add to the known antiviral and anti-inflammatory activities of opaganib and provide the potential for a unique
triple-action effect on the pathophysiological processes associated with COVID-19 disease.
In September 2020, Apogee was awarded a grant from Pennsylvania's COVID-19 Vaccines,
Treatments and Therapies Program, which supports the rapid advancement of promising novel COVID-19 therapies.
ABC-201: Global Phase
2/3 Study
In July 2020, we initiated a global Phase 2/3 clinical trial evaluating opaganib in
hospitalized patients with severe COVID-19 pneumonia. This global multi-center, randomized, double-blind, parallel-arm, placebo-controlled
trial enrolled a total of 475 patients requiring hospitalization and treatment with supplemental oxygen. The study was approved in ten
countries.
In September 2021, we reported that preliminary top-line data from the opaganib (ABC294640)
global Phase 2/3 study in hospitalized patients with severe COVID-19 pneumonia showed that the study did not meet its primary endpoint.
Analysis of the study efficacy endpoints did show trends in favor of the opaganib arm as compared to placebo across multiple endpoints,
including the primary endpoint, despite not achieving statistical significance.
In October 2021, we reported new data from a further analysis of this study, showing
that treatment with oral opaganib as compared to the placebo-controlled arm resulted in a 62% statistically significant reduction in mortality
as well as statistically significant improved outcomes in time to room air and median time to hospital discharge in a group of 251 hospitalized,
moderately severe COVID-19 patients, comprising 54% of the study participants.
These results were from a post-hoc analysis of data from the 251 study participants
requiring a Fraction of inspired Oxygen (FiO2) up to 60% at baseline. Patients with FiO2 ≤ 60% are still considered to be severely
affected and typically require oxygen supplementation via a nasal cannula or face mask.
Analyses of the FiO2 up to 60% patient subset from the opaganib Phase 2/3 study, the
median for FiO2 levels in the study, who were treated with either opaganib or placebo in addition to standard-of-care (including dexamethasone
and/or remdesivir) demonstrated consistent benefit across endpoints, in this subset of hospitalized moderately severe patients. Given
the post-hoc characteristics of this subset, statistical inferences of significance cannot be formally attributed (nominal values presented).
We also conducted a sensitivity analysis to account for missing data interpretability:
| • |
Mortality: Opaganib treatment resulted in a statistically significant 62% reduction in mortality
(7/117 patients treated with opaganib vs. 21/134 for placebo; nominal p-value=0.019, Relative Risk 2.6) (Sensitivity Analysis: 5/117 vs.
16/134, 64% efficacy benefit; nominal p-value=0.033, Relative Risk - 2.8).
A detailed analysis of baseline risk factors and their potential impact on the mortality outcome in the
sensitivity analysis group has also been undertaken, showing that the benefit is robustly maintained irrespective of the subgroups/risk
factors, confirming that the positive outcome observed is due to opaganib. |
| • |
Reaching Room Air by Day 14 (primary endpoint of the study): 77% of opaganib-treated patients
reached room air by Day 14 vs. 63.5% for placebo – an efficacy benefit of 21% with opaganib (nominal p-value=0.033). |
| • |
Median time to discharge: Patients treated with opaganib showed median time of 10 days to
discharge vs. 14 days for the placebo arm, resulting in a saving of four days hospitalization per opaganib patient and saving a total
of 524 cumulative days of hospitalization across the group by Day 42, nominal p-value=0.0195. |
| • |
Safety: Overall adverse events were balanced between the opaganib and placebo groups, suggesting
good safety, with no new safety signals emerging, further supporting potential use in this patient population and earlier stage populations.
|
In January 2022, we reported new data from a prespecified analysis of all Phase 2/3
study patients with positive PCR at screening, demonstrating that opaganib improved the median time to viral RNA clearance by at least
4 days. Treatment with opaganib resulted in viral RNA clearance in a median of 10 days while the median for clearance in the placebo arm
was not reached by the end of 14-days treatment for placebo (hazard ratio 1.34; nominal p-value=0.043, N=437/463). To the best of our
knowledge, opaganib is the first oral novel drug candidate to show improved viral RNA clearance in patients with severe COVID-19 pneumonia.
This data provides clinical evidence supporting opaganib's potential antiviral activity.
In February 2022, we reported additional results from two prespecified analyses from
the Phase 2/3 study. The first analysis showed that opaganib significantly reduced mortality when given to patients who received remdesivir
and corticosteroids, the best available standard-of-care (SoC) for hospitalized patients. This analysis, undertaken for all patients from
the study who were receiving remdesivir and corticosteroids at baseline, demonstrated a significant 70.2% mortality benefit for opaganib-treated
patients, with a mortality rate of 6.98% (n=3/43) for the opaganib arm + SoC versus 23.4% (n=11/47) for placebo + SoC by Day 42 (p-value=0.034).
The second analysis further showed that opaganib delivered a significant benefit in
time to recovery, defined as achieving a score of 1 or less on the WHO Ordinal Scale by Day 14. The prespecified analysis showed opaganib
delivered a significant 34% benefit in time to recovery, with 37.4% of opaganib-treated patients (n=86/230) reaching this event versus
27.9% of patients (n=65/233) treated with placebo + SoC (p-value=0.013, Hazard Ratio 1.49).
Safety data for the Phase 2/3 clinical trial showed good tolerability of opaganib,
with balanced adverse events between the study arms.
Guidance on the potential path to approval including the requirement of a confirmatory
study for future emergency use approvals has been received from the EU's EMA, the U.S. FDA, UK's MHRA and others.
We are continuing discussions and work with U.S. and other government agencies and
non-governmental organizations to support the ongoing development of opaganib in areas of public health interest, including pandemic preparedness
and medical countermeasures. These are currently undergoing pre-clinical evaluation. Discussions are also ongoing with potential partners
who are interested in the rights to opaganib in various territories.
ABC-110: U.S. Phase 2
Study
In December 2020, we announced that our randomized, double-blind, placebo-controlled
U.S. Phase 2 trial with opaganib in patients hospitalized with COVID-19 pneumonia demonstrated positive safety and efficacy data. The
trial, which was not powered for statistical significance, enrolled 40 patients requiring hospitalization and supplemental oxygen.
The data from the study was published in May 2022 in Open Forum Infectious Diseases.
Preclinical studies
In September 2021, we announced results of a preclinical study demonstrating opaganib’s
efficacy in significantly decreasing renal fibrosis in a unilateral ureteral obstruction-induced renal interstitial fibrosis model. Reports
suggest that over 20% of hospitalized COVID-19 patients experience acute renal failure. The aim of the in
vivo efficacy study was to verify the effect of opaganib on kidney inflammation and fibrosis in a unilateral ureteral obstruction
(UUO) model – a well characterized model for renal fibrosis. Results from the study showed that opaganib significantly decreased
renal fibrosis.
Opaganib demonstrated potent antiviral activity against SARS-CoV-2, the virus that
causes COVID-19, completely inhibiting viral replication in an in vitro model of human lung bronchial
tissue. In June 2021, we announced that preliminary results from a preclinical study demonstrated potent inhibition of the Beta and Gamma
COVID-19 variants of concern by opaganib at non-cytotoxic doses. We further announced in August 2021 that opaganib demonstrated strong
inhibition of the Delta variant replication while maintaining cell viability at relevant concentrations in a 3D tissue model of human
bronchial epithelial cells. Based on opaganib’s unique host-targeted mechanism and the preliminary results of this study, we believe
opaganib is likely to also maintain its activity against emerging variants of COVID-19.
In April 2022, we announced study results in which opaganib was observed to have potent in
vitro efficacy against the Omicron SARS-CoV-2 variant, while maintaining
host cell viability, and in October 2022, we announced study results showing preliminary evidence of in
vitro efficacy against the Omicron COVID-19 sub-variant BA.5 by opaganib and RHB-107.
In September 2022, we announced new in vitro
data demonstrating opaganib’s potential to significantly decrease renal fibrosis in a unilateral ureteral obstruction-induced renal
interstitial fibrosis model.
In an in-vitro study sponsored by NIAID, opaganib demonstrated activity against Influenza
A H1N1 in a human airway epithelial cell line. Upon successful completion of the above assay, further in-vivo studies of opaganib for
treatment of influenza A/CA/04/2009 (H1N1pdm) virus infection in C57BL/6 mice were initiated at Utah State University to determine the
efficacy of opaganib. The experiment was technically flawed as the positive control was also only minimally effective. Discussion
is underway to repeat the experiment using the more standard Balb-C mice and a higher dose of oseltamivir in Q1/2023.
In October 2023, we announced that opaganib delivered a statistically significant
increase in survival time when given at 150 mg/kg twice a day (BID) in a United States Army Medical Research Institute of Infectious Diseases
(USAMRIID) in vivo Ebola virus study, making it the first host-directed molecule to show activity in Ebola virus disease. The U.S. Army
study tested three doses of opaganib (50, 100 and 150 mg/kg BID), against an inactive vehicle control arm. The in vivo study results showed
a statistically significant survival increase in mean (SE) survival time of 11.2 (2.6) days in the 150 mg/kg opaganib group (p=0.0279)
compared to a mean (SE) survival time of 5.5 (0.4) days in the inactive vehicle control group. A 30% mice survival benefit was observed
in the 150 mg/kg treated group compared to the vehicle control. In December 2023, we further announced that opaganib demonstrated a robust
synergistic effect when combined with Veklury® (remdesivir, Gilead Sciences, Inc), significantly improving viral inhibition while
maintaining cell viability, in a new U.S. Army-funded and conducted Ebola virus in vitro study.
ABC‑108: Advanced
Unresectable Cholangiocarcinoma
A Phase 2a clinical study with opaganib in patients with advanced, unresectable, intrahepatic,
perihilar and extrahepatic cholangiocarcinoma is ongoing at Mayo Clinic’s major campuses in Arizona and Minnesota, the Huntsman
Cancer Institute, University of Utah Health and at Emory University. In September 2018, we announced that the study achieved its pre-specified
efficacy goal for the first stage of the two-stage study design, and as a result, the study has continued to its second stage. Treatment
with opaganib, Part 1 of the study, designed to enroll 39 evaluable patients, completed enrollment in January 2020. Preliminary data from
this cohort indicated a signal of activity in a number of subjects with advanced cholangiocarcinoma.
In October 2019, an expansion cohort for cotreatment of opaganib and hydroxychloroquine
sulfate (HCQ), an anti-autophagy agent, was submitted to the FDA. Enrollment of this cotreatment cohort, Part 2 of the study, began in
July 2020. The cohort consists of two phases: Phase 1, an accelerated dose escalation run-in with enrollment of up to 15 patients evaluable
for safety and tolerability, and Phase 2, treatment of 20 patients evaluable in the Phase 1 determined dose to determine safety and tolerability.
In May 2022, RedHill closed the enrollment to the second dose tier, 500 mg BID of opaganib and 200 mg of HCQ BID. The main reason for
the study’s early closure was a significant slowdown in enrollment since the start of the COVID-19 pandemic. The last patient that
was enrolled demonstrated stable disease for 10 cycles and tolerated the treatment very well. Accordingly, RedHill in collaboration with
the treating physician in Mayo, AZ, arranged to continue the patient’s treatment under a Single Patient IND.
A total of 65 patients have been enrolled in the study, 7 of those in the Phase I
safety run-in of Part 2. Of the 7 patients that were enrolled in Part 2 (4 evaluable for efficacy), one subject has demonstrated durable
stable disease for 10 months and has transitioned to a Single Patient IND.
The primary objective of Part 1 is to determine the response rate (RR) of cholangiocarcinoma
defined as objective responses (OR), i.e. complete and partial responses (CR, PR) plus stable disease (SD) of at least four months to
treatment with opaganib. The primary endpoint of Part 2 is to determine Durable Disease Control Rate (DDCR), defined as Disease Control
Rate (DCR) of at least four months’ duration to treatment with opaganib and HCQ.
In April 2017, the FDA granted to opaganib orphan drug designation for the treatment
of cholangiocarcinoma. The orphan drug designation allows us to benefit from various development incentives to develop opaganib for this
indication, including tax credits for qualified clinical testing, the waiver of a prescription drug user fee (PDUFA) upon submission of
a potential NDA and, if approved, a seven-year marketing exclusivity period (subject to certain exceptions) for the treatment of cholangiocarcinoma.
EAP for the Treatment
of Advanced Unresectable Cholangiocarcinoma
An EAP is for eligible participants who do not qualify for participation in, or who
are otherwise unable to access, the ongoing clinical trial ABC-108 for advanced unresectable cholangiocarcinoma. This program is designed
to provide access to opaganib for the treatment of cholangiocarcinoma prior to approval by the local regulatory agency. As noted in the
section above, one subject from study ABC-108 has transitioned to a Single Patient IND with the termination of study ABC-108. We cannot
predict how long this program will continue, and we may decide for various reasons, including but not limited to resources and availability
of opaganib, not to continue with the EAP.
ABC‑101: Advanced
Solid Tumors
A Phase 1 study, first-in-man evaluation of opaganib in advanced solid tumors was
completed in the summer of 2015. Final results demonstrated that the study, conducted at the Medical University of South Carolina (MUSC),
successfully met its primary and secondary endpoints, demonstrating that the compound is well tolerated and can be safely administered
to cancer patients at doses predicted to have therapeutic activity.
Twenty-one patients with advanced solid tumors were treated with opaganib in the study,
the majority of who were GI cancer patients, including pancreatic, colorectal and cholangiocarcinoma cancers.
The study included the first-ever longitudinal analysis of plasma S1P levels as a
potential pharmacodynamic biomarker for activity of a sphingolipid-targeted drug. Administration of opaganib resulted in a rapid and pronounced
decrease in levels of S1P with several patients having prolonged stabilization of disease.
The study was supported by grants from the U.S. National Cancer Institute (NCI) awarded
to MUSC Hollings Cancer Center, an NCI-Designated Cancer Center, and from the FDA Office of Orphan Products Development (OOPD) awarded
to Apogee.
ABC‑107: Prostate
Cancer
The investigator-sponsored study “A Phase 2 Study of the Addition of opaganib
to Androgen Antagonists in Patients with Prostate Cancer Progression on Enzalutamide or Abiraterone” was initiated in March 2020
at MUSC Hollings Cancer Center and at Emory University. The study is led by Dr. Michael B. Lilly. The study is supported by the National
Cancer Institute grant awarded to MUSC.
This is a Phase 2 efficacy study of opaganib in patients with metastatic castration-resistant
prostate cancer that is progressing during treatment with androgen signaling blockers, abiraterone or enzalutamide. The study will consist
of an initial safety “run in” cohort in which patients will receive opaganib along with continuation of prior abiraterone
or enzalutamide to document tolerability in this new patient population and to document the effects of opaganib on blood prostate-specific
antigen (PSA) levels. Provided that there is no untoward toxicity in these patients, there will be two additional cohorts with up to 27
patients, with each of patients with worsening disease during abiraterone or enzalutamide treatment. These patients will continue previous
androgen blocking agents (abiraterone or enzalutamide, and gonadotropin-releasing hormone GnRH receptor agonist/antagonist). The primary
objective of the study is to measure the proportion of patients with disease control during opaganib plus abiraterone or enzalutamide
treatment using a composite metric based on PSA, bone scan, and RECIST measurements per Prostate Cancer Working Group 3 (PCWG3) criteria.
First patient was enrolled in March 2020 and the last patient was enrolled in December
2022, completing enrollment of 66 patients: 3 in cohort 1a (abiraterone + opaganib 250 mg BID), 3 in cohort 1b (enzalutamide + opaganib
250 mg BID), 26 in cohort 2 (abiraterone + opaganib 500 mg BID), 34 in cohort 3 (enzalutamide + opaganib 500 mg BID). All patients are
now off study. Disease control, the primary endpoint of the study, was defined as progression-free for at least 16 weeks and was
assessed primarily in the 500 mg opaganib bid cohorts, cohorts 2 and 3. A total of 11 patients achieved disease control: 3 in the
lead-in cohorts combined; 4 (15%; 95% CI 4-35%) in cohort 2 (abiraterone, and 4 (12%; 95% CI 3-27%) in cohort 3 (enzalutamide).
Treatment was generally well tolerated; toxicity was similar to that noted in prior studies of opaganib, mainly neuropsychiatric.
A new toxicity, subretinal fluid accumulation which manifest as visual disturbance, was noted in one patient who received opaganib and
abiraterone. This resolved in several days after the patient stopped taking opaganib. While not previously recognized, this
toxicity may have been misinterpreted in the past as visual hallucinations. Additional investigator initiated clinical studies of opaganib
in prostate cancer are being pursued in possible collaboration with pharma partners.
ABC‑104: Oncology
Support, Radioprotectant: Prevention of Radiation-Associated Mucositis in the Treatment of Head and Neck Cancer
A Phase 1b study to evaluate opaganib as a radioprotectant in head and neck cancer
patients undergoing therapeutic radiotherapy is currently on hold.
Nuclear Radiation Protection
Development Program
In November 2022, we announced acceleration of opaganib’s nuclear radiation
protection development program, with newly published data from eight U.S. government-funded in vivo studies,
and additional experiments, indicating that opaganib was associated with:
| • |
Protection of normal tissue, including gastrointestinal, from radiation damage due to ionizing radiation exposure or cancer radiotherapy.
|
| • |
Improvement of antitumor activity, response to chemoradiation, and enhancement of tolerability and survival. |
| • |
Radioprotective capacity in bone marrow, with opaganib showing enhanced survival in mice irradiated with both lethal and half-lethal
whole-body radiation. |
In addition, in November 2022, we announced additional positive in
vivo results from a new pre-clinical study evaluating the effects of opaganib on radiation-induced hematologic and renal toxicity,
which suggests that opaganib exerts a protective impact on key hematological and kidney function parameters following total body irradiation
(TBI).Development of opaganib as a homeland security nuclear medical countermeasure is currently expected to follow the Animal Rule under
which human efficacy studies may not be required, and if approved, may be eligible for a Medical Countermeasure Priority Review Voucher.
In February 2023, we announced that the Radiation and Nuclear Countermeasures Program
(RNCP), of the National Institute of Allergy and Infectious Diseases, part of the National Institutes of Health, had selected opaganib
for the nuclear medical countermeasures product development pipeline as a potential treatment for ARS. As part of this collaboration,
contractors directed and supported by the RNCP will undertake studies, designed in collaboration with us, to test opaganib in established
ARS models.
In July 2023, we announced that Apogee had been awarded a further $1.7 million in
U.S. government funding, via a Small Business Innovation Research (SBIR) grant, which will support research to further the development
of opaganib as an MCM for GI-ARS. This grant is in addition and complementary to the multimillion dollar-valued U.S. government RNCP product
pipeline development contract awarded to opaganib following its selection by the RNCP for ARS development.
Ebola
In October 2023, we announced that opaganib delivered a statistically significant
increase in survival time when given at 150 mg/kg twice a day (BID) in a United States Army Medical Research Institute of Infectious Diseases
(USAMRIID) in vivo Ebola virus study, making it the first host-directed molecule to
show activity in Ebola virus disease. The U.S. Army study tested three doses of opaganib (50, 100 and 150 mg/kg BID), against an inactive
vehicle control arm. The in vivo study results showed a statistically significant survival increase in mean (SE) survival time of 11.2
(2.6) days in the 150 mg/kg opaganib group (p=0.0279) compared to a mean (SE) survival time of 5.5 (0.4) days in the inactive vehicle
control group. A 30% mice survival was observed in the 150 mg/kg treated group compared to the vehicle control.
In December 2023, we announced opaganib and RHB-107 (upamostat) demonstrated robust
synergistic effect when combined individually with remdesivir (a leading COVID-19 therapy sold under the brand name Veklury® by
Gilead Sciences, Inc.), significantly improving viral inhibition while maintaining cell viability, in a new U.S. Army-funded and conducted
Ebola virus in vitro study.
ABC‑105: Moderate
to Severe Ulcerative Colitis (“UC”)
A Phase 2 study to evaluate the efficacy of opaganib in patients with moderate to
severe UC by the proportion of patients who are in remission at the end of treatment is currently on hold.
ABC‑109: Food Effect
Study in Healthy Subjects
A Phase 1, randomized, open-label, single-dose, 3-treatment, 3-period, 6-sequence
crossover study designed primarily to evaluate the effect of a standardized meal on the absorption and bioavailability of opaganib in
healthy subjects, was completed in the U.S. in January 2018. The study also evaluated the effect of the administration of a solution of
opaganib via nasogastric (NG) tube on the absorption and bioavailability of opaganib. Twenty-three eligible, healthy, male and female
adult subjects were randomized to receive opaganib orally in a state of fast, fed or as a solution by NG tube (after tube feeding). Seventeen
subjects received all three treatments. All three treatments, though maximum concentration was lower when the drug was given orally in
the fed state as compared to fasted, nasogastric administration after tube feeding led to intermediate results. Subjects experienced fewer
gastrointestinal side effects when the drug was given in the fed state than fasted, but the pharmacodynamic effect, as reflected in the
decrease in sphingosine-1-phosphate, the product of the target enzyme, was no lower after fed than fasted administration. Thus, the results
indicated that opaganib may be given after eating, with improved tolerance and no loss of pharmacodynamic effect.
The following chart summarizes the clinical trial history and status of opaganib:
|
Planned |
||||||||||||
|
Development |
Purpose of |
number of |
Nature and |
|||||||||
|
Clinical trial
|
phase of the |
the clinical |
Clinical |
subjects of |
status of |
|||||||
|
name |
|
clinical trial |
|
trial |
|
trial site |
|
the trial |
|
the trial |
Schedule | |
|
ABC-201 |
Phase 2/3 |
A study for the treatment of Opaganib in patients with severe COVID-19 pneumonia |
Multicenter study |
464 |
Completed |
Results reported in 2022 | ||||||
|
ABC-110 |
Phase 2 |
A study for the treatment of opaganib in patients with severe COVID-19 pneumonia |
Multicenter study across the U.S. |
40 |
Completed |
Results reported in 2021 | ||||||
|
ABC‑108 |
Phase 2a |
A study for the treatment of advanced, unresectable intrahepatic, perihilar and extrahepatic
cholangiocarcinoma with opaganib and co-treatment with opaganib and HCQ |
Multicenter study across the U.S. |
65 |
Completed |
Results expected H2/2024 | ||||||
|
ABC‑107 (103193 MUSC Study ID)
|
Phase 2 |
An add-on study for prostate cancer patients who progressed on enzalutamide or abiraterone.
The proportion of patients with disease control during treatment with opaganib and enzalutamide or abiraterone will be measured
|
Medical University of South Carolina, Charleston, U.S. and Emory University, Atlanta,
Georgia, U.S. |
65 |
Ongoing |
Results expected H2/2024 | ||||||
|
ABC‑103 |
Phase 1b/2 |
Safety and efficacy study in patients with refractory or relapsed multiple myeloma
that have previously been treated with proteasome inhibitors and immunomodulatory drugs |
Duke University, North Carolina, U.S. |
Ended |
Ended after Phase 1 |
Ended | ||||||
|
ABC‑101 |
Phase 1 |
Safety, PK and pharmacodynamic study in patients with advanced solid tumors
|
Medical University of South Carolina, Charleston, U.S. |
22 |
Completed. Final results indicate the study drug is well tolerated and can be safely
administered to cancer patients |
Completed 2015 | ||||||
|
ABC-106 |
Phase 2 |
Investigator-Sponsored Safety and Efficacy Study in Patients with Advanced Hepatocellular
Carcinoma Who Have Progressed on Sorafenib |
Medical University of South Carolina, Charleston, U.S. and collaborating sites (Multicenter,
U.S.) |
From 12 to 39 |
Withdrawn and replaced with ABC-107 in prostate cancer (103193 MUSC Study ID)
|
Withdrawn | ||||||
|
ABC-104 |
Phase 1b |
Safety and efficacy study in the prevention of mucositis in combination with radiotherapy
for treatment of squamous head and neck carcinoma |
Multicenter study across the U.S. |
Up to 32 |
TBD |
TBD | ||||||
|
ABC‑105 |
Phase 2 |
A study for the treatment of moderate to severe ulcerative colitis |
Multicenter study |
Up to 94 |
TBD |
TBD | ||||||
|
ABC‑109 |
Phase 1 |
Assessment of the effect of food on the absorption and bioavailability of opaganib;
also as a solution via nasogastric (NG) tube under fed conditions |
ICON Early Phase Services, San-Antonio, TX, U.S. |
23 |
Completed |
Completed 2018 |
We cannot predict with certainty our development costs, and such costs may be subject
to changes. See “Risk Factors – Risks Related to Our Financial Condition and Capital Requirements.”
RHB‑107 (upamostat;
formerly Mesupron)
As mentioned under “ – Business Overview – Acquisition, Commercialization
and License Agreements – License Agreement for RHB-107” (upamostat; formerly Mesupron)”,
on June 30, 2014, we signed an exclusive license agreement with Wilex AG (which later changed its name to Heidelberg Pharma AG) for RHB-107
(INN: upamostat; formerly Mesupron) for all indications and for all uses. Under this agreement, we are responsible for all development,
regulatory and commercialization of RHB-107 in the entire world, excluding China, Taiwan, Macao, and Hong Kong.
RHB-107 is a proprietary, first-in-class, orally-administered potent inhibitor of
several serine proteases, with a unique potency and specificity. In addition to its original development as a potential cancer therapy,
work completed by us demonstrated its potential use in inflammatory digestive diseases, inflammatory lung diseases and infectious diseases.
Furthermore, RHB-107 shows promise as a potential host-directed anti-viral with applications in pandemic preparedness, including COVID-19
and possibly also ebola.
Market and Competition
RHB-107 is currently being developed for the treatment of non-hospitalized symptomatic
COVID-19, and has previously undergone non-clinical and clinical studies in several oncology indications, including metastatic breast
cancer and advanced non-metastatic pancreatic cancer.
Non-Clinical and Clinical Development
Data from non-clinical studies conducted by us indicate that WX-UK1, the active metabolite
of RHB-107, is a specific and potent inhibitor of several human serine proteases (e.g., trypsin-3, trypsin-2, trypsin-1, matriptase-1,
and trypsin-6), some of which have been shown to play a role in inflammatory digestive diseases and lung diseases. Additional non-clinical
studies indicated that several members of the type II transmembrane serine proteases (TTSPs), some of which are important factors in the
spread of infectious diseases, were inhibited by WX-UK1.
RHB-107’s safety profile has been demonstrated in approximately 300 participants,
including in Phase 2 studies in oncology indications and COVID-19.
Oncology
Several Phase 1 studies and two Phase 2 proof-of-concept studies have been completed
with RHB-107 in cancer patients. The first Phase 2 trial in locally advanced non-metastatic pancreatic cancer and the second trial in
metastatic breast cancer established the therapeutic candidate’s safety and tolerability profile. The Phase 2 trials with RHB-107
in both indications failed to demonstrate significant improvement in either progression-free survival or overall survival.
None of the prior studies used any molecular markers to target certain patient populations.
Using technologies developed since the original clinical trials were performed, we are currently planning several preclinical studies,
including biomarker analysis and mechanism of action studies We expect that the findings from these studies can help us determine the
patient populations to be studied in subsequent clinical trials.
In October 2017, the FDA granted RHB-107 orphan drug designation for the treatment
of pancreatic cancer. The orphan drug designation allows us to benefit from various development incentives to develop RHB-107 for this
indication, including tax credits for qualified clinical testing, waiver of a PDUFA upon submission of a potential marketing application
and, if approved, a seven-year marketing exclusivity period (subject to certain exceptions) for the treatment of pancreatic cancer.
COVID-19
RHB-107 was studied in a 3D tissue model of human bronchial epithelial cells (EpiAirway™)
which morphologically and functionally resembles the human airway and is similar to the model used to discover SARS-CoV-2. The study was
designed to evaluate the in vitro efficacy of RHB-107 in inhibiting SARS-CoV-2 infection and included
a positive control of camostat. Results from the study demonstrated strong inhibition of SARS-CoV-2 viral replication.
In October 2022, we announced study results showing preliminary evidence of in
vitro efficacy against the Omicron COVID-19 sub-variant BA.5 by opaganib and RHB-107.
RHB-107-01: Global Phase
2/3 Study
A 2-part, Phase 2/3 multicenter, randomized, double-blind, placebo-controlled, parallel-group
study with RHB-107 randomized its last patient into Part A of the study November 12, 2021. The study aimed at evaluating treatment in
patients with symptomatic COVID-19 early in the course of the disease, with a once-daily oral treatment that can be prescribed and used
in the non-hospitalized patient population. The Phase 2 part of the study was designed to evaluate safety for dose selection and to provide
preliminary assessment of parameters to be used for efficacy evaluation in Part B. A total of 61 patients were enrolled in Part A and
randomized on a 1:1:1 basis to receive one of two dose levels of RHB-107 or a placebo control and was predominantly conducted in the U.S.
(60/61 patients) as well as South Africa.
RHB-107 was administered once daily for 14 days, with patients receiving follow-up
for eight weeks from first dosing. The primary endpoints were time to sustained recovery from symptomatic illness compared to placebo,
as well as safety and tolerability of RHB-107. Several secondary and exploratory endpoints are also being assessed. In February 2021,
we announced that the first patient had been dosed in the study.
In March 2022, we announced the positive Phase 2 study results of Part A of the Phase
2/3 study. Although not powered for efficacy assessment, the study showed highly promising efficacy results delivering a 100% reduction
in hospitalization due to COVID-19, with zero patients on RHB-107 hospitalized with COVID-19 (0/41) compared to 15% on the placebo-controlled
arm requiring hospitalization (3/20) (nominal p-value=0.0317). Furthermore, the study showed an 87.8% reduction in reported new severe
COVID-19 symptoms, with only one patient on RHB-107 (2.4%, 1/41) compared to 20% (4/20) of patients on the placebo-controlled arm experiencing
new COVID-19 related severe symptoms (nominal p-value=0.036).
The study met its primary outcome measure, demonstrating a favorable safety and tolerability
profile of RHB-107. Study arms were well balanced with respect to baseline disease severity, risk factors and vaccination status. Patients
were also tested for the specific viral strain, with the most common variant being Delta, found in 62.5% of the patients that had next
generation sequencing (NGS).
In July 2023, we announced that RHB-107 had been accepted for inclusion in the U.S.
Department of Defense- supported Austere environments Consortium for Enhanced Sepsis Outcomes’ (ACESO) PROTECT multinational platform
trial for early COVID-19 outpatient treatment. The 300-patient Phase 2 study has received FDA clearance. The study is being conducted
in the U.S., Thailand, Ivory Coast, South Africa and Uganda, and is estimated to be completed by end of 2024.
The ACESO PROTECT study is an adaptive, randomized, double blind, multi-site Phase
2 platform trial, being conducted by researchers from ACESO and partner organizations, and administered by the Henry M. Jackson Foundation
for the Advancement of Military Medicine (HJF). The study will compare investigational products (Ips) to control, in standard-risk, non-hospitalized
adult SARS-CoV-2 infected participants with at least two moderate-severe symptoms at baseline. RHB-107 is the initial drug being evaluated
in the early treatment arm of the study. The primary efficacy assessment in the early treatment indication will be time to sustained alleviation
or resolution of COVID-19 symptoms. Participants will be followed for a period of up to 12 weeks.
In December 2023, we announced the receipt of non-dilutive external funding, additional
to the previously announced U.S. Government funding, which now covers the entirety of the RHB-107 (upamostat) arm of the ACESO PROTECT
adaptive platform trial.
In conjunction with the initiation of the said ACESO PROTECT study, the previously
planned part B of study RHB-107-01 was cancelled.
Ebola Virus Disease Therapy
In 2022, in collaboration with the Therapeutic Discovery Branch of the USAMRIID (US
Army Medical Research Institute of Infectious Diseases) to evaluate opaganib and RHB-107 in high throughput antiviral screening. We completed
in-vitro studies against different strains of Ebola virus, including SUDV, Sudan ebolavirus (Boniface), Ebola Virus Disease, EBOV (Makona),
and additional viral infectious diseases, including Marburg virus disease, MARV (Ci67), and Rift Valley fever RVFZ (ZH-501). Initial data
from high-content imaging assays, provided further support for activities of Redhill candidates against these viral diseases.
In December 2023, we announced opaganib and RHB-107) demonstrated robust synergistic
effect when combined individually with remdesivir (a leading COVID-19 therapy sold under the brand name Veklury® by
Gilead Sciences, Inc.), significantly improving viral inhibition while maintaining cell viability, in a new U.S. Army-funded and conducted
Ebola virus in vitro study.
RHB-104
Crohn’s Disease
RHB-104 is an investigational new drug intended to treat Crohn’s disease, which
is a serious inflammatory disease of the GI system that may cause severe abdominal pain and bloody diarrhea, malnutrition and potentially
life-threatening complications.
RHB-104 is a patented combination of clarithromycin, clofazimine, and rifabutin, three
generic antibiotic ingredients, in a single capsule. The compound was developed to treat MAP infections in Crohn’s disease.
To date, Crohn’s disease has been considered an autoimmune disease, but the
exact pathological mechanism is unclear. Dr. Robert J. Greenstein suggested in The Lancet Infectious
Diseases, 2003, that Crohn’s disease is caused by MAP, the same organism responsible for causing a major disease in animal
agriculture production, domestic and wild animals. This hypothesis is supported by an expanding number of scientific and clinical studies
published in peer-reviewed journals since a National Institute of Allergy and Infectious Diseases conference that focused on MAP in Crohn’s
disease took place in 1998. Specific genetic loci like NOD2/CARD15 have been implicated in the pathogenesis of Crohn’s disease with
mutations in NOD2 suspected of leading to defective recognition of MAP and increased compensatory immune activation in patients with Crohn’s
disease. Advances in diagnostic technology have led to increasingly higher identification of MAP, with studies, such as Naser S et
al. The Lancet, 2004, Bull TJ et al. J Clin Microbiol, 2003 and Shafran I et
al. Dig Dis Sci, 2002, demonstrating a high prevalence of MAP in Crohn’s disease patients. However, there is currently no
FDA-approved commercial diagnostic test for MAP.
In 2011, we obtained FDA “Orphan Drug” status for RHB-104 for the treatment
of Crohn’s disease in the pediatric population. See “ – Business Overview – Government Regulations and Funding
– Orphan Drug Designation.”
The formulation for RHB-104 and manufacturing of the all-in-one capsules for our clinical
trials have been completed. Multiple batches of RHB-104 hard shell capsules packaged in 250 cc bottles with a cap and induction seal child
resistant closure have been evaluated in long-term and accelerated stability studies under International Conference on Harmonization (“ICH”)
specified conditions.
We acquired the rights to RHB-104 pursuant to an asset purchase agreement with Giaconda
Limited, an Australian company. See “ – Business Overview – Acquisition, Commercialization and License Agreements –
Acquisition of Talicia®, RHB-104, and RHB-106.”
A companion diagnostic for the detection of MAP bacteria in Crohn’s
disease patients is required in order to advance this development program. We do not know if or when such a diagnostic test would become
available.
Market and Competition
According to GlobalData, a provider of market intelligence for the pharmaceutical
sector, there were approximately 3 million diagnosed prevalent cases of Crohn’s disease in the sixteen major pharmaceutical markets
(the U.S., France, Germany, Italy, Spain, the UK, Japan, Australia, Brazil, Canada, China, India, Mexico, Russia, South Africa and South
Korea) in 2022. This number of diagnosed prevalent cases is expected to increase to 3.4 million by 2029.
Therapeutic interventions in Crohn’s disease patients are based on the disease
location, severity, and associated complications. Therapeutic approaches for the treatment of Crohn’s disease are individualized
according to the patient’s symptomatic response and tolerance to the prescribed treatment. Since the existing treatments are not
curative, the current therapeutic approaches are sequential and involve treatment of an acute disease or inducing clinical remission followed
by maintenance of the response or remission to improve the patient’s quality of life.
Currently, available drugs on the market for the treatment of Crohn’s disease
offer symptomatic relief, the effects of which are largely temporary or partial and are accompanied by numerous adverse effects. The most
commonly prescribed drugs for treatment of Crohn’s disease include 5 Aminosalicylates (5-ASA, such as mesalamine), corticosteroids
(such as prednisone), antibiotics, immunomodulators (such as azathioprine and methotrexate) and biologic agents, including TNF-α
inhibitors (such as Remicade®, Humira®,
and Cimzia®), integrin inhibitors (such as Tysabri®
and Entyvio®) and an IL-12 and IL-23 antagonist (such
as Stelara®). Additionally, several companies have
developed for approval, or are in the process of developing, biosimilar drugs to compete with the approved biologic agents once their
patent has expired. In July 2022, AbbVie Inc (“AbbVie”) announced that it has submitted an application for a new indication
to the FDA for Rinvoq® (upadacitinib), a selective
and reversible Janus kinase inhibitor for the treatment of moderate to severe Crohn’s disease in adult patients who had an inadequate
response or were intolerant to one or more TNF blockers. AbbVie anticipates receiving an approval decision in the second quarter of 2023.
If approved, it will be the first Janus kinase inhibitor approved for the treatment of Crohn’s disease. Rinvoq® label includes
an FDA black box warning for other approved indications due to safety concerns relating to serious heart-related side effects and cancer
risks.
There are other companies currently conducting clinical trials with drug candidates
in Crohn’s disease. We may also be exposed to potentially competitive products, which may be under development to treat Crohn’s
disease, including new biological therapies and other new therapies.
Unlike drugs currently on the market for the treatment of Crohn’s disease, which
are immunosuppressive agents, RHB- 104 is intended to address the suspected cause of the disease - MAP bacterial infection. To the best
of our knowledge, there are no drugs approved for marketing that target infections caused by MAP bacteria in Crohn’s disease patients.
Clinical Development
A Phase 3 clinical trial for RHB-104 was conducted in Australia, sponsored by Pharmacia,
a Swedish company (which merged with Pfizer), with the primary endpoint of evaluating the ratio of patients with recurrent symptoms of
Crohn’s disease following the initial induction of remission with 16 weeks of treatment with prednisolone initiated at 40 mg/day
and weaned over the 16-week period. Subjects were subsequently assessed at 52, 104 and 156 weeks. The main secondary objective was the
percentage of patients who achieved clinical remission at 16 weeks. The results of the trial were published by Professor Warwick Selby
et al. in 2007 in the medical journal Gastroenterology.
Although the study did not meet the main objective of showing a difference in relapse rate with long-term treatment, there was a statistically
significant difference between the treatment groups in the percentage of subjects in remission at week 16. Professor Marcel Behr and Professor
James Hanley from McGill University published a re-analysis of the study in The Lancet Infectious Diseases
in June 2008, based on the intent-to-treat (ITT) principle and found that there was a significant statistical advantage for the active
therapy over the placebo throughout the two-year period of administration that disappeared once the active therapy was discontinued.
In June 2011, we entered into an agreement with our Canadian service provider, which
entered into a back-to-back agreement with PharmaNet Canada Inc. for the provision of clinical trial services for the RHB-104 adult studies
in North America and Europe. PharmaNet was subsequently acquired by inVentiv Health which became Syneos Health (“Syneos”),
and our agreements were transferred to Syneos.
In October 2012, we entered into an agreement with our Canadian service provider,
which, in turn, entered into a back-to-back agreement with a Canadian manufacturer to complete the manufacturing and supply of RHB-104
for our clinical trials. In addition, we entered into additional manufacturing agreements directly with the Canadian manufacturer.
In July 2018, we announced positive top-line results from the first Phase 3 study
with RHB-104 for Crohn’s disease (the “MAP US study”), a randomized, double-blind, placebo-controlled first Phase 3
study with RHB-104 for Crohn’s disease. The Phase 3 study enrolled 331 subjects with moderately to severely active Crohn’s
disease (defined as Crohn’s Disease Active Index (“CDAI”) between 220 and 450) in the U.S., Canada, Europe, Australia,
New Zealand, and Israel. Subjects were randomized 1:1 to receive RHB-104 or placebo as an add-on therapy to baseline standard-of-care
medications, including 5-ASAs, corticosteroids, immunomodulators or anti-TNF agents.
Our MAP US study successfully met its primary endpoint, as well as key secondary endpoints.
Top-line results in the intent-to-treat (ITT) population demonstrated superiority of RHB-104 over placebo in achieving remission at week
26, defined as CDAI value of less than 150, the primary endpoint of the study. The proportion of patients meeting the primary endpoint
was significantly greater in the RHB-104 group compared to placebo at week 26 (37% vs. 23%, p= 0.007). Moreover, while the secondary endpoints
were not powered for significance in this induction of remission trial, key secondary endpoints were nevertheless met with statistically
and clinically meaningful outcomes, demonstrating consistent benefit to Crohn’s disease patients treated with RHB-104. RHB-104 was
found to be generally safe and well tolerated.
In October 2018, we reported additional positive data from the MAP US study, including
subgroup analysis of treatment with and without anti-TNF agents, presented at the United European Gastroenterology Week 2018.
In October 2019, we announced full week 52 results of blinded treatment in the MAP
US study at the American College of Gastroenterology, which were consistent with the previously reported interim positive outcomes from
the study. The study continued to meet its primary endpoint of clinical remission, defined as CDAI value of less than 150, at week 26
(36.7% vs. 22.4%, p=0.0048), key secondary endpoints of maintenance of remission at weeks 16 and 52 (25.9% vs. 12.1%, p=0.0016) and, notably,
durable clinical remission on all visits, week 16 through 52 (18.7% vs. 8.5%, p=0.0077) (in all cases, data presented as RHB-104 vs. placebo).
RHB-104 was found to be generally safe and well tolerated, with an overall balance
in the type and frequency of adverse events between RHB-104 and placebo. RHB-104 was associated with a lower incidence of Clostridiodies
(Clostridium) difficile infections compared with placebo. In the analysis of the complete safety information for the study, a top-line
electrocardiogram monitoring report for the MAP US study, which was shared with the FDA, demonstrated evidence of progressive prolongation
of the QTcF (corrected QT interval by Frederica’s formula) interval across visits, with the largest mean placebo-corrected ΔQTcF
(∆∆QTcF) of 30.6ms at week 52 of treatment. Clofazimine, as well as clarithromycin (another active component of RHB-104),
are known to be associated with QT prolongation.
In October 2019, we also announced supportive top-line results from an open-label
extension Phase 3 study (the “MAP US2 study”), which was conducted to evaluate the safety and efficacy of RHB-104 in subjects
who remain with active Crohn’s disease (CDAI ≥ 150) after 26 weeks of blinded study therapy in the Phase 3 MAP US study. These
subjects had the opportunity to receive treatment with RHB-104 for a 52-week period in the open-label MAP US2 study. A total of 54 subjects
entered the open-label extension study in the U.S., Canada, Europe, Israel, and New Zealand, and 30 subjects completed 52 weeks of treatment
with RHB-104. The MAP US2 study’s primary endpoint is disease remission at week 16, defined as CDAI of less than 150. Top-line results
from the MAP US2 study demonstrated 28% clinical remission with RHB-104 at week 16 and 22% remission at week 52. Of the MAP US2 subjects
who were previously randomized to the placebo arm (as an add-on to standard-of-care therapies) in the MAP US study and treated with RHB-104
for the first time in the MAP US2 study, 32% achieved remission at week 16.
We further announced in September 2019 that following additional guidance received
from the FDA on the path for potential approval of RHB-104 for the treatment of Crohn’s disease, we have intensified our collaborations
with leading laboratories in the field of detection of MAP bacteria in Crohn’s disease patients. We do not know if and when a diagnostic
test for MAP would become available. Additional FDA guidance on the potential path to approval of RHB-104 is to be obtained prior to initiation
of further clinical studies.
We have conducted several supportive studies with the current formulation of RHB-104,
including a population pharmacokinetic study that was conducted as part of the Phase 3 MAP US study.
We believe that additional clinical studies will be required to support an NDA for
RHB-104, if filed.
The following chart summarizes the clinical trial history and status of RHB-104 studies
and its earlier individual active agents:
|
Planned |
||||||||||||
|
Development |
number of |
Nature and |
||||||||||
|
Clinical trial |
phase of the |
Purpose of the |
Clinical |
subjects of |
status of |
|||||||
|
author/designation |
|
clinical trial |
|
clinical trial |
|
trial site |
|
the trial |
|
the trial |
|
Schedule |
|
Borody 2002 |
Phase 2a |
Examining the effect of the treatment on Crohn’s disease patients |
Center for Digestive Disease, Australia |
12 |
Performed |
Completed 2002 | ||||||
|
Borody 2005 |
Phase 2 |
Examining the effect of the treatment on Crohn’s disease patients |
Center for Digestive Disease, Australia |
52 |
Performed |
Completed 2005 | ||||||
|
Selby |
Phase 3 |
Examining the effect of the treatment with the product on Crohn’s disease patients |
20 clinical centers in Australia |
213 |
The trial was performed and indicated promising improvement rates, although it did not meet the main trial
objective, as defined |
Published in 2007 | ||||||
|
Biovail PK Study 2007 |
PK Study |
Optimize the formulation of RHB‑104 on a PK basis |
Toronto, Ontario |
24 |
The trial compared two formulations to determine the optimum formulation for RHB‑104 |
Completed 2007 | ||||||
|
MAP US Study |
Phase 3 |
Assess the safety and efficacy of RHB‑104 in Crohn’s disease patients |
U.S., Canada. Israel, Australia, New Zealand, and Europe |
331 |
Completed |
Completed 2020 | ||||||
|
MAP US2 Study |
Phase 3 |
Assess the safety and efficacy of RHB‑104 in Crohn’s disease patients |
U.S., Canada, Israel, New Zealand, and Europe |
54 |
Completed |
Completed 2021 | ||||||
|
Drug-Drug Interaction Study |
PK Study |
To assess the net PK effect of multiple doses of RHB‑104 on CYP3A4 enzymes in healthy volunteers
|
Algorithme Pharma, Canada |
36 |
Ended |
Ended 2014 | ||||||
|
Food Effect Study |
PK Study |
Determine the effect of food on the bioavailability of RHB‑104 in healthy volunteers
|
Algorithme Pharma, Canada |
84 |
Completed |
Completed 2014 |
We cannot predict with certainty our development costs, and such costs may be subject
to change. See “Risk Factors – Risks Related to Our Financial Condition and Capital Requirements.”
Multiple Sclerosis (“MS”)
MS is an inflammatory, demyelinating, and neurodegenerative disease of the central
nervous system of uncertain etiology that exhibits characteristics of both infectious and autoimmune pathology.
We had previously conducted a Phase 2a proof-of-concept study with RHB-104 for relapsing-remitting
multiple sclerosis. At the current stage, we have no intention to pursue the development of RHB-104 for this indication.
RHB-102 (Bekinda®)
RHB-102 (Bekinda®)
is an investigational, once-daily, bi-modal release, oral formulation of ondansetron, a leading member of the family of 5-HT3 serotonin
receptor inhibitors. We are developing RHB-102 (Bekinda®)
in multiple dosage strengths. RHB-102 (Bekinda®)
is under development for the intended use in the following indications, which are novel and not yet FDA-approved indications for ondansetron
targeting large potential markets:
1) Acute gastroenteritis
and gastritis – 24 mg strength
2) Irritable Bowel Syndrome
with Diarrhea (IBS-D) – lower dose strength for long-term administration
RedHill is also exploring the development of RHB-102 (Bekinda®)
24 mg for oncology support (management of nausea and vomiting induced by cytotoxic chemotherapy and radiotherapy, also referred to as
CINV and RINV) in the UK. On February 16, 2023, the Company announced that following a positive pre-MAA meeting and subject to manufacturing-related
activities it is considering plans and path to submit a Marketing Authorisation Application (MAA) to the UK Medicines & Healthcare
products Regulatory Agency (MHRA) seeking approval for RHB-102 (Bekinda®)
for oncology support in adults and children over the age of 12. Data to support the submission was generated from several clinical studies,
including the successful U.S. Phase III GUARD study with RHB-102 24 mg for acute gastroenteritis and gastritis.
RHB-102 (Bekinda®)
utilizes a technology called CDT® that uses salts
to provide an extended-release of ondansetron. The CDT®
platform enables extended drug release (i.e., the measured rate of introduction of active drug) at a relatively low manufacturing cost.
The proposed commercial formulation and its use are protected by Company-filed patents and pending patent applications and are being pursued
internationally.
Acute Gastroenteritis
and Gastritis
Acute gastroenteritis and gastritis both involve inflammation of the mucous membranes
of the GI tract. Symptoms of gastroenteritis and gastritis include nausea, vomiting, diarrhea, and abdominal pain. Acute gastroenteritis
and gastritis are major causes of emergency room visits, particularly for pediatrics. If approved, RHB-102 (Bekinda®)
could potentially decrease the number of emergency room visits for patients suffering from acute gastroenteritis and gastritis by offering
them an effective and long-lasting treatment, which can be taken in the comfort of their home.
Market and Competition
A single dose of RHB-102 (Bekinda®)
is intended to treat nausea and vomiting over a time window of approximately 24 hours. If approved for such use, this would be potentially
advantageous for acute gastroenteritis and gastritis patients as it could help eliminate the need to take additional drugs (tablets) during
the day or receiving intravenously administered drugs.
If RHB-102 (Bekinda®)
is approved for the treatment of acute gastroenteritis and gastritis, it could potentially hold substantial advantages over existing treatments.
If approved, RHB-102 (Bekinda®)
could be prescribed by primary care physicians to patients early on, potentially preventing emergency room visits, dehydration and the
need to provide IV fluids. There are an estimated 179 million cases of gastroenteritis in the U.S. annually (Scallan E et
al. 2011).
To the best of our knowledge, there are no other 5-HT3 serotonin receptor inhibitors
indicated or in the advanced clinical stage of development in the U.S. for this indication. Patients presenting at hospitals with gastroenteritis
and gastritis are often treated primarily in IV administration with antiemetic drugs not indicated or approved for this condition, off-label,
including 5-HT3 serotonin receptor inhibitors. If approved, RHB-102 (Bekinda®)
will compete with several prescription and OTC antiemetic drugs, including but not limited to, dimenhydrinate, Nauzene®,
and Emetrol®, as well as off-label use of ondansetron
and other 5-HT3 inhibitors.
We may also be exposed to potentially competitive products which may be under development
to treat acute gastroenteritis. To the best of our knowledge, a product that potentially directly competes with RHB-102 (Bekinda®)
is EUR-1025 for controlled release of ondansetron, based on a different technology of controlled release originally developed by Eurand
N.V. (now owned by Adare Pharma Solutions) and which completed two pivotal pharmacokinetic studies intended to establish the bioequivalence
of EUR-1025 versus Zofran® (ondansetron hydrochloride).
To the best of our knowledge, there has not been further clinical development of EUR-1025 since the completion of the above-mentioned
pharmacokinetic studies.
Clinical Development
In June 2017, we announced positive top-line results from the randomized, double-blind,
placebo-controlled Phase 3 study (the “GUARD study”) with RHB-102 (Bekinda®)
24 mg for acute gastroenteritis and gastritis. The study successfully met its primary endpoint and RHB-102 (Bekinda®)
24 mg was found to be safe and well tolerated in this indication. The GUARD study evaluated the efficacy and safety of RHB-102 (Bekinda®)
24 mg in treating acute gastroenteritis and gastritis in 321 adults and children over the age of 12. The primary endpoint of the study
was the proportion of patients without further vomiting, without rescue medication, and who were not given intravenous hydration from
30 minutes post first dose of the study drug until 24 hours post-dose, compared to placebo. In September 2017, we met with the FDA to
discuss the study results and the clinical and regulatory path toward potential marketing approval of RHB-102 (Bekinda®)
24 mg in the U.S. Following the guidance provided at the meeting and additional guidance provided thereafter, we are currently advancing
preparations toward a confirmatory Phase 3 study to support a potential NDA with RHB-102 (Bekinda®)
24 mg for acute gastroenteritis and gastritis.
Final results from the GUARD study showed improvement to the primary efficacy outcome
by 21% in the ITT population; 65.6% of RHB-102 (Bekinda®)
treated patients as compared to 54.3% of placebo patients (p=0.04; n=192 in the RHB-102 (Bekinda®)
group and n=129 in the placebo group). In the Per Protocol (PP) population, which included patients who met all protocol entry criteria
and for which the diagnosis of gastroenteritis was confirmed (n=177 in the RHB-102 (Bekinda®)
group and n=122 in the placebo group), RHB-102 (Bekinda®)
improved the efficacy outcome by 27%; 69.5% of patients in the RHB-102 (Bekinda®)
group vs. 54.9% in the placebo group, (p=0.01). An imbalance in baseline nausea was noted, with worse nausea in the RHB-102 (Bekinda®)
treated group. In a post hoc analysis, when results were adjusted for baseline nausea, the p-value for the ITT population was 0.0152,
and for the PP population was 0.0037. RHB-102 (Bekinda®)
24 mg was also shown to be safe and well tolerated; electrocardiogram results showed no adverse changes with treatment. The benefit observed
with RHB-102 (Bekinda®) is evident across the spectrum
of severity of nausea at baseline, including in patients with very severe nausea, suggesting that the drug works regardless of the initial
severity of gastroenteritis.
The lead investigator for the Phase 3 study was Dr. Robert A. Silverman, MD, MS, Associate
Professor at the Hofstra North Shore-LIJ School of Medicine and an emergency medicine specialist.
In September 2019, we had a follow-up meeting with the FDA regarding our efforts to
design a study acceptable to the agency to seek the FDA’s approval for pediatric labeling for RHB-102 (Bekinda®),
as required by the FDA pursuant to the Pediatric Research Equity Act. The September 2019 meeting provided further clarity on the designs
of the pediatric studies required by FDA, but the details have not yet been finalized.
The following chart summarizes the clinical trial history and status of RHB-102 (Bekinda®) for gastroenteritis and gastritis:
|
Planned |
||||||||||||
|
Development |
number of |
Nature and |
||||||||||
|
Clinical trial |
phase of the |
Purpose of the |
Clinical |
subjects |
status of |
|||||||
|
name |
|
clinical trial |
|
clinical trial |
|
trial site |
|
of the trial |
|
the trial |
|
Schedule |
|
GUARD Study |
Phase 3 |
Randomized double-blind placebo-controlled Phase 3 study in acute gastroenteritis and gastritis |
21 sites in the U.S. |
321 |
Evaluated the safety and efficacy of RHB‑102 (Bekinda®)
in acute gastroenteritis and gastritis |
Completed 2017 | ||||||
|
TBD |
Confirmatory Phase 3 |
Support a potential NDA with RHB‑102 (Bekinda®)
24 mg for acute gastroenteritis and gastritis |
TBD |
TBD |
TBD |
TBD |
We cannot predict with certainty our development costs, and such costs may be subject
to changes. See “Risk Factors – Risks Related to Our Financial Condition and Capital Requirements.”
Irritable Bowel Syndrome
with Diarrhea (IBS-D)
Irritable bowel syndrome (IBS) is a multifactorial disorder marked by recurrent abdominal
pain or discomfort and altered bowel function. According to the Mayo Clinic, certain factors that alter GI function can contribute to
IBS symptoms, including stress, prior gastroenteritis, and changes in the gut microbiome, bile acids and short-chain fatty acids, which
may stimulate 5-HT3 serotonin release and increase colonic permeability and motility.
In preliminary studies, ondansetron has demonstrated activity in IBS-D (Garsed K,
Chernova J, Hastings M, et al. Gut Published Online First December 12, 2013). Unlike alosetron (a currently approved 5-HT3 antagonist
in IBS-D), ondansetron has not been noted to cause ischemic colitis (FDA labeling for Lotronex®
(alosetron), 2010; FDA labeling for Zofran® (ondansetron),
2014).
In light of the activity of ondansetron demonstrated in the preliminary studies described
above, and because of its extended-release properties and once-daily dosing, we believe RHB-102 (Bekinda®)
is a promising candidate for the treatment of IBS-D.
Market and Competition
IBS is one of the most common GI disorders. According to Datamonitor Healthcare, there
were approximately 558 million prevalent cases of IBS worldwide (age >=15) in 2023 and estimated that the number of prevalent cases
will increase to approximately 604 million by 2030. Of the three subtypes of IBS, IBS-D is the most prevalent diagnosed subtype according
to Pimentel M (Am J Manag Care, 2018), accounting for 40% of the patient population.
To the best of our knowledge, there is one other 5-HT3 serotonin receptor inhibitor
indicated for this indication in the U.S. known as alosetron marketed under the brand name Lotronex®
by Sebela Pharmaceuticals and is also available in generic versions marketed by other companies. However, alosetron is approved only for
the treatment of IBS in women with severe chronic IBS-D and has been associated with serious gastrointestinal side effects. The active
ingredient in RHB-102 (Bekinda®), ondansetron, is
approved by the U.S. FDA as an oncology support antiemetic and has a good safety profile. Therefore, we believe that RHB-102 (Bekinda®),
if approved for the treatment of IBS-D in the U.S., may provide improved safety while maintaining efficacy and has the potential to be
a preferred 5-HT3 serotonin receptor inhibitor treatment for patients suffering from IBS-D. Ramosetron, another 5-HT3 serotonin receptor
inhibitor is marketed for the treatment of IBS in Japan, South Korea, China and India (marketed under the brand name Irribow®
by Astellas Pharma Inc. (in Japan and South Korea) and is available in generic versions marketed by other companies). Ramosetron is also
marketed for the treatment of chemotherapy-induced nausea and vomiting in Japan, South Korea, China, India and Indonesia and for postoperative
nausea and vomiting in South Korea and India. To the best of our knowledge, there is currently no clinical development of ramosetron for
marketing approval in the U.S. for any indication.
If approved, RHB-102 (Bekinda®)
will compete with several prescription drugs indicated for IBS-D, including but not limited to Xifaxan®
(rifaximin), marketed in the U.S. by Salix Pharmaceuticals, and Viberzi®
(eluxadoline), marketed in the U.S. by Allergan plc., now AbbVie Inc, as well as additional prescription drugs, generic drugs, and over-the-counter
products indicated for IBS-D or for symptomatic relief of diarrhea and pain.
In addition, we may also be exposed to potentially competitive products that may be
under development by other companies to treat IBS-D in the U.S.
Clinical Development
In January 2018, we announced positive final results from the Phase 2 clinical study
of RHB-102 (Bekinda®) 12 mg for the treatment of
IBS-D. The randomized, double-blind, placebo-controlled Phase 2 study evaluated the efficacy and safety of RHB-102 (Bekinda®)
12 mg in 126 subjects over 18 years old at 16 clinical sites in the U.S. The study successfully met its primary endpoint, improving the
primary efficacy outcome of stool consistency.
RHB-102 (Bekinda®)
was also shown to be safe and well tolerated in this indication. No serious adverse events or new or unexpected safety issues were noted
in the study. In September 2018, we announced that we concluded a positive End-of-Phase 2 Type B meeting with the FDA discussing the clinical
and regulatory pathway toward potential FDA approval of RHB-102 (Bekinda®)
for the treatment of IBS-D. We are currently finalizing the design of two pivotal Phase 3 studies with RHB-102 (Bekinda®)
for the treatment of IBS-D.
The primary endpoint of the trial was the proportion of patients in each treatment
group with response in stool consistency on study drug as compared to baseline. Response was defined as per FDA guidelines for the indication.
Additional endpoints were analyzed including:
| • |
proportion of patients in each treatment group who are pain responders, per FDA guidance definition; |
| • |
proportion of patients in each treatment group who are overall responders, per FDA guidance definition; and |
| • |
differences between treatment groups in: |
| o |
abdominal pain |
| o |
abdominal discomfort |
| o |
frequency of defecation |
| o |
incidence and severity of adverse events. |
The RHB-102 (Bekinda®)12
mg Phase 2 study successfully met its primary endpoint, improving the primary efficacy outcome of stool consistency response (in accordance
with the FDA guidance definition) by an absolute difference of 20.7%, with 56.0% responders of subjects treated with RHB-102 (Bekinda®)
(n=75) vs. 35.3% responders of the placebo subjects (n=51) (p=0.036). While not powered for statistical significance of the secondary
efficacy endpoints, the study suggested clinically meaningful improvement in both secondary efficacy endpoints of abdominal pain response
and overall response (combined stool consistency and abdominal pain response). Final results from the Phase 2 study demonstrated that
RHB-102 (Bekinda®) 12 mg improved the overall worst
abdominal pain response rate by 11.5% vs. placebo (50.7% with RHB-102 (Bekinda®)
12 mg (n=75) vs. 39.2% with placebo (n=51); (p=0.278)) and the overall response improved by an absolute difference of 14.5% in favor of
the RHB-102 (Bekinda®) 12 mg arm (40.0% with RHB-102
(Bekinda®) 12 mg (n=75) vs. 25.5% with placebo (n=51);
(p=0.135)).
RHB-102 (Bekinda®)
12 mg was also shown to be safe and well tolerated. No serious adverse events or new or unexpected safety issues were noted in the study.
In September 2018, we announced that we concluded a positive End-of-Phase 2/Pre-Phase 3 (Type B) meeting with the FDA discussing the clinical
and regulatory pathway toward potential FDA approval of RHB-102 (Bekinda®)
12 mg for the treatment of IBS-D. We plan to finalize the design of two pivotal Phase 3 studies with RHB-102 (Bekinda®)
for the treatment of IBS-D.
We have initiated formulation work to formulate RHB-102 at lower dosages to help support
planned pediatric studies. In December 2019, we received confirmation from the FDA that it has agreed with our Initial Pediatric Study
Plan (iPSP).
The following chart summarizes the clinical trial history and status of RHB-102 (Bekinda®)
for IBS-D:
|
Planned |
||||||||||||
|
Development |
number of |
Nature and |
||||||||||
|
Clinical trial |
phase of the |
Purpose of the |
Clinical |
subjects |
status of
|
|||||||
|
name |
|
clinical trial |
|
clinical trial |
|
trial site |
|
of the trial |
|
the trial |
|
Schedule |
|
- |
Phase 2 |
Randomized double-blind placebo-controlled Phase 2 study in IBS-D |
16 sites in the U.S. |
126 |
Evaluating the safety and efficacy of RHB‑102 (Bekinda®)
12 mg in IBS-D |
Completed 2018 | ||||||
|
TBD |
Phase 3 |
Randomized double-blind placebo-controlled Phase 3 study in IBS-D |
TBD |
TBD |
TBD |
TBD |
We cannot predict with certainty our development costs and such costs may be subject to change. See “Risk
Factors – Risks Related to Our Financial Condition and Capital Requirements.”
RHB-204
Nontuberculous Mycobacteria
Infections
In November 2020, we initiated a Phase 3 study in RHB-204 for the
treatment of pulmonary Mycobacterium avium complex (MAC) disease in adults with nodular bronchiectasis
(also referred to hereafter as pulmonary NTM disease caused by MAC).
The study was intended to assess the efficacy and safety of RHB-204 as a potential
first-line, stand-alone treatment for pulmonary NTM infections caused by MAC. In May 2023, we announced the termination of the study due
to a very low accrual rate, and the shifting of our resources to advance once-daily, oral RHB-107’s late-stage development for outpatient
treatment of COVID-19. We continue to explore potential partnerships for RHB-204.
In January 2017, we announced that RHB-204 had been granted QIDP designation by the
FDA for the treatment of pulmonary NTM infections, including eligibility for Accelerated Approval and Priority Review and an extended
market exclusivity period, if approved for marketing in the U.S.
In October 2020, we announced that RHB-204 had been granted Orphan Drug designation
by the FDA for the treatment of pulmonary NTM infections which would extend market exclusivity period to a total of 12 years, if approved
for marketing in the U.S.
In January 2021 we announced that the FDA granted RHB-204 Fast Track designation,
allowing RedHill access to early and frequent communications with the FDA, to expedite the RHB-204 development program, and to a rolling
review of an NDA.
In August 2022, we announced that the European Commission granted Orphan Drug Designation
to RHB-204 for the treatment of NTM disease, following a positive opinion recommendation by the European Medicines Agency’s (EMA)
Committee for Orphan Medicinal Products (COMP), providing eligibility for 10 years post-approval EU market exclusivity.
RHB-204 is a patented fixed-dose combination product of three antibiotics intended
to simplify administration and optimize compliance, selected based on modelling to provide optimal balance of the potential safety and
efficacy. Each capsule contains the same three antibiotics as RHB-104 (clarithromycin, clofazimine, and rifabutin), but at doses unique
from RHB-104. Clarithromycin and rifabutin were selected because mycobacteria live within host cells, and these agents have intracellular
activity against MAC. Further, rifabutin enhances the antimicrobial activity of clarithromycin due to increased levels of clarithromycin's
active metabolite. Selection of clofazimine was based on its activity against MAC, preferential accumulation in macrophages and bactericidal
activity demonstrated in a mouse model of tuberculosis. Moreover, the inclusion of rifabutin and clofazimine has shown to mitigate the
emergence of resistance to clarithromycin compared to clarithromycin alone or in combination with only rifabutin or clofazimine in a clarithromycin-susceptible
M.avium lung infection mouse model as well as exhibiting significant reductions in bacterial counts
in the lung after four and eight weeks of treatment.
Market and Competition
Pulmonary NTM is an orphan disease and is expected to affect approximately 111,000
patients in the U.S. in 2025, according to a 2021 analysis by Foster Rosenblatt. Although rare, the incidence and number of deaths from
NTM disease have been steadily increasing globally, according to Ratnatunga CN et al. (Front.
Immunol. 2020), with a rise in the number of globally documented NTM infections leading to NTM being recognized as an emerging threat
causing significant morbidity and mortality in both immune competent and immune compromised populations. Treatment options remain limited,
lengthy and challenging (Ryu YJ et al. Tuberc Respir Dis, 2016; Ratnatunga CN et
al. Front. Immunol. 2020).
NTM are naturally occurring organisms found in water and soil, which can cause chronic
pulmonary infection. According to Prevots DR (Am J Respir Crit Care Med, 2010) and Winthrop KL (Am J Respir Crit Care Med, 2010), approximately
80% of pulmonary NTM cases in the U.S. are associated with MAC. In some people, infection with NTM may lead to a progressive lung disease
characterized by fever, weight loss, chest pain, and blood in sputum. NTM disease is more common in the older adult population and individuals
with a compromised immune system or underlying lung disease.
According to the American Lung Association, NTM are relatively resistant to antibiotics
and can become more resistant if only one antibiotic is used. Effective treatment of NTM caused by MAC requires three drugs for at least
12 months of treatment. Currently recommended treatment regimens, drug resistance patterns, and treatment outcomes differ according to
the NTM species, and management is a lengthy complicated process with limited therapeutic options (Ryu YJ et al. 2016). There is currently
no approved first-line therapy for NTM lung disease. Treatment is determined based on guidelines and includes multi-drug regimens with
antibiotics not approved for NTM. Adherence to the guidelines for treating NTM lung disease is suboptimal, and potentially harmful antibiotic
regimens are commonly prescribed. Management of NTM disease requires prolonged use of costly combinations of multiple drugs with a significant
potential for toxicity.
In September 2018, the FDA approved Arikayce®
(amikacin liposome inhalation suspension), a new drug developed by Insmed Incorporated, for the treatment of lung disease caused by MAC
in a limited population of refractory patients which does not respond to conventional treatment. To the best of our knowledge, this is
the first treatment approved specifically for pulmonary NTM infections caused by MAC. Arikayce®
is indicated as a second-line therapy in refractory patients as part of a combination antibacterial drug regimen. The Arikayce®
prescribing information includes a Boxed Warning regarding the increased risk of respiratory conditions, including hypersensitivity pneumonitis,
bronchospasm, exacerbation of underlying lung disease and hemoptysis that have led to hospitalizations in some cases.
Several drug candidates are currently under development for the treatment of NTM infections,
including but not limited to, epetraborole (AN2 Therapeutics), an oral antibiotic agent, LungFit®
GO (Beyond Air Inc.), an inhaled Nitric Oxide, SPR720 (Spero Therapeutics, Inc.), an oral antimicrobial agent and Nuzyra® (Paratek
Pharmaceuticals), an oral antibacterial agent. Additionally, Insmed Incorporated is conducting a clinical trial program with Arikayce®
as a first-line treatment for patients with MAC lung disease. According to www.clinicaltrials.gov, there are several additional ongoing
clinical studies evaluating treatments for NTM infections.
Clinical Development
Although each of the three components of RHB-204 is approved individually and has
been tested extensively in humans (e.g. see RHB-104), the formulation and doses represented by RHB-204 is novel and has not previously
been tested in humans. Initiation of the trial for pulmonary NTM lung infections was in November 2020, and in May 2023, we announced the
termination of the study due to a very low accrual rate, and the shifting of our resources to advance once-daily, oral RHB-107’s
late-stage development for outpatient treatment of COVID-19.
The following chart summarizes the development history and status of RHB-204:
|
Planned |
||||||||||
|
number of |
||||||||||
|
Development |
Purpose of |
Clinical |
subjects of |
Status of | ||||||
|
Trial name |
|
phase |
|
the trial |
|
trial sites |
|
the trial |
|
the trial |
|
CleaR-MAC Trial |
Phase 3 |
Evaluate the efficacy and safety of RHB-204 in adult subjects with documented MAC lung infection.
|
Up to 40 |
125 |
Terminated |
Acquisition, Commercialization and License Agreements
Acquisition
of Talicia®,
RHB‑104, and RHB‑106
On August 11, 2010, we entered into an asset purchase agreement with Giaconda
Limited, a publicly-traded Australian company, pursuant to which Giaconda Limited transferred all of its patents, tangible assets, production
files, regulatory approvals and other data related to the “Heliconda”, “Myoconda” and “Picoconda”
products to us. We renamed these products Talicia®,
RHB‑104, and RHB‑106, respectively. Giaconda Limited further transferred to us products in process, product samples and raw
materials, as well as certain rights of first refusal with respect to intellectual property in relation to digestive condition treatments.
The agreement excluded the transfer of the rights to two products of Giaconda Limited that are not related to Talicia®,
RHB‑104, and RHB‑106. However, to the extent that the intellectual property associated with these two other products may be
required for the research, development, manufacture, registration, import/export, use, commercialization, distribution, sale or offer
for sale of any of Talicia®, RHB‑104, and RHB‑106,
Giaconda Limited granted us an exclusive worldwide assignable right to such intellectual property for such purposes. The closing of this
transaction occurred on August 26, 2010.
We paid Giaconda Limited in consideration for the assets purchased by us an initial
amount of $500,000. We and Giaconda Limited also agreed that, until the expiration of the last patent transferred to us with respect to
each product, we will pay to Giaconda Limited 7% of net sales from the sale of the relevant product/s by us and 20% of the consideration
(including royalties received by us) from sublicensees, in each case, only after we recoup the amounts and expenses exceeding an approved
budget.
Under the agreement, Giaconda Limited agreed that neither it, nor the developer
of the products, nor any of their respective affiliates may compete with us or assist others to compete with us with respect to the products
and acquired technology for the period provided for in the agreement.
The agreement provides that, should we elect not to proceed with the registration
proceedings, or the maintenance of any patent transferred to us, we will notify Giaconda Limited and Giaconda Limited will have the right
to proceed with the registration, maintenance, development and commercialization of such patent at its expense. Should Giaconda Limited
exercise such right, it will be entitled to all amounts received in connection with sales relating to such patent.
The agreement also requires us to make a good faith, continuous and commercially reasonable
effort to allocate appropriate financial resources to prepare, initiate and complete the clinical development of the products (with the
exception of Picoconda by virtue of the Salix license agreement dated February 27, 2014) and file an application for regulatory marketing
approval in accordance with industry standards. Development failures, negative regulatory decisions, or other reasons beyond our control
will not constitute a breach of this obligation. Should we breach this obligation with respect to the development of any of the products
and fail to cure the breach within 90 Days from the date that Giaconda Limited sends us a default notice, Giaconda Limited may buy
back all of the intellectual property rights with respect to such product for the original purchase price, plus the related development
costs incurred by us through the date of the buy-back.
In connection with the license agreement with Salix (later acquired by Bausch Health),
dated February 27, 2014, described below, we amended the asset purchase agreement and related agreements by excluding from the non-compete
undertakings of Giaconda Limited and certain of its affiliate products, technology, and related activities in the purgative field and
excluded from such non-compete undertakings certain of Giaconda Limited’s affiliates. Subsequently, we recognized revenues in 2014
and paid Giaconda Limited an additional amount of $1 million. On February 27, 2014, we amended the asset purchase agreement with
Giaconda Limited to cancel the buyback right and agreed that we would pay Giaconda Limited 20% of all amounts received by us from
Bausch Health under the license agreement, without first recouping amounts and expenses and notwithstanding the expiration of any relevant
patents.
License Agreement with Kukbo
In March 2022, we entered into the Exclusive License Agreement with Kukbo for opaganib
in South Korea. Under the terms of the Exclusive License Agreement, Kukbo was required to pay an upfront payment of $1.5 million
and we are also eligible for milestone payments and royalties on net sales of oral opaganib in South Korea.
On September 2, 2022, we filed a lawsuit against Kukbo in the Supreme Court of the State of New York, County
of New York, Commercial Division, as a result of Kukbo’s default in delivering to us $5.0 million under a Subscription Agreement,
dated October 25, 2021, in exchange for the ADSs we were to issue to Kukbo, and in delivering to us the $1.5 million due under the Kukbo
Agreement. Kukbo thereafter filed counterclaims with various allegations such as breach of contract, misrepresentation, and the breach
of the duty of good faith and failure dealing. The parties continue to proceed with discovery and depositions, and we plan to continue
to rigorously pursue the Kukbo litigation. On November 20, 2023, we entered into a Contingency Fee Agreement with our legal firm, H&B
under which certain legal costs related to the Kukbo litigation will be assumed by H&B.
License Agreement with
Gaelan Medical
In December 2021, we entered into an exclusive license agreement (the “License
Agreement”) with Gaelan Medical for Talicia in the United Arab Emirates (UAE). Under the terms of the License Agreement, we received
in April 2022 an upfront payment of $2 million. In addition, we are eligible for additional milestone payments as well as tiered royalties
up to mid-teens on net sales of Talicia in the UAE. Gaelan Medical received the exclusive rights to commercialize Talicia in the UAE.
Gaelan Medical shall be responsible for obtaining and maintaining regulatory approvals, as well as to conduct any and all required clinical
and other studies. In March 2022, we signed an amendment to the License Agreement, according to which Gaelan Medical may sublicense or
assign any of its rights or obligations under the License Agreement. In connection with the License Agreement, we and Gaelan Medical entered
into a supply agreement, according to which, we will exclusively manufacture (by a third party CMO) and supply Talicia to Gaelan Medical
during the term of the agreement. On August 1, 2023, we announced that Gaelan Medical had received marketing approval for Talicia in the
UAE and that Gaelan Medical has subsequently placed the first commercial order for Talicia, which was dispatched from the CMO in December
2023.
Additional License Agreement
related to MAP diagnostic test for RHB-104
On December 27, 2014, we entered into a license agreement with the University of Minnesota
(UoM) pursuant to which we were granted an exclusive license for all indications and medical uses to a patent-protected designation of
certain DNA sequencing.
Sale of Movantik®
to HCRM
On February 2, 2023, RedHill US and the Company (together, “RedHill Group”)
entered into an Asset Purchase Agreement (the “APA”) and related agreements with HCRM. The APA provides for the sale
of RedHill Group’s assets exclusively related to RedHill Group’s exploitation of Movantik® to
an affiliate of HCRM in exchange for the extinguishment and termination of all Obligations (as defined in the Credit Agreement) (other
than certain indemnification obligations), including the loans, all accrued and unpaid interest thereon, the revenue interest, the prepayments
premiums and exit fees (the “Transaction”). The related agreements, each dated as of February 2, 2023, included the
Sixth Amendment to the Credit Agreement and Collateral Documents (the “Collateral Amendment”), the Escrow Agreement (the “Escrow
Agreement”), the Transition Services Agreement (the “TSA”) and the Supply Agreement (the “Supply Agreement”).
The closing of the transaction occurred on February 2, 2023.
Asset Purchase Agreement. HCRM acquired
all assets exclusively related to RedHill Group’s exploitation of Movantik® and,
generally, assumed all liabilities related to the business arising after the Closing (as defined in the APA). Pursuant to the Supply
Agreement (described in more detail below), certain supply contracts will either be terminated or assigned to Movantik Acquisition Co.,
an affiliate of HCRM (“Movantik Acquisition” or “Buyer”), after Closing. The APA extinguished all Obligations
under the Credit Agreement (other than certain indemnification obligations that survive) including the loans, all accrued and unpaid interest
thereon, the revenue interest, the prepayment premiums, and exit fees.
Collateral Amendment. All Obligations
under the Credit Agreement (including the loans, all accrued and unpaid interest thereon, the revenue interest, the prepayment premiums
and exit fees) terminated as of the Closing (as defined in the APA), except for those obligations that are expressly intended to survive
termination of the Credit Agreement, including certain indemnification obligations. Upon Closing, collateral, consisting of (i)
the Escrow Account, (ii) Talicia-related assets, (iii) Aemcolo-related assets and (iv) accounts receivable related to Movantik®
accrued as of the Closing, continues to secure “Go-Forward Obligations” consisting of indemnification obligations under the
APA and the Credit Agreement and scheduled pre-closing liabilities relating to Movantik®.
The value of such liens and security interests are capped at the value of our pre-closing liabilities relating to Movantik®,
and all such liens and security interests will be fully released upon the first to occur of (i) the payment of scheduled pre-closing liabilities
related to Movantik® other than certain specified
long-dated liabilities and (ii) the first date 90 days after Closing on which RedHill Israel has at least $16.9 million in cash and cash
equivalents on hand. Both HCRM and its affiliates and RedHill Group provided each other with a broad release of any claims they
have against each other arising prior to Closing.
Escrow Agreement. At the Closing, Buyer deposited
$16 million, which was equal to the amount of cash collateral against which HCRM exercised remedies under the Credit Agreement, into an
escrow account (the “Escrow Account”) overseen by the Bank of New York Mellon, acting as an escrow agent (the “Escrow
Agent”). Additionally, from and after the Closing, RedHill U.S. was required to deposit all cash received from accounts receivable
related to Movantik accrued as of the Closing of the APA into the Escrow Account. Funds from the Escrow Account can only be used
to pay certain scheduled pre-closing liabilities related to Movantik®
that are retained by RedHill U.S. under the terms of the APA. RedHill U.S. and Buyer established a “Joint Escrow Committee”
to oversee the release of funds from the Escrow Account to pay the scheduled liabilities in an agreed order of priority. Unless
earlier terminated by mutual agreement of RedHill U.S. and Buyer, the Escrow Agreement will remain in effect until the time that all scheduled
pre-Closing liabilities relating to Movantik® have
been paid. As of June 30, 2023, the amount held in the escrow account was $9.1 million. Upon termination of the Escrow Agreement,
any residual escrow amounts will be released to RedHill U.S.
Transition Services Agreement. RedHill
U.S. agreed to provide Buyer certain services, including financial services, regulatory services, pharmacovigilance services, medical
information services, quality assurance services, commercial services (including calls by sales agents), project management services,
contract transfer services and supply chain services. RedHill U.S. received payment of fees for each service type, calculated as
a specified FTE rate plus out-of-pocket costs and pass-through costs incurred during the term of the TSA in which services were provided,
in addition to certain pre-determined milestone payments. Effective October 1, 2023, all services under the agreement were terminated.
Supply Agreement. RedHill U.S. facilitated
supply of Movantik® from third-party suppliers at
cost to Buyer on Buyer’s behalf to provide Buyer with the opportunity to establish, with the assistance of RedHill U.S., its own
manufacturing capabilities and supply chain for Movantik. Effective October 2, 2023, the Supply Agreement was terminated.
Expanded Access Program (EAP)
We have adopted an Expanded Access Program (“EAP”), allowing patients
with life-threatening diseases potential access to our investigational new drugs that have not yet received regulatory marketing approval.
Expanded access (sometimes referred to as “compassionate use”) is possible outside of our clinical trials, under certain eligibility
criteria, when a certain investigational new drug is needed to treat a life-threatening condition and when there is some clinical evidence
suggesting that the drug might be effective for that condition. Patients who qualify for our EAP do not meet the eligibility criteria
or are incapable of participating in our clinical trials for such therapeutic candidate or there is no clinical trial accessible to such
patients. Following the adoption of the program, we continue to receive patient requests to obtain access to our investigational drugs.
Subject to the evaluation of eligibility and all other necessary regulatory, reporting and other conditions and approvals required in
all relevant jurisdictions, we provide certain patients with access to an investigational new drug under the EAP.
Intellectual Property
Our success depends in part on our ability to obtain and maintain proprietary protection
for our technology and therapeutic candidates, its therapeutic applications, and related technology and know-how, to operate without infringing
the proprietary rights of others and to prevent others from infringing our proprietary rights. Our policy is to seek to protect our proprietary
position by, among other methods, filing U.S. and foreign patent applications related to our proprietary technology, inventions, and improvements
that are important to the development of our business. We also rely on our trade secrets, know-how, and continuing technological innovation
to develop and maintain our proprietary position. We vigorously defend our intellectual property to preserve our rights and gain the benefit
of our technological investments.
Patents and Patent Applications
We have rights, either through assignment, asset purchase or in-licensing, to a total
of approximately 239 issued patents and 60 patent applications. The patents and patent applications are registered in the U.S. and other
key jurisdictions, the details of each family of patents being provided below. In addition, we have licensed rights to various platform
technologies on a non-exclusive basis.
The patent positions of companies such as ours are generally uncertain and involve
complex legal and factual questions. Our ability to maintain and solidify our proprietary position for our technology will depend on our
success in obtaining effective claims and enforcing those claims once granted.
Talicia®
The patent portfolio protecting Talicia®
currently includes seven U.S. patents, two pending U.S. patent applications, and over 20 foreign patents and patent applications.
The patents currently provide patent protection through 2034 and 2040. The Orange Book currently lists five U.S. patents.
Aemcolo®
This patent portfolio was in-licensed by us from Cosmo Technologies Ltd. as part
of our license agreement for Aemcolo®. The U.S. patent
portfolio consists of five issued patents. Four U.S. patents protect the commercial product and its approved method of use. The Orange
Book currently lists four U.S. patents.
RHB‑104 –
Inflammatory Bowel Disease
The patent portfolio protecting RHB-104 and its use in treating inflammatory bowel
disease currently includes nine U.S. patents, and 22 foreign patents, providing patent protection through 2029.
We have also in-licensed U.S. Patent No. 7,867,704 from The University of Minnesota
entitled “Mycobacterial Diagnostics”, expiring in 2026. The acquired diagnostic technology is intended for the detection
of Mycobacterium avium subspecies paratuberculosis (MAP) bacterium.
RHB‑104 –
Multiple Sclerosis (“MS”)
The patent portfolio protecting the use of RHB‑104 for treating relapsing-remitting
multiple sclerosis includes one U.S. patent and over 12 foreign patents, providing patent protection through 2032.
RHB‑204 –
Nontuberculous Mycobacterium (NTM) Infections
The patent portfolio protecting RHB-204 currently
includes one U.S. patent and 12 pending foreign patent applications.
RHB‑102 (Bekinda®) -
Gastritis, Gastroenteritis, IBS-D and Oncology support
The patent portfolio protecting RHB‑102 (Bekinda®)
and its use currently includes three U.S. patents and over 29 foreign patents, providing patent protection through 2035.
RHB‑106 -
Bowel Preparation
The patent portfolio protecting RHB-106 and its use currently includes two U.S. patents,
and 9 foreign patents, providing patent protection through 2033.
Opaganib - Oncology,
inflammatory and GI Indications
This patent portfolio was in-licensed by us from Apogee. Opaganib is a first-in-class,
proprietary SK2 inhibitor, administered orally, with anti-cancer and anti-inflammatory activities, targeting a number of potential oncology,
inflammatory and GI indications. These patents relate to sphingosine kinase inhibitors, pharmaceutical compositions, methods of preparing
the inhibitors, methods of treating inflammatory diseases using the inhibitors, methods of treating cancer using the inhibitors, and methods
for inhibiting sphingosine kinase.
The patent portfolio covering opaganib includes six U.S. patents
and over 28 foreign patents, providing patent protection through 2030.
A new patent family seeking to protect the use of opaganib plus checkpoint inhibitors
to treat cancer is pending in the U.S. as well as 13 foreign jurisdictions. If patents are granted, it will provide protection for the
combination treatment through 2040.
RHB‑107 (upamostat;
formerly Mesupron) – Oncology
The primary patent portfolio protecting the new chemical entity (WX-UK1), the pro-drug
(“WX-671” or “RHB-107” or “upamostat”), formulations comprising upamostat, methods of synthesizing
the compounds, and methods of using upamostat to treat cancer, was in-licensed by us from Wilex AG, now known as Heidelberg Pharma AG.
RHB-107 is a first-in-class protease inhibitor administered by oral capsule. The portfolio includes seven issued U.S. patents and over
forty foreign patents and patent applications, providing patent protection through 2027.
Ebola
The patent portfolio covers RedHill’s proprietary experimental therapy for the
treatment of the Ebola virus disease. The portfolio consists of four U.S. patents, one pending U.S. patent application, five foreign patents
and two pending foreign patent applications.
SARS-CoV-2
This patent portfolio covers the use of opaganib and RHB-107 for treating or preventing
coronavirus infections. The portfolio currently consists of four issued U.S. patents, four pending U.S. patent applications, one foreign
patent and 12 pending foreign patent applications, providing patent protection through 2041.
RHB‑108 –
Combination Cancer Therapy
RedHill has also pursued patent protection in cancer therapy for various combination
of drugs with different mechanisms of action which achieve synergistic effects. Currently, the portfolio includes four U.S. patents, three
foreign patents and four foreign pending patent applications.
Trademarks
Our principal trademarks, including RedHill, Redhill Biopharma,
Talicia, Bekinda, Yeliva®, and their applicable logos, are registered or have applications pending with the United States Patent
and Trademark Office. We also own registrations and pending applications for non-U.S. trademarks in other countries in which we do or
plan to do business. Brand names appearing in this prospectus are trademarks of RedHill Biopharma Ltd. except for:
| • |
trademarks used or that may be or have been used under license by RedHill or its affiliates, such as Aemcolo®,
a trademark of Cosmo Technologies Ltd. |
| • |
trademarks used or that may be or have been used under license by RedHill or its affiliates, such as Movantik®,
a trademark of AstraZeneca AB. |
Not all trademarks related to investigational agents have been authorized as of the
date of this prospectus by the relevant health authorities; for instance, the Bekinda®
and Yeliva® trade names have not been approved by
the FDA.
Government Regulations and Funding
Pharmaceutical companies are subject to extensive regulation by national, state and
local agencies such as the FDA in the U.S., the Ministry of Health in Israel, or the EMA. The manufacture, clinical trials, distribution,
marketing and sale of pharmaceutical products are subject to government regulation in the U.S. and various foreign countries. To manufacture
both new therapeutic drug candidates for clinical trials and approved therapeutic drugs for sale and distribution in the U.S., we must
follow the rules and regulations in accordance with current cGMP codified in 21 CFR 210 and 211. Additionally, we are responsible
for ensuring that the API in each therapeutic drug or therapeutic drug candidate is manufactured in accordance with ICH Q7 guidance that
has been adopted by the FDA. Further, we are required to conduct clinical trials that present data indicating that our therapeutic drug
candidates are safe and efficacious in accordance with the current good clinical practice and codified in 21 CFR 312. If we do not comply
with applicable requirements, we may be fined, the government may refuse to approve our marketing applications or not allow us to manufacture
or market our products, and we may be criminally prosecuted. We and our contract manufacturers and clinical research organizations may
also be subject to regulations under other federal, state and local laws, including, but not limited to, the U.S. Occupational Safety
and Health Act, the Resource Conservation and Recovery Act, the Clean Air Act and import, export and customs regulations as well as the
laws and regulations of other countries. Further, the U.S. government has increased its enforcement activity regarding fraud and abuse
and illegal marketing practices in the healthcare industry. As a result, pharmaceutical companies must ensure their compliance with the
Foreign Corrupt Practices Act and federal healthcare fraud and abuse laws, including the False Claims Act.
These regulatory requirements impact our operations and differ in one country to another,
so that securing the applicable regulatory approvals of one country does not imply the approval in another country. However, securing
the approval of a more stringent body, i.e., the FDA, may facilitate receiving the approval by
a regulatory authority in a different country where the regulatory requirements are similar or less stringent. The approval procedures
involve high costs and are manpower intensive, usually extend over many years and require highly skilled and professional resources.
FDA Approval Process for New Molecular Entities
Our therapeutic drug candidates are classified as New Molecular Entities. The steps
required to be taken before therapeutic drug candidate may be marketed in the U.S. generally include:
| • |
completion of preclinical laboratory and animal testing; |
| • |
the submission to the FDA of an investigational new drug, or IND, application which must be evaluated and found acceptable by the
FDA before human clinical trials may commence; |
| • |
performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed drug therapeutic
candidate for its intended use; and |
| • |
the submission and approval of an NDA. |
Clinical studies are conducted under protocols detailing, among other things, the
objectives of the study, what types of patients may enter the study, schedules of tests and procedures, drugs, dosages, and length of
study, as well as the parameters to be used in monitoring safety, and the efficacy criteria to be evaluated. A protocol for each clinical
study and any subsequent protocol amendments must be submitted to the FDA as part of the IND.
In all the countries that are signatories of the Helsinki Declaration (including Israel),
the prerequisite for conducting clinical trials (on human subjects) is securing the preliminary approval of the competent authorities
of that country to conduct medical experiments on human subjects in compliance with the other principles established by the Helsinki Declaration.
The clinical testing of a therapeutic drug candidate generally is conducted in three
sequential phases prior to approval, but the phases may overlap or be combined. However, safety information should be submitted before
the initiation of a subsequent clinical phase. A fourth, or post-approval phase may include additional clinical studies. The phases are
generally as follows:
Phase 1. In Phase 1 clinical studies, the
therapeutic drug candidate is tested in a small number of healthy volunteers, though in cases where the therapeutic drug candidate may
make the volunteer ill, clinical patients with the targeted condition may be used. These “dose-escalation” studies are designed
to evaluate the safety, dosage tolerance, metabolism and pharmacologic actions of the therapeutic drug candidate in humans, side effects
associated with increasing doses, and, in some cases, to gain early evidence on efficacy. The number of participants included in Phase
1 studies is generally in the range of 20 to 80.
Phase 2. In Phase 2 studies, in addition to
safety, the sponsor evaluates the efficacy of the therapeutic drug candidate on targeted indications to determine dosage tolerance and
optimal dosage and to identify possible adverse effects and safety risks. Phase 2 studies typically are larger than Phase 1 but smaller
than Phase 3 studies and may involve several hundred participants.
Phase 3. Phase 3 studies typically involve
an expanded patient population at geographically-dispersed test sites and involve control groups taking a reference compound or a placebo
(an inactive compound identical in appearance to the study compound). They are performed after preliminary evidence suggesting the effectiveness
of the therapeutic candidate has been obtained and are designed to evaluate clinical safety and efficacy further, to establish the overall
benefit-risk relationship of the therapeutic candidate and to provide an adequate basis for a potential product approval. Phase 3 studies
usually involve several hundred to several thousand participants.
Phase 4. Phase 4 clinical trials are
postmarketing studies designed to collect additional safety data as well as potentially expand a product indication. Postmarketing commitments
may be required of, or agreed to by, a sponsor after the FDA has approved a therapeutic drug candidate for marketing. These studies are
used to gain additional information from the treatment of patients in the intended therapeutic indication and to verify a clinical benefit
in the case of drugs approved under accelerated approval regulations. If the FDA approves a product while a company has ongoing clinical
trials that were not necessary for approval, a company may be able to use the data from these clinical trials to meet all or part of any
Phase 4 clinical trial requirement. These clinical trials are often referred to as Phase 4 post-approval or postmarketing commitments.
Failure to promptly conduct Phase 4 clinical trials could result in the inability to deliver the product into interstate commerce, misbranding
charges, and civil monetary penalties.
Clinical trials must be conducted in accordance with the FDA’s GCP requirements.
The FDA may order the temporary or permanent discontinuation of a clinical study at any time or impose other sanctions if it believes
that the clinical study is not being conducted in accordance with FDA requirements or that the participants are being exposed to an unacceptable
health risk. An institutional review board, or IRB, generally must approve the clinical trial design and patient informed consent at study
sites that the IRB oversees and also may halt a study, either temporarily or permanently, for failure to comply with the IRB’s requirements,
or may impose other conditions. Additionally, some clinical studies are overseen by an independent group of qualified experts organized
by the clinical study sponsor, known as a data safety monitoring board or committee. The FDA recommends that a data safety monitoring
board should be used to perform regular interim analysis for long-term clinical studies where safety concerns may be unusually high. This
group recommends whether or not a trial may move forward at designated checkpoints based on access to certain data from the study. The
clinical study sponsor may also suspend or terminate a clinical trial based on evolving business objectives or competitive climate.
As a therapeutic candidate moves through the clinical testing phases, manufacturing
processes are further defined, refined, controlled and validated. The level of control and validation required by the FDA would generally
increase as clinical studies progress. We and the third-party manufacturers on which we rely for the manufacture of our therapeutic drugs
and therapeutic drug candidates and their respective API are subject to requirements that drugs be manufactured, packaged and labeled
in conformity with cGMP. In addition to our third-party API manufacturers, we are responsible for ensuring that our third-party excipient
manufacturers conform to cGMP requirements. To comply with cGMP requirements, manufacturers must continue to spend time, money and effort
to meet requirements relating to personnel, facilities, equipment, production and process, labeling and packaging, quality control, recordkeeping,
and other requirements.
Assuming completion of all required testing in accordance with all applicable regulatory
requirements, detailed information on the therapeutic candidate is submitted to the FDA in the form of an NDA, requesting approval to
market the product for one or more indications, together with payment of a user fee, unless waived. An NDA includes all relevant data
available from pertinent nonclinical and clinical studies, including negative or ambiguous results as well as positive findings, together
with detailed information on the chemistry, manufacture, control and proposed labeling, among other things. To support marketing approval,
the data submitted must be sufficient in quality and quantity to establish the safety and efficacy of the therapeutic candidate for its
intended use to the satisfaction of the FDA.
If an NDA submission is accepted for filing, the FDA begins an in-depth review of
the NDA. Under the Prescription Drug User Fee Act, or PDUFA, the FDA’s goal is to complete its initial review and respond to the
applicant within ten months of a completed submission for 90% of the submissions received, unless the application relates to an unmet
medical need in a serious or life-threatening indication, in which case the goal may be within six months of a completed NDA submission.
However, PDUFA goal dates are not legal mandates, and the FDA response may occur several months beyond the original PDUFA goal date.
Further, the review process and the target response date under PDUFA may be extended if the FDA requests or the NDA sponsor otherwise
provides additional information or clarification regarding information already provided in the NDA. The NDA review process can, accordingly,
be very lengthy. During its review of an NDA, the FDA may refer the application to an advisory committee for review, evaluation, and recommendation
as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it typically
follows such recommendations. Data from clinical studies are not always conclusive, and the FDA or any advisory committee it appoints
may interpret data differently than the applicant.
After the FDA evaluates the NDA and conducts a pre-approval inspection of all manufacturing
facilities where the drug therapeutic candidate or its API will be produced, it will either approve commercial marketing of the drug therapeutic
candidate with prescribing information for specific indications or issue a complete response letter indicating that the application is
not ready for approval and stating the conditions that must be met in order to secure approval of the NDA. If the complete response letter
requires additional data and the applicant subsequently submits that data, the FDA nevertheless may ultimately decide that the NDA does
not satisfy its criteria for approval. The FDA could also approve the NDA with a Risk Evaluation and Mitigation Strategies, or REMS, plan
to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted
distribution methods, patient registries, and other risk minimization tools. The FDA also may condition approval on, among other things,
changes to proposed labeling, development of adequate controls and specifications, or a commitment to conduct postmarketing testing. The
FDA may also request a Phase 4 clinical trial to further assess and monitor the product’s safety and efficacy after approval. Regulatory
approval of products for serious or life-threatening indications may require that participants in clinical studies be followed for long
periods to determine the overall survival benefit of the drug therapeutic candidate.
If the FDA approves one of our therapeutic drug candidates, we will be required to
comply with a number of post-approval regulatory requirements. We would be required to report to the FDA, among other things, certain
adverse reactions and production problems, and provide updated safety and efficacy information and comply with requirements concerning
advertising and promotional labeling for any of our products. Also, quality control and manufacturing procedures must continue to conform
to cGMP after approval, and the FDA periodically inspects manufacturing facilities to assess compliance with cGMP, which imposes extensive
procedural, substantive and recordkeeping requirements. If we seek to make certain changes to an approved therapeutic drug, such as certain
manufacturing changes, we may need the FDA to review and approve before the change can be implemented. For example, if we change the manufacturer
of a product or its API, the FDA may require stability or other data from the new manufacturer, which will take time and is costly to
generate, and the delay associated with generating this data may cause interruptions in our ability to meet commercial demand, if any.
At their discretion, physicians may prescribe approved pharmaceutical products for indications that pharmaceutical products have not been
approved for use by the FDA. However, we may not label or promote pharmaceutical products for an indication that has not been approved.
Securing FDA approval for new indications of an approved therapeutic drug requires a Section 505(b)(2) filing, is similar to
the process for approval of the original indication and requires, among other things, submitting data from adequate and well-controlled
studies that demonstrate the product’s safety and efficacy in the new indication. Even if such studies are conducted, the FDA may
not approve any change in a timely fashion, or at all.
We rely on, and expect to continue to rely on, third parties for the manufacture of
clinical and future commercial, quantities of our therapeutic candidates. Future FDA and state inspections may identify compliance issues
at these third-party facilities that may disrupt production or distribution or require substantial resources to correct. In addition,
discovery of previously unknown problems with a product or the failure to comply with applicable requirements may result in restrictions
on a product, manufacturer or holder of an approved NDA, including withdrawal or recall of the product from the market or other voluntary,
FDA-initiated or judicial action that could delay or prohibit further marketing. Newly discovered or developed safety or efficacy data
may require changes to a product’s approved labeling, including the addition of new warnings and contraindications, and may also
require the implementation of other risk management measures. Many of the foregoing could limit the commercial value of an approved product
or require us to commit substantial additional resources in connection with the approval of a product. Also, new government requirements,
including those resulting from new legislation, may be established, or the FDA’s policies may change, which could delay or prevent
regulatory approval of our products under development.
Section 505(b)(2) New Drug Applications
As an alternate path to FDA approval of new indications or new formulations of previously-approved
therapeutic drugs, a company may file a Section 505(b)(2) NDA, instead of a “stand-alone” or “full”
NDA, somewhat similar to the process for approval of the original indication or reference drug and requires, among other things, submitting
data from adequate and well-controlled studies that demonstrate the product’s safety and efficacy in the new indication. Even if
such studies are conducted, the FDA may not approve any change in a timely fashion, or at all. Section 505(b)(2) of the Food,
Drug, and Cosmetic Act was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, otherwise known as the
Hatch-Waxman Amendments. Section 505(b)(2) was enacted to allow a company to avoid duplicative testing by permitting the applicant
to leverage previously performed pertinent clinical and non-clinical studies into the current NDA submission. Some examples of therapeutic
drug candidates that may be allowed to follow a 505(b)(2) path to approval are candidates that have a new dosage form, strength,
route of administration, formulation or indication.
The Hatch-Waxman Amendments permit the applicant to rely upon certain published nonclinical
or clinical studies conducted for an approved product or the FDA’s conclusions from a prior review of such studies. The FDA may
require companies to perform additional studies or measurements to support any changes from the approved product. The FDA may then approve
the new product for all or some of the labeled indications for which the reference product has been approved, as well as for any new indication
supported by the NDA. While references to nonclinical and clinical data not generated by the applicant or for which the applicant does
not have a right of reference are allowed, all development, process, stability, qualification and validation data related to the manufacturing
and quality of the new product must be included in an NDA submitted under Section 505(b)(2).
To the extent that the Section 505(b)(2) applicant is relying on the FDA’s
conclusions regarding studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any
patents listed for the approved product in the FDA’s Orange Book publication. Specifically, the applicant must certify that: (i) the
required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired
but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will
not be infringed by the new product. The Section 505(b)(2) application also will not be approved until any non-patent exclusivity,
such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the reference product has expired.
Thus, the Section 505(b)(2) applicant may invest a significant amount of time and expense in the development of its products
only to be subject to significant delay and patent litigation before its products may be commercialized.
Orphan Drug Designation
The Orphan Drug Act of 1983, or Orphan Drug Act, encourages manufacturers to seek
approval for products intended to treat “rare diseases and conditions” with a prevalence of fewer than 200,000 patients in
the U.S. or for which there is no reasonable expectation of recovering the development costs for the product. For products that receive
orphan drug designation by the FDA, the Orphan Drug Act provides tax credits for clinical research, FDA assistance with protocol design,
eligibility for FDA grants to fund clinical studies, waiver of the FDA application fee, and a period of seven years of marketing
exclusivity for the product following FDA marketing approval.
GAIN Act
The FDA’s GAIN Act is intended to encourage the development
of new antibiotic drug therapeutic candidates for the treatment of serious or life-threatening infections. For products that receive QIDP
designation under the Act, the Act provides Fast-Track development status with an expedited development pathway and Priority Review status,
which potentially provides shorter review time by the FDA of a future potential marketing application. Following FDA approval, an additional
five years of U.S. market exclusivity applies, received on top of the standard exclusivity period.
Other Healthcare Laws and Compliance Requirements
In the U.S., we are subject to various federal and state laws and regulations regarding
fraud and abuse in the healthcare industry, as well as industry standards and guidance, such as the codes issued by the Pharmaceutical
Research and Manufacturers of America (or “PhRMA Codes”), which some states reference or incorporate in their statutes and
regulations. These laws, regulations, standards, and guidance may impact, among other things, our sales and marketing activities and our
relationships with healthcare providers and patients. In addition, we may be subject to patient privacy regulations by both the federal
government and the states in which we conduct our business. The laws that may affect our ability to operate include but are not limited
to:
| • |
the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving,
offering or paying remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral
of an individual for, or the purchase, order, or recommendation of, an item or service reimbursable under a federal healthcare program,
such as the Medicare and Medicaid programs; |
| • |
federal civil and criminal false claims laws and civil monetary penalty laws, including the False Claim Act, which prohibit, among
other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from the federal government,
including Medicare, Medicaid, or other third-party payors, that are false or fraudulent; |
| • |
HIPAA, which imposes federal criminal and civil liability for executing, or attempting to execute, a scheme to defraud any healthcare
benefit program and making false statements relating to healthcare matters; |
| • |
the federal transparency laws, including the Physician Payments Sunshine Act, that requires applicable manufacturers of covered drugs
to disclose payments and other transfers of value provided to physicians and teaching hospitals and physician ownership and investment
interests; |
| • |
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and its implementing regulations, also
imposes certain requirements relating to the privacy, security, and transmission of individually identifiable health information; and
|
| • |
state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or
services reimbursed by any third-party payor, including commercial insurers, state laws that require pharmaceutical companies to comply
with the pharmaceutical industry’s voluntary compliance guidelines, state laws that require pharmaceutical manufacturers to report
certain pricing or payment information, and state laws governing the privacy and security of health information in certain circumstances,
many of which differ from each other in significant ways and are not preempted by HIPAA, thus complicating compliance efforts. |
The Healthcare Reform Law broadened the reach of the fraud and abuse laws by, among
other things, amending the intent requirement of the federal Anti-Kickback Statute and certain other criminal healthcare fraud statutes.
Specifically, a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to
have committed a violation. In addition, the Healthcare Reform Law provides that the government may assert that a claim including items
or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the
False Claims Act or the civil monetary penalties statute. Many states have adopted laws similar to the federal Anti-Kickback Statute,
some of which apply to the referral of patients for healthcare items or services reimbursed by any source, not only federal healthcare
programs such as the Medicare and Medicaid programs.
Due to the breadth of some of these laws, it is possible that some of our current
or future practices might be challenged under one or more of these laws. In addition, there can be no assurance that we would not be required
to alter one or more of our practices to comply with these laws. Evolving interpretations of current laws or the adoption of new federal
or state laws or regulations could adversely affect the arrangements we may have with sales personnel, healthcare providers, and patients.
Our risk of being found in violation of these laws is increased by the fact that some of these laws are open to a variety of interpretations.
If our past or present operations, practices, or activities are found to be in violation of any of the laws described above or any other
governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, exclusion from participation
in government healthcare programs, such as Medicare and Medicaid, imprisonment, damages, fines, disgorgement, contractual remedies, reputational
harm, diminished profits, and future earnings, if any, and the curtailment or restructuring of our operations, any of which could adversely
affect our ability to operate our business and our results of operations.
C. Organizational
Structure
Our wholly-owned and only subsidiary, Redhill Biopharma Inc., was incorporated
in Delaware on January 19, 2017.
D. Property,
Plant and Equipment
We lease approximately 826 square meters of office space and eleven parking spaces
in the “Platinum” building at 21 Ha’arba’a Street, Tel-Aviv, Israel. The projected yearly gross rental expenses
are approximately $470,000 per year. Since 2018, we have been subleasing a portion of the office space to a tenant, and the lease payment
is approximately $79,000 per year. The term under our lease agreement will expire on January 31, 2026. These offices have served as our
corporate headquarters since April 2011.
We currently hold a U.S. office lease set to expire on July 31, 2024, with approximately
$0.2 million in remaining rental expenses as of January 31, 2024. In June 2023, we terminated another U.S. office lease signed in March
2022 that was originally set to expire on July 31, 2034.
MANAGEMENT
Directors and Senior Management1
The following table sets forth the name, age and position of each of our executive
officers and directors as of the date of this prospectus.
|
Name |
Age |
|
Position(s) | |
|
Executive Officers |
||||
|
Dror Ben-Asher |
58 |
Chief Executive Officer and Chairman of the Board of Directors | ||
|
Razi Ingber |
40 |
Chief Financial Officer | ||
|
Reza Fathi, Ph.D. |
68 |
Senior Vice President Research and Development | ||
|
Gilead Raday |
49 |
Chief Operating Officer | ||
|
Adi Frish |
54 |
Chief Corporate and Business Development Officer | ||
|
Guy Goldberg |
48 |
Chief Business Officer | ||
|
Rick D. Scruggs |
64 |
Chief Commercial Officer and Director | ||
|
Directors |
||||
|
Dr. Shmuel Cabilly (3) |
74 |
Director | ||
|
Eric Swenden (1) (3) |
80 |
Director | ||
|
Dr. Kenneth Reed (1), (2) (3) |
70 |
Director | ||
|
Ofer Tsimchi (1), (2) (3) |
64 |
Director | ||
|
Alla Felder (1), (2), (3) |
50 |
Director |
________________________________
| (1) |
Member of our audit committee; also serves as our financial statements committee. |
| (2) |
Member of our compensation committee. |
| (3) |
Independent director under Nasdaq Listing Rules. |
Executive officers
Dror Ben-Asher has served as our Chief Executive
Officer and as a director since August 2009. Since May 2011, Mr. Ben-Asher has also served as Chairman of our board of
directors. From January 2002 to November 2010, Mr. Ben-Asher served as a manager at P.C.M.I. Ltd., an affiliate of
ProSeed Capital Holdings CVA. Mr. Ben-Asher holds an LLB from the University of Leicester, U.K., an Mjur. From Oxford University,
U.K. and completed LLM studies at Harvard University.
Razi Ingber has served as our Chief Financial
Officer since May 1, 2023, and between February 2018 and May 2023 served in various financial positions at the Company. Mr. Ingber has
extensive financial experience, specializing in financial reporting and accounting, financial planning, transactions and business analytics.
Between 2011 and 2018, Mr. Ingber held several positions at PwC Israel, ultimately serving as an audit manager responsible for leading
audit teams of several public and private companies. Mr. Ingber holds an M.A. and a B.A. from Tel-Aviv University and is a Certified public
Accountant.
| 1 |
Senior management includes members of the Company’s administrative, supervisory or management bodies, or nominees for such
positions. |
Reza Fathi, Ph.D., has served as our Senior
Vice President Research and Development since May 2010. From 2005 to 2009, Dr. Fathi served as a Director of Research in XTL
Biopharmaceuticals Inc., a biotechnology company engaged in developing small molecule clinical candidates for infectious diseases.
Prior to that, from 2000‑2005, Dr. Fathi served as Director of Research at Vivoquest, Inc. where he was responsible for
developing a number of novel natural product-based combinatorial technologies for infectious diseases such as HCV and HIV. Between 1998‑2000,
he served as a Manager of Chemical Biology Research at the Institute of Chemistry and Chemical Biology (ICCB) at Harvard Medical School,
pioneering chemical genetics to identify small molecules in cancer biology, and from 1991‑1998 headed the Discovery Group at
PharmaGenics, Inc. Dr. Fathi holds a Postdoctoral and Ph.D. in Chemistry from Rutgers University.
Gilead Raday has served as our Chief Operating
Officer since April 2016. From December 2012 until March 2016, Mr. Raday served as Senior Vice President Corporate and
Product Development. From November 2010 to December 2012, Mr. Raday served as our Vice President Corporate and Product
Development. From January 2010 until October 2010, Mr. Raday served as Interim Chief Executive Officer of Sepal Pharma
Plc., an oncology drug development company, and from January 2009 to December 2009, he was an independent consultant, specializing
in business development and project management in the field of life sciences. From 2004 to 2008, Mr. Raday was a partner in Charles
Street Securities Europe, LLP, an investment banking firm, where he was responsible for the field of life sciences. Mr. Raday previously
served on the boards of Sepal Pharma Plc., ViDAC Limited, Morria Biopharmaceuticals Plc., Vaccine Research International Plc., Tksignal
Plc., and Miras Medical Imaging Plc. He received his M.Sc. in Neurobiology from the Hebrew University of Jerusalem, Israel, and an M.Phil.
in Bioscience Enterprise from Cambridge University, U.K.
Adi Frish has served as our Chief Corporate
and Business Development Officer since October 2020. From December 2012 to October 2020 Mr. Frish served as our Senior Vice President
Business Development and Licensing. From October 2010 to December 2012, Mr. Frish served as our Vice President Business
Development and Licensing. From 2006 to 2010, Mr. Frish served as the Chief Business Development at Medigus Ltd., a medical
device company in the endoscopic field, and from 1998 to 2006, Mr. Frish was an associate and a partner at the law firm of Y. Ben
Dror & Co. Mr. Frish holds an LLB from Essex University, U.K. and an LLM in Business Law from the Bar-Ilan University,
Israel.
Guy Goldberg has served as our Chief Business
Officer since 2012. From 2007 to 2012, Mr. Goldberg served as Vice President and then as Senior Vice President of Business Operations
at Eagle Pharmaceuticals, a specialty injectable drug development company, based in New Jersey. From 2004 to 2007, Mr. Goldberg was
an associate at ProQuest Investments, a healthcare-focused venture capital firm, and from 2002 to 2004, Mr. Goldberg was a consultant
at McKinsey & Company. Mr. Goldberg holds a B.A. in Economics and Philosophy from Yale University and a J.D. from Harvard
Law School.
Rick D. Scruggs has served as our Chief Commercial
Officer since February 2020 and served as our Chief Operations Officer, U.S. Operations since January 1, 2019, and as a member
of our board of directors since January 1, 2016. Mr. Scruggs most recently served as Executive Vice President of Business Development
at Salix until its acquisition by Valeant (now Bausch Health) in March 2015. Mr. Scruggs joined Salix in 2000, after working
at Oclassen Pharmaceuticals Inc. and Watson Pharmaceuticals, and helped build Salix’s commercial organization, serving in various
sales and commercial trade-related positions. Mr. Scruggs was appointed as Executive Vice President in 2011 and was responsible for
all business development activities as well as the worldwide distribution of Salix’s innovative products and intellectual property.
Mr. Scruggs also served as the Head of the board of directors of Oceana Therapeutics, Salix’s European subsidiary. Mr. Scruggs
holds a B.S. in Criminal Justice from the Appalachian State University in North Carolina.
Directors
Dr. Shmuel Cabilly has served as a member
of our board of directors since August 2010. Dr. Cabilly is a scientist and inventor in the field of immunology. In the Backman Research
Institute of the City of Hope, Dr. Cabilly initiated the development of a new breakthrough technology for recombinant antibody production,
which was patented and known as the “Cabilly Patent.” Dr. Cabilly was also a co-founder and a Chief Scientist of Ethrog Biotechnology,
where he invented dry buffer technologies enabling the production of a liquid-free disposable apparatus for gel electrophoresis and a
technology that enables the condensation of molecular separation zones to a small gel area. This technology was sold to Invitrogen in
2001. Dr. Cabilly serves as a board member at several companies, including BioKine Therapeutics Ltd., Minovia Ltd., Alonbio Ltd. and Raziel
Therapeutics Ltd. Dr. Cabilly holds a B.Sc. in Biology from the Ben Gurion University of Beer Sheva, Israel, an M.Sc. in Immunology and
Microbiology from the Hebrew University of Jerusalem, Israel, and a Ph.D. in Immunology and Microbiology from the Hebrew University of
Jerusalem, Israel.
Eric Swenden has served as a member of our
board of directors since May 2010 and has served on our investment committee since May 2011. From 1966 until 2001 Mr. Swenden served in
various positions including Chief Executive Officer (since 1985) and Executive Chairman (since 1990) of Vandemoortele Food Group, a privately
held Belgium-based European food group with revenue of approximately EUR 2 billion. Mr. Swenden holds an M.A. in Commercial Science from
the University of Antwerp, Belgium. The board of directors has determined that Mr. Swenden is a financial and accounting expert under
Israeli law.
Dr. Kenneth Reed has served as a member of
our board of directors since December 2009. Dr. Reed is a board certified dermatologist and Mohs surgeon. Dr. Reed currently serves on
the board of directors of Minerva Biotechnologies Corporation. Dr. Reed received his B.A. from Brown University in the U.S. and an M.D
from the University of Medicine and Dentistry of New Jersey in the U.S. Dr. Reed is a board-certified dermatologist with over 25 years
of clinical experience since completing the Harvard Medical School Residency Program in Dermatology. Dr. Reed is also a co-founder of
Early Cell, a prenatal diagnostics company, Prescient Pharma and Lispiro.
Ofer Tsimchi has served as a director on our
board of directors, a member of our audit committee and as the Chairman of our compensation committee since May 2011. From 2008 to 2012,
Mr. Tsimchi served as the Chairman of the board of directors of Polysack Plastic Industries Ltd. and Polysack-Agriculture Products, served
as a board member of Caesarstone Ltd. and Danbar Group Ltd and since 2006, he has served as a Partner in the Danbar Group Ltd., a holding
company. Mr. Tsimchi currently serves on the board of directors of Maabarot Products Ltd. Mr. Tsimchi received his BA in Economics and
Agriculture from the Hebrew University of Jerusalem, Israel. The board of directors has determined that Mr. Tsimchi is a financial and
accounting expert under Israeli law.
Alla Felder has served as a director on our
board of directors and a chairperson of our audit committee and a member of our compensation committee since May 2019. Ms. Felder currently
serves as a Director in numerous publicly listed leading Israeli companies across several industries, such as Ashtrom Properties Ltd.,
Israel Shipyards Ltd, Carmit Industries Ltd. Biolight Ltd. Photomyne Ltd. and IdoMoo Ltd. Ms. Felder also serves as the CFO of Weebit
Nano Ltd, a high-tech company traded on the Australian stock exchange (ASX), and also provides financial services and business advisory.
Ms. Felder also served on the board of REE Automotive Ltd. and Enlight Renewable Energy Ltd., both traded on NASDAQ. From 1997 to 2010
Ms. Felder was with PriceWaterhouseCoopers where she served in her last role as a Senior Manager. Ms. Felder received a degree in Business
Administration and Accounting from the College of Management Academic Studies Division in Rishon Lezion, Israel and an Executive Master’s
degree in the Science of Finance from the City University of New York.
Compensation
The aggregate compensation paid, and benefits-in-kind granted to or accrued on behalf
of all of our directors and executive officers for their services, in all capacities, to us during the year ended December 31, 2023, was
approximately $2.3 million. Out of that amount approximately $1.9 million was paid as salary, approximately $0.04 million was attributed
to the value of the RSUs granted to senior management and the directors during 2023, approximately $0.3 million was attributed to retirement
plans and approximately $0.1 million was attributed to other long-term benefits. No additional amounts have been set aside or accrued
by us to provide pension, retirement or similar benefits.
The compensation terms for our directors and officers are derived from their employment
agreements and directors’ compensation arrangements and comply with our Compensation Policy for Executive Officers and Directors
as approved by our shareholders (the “Compensation Policy”).
The table and summary below outline the compensation granted to our five highest compensated
directors and officers during the year ended December 31, 2023. The compensation detailed in the table below refers to the actual compensation
granted or paid to the director or officer during the year 2023.
|
Value of Equity- |
||||||||||||||||||||
|
Base Salary |
Value of |
Based |
||||||||||||||||||
|
or Other |
Social |
Compensation |
All Other |
|||||||||||||||||
|
Name and Position of Director
or Officer |
Payment (1) |
Benefits (2) |
Granted (3) |
Compensation (4) |
Total |
|||||||||||||||
|
Dror Ben-Asher, Chief Executive Officer,
and Chairman of the Board of Directors (5) |
473,081 |
102,154 |
- |
19,377 |
594,612 |
|||||||||||||||
|
Rick Scruggs, Chief Commercial Officer (6)
|
441,167 |
28,635 |
- |
- |
469,802 |
|||||||||||||||
|
Razi Ingber, Chief Financial Officer
|
259,062 |
66,894 |
14,400 |
13,863 |
354,219 |
|||||||||||||||
|
Gilead Raday, Chief Operating Officer
|
288,027 |
58,152 |
14,400 |
19,377 |
379,957 |
|||||||||||||||
|
Adi Frish, Chief Corporate and Business Development
Officer |
251,580 |
68,809 |
14,400 |
18,911 |
353,700 |
|||||||||||||||
______________________________
| (1) |
“Base Salary or Other Payment” means the aggregate yearly gross monthly salaries or other payments with respect
to the Company’s Executive Officers and members of the board of directors for the year 2023. Messrs. Ben-Asher and Scruggs
do not receive extra compensation for their service as members of the board of directors. |
| (2) |
“Social Benefits” include payments to the National Insurance Institute, advanced education funds, managers’ insurance
and pension funds; vacation pay; and recuperation pay as mandated by Israeli and U.S. laws. |
| (3) |
Consists of the fair value of the equity-based compensation granted during 2023 in exchange for the directors and officers services
recognized as an expense in profit or loss and is carried to the accumulated deficit under equity. The total amount is recognized as an
expense over the vesting period of the RSUs. See “Management - Share Ownership” for further information regarding the RSUs.
|
| (4) |
“All Other Compensation” includes, among other things, car-related expenses (including tax gross-up), communication expenses,
and basic health insurance. |
| (5) |
Mr. Ben-Asher’s employment terms as the Company’s Chief Executive Officer provide that Mr. Ben-Asher is currently entitled
to a monthly base gross salary of NIS 124,740 (approximately $34,186). Mr. Ben-Asher is further entitled to vacation days, sick days and
convalescence pay in accordance with the market practice and applicable law, monthly remuneration for a study fund, contribution by the
Company to an insurance policy and pension fund, and additional benefits, including communication expenses. In addition, Mr. Ben-Asher
is entitled to reimbursement of car-related expenses from the Company. Mr. Ben-Asher’s employment terms include an advance notice
period of 12 months by the Company and 90 days by Mr. Ben-Asher. During such an advance notice period, Mr. Ben-Asher will be entitled
to all of the compensation elements, and to the continuation of vesting of any options or restricted shares granted to him. Additionally,
in the event Mr. Ben-Asher’s employment is terminated in connection with a “change in control” he will be entitled to
a special one-time payment equal to his then-current monthly salary and retirement benefits, including payments to an advanced study fund
and pension arrangement and car expense reimbursement, multiplied by 18. A “change in control” is defined under the change
in control employee retention plan (the "CIC Plan") as follows: (1) the consummation of any merger, consolidation, reorganization, or
similar transaction or series of related transactions of the Company with another entity, other than a merger, consolidation, reorganization,
or similar transaction or series of related transactions which would result in the shareholders of the Company immediately preceding the
transaction beneficially owning, immediately after the transaction, at least 50% of the combined voting power of the outstanding securities
of the surviving or resulting entity (or its parent); (2) any “person” (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act or “group” (two or more persons acting as a partnership, limited partnership, syndicate or other group for
the purpose of acquiring, holding, or disposing of the applicable securities referred to herein) becomes the “beneficial owner”
(as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%)
or more of the total voting power represented by the Company’s then-outstanding voting securities; (3) the election of a board of
directors over a three-year period or less, the majority of which is not supported by at least a majority of the then existing board of
directors of the Company; or (4) any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions)
of all or substantially all of the assets of the Company (other than to an entity controlled by the Company). |
| (6) |
Mr. Rick Scruggs' employment term as the Company's Chief Commercial Officer provide that Mr. Scruggs is currently entitled to a monthly
base gross salary of approximately $33,858. Mr. Scruggs is further entitled to vacation days, sick days and convalescence pay in accordance
with the market practice and applicable law, monthly remuneration for a study fund, contribution by the Company to an insurance policy
and pension fund, and additional benefits, including communication expenses. Mr. Scruggs will be entitled to payment of severance in the
amount of 12 months’ base salary at the time of termination in the event Mr. Scruggs’ employment is terminated without cause
by the Company. Mr. Scruggs’s employment terms also include an advance notice period of 60 days by either party. During such an
advance notice period, Mr. Scruggs will be entitled to all of the compensation elements, and to the continuation of vesting of any options
or restricted shares granted to him. Additionally, in the event Mr. Scruggs’s employment is terminated in connection with a “change
in control” he will be entitled to a special one-time payment equal to his then-current monthly salary and retirement benefits,
including payments to an advanced study fund and pension arrangement, multiplied by 12. A “change in control” is defined in
the same manner as defined for Mr. Ben-Asher as described in footnote (5) above. |
Employment Agreements
We have entered into employment or consultant agreements with each of our executive
officers. All of these agreements contain customary provisions regarding non-competition, confidentiality of information and assignment
of inventions. However, the enforceability of the non-competition provisions may be limited under applicable laws.
For information on exemption and indemnification letters granted to our directors
and officers, please see “Management - Board Practices – Exemption, Insurance and Indemnification of Directors and Officers.”
Director Compensation
We currently pay our non-executive directors (i) an annual cash fee retainer of $32,000,
(ii) a committee membership annual cash fee retainer of $10,000 to each Audit Committee member, $6,400 to each Compensation Committee
member, and $1,200 to each Investment Committee member, and (iii) a committee chairperson annual cash fee retainer in an amount that is
higher than the annual cash fee payable to other members of that committee (as described in clause (ii) above) by 50% to each of the Audit
Committee and Compensation Committee chairs and by 10% to the Investment Committee chair (without duplication of the fees paid under clause
(ii)).
Change in Control Retention Plan and Agreements; Severance Arrangements
We have adopted a change in control employee retention plan and entered into employment
agreements providing for compensation to Company employees, in the event of a change in control (as defined by the plan and the employment
agreements), subject to the satisfaction of various conditions. Compensation to employees would be up to 12 months’ salary depending
on employee seniority and years with the Company.
Certain executives in the U.S. have employment agreements that provide for 12 months
of severance pay upon termination from the Company without cause. Severance pay is base pay only and does not include continuation
of employee welfare benefits or bonus. The aggregate estimated amount of such severance is approximately $2.8 million.
Compensation Policy
On May 13, 2022, our shareholders approved the Compensation Policy for our directors
and officers in accordance with the Israeli Companies Law, pursuant to which we are required to determine the compensation of our directors
and officers, and which must be approved by our shareholders every three years. The policy was previously approved by our board of directors,
upon the recommendation of our compensation committee.
The Compensation Policy is in effect for three years from the 2022 annual general
meeting. Our Compensation Policy principles were designed to grant proper, fair and well-considered remuneration to our officers, in alignment
with our long-term best interests and overall organizational strategy. Part of the rationale is that our Compensation Policy should
encourage our officers to identify with our objectives, and an increase in officer satisfaction and motivation should retain the employment
of high-quality officers in our service over the long term.
Board Practices
Appointment of Directors and Terms of Officers
Pursuant to our articles of association, the size of our board of directors shall
be no less than five persons and no more than eleven persons, including any external directors whose appointment is required by law. The
directors who are not external directors are divided into three classes, as nearly equal in number as possible. At each annual general
meeting, which is required to be held annually, but not more than fifteen months after the prior annual general meeting, the term of one
class of directors expires, and the directors of such class are re-nominated to serve an additional three-year term that expires at the
annual general meeting held in the third year following such election (other than any director nominated for election by Cosmo pursuant
to the Company’s subscription agreement with Cosmo, whose term of office may expire earlier depending on the beneficial ownership
by the Cosmo investor of the Cosmo shares). This process continues indefinitely. A simple majority shareholder vote may elect directors
for a term of less than three years in order to ensure that the three groups of directors have as equal a number of directors as possible
as provided above. The directors of the first class, currently consisting of Eric Swenden and Ofer Tsimchi, will hold office until our
annual general meeting to be held in the year 2024. The directors of the second class, currently consisting of Dror Ben-Asher, Dr. Kenneth
Reed and Alla Felder, will hold office until our annual general meeting to be held in the year 2025. The directors of the third class,
currently consisting of Dr. Shmuel Cabilly and Rick Scruggs, will hold office until our annual general meeting to be held in the year
2026. Until the next annual general meeting, the board of directors may elect new directors to fill vacancies or increase the number of
members of the board of directors up to the maximum number provided in our articles of association. Any director so appointed may hold
office until the first general shareholders’ meeting convened after the appointment. See “Management - Board Practices –
Independent and External Directors – Israeli Companies Law Requirements” below for a description of the adoption by the Company
of the corporate governance exemptions set forth in Regulation 5D of the Israeli Companies Regulations (Relief for Public Companies with
Shares Listed for Trading on a Stock Market Outside of Israel), 5760-2000, including with respect to external directors.
Pursuant to the Israeli Companies Law, one may not be elected and may not serve as
a director in a public company if he or she does not have the required qualifications and the ability to dedicate an appropriate amount
of time for the performance of his duties as a director in the company, taking into consideration, among other things, the special needs
and size of the company. In addition, a public company may convene an annual general meeting of shareholders to elect a director, and
may elect such director, only if prior to such shareholders meeting, the nominee declares, among other things, that he or she possesses
all of the required qualifications to serve as a director (and lists such qualifications in such declaration) and has the ability to dedicate
an appropriate amount of time for the performance of his duties as a director of the company.
Under the Israeli Companies Law, entry by a public company into a contract with a
non-controlling director as to the terms of his office, including exculpation, indemnification or insurance, requires the approval of
the compensation committee, the board of directors and the shareholders of the company.
The Israeli Companies Law requires that the terms of service and engagement of the
chief executive officer, directors or controlling shareholders (or a relative thereof) receive the approval of the compensation committee,
board of directors, and shareholders, subject to limited exceptions. The appointment and terms of office of a company’s officers,
other than directors and the general manager (i.e., chief executive officer) are subject to the approval by first, the company’s
compensation committee; second, the company’s board of directors, in each case subject to the company’s compensation policy,
and then approved by its shareholders. However, in special circumstances, they may approve the appointment and terms of office of officers
inconsistent with such policy, provided that (i) they have considered those provisions that must be included in the compensation
policy according to the Israeli Companies Law and (ii) shareholder approval is obtained (by a majority of shareholders that does
not include the controlling shareholders of the company and any shareholders interested in the approval of the compensation). However,
if the shareholders of the company do not approve a compensation arrangement with an officer inconsistent with the company’s compensation
policy, in special situations the compensation committee and the board of directors may override the shareholders’ decision if each
of the compensation committee and the board of directors provide detailed reasons for their decision. In addition, non-material amendments
to the compensation of a public company’s officers (other than the chief executive officer and the directors) may be approved by
the chief executive officer of the company if the company’s compensation policy establishes that non-material amendments within
the parameters established in the compensation policy may be approved by the chief executive officer, so long as the compensation is consistent
with the company’s compensation policy. An amendment to the Israeli Companies Law requires that the board and shareholders (with
approval by a “special majority” as further discussed below) adopt a compensation policy applicable to the company’s
directors and officers which must take into account, among other things, providing proper incentives to directors and officers, the risk
management of the company, the officer’s contribution to achieving corporate objectives and increasing profits, and the function
of the officer or director. Under the Israeli Companies Law, a “special majority” requires (i) the vote of at least a
majority of the shares held by shareholders who are not controlling shareholders or have a personal interest in the proposal (shares held
by abstaining shareholders are not taken into account); or (ii) that the aggregate number of shares voting against the proposal held
by such shareholders does not exceed 2% of the company’s voting shareholders.
The compensation paid to a public company’s chief executive officer is required
to be approved by, first, the company’s compensation committee; second, the company’s board of directors; and third, unless
exempted under the regulations promulgated under the Israeli Companies Law, by the company’s shareholders (by a special majority
vote as discussed above with respect to the approval of director compensation). However, if the shareholders of the company do not approve
the compensation arrangement with the chief executive officer, the compensation committee and board of directors may override the shareholders’
decision if each of the compensation committee and the board of directors provide a detailed report for their decision. The renewal or
extension of the engagement with a public company’s chief executive officer need not be approved by the shareholders of the company
if the terms and conditions of such renewal or extension are no more beneficial than the previous engagement or there is no substantial
difference in the terms and conditions under the circumstances, and the terms and conditions of such renewal or extension are in accordance
with the company’s compensation policy. The compensation committee and board of directors approval should be in accordance with
the company’s stated compensation policy; however, in special circumstances, they may approve compensation terms of a chief executive
officer that are inconsistent with such policy provided that they have considered those provisions that must be included in the compensation
policy according to the Israeli Companies Law and that shareholder approval was obtained (by a special majority vote as discussed above
with respect to the approval of director compensation). The compensation committee may waive the shareholder approval requirement with
regards to the approval of the initial engagement terms of a candidate for the chief executive officer position, if they determine that
the compensation arrangement is consistent with the company’s stated compensation policy, and that the chief executive officer did
not have a prior business relationship with the company or a controlling shareholder of the company and that subjecting the approval of
the engagement to a shareholder vote would impede the company’s ability to employ the chief executive officer candidate. The engagement
with a public company’s chief executive officer need not be approved by the shareholders of the company with respect to the period
from the commencement of the engagement until the next shareholder meeting convened by the company, if the terms and conditions of such
engagement were approved by the compensation committee and the board of directors of the company, the terms and conditions of such engagement
are in accordance with the company’s compensation policy approved in accordance with the Israeli Companies Law, and if the terms
and conditions of such engagement are no more beneficial than the terms and conditions of the person previously serving in such role or
there is no substantial difference in the terms and conditions of the previous engagement versus the new one under the circumstances,
including the scope of engagement.
We have service contracts with two of our directors, Dror Ben-Asher and Rick Scruggs,
that provide for benefits upon termination of their employment. For more information, see “Management – Compensation.”
In June 2022, our directors and officers voluntarily deferred 20% of their fees or
salary (as the case may be), which amounts may be fully or partially paid at a later date, subject to several conditions. In June 2023
(only the officers) and October 2023, our directors and officers voluntarily deferred an additional sum of the cash compensation due to
them under their respective employment agreements or compensation arrangements, as the case may be. The Company's compensation committee
and board of directors agreed to include a mechanism of a partial repayment of the deferred compensation upon certain terms. The execution
of the letters with the Company's directors is subject to shareholders approval.
Independent and External Directors – Israeli Companies
Law Requirements
We are subject to the provisions of the Israeli Companies Law. The Israeli Minister
of Justice has adopted regulations exempting companies like us whose shares are traded outside of Israel from some provisions of the Israeli
Companies Law.
Under the Israeli Companies Law, except as provided below, companies incorporated
under the laws of Israel whose shares are either (i) listed for trading on a stock exchange or (ii) have been offered to the
public in or outside of Israel and are held by the public (Public Company) are required to appoint at least two external directors.
Our board of directors has resolved to adopt the corporate governance exception set
forth in Regulation 5D of the Israeli Companies Regulations (the “Regulation”). In accordance with the Regulation, a public
company with securities listed on certain foreign exchanges, including the Nasdaq Stock Market, that satisfies the applicable foreign
country laws and regulations that apply to companies organized in that country relating to the appointment of independent directors and
composition of audit and compensation committees and have no controlling shareholder are exempt from the requirement to appoint external
directors or comply with the audit committee and compensation committee composition requirements under the Israeli Companies Law. In accordance
with our board of directors’ resolution, pursuant to the Regulation, we intend to comply with the Nasdaq Listing Rules in connection
with a majority of independent directors on the board of directors and in connection with the composition of each of the audit committee
and the compensation committee, in lieu of such requirements of the Israeli Companies Law.
The Israeli Companies Law provides that a person may not be appointed as an external
director if the person is a relative of the controlling shareholder or if the person or the person’s relative, partner, employer,
someone to whom he is subordinated directly or indirectly or any entity under the person’s control, has, as of the date of the person’s
appointment to serve as external director, or had, during the two years preceding that date, any affiliation with us, our controlling
shareholder, any relative of our controlling shareholder, as of the date of the person’s appointment to serve as external director,
or any entity in which, currently or within the two years preceding the appointment date, the controlling shareholder was the company
or the company’s controlling shareholder; and in a company without a controlling shareholder or without a shareholder holding 25%
or more of the voting rights in the company, any affiliation to the chairman of the board of directors, to the general manager (Chief
Executive Officer), to a shareholder holding 5% or more of the company’s shares or voting rights, or to the chief officer in the
financial or economic field as of the date of the person’s appointment. The term “affiliation” includes:
| • |
an employment relationship; |
| • |
a business or professional relationship maintained on a regular basis; |
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control; and |
| • |
service as an officer, other than service as a director who was appointed in order to serve as an external director of a company
when such company was about to make an initial public offering. |
Under the Israeli Companies Law, an “officer” is defined as a general
manager, chief business manager, deputy general manager, vice general manager, any person filing any of these positions in a company even
if he holds a different title, director or any manager directly subordinate to the general manager.
However, a person may not serve as an external director if the person or the person’s
relative, partner, employer, someone to whom he is subordinated directly or indirectly or any entity under the person’s control
has a business or professional relationship with an entity which has an affiliation with is prohibited as detailed above, even if such
relationship is not on a regular basis (excluding negligible relationship). In addition, an external director may not receive any compensation
other than the compensation permitted by the Israeli Companies Law.
Regulations under the Israeli Companies Law provide for various instances and kinds
of relationships in which an external director will not be deemed to have “affiliation” with the public company for which
he serves or is a candidate for serving as an external director.
No person can serve as an external director if the person’s positions or other
businesses create, or may create, a conflict of interests with the person’s responsibilities as a director or may impair his ability
to serve as a director. In addition, a person who is a director of a company may not be elected as an external director of another
company if, at that time, a director of the other company is acting as an external director of the first company.
Except for the cessation of classification of directors as external directors in connection
with the adoption by certain companies listed on foreign stock exchanges, including the Nasdaq Stock Market, of the corporate governance
exceptions set forth in the Regulation, as described above, until the lapse of two years from termination of office, a company, its
controlling shareholder, or a company controlled by him may not engage an external director, his spouse, or child to serve as an officer
in the company or in any entity controlled by the controlling shareholder and cannot employ or receive professional services for consideration
from that person, and may not grant such person any benefit either directly or indirectly, including through a corporation controlled
by that person. The same restrictions apply to relatives other than a spouse or a child, but such limitations may only apply for one year
from the date such external director ceased to be engaged in such capacity. In addition, if at the time an external director is appointed
all current members of the board of directors who are neither controlling shareholders nor relatives of controlling shareholders are of
the same gender, then the external director to be appointed must be of the other gender.
Under the Israeli Companies Law, a public company is required to appoint as an external
director, a person who has “professional expertise” or a person who has “financial and accounting expertise,”
provided that at least one of the external directors must have “financial and accounting expertise.” However, if at least
one of our other directors (1) meets the independence requirements of the Exchange Act, (2) meets the standards of the Nasdaq
Stock Market for membership on the audit committee and (3) has financial and accounting expertise as defined in the Israeli Companies
Law and applicable regulations, then neither of our external directors is required to possess financial and accounting expertise as long
as both possess other requisite professional qualifications. The determination of whether a director possesses financial and accounting
expertise is made by the board of directors.
Under the Israeli Companies Law regulations, a director having financial and accounting
expertise is a person who, due to his education, experience and qualifications is highly skilled in respect of, and understands, business-accounting
matters and financial reports in a manner that enables him to understand in depth the company’s financial statements and to stimulate
discussion regarding the manner in which the financial data is presented. Under the Israeli Companies Law regulations, a director having
professional expertise is a person who has an academic degree in either economics, business administration, accounting, law or public
administration or another academic degree or has completed other higher education studies, all in an area relevant to the main business
sector of the company or in a relevant area of the board of directors position, or has at least five years of experience in one of
the following or at least five years of aggregate experience in two or more of the following: a senior management position in the
business of a corporation with a substantial scope of business, in a senior position in the public service or a senior position in the
main field of the company’s business.
Under the Israeli Companies Law, each Israeli public company is required to determine
the minimum number of directors with “accounting and financial expertise” that such company believes appropriate in light
of the company’s type, size, the scope and complexity of its activities and other factors. Once a company has made this determination,
it must ensure that the necessary appointments to the board of directors are made in accordance with this determination. Our board of
directors determined that two directors with “accounting and financial expertise” is appropriate for us. Our board of directors
currently has three directors with such “accounting and financial expertise.”
External directors are to be elected by a majority vote at a shareholders’ meeting,
provided that either (1) the majority of shares voted at the meeting, including at least a majority of the votes of the shareholders
who are not controlling shareholders (as defined in the Israeli Companies Law), do not have a personal interest in the appointment (excluding
a personal interest which did not result from the shareholder’s relationship with the controlling shareholder), vote in favor of
the election of the director without taking abstentions into account; or (2) the total number of shares of the above-mentioned shareholders
who voted against the election of the external director does not exceed two percent of the aggregate voting rights in the company.
The initial term of an external director is three years and may be extended for
two additional three-year terms under certain circumstances and conditions. Nevertheless, regulations under the Israeli Companies Law
provide that companies, whose shares are listed for trading the Nasdaq Stock Market, may appoint an external director for additional three-year
terms, under certain circumstances and conditions. External directors may be removed only in a general meeting, by the same percentage
of shareholders as is required for their election, or by a court, and in both cases only if the external directors cease to meet the statutory
qualifications for their appointment or if they violate their duty of loyalty to us. Each committee authorized to exercise any of
the powers of the board of directors is required to include at least one external director and the audit committee is required to include
all of the external directors.
An external director is entitled to compensation and reimbursement of expenses in
accordance with regulations promulgated under the Israeli Companies Law and is otherwise prohibited from receiving any other compensation,
directly or indirectly, in connection with serving as a director except for certain exculpation, indemnification and insurance provided
by the company.
Committees
Israeli Companies Law Requirements
Our board of directors has established three standing committees, the audit committee,
the compensation committee, and the investment committee.
Audit Committee
Under the Israeli Companies Law, the board of directors of a public company must appoint
an audit committee. Except in the case of companies listed on foreign stock exchanges, including the Nasdaq Stock Market, which have adopted
the corporate governance exceptions set forth in the Regulation, such as us, as described under “- Independent and External Directors –
Israeli Companies Law Requirements”, who are exempt from the audit committee composition requirements under the Companies Law, an
audit committee of a public company under the Israeli Companies Law must be comprised of at least three directors including all of the
external directors.
In addition, the Israeli Companies Law provides that the majority of the members of
the audit committee, as well as the majority of members present at audit committee meetings, must be “independent” (as such
term is defined below) and the chairman of the audit committee must be an external director. In addition, the following are disqualified
from serving as members of the audit committee: the chairman of the board of directors, the controlling shareholder and her or his relatives,
any director employed by the company or by its controlling shareholder or by an entity controlled by the controlling shareholder, a director
who regularly provides services to the company or to its controlling shareholder or to an entity controlled by the controlling shareholder,
and any director who derives most of its income from the controlling shareholder. Any persons not qualified from serving as a member of
the audit committee may not be present at the audit committee meetings during the discussion and at the time decisions are made, unless
the chairman of the audit committee determines that the presence of such person is required to present a matter to the meeting or if such
person qualifies under an available exemption in the Israeli Companies Law.
An “independent director” is defined as an external director or a director
who meets the following conditions: (i) satisfies certain conditions for appointment as an external director (as described above)
and the audit committee has determined that such conditions have been met and (ii) has not served as a director of the company for
more than nine consecutive years, with any interruption of up to two years in service not being deemed a disruption in the continuity
of such service.
The role of the audit committee under the Israel Companies Law is to examine suspected
flaws in our business management, in consultation with the internal auditor or our independent accountants and suggest an appropriate
course of action in order to correct such flaws. In addition, the approval of the audit committee is required to effect specified actions
and related party transactions.
Additional functions to be performed by the audit committee include, among others,
the following:
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the determination whether certain related party actions and transactions are “material” or “extraordinary”
for purposes of the requisite approval procedures; |
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to determine whether to approve actions and transactions that require audit committee approval under the Israel Companies Law;
|
| • |
to assess the scope of work and compensation of the company’s independent accountant; |
| • |
to assess the company’s internal audit system and the performance of its internal auditor and if the necessary resources have
been made available to the internal auditor considering the company’s needs and size; and |
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to determine arrangements for handling complaints of employees in relation to suspected flaws in the business management of the company
and the protection of the rights of such employees. |
Our audit committee also serves as our financial statements committee. The members
of our audit committee are Alla Felder (chairperson), Ofer Tsimchi, Eric Swenden and Dr. Kenneth Reed.
An amendment to the Israeli Companies Law allows a company whose audit committee’s
composition meets the requirements set for the composition of a compensation committee (as further detailed below) to have one committee
acting as both audit and compensation committees. As of the date of this prospectus, we have not elected to have one committee acting
as both the audit and the compensation committees.
Compensation Committee
According to the Israeli Companies Law, the board of directors of a public company
must establish a compensation committee. Except in the case of companies listed on foreign stock exchanges, including the Nasdaq Stock
Market, which have adopted the corporate governance exceptions set forth in the Regulation, such as us, as described under “- Independent
and External Directors – Israeli Companies Law Requirements”, who are exempt from the compensation committee composition
requirements under the Companies Law, the Israeli Companies Law requires that the compensation committee must consist of at least three
directors and include all of the external directors who must constitute a majority of its members. The remaining members must be qualified
to serve on the audit committee pursuant to the Israeli Companies Law requirements described above. The compensation committee chairman
must be an external director and any persons not qualified from serving as a member of the compensation committee may not be present at
the compensation committee meetings during the discussion and at the time decisions are made, unless the chairman of the compensation
committee determines that the presence of such person is required to present a matter to the meeting or if such person qualifies under
an available exemption in the Israeli Companies Law.
Our compensation committee, which consists of Ofer Tsimchi (chairman), Dr. Kenneth
Reed and Alla Felder, administers issues relating to our global compensation plan with respect to our employees, directors, and consultants.
Our compensation committee is responsible for making recommendations to the board of directors regarding the issuance of share options
and compensation terms for our directors and officers and for determining salaries and incentive compensation for our executive officers
and incentive compensation for our other employees and consultants. Each of the members of the compensation committee is “independent”
as such term is defined in the Nasdaq Listing Rules.
Investment Committee
Our investment committee, which consists of Eric Swenden (chairman), Alla Felder and
Ofer Tsimchi, assists the board in fulfilling its responsibilities with respect to our financial and investment strategies and policies,
including determining policies and guidelines on these matters and monitoring implementation. It is also authorized to approve certain
financial transactions and review risk factors associated with management of our finances and the mitigation of such risks, as well as
financial controls and reporting and various other finance-related matters.
Nasdaq Stock Market Requirements
Under the Nasdaq Listing Rules, we are required to maintain an audit committee consisting
of at least three members, all of whom are independent and are financially literate and one of whom has accounting or related financial
management expertise.
The independence requirements of Rule 10A‑3 of the Exchange Act implement
two basic criteria for determining independence:
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audit committee members are barred from accepting directly or indirectly any consulting, advisory or other compensatory fee from
the issuer or an affiliate of the issuer, other than in the member’s capacity as a member of the board of directors and any board
committee; and |
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audit committee members may not be an “affiliated person” of the issuer or any subsidiary of the issuer apart from her
or his capacity as a member of the board of directors and any board committee. |
The SEC has defined “affiliate” for non-investment companies as “a
person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with,
the person specified.” The term “control” is intended to be consistent with the other definitions of this term under
the Exchange Act, as “the possession, direct or indirect, of the power to direct or cause the direction of the management and policies
of a person, whether through the ownership of voting securities, by contract, or otherwise.” A safe harbor has been adopted by the
SEC, under which a person who is not an executive officer or 10% shareholder of the issuer would be deemed not to have control of the
issuer.
In accordance with the Sarbanes-Oxley Act of 2002 and the Nasdaq Listing Rules, the
audit committee is directly responsible for the appointment, compensation, and performance of our independent auditors. In addition, the
audit committee is responsible for assisting the board of directors in reviewing our annual financial statements, the adequacy of our
internal control and our compliance with legal and regulatory requirements. The audit committee also oversees our major financial risk
exposures and policies for managing such potential risks, discusses with management and our independent auditor significant risks or exposure
and assesses the steps management has taken to minimize such risk.
As noted above, the members of our audit committee include Alla Felder, Ofer Tsimchi
Eric Swenden and Dr. Kenneth Reed, with Ms. Felder serving as chairperson. All members of our audit committee meet the requirements
for financial literacy under the Nasdaq Listing Rules. Our board of directors has determined that each of Ms. Alla Felder, Mr. Ofer
Tsimchi, Mr. Eric Swenden and Dr. Kenneth Reed is an audit committee financial expert as defined by the SEC rules and all members
of the audit committee have the requisite financial experience as defined by the Nasdaq Listing Rules. Each of the members of the audit
committee is “independent” as such term is defined in Rule 10A‑3(b)(1) under the Exchange Act.
Diversity of the Board of Directors
We are committed to diversity among our Board. The ability to incorporate a wide range
of viewpoints, backgrounds, skills, and experience is critical to our success. By bringing together individuals with varying backgrounds,
expertise, and perspectives into an inclusive and collaborative work environment, we believe we can better achieve our corporate objectives
and deliver long-term, sustained value for our shareholders.
We recognize that gender diversity is a significant aspect of diversity and acknowledge
the important role that women with appropriate and relevant skills and experience can play in contributing to the diversity of thought
on the Board. As such, when reviewing and assessing the qualifications of possible nominees to the Board, our Board is guided by the following
considerations:
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the competencies and skills necessary for the Board as a whole should possess; |
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the experience and skill each new nominee will bring to the Board; |
| • |
the diversity of the Board as a whole and whether the new nominee would enhance such diversity; and |
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whether the nominees can devote sufficient time and resources to his or her duties as a Board member. |
Due to the size of the Company and Board, our activities, and our current number of
employees across two geographies, we have not yet set measurable objectives or adopted a formal policy for achieving gender diversity
on the Board. However, our Board and the Company continues to monitor and consider the level of female representation on the Board and,
where appropriate, aim to recruit qualified female candidates as part of the selection process to fill vacancies. We will consider establishing
measurable objectives as it develops further.
Internal Auditor
Under the Israeli Companies Law, the board of directors must appoint an internal auditor
proposed by the audit committee. The role of the internal auditor is, among others, to examine whether our actions comply with the law
and orderly business procedure. Under the Israeli Companies Law, the internal auditor may not be an interested party, an officer or a
director, a relative of an interested party, or a relative of an officer or a director, nor may the internal auditor be our independent
accountant or its representative. In January 2018, Ms. Sharon Cohen, Lead Engagement Partner, Head of LS & HC Industry
at Deloitte Israel, was elected to serve as our internal auditor. In May 2023, Ms. Sharon Cohen was substituted auditor by a different
member of Deloitte Israel, Ms. Tal Yaron.
Duties of Directors and Officers and Approval of Specified Related
Party Transactions under the Israeli Companies Law
Fiduciary Duties of Officers
The Israeli Companies Law imposes a duty of care and a duty of loyalty on all directors
and officers of a company, including directors and executive officers. The duty of care requires a director or an officer to act with
the level of care, according to which a reasonable director or officer in the same position would have acted under the same circumstances.
The duty of care includes a duty to use reasonable means to obtain:
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information on the appropriateness of a given action brought for the directors’ or officer’s approval or performed by
such person by virtue of such person’s position; and |
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all other important information pertaining to the previous actions. |
The duty of loyalty requires a director or an officer to act in good faith and for
the benefit of the company and includes a duty to:
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refrain from any action involving a conflict of interest between the performance of the director’s or officer’s duties
in the company and such person’s personal affairs; |
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refrain from any activity that is competitive with the company’s business; |
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refrain from usurping any business opportunity of the company to receive a personal gain for the director, officer or others; and
|
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disclose to the company any information or documents relating to a company’s affairs which the director or officer has received
due to such person’s position as a director or an officer. |
Under the Israeli Companies Law, subject to certain exceptions, directors’ compensation
arrangements require the approval of the compensation committee, the board of directors and the shareholders.
The Israeli Companies Law requires that a director or an officer of a company promptly
and, in any event, not later than the first board meeting at which the transaction is discussed, disclose any personal interest that he
may have, and all related material facts or document known to such person, in connection with any existing or proposed transaction by
the company. A personal interest of a director or an officer (which includes a personal interest of the director’s or officer’s
relative) is in a company in which the director or officer or the director’s or officer’s relative is: (i) a shareholder
which holds 5% or more of a company’s share capital or its voting rights, (ii) a director or a general manager, or (iii) in
which the director or officer has the right to appoint at least one director or the general manager. A personal interest also includes
a personal interest of a person who votes according to a proxy of another person, even if the other person has no personal interest, and
a personal interest of a person who gave a proxy to another person to vote on his behalf – in each case, regardless whether
discretion with respect to how to vote lies with the person voting or not. In the case of an extraordinary transaction, the director’s
or the officer’s duty to disclose also applies to a personal interest of the director or officer’s relative.
Under the Israeli Companies Law, an extraordinary transaction is a transaction:
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other than in the ordinary course of business; |
| • |
other than on market terms; or |
| • |
that is likely to have a material impact on the company’s profitability, assets or liabilities. |
Under the Israeli Companies Law, once a director or an officer complies with the above
disclosure requirement, the board of directors may approve an ordinary transaction between the company and a director or an officer, or
a third party in which a director or an officer has a personal interest, unless the articles of association provide otherwise. A transaction
that does not benefit the company’s interest cannot be approved. Subject to certain exceptions, the compensation committee and the
board of directors must approve the conditions and term of office of an officer (who is not a director).
If the transaction is an extraordinary transaction, both the audit committee and the
board of directors, in that order, must approve the transaction. Under specific circumstances, shareholder approval may also be required.
Whoever has a personal interest in a matter, which is considered at a meeting of the board of directors or the audit committee, may not
be present at this meeting or vote on this matter. However, if the chairman of the board of directors or the chairman of the audit committee
has determined that the presence of such person is required to present a matter at the meeting; such officer holder may be present at
the meeting. Notwithstanding the foregoing, if the majority of the directors have a personal interest in a matter, a director who has
the personal interest in this matter may be present at this meeting or vote on this matter, but the board of directors’ decision
requires the shareholder approval.
Controlling Shareholder Transactions and Actions
Under the Israeli Companies Law, the disclosure requirements which apply to a director
or an officer also apply to a controlling shareholder of a public company and to a person who would become a controlling shareholder as
a result of a private placement. A controlling shareholder includes a person who has the ability to direct the activities of a company,
other than if this power derives solely from his/her position on the board of directors or any other position with the company. In addition,
for such purposes, a controlling shareholder includes a shareholder that holds 25% or more of the voting rights in a public company if
no other shareholder owns more than 50% of the voting rights in the company. Extraordinary transactions with a controlling shareholder
or in which a controlling shareholder has a personal interest, including a private placement in which a controlling shareholder has a
personal interest; and the terms of engagement of the company, directly or indirectly, with a controlling shareholder or his or her relative
(including through a corporation controlled by a controlling shareholder), regarding the company’s receipt of services from the
controlling shareholder, and if such controlling shareholder is also a director or an officer of the company or an employee, regarding
his or her terms of office and employment, require the approval of the audit committee, the board of directors and the shareholders of
the company, in that order. The shareholders’ approval must include either:
| • |
a majority of the shareholders who have no personal interest in the transaction and who are participating in the voting, in person,
by proxy or by written ballot, at the meeting (votes abstaining not being taken into account); or |
| • |
the total number of shares voted against the proposal by shareholders without a personal interest does not exceed 2% of the aggregate
voting rights in the Company. |
In addition, any such transaction whose term is more than three years requires
the above-mentioned approval every three years, unless, with respect to transactions not involving the receipt of services or compensation,
the audit committee approves a longer term as reasonable under the circumstances.
However, under regulations, promulgated pursuant to the Israeli Companies Law, certain
transactions between a company and its controlling shareholders, or the controlling shareholder’s relative, do not require shareholder
approval.
For information concerning the direct and indirect personal interests of certain of
our directors or officers and principal shareholders in certain transactions with us, see “Major Shareholders – Related
Party Transactions.”
The Israeli Companies Law requires that every shareholder that participates, either
by proxy or in person, in a vote regarding a transaction with a controlling shareholder indicate whether or not that shareholder has a
personal interest in the vote in question, the failure of which results in the invalidation of that shareholder’s vote.
The Israeli Companies Law further provides that an acquisition of shares or voting
rights in a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would become a holder
of 45% of the voting rights of the company, unless there is a holder of more than 45% of the voting rights of the company or would become
a holder of 25% of the voting rights unless there is another person holding 25% of the voting rights. This restriction does not apply
to:
| • |
an acquisition of shares in a private placement, if the acquisition had been approved in a shareholders meeting under certain circumstances;
|
| • |
an acquisition of shares from a holder of at least 25% of the voting rights, as a result of which a person would become a holder
of at least 25% of the voting rights; and |
| • |
an acquisition of shares from a holder of more than 45% of the voting rights, as a result of which the acquirer would become a holder
of more than 45% of the voting rights in the company. |
The Israeli Companies Law further provides that a shareholder has a duty to act in
good faith toward the company and other shareholders when exercising his rights and duties and must refrain from oppressing other shareholders,
including in connection with the voting at a shareholders’ meeting on:
| • |
any amendment to the articles of association; |
| • |
an increase in the company’s authorized share capital; |
| • |
a merger; or |
| • |
approval of certain transactions with control persons and other related parties, which require shareholder approval. |
In addition, any controlling shareholder, any shareholder who knows that it possesses
power to determine the outcome of a shareholder vote and any shareholder who, pursuant to the provisions of a company’s articles
of association, has the power to appoint or prevent the appointment of a director or an officer in the company, or has any other power
over the company, is under a duty to act with fairness toward the company. Under the Israeli Companies Law, the laws that apply to a breach
of a contract will generally also apply to a breach of the duty of fairness.
Exemption, Insurance, and Indemnification of Directors and Officers
Exemption of Officers and Directors
Under the Israeli Companies Law, a company may not exempt an officer or director from
liability with respect to a breach of his duty of loyalty, but may exempt in advance an officer or director from liability to the company,
in whole or in part, with respect to a breach of his duty of care, except in connection with a prohibited distribution made by the company,
if so provided in its articles of association. Our articles of association provide for this exemption from liability for our directors
and officers.
Directors’ and Officers’ Insurance
The Israeli Companies Law and our articles of association provide that, subject to
the provisions of the Israeli Companies Law, we may obtain insurance for our directors and officers for any liability stemming from any
act performed by an officer or director in his capacity as an officer or director, as the case may be with respect to any of the following:
| • |
a breach of such officer’s or director’s duty of care to us or to another person; |
| • |
a breach of such officer’s or director’s duty of loyalty to us, provided that such officer or director acted in good
faith and had reasonable cause to assume that his act would not prejudice our interests; |
| • |
a financial liability imposed upon such officer or director in favor of another person; |
| • |
financial liability imposed on the officer or director for payment to persons or entities harmed as a result of violations in administrative
proceedings as described in Section 52(54)(a)(1)(a) of the Israeli Securities Law (“Party Harmed by the Breach”);
|
| • |
expenses incurred by such officer or director in connection with an administrative proceeding conducted in this matter, including
reasonable litigation expenses, including legal fees; or |
| • |
a breach of any duty or any other obligation, to the extent insurance may be permitted by law. |
Pursuant to the Compensation Policy, we may obtain a directors’ and officers’
liability insurance policy, which would apply to our or our subsidiaries’ directors and officers, as they may be, from time to time,
subject to the following terms and conditions: (a) the total insurance coverage under the insurance policy may not exceed $100 million;
and (b) the purchase of such policy must be approved by the Compensation Committee (and, if required by law, by the board of directors)
which shall determine that such policy reflects the current market conditions and that it does not materially affect the Company's profitability,
assets or liabilities. In addition, pursuant to our Compensation Policy, should we sell our operations (in whole or in part) or in case
of a merger, spin-off or any other significant business combination involving us or part or all of our assets, we may obtain a director’s
and officers’ liability insurance policy (run-off) for our directors and officers in office with regard to the relevant operations,
subject to the following terms and conditions: (a) the insurance term may not exceed seven years; (b) the coverage amount may not exceed
$100 million. ; and (c) the purchase of such policy must be approved by the Compensation Committee (and, if required by law, by the board
of directors) which shall determine that such policy reflects the current market conditions and that it does not materially affect the
Company's profitability, assets or liabilities. The Compensation Policy is in effect for three years from the 2022 annual general meeting.
Pursuant to the foregoing approvals, we carry directors’ and officers’
liability insurance. This insurance is renewed on an annual basis.
Indemnification of Officers and Directors
The Israeli Companies Law provides that a company may indemnify an officer or director
for payments or expenses associated with acts performed in his capacity as an officer or director of the company, provided the company’s
articles of association include the following provisions with respect to indemnification:
| • |
a provision authorizing the company to indemnify an officer or director for future events with respect to a monetary liability imposed
on him in favor of another person pursuant to a judgment (including a judgment given in a settlement or an arbitrator’s award approved
by the court), so long as such indemnification is limited to types of events which, in the board of directors’ opinion, are foreseeable
at the time of granting the indemnity undertaking given the company’s actual business, and in such amount or standard as the board
of directors deems reasonable under the circumstances. Such undertaking must specify the events that, in the board of directors’
opinion, are foreseeable in view of the company’s actual business at the time of the undertaking and the amount or the standards
that the board of directors deemed reasonable at the time; |
| • |
a provision authorizing the company to indemnify an officer or director for future events with respect to reasonable litigation expenses,
including counsel fees, incurred by an officer or director in which he is ordered to pay by a court, in proceedings that the company institutes
against him or instituted on behalf of the company or by another person, or in a criminal charge of which he was acquitted, or a criminal
charge in which he was convicted of a criminal offense that does not require proof of criminal intent; |
| • |
a provision authorizing the company to indemnify an officer or director for future events with respect to reasonable litigation fees,
including attorney’s fees, incurred by an officer or director due to an investigation or proceeding filed against him by an authority
that is authorized to conduct such investigation or proceeding, and that resulted without filing an indictment against him and without
imposing on him financial obligation in lieu of a criminal proceeding, or that resulted without filing an indictment against him but with
imposing on him a financial obligation as an alternative to a criminal proceeding in respect of an offense that does not require the proof
of criminal intent or in connection with a monetary sanction; |
| • |
a provision authorizing the company to indemnify an officer or director for future events with respect to a Party Harmed by the Breach;
|
| • |
a provision authorizing the company to indemnify an officer or director for future events with respect to expenses incurred by such
officer or director in connection with an administrative proceeding, including reasonable litigation expenses, including legal fees; and
|
Limitations on Insurance, Exemption and Indemnification
The Israeli Companies Law and our articles of association provide that a company may
not exempt or indemnify a director or an officer nor enter into an insurance contract, which would provide coverage for any monetary liability
incurred as a result of any of the following:
| • |
a breach by the officer or director of his duty of loyalty, except for insurance and indemnification where the officer or director
acted in good faith and had a reasonable basis to believe that the act would not prejudice the company; |
| • |
a breach by the officer or director of his duty of care if the breach was done intentionally or recklessly, except if the breach
was solely as a result of negligence; |
| • |
any act or omission done with the intent to derive an illegal personal benefit; or |
| • |
any fine, civil fine, monetary sanctions, or forfeit imposed on the officer or director. |
In addition, under the Israeli Companies Law, exemption of, indemnification of, and
procurement of insurance coverage for, our directors and officers must be approved by our audit committee and board of directors and,
in specified circumstances, by our shareholders.
Letters of Indemnification
We may provide a commitment to indemnify in advance any director or officer of ours
in the course of such person’s position as our director or officer, all subject to the letter of indemnification, as approved by
our shareholders from time to time and in accordance with our articles of association. We may provide retroactive indemnification to any
officer to the extent allowed by the Israeli Companies Law. As approved by our shareholders on May 13, 2022, the amount of the advance
indemnity is limited to the higher of 25% of our then shareholders’ equity, per our most recent annual financial statements, or
$10 million.
As part of the indemnification letters, we exempted our directors and officers, in
advance, to the extent permitted by law, from any liability for any damage incurred by them, either directly or indirectly, due to the
breach of an officer’s or director’s duty of care vis-à-vis us, within his acts
in his capacity as an officer or director. The letter provides that so long as not permitted by law, we do not exempt an officer or director
in advance from his liability to us for a breach of the duty of care upon distribution, to the extent applicable to the officer or director,
if any. The letter also exempts an officer or director from any liability for any damage incurred by him, either directly or indirectly,
due to the breach of the officer or director’s duty of care vis-à-vis us, by his acts
in his capacity as an officer or director prior to the letter of exemption and indemnification becoming effective.
Employees
As of December 31, 2023, we had 53 employees, of which 15 provide services in Israel
and 38 in the U.S. In addition, we also receive services from 8 consultants, of which 2 are in the U.S., 4 in Canada and 2 in Israel.
|
As of December 31, |
||||||||||||||||||||||||
|
2023 |
2022 |
2021 |
||||||||||||||||||||||
|
Company |
Company |
Company |
||||||||||||||||||||||
|
Employees |
Consultants |
Employees |
Consultants |
Employees |
Consultants |
|||||||||||||||||||
|
Management and administration |
14 |
— |
15 |
— |
17 |
— |
||||||||||||||||||
|
Research and development |
1 |
8 |
2 |
10 |
2 |
10 |
||||||||||||||||||
|
Commercial operations |
38 |
— |
96 |
— |
182 |
— |
||||||||||||||||||
While none of our employees are party to a collective bargaining agreement, certain
provisions of the collective bargaining agreements between the Histadrut (General Federation of Labor in Israel) and the Coordination
Bureau of Economic Organizations (including the Industrialists’ Associations) are applicable to our employees by order of the Israel
Ministry of Labor. These provisions primarily concern the length of the workday, minimum daily wages for professional workers, pension
fund benefits for all employees, insurance for work-related accidents, procedures for dismissing employees, determination of severance
pay and other conditions of employment. We generally provide our employees with benefits and working conditions beyond the required minimums.
We have never experienced any employment-related work stoppages and believe our
relationship with our employees is good.
Legal Proceedings
From time to time, we may become a party to legal proceedings and claims in the ordinary
course of business. On February 22, 2021, Aether filed a complaint against RedHill U.S. in the United States District Court for the District
of Delaware. We refer to this matter as the Aether Litigation. The complaint asserts that our marketing of the Movantik® product
infringes certain U.S. Patents held by Aether (the "Aether Patents"). Aether has asserted the Aether Patents against other entities previously
involved in the marketing of Movantik®. The complaint requests customary remedies for patent infringement. In November 2022, the
Company and AstraZeneca signed a settlement agreement, according to which AstraZeneca will be solely responsible for any costs incurred
in the defense of this litigation, including any settlement amounts, damages awarded, and legal fees.
On September 2, 2022, the Company filed a lawsuit against Kukbo in the Supreme Court
of the State of New York, County of New York, Commercial Division, as a result of Kukbo’s default in delivering us $5.0 million
under the Subscription Agreement, dated October 25, 2021, in exchange for ADSs we were to issue to Kukbo, and in delivering to us the
$1.5 million due under the Exclusive License Agreement. Kukbo thereafter filed counterclaims with various allegation, such as breach of
contract, misrepresentation and the breach of the duty of good faith and failure dealing. The parties continue to proceed with discovery
and depositions, and we plan to continue to rigorously pursue the Kukbo litigation. On November 20, 2023 we entered into a Contingency
Fee Agreement with our legal firm, H&B under which certain legal costs related to the Kukbo litigation will be assumed by H&B.
The Company strongly believes in the merits of its lawsuit against Kukbo and will continue to decisively pursue a favorable judgment.
BENEFICIAL
OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of our outstanding Ordinary Shares as of February 5, 2024, of each of our directors and executive officers individually and
as a group based on information provided to us by our directors and executive officers. As of the date of this prospectus, there is no
person or entity known to us to beneficially own 5.0% or more of our outstanding Ordinary Shares. The information in this table is based
on 11,881,211,000 Ordinary Shares outstanding as of such date. The number of Ordinary Shares beneficially owned by a person includes Ordinary
Shares subject to RSUs that due to vest within 60 days of February 5, 2024, and to options held by that person that were currently exercisable
at, or exercisable within 60 days of February 5, 2024. The Ordinary Shares issuable under these options are treated as if they were outstanding
for purposes of computing the percentage ownership of the person holding these options but not the percentage ownership of any other person.
None of the holders of the Ordinary Shares listed in this table have voting rights different from other holders of the Ordinary Shares.
| * |
Less than 1.0% |
| (1) |
Includes RSUs which are scheduled to vest into ADSs equivalent to 8,000 ordinary shares within 60 days of February 5, 2024, and options
to purchase 559,200 Ordinary Shares exercisable within 60 days of February 5, 2024. The exercise price of these options ranges between
$194.8 and $280 per share and the options expire between 2024 and 2031. Number of shares beneficially held also includes shares held by
family members. |
| (2) |
Includes RSUs which are scheduled to vest into ADSs equivalent to 8,400 ordinary shares within 60 days of February 5, 2024, and options
to purchase 544,800 Ordinary Shares exercisable within 60 days of February 5, 2024. The exercise price of these options ranges between
$194.8 and $283.2 per share and the options expire between 2024 and 2031. |
| (3) |
Includes RSUs which are scheduled to vest into ADSs equivalent to 8,000 ordinary shares within 60 days of February 5, 2024, and options
to purchase 534,800 Ordinary Shares exercisable within 60 days of February 5, 2024. The exercise price of these options ranges between
$194.8 and $283.2 per share and the options expire between 2024 and 2031. |
| (4) |
Includes RSUs which are scheduled to vest into ADSs equivalent to 8,400 ordinary shares within 60 days of February 5, 2024, and options
to purchase 694,800 Ordinary Shares exercisable within 60 days of February 5, 2024. The exercise price of these options ranges between
$194.8 and $283.2 per share and the options expire between 2024 and 2031. |
| (5) |
Includes RSUs which are scheduled to vest into ADSs equivalent to 8,400 ordinary shares within 60 days of February 5, 2024, and options
to purchase 374,800 Ordinary Shares exercisable within 60 days of February 5, 2024. The exercise price of these options ranges between
$194.8 and $283.2 per share and the options expire between 2029 and 2031. |
| (6) |
Includes options to purchase 3,924,800 Ordinary Shares exercisable within 60 days of February 5, 2024. The exercise price of these
options ranges between $194.8 and $283.2 per share and the options expire between 2024 and 2031. |
| (7) |
Includes RSUs which are scheduled to vest into ADSs equivalent to 289,600 ordinary shares within 60 days of February 5, 2024, and
options to purchase 2,715,600 Ordinary Shares exercisable within 60 days of February 5, 2024. The exercise price of these options ranges
between $194.8 and $283.2 per share, and the options expire between 2024 and 2031. |
| (8) |
Includes RSUs which are scheduled to vest into ADSs equivalent to 532,800 ordinary shares within 60 days of February 5, 2024, and
options to purchase 2,487,600 Ordinary Shares exercisable within 60 days of February 5, 2024. The exercise price of these options ranges
between $194.8 and $283.2 per share and the options expire between 2024 and 2031. |
| (9) |
Includes RSUs which are scheduled to vest into ADSs equivalent to 534,400 ordinary shares within 60 days of February 5, 2024, and
options to purchase 2,532,400 Ordinary Shares exercisable within 60 days of February 5, 2024. The exercise price of these options ranges
between $194.8 and $283.2 per share and the options expire between 2024 and 2031. |
| (10) |
Includes RSUs which are scheduled to vest into ADSs equivalent to 340,000 ordinary shares within 60 days of February 5, 2024, and
options to purchase 2,225,200 Ordinary Shares exercisable within 60 days of February 5, 2024. The exercise price of these options ranges
between $194.8 and $283.2 per share, and the options expire between 2024 and 2031. |
| (11) |
Includes RSUs which are scheduled to vest into ADSs equivalent to 448,000 ordinary shares within 60 days of February 5, 2024, and
options to purchase 375,200 Ordinary Shares exercisable within 60 days of February 5, 2024. The exercise price of these options ranges
between $200 and $308.8 per share and the options expire between 2024 and 2031. |
| (12) |
Includes options to purchase 1,735,600 Ordinary Shares exercisable within 60 days of February 5, 2024. The exercise price of these
options ranges between $264.8 and $280 per share and the options expire between 2024 and 2031. |
Award Plans
Amended and Restated Award Plan
Our Award Plan provides for the granting of Ordinary Shares, ADSs,
stock options under various tax regimes in Israel and the U.S., RSUs, restricted shares, and other share-based awards to our directors,
officers, employees, consultants and service providers and individuals who are their employees, and to the directors, officers, employees,
consultants and service providers of our subsidiaries and affiliates. The Award Plan provides for awards to be issued at the determination
of our board of directors in accordance with applicable laws. As of February 6, 2024, there were 110,151,600 Ordinary Shares issuable
upon the exercise or vesting of outstanding awards under the Award Plan and 1,290,507,198 Ordinary Shares available for future issuance
under the Award Plan. Our Award Plan provides that the maximum number of Ordinary Shares that may be issued under the Award Plan will
automatically be increased on January 1, April 1, July 1 and October 1 of each calendar year such that immediately following such increase
the maximum number of Ordinary Shares that may be issued under the Award Plan will be equal to sixteen and a half percent (16.5%) of the
number of outstanding Ordinary Shares on a fully-diluted basis on the last day of immediately preceding fiscal quarter.
SELLING SHAREHOLDERS
January 2024 Offering
On January 26, 2024, we issued to certain institutional investors (i) in a registered
direct offering, 10,000,000 ADSs at a purchase price of $0.80 per ADS and (ii) in a concurrent private offering, Warrants to purchase
10,000,000 ADSs. The Warrants have an exercise price of $1.00 per ADS, are exercisable immediately and will expire five years from the
date of issuance.
The issuance of the Warrants was exempt from the registration requirements of the
Securities Act pursuant to an exemption provided by Section 4(a)(2) thereof and Rule 506 of Regulation D promulgated thereunder as a transaction
by an issuer not involving a public offering. Pursuant to the Purchase Agreement with the institutional investors, we agreed, among other
things, to file a registration statement with the SEC for purposes of registering the resale of the ADSs issuable upon exercise of the
Warrants as soon as practicable (and in any event within fifteen (15) calendar days of the date of Purchase Agreement) and to keep
such registration statement effective until such time as the investors, their successors and assigns, as applicable, no longer own any
Warrants or the ADSs issuable upon exercise thereof.
We are registering the resale by the selling shareholders of the ADSs issuable upon
exercise of the Warrants in order to permit the selling shareholders to offer such ADSs for resale from time to time pursuant to this
prospectus. The selling shareholders may also sell, transfer or otherwise dispose of all or a portion of the ADSs in transactions exempt
from the registration requirements of the Securities Act, or pursuant to another effective registration statement covering those.
Placement Agent Warrants
As part of the compensation to the
Placement Agent in connection with the January 2024 Offering, pursuant to the Engagement Letter, we issued to the Placement Agent’s
designees unregistered Warrants to purchase up to an aggregate of 600,000 ADSs at an exercise price of $1.00 per ADS. The Warrants issued
to the Placement Agent are exercisable immediately and will expire five years from the commencement of the sales pursuant to the January
2024 Offering.
The resale of the ADSs issuable upon exercise of the Warrants issued to the Placement
Agent and the Ordinary Shares underlying the ADSs is being registered in this registration statement.
Relationships with the Selling Shareholders
Except for the investment by Armistice Capital Master Fund Ltd. (“Armistice
Capital”) in the registered direct offering and concurrent private placement of warrants consummated in May 2022, the registered
direct offering consummated in April 2023, the July 2023 Offering, the July 2023 Warrant Amendment, the July 2023 Warrant Exercise Transaction
and the September 2023 Warrant Exercise Transaction, Armistice Capital has not had any material relationship with us within the past three
years. Except for the investment by each of Sabby Volatility Warrant Master Fund, Ltd. (“Sabby”) and Lind Global Fund II LP
(“Lind”) in the underwritten offering consummated in December 2022, the July 2023 Offering, the July 2023 Warrant Exercise
Transaction and the September 2023 Warrant Exercise Transaction, neither Sabby nor Lind has had any material relationship with us within
the past three years. Neither Intracoastal Capital LLC (“Intracoastal”) nor CVI Investments, Inc. (“CVI”) has
had any material relationship with us within the past three year.
The Placement Agent has been engaged in investment banking, advisory and other commercial
dealings in the ordinary course of business with us or our affiliates for which it has received customary compensation. The Placement
Agent acted as the placement agent in connection with several offerings of our securities in the past three years, and it received compensation
for each such offering.
Information About Selling Shareholders Offering
The Ordinary Shares represented by the Offered ADSs being offered by the selling shareholders
are those issued or issuable upon exercise of the Warrants described above. We are registering the Offered ADSs in order to permit the
selling shareholders to offer the Offered ADSs for resale from time to time.
Throughout this prospectus, when we refer to the Offered ADSs being registered on
behalf of the selling shareholder, we are referring to the Offered ADSs issued or issuable upon cash exercise of the Warrants, and when
we refer to the selling shareholders in this prospectus we are referring to each selling shareholder identified below, and, as applicable,
permitted transferees or other successors-in-interest of the selling shareholders that may be identified in a supplement to this prospectus
or, if required, a post-effective amendment to the registration statement of which this prospectus is a part.
The table below provides information regarding the beneficial ownership of the Ordinary
Shares represented by the Offered ADSs by the selling shareholders. The second column lists the number of Ordinary Shares represented
by the Offered ADSs beneficially owned by the selling shareholders, based on their beneficial ownership of the Offered ADSs, as of February
7, 2024, assuming the exercise of the Warrants held by each selling shareholder on that date, without regard to any limitations on the
exercise of the Warrants. The fourth column lists the maximum number of Ordinary Shares represented by the Offered ADSs being offered
in this prospectus by each selling shareholder, issuable upon exercise of the Warrants, respectively, without regard to any limitations
on the exercise of the Warrants. The fifth and sixth columns list the number of Ordinary Shares represented by the Offered ADSs owned
after the Offering and the percentage of outstanding Ordinary Shares, assuming in both cases the exercise of the Warrants held by that
selling shareholder, without regard to any limitations on the exercise of the Warrants and the sale of all of the Ordinary Shares represented
by the Offered ADSs offered by that selling shareholder pursuant to this prospectus.
The selling shareholders may sell some, all or none of their Offered ADSs. We do not
know when or whether the selling shareholders will exercise their Warrants nor do we know how long the selling shareholders will hold
their Offered ADSs before selling them, and we currently have no agreements, arrangements or understandings with the selling shareholders
regarding the exercise of any Warrants, or the sale or other disposition of any of the Offered ADSs. The Offered ADSs covered hereby may
be offered from time to time by the selling shareholders.
Unless otherwise indicated, all information contained
in the table below and the footnotes thereto is based upon information provided to us by the selling shareholders. The percentage of shares
owned prior to and after the offering is based on 11,881,211,000 of our Ordinary Shares outstanding as of February 5, 2024. Unless otherwise
indicated in the footnotes to this table, we believe that each selling shareholder has sole voting and investment power with respect to
the Ordinary Shares indicated as beneficially owned. Except as otherwise indicated below, based on the information provided to us by the
selling shareholders, and to the best of our knowledge, no selling shareholder is a broker-dealer or an affiliate of a broker-dealer.
|
|
Ordinary Shares Beneficially Owned Before Offering |
Ordinary Shares Beneficially Owned
After Offering |
||||||||||||||||||
|
Selling Shareholders |
Number(1) |
Percentage |
Maximum Number of Ordinary Shares
Offered(1) |
Number |
Percentage |
|||||||||||||||
|
Armistice Capital, LLC(2)
|
2,300,000,000 |
(3) |
14.27 |
%** |
1,150,000,000 |
(4) |
1,150,000,000 |
(5) |
7.13 |
%** | ||||||||||
|
Sabby Volatility Master Fund, Ltd.(6)
|
2,334,000,000 |
(7) |
14.44 |
%** |
1,150,000,000 |
(8) |
1,184,000,000 |
(9) |
7.30 |
%** | ||||||||||
|
Lind Global Fund II LP(10)
|
1,000,000,000 |
(11) |
6.20 |
%** |
500,000,000 |
(12) |
500,000,000 |
(13) |
3.10 |
% | ||||||||||
|
Intracoastal Capital LLC(14)
|
1,000,000,000 |
(15) |
6.20 |
%** |
500,000,000 |
(16) |
500,000,000 |
(17) |
3.10 |
% | ||||||||||
|
CVI Investments, Inc.(18)
|
1,400,000,000 |
(19) |
8.68 |
%** |
700,000,000 |
(20) |
700,000,000 |
(21) |
4.34 |
% | ||||||||||
|
Michael Vasinkevich(22)
|
286,313,200 |
(23) |
1.78 |
% |
153,900,000 |
(24) |
132,413,200 |
(25) |
* |
|||||||||||
|
Noam Rubinstein(22)
|
98,228,000 |
(26) |
* |
52,800,000 |
(27) |
45,428,000 |
(28) |
* |
||||||||||||
|
Aileen Gibbons(22)
|
42,416,800 |
(29) |
* |
22,800,000 |
(30) |
19,616,800 |
(31) |
* |
||||||||||||
|
Craig Schwabe(22)
|
15,069,600 |
(32) |
* |
8,100,000 |
(33) |
6,969,600 |
(34) |
* |
||||||||||||
|
Charles Worthman(22)
|
4,464,800 |
(35) |
* |
2,400,000 |
(36) |
2,064,800 |
(37) |
* |
||||||||||||
* Less than 1%.
** The Warrants held by the Holders are subject to a 4.99% blocker according to which
the Holders (together with their affiliates) may not exercise any portion of the Warrants to the extent that the holder would own more
than 4.99% (or, at the holder’s option upon initial issuance, 9.99%) of our outstanding Ordinary Shares immediately after the exercise.
However, upon at least 61 days’ prior notice from the holder to us, a holder with a 4.99% ownership blocker may increase the amount
of ownership of outstanding Ordinary Shares after exercising the warrants up to 9.99% of the number of our Ordinary Shares outstanding
immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the warrants
(the “Blocker”). Assumes that all Warrants acquired by the selling shareholders in the January 2024 Offering are exercised.
| (1) |
Number of Ordinary Shares includes Ordinary Shares represented by ADSs. Each ADS represents four hundred (400) Ordinary Shares.
|
| (2) |
The securities are directly held by Armistice Capital Master Fund Ltd., a Cayman Islands exempted company (the “Master Fund”),
and may be deemed to be beneficially owned by: (i) Armistice Capital, LLC (“Armistice Capital”), as the investment manager
of the Master Fund; and (ii) Steven Boyd, as the Managing Member of Armistice Capital. The Warrants are subject to a beneficial
ownership limitation of 4.99%, which such limitation restricts the selling shareholder from exercising that portion of the Warrants that
would result in the selling shareholder and its affiliates owning, after exercise, a number of Ordinary Shares in excess of the beneficial
ownership limitation. The address of Armistice Capital Master Fund Ltd. is c/o Armistice Capital, LLC, 510 Madison Avenue, 7th Floor,
New York, NY 10022. |
| (3) |
Represents 2,300,000,000 Ordinary Shares represented by 5,750,000 ADSs consisting of (i) 2,875,000 ADSs acquired pursuant to the
January 2024 Offering and (ii) 2,875,000 ADSs issuable upon exercise of the Warrants. The exercise of the Warrants is subject to the Blocker.
Consequently, as of the date set forth above, Armistice may not necessarily be able to exercise all of these warrants due to the Blocker.
The number of Ordinary Shares set forth in the above table does not reflect the application of this limitation. |
| (4) |
Represents 1,150,000,000 Ordinary Shares represented by 2,875,000 ADSs issuable upon exercise of the Warrants, without regard to
any limitations on the exercise of such warrants. The exercise of the foregoing warrants is subject to the Blocker. |
| (5) |
Represents 1,150,000,000 Ordinary Shares represented by 2,875,000 ADSs acquired pursuant to the January 2024 Offering. |
| (6) |
The securities are directly held by Sabby. Sabby Management, LLC, the investment manager of Sabby, has discretionary authority to
vote and dispose of the shares held by Sabby and may be deemed to be the beneficial owner of these shares. Hal Mintz, in his capacity
as manager of Sabby Management, LLC, may also be deemed to have investment discretion and voting power over the shares held by Sabby.
Each of Sabby Management, LLC and Hal Mintz disclaims beneficial ownership over the securities listed except to the extent of their pecuniary
interest therein. The Warrants are subject to a beneficial ownership limitation of 4.99%, which such limitation restricts the selling
shareholder from exercising that portion of the Warrants that would result in the selling shareholder and its affiliates owning, after
exercise, a number of Ordinary Shares in excess of the beneficial ownership limitation. |
| (7) |
Represents 2,334,000,000 Ordinary Shares represented by 5,835,000 ADSs consisting of (i) 85,000 ADSs beneficially owned by Sabby,
(iii) 2,875,000 ADSs acquired pursuant to the January 2024 Offering and (ii) 2,875,000 ADSs issuable upon exercise of the Warrants. The
exercise of the Warrants is subject to the Blocker. Consequently, as of the date set forth above, Sabby may not necessarily be able to
exercise all of these warrants due to the Blocker. The number of Ordinary Shares set forth in the above table does not reflect the application
of this limitation. |
| (8) |
Represents 1,150,000,000 Ordinary Shares represented by 2,875,000 ADSs issuable upon exercise of the Warrants, without regard to
any limitations on the exercise of such warrants. The exercise of the Warrants is subject to the Blocker. |
| (9) |
Represents 1,184,000,000 Ordinary Shares represented by 2,960,000 ADSs consisting of (i) 85,000 ADSs beneficially owned by Sabby
and (ii) 2,875,000 ADSs acquired pursuant to the January 2024 Offering. |
| (10) |
The securities are directly held by Lind. Jeff Easton is the Managing Member of Lind Global Partners, LLC, which is the General Partner
and the Investment Manager of Lind Global Fund II LP, and in such capacity has the right to vote and dispose of the securities held by
Lind. Mr. Easton disclaims beneficial ownership over the securities listed except to the extent of his pecuniary interest therein. The
address for Lind Global Fund II LP is 444 Madison Avenue, 41st Floor, New York, NY 10022. The Warrants are subject to a beneficial ownership
limitation of 4.99%, which such limitation restricts the selling shareholder from exercising that portion of the Warrants that would result
in the selling shareholder and its affiliates owning, after exercise, a number of Ordinary Shares in excess of the beneficial ownership
limitation. |
| (11) |
Represents 1,000,000,000 Ordinary Shares represented by 2,500,000 ADSs consisting of (i) 1,250,000 ADSs acquired pursuant to the
January 2024 Offering and (ii) 1,250,000 ADSs issuable upon exercise of the Warrants. Consequently, as of the date set forth above, Lind
may not necessarily be able to exercise all of the Warrants due to the Blocker. The number of Ordinary Shares set forth in the above
table does not reflect the application of this limitation. |
| (12) |
Represents 500,000,000 Ordinary Shares represented by 1,250,000 ADSs issuable upon exercise of the Warrants, without regard to any
limitations on the exercise of such warrants. The exercise of the Warrants is subject to the Blocker. |
| (13) |
Represents 500,000,000 Ordinary Shares represented by 1,250,000 ADSs acquired pursuant to the January 2024 Offering. |
| (14) |
The securities are directly held by Intracoastal. Mitchell P. Kopin (“Mr. Kopin”) and Daniel B. Asher (“Mr. Asher”),
each of whom are managers of Intracoastal Capital LLC (“Intracoastal”), have shared voting control and investment discretion
over the securities reported herein that are held by Intracoastal. As a result, each of Mr. Kopin and Mr. Asher may be deemed to have
beneficial ownership (as determined under Section 13(d) of the Exchange Act) of the securities reported herein that are held by Intracoastal.
The address for Intracoastal is 245 Palm Trail, Delray Beach, FL 33483. The Warrants are subject to a beneficial ownership limitation
of 4.99%, which such limitation restricts the selling shareholder from exercising that portion of the Warrants that would result in the
selling shareholder and its affiliates owning, after exercise, a number of Ordinary Shares in excess of the beneficial ownership limitation.
|
| (15) |
Represents 1,000,000,000 Ordinary Shares represented by 2,500,000 ADSs consisting of (i) 1,250,000 ADSs acquired pursuant to the
January 2024 Offering and (ii) 1,250,000 ADSs issuable upon exercise of the Warrants. The exercise of the Warrants is subject to the Blocker.
Consequently, as of the date set forth above, Intracoastal may not necessarily be able to exercise all of these warrants due to the Blocker.
The number of Ordinary Shares set forth in the above table does not reflect the application of this limitation, |
| (16) |
Represents 500,000,000 Ordinary Shares represented by 1,250,000 ADSs issuable upon exercise of the Warrants, without regard to any
limitations on the exercise of such warrants. The exercise of the Warrants is subject to the Blocker. |
| (17) |
Represents 500,000,000 Ordinary Shares represented by 1,250,000 ADSs acquired pursuant to the January 2024 Offering. |
| (18) |
The securities are held directly by CVI. Heights Capital Management, Inc., which serves as investment manager of CVI, may also
be deemed to have investment discretion and voting power over the shares held by CVI and may be deemed to be the beneficial owner of these
shares. Each of CVI and Heights Capital Management, Inc. disclaims beneficial ownership over the securities listed except to the
extent of their pecuniary interest therein. The address for CVI is P.O. Box 309GT, Ugland House, South Church Street, George Town,
Grand Cayman, KY1-1104, Cayman Islands. The Warrants are subject to a beneficial ownership limitation of 4.99%, which such limitation
restricts the selling shareholder from exercising that portion of the Warrants that would result in the selling shareholder and its affiliates
owning, after exercise, a number of Ordinary Shares in excess of the beneficial ownership limitation. |
| (19) |
Represents 1,400,000,000 Ordinary Shares represented by 3,500,000 ADSs consisting of (i) 1,750,000 ADSs acquired pursuant to the
January 2024 Offering and (ii) 1,750,000 ADSs issuable upon exercise of the Warrants. The exercise of the Warrants is subject to the Blocker.
Consequently, as of the date set forth above, CVI may not necessarily be able to exercise all of these warrants due to the Blocker. The
number of Ordinary Shares set forth in the above table does not reflect the application of this limitation, |
| (20) |
Represents 700,000,000 Ordinary Shares represented by 1,750,000 ADSs issuable upon exercise of the Warrants, without regard to any
limitations on the exercise of such warrants. The exercise of the Warrants is subject to the Blocker. |
| (21) |
Represents 700,000,000 Ordinary Shares represented by 1,750,000 ADSs acquired pursuant to the January 2024 Offering. |
| (22) |
The selling shareholders were issued compensation warrants as a designee of the Placement Agent in connection with each of (i) the
registered direct offering consummated in March 2023 (the “March 2023 Placement Agent Warrants”), (ii) the July 2023 Offering,
(iii) July 2023 Warrant Exercise Transaction, (iv) the September 2023 Warrant Exercise Transaction and (v) the January 2024 Offering.
Each selling shareholder is affiliated with the Placement Agent, a registered broker dealer with a registered address of H.C. Wainwright
& Co., LLC, 430 Park Avenue, 3rd Floor, New York, New York 10022, and has sole voting and dispositive power over the securities held.
Each selling shareholder may not exercise the March 2023 Placement Agent Warrants, the July 2023 Placement Agent Warrants, the July 2023
Placement Agent Exercise Warrants, the September 2023 Placement Agent Warrants or the January 2024 Placement Agent Warrants issued in
connection with the January 2024 Offering to the extent such exercise would cause each selling shareholders, together with his affiliates
and attribution parties, to beneficially own a number of Ordinary Shares which would exceed 4.99% of our then outstanding Ordinary Shares
following such exercise, or, upon notice to us, 9.99% of our then outstanding Ordinary Shares following such exercise, excluding for purposes
of such determination shares of Ordinary Shares issuable upon exercise of such securities which have not been so exercised. The selling
shareholder acquired the warrants in the ordinary course of business and, at the time the warrants were acquired, the selling shareholder
had no agreement or understanding, directly or indirectly, with any person to distribute such securities. |
| (23) |
Represents 286,313,200 Ordinary Shares represented by 715,783 ADSs issuable upon exercise of the March 2023 Placement Agent Warrants,
the July 2023 Placement Agent Warrants, the July 2023 Placement Agent Exercise Warrants, the September 2023 Placement Agent Warrants and
the January 2024 Placement Agent Warrants, without regard to any limitations on the exercise of such warrants. |
| (24) |
Represents 153,900,000 Ordinary Shares represented by 384,750 ADSs issuable upon exercise of the January 2024 Placement Agent Warrants,
without regard to any limitations on the exercise of such warrants. |
| (25) |
Represents 132,413,200 Ordinary Shares represented by 331,033 ADSs issuable upon exercise of the March 2023 Placement Agent Warrants,
the July 2023 Placement Agent Warrants, the July 2023 Placement Agent Exercise Warrants and the September 2023 Placement Agent Warrants
without regard to any limitations on the exercise of such warrants. |
| (26) |
Represents 98,228,000 Ordinary Shares represented by 245,570 ADSs issuable upon exercise of the March 2023 Placement Agent Warrants,
the July 2023 Placement Agent Warrants, the July 2023 Placement Agent Exercise Warrants the September 2023 Placement Agent Warrants and
the January 2024 Placement Agent Warrants, without regard to any limitations on the exercise of such warrants. |
| (27) |
Represents 52,800,000 Ordinary Shares represented by 132,000 ADSs issuable upon exercise of the January 2024 Placement Agent Warrants,
without regard to any limitations on the exercise of such warrants. |
| (28) |
Represents 45,428,000 Ordinary Shares represented by 113,570 ADSs issuable upon exercise of the March 2023 Placement Agent Warrants,
the July 2023 Placement Agent Warrants, the July 2023 Placement Agent Exercise Warrants and the September 2023 Placement Agent Warrants,
without regard to any limitations on the exercise of such warrants. |
| (29) |
Represents 42,416,800 Ordinary Shares represented by 106,042 ADSs issuable upon exercise of the March 2023 Placement Agent Warrants,
the July 2023 Placement Agent Warrants, the July 2023 Placement Agent Exercise Warrants, the September 2023 Placement Agent Warrants and
the January 2024 Placement Agent Warrants, without regard to any limitations on the exercise of such warrants. |
| (30) |
Represents 22,800,000 Ordinary Shares represented by 57,000 ADSs issuable upon exercise of the January 2024 Placement Agent Warrants,
without regard to any limitations on the exercise of such warrants. |
| (31) |
Represents 19,616,800 Ordinary Shares represented by 49,042 ADSs issuable upon exercise of the March 2023 Placement Agent Warrants,
the July 2023 Placement Agent Warrants, the July 2023 Placement Agent Exercise Warrants and the September 2023 Placement Agent Warrants
without regard to any limitations on the exercise of such warrants. |
| (32) |
Represents 15,069,600 Ordinary Shares represented 37,674 ADSs issuable upon exercise of the March 2023 Placement Agent Warrants,
the July 2023 Placement Agent Warrants, the July 2023 Placement Agent Exercise Warrants, the September 2023 Placement Agent Warrants and
the January 2024 Placement Agent Warrants, without regard to any limitations on the exercise of such warrants. |
| (33) |
Represents 8,100,000 Ordinary Shares represented 20,250 ADSs issuable upon exercise of the January 2024 Placement Agent Warrants,
without regard to any limitations on the exercise of such warrants. |
| (34) |
Represents 6,969,600 Ordinary Shares represented by 17,424 ADSs issuable upon exercise of the March 2023 Placement Agent Warrants,
the July 2023 Placement Agent Warrants, the July 2023 Placement Agent Exercise Warrants and the September 2023 Placement Agent Warrants
without regard to any limitations on the exercise of such warrants. |
| (35) |
Represents 4,464,800 Ordinary Shares represented 11,162 ADSs issuable upon exercise of the March 2023 Placement Agent Warrants, the
July 2023 Placement Agent Warrants, the July 2023 Placement Agent Exercise Warrants, the September 2023 Placement Agent Warrants and the
January 2024 Placement Agent Warrants, without regard to any limitations on the exercise of such warrants. |
| (36) |
Represents 2,400,000 Ordinary Shares represented by 6,000 ADSs issuable upon exercise of the January 2024 Placement Agent Warrants,
without regard to any limitations on the exercise of such warrants. |
| (37) |
Represents 2,064,800 Ordinary Shares represented by 5,162 ADSs issuable upon exercise of the March 2023 Placement Agent Warrants,
the July 2023 Placement Agent Warrants, the July 2023 Placement Agent Exercise Warrants and the September 2023 Placement Agent Warrants
without regard to any limitations on the exercise of such warrants. |
RELATED
PARTY TRANSACTIONS
The Company is party to ordinary course employment arrangements with its officers. See “Management
– Compensation – Employment Agreements” and See “Management – Compensation – Change in Control Retention
Plan and Agreements; Severance Arrangements.”
DESCRIPTION
OF SHARE CAPITAL
The following description of our share capital summarizes certain
provisions of our articles of association. Such summaries do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all of the provisions of our articles of association, a copy of which has been filed as exhibits to the registration
statement of which this prospectus forms a part.
General
As of the date of this prospectus, our registered share capital is NIS 200,000,000
divided into (i) 19,994,000,000 registered Ordinary Shares of NIS 0.01 par value each, and (ii) 6,000,000 preferred shares of
NIS 0.01 par value each.
The Ordinary Shares do not have preemptive rights, preferred rights or any other right
to purchase our securities. Neither our articles of association nor the laws of the State of Israel restrict the ownership or voting of
Ordinary Shares by non-residents of Israel, except for subjects of countries that are enemies of Israel.
Articles of Association
Securities Registrar. The
transfer agent and registrar for the ADSs is The Bank of New York Mellon, and its address is 101 Barclay Street, New York, NY.
Objects and Purposes. According to Section 4
of our articles of association, we shall engage in any legal business. Our number with the Israeli Registrar of Companies is 514304005.
Private Placements. Under the Israeli Companies
Law, if (i) as a result of a private placement a person would become a controlling shareholder or (ii) a private placement will
entitle investors to receive 20% or more of the voting rights of a company as calculated before the private placement, and all or part
of the private placement consideration is not in cash or in public traded securities or is not in market terms and if as a result of the
private placement the holdings of a substantial shareholder will increase or as a result of it a person will become a substantial shareholder,
then, in either case, the allotment must be approved by the board of directors and by the shareholders of the company. A “substantial
shareholder” is defined as a shareholder who holds five percent or more of the company’s outstanding share capital, assuming
the exercise of all of the securities convertible into shares held by that person. In order for the private placement to be on “market
terms” the board of directors has to determine, on the basis of detailed explanation, that the private placement is on market terms,
unless proven otherwise.
Board of Directors. Under our articles of
association, resolutions by the board of directors are decided by a majority of votes of the directors present, or participating, in the
case of voting by media, and voting, each director having one vote.
In addition, the Israeli Companies Law requires that certain transactions, actions,
and arrangements be approved as provided for in a company’s articles of association and in certain circumstances by the compensation
or audit committee and by the board of directors itself. Those transactions that require such approval pursuant to a company’s articles
of association must be approved by its board of directors. In certain circumstances, compensation or audit committee and shareholder approval
are also required. See “Management – Board Practices.”
The Israeli Companies Law requires that a member of the board of directors or senior
management of the company promptly and, in any event, not later than the first board meeting at which the transaction is discussed, disclose
any personal interest that he or she may have, either directly or by way of any corporation in which he or she is, directly or indirectly,
a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general
manager, as well as all related material information known to him or her, in connection with any existing or proposed transaction by the
company. In addition, if the transaction is an extraordinary transaction, (that is, a transaction other than in the ordinary course of
business, otherwise than on market terms, or is likely to have a material impact on the company’s profitability, assets or liabilities),
the member of the board of directors or senior management must also disclose any personal interest held by his or her spouse, siblings,
parents, grandparents, descendants, spouse’s descendants, siblings and parents, and the spouses of any of the foregoing.
Once the member of the board of directors or senior management complies with the above
disclosure requirement, a company may approve the transaction in accordance with the provisions of its articles of association. Under
the provisions of the Israeli Companies Law, whoever has a personal interest in a matter, which is considered at a meeting of the board
of directors or the audit committee, may not be present at this meeting or vote on this matter, unless it is not an extraordinary transaction
as defined in the Israeli Companies Law. However, if the chairman of the board of directors or the chairman of the audit committee has
determined that the presence of a director or an officer with a personal interest is required for the presentation of a matter, such officer
holder may be present at the meeting. Notwithstanding the foregoing, if the majority of the directors have a personal interest in a matter,
they will be allowed to participate and vote on this matter, but an approval of the transaction by the shareholders in the general meeting
will be required.
Our articles of association provide that, subject to the Israeli Companies Law, all
actions executed in good faith by the board of directors or by a committee thereof or by any person acting as a director or a member of
a committee of the board of directors, will be deemed to be valid even if, after their execution, it is discovered that there was a flaw
in the appointment of these persons or that any one of these persons was disqualified from serving in his or her office.
Our articles of association provide that, subject to the provisions of the Israeli
Companies Law, the board of directors may appoint board of directors’ committees. The committees of the board of directors report
to the board of directors their resolutions or recommendations on a regular basis, as prescribed by the board of directors. The board
of directors may cancel the resolution of a committee that has been appointed by it; however, such cancellation will not affect the validity
of any resolution of a committee, pursuant to which we acted, vis-à-vis another person, who was not aware of the cancellation thereof.
Decisions or recommendations of the committee of the board which require the approval of the board of directors will be brought to the
directors’ attention at a reasonable time prior to the discussion at the board of directors.
According to the Israeli Companies Law, a contract of a company with its directors,
regarding their conditions of service, including the grant to them of exemption from liability from certain actions, insurance, and indemnification
as well as the company’s contract with its directors on conditions of their employment, in other capacities, require the approval
of the compensation committee, the board of directors, and the shareholders by a Special Majority.
Transfer of Shares. Fully paid Ordinary Shares
are issued in registered form and may be freely transferred pursuant to our articles of association unless that transfer is restricted
or prohibited by another instrument.
Notices. Under the Israeli Companies Law and
our articles of association, we are required to publish notices in two Hebrew-language daily newspapers or our website at least 21 calendar days
prior notice of a shareholders’ meeting. However, under regulations promulgated under the Israeli Companies Law, we are required
to publish a notice in two daily newspapers at least 35 calendar days prior any shareholders’ meeting in which the agenda includes
matters which may be voted on by voting instruments. Regulations under the Israeli Companies Law exempt companies whose shares are listed
for trading both on a stock exchange in and outside of Israel, from some provisions of the Israeli Companies Law. An amendment to these
regulations exempts us from the requirements of the Israeli proxy regulation, under certain circumstances.
According to the Israeli Companies Law and the regulations promulgated thereunder,
for purposes of determining the shareholders entitled to notice and to vote at such meeting, the board of directors may fix the record
date not more than 40 nor less than four calendar days prior to the date of the meeting, provided that an announcement regarding
the general meeting be given prior to the record date.
Election of Directors. The number of directors
on the board of directors shall be no less than five and no more than eleven, including any external directors whose appointment is required
by law. The general meeting is entitled, at any time and from time to time, in a resolution approved by a majority of 75% or more of the
votes cast by those shareholders present and voting at the meeting in person, by proxy or by a voting instrument, not taking into consideration
abstaining votes, to change the minimum or maximum number of directors as stated above as well as to amend the board classification under
our Articles. A simple majority shareholder vote is required to elect a director for a term of less than three years. For more information,
please see “Management - Board Practices – Appointment of Directors and Terms of Office.”
Dividend and Liquidation Rights. Our profits,
in respect of which a resolution was passed to distribute them as a dividend or bonus shares, are to be paid pro rata to the amount paid
or credited as paid on account of the nominal value of shares held by the shareholders. In the event of our liquidation, the liquidator
may, with the general meeting’s approval, distribute parts of our property in specie among the shareholders and he may, with similar
approval, deposit any part of our property with trustees in favor of the shareholders as the liquidator, with the approval mentioned above
deems fit. The terms of our term loan facility prohibit us from paying dividends.
Voting, Shareholders’ Meetings and Resolutions.
Holders of Ordinary Shares are entitled to one vote for each Ordinary Share held on all matters submitted to a vote of shareholders. The
quorum required for an ordinary meeting of shareholders consists of at least two shareholders present, in person or by proxy, or who has
sent us a voting instrument indicating the way in which he is voting, who hold or represent, in the aggregate, at least 25% of the voting
rights of our outstanding share capital. A meeting adjourned for lack of a quorum is adjourned to the following day at the same time and
place or any time and place as prescribed by the board of directors in the notice to the shareholders. At the reconvened meeting one shareholder
at least, present in person or by proxy constitutes a quorum except where such meeting was called at the demand of shareholders. With
the agreement of a meeting at which a quorum is present, the chairman may, and on the demand of the meeting he must, adjourn the meeting
from time to time and from place to place, as the meeting resolves. Annual general meetings of shareholders are held once every year
within a period of not more than 15 months after the last preceding annual general shareholders’ meeting. The board of directors
may call special general meetings of shareholders. The Israeli Companies Law provides that a special general meeting of shareholders may
be called by the board of directors or by a request of two directors or 25% of the directors in office, whichever is the lower, or by
shareholders holding at least 5% of our issued share capital and at least 1% of the voting rights, or of shareholders holding at least
5% of our voting rights.
An ordinary resolution requires approval by the holders of a majority of the voting
rights present, in person or by proxy, at the meeting and voting on the resolution.
Allotment of Shares. Our board of directors
has the power to allot or to issue shares to any person, with restrictions and conditions as it deems fit.
Acquisitions under Israeli Law
Full Tender Offer
A person wishing to acquire shares of an Israeli public company and who would as a
result hold over 90% of the target company’s issued and outstanding share capital is required by the Israeli Companies Law to make
a tender offer to all of the company’s shareholders for the purchase of all of the issued and outstanding shares of the company.
A person wishing to acquire shares of an Israeli public company and who would as a
result hold over 90% of the issued and outstanding share capital of a certain class of shares is required to make a tender offer to all
of the shareholders who hold shares of the same class for the purchase of all of the issued and outstanding shares of the same class.
If the shareholders who do not respond to or accept the offer hold less than 5% of
the issued and outstanding share capital of the company or of the applicable class of the shares, and more than half of the shareholders
who do not have a personal interest in the offer accept the offer, all of the shares that the acquirer offered to purchase will be transferred
to the acquirer by operation of law. However, a tender offer will be accepted if the shareholders who do not accept it hold less than
2% of the issued and outstanding share capital of the company or of the applicable class of the shares.
Upon a successful completion of such a full tender offer, any shareholder that was
an offeree in such tender offer, whether such shareholder accepted the tender offer or not, may, within six months from the date
of acceptance of the tender offer, petition the Israeli court to determine whether the tender offer was for less than fair value and that
the fair value should be paid as determined by the court. However, under certain conditions, the offeror may determine in the terms of
the tender offer that an offeree who accepted the offer will not be entitled to petition the Israeli court as described above.
If the shareholders who did not respond or accept the tender offer hold at least 5%
of the issued and outstanding share capital of the company or of the applicable class, the acquirer may not acquire shares of the company
that will increase its holdings to more than 90% of the company’s issued and outstanding share capital or of the applicable class
from shareholders who accepted the tender offer.
The description above regarding a full tender offer will also apply, with necessary
changes, when a full tender offer is accepted, and the offeror has also offered to acquire all of the company’s securities.
Special Tender Offer
The Israeli Companies Law provides that an acquisition of shares of an Israeli public
company must be made by means of a special tender offer if as a result of the acquisition the purchaser would become a holder of at least
25% of the voting rights in the company. This rule does not apply if there is already another holder of at least 25% of the voting
rights in the company.
Similarly, the Israeli Companies Law provides that an acquisition of shares of a public
company must be made by means of a special tender offer if as a result of the acquisition the purchaser would become a holder of more
than 45% of the voting rights in the company, if there is no other shareholder of the company who holds more than 45% of the voting rights
in the company.
These requirements do not apply if the acquisition (i) occurs in the context
of a private offering, on the condition that the shareholders meeting approved the acquisition as a private offering whose purpose is
to give the acquirer at least 25% of the voting rights in the company if there is no person who holds at least 25% of the voting rights
in the company, or as a private offering whose purpose is to give the acquirer 45% of the voting rights in the company, if there is no
person who holds 45% of the voting rights in the company; (ii) was from a shareholder holding at least 25% of the voting rights in
the company and resulted in the acquirer becoming a holder of at least 25% of the voting rights in the company; or (iii) was from
a holder of more than 45% of the voting rights in the company and resulted in the acquirer becoming a holder of more than 45% of the voting
rights in the company.
The special tender offer may be consummated only if (i) at least 5% of the voting
power attached to the company’s outstanding shares will be acquired by the offeror and (ii) the special tender offer is accepted
by a majority of the votes of those offerees who gave notice of their position in respect of the offer; in counting the votes of offerees,
the votes of a holder in control of the offeror, a person who has personal interest in acceptance of the special tender offer, a holder
of at least 25% of the voting rights in the company, or any person acting on their or on the offeror’s behalf, including their relatives
or companies under their control, are not taken into account.
In the event that a special tender offer is made, a company’s board of directors
is required to express its opinion on the advisability of the offer or must abstain from expressing any opinion if it is unable to do
so, provided that it gives the reasons for its abstention.
An officer in a target company who, in his or her capacity as an officer, performs
an action the purpose of which is to cause the failure of an existing or foreseeable special tender offer or is to impair the chances
of its acceptance, is liable to the potential purchaser and shareholders for damages resulting from his acts, unless such officer acted
in good faith and had reasonable grounds to believe he or she was acting for the benefit of the company. However, officers of the target
company may negotiate with the potential purchaser in order to improve the terms of the special tender offer and may further negotiate
with third parties in order to obtain a competing offer.
If a special tender offer was accepted by a majority of the shareholders who announced
their stand on such offer, then shareholders who did not respond to the special offer or had objected to the special tender offer may
accept the offer within four days of the last day set for the acceptance of the offer. In the event that a special tender offer is
accepted, then the purchaser or any person or entity controlling it and any corporation controlled by them must refrain from making a
subsequent tender offer for the purchase of shares of the target company and may not execute a merger with the target company for a period
of one year from the date of the offer unless the purchaser or such person or entity undertook to effect such an offer or merger
in the initial special tender offer.
Merger
The Israeli Companies Law permits merger transactions if approved by each party’s
board of directors and, unless certain requirements described under the Israeli Companies Law are met, a majority of each party’s
shareholders, by a majority of each party’s shares that are voted on the proposed merger at a shareholders’ meeting.
The board of directors of a merging company is required pursuant to the Israeli Companies
Law to discuss and determine whether in its opinion there exists a reasonable concern that, as a result of a proposed merger, the surviving
company will not be able to satisfy its obligations toward its creditors, taking into account the financial condition of the merging companies.
If the board of directors has determined that such a concern exists, it may not approve a proposed merger. Following the approval of the
board of directors of each of the merging companies, the boards of directors must jointly prepare a merger proposal for submission to
the Israeli Registrar of Companies.
For purposes of the shareholder vote, unless a court rules otherwise, the merger
will not be deemed approved if a majority of the shares voting at the shareholders meeting (excluding abstentions) that are held by parties
other than the other party to the merger, any person who holds 25% or more of the means of control (see “Management –
Audit Committee – Approval of Transactions with Related Parties” for a definition of means of control) of the other party
to the merger or anyone on their behalf including their relatives (see “Management – External Directors –
Qualifications of External Directors” for a definition of relatives) or corporations controlled by any of them, vote against the
merger.
In addition, if the non-surviving entity of the merger has more than one class of
shares, the merger must be approved by each class of shareholders. If the transaction would have been approved but for the separate approval
of each class of shares or the exclusion of the votes of certain shareholders as provided above, a court may still rule that the
company has approved the merger upon the request of holders of at least 25% of the voting rights of a company, if the court holds that
the merger is fair and reasonable, taking into account the appraisal of the merging companies’ value and the consideration offered
to the shareholders.
Under the Israeli Companies Law, each merging company must send a copy of the proposed
merger plan to its secured creditors. Unsecured creditors are entitled to receive notice of the merger, as provided by the regulations
promulgated under the Israeli Companies Law. Upon the request of a creditor of either party to the proposed merger, the court may delay
or prevent the merger if it concludes that there exists a reasonable concern that, as a result of the merger, the surviving company will
be unable to satisfy the obligations of the target company. The court may also give instructions in order to secure the rights of creditors.
In addition, a merger may not be completed unless at least 50 days have passed
from the date that a proposal for approval of the merger was filed with the Israeli Registrar of Companies and 30 days from the date
that shareholder approval of both merging companies was obtained.
Anti-takeover Measures
The Israeli Companies Law allows us to create and issue shares having
rights different from those attached to our Ordinary Shares, including shares providing certain preferred or additional rights to voting,
distributions or other matters and shares having preemptive rights. We have 6,000,000 authorized unissued preferred shares. Our authorized
preferred shares, and any other class of shares other than Ordinary Shares that we may create and issue in the future, depending on the
specific rights that may be attached to them, may delay or prevent a takeover or otherwise prevent our shareholders from realizing a potential
premium over the market value of their Ordinary Shares. The authorization of a new class of shares will require an amendment to our articles
of association which requires the prior approval of a majority of our shares represented and voting at a general meeting. Shareholders
voting at such a meeting will be subject to the restrictions under the Israeli Companies Law described in “– Voting.”
In addition, provisions of our articles of our association relating to the election of our directors for terms of three years make
it more difficult for a third party to effect a change in control or takeover attempt that our management and board of directors oppose.
See “Management - Board Practices – Appointment of Directors and Terms of Officers.”
History of Share Capital
For information regarding the history of changes to our share capital since January
1, 2021, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources – Financing Activities”.
Warrants
The following summary of certain terms and provisions of the Warrants that are being
offered hereby is not complete and is subject to, and qualified in its entirety by, the provisions of the Warrants, the form of which
is filed as Exhibit 1.2 to our Report on Form 6-K filed on January 26, 2024. Prospective investors should carefully review the
terms and provisions of the form of Warrant for a complete description of the terms and conditions of the Warrants.
Exercisability. Each Warrant is immediately
exercisable on the issuance date and has a term of exercise equal to five (5) years from the date on which first exercisable. The Warrants
are exercisable, at the option of the holder, in whole or in part by delivering to us a duly executed exercise notice accompanied by payment
in full for the number of ADSs purchased upon such exercise, together with applicable charges and taxes. A holder of the Warrants will
not have the right to exercise any portion of its Warrants if the holder, together with its affiliates, would beneficially own in excess
of 4.99% (or 9.99% at the election of the holder) of the number of shares of our Ordinary Shares outstanding immediately after giving
effect to such exercise. If following the date that is sixty (60) days following the issuance date, a registration statement registering
the issuance of the ADSs underlying the Warrants under the Securities Act is not then effective or available, the holder may exercise
the Warrant through a cashless exercise, in whole or in part, in which case the holder would receive upon such exercise the number of
ordinary shares needed to deliver the equivalent net number of ADSs determined according to the formula set forth in the Warrant. No fractional
ADSs are to be issued in relation to the issuance and deposit of ordinary shares upon the exercise of the Warrants. If any fractional
ADS would be deliverable upon the exercise of the Warrants, we, in lieu of arranging the delivery of such fractional ADS, may elect to
either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by then current exercise
price or round up to the next whole ADS.
Transfer. Such securities were issued and
sold without registration under the Securities Act, or state securities laws, in reliance on the exemptions provided by Section 4(a)(2)
of the Act and/or Regulation D promulgated thereunder and in reliance on similar exemptions under applicable state laws. Accordingly,
the investors may exercise those Warrants and sell the underlying shares only pursuant to an effective registration statement under the
Securities Act covering the resale of those shares, an exemption under Rule 144 under the Securities Act, or another applicable exemption
under the Securities Act.
Exercise Price. The initial exercise
price per ADS purchasable upon exercise of the Warrants is equal to $1.00 per full ADS (which may be adjusted as set forth below). In
addition to the exercise price per ADS, other applicable charges and taxes are due and payable upon exercise.
Adjustment Provisions. The
exercise price and the number of ADSs issuable upon exercise are subject to appropriate adjustment in the event of certain share dividends
and distributions, share splits, rights offerings, share subdivisions and combinations, reclassifications or similar events affecting
the ADSs.
Exchange Listing. There is no established
public trading market for the Warrants, and we do not intend to apply to list the Warrants on any securities exchange or automated quotation
system.
Fundamental Transaction. If, at any time while
the Warrants are outstanding, (1) we, directly or indirectly, consolidate or merge with or into another person, (2) we, directly or indirectly,
sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of our assets, (3) any direct or indirect
purchase offer, tender offer or exchange offer (whether by us or another person) is completed pursuant to which holders of our Ordinary
Shares and/or ADSs are permitted to sell, tender or exchange their Ordinary Shares for other securities, cash or property and has been
accepted by the holders of 50% or more of our outstanding shares of Ordinary Shares (including any Ordinary Shares underlying ADSs), (4)
we, directly or indirectly, effect any reclassification, reorganization or recapitalization of our Ordinary Shares or any compulsory share
exchange pursuant to which our Ordinary Shares are converted into or exchanged for other securities, cash or property, or (5) we, directly
or indirectly, consummate a stock or share purchase agreement or other business combination with another person whereby such other person
acquires 50% or more of our outstanding Ordinary Shares (including any Ordinary Shares underlying ADSs), each, a “Fundamental Transaction”,
then upon any subsequent exercise of the Warrants, the holders thereof will have the right to receive the same amount and kind of securities,
cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately
prior to such Fundamental Transaction, the holder of the number of ordinary shares then issuable upon exercise of the warrant, and any
additional consideration payable as part of the Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental
Transaction, the holder will have the right to require us or a successor entity to repurchase its Warrants at the Black Scholes value;
provided, however, that if the Fundamental Transaction is not within our control, including not approved by our board of directors, then
the holder shall only be entitled to receive the same type or form of consideration (and in the same proportion), at the Black Scholes
value of the unexercised portion of its Warrants, that is being offered and paid to the holders of our Ordinary Shares (including any
Ordinary Shares underlying ADSs) in connection with the Fundamental Transaction.
Rights as a Shareholder. Except as otherwise
provided in the Warrants or by virtue of such holder’s ownership of ADSs or Ordinary Shares, the holder of Warrants does not have
rights or privileges of a holder of ADSs or Ordinary Shares, including any voting rights or dividends, until the holder exercises the
Warrants.
Placement Agent Warrants
The January 2024 Placement Agent Warrants have an exercise price of $1.00 per ADS
and a term of five years from the commencement of the sales pursuant to the January 2024 Offering. Except as provided above, the January
2024 Placement Agent Warrants have substantially the same terms as the Warrants issued to the investors in the concurrent private placement.
The summary of certain terms and provisions of the January 2024 Placement Agent Warrants is not complete and is subject to, and qualified
in its entirety by, the provisions of the January 2024 Placement Agent Warrants, the form of which is filed as Exhibit 1.3 to our Report
on Form 6-K filed on January 26, 2024. Prospective investors should carefully review the terms and provisions of the form of
January 2024 Placement Agent Warrant for a complete description of the terms and conditions of the January 2024 Placement Agent Warrants.
American Depositary Shares
The Bank of New York Mellon, as depositary, will register and deliver American Depositary
Shares. Each American Depositary Share will represent four hundred of our ordinary shares (or a right to receive four hundred of our ordinary
shares) deposited with the principal Tel Aviv office ofrati either of Bank Leumi Le-Israel or Bank Hapoalim B.M., as custodian for the
depositary. Each American Depositary Share will also represent any other securities, cash or other property which may be held by the depositary.
The depositary’s corporate trust office at which the American Depositary Shares will be administered is located at 101 Barclay Street,
New York, New York 10286. The Bank of New York Mellon’s principal executive office is located at One Wall Street, New York, New
York 10286.
You may hold American Depositary Shares either (A) directly (i) by having an American
Depositary Receipt, which is a certificate evidencing a specific number of American Depositary Shares, registered in your name, or (ii)
by having American Depositary Shares registered in your name in the Direct Registration System, or (B) indirectly by holding a security
entitlement in American Depositary Shares through your broker or other financial institution. If you hold American Depositary Shares directly,
you are a registered American Depositary Share holder. This description assumes you are an American Depositary Share holder. If you hold
the American Depositary Shares indirectly, you must rely on the procedures of your broker or other financial institution to assert the
rights of American Depositary Share holders described in this section. You should consult with your broker or financial institution to
find out what those procedures are.
The Direct Registration System, or DRS, is a system administered by The Depository
Trust Company, also referred to as DTC, pursuant to which the depositary may register the ownership of uncertificated American Depositary
Shares, which ownership is confirmed by periodic statements sent by the depositary to the registered holders of uncertificated American
Depositary Shares.
As an American Depositary Share holder, we will not treat you as one of our shareholders
and you will not have shareholder rights. Israeli law governs shareholder rights. The depositary will be the holder of the ordinary shares
underlying your American Depositary Shares. As a registered holder of American Depositary Shares, you will have American Depositary Share
holder rights. A deposit agreement among us, the depositary and you, as an American Depositary Share holder, and all other persons indirectly
holding American Depositary Shares sets out American Depositary Share holder rights as well as the rights and obligations of the depositary.
New York law governs the deposit agreement and the American Depositary Shares.
On December 8, 2022, we filed a Registration Statement on Form F-6 (the “Form
F-6”) with the SEC to register our American Depositary Shares, as amended, under the Securities Act of 1933.
The following is a summary of the material provisions of the deposit agreement. For
more complete information, you should read the entire deposit agreement and the form of American Depositary Receipt, each of which has
been filed as an exhibit to the Form F-6.
Dividends and Other Distributions
How will you receive dividends and other distributions on the
shares?
The depositary has agreed to pay to American Depositary Share holders the cash dividends
or other distributions it or the custodian receives on shares or other deposited securities, after deducting its fees and expenses. You
will receive these distributions in proportion to the number of shares your American Depositary Shares represent.
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Cash. The depositary will convert any cash dividend or other cash distribution
we pay on the shares into U.S. dollars, if it can do so on a reasonable basis and can transfer the U.S. dollars to the U.S. If that is
not possible or if any government approval is needed and cannot be obtained, the deposit agreement allows the depositary to distribute
the foreign currency only to those American Depositary Share holders to whom it is possible to do so. It will hold the foreign currency
it cannot convert for the account of the American Depositary Share holders who have not been paid. It will not invest the foreign currency
and it will not be liable for any interest. |
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Before making a distribution, any withholding taxes, or other governmental charges that must be paid will be deducted. See “Material
Tax Considerations – U.S. Federal Income Tax Considerations – Distributions.” It will distribute only whole U.S. dollars
and cents and will round fractional cents to the nearest whole cent. If the exchange rates fluctuate
during a time when the depositary cannot convert the foreign currency, you may lose some or all of the value of the distribution.
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Shares. The depositary may,
and will if we so request, distribute additional American Depositary Shares representing any shares we distribute as a dividend or free
distribution. The depositary will only distribute whole American Depositary Shares. It will sell shares which would require it to deliver
a fractional American Depositary Share and distribute the net proceeds in the same way as it does with cash. If the depositary does not
distribute additional American Depositary Shares, the outstanding American Depositary Shares will also represent the new shares. The depositary
may sell a portion of the distributed shares sufficient to pay its fees and expenses in connection with that distribution. |
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Rights to purchase additional shares. If
we offer holders of our securities any rights to subscribe for additional shares or any other rights, the depositary may make these rights
available to American Depositary Share holders. If the depositary decides it is not legal and practical to make the rights available but
that it is practical to sell the rights, the depositary will use reasonable efforts to sell the rights and distribute the proceeds in
the same way as it does with cash. The depositary will allow rights that are not distributed or sold to lapse. In
that case, you will receive no value for them. |
If the depositary makes rights available to American Depositary
Share holders, it will exercise the rights and purchase the shares on your behalf. The depositary will then deposit the shares and deliver
American Depositary Shares to the persons entitled to them. It will only exercise rights if you pay it the exercise price and any other
charges the rights require you to pay.
U.S. securities laws may restrict transfers and cancellation
of the American Depositary Shares represented by shares purchased upon exercise of rights. For example, you may not be able to trade these
American Depositary Shares freely in the U.S. In this case, the depositary may deliver restricted depositary shares that have the same
terms as the American Depositary Shares described in this section except for changes needed to put the necessary restrictions in place.
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Other Distributions. The
depositary will send to American Depositary Share holders anything else we distribute on deposited securities by any means it thinks is
legal, fair and practical. If it cannot make the distribution in that way, the depositary has a choice. After consultation with us to
the extent practicable, it may decide to sell what we distributed and distribute the net proceeds, in the same way as it does with cash.
Or, it may decide to hold what we distributed, in which case American Depositary Shares will also represent the newly distributed property.
However, the depositary is not required to distribute any securities (other than American Depositary Shares) to American Depositary Share
holders unless it receives satisfactory evidence from us that it is legal to make that distribution. The depositary may sell a portion
of the distributed securities or property sufficient to pay its fees and expenses in connection with that distribution. |
The depositary is not responsible if it decides that it is unlawful
or impractical to make a distribution available to any American Depositary Share holders. We have no obligation to register American Depositary
Shares, shares, rights or other securities under the Securities Act. We also have no obligation to take any other action to permit
the distribution of American Depositary Shares, shares, rights or anything else to American Depositary Share holders. This
means that you may not receive the distributions we make on our shares or any value for them if it is illegal or impractical for us to
make them available to you.
Deposit, Withdrawal and Cancellation
How are American Depositary Shares issued?
The depositary will deliver American Depositary Shares if you or your broker deposits
shares or evidence of rights to receive shares with the custodian. Upon payment of its fees and expenses and of any taxes or charges,
such as stamp taxes or stock transfer taxes or fees, the depositary will register the appropriate number of American Depositary Shares
in the names you request and will deliver the American Depositary Shares to or upon the order of the person or persons that made the deposit.
How can American Depositary Share holders withdraw the deposited
securities?
You may surrender your American Depositary Shares at the depositary’s corporate
trust office. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees,
the depositary will deliver the shares and any other deposited securities underlying the American Depositary Shares to the American
Depositary Share holder or a person the American Depositary Share holder designates at the office of the custodian. Or, at your request,
risk and expense, the depositary will deliver the deposited securities at its corporate trust office, if feasible.
How do American Depositary Share holders interchange between certificated
American Depositary Shares and uncertificated American Depositary Shares?
You may surrender your American Depositary Receipt to the depositary for the purpose
of exchanging your American Depositary Receipt for uncertificated American Depositary Shares. The depositary will cancel that American
Depositary Receipt and will send to the American Depositary Share holder a statement confirming that the American Depositary Share holder
is the registered holder of uncertificated American Depositary Shares. Alternatively, upon receipt by the depositary of a proper instruction
from a registered holder of uncertificated American Depositary Shares requesting the exchange of uncertificated American Depositary Shares
for certificated American Depositary Shares, the depositary will execute and deliver to the American Depositary Share holder an American
Depositary Receipt evidencing those American Depositary Shares.
Voting Rights
How do you vote?
American Depositary Share holders may instruct the depositary to vote the number of
deposited shares their American Depositary Shares represent. The depositary will notify American Depositary Share holders of shareholders’
meetings and arrange to deliver our voting materials to them if we ask it to. Those materials will describe the matters to be voted on
and explain how American Depositary Share holders may instruct the depositary how to vote. For instructions to be valid, they must reach
the depositary by a date set by the depositary. Otherwise, you won’t be able to exercise your
right to vote unless you withdraw the shares. However, you may not know about the meeting enough in advance to withdraw the shares.
The depositary will try, as far as practical, subject to the laws of Israel and of
our articles of association or similar documents, to vote or to have its agents vote the shares or other deposited securities as instructed
by American Depositary Share holders. The depositary will only vote or attempt to vote as instructed.
If the depositary solicited your voting instructions but does not receive instructions
by the date specified, the depositary will consider you to have instructed it to give a proxy to a person designated by us to vote the
deposited shares, unless we notify the depositary that:
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we do not wish to receive a proxy; |
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substantial opposition exists; or |
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the matter would materially and adversely affect the rights of holders of our ordinary shares. |
We cannot assure you that you will receive the voting materials in time to ensure
that you can instruct the depositary to vote your shares. In addition, the depositary and its agents are not responsible for failing to
carry out voting instructions or for the manner of carrying out voting instructions. This means
that you may not be able to exercise your right to vote and there may be nothing you can do if your shares are not voted as you requested.
In order to give you a reasonable opportunity to instruct the depositary as to the
exercise of voting rights relating to deposited securities, if we request the depositary to act, we agree to give the depositary notice
of any such meeting and details concerning the matters to be voted upon at least 30 days in advance of the meeting date.
Fees and Expenses
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Persons depositing or withdrawing
shares or American Depositary Share holders must pay: |
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For: |
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$5.00 (or less) per 100 American Depositary Shares (or portion of 100 American Depositary
Shares) |
• |
Issuance of American Depositary Shares, including issuances resulting from a distribution
of shares or rights or other property |
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• |
Cancellation of American Depositary Shares for the purpose of withdrawal, including
if the deposit agreement terminates | |
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$.05 (or less) per American Depositary Share |
• |
Any cash distribution to American Depositary Share holders |
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A fee equivalent to the fee that would be payable if securities distributed to you
had been shares and the shares had been deposited for issuance of American Depositary Shares |
• |
Distribution of securities distributed to holders of deposited securities which are
distributed by the depositary to American Depositary Share holders |
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$.05 (or less) per American Depositary Shares per calendar year |
• |
Depositary services |
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Registration or transfer fees |
• |
Transfer and registration of shares on our share register to or from the name of the
depositary or its agent when you deposit or withdraw shares |
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Expenses of the depositary |
• |
Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement)
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• |
converting foreign currency to U.S. dollars | |
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Taxes and other governmental charges the depositary or the custodian have to pay on
any American Depositary Share or share underlying an American Depositary Share, for example, stock transfer taxes, stamp duty or withholding
taxes |
• |
As necessary |
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Any charges incurred by the depositary or its agents for servicing the deposited securities
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• |
As necessary |
The depositary collects its fees for delivery and surrender of American Depositary
Shares directly from investors depositing shares or surrendering American Depositary Shares for the purpose of withdrawal or from intermediaries
acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed
or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by
deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting
for them. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.
From time to time, the depositary may make payments to us to reimburse and/or share
revenue from the fees collected from American Depositary Share holders, or waive fees and expenses for services provided, generally relating
to costs and expenses arising out of establishment and maintenance of the American Depositary Share program. In performing its duties
under the deposit agreement, the depositary may use brokers, dealers or other service providers that are affiliates of the depositary
and that may earn or share fees or commissions.
Payment of Taxes
You will be responsible for any taxes or other governmental charges payable on your
American Depositary Shares or on the deposited securities represented by any of your American Depositary Shares. The depositary may refuse
to register any transfer of your American Depositary Shares or allow you to withdraw the deposited securities represented by your American
Depositary Shares until such taxes or other charges are paid. It may apply payments owed to you or sell deposited securities represented
by your American Depositary Shares to pay any taxes owed and you will remain liable for any deficiency. If the depositary sells deposited
securities, it will, if appropriate, reduce the number of American Depositary Shares to reflect the sale and pay to American Depositary
Share holders any proceeds, or send to American Depositary Share holders any property, remaining after it has paid the taxes.
Reclassifications, Recapitalizations and Mergers
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If we: |
Then: | ||
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• |
Change the nominal or par value of our shares
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The cash, shares or other securities received by the depositary will become deposited
securities.
Each American Depositary Share will automatically represent its equal share of the
new deposited securities. | |
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• |
Reclassify, split up or consolidate any of the deposited securities |
The depositary may, and will if we ask it to, distribute some or all of the cash,
shares or other securities it received. It may also deliver new American Depositary Receipts or ask you to surrender your outstanding
American Depositary Receipts in exchange for new American Depositary Receipts identifying the new deposited securities. | |
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Distribute securities on the shares that are not distributed to you | ||
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Recapitalize, reorganize, merge, liquidate, sell all or substantially all of our assets,
or take any similar action |
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Amendment and Termination
How may the deposit agreement be amended?
We may agree with the depositary to amend the deposit agreement and the American Depositary
Receipts without your consent for any reason. If an amendment adds or increases fees or charges, except for taxes and other governmental
charges or expenses of the depositary for registration fees, facsimile costs, delivery charges or similar items, or prejudices a substantial
right of American Depositary Share holders, it will not become effective for outstanding American Depositary Shares until 30 days after
the depositary notifies American Depositary Share holders of the amendment. At the time an amendment becomes effective, you are considered,
by continuing to hold your American Depositary Shares, to agree to the amendment and to be bound by the American Depositary Receipts and
the deposit agreement as amended.
How may the deposit agreement be terminated?
The depositary will terminate the deposit agreement at our direction by mailing notice
of termination to the American Depositary Share holders then outstanding at least 30 days prior to the date fixed in such notice for such
termination. The depositary may also terminate the deposit agreement by mailing notice of termination to us and the American Depositary
Share holders if 60 days have passed since the depositary told us it wants to resign but a successor depositary has not been appointed
and accepted its appointment.
After termination, the depositary and its agents will do the following under the deposit
agreement but nothing else: collect distributions on the deposited securities, sell rights and other property, and deliver shares and
other deposited securities upon cancellation of American Depositary Shares. Four months after termination, the depositary may sell any
remaining deposited securities by public or private sale. After that, the depositary will hold the money it received on the sale, as well
as any other cash it is holding under the deposit agreement for the pro rata benefit of the American Depositary Share holders that have
not surrendered their American Depositary Shares. It will not invest the money and has no liability for interest. The depositary’s
only obligations will be to account for the money and other cash. After termination our only obligations will be to indemnify the depositary
and to pay fees and expenses of the depositary that we agreed to pay.
Limitations on Obligations and Liability
Limits on our Obligations and the Obligations of the Depositary;
Limits on Liability to Holders of American Depositary Shares
The deposit agreement expressly limits our obligations and the obligations of the
depositary. It also limits our liability and the liability of the depositary. We and the depositary:
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are only obligated to take the actions specifically set forth in the deposit agreement without negligence or bad faith; |
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are not liable if we are or it is prevented or delayed by law or circumstances beyond our control from performing our or its obligations
under the deposit agreement; |
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are not liable if we or it exercises discretion permitted under the deposit agreement; |
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are not liable for the inability of any holder of American Depositary Shares to benefit from any distribution on deposited securities
that is not made available to holders of American Depositary Shares under the terms of the deposit agreement, or for any special, consequential
or punitive damages for any breach of the terms of the deposit agreement; |
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have no obligation to become involved in a lawsuit or other proceeding related to the American Depositary Shares or the deposit agreement
on your behalf or on behalf of any other person; and |
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may rely upon any documents we believe or it believes in good faith to be genuine and to have been signed or presented by the proper
person. |
In the deposit agreement, we and the depositary agree to indemnify each other under
certain circumstances.
Requirements for Depositary Actions
Before the depositary will deliver or register a transfer of an American Depositary
Share, make a distribution on an American Depositary Share, or permit withdrawal of shares, the depositary may require:
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payment of stock transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties
for the transfer of any shares or other deposited securities; |
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satisfactory proof of the identity and genuineness of any signature or other information it deems necessary; and |
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compliance with regulations it may establish, from time to time, consistent with the deposit agreement, including presentation of
transfer documents. |
The depositary may refuse to deliver American Depositary Shares
or register transfers of American Depositary Shares generally when the transfer books of the depositary or our transfer books are closed
or at any time if the depositary or we think it advisable to do so.
Your Right to Receive the Shares Underlying your American Depositary
Shares
American Depositary Share holders have the right to cancel their American Depositary
Shares and withdraw the underlying shares at any time except:
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when temporary delays arise because: (i) the depositary has closed its transfer books or we have closed our transfer books; (ii)
the transfer of shares is blocked to permit voting at a shareholders’ meeting; or (iii) we are paying a dividend on our shares;
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when you owe money to pay fees, taxes and similar charges; or |
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when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to American
Depositary Shares or to the withdrawal of shares or other deposited securities. |
This right of withdrawal may not be limited by any other provision of the deposit
agreement.
Pre-release of American Depositary Shares
The deposit agreement permits the depositary to deliver American Depositary Shares
before deposit of the underlying shares. This is called a pre-release of the American Depositary Shares. The depositary may also deliver
shares upon cancellation of pre-released American Depositary Shares (even if the American Depositary Shares are canceled before the pre-release
transaction has been closed out). A pre-release is closed out as soon as the underlying shares are delivered to the depositary. The depositary
may receive American Depositary Shares instead of shares to close out a pre-release. The depositary may pre-release American Depositary
Shares only under the following conditions: (1) before or at the time of the pre-release, the person to whom the pre-release is being
made represents to the depositary in writing that it or its customer owns the shares or American Depositary Shares to be deposited; (2)
the pre-release is fully collateralized with cash or other collateral that the depositary considers appropriate; and (3) the depositary
must be able to close out the pre-release on not more than five business days’ notice. In addition, the depositary will limit the
number of American Depositary Shares that may be outstanding at any time as a result of pre-release, although the depositary may disregard
the limit from time to time, if it thinks it is appropriate to do so.
Direct Registration System
In the deposit agreement, all parties to the deposit agreement acknowledge that the
DRS and Profile Modification System, or Profile, will apply to uncertificated American Depositary Shares upon acceptance thereof to DRS
by DTC. DRS is the system administered by DTC under which the depositary may register the ownership of uncertificated American Depositary
Shares, which ownership will be evidenced by periodic statements sent by the depositary to the registered holders of uncertificated American
Depositary Shares. Profile is a required feature of DRS that allows a DTC participant, claiming to act on behalf of a registered holder
of American Depositary Shares, to direct the depositary to register a transfer of those American Depositary Shares to DTC or its nominee
and to deliver those American Depositary Shares to the DTC account of that DTC participant without receipt by the depositary of prior
authorization from the American Depositary Share holder to register that transfer.
In connection with and in accordance with the arrangements and procedures relating
to DRS/Profile, the parties to the deposit agreement understand that the depositary will not determine whether the DTC participant that
is claiming to be acting on behalf of an American Depositary Share holder in requesting registration of transfer and delivery described
in the paragraph above has the actual authority to act on behalf of the American Depositary Share holder (notwithstanding any requirements
under the Uniform Commercial Code). In the deposit agreement, the parties agree that the depositary’s reliance on and compliance
with instructions received by the depositary through the DRS/Profile System and in accordance with the deposit agreement will not constitute
negligence or bad faith on the part of the depositary.
Shareholder communications; inspection of register
of holders of American Depositary Shares
The depositary will make available for your inspection at its office all communications
that it receives from us as a holder of deposited securities that we make generally available to holders of deposited securities. The
depositary will send you copies of those communications if we ask it to. You have a right to inspect the register of holders of American
Depositary Shares, but not for the purpose of contacting those holders about a matter unrelated to our business or the American Depositary
Shares.
Disclosure of beneficial ownership
Each holder of American Depositary Shares must comply with applicable laws and reasonable
requests made by us that the holder disclose information regarding beneficial ownership of American Depositary Shares as if the American
Depositary Shares were the ordinary shares they represent. Applicable law may require disclosure to us of beneficial ownership of 5% or
more of our outstanding ordinary shares.
MATERIAL
TAX CONSIDERATIONS
Israeli Tax Considerations
General
The following is a summary of the material tax consequences under Israeli law concerning the purchase, ownership and disposition of American Depositary Shares representing Ordinary Shares (collectively, the “Shares”) by persons who acquired the Shares in this offering.
This discussion does not purport to constitute a complete analysis of all potential
tax consequences applicable to investors upon purchasing, owning or disposing of our Shares. In particular, this discussion does not take
into account the specific circumstances of any particular investor (such as tax-exempt entities, financial institutions, certain financial
companies, broker-dealers, investors that own, directly or indirectly, 10% or more of our outstanding voting rights, all of whom are subject
to special tax regimes not covered under this discussion). To the extent that issues discussed herein are based on legislation that has
yet to be subject to judicial or administrative interpretation, there can be no assurance that the views expressed herein will accord
with any such interpretation in the future.
Potential investors are urged to consult their own tax advisors as to the Israeli
or other tax consequences of the purchase, ownership, and disposition of the Shares, including, in particular, the effect of any foreign,
state or local taxes.
General Corporate Tax Structure in Israel
Israeli companies are generally subject to corporate tax on their taxable income at
the rate of 23% for the 2024 tax year.
Taxation of Shareholders
Capital Gains
Capital gains tax is imposed on the disposition of capital assets by an Israeli resident
and on the disposition of such assets by a non-Israeli resident if those assets are either (i) located in Israel; (ii) are shares or a
right to a share in an Israeli resident corporation, or (iii) represent, directly or indirectly, rights to assets located in Israel, unless
an exemption is available or unless an applicable double tax treaty between Israel and the seller’s country of residence provides
otherwise. The Israeli Income Tax Ordinance distinguishes between “Real Gain” and the “Inflationary Surplus”.
“Real Gain” is the excess of the total capital gain over Inflationary Surplus generally computed on the basis of the increase
in the Israeli Consumer Price Index between the date of purchase and the date of disposition. Inflationary Surplus is not subject to tax.
Real Gain accrued by individuals on the sale of the Shares will be taxed at the rate
of 25%. However, if the individual shareholder is a “Controlling Shareholder” (i.e., a person who holds, directly or indirectly,
alone or together with another, 10% or more of one of the Israeli resident company’s means of control) at the time of sale or at
any time during the preceding 12-month period, such gain will be taxed at the rate of 30%.
Corporate and individual shareholders dealing in securities in Israel are taxed at
the tax rates applicable to business income (23% for companies), and a marginal tax rate of up to 50% in 2024 for individuals, including
an excess tax (as discussed below).
Notwithstanding the foregoing, capital gains generated from the sale of our Shares
by a non-Israeli shareholder may be exempt from Israeli tax under the Israeli Income Tax Ordinance provided (among other conditions) that
seller does not have a permanent establishment in Israel to which the generated capital gain is attributed. However, non-Israeli resident
corporations will not be entitled to the foregoing exemption if Israeli residents: (i) have a 25% or more interest in such non-Israeli
corporation or (ii) are the beneficiaries of, or are entitled to, 25% or more of the income or profits of such non-Israeli corporation,
whether directly or indirectly. In addition, such exemption would not be available to a person whose gains from selling or otherwise disposing
of the securities are deemed to be business income.
In addition, the sale of the Shares may be exempt from Israeli capital gains tax under
the provisions of an applicable double tax treaty. For example, the Convention Between the Government of the United States of America
and the Government of the State of Israel with Respect to Taxes on Income, or the U.S.-Israel Double Tax Treaty, exempts a U.S. resident
(for purposes of the U.S.-Israel Double Tax Treaty) from Israeli capital gain tax in connection with the sale of the Shares, provided
(among other conditions) that: (i) the U.S. resident owned, directly or indirectly, less than 10% of the voting power of the company at
any time within the 12-month period preceding such sale; (ii) the U.S. resident, being an individual, is present in Israel for a period
or periods of less than 183 days during the taxable year; and (iii) the capital gain from the sale was not derived through a permanent
establishment of the U.S. resident in Israel; however, under the U.S.-Israel Double Tax Treaty, the taxpayer should be permitted to claim
a credit for such taxes against the U.S. federal income tax imposed with respect to such sale, exchange or disposition, subject to the
limitations under U.S. law applicable to foreign tax credits. The U.S.-Israel Double Tax Treaty does not relate to U.S. state or local
taxes.
Payers of consideration for the Ordinary Shares, including the purchaser, the Israeli
stockbroker or the financial institution through which the Shares are held, are obligated, subject to certain exemptions, to withhold
tax upon the sale of Shares at a rate of 25% of the consideration for individuals and corporations.
Upon the sale of traded securities, a detailed return, including a computation of
the tax due, must be filed and an advance payment must be paid to the Israeli Tax Authority on January 31 and July 31 of every tax year
in respect of sales of traded securities made within the previous six months. However, if all tax due was withheld at source according
to applicable provisions of the Israeli Income Tax Ordinance and regulations promulgated thereunder, such return need not be filed, and
no advance payment must be paid. Capital gains are also reportable on annual income tax returns.
Dividends
Dividends distributed by a company to a shareholder who is an Israeli resident individual
will generally be subject to income tax at a rate of 25%. However, a 30% tax rate will apply if the dividend recipient is a Controlling
Shareholder, as defined above, at the time of distribution or at any time during the preceding 12-month period. If the recipient of the
dividend is an Israeli resident corporation, such dividend will generally be exempt from Israeli income tax provided that the income from
which such dividend is distributed, derived or accrued within Israel.
Dividends distributed by an Israeli resident company to a non-Israeli resident (either
an individual or a corporation) are generally subject to Israeli withholding tax on the receipt of such dividends at the rate of 25% (30%
if the dividend recipient is a Controlling Shareholder at the time of distribution or at any time during the preceding 12-month period).
These rates may be reduced under the provisions of an applicable double tax treaty. For example, under the U.S.-Israel Double Tax Treaty,
the following tax rates will apply in respect of dividends distributed by an Israeli resident company to a U.S. resident: (i) if the U.S.
resident is a corporation that holds during that portion of the taxable year which precedes the date of payment of the dividend and during
the whole of its prior taxable year (if any), at least 10% of the outstanding shares of the voting stock of the Israeli resident paying
corporation and not more than 25% of the gross income of the Israeli resident paying corporation for such prior taxable year (if any)
consists of certain types of interest or dividends the tax rate is 12.5%; (ii) if both the conditions mentioned in clause (i) above are
met and the dividend is paid from an Israeli resident company’s income which was entitled to a reduced tax rate under The Law for
the Encouragement of Capital Investments, 1959, the tax rate is 15%; and (iii) in all other cases, the tax rate is 25%. The aforementioned
rates under the U.S.-Israel Double Tax Treaty will not apply if the dividend income is attributed to a permanent establishment of the
U.S. resident in Israel.
Excess Tax
Individual holders who are subject to tax in Israel (whether any such individual is
an Israeli resident or non-Israeli resident) and who have taxable income that exceeds a certain threshold in a tax year (NIS 721,560 for
2024, linked to the Israeli Consumer Price Index) will be subject to an additional tax at the rate of 3% on his or her taxable income
for such tax year that is in excess of such amount. For this purpose, taxable income includes taxable capital gains from the sale of securities
and taxable income from interest and dividends, subject to the provisions of an applicable double tax treaty.
Estate and Gift Tax
Israel does not currently impose estate or gift taxes if the Israeli Tax Authority
is satisfied that the gift was made in good faith and on condition that the recipient of the gift is not a non-Israeli resident.
Foreign Exchange Regulations
Non-residents of Israel who hold our Shares are able to receive any dividends, and
any amounts payable upon the dissolution, liquidation and winding up of our affairs, repayable in non-Israeli currency at the rate of
exchange prevailing at the time of conversion. However, Israeli income tax is generally required to have been paid or withheld on these
amounts. In addition, the statutory framework for the potential imposition of currency exchange control has not been eliminated and may
be restored at any time by administrative action.
Material U.S. Federal Income Tax Considerations
The following is a summary of the material U.S. federal income tax consequences relating
to the acquisition, ownership, and disposition of the ADSs by U.S. Holders, as defined below. This summary addresses solely U.S. Holders
who acquire the Securities pursuant to this offering and who hold the Securities as capital assets for tax purposes. This summary is based
on current provisions of the Internal Revenue Code of 1986, as amended (the “Code”), current and proposed U.S. Treasury regulations
promulgated thereunder, and administrative and judicial decisions as of the date hereof, all of which are subject to change, possibly
on a retroactive basis. In addition, this section is based in part upon representations of the depositary and the assumption that each
obligation in the Deposit Agreement and any related agreement will be performed in accordance with its terms. This summary does not address
all U.S. federal income tax matters that may be relevant to a particular holder or all tax considerations that may be relevant with respect
to an investment in the ADSs.
This summary does not address tax considerations applicable to a holder of the ADSs
that may be subject to special tax rules including, without limitation, the following:
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dealers or traders in securities, currencies, or notional principal contracts; |
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banks, insurance companies, and other financial institutions; |
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real estate investment trusts or regulated investment companies; |
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persons or corporations subject to an alternative minimum tax; |
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tax-exempt organizations; |
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traders that have elected mark-to-market accounting; |
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corporations that accumulate earnings to avoid U.S. tax; |
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pension plans; |
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investors that hold the ADSs as part of a “straddle,” “hedge,” or “conversion transaction” with
other investments; |
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persons that actually or constructively own 10 percent or more of our Ordinary Shares outstanding by vote or by value; |
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persons that are treated as partnerships or other pass-through entities for U.S. federal income purposes; and |
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U.S. Holders whose functional currency is not the U.S. dollar. |
This summary does not address the effect of any U.S. federal taxation other than U.S.
federal income taxation, and does not include any discussion of state, local, or foreign tax consequences to a holder of the ADSs. In
addition, this summary does not include any discussion of the U.S. federal income tax consequences to any holder of ADSs that is not a
U.S. Holder.
You are urged to consult your own tax advisor regarding the foreign
and U.S. federal, state, and local income and other tax consequences of an investment in the ADSs, including the potential effects of
any proposed legislation, if enacted.
For purposes of this summary, a “U.S. Holder” means a beneficial owner
of a Security that is for U.S. federal income tax purposes:
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an individual who is a citizen or resident of the U.S.; |
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a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in the U.S. or
under the laws of the U.S., any state thereof, or the District of Columbia; |
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an estate, the income of which is subject to U.S. federal income tax regardless of its source; or |
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a trust (1) if (a) a court within the U.S. is able to exercise primary supervision over the administration of the trust and (b) one
or more U.S. persons have the authority to control all substantial decisions of the trust or (2) that has a valid election in effect under
applicable U.S. Treasury regulations to be treated as a U.S. person. |
If an entity or arrangement that is classified as a partnership for U.S. federal tax
purposes holds any ADSs, the U.S. federal tax treatment of its partners will generally depend upon the status of the partners and the
activities of the partnership. Entities or arrangements that are classified as partnerships for U.S. federal tax purposes and persons
holding any ADSs through such entities should consult their own tax advisors.
In general, and assuming that all obligations under the Deposit Agreement will be
satisfied in accordance with the terms of the Deposit Agreement, if you hold ADSs, you will be treated as the holder of the underlying
Ordinary Shares represented by those ADSs for U.S. federal income tax purposes. Accordingly, gain or loss generally will not be recognized
if you exchange ADSs for the underlying Ordinary Shares represented by those ADSs.
Distributions
If we make any distribution with respect to the Securities, subject to the discussion
under “- Passive Foreign Investment Companies” below, the gross amount of any distribution actually or constructively received
by a U.S. Holder (through the Depositary) with respect to a Security will generally be taxable to the U.S. Holder as foreign-source dividend
income to the extent of our current and accumulated earnings and profits as determined under U.S. federal income tax principles. The amount
distributed will include the amount of any Israeli taxes withheld from such distribution, as described above under the caption “Material
Tax Considerations-Israeli Tax Considerations.” A U.S. Holder will not be eligible for any dividends received deduction in respect
of the dividends paid by us, which deduction is otherwise available to a corporate U.S. Holder in respect of dividends received from a
domestic corporation. Distributions in excess of earnings and profits will be non-taxable to the U.S. Holder to the extent of the U.S.
Holder’s adjusted tax basis in its Securities. Distributions in excess of such adjusted tax basis will generally be taxable to a
U.S. Holder as capital gain from the sale or exchange of property as described below under “-Sale or Other Disposition of ADSs.”
If we do not report to a U.S. Holder the portion of a distribution that exceeds earnings and profits, then the distribution will generally
be taxable as a dividend. The amount of any distribution of property other than cash will be the fair market value of that property on
the date of distribution.
Under the Code, certain qualified dividends received by non-corporate U.S. Holders
will be subject to U.S. federal income tax at the preferential long-term capital gains of, currently, a maximum of 20%. This preferential
income tax rate is applicable only to dividends paid by a “qualified foreign corporation” that is not a PFIC (as defined below
under “- Passive Foreign Investment Companies,”) for the year in which the dividend is paid or for the preceding taxable year,
and only with respect to the Securities held by a qualified U.S. Holder (i.e., a non-corporate holder) for a minimum holding period (generally
61 days during the 121-day period beginning 60 days before the ex-dividend date) and certain other holding period requirements are met.
If such holding period requirements are met, dividends we pay with respect to the Securities generally will be qualified dividend income.
However, if we were a PFIC, dividends paid by us to individual U.S. Holders would not be eligible for the reduced income tax rate applicable
to qualified dividends. As discussed below under “- Passive Foreign Investment Companies,” we do not anticipate being treated
as a PFIC for this year; however, there can be no assurance that we will not be treated as a PFIC for our current taxable or future taxable
years. You should consult your own tax advisor regarding the availability of this preferential tax rate under your particular circumstances.
The amount of any distribution paid in a currency other than U.S. dollars (a “foreign
currency”), including the amount of any withholding tax thereon, will be included in the gross income of a U.S. Holder in an amount
equal to the U.S. dollar value of the foreign currency calculated by reference to the exchange rate in effect on the date of the U.S.
Holder’s (or, in the case of ADSs, the Depositary’s) receipt of the dividend, actively or constructively, regardless of whether
the foreign currency is converted into U.S. dollars. If the foreign currency is converted into U.S. dollars on the date of receipt, a
U.S. Holder generally should not be required to recognize a foreign currency gain or loss in respect of the dividend. If the foreign currency
received in the distribution is not converted into U.S. dollars on the date of receipt, a U.S. Holder will have a basis in the foreign
currency equal to its U.S. dollar value on the date of receipt. Any gain or loss on a subsequent conversion or other disposition of the
foreign currency will be treated as U.S. source ordinary income or loss and will not be eligible for the preferential rate applicable
to qualified dividend income.
Subject to certain conditions and limitations, any Israeli taxes withheld on dividends
may be creditable against a U.S. Holder’s U.S. federal income tax liability, subject to generally applicable limitations. The rules
relating to foreign tax credits and the timing thereof are complex. You should consult your own tax advisors regarding the availability
of a foreign tax credit in your particular situation.
Sale, Exchange, or Other Disposition of ADSs
Subject to the discussion under “- Passive Foreign Investment Companies”
below, a U.S. Holder that sells or otherwise disposes of its Securities will recognize gain or loss for U.S. federal income tax purposes
in an amount equal to the difference between the amount realized on the sale or other disposition and such U.S. Holder’s adjusted
basis in the Securities. Such gain or loss generally will be capital gain or loss and will be a long-term capital gain or loss if the
U.S. Holder’s holding period of the Securities exceeds one year at the time of the sale or other disposition. Long-term capital
gains realized by non-corporate U.S. Holders are generally subject to a preferential U.S. federal income tax rate. In general, gain or
loss recognized by a U.S. Holder on the sale or other disposition of the Securities will be U.S. source gain or loss for purposes of the
foreign tax credit limitation. However, if we are a PFIC, any such gain will be subject to the PFIC rules, as discussed below, rather
than being taxed as a capital gain. As discussed below in “-Passive Foreign Investment Companies,” we do not anticipate being
a PFIC for this year; however, there can be no assurance that we will not be treated as a PFIC for our current taxable year and future
taxable years.
If a U.S. Holder receives foreign currency upon a sale or exchange of the Securities,
gain or loss will be recognized in the manner described above under “- Distributions.” However, if such foreign currency is
converted into U.S. dollars on the date received by the U.S. Holder, the U.S. Holder generally should not be required to recognize any
foreign currency gain or loss on such conversion.
As discussed above under the heading “Material Tax Considerations-Israeli Tax
Considerations-Taxation of Shareholders,” a U.S. Holder who holds Securities through an Israeli broker or other Israeli intermediary
may be subject to Israeli withholding tax on any capital gains recognized on a sale or other disposition of the Securities. Any Israeli
tax paid under circumstances in which an exemption from (or a refund of or a reduction in) such tax was available will not be creditable
for U.S. federal income tax purposes. U.S. Holders are advised to consult their Israeli broker or intermediary regarding the procedures
for obtaining an exemption or reduction.
Medicare Tax on Unearned Income
Non-corporate U.S. Holders whose income exceeds certain thresholds are required to
pay an additional 3.8% tax on their net investment income, which includes dividends paid on the Securities and capital gains from the
sale or other disposition of the Securities.
Passive Foreign Investment Companies
The treatment of the Company as a PFIC is based on the value and composition of our
assets, and no assurance can be given that we will not be treated as a PFIC for U.S. federal income tax purposes for our current taxable
year or future taxable years. We will be considered a PFIC for any taxable year if:
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at least 75% of our gross income for such taxable year is passive
income; or |
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• |
at least 50% of the value of our assets (based on an average
of the fair market values of the assets determined at the end of each quarter during a taxable year) is attributable to assets that produce
or are held for the production of passive income. |
For purposes of the above calculations, if we own, directly or indirectly, 25% or
more of the total value of the outstanding shares of another corporation, we will be treated as if we (a) held a proportionate share of
the assets of such other corporation and (b) received a proportionate share of the income of such other corporation directly. Passive
income generally includes, among other things, dividends, interest, rents, royalties and certain capital gain, but generally excludes
rents and royalties that are derived in the active conduct of a trade or business and which are received from a person other than a related
person.
A separate determination must be made each taxable year as to whether we are a PFIC
(after the close of each such taxable year). Because the value of our assets for purposes of the asset test will generally be determined
by reference to the market price of the ADSs, our PFIC status will also depend in large part on the market price of the Securities, which
may fluctuate significantly.
If we are a PFIC for any year during which a U.S. Holder holds any Securities, we
generally will be treated as a PFIC with respect to such U.S. Holder for all succeeding years during which such U.S. Holder holds the
Securities, unless we cease to be a PFIC and such U.S. Holder makes a “deemed sale” election with respect to the Securities
that such U.S. Holder holds. A U.S. Holder that makes such an election will be deemed to have sold the Securities it holds at their fair
market value on the last day of the last taxable year in which we qualified as a PFIC, and any gain from such deemed sale will be subject
to the U.S. federal income tax treatment described below. After the deemed sale election, the Securities with respect to which the deemed
sale election was made will not be treated as shares in a PFIC unless we subsequently become a PFIC.
For each taxable year for which we are treated as a PFIC with respect to a U.S. Holder,
such U.S. Holder will be subject to special tax rules with respect to any “excess distribution” it receives and any gain it
realizes from a sale or other disposition (including a pledge) of the Securities, unless it makes a “mark-to-market” election
or a “qualified electing fund” election discussed below. Distributions that a U.S. Holder receives in a taxable year that
are greater than 125% of the average annual distributions it received during the shorter of the three preceding taxable years or its holding
period for the Securities will be treated as an excess distribution. Under these special tax rules, if a U.S. Holder receives any excess
distribution or realizes any gain from a sale or other disposition of the Securities:
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the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the Securities; |
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the amount of excess distribution or gain allocated to the current taxable year, and any taxable year before the first taxable year
in which we were a PFIC, must be included in the U.S. Holder’s gross income (as ordinary income) for the tax year of the sale or
disposition; and |
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the amount allocated to each other year will be subject to the highest marginal tax rate in effect with respect to such U.S. Holder
for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to
such amounts allocated to each other year. |
The tax liability for amounts allocated to years before the year of disposition or
“excess distribution” cannot be offset by any losses for such years. Additionally, any gains realized on the sale of the Securities
cannot be treated as capital gains.
If we are treated as a PFIC with respect to a U.S. Holder for any taxable year, to
the extent any of our subsidiaries are also PFICs, such U.S. Holder will be deemed to own its proportionate share of any such subsidiaries
that are PFICs, and such U.S. Holder may be subject to the rules described in the preceding two paragraphs with respect to the shares
of such subsidiaries that are PFICs it will be deemed to own. As a result, a U.S. Holder may incur liability for any “excess distribution”
described above if we receive a distribution from such subsidiaries that are PFICs or if we dispose of, or are deemed to dispose of, any
shares in such subsidiaries that are PFICs. You should consult your own tax advisor regarding the application of the PFIC rules to any
of our subsidiaries.
Alternatively, a U.S. Holder of “marketable stock” (as defined below)
in a PFIC may make a mark-to-market election for such stock to elect out of the general tax treatment for PFICs discussed above. If a
U.S. Holder makes a mark-to-market election for the ADSs, such U.S. Holder will include in income for each year we are a PFIC an amount
equal to the excess, if any, of the fair market value of the ADSs as of the close of such U.S. Holder’s taxable year over such U.S.
Holder’s adjusted basis in such ADSs. A U.S. Holder is allowed a deduction for the excess, if any, of the adjusted basis of the
ADSs over their fair market value as of the close of the taxable year. However, deductions are allowable only to the extent of any net
mark-to-market gains on the ADSs included in a U.S. Holder’s income for prior taxable years. Amounts included in a U.S. Holder’s
income under a mark-to-market election, as well as gain on the actual sale or other disposition of the ADSs, are treated as ordinary income.
Ordinary loss treatment also applies to the deductible portion of any mark-to-market loss on the ADSs, as well as to any loss realized
on the actual sale or disposition of the ADSs to the extent the amount of such loss does not exceed the net mark-to-market gains previously
included for the ADSs. A U.S. Holder’s basis in the ADSs will be adjusted to reflect any such income or loss amounts. If a U.S.
Holder makes a valid mark-to-market election, the tax rules that apply to distributions by corporations that are not PFICs will apply
to distributions by us, except the lower applicable tax rate for qualified dividend income will not apply. If we cease to be a PFIC when
a U.S. Holder has a mark-to-market election in effect, gain or loss realized by such U.S. Holder on the sale of the ADSs will be a capital
gain or loss and taxed in the manner described above under “- Sale, Exchange, or Other Disposition of ADSs.”
The mark-to-market election is available only for “marketable stock,”
which is a stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter, or regularly traded,
on a qualified exchange or another market, as defined in applicable U.S. Treasury regulations. Any trades that have as their principal
purpose meeting this requirement will be disregarded. The ADSs are listed on Nasdaq and, accordingly, provided the ADSs are regularly
traded, the mark-to-market election will be available to a U.S. Holder of ADSs if we are a PFIC. Once made, the election cannot be revoked
without the consent of the IRS unless the ADSs cease to be marketable stock. If we are a PFIC for any year in which the U.S. Holder owns
the ADSs but before a mark-to-market election is made, the interest charge rules described above will apply to any mark-to-market gain
recognized in the year the election is made. If any of our subsidiaries are or become PFICs, the mark-to-market election will not be available
with respect to the shares of such subsidiaries that are treated as owned by a U.S. Holder. Consequently, a U.S. Holder could be subject
to the PFIC rules with respect to income of the lower-tier PFICs the value of which already had been taken into account indirectly via
mark-to-market adjustments. You should consult your own tax advisors as to the availability and desirability of a mark-to-market election,
as well as the impact of such election on interests in any lower-tier PFICs.
In certain circumstances, a U.S. Holder of stock in a PFIC can make a “qualified
electing fund” election to mitigate some of the adverse tax consequences of holding stock in a PFIC by including in income its share
of the corporation’s income on a current basis. However, we do not currently intend to prepare or provide the information that would
enable a U.S. Holder to make a qualified electing fund election.
Unless otherwise provided by the U.S. Treasury, each U.S. shareholder of a PFIC is
required to file an annual information return on IRS Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company
or Qualifying Electing Fund) containing such information as the U.S. Treasury may require. A U.S. Holder’s failure to file such
annual information return could result in the imposition of penalties and the extension of the statute of limitations with respect to
U.S. federal income tax. You should consult your own tax advisors regarding the requirements of filing such information returns under
these rules, taking into account the uncertainty as to whether we are currently treated as or may become a PFIC.
YOU ARE STRONGLY URGED TO CONSULT YOUR OWN TAX ADVISOR REGARDING
THE IMPACT AND APPLICATION OF THE PFIC RULES ON YOUR INVESTMENT IN THE SECURITIES.
Backup Withholding and Information Reporting
Payments of dividends with respect to the Securities and the proceeds from the sale,
retirement, or other disposition of the Securities made by a U.S. paying agent or other U.S. intermediary will generally be reported to
the IRS and to the U.S. Holder as may be required under applicable U.S. Treasury regulations. We, or an agent, a broker, or any paying
agent, as the case may be, may be required to withhold tax (backup withholding), currently at the rate of 24%, if a non-corporate U.S.
Holder that is not otherwise exempt fails to provide an accurate taxpayer identification number and comply with other IRS requirements
concerning information reporting. Certain U.S. Holders (including, among others, corporations and tax-exempt organizations) are not subject
to backup withholding. Backup withholding is not an additional tax. Any amount of backup withholding withheld may be used as a credit
against your U.S. federal income tax liability or may be refunded provided that the required information is timely furnished to the IRS.
U.S. Holders should consult their own tax advisors as to their qualification for exemption from backup withholding and the procedure for
obtaining an exemption.
Foreign Asset Reporting
Certain U.S. Holders who are individuals are required to report information relating
to an interest in the Securities, subject to certain exceptions (including an exception for shares held in accounts maintained by financial
institutions) by filing IRS Form 8938 (Statement of Specified Foreign Financial Assets) with their federal income tax return. U.S. Holders
are urged to consult their tax advisors regarding their information reporting obligations, if any, with respect to their ownership and
disposition of the Securities.
EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT ITS OWN TAX ADVISOR REGARDING THE TAX
CONSEQUENCES OF AN INVESTMENT IN THE SECURITIES IN LIGHT OF SUCH INVESTOR’S PARTICULAR CIRCUMSTANCES.
PLAN OF DISTRIBUTION
The selling shareholders of the securities and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of the securities covered hereby on the principal trading market or any
other stock exchange, market or trading facility on which the securities are traded or in private transactions. These sales may be at
fixed or negotiated prices. The selling shareholders may use any one or more of the following methods when selling securities:
| ● |
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
| ● |
block trades in which the broker-dealer will attempt to sell the securities as an agent but may position and resell a portion of
the block as principal to facilitate the transaction; |
| ● |
purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
| ● |
an exchange distribution in accordance with the rules of the applicable exchange; |
| ● |
privately negotiated transactions; |
| ● |
settlement of short sales made after the effective date of the registration statement; |
| ● |
in transactions through broker-dealers that agree with the selling shareholders to sell a specified number of such securities at
a stipulated price per security; |
| ● |
through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
|
| ● |
a combination of any such methods of sale; or |
| ● |
any other method permitted pursuant to applicable law. |
The selling shareholders may also sell securities under Rule 144 or any other exemption
from registration under the Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged by the selling shareholders may arrange for other broker-dealers
to participate in sales. Broker-dealers may receive commissions or discounts from the selling shareholders (or, if any broker-dealer acts
as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to
this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule
2121, and in the case of a principal transaction a markup or markdown in compliance with FINRA Rule 2121.
In connection with the sale of the securities or interests therein, the selling shareholders
may enter into hedging transactions with broker-dealers or other financial institutions, which may, in turn, engage in short sales of
the securities in the course of hedging the positions it assumes. The selling shareholders may also sell securities short and deliver
these securities to close out its short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities.
The selling shareholders may also enter into option or other transactions with broker- dealers or other financial institutions or create
one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered
by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented
or amended to reflect such transaction).
The selling shareholders and any broker-dealers or agents that are involved in selling
the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales.
In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them
may be deemed to be underwriting commissions or discounts under the Securities Act. The selling shareholders have informed the Company
that they do not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities.
We are required to pay certain fees and expenses incurred by us incident to the registration
of the securities. We have agreed to indemnify the selling shareholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
We agreed to keep this prospectus effective until the selling shareholders do not
own any Warrants or do not own any Ordinary Shares represented by the Offered ADSs issuable upon exercise of the Warrants. The resale
securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In
addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale
in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person engaged
in the distribution of the resale securities may not simultaneously engage in market-making activities with respect to the Offered ADSs
for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling
shareholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation
M, which may limit the timing of purchases and sales of the Offered ADSs by the selling shareholders or any other person. We will make
copies of this prospectus available to the selling shareholders and have informed them of the need to deliver a copy of this prospectus
to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
EXPENSES
The following table sets forth the estimated costs and expenses payable by the registrant
expected to be incurred in connection with the issuance and distribution of the Offered ADSs being registered hereby. All of such expenses
are estimates, except for the SEC registration fee.
|
SEC registration fee |
$ |
750.99 |
||
|
Legal fees and expenses |
50,000 |
|||
|
Accountants’ fees and expenses |
18,000 |
|||
|
Miscellaneous |
1,000 |
|||
|
Total |
69,750.99 |
Each of the amounts set forth above, other than the registration fee, is an estimate.
LEGAL MATTERS
Certain legal matters with respect to Israeli law and with respect to the validity of the offered securities
under Israeli law will be passed upon for us by Goldfarb Gross Seligman & Co. Certain legal matters with respect to U.S. federal securities
law and New York law will be passed upon for us by Haynes and Boone, LLP.
EXPERTS
The financial statements included in this prospectus as of December 31, 2022 and 2021
and for each of the three years in the period for the year ended December 31, 2022 and management’s assessment of the effectiveness
of internal control over financial reporting (which is included in Management’s Report on Internal Control over Financial Reporting)
as of December 31, 2022 included in this prospectus, have been so included in reliance on the report of Kesselman & Kesselman, Certified
Public Accountants (Isr.) (which contains an adverse opinion on the effectiveness of the Company’s internal control over financial
reporting and includes an explanatory paragraph regarding the existence of substantial doubt about the Company’s ability to continue
as a going concern as described in Note 1a(3) to the financial statements), a member firm of PricewaterhouseCoopers International Limited,
an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
WHERE YOU
CAN FIND ADDITIONAL INFORMATION
We are subject to the informational requirements of the Securities Exchange Act of
1934, as amended, and in accordance therewith file annual and special reports with, and furnish other information to, the SEC. The SEC
maintains a website that contains reports, information statements and other information regarding registrants that file electronically
with the SEC. The address of the SEC’s website is www.sec.gov.
We make available free of charge on or through our website at www.redhillbio.com,
our Annual Reports on Form 20-F, Reports on Form 6-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d)
of the Exchange Act, as soon as reasonably practicable after we electronically file such material with or otherwise furnish it to the
SEC.
We have filed with the SEC a registration statement under the Securities Act of 1933,
as amended, relating to the offering of these securities. The registration statement, including the attached exhibits, contains additional
relevant information about us and the securities. This prospectus does not contain all of the information set forth in the registration
statement. You can obtain a copy of the registration statement for free at www.sec.gov. The registration statement is also available on
our website, www.redhillbio.com.
ENFORCEABILITY
OF CIVIL LIABILITIES
We are incorporated under the laws of the State of Israel. Service of process upon
us and upon our directors and officers and the Israeli experts named in this prospectus, a majority of whom reside outside the United
States, may be difficult to obtain within the United States. Furthermore, because many of our assets and a majority of our directors and
officers are located outside the United States, any judgment obtained in the United States against us or any of our directors and officers
may not be collectible within the United States.
It may be difficult to assert U.S. securities law claims in original actions instituted
in Israel. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws because Israel is not the most appropriate
forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S.
law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact which
can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law.
Subject to specified time limitations and legal procedures, Israeli courts may enforce
a United States judgment in a civil matter which, subject to certain exceptions, is non-appealable, including judgments based upon the
civil liability provisions of the Securities Act and the Exchange Act and including a monetary or compensatory judgment in a non-civil
matter, provided that:
| • |
the judgments are obtained after due process before a court of competent jurisdiction, according to the laws of the state in which
the judgment is given and the rules of private international law currently prevailing in Israel; |
| • |
the prevailing law of the foreign state in which the judgments were rendered allows the enforcement of judgments of Israeli courts
(however, the Israeli courts may waive this requirement following a request by the attorney general); |
| • |
adequate service of process has been effected and the defendant has had a reasonable opportunity to be heard and to present his or
her evidence; |
| • |
the judgments are not contrary to public policy, and the enforcement of the civil liabilities set forth in the judgment does not
impair the security or sovereignty of the State of Israel; |
| • |
the judgments were not obtained by fraud and do not conflict with any other valid judgment in the same matter between the same parties;
|
| • |
an action between the same parties in the same matter is not pending in any Israeli court at the time the lawsuit is instituted in
the foreign court; |
| • |
the obligations under the judgment are enforceable according to the laws of the State of Israel and according to the law of the foreign
state in which the relief was granted; |
| • |
We have irrevocably appointed RedHill Biopharma Inc. as our agent to receive service of process in any action against us in any United
States federal or state court arising out of this offering or any purchase or sale of securities in connection with this offering; and
|
| • |
If a foreign judgment is enforced by an Israeli court, it generally will be payable in Israeli currency, which can then be converted
into non-Israeli currency and transferred out of Israel. The usual practice in an action before an Israeli court to recover an amount
in a non-Israeli currency is for the Israeli court to issue a judgment for the equivalent amount in Israeli currency at the rate of exchange
in force on the date of the judgment, but the judgment debtor may make payment in foreign currency. Pending collection, the amount of
the judgment of an Israeli court stated in Israeli currency ordinarily will be linked to the Israeli consumer price index plus interest
at the annual statutory rate set by Israeli regulations prevailing at the time. Judgment creditors must bear the risk of unfavorable exchange
rates. |
10,600,000 American Depositary Shares representing 4,240,000,000
Ordinary Shares
REDHILL BIOPHARMA LTD.
PROSPECTUS
REDHILL
BIOPHARMA LTD.
INDEX
TO FINANCIAL TABLES
CONDENSED
CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED) JUNE 30, 2023
|
|
|
Page |
|
|
|
|
|
|
F-2 | |
|
|
|
|
|
|
F-3 | |
|
|
|
|
|
|
F-4 | |
|
|
|
|
|
|
F-5 | |
|
|
|
|
|
|
F-6-
F-9 |
2022
CONSOLIDATED FINANCIAL STATEMENTS (AUDITED)
|
|
Page | |
|
|
|
|
|
|
F-10 | |
|
|
|
|
|
|
F-14 | |
|
|
|
|
|
|
F-15 | |
|
|
|
|
|
|
F-16 | |
|
|
|
|
|
|
F-17 | |
|
|
|
|
|
|
F-18 –
F- 56 |
F -
1
REDHILL BIOPHARMA LTD.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
|
|
|
|
Six Months Ended | ||
|
|
|
|
June 30, | ||
|
|
|
|
2023 |
|
2022 |
|
|
|
|
U.S. dollars in thousands | ||
|
NET REVENUES |
|
|
5,395 |
|
31,450 |
|
COST OF REVENUES |
|
|
2,418 |
|
15,288 |
|
GROSS PROFIT |
|
|
2,977 |
|
16,162 |
|
RESEARCH AND DEVELOPMENT EXPENSES |
|
|
2,331 |
|
4,534 |
|
SELLING AND MARKETING EXPENSES |
|
|
9,632 |
|
21,833 |
|
GENERAL AND ADMINISTRATIVE EXPENSES |
|
|
9,335 |
|
15,583 |
|
OTHER INCOME |
|
|
(42,993) |
|
— |
|
OPERATING INCOME (LOSS) |
|
|
24,672 |
|
(25,788) |
|
FINANCIAL INCOME |
|
|
28,677 |
|
1,672 |
|
FINANCIAL EXPENSES |
|
|
2,347 |
|
8,123 |
|
FINANCIAL INCOME (EXPENSES), net |
|
|
26,330 |
|
(6,451) |
|
INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) FOR THE PERIOD |
|
|
51,002 |
|
(32,239) |
|
EARNINGS (LOSS) PER ORDINARY SHARE, basic and diluted (U.S. dollars) |
|
|
0.04 |
|
(0.06) |
|
WEIGHTED AVERAGE OF ORDINARY SHARE (in thousands) |
|
|
1,277,931 |
|
546,616 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-2
REDHILL BIOPHARMA LTD.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION
(Unaudited)
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-3
REDHILL BIOPHARMA LTD.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY (CAPITAL DEFICIENCY)
(Unaudited)
|
|
|
Ordinary |
|
Additional |
|
Accumulated |
|
Total |
|
|
|
shares |
|
paid-in capital |
|
deficit |
|
equity (Capital Deficiency) |
|
|
|
U.S. dollars in thousands | ||||||
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT JANUARY 1, 2023 |
|
2,835 |
|
382,625 |
|
(433,860) |
|
(48,400) |
|
|
|
|
|
|
|
|
|
|
|
CHANGES IN THE SIX-MONTHS PERIOD ENDED JUNE 30, 2023: |
|
|
|
|
|
|
|
|
|
Share-based compensation to employees and service providers |
|
— |
|
— |
|
849 |
|
849 |
|
Issuance of ordinary shares, net of expenses |
|
1,761 |
|
(1,741) |
|
— |
|
20 |
|
Issuance of ordinary shares for vested RSUs |
|
24 |
|
(24) |
|
— |
|
— |
|
Comprehensive income |
|
— |
|
— |
|
51,002 |
|
51,002 |
|
BALANCE AT JUNE 30, 2023 |
|
4,620 |
|
380,860 |
|
(382,009) |
|
3,471 |
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT JANUARY 1, 2022 |
|
1,495 |
|
375,246 |
|
(367,866) |
|
8,875 |
|
CHANGES IN THE SIX-MONTHS PERIOD ENDED JUNE 30, 2022: |
|
|
|
|
|
|
|
|
|
Share-based compensation to employees and service providers |
|
— |
|
— |
|
2,924 |
|
2,924 |
|
Issuance of ordinary shares, net of expenses |
|
332 |
|
8,168 |
|
— |
|
8,500 |
|
Comprehensive loss |
|
— |
|
— |
|
(32,239) |
|
(32,239) |
|
BALANCE AT JUNE 30, 2022 |
|
1,827 |
|
383,414 |
|
(397,181) |
|
(11,940) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-4
REDHILL BIOPHARMA LTD.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
Six Months Ended | ||
|
|
|
|
June 30, | ||
|
|
|
|
2023 |
|
2022 |
|
|
|
|
U.S. dollars in thousands | ||
|
OPERATING ACTIVITIES: |
|
|
|
|
|
|
Comprehensive income (loss) |
|
|
51,002 |
|
(32,239) |
|
Adjustments in respect of income and expenses not involving cash flow: |
|
|
|
|
|
|
Share-based compensation to employees and service providers |
|
|
849 |
|
2,924 |
|
Depreciation |
|
|
1,055 |
|
1,154 |
|
Amortization of intangible assets |
|
|
530 |
|
2,900 |
|
Gains from the transfer of rights in Movantik® and extinguishment of debt obligations, (see below) |
|
|
(56,082) |
|
— |
|
Gains from early termination of leases |
|
|
(694) |
|
— |
|
Non-cash expenses related to borrowing and payable in respect of intangible assets purchase |
|
|
— |
|
2,813 |
|
Fair value gains on derivative financial instruments |
|
|
(8,071) |
|
(1,981) |
|
Loss from modification of warrants terms as part of a new issuance, see note 3b |
|
|
1,084 |
|
— |
|
Issuance costs in respect of warrants |
|
|
922 |
|
334 |
|
Exchange differences and revaluation of bank deposits |
|
|
(13) |
|
(63) |
|
|
|
|
(60,420) |
|
8,081 |
|
Changes in assets and liability items: |
|
|
|
|
|
|
Decrease (increase) in trade receivables |
|
|
31,618 |
|
(2,078) |
|
Decrease in prepaid expenses and other receivable |
|
|
1,337 |
|
1,872 |
|
Decrease in inventories |
|
|
1,837 |
|
3,091 |
|
Decrease in accounts payable |
|
|
(1,118) |
|
(7,291) |
|
Decrease in accrued expenses and other liabilities |
|
|
(10,545) |
|
(684) |
|
Increase (decrease) in allowance for deductions from revenue |
|
|
(31,486) |
|
8,512 |
|
|
|
|
(8,357) |
|
3,422 |
|
Net cash used in operating activities |
|
|
(17,775) |
|
(20,736) |
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
Purchase of fixed assets |
|
|
(7) |
|
(176) |
|
Change in investment in current bank deposits |
|
|
— |
|
8,500 |
|
Net cash provided (used in) by investing activities |
|
|
(7) |
|
8,324 |
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
Proceeds from issuance of ordinary shares and warrants, net of issuance costs |
|
|
5,097 |
|
16,221 |
|
Repayment of payable in respect of intangible asset purchase |
|
|
(6,555) |
|
(5,778) |
|
Decrease in restricted cash |
|
|
6,860 |
|
— |
|
Payment of principal with respect to lease liabilities |
|
|
(589) |
|
(470) |
|
Net cash provided by financing activities |
|
|
4,813 |
|
9,973 |
|
DECREASE IN CASH AND CASH EQUIVALENTS |
|
|
(12,969) |
|
(2,439) |
|
EXCHANGE DIFFERENCES ON CASH AND CASH EQUIVALENTS |
|
|
(3) |
|
(47) |
|
BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
|
|
19,968 |
|
29,474 |
|
BALANCE OF CASH AND CASH EQUIVALENTS AT THE END OF PERIOD |
|
|
6,996 |
|
26,988 |
|
|
|
|
|
|
|
|
SUPPLEMENTARY INFORMATION ON INTEREST RECEIVED IN CASH |
|
|
123 |
|
11 |
|
SUPPLEMENTARY INFORMATION ON INTEREST PAID IN CASH |
|
|
315 |
|
5,283 |
|
SUPPLEMENTARY INFORMATION ON NON-CASH INVESTING AND FINANCING ACTIVITIES: |
|
|
|
|
|
|
Acquisition of right-of-use assets by means of lease liabilities |
|
|
224 |
|
4,767 |
|
Decrease in lease liability (with corresponding decrease in right of use asset in amount of $4,117) resulting from early termination of lease. |
|
|
4,811 |
|
— |
|
|
|
|
|
|
|
|
Transfer of rights in Movantik® and extinguishment of debt obligations: |
|
|
|
|
|
|
Decrease in Intangible asset |
|
|
(59,503) |
|
|
|
Decrease in Inventories |
|
|
(4,233) |
|
|
|
Decrease in Payable in respect of Intangible asset |
|
|
4,602 |
|
|
|
Decrease in Borrowing |
|
|
115,216 |
|
|
|
Gains from the transfer of the rights in Movantik® and extinguishment of debt obligations |
|
|
56,082 |
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-5
NOTE 1 - GENERAL:
a.General
1)RedHill
Biopharma Ltd. (the “Company”), incorporated on August 3, 2009, together with its wholly-owned subsidiary, RedHill Biopharma
Inc. (“RedHill Inc.”), incorporated in Delaware, U.S. on January 19, 2017, is a specialty biopharmaceutical company primarily
focused on gastrointestinal (“GI”) diseases and infectious diseases.
The Company’s ordinary shares were traded on the Tel-Aviv Stock Exchange (“TASE”) from February 2011 to February 2020, after which the Company voluntarily delisted from trading on the TASE, effective February 13, 2020. The Company’s American Depositary Shares (“ADSs”) were traded on the Nasdaq Capital Market from December 27, 2012, and have been listed on the Nasdaq Global Market (“Nasdaq”) since July 20, 2018. On March 23, 2023, the Company implemented a ratio change of the Company's ADSs to its non-traded ordinary shares from ratio of 1 ADS representing 10 ordinary shares to a new ratio of 1 ADS representing 400 ordinary shares.
The Company’s registered address is 21 Ha’arba’a St, Tel-Aviv, Israel.
| 2) | Since the Company established its commercial presence in the U.S. in 2017, it has promoted or commercialized various GI-related products that were either developed internally or acquired through in-licensing agreements. As of the date of approval of these condensed consolidated interim financial statements, the Company commercializes in the U.S., mainly Talicia®, for the treatment of Helicobacter pylori infection in adults, the first product approved by the U.S. Food and Drug Administration (“FDA”) being developed primarily internally by the Company. Until February 1, 2023, the Company commercialized Movantik® in the U.S, for the treatment of opioid-induced constipation. See also note 3(a) regarding the transfer of the Company’s rights in Movantik® to HCR Collateral Management, LLC (“HCRM”) in exchange for all the Company’s debt obligations under the Credit Agreement with HCRM. The Company also continues to advance the development of part of its late-stage therapeutic candidates. |
3)
Through June 30, 2023, the Company
has an accumulated deficit and its activities have been funded primarily through public and private offerings of the Company’s securities
as well as a senior secured borrowing (now fully extinguished, see note 3(a)). There is no assurance
that the Company’s business will generate sustainable positive cash flows to fund its business.
The Company plans to further fund its future operations through commercialization and out-licensing of its therapeutic candidates, commercialization of in-licensed or acquired products and raising additional capital through equity or debt financing or through other non-dilutive financing. Furthermore, the Company is actively pursuing and in discussions with multiple parties regarding strategic business development transactions, including potential acquisition of revenue-generating assets in the U.S. and the sale of certain assets of the Company. The Company’s current cash resources are not sufficient to complete the research and development of any of its therapeutic candidates and to fully support its commercial operations until generation of sustainable positive cash flows. Management expects that the Company will incur additional losses as it continues to focus its resources on advancing the development of its therapeutic candidates, as well as advancing its commercial operations, that will result in negative cash flows from operating activities. Management believes that there is presently insufficient funding available to allow the Company to fund its activities for a period exceeding one year from the date of this filing. These conditions and events may cast significant doubt about the Company’s ability to continue as a going concern.
The accompanying condensed consolidated interim financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.
b. Approval of the condensed consolidated interim financial statements:
These condensed consolidated interim financial statements were approved by the Board of Directors (the "BoD") on August 16, 2023.
NOTE 2 - BASIS OF PREPARATION OF THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS:
The Company’s condensed consolidated interim financial statements for the six months ended June 30, 2023 (the "Condensed Consolidated Interim Financial Statements"), have been prepared in accordance with International Accounting Standard IAS 34, “Interim Financial Reporting”. These Condensed Consolidated Interim Financial Statements, that are unaudited, do not include all the information and disclosures that would otherwise be required in a complete set of annual financial statements and should be read in conjunction with the annual financial statements as of December 31, 2022, and their accompanying notes, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as published by the International Accounting Standards Board (“IASB”). The results of operations for the six months ended June 30, 2023, are not necessarily indicative of the results that may be expected for the entire fiscal year or for any other interim period.
F-6
REDHILL BIOPHARMA LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 - SIGNIFICANT EVENTS DURING THE CURRENT REPORTING PERIOD:
|
a. |
Movantik Transaction: |
On February 2, 2023 (“Closing Date”), the Company and RedHill Inc. have reached an agreement with HCRM resulting in the extinguishment of all of RedHill Inc. debt obligations (including all principal, interest, revenue interest, prepayment premiums and exit fees) under the Credit Agreement in exchange for the transfer of its rights in Movantik® to Movantik Acquisition Co., an affiliate of HCRM. HCRM assumes substantially all post-closing liabilities, and RedHill Inc. retains substantially all pre-closing liabilities relating to Movantik®. As part of the parties' arrangement, and to ensure continuous patient care, RedHill Inc. will provide HCRM with paid transition services for up to 12 months. HCRM retains security interests in certain of the Company’s assets until substantially all pre-closing liabilities relating to Movantik® have been paid or other specific conditions are met. Following the sale of the rights to Movantik®, the $16 million held as restricted cash under the Credit Agreement was deposited into an escrow account to pay pre-closing liabilities related to Movantik®.
Accounting treatment:
Prior to the sale of Movantik®, the Company presented the rights to Movantik® as an intangible asset in its consolidated statement of financial position (classified under the non-current assets). In addition, the Company measured the carrying amount of the borrowing to reflect all amounts owing or payable under the Credit Agreement as being immediately due (classified under the current liabilities).
The total gain in the Company’s consolidated statement of comprehensive income (loss) was composed of two elements: (1) the gain from the sale of Movantik® resulted from the difference between the carrying value and fair value of the assets transferred was presented as other income and (2) the gain from the debt extinguishment resulted from the difference between the carrying amount (the amortized cost) of the financial liability to HCRM and the fair value of the assets transferred was presented as financial income.
To determine the fair value of the rights to Movantik®, the Company based its estimate on the terms outlined in a non-binding term sheet with a third party which ultimately did not materialize, which included a cash payment of $95 million for the rights to Movantik®.
The fair value of nonmonetary assets relating to Movantik® transferred to settle debt obligations was used to measure debt extinguishment gains.
The service fees relating to the transition services are presented in the Company’s consolidated statement of comprehensive income (loss) as other income.
| b. | On April 3, 2023, the Company completed a registered direct offering to an existing shareholder with gross proceeds to the Company of approximately $6 million, before deducting offering expenses of approximately $0.6 million. The offering consisted of 1,500,000 ADSs (or ADS equivalent which consist of pre-funded warrants with an exercise price of $0.001 per pre-funded warrant) as well as granted (i) unregistered private warrants to purchase up to 1,500,000 ADSs. These warrants have an exercise price of $4.75 per ADS, are exercisable immediately after the issuance date and have a term of 5 years. (ii) unregistered private warrants to purchase up to 1,500,000 ADSs. These warrants have an exercise price of $4.00 per ADS, are exercisable immediately after the issuance date and have a term of 9 months. In addition, the Company has agreed to amend certain existing warrants to purchase up to 330,106 ADSs with an exercise price of $59.20 per ADS and a termination date of November 11, 2027. The amended warrants have a reduced exercise price of $4.75 per ADS and a termination date of 5 years following the closing of the offering. As part of the offering, the Company has issued to the placement agent warrants to purchase up to 90,000 ADSs with an exercise price of $5.00 per ADS, exercisable for 5 years. All the warrants may be exercised either for cash or on a cashless basis. |
The warrants were classified as financial liability due to a net settlement provision. Loss from modification of warrants terms as part of the new registered offering with an existing shareholder, in an amount of $1.1 million, was included as a financial expense. See also note 10 regarding amendment to the above warrants.
| c. | In June 2023, the company terminated an operating lease agreement that was signed in March 2022 resulting in the recognition of $0.7 million as a gain in the Company’s consolidated statement of comprehensive income (loss). |
| d. | Write-downs of inventories to net realizable value amounted to $0.7 million in the six months ended June 30, 2023. These were recognized as an expense, included in cost of revenues in the Company’s consolidated statement of comprehensive income (loss). |
F-7
REDHILL BIOPHARMA LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
NOTE 4: - ALLOWANCE FOR DEDUCTIONS FROM REVENUES:
The following table shows the movement of the allowance for deductions from revenues:
|
|
|
Rebates and patient discount programs |
|
Product returns |
|
Total |
|
|
|
U.S. dollars in thousands | ||||
|
As of January 1, 2023 |
|
46,636 |
|
1,234 |
|
47,870 |
|
Increases |
|
16,918 |
|
759 |
|
17,677 |
|
Decreases (utilized) |
|
(48,598) |
|
(1,072) |
|
(49,670) |
|
Adjustments |
|
910 |
|
(403) |
|
507 |
|
As of June 30, 2023 |
|
15,866 |
|
518 |
|
16,384 |
|
|
|
Rebates and patient discount programs |
|
Product returns |
|
Total |
|
|
|
U.S. dollars in thousands | ||||
|
As of January 1, 2022 |
|
29,742 |
|
969 |
|
30,711 |
|
Increases |
|
53,282 |
|
1,714 |
|
54,996 |
|
Decreases (utilized) |
|
(45,317) |
|
(1,363) |
|
(46,680) |
|
Adjustments |
|
271 |
|
(75) |
|
196 |
|
As of June 30, 2022 |
|
37,978 |
|
1,245 |
|
39,223 |
NOTE 5 - SHARE-BASED PAYMENTS:
During the six months ended June 30, 2023, approximately 18 thousand (taking into effect the ratio changes described in note 1), options and RSUs of the Company's ADSs were forfeited resulting in reversal of expenses of approximately $2 million. The forfeited options and RSUs are mainly due to a reduction in the employee count, as part of the cost reduction plan that was implemented in the second half of 2022.
NOTE 6 - NET REVENUES:
|
|
|
Six Months Ended June 30, | ||
|
|
|
2023 |
|
2022 |
|
|
|
U.S dollars in thousands | ||
|
Licensing revenues |
|
— |
|
2,000 |
|
Movantik® revenues |
|
(182) |
|
25,456 |
|
Sales of Other products (mainly Talicia®) |
|
5,577 |
|
3,994 |
|
|
|
5,395 |
|
31,450 |
NOTE 7 - FINANCIAL INSTRUMENTS:
| a. | The financial instrument of the Company presented at fair value is a derivative financial liability. The derivative financial instrument of the Company represents warrants, see also note 3(b) above. This instrument is classified as level 3. The fair value adjustments are recognized in profit or loss under financial income or financial expenses. The following table presents the change in the derivative liability measured at level 3 for the six months ended June 30, 2023, and June 30,2022: |
The fair value of the warrants is computed using the Black and Scholes option pricing model. The fair value of the warrants is based on the price of an ADS as of June 30,2023 and on the following key parameters: risk-free interest rate of 4.17%-5.47% and volatility of 86.6%-99.5%.
The fair value of the warrants as of June 30,2022, is based on the price of an ADS as of June 30,2022 and on the following key parameters: risk-free interest rate of 3.02% and volatility of 73.69%.
b.
The carrying amount of cash equivalents, bank deposits, restricted cash, receivables, account payables
and accrued expenses approximate their fair value due to their short-term characteristics.
F-8
REDHILL BIOPHARMA LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 - SEGMENT INFORMATION:
The Chief Executive Officer is the Company’s Chief Operating Decision Maker (“CODM”). The CODM allocates resources and assesses the Company’s performance based on the following segmentation: Commercial Operations and Research & Development.
Adjusted EBITDA represents net loss before depreciation, amortization, and financial income (expenses), adjusted to exclude share-based compensation, gains from early termination of leases, and income from service provided to HCRM and gain from the sale of Movantik® presented as other income.
The following table presents segment profitability and a reconciliation to the consolidated net loss and comprehensive loss for the periods indicated:
NOTE 9 - EARNING PER SHARE:
The basic and diluted earnings (loss) per share are the same since the effect of all potentially diluted ordinary shares for all reporting periods is anti-dilutive.
NOTE 10 - EVENT SUBSEQUENT TO JUNE 30, 2023:
On July 25, 2023, the Company completed a registered direct offering to existing shareholders of 1,301,923 ADSs (or ADS equivalent which consist of pre-funded warrants with an exercise price of $0.001 per pre-funded warrant), for gross proceeds of approximately $1.8 million, before deducting offering expenses of approximately $0.4 million.
In connection with this offering, the Company also agreed with the investors in this offering on the following:
| (i) | To reduce the exercise price to $1.80 per ADS to the following existing warrants: (i) warrants originally issued on May 11, 2022, and subsequently amended on April 3, 2023, to purchase up to an aggregate of 330,106 ADSs at an exercise price of $4.75 per ADS, (ii) warrants issued on December 6, 2022, to purchase up to an aggregate of 971,817 ADSs at an exercise price of $4.6305 per ADS, and (iii) warrants issued on April 3, 2023, to purchase up to an aggregate of 1,500,000 ADSs at an exercise price of $4.00 per ADS. |
| (ii) | Warrants issued on April 3,2023, to purchase 1,500,000 ADSs, will be exercised at a reduced exercise price of $1.35 per ADS, for gross proceeds of $2 million. New unregistered private warrants to purchase up to 1,500,000 ADSs will be granted to the same investor. The new warrants have an exercise price of $1.80 per ADS, are exercisable 6 months after the issuance date and have a term of 5 years. |
As part of the offering, the Company has issued to the placement agent warrants to purchase up to 78,115 ADSs with an exercise price of $1.6875 per ADS, exercisable for 5 years.
All the warrants may be exercised either for cash or on a cashless basis.
F-9
Report of Independent Registered Public Accounting Firm
To the board of directors and shareholders of RedHill Biopharma Ltd.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial position of RedHill Biopharma Ltd. and its subsidiary (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of comprehensive loss, of changes in equity (capital deficiency) and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because a material weakness in internal control over financial reporting existed as of that date related to the Company not designing and maintaining effective controls over the calculation of allowance for deductions from revenues. This matter is also described in the "Critical Audit Matters" section of our report.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described in the Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 15(b). We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the December 31, 2022 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.
The Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has an accumulated deficit, and management expects that the Company will incur additional losses. Management believes that there is presently insufficient funding available to fund its activities for a period exceeding one year from the date of issuance of the consolidated financial statements. These conditions and events raise substantial doubt about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. This matter is also described in the "Critical Audit Matters" section of our report.
Kesselman & Kesselman, Derech Menachem Begin 146 Tel Aviv-Yafo 6492103 Israel,
P.O Box 7187 Tel-Aviv 6107120 Telephone: +972 -3- 7954555, Fax:+972 -3- 7954556, www.pwc.com/il
F-10
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's report referred to above. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Kesselman & Kesselman, Derech Menachem Begin 146 Tel Aviv-Yafo 6492103 Israel,
P.O Box 7187 Tel-Aviv 6107120 Telephone: +972 -3- 7954555, Fax:+972 -3- 7954556, www.pwc.com/il
F-11
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Recognition and measurement of allowance for certain rebates
As described above and in Note 2 to the consolidated financial statements, the Company offers various rebate and patient discount programs, which result in discounted prescriptions to qualified patients, of which the most significant are Managed Care (commercial rebates), Medicare Part D and Medicaid (and similar state programs). Rebates provided to patients under these arrangements are accounted for as variable consideration, and recognized as a reduction in revenue, for which unsettled amounts are accrued. The allowance for these rebates is calculated based on historical and estimated utilization of the rebate programs in accordance with the specific terms in the individual agreement, the estimated product in the channel and the projected duration of the Company to sell the units in the channel. The allowance reported as of December 31, 2022 for revenue deductions amounted to $47.9 million, with a significant portion relating to Managed Care, Medicare Part D, and Medicaid.
The principal considerations for our determination that performing procedures related to recognition and measurement of the allowance for rebates is a critical audit matter are the significant estimations made by management due to the measurement uncertainty involved in developing the allowance, as the reserves are based on assumptions developed using contractual and mandated terms with payors and historical experience. This in turn led to a high degree of auditor judgment and subjectivity in applying procedures relating to these assumptions.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, developing an independent expectation of the allowance for Managed Care (commercial rebates), Medicare Part D and Medicaid (and similar state programs), using the terms of the specific rebates programs and the historical trend of actual rebates claims paid; comparing the independent estimate to management’s estimate recorded by the Company; and testing rebates claims processed by the Company, including evaluating those claims for consistency with the contractual and mandated terms of the Company’s arrangements.
Liquidity and capital resources
As described above and in Note 1 to the consolidated financial statements, the Company has an accumulated deficit and its activities have been funded primarily through offerings of the Company’s securities and borrowing. There is no assurance that the Company’s business will generate sustainable positive cash flows to fund its business. Management expects that the Company will incur additional losses as it continues to focus its resources on advancing the development of its therapeutic candidates, as well as advancing its commercial operations, that will result in negative cash flows from operating activities. Management believes that there is presently insufficient funding available to fund its activities for a period exceeding one year from the date of issuance of the consolidated financial statements. These conditions and events raise substantial doubt about the Company’s ability to continue as a going concern.
The principal considerations for our determination that performing procedures related to the Company’s ability to continue as a going concern is a critical audit matter are the estimation and execution uncertainty regarding
Kesselman & Kesselman, Derech Menachem Begin 146 Tel Aviv-Yafo 6492103 Israel,
P.O Box 7187 Tel-Aviv 6107120 Telephone: +972 -3- 7954555, Fax:+972 -3- 7954556, www.pwc.com/il
F-12
the Company’s future cash flows and the risk of bias in management’s judgments and assumptions in estimating these cash flows to conclude the Company would have sufficient liquidity to fund its operations for at least a year from the date of issuance of the consolidated financial statements. This in turn led to a high degree of auditor subjectivity and judgment to evaluate the audit evidence supporting the liquidity conclusions.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with our overall opinion on the consolidated financial statements. Our audit procedures included, among others, testing the reasonableness of the forecasted revenue, operating expenses, and uses and sources of cash used in management’s assessment of whether the Company has sufficient liquidity to fund operations for at least a year from the consolidated financial statements issuance date. This testing included testing the effectiveness of controls over management's liquidity assessment including the review of the inputs and assumptions used in this assessment. We assessed the appropriateness of forecast assumption by comparing prior period forecasts to actual results, comparing forecasted revenue to recent historical financial information, inquiring of management regarding the mitigating actions to reduce costs and manage cash flows and assessing whether the mitigating actions were within the Company's control, testing the underlying data generated to prepare the forecast scenarios and determined whether there was adequate support for the assumptions underlying the forecast, considering the terms of the Company's existing loans to obtain an understanding of the debt covenants, and evaluating management's analysis of the impact of the above assumptions on the forecasted cash flows. We assessed the adequacy of the Company’s going concern disclosures included in Note 1 to the consolidated financial statements.
/s/ Kesselman & Kesselman
Certified Public Accountants (Isr.)
A member of PricewaterhouseCoopers International Limited
Tel-Aviv, Israel
April 27, 2023
We have served as the Company’s auditor since 2010.
Kesselman & Kesselman, Derech Menachem Begin 146 Tel Aviv-Yafo 6492103 Israel,
P.O Box 7187 Tel-Aviv 6107120 Telephone: +972 -3- 7954555, Fax:+972 -3- 7954556, www.pwc.com/il
F-13
REDHILL BIOPHARMA LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
Year Ended December 31, |
| ||||
|
|
|
|
Note |
|
|
2022 |
|
2021 |
|
2020 |
|
|
|
|
|
|
|
|
U.S. dollars in thousands |
| ||||
|
NET REVENUES |
|
|
19 |
|
|
61,800 |
|
85,757 |
|
64,359 |
|
|
COST OF REVENUES |
|
|
|
|
|
33,337 |
|
49,406 |
|
36,892 |
|
|
GROSS PROFIT |
|
|
|
|
|
28,463 |
|
36,351 |
|
27,467 |
|
|
RESEARCH AND DEVELOPMENT EXPENSES |
|
|
20 |
|
|
7,279 |
|
29,498 |
|
16,491 |
|
|
SELLING AND MARKETING EXPENSES |
|
|
21 |
|
|
35,442 |
|
55,623 |
|
49,285 |
|
|
GENERAL AND ADMINISTRATIVE EXPENSES |
|
|
22 |
|
|
28,586 |
|
32,365 |
|
25,375 |
|
|
OPERATING LOSS |
|
|
|
|
|
42,844 |
|
81,135 |
|
63,684 |
|
|
FINANCIAL INCOME |
|
|
|
|
|
13,562 |
|
51 |
|
270 |
|
|
FINANCIAL EXPENSES |
|
|
|
|
|
42,387 |
|
16,660 |
|
12,759 |
|
|
FINANCIAL EXPENSES, net |
|
|
23 |
|
|
28,825 |
|
16,609 |
|
12,489 |
|
|
LOSS AND COMPREHENSIVE LOSS FOR THE YEAR |
|
|
|
|
|
71,669 |
|
97,744 |
|
76,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS PER ORDINARY SHARE, basic and diluted (U.S. dollars): |
|
|
25 |
|
|
0.12 |
|
0.21 |
|
0.21 |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-14
REDHILL BIOPHARMA LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
December 31, |
|
|
Note |
|
2022 |
|
2021 |
|
|
|
|
U.S. dollars in thousands | ||
|
CURRENT ASSETS: |
|
|
|
|
|
|
Cash and cash equivalents |
5 |
|
19,968 |
|
29,474 |
|
Bank deposits |
|
|
15 |
|
8,530 |
|
Restricted cash |
14 |
|
16,000 |
|
— |
|
Trade receivables |
|
|
34,521 |
|
31,677 |
|
Prepaid expenses and other receivables |
6 |
|
4,387 |
|
4,661 |
|
Inventory |
7 |
|
11,009 |
|
14,810 |
|
|
|
|
85,900 |
|
89,152 |
|
NON-CURRENT ASSETS: |
|
|
|
|
|
|
Restricted cash |
14 |
|
150 |
|
16,169 |
|
Fixed assets |
8 |
|
502 |
|
572 |
|
Right-of-use assets |
9 |
|
6,692 |
|
3,651 |
|
Intangible assets |
10 |
|
65,626 |
|
71,644 |
|
|
|
|
72,970 |
|
92,036 |
|
TOTAL ASSETS |
|
|
158,870 |
|
181,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
Account payable |
|
|
4,230 |
|
11,664 |
|
Lease liabilities |
9 |
|
1,032 |
|
1,618 |
|
Allowance for deductions from revenue |
13 |
|
47,870 |
|
30,711 |
|
Accrued expenses and other current liabilities |
12 |
|
17,949 |
|
20,896 |
|
Borrowing |
14 |
|
115,216 |
|
— |
|
Payable in respect of intangible assets purchase |
15(5)(6) |
|
11,157 |
|
16,581 |
|
|
|
|
197,454 |
|
81,470 |
|
|
|
|
|
|
|
|
NON-CURRENT LIABILITIES: |
|
|
|
|
|
|
Borrowing |
14 |
|
— |
|
83,620 |
|
Payable in respect of intangible assets purchase |
15(5)(6) |
|
— |
|
3,899 |
|
Lease liabilities |
9 |
|
6,443 |
|
2,574 |
|
Derivative financial instruments |
4,17(b)(c) |
|
2,623 |
|
— |
|
Royalty obligation |
15(3) |
|
750 |
|
750 |
|
|
|
|
9,816 |
|
90,843 |
|
TOTAL LIABILITIES |
|
|
207,270 |
|
172,313 |
|
|
|
|
|
|
|
|
EQUITY (Capital Deficiency): |
17 |
|
|
|
|
|
Ordinary shares |
|
|
2,835 |
|
1,495 |
|
Additional paid-in capital |
|
|
382,625 |
|
375,246 |
|
Accumulated deficit |
|
|
(433,860) |
|
(367,866) |
|
TOTAL EQUITY (Capital Deficiency) |
|
|
(48,400) |
|
8,875 |
|
TOTAL LIABILITIES AND EQUITY (Capital Deficiency) |
|
|
158,870 |
|
181,188 |
The accompanying notes are an integral part of these consolidated financial statements.
F-15
REDHILL BIOPHARMA LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CAPITAL DEFICIENCY)
|
|
|
Ordinary |
|
Additional |
|
Accumulated |
|
Total |
|
|
|
shares |
|
paid-in capital |
|
deficit |
|
equity |
|
|
|
|
|
|
|
|
|
(Capital Deficiency) |
|
|
|
U.S. dollars in thousands | ||||||
|
BALANCE AT JANUARY 1, 2020 |
|
962 |
|
267,403 |
|
(208,363) |
|
60,002 |
|
CHANGES DURING THE YEAR ENDED DECEMBER 31, 2020: |
|
|
|
|
|
|
|
|
|
Share-based compensation to employees and service providers |
|
— |
|
— |
|
4,202 |
|
4,202 |
|
Issuance of ordinary shares, net of expenses |
|
84 |
|
23,783 |
|
— |
|
23,867 |
|
Exercise of options into ordinary shares |
|
* |
|
52 |
|
— |
|
52 |
|
Share-based compensation in consideration for intangible assets |
|
8 |
|
1,906 |
|
— |
|
1,914 |
|
Comprehensive loss |
|
— |
|
— |
|
(76,173) |
|
(76,173) |
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER 31, 2020 |
|
1,054 |
|
293,144 |
|
(280,334) |
|
13,864 |
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT JANUARY 1, 2021 |
|
1,054 |
|
293,144 |
|
(280,334) |
|
13,864 |
|
CHANGES DURING THE YEAR ENDED DECEMBER 31, 2021: |
|
|
|
|
|
|
|
|
|
Share-based compensation to employees and service providers |
|
— |
|
— |
|
10,212 |
|
10,212 |
|
Issuance of ordinary shares, net of expenses |
|
424 |
|
78,113 |
|
— |
|
78,537 |
|
Exercise of options into ordinary shares |
|
17 |
|
3,989 |
|
— |
|
4,006 |
|
Comprehensive loss |
|
— |
|
— |
|
(97,744) |
|
(97,744) |
|
BALANCE AT DECEMBER 31, 2021 |
|
1,495 |
|
375,246 |
|
(367,866) |
|
8,875 |
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT JANUARY 1, 2022 |
|
1,495 |
|
375,246 |
|
(367,866) |
|
8,875 |
|
CHANGES DURING THE YEAR ENDED DECEMBER 31, 2022: |
|
|
|
|
|
|
|
|
|
Share-based compensation to employees and service providers |
|
— |
|
— |
|
5,675 |
|
5,675 |
|
Issuance of ordinary shares, net of expenses |
|
1,326 |
|
7,393 |
|
— |
|
8,719 |
|
Issuance of ordinary shares for vested RSUs |
|
14 |
|
(14) |
|
— |
|
— |
|
Comprehensive loss |
|
— |
|
— |
|
(71,669) |
|
(71,669) |
|
BALANCE AT DECEMBER 31, 2022 |
|
2,835 |
|
382,625 |
|
(433,860) |
|
(48,400) |
*Less than a thousand
The accompanying notes are an integral part of these consolidated financial statements.
F-16
REDHILL BIOPHARMA LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | ||||
|
|
|
|
2022 |
|
2021 |
|
2020 |
|
|
|
|
U.S. dollars in thousands | ||||
|
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
(71,669) |
|
(97,744) |
|
(76,173) |
|
Adjustments in respect of income and expenses not involving cash flow: |
|
|
|
|
|
|
|
|
Share-based compensation to employees and service providers |
|
|
5,675 |
|
10,212 |
|
4,202 |
|
Depreciation |
|
|
2,136 |
|
1,914 |
|
1,710 |
|
Amortization and impairment of intangible assets |
|
|
6,018 |
|
16,235 |
|
7,035 |
|
Non-cash interest expenses related to borrowing and payable in respect of intangible assets purchase |
|
|
33,151 |
|
5,366 |
|
6,032 |
|
Fair value (gains) on derivative financial instruments |
|
|
(13,422) |
|
— |
|
— |
|
Fair value (gains) losses on financial assets at fair value through profit or loss |
|
|
— |
|
5 |
|
94 |
|
Issuance costs in respect of warrants |
|
|
958 |
|
— |
|
— |
|
Exchange differences and revaluation of bank deposits |
|
|
(40) |
|
118 |
|
101 |
|
|
|
|
34,476 |
|
33,850 |
|
19,174 |
|
Changes in assets and liability items: |
|
|
|
|
|
|
|
|
Decrease (increase) in trade receivables |
|
|
(2,845) |
|
(3,021) |
|
(27,439) |
|
Decrease (increase) in prepaid expenses and other receivables |
|
|
274 |
|
860 |
|
(3,277) |
|
Decrease (increase) in inventories |
|
|
3,801 |
|
(8,285) |
|
(4,644) |
|
Increase (decrease) in accounts payable |
|
|
(7,434) |
|
111 |
|
7,369 |
|
Increase (decrease) in accrued expenses and other liabilities |
|
|
(2,947) |
|
(3,186) |
|
19,335 |
|
Increase in allowance for deductions from revenue |
|
|
17,159 |
|
12,368 |
|
17,076 |
|
|
|
|
8,008 |
|
(1,153) |
|
8,420 |
|
Net cash used in operating activities |
|
|
(29,185) |
|
(65,047) |
|
(48,579) |
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Purchase of fixed assets |
|
|
(198) |
|
(115) |
|
(406) |
|
Purchase of intangible assets |
|
|
— |
|
— |
|
(53,368) |
|
Change in investment in current bank deposits |
|
|
8,500 |
|
(8,500) |
|
10,200 |
|
Proceeds from sale of financial assets at fair value through profit or loss |
|
|
— |
|
475 |
|
7,925 |
|
Net cash (used in) provided by investing activities |
|
|
8,302 |
|
(8,140) |
|
(35,649) |
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from long-term borrowings, net of transaction costs |
|
|
— |
|
— |
|
78,061 |
|
Proceeds from issuance of ordinary shares and warrants, net of expenses |
|
|
23,806 |
|
78,536 |
|
23,867 |
|
Exercise of options into ordinary shares |
|
|
— |
|
4,006 |
|
52 |
|
Repayment of payable in respect of intangible asset purchase |
|
|
(10,878) |
|
(7,397) |
|
— |
|
Increase in restricted cash |
|
|
— |
|
— |
|
(20,000) |
|
Decrease in restricted cash |
|
|
— |
|
— |
|
4,000 |
|
Payment of principal with respect to lease liabilities |
|
|
(1,475) |
|
(1,683) |
|
(1,610) |
|
Net cash provided by financing activities |
|
|
11,453 |
|
73,462 |
|
84,370 |
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
(9,430) |
|
275 |
|
142 |
|
EXCHANGE DIFFERENCES ON CASH AND CASH EQUIVALENTS |
|
|
(76) |
|
(96) |
|
130 |
|
BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
|
|
29,474 |
|
29,295 |
|
29,023 |
|
BALANCE OF CASH AND CASH EQUIVALENTS AT THE END OF PERIOD |
|
|
19,968 |
|
29,474 |
|
29,295 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY INFORMATION ON INTEREST RECEIVED IN CASH |
|
|
84 |
|
47 |
|
414 |
|
SUPPLEMENTARY INFORMATION ON INTEREST PAID IN CASH |
|
|
8,182 |
|
11,280 |
|
6,654 |
|
SUPPLEMENTARY INFORMATION ON NON-CASH INVESTING AND FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Acquisition of right-of-use assets by means of lease liabilities |
|
|
5,590 |
|
303 |
|
2,930 |
|
Decrease in lease liability (With corresponding decrease in right of use asset in an amount of $534) resulting from early termination of lease. |
|
|
587 |
|
— |
|
— |
|
Purchase of an intangible assets posted as payable |
|
|
|
|
|
|
24,619 |
|
Purchase of an intangible asset in consideration for issuance of shares |
|
|
— |
|
— |
|
1,914 |
The accompanying notes are an integral part of these consolidated financial statements.
F-17
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL:
a. General:
1)RedHill
Biopharma Ltd. (the “Company”), incorporated on August 3, 2009, together with its wholly-owned subsidiary, RedHill Biopharma
Inc. (“RedHill Inc.”), incorporated in Delaware, U.S. on January 19, 2017, is a specialty biopharmaceutical company primarily
focused on gastrointestinal (“GI”) diseases and infectious diseases.
The Company’s ordinary shares were traded on the Tel-Aviv Stock Exchange (“TASE”) from February 2011 to February 2020, after which the Company voluntarily delisted from trading on the TASE, effective February 13, 2020. The Company’s American Depositary Shares (“ADSs”) were traded on the Nasdaq Capital Market from December 27, 2012 and have been listed on the Nasdaq Global Market (“Nasdaq”) since July 20, 2018.
The Company’s registered address is 21 Ha’arba’a St, Tel-Aviv, Israel.
| 2) | Since the Company established its commercial presence in the U.S. in 2017, it has promoted or commercialized various GI-related products that were either developed internally or acquired through in-licensing agreements. As of the date of approval of these financial statements, the Company commercializes in the U.S., mainly Talicia®, for the treatment of Helicobacter pylori infection in adults, the first product approved by the U.S. Food and Drug Administration (“FDA”) being developed primarily internally by the Company. As of December 31, 2022, the Company commercialized Movantik® in the U.S, for the treatment of opioid-induced constipation. See also note 27(a) regarding the transfer of the Company’s rights in Movantik® to HCR Collateral Management, LLC (“HCRM”) in exchange of all the Company’s debt obligations. The Company also continues to advance the development of part of its late-stage therapeutic candidates. |
3)
Through December 31, 2022, the Company has an accumulated deficit and its activities have been funded primarily through public
and private offerings of the Company’s securities and senior secured borrowing. There is no assurance that the Company’s business
will generate sustainable positive cash flows to fund its business and support its indebtedness.
The Company plans to further fund its future operations through commercialization and out-licensing of its therapeutic candidates, commercialization of in-licensed or acquired products and raising additional capital through equity or debt financing or through other non-dilutive financing. The Company’s current cash resources are not sufficient to complete the research and development of any and all of its therapeutic candidates and to fully support its commercial operations until generation of sustainable positive cash flows. Management expects that the Company will incur additional losses as it continues to focus its resources on advancing the development of its therapeutic candidates, as well as advancing its commercial operations, that will result in negative cash flows from operating activities. Management believes that there is presently insufficient funding available to allow the Company to fund its activities for a period exceeding one year from the date of this filing. These conditions and events may cast significant doubt about the Company’s ability to continue as a going concern.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.
As a U.S. SEC registrant, the Company is required to have its financial statements audited in accordance with Public Company Oversight Board (“PCAOB”) standards. References in these IFRS financial statements to matters that may cast significant doubt about the Company’s ability to continue as a going concern also raise substantial doubt as contemplated by the PCAOB standards.
F-18
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Following the events of default under the Credit Agreement between RedHill Inc. and HCRM, and HCRM's right to proclaim acceleration of the Borrowing, as described in note 14 below, in February 2023, the Company, RedHill Inc. and HCRM have reached an agreement to extinguish all of RedHill Inc. debt obligations (including all principal, interest, revenue interest, prepayment premiums and exit fees) under the Credit Agreement in exchange for the transfer of its rights in Movantik®. (See also note 14 below).
In the second half of 2022 the Company implemented a cost reduction plan which reduced the operational costs.
The COVID-19 pandemic has presented substantial public health and economic challenges around the world and specifically in the Company’s target markets in the U.S., affecting employees, patients, medical clinics, medical diagnosis, communities, and business operations. The Company took actions designed to mitigate the potential impact of the COVID-19 pandemic on its business operations and to date, the COVID-19 pandemic has not caused significant disruptions to the supply chain and the Company has sufficient supply on hand to meet U.S. commercial demand and clinical study’s needs.
A number of the Company’s commercial activities have been materially impacted by the COVID-19 pandemic, including some launch sales and marketing activities for Talicia® for H. pylori infection and significant impact on sales of Aemcolo® for travelers’ diarrhea as well as on the Company’s sales force turnover.
b. Approval of the financial statements:
The date of the approval of these financial statements by the Board of Directors (the "BoD") is April 27, 2023.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Basis for presentation of the financial statements
The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).
The significant accounting policies described below have been applied consistently in relation to all the periods presented, unless otherwise stated.
The consolidated financial statements have been prepared under the historical cost convention, subject to adjustments in respect of revaluation of financial assets and financial liabilities at fair value through profit or loss.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3. Actual results could differ significantly from those estimates and assumptions.
F-19
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
b. Translation of foreign currency transactions and balances
1) Functional and presentation currency
Items included in the consolidated financial statements are measured using the currency of the primary economic environment in which the Company and its subsidiary operate (the “Functional Currency”). The consolidated financial statements are presented in U.S. dollars (“$”), which is the Company’s functional and presentation currency.
2) Transactions and balances
Foreign currency transactions in currencies different from the Functional Currency (hereafter foreign currency, mostly New Israeli Shekel (“NIS”) and Euro are translated into the Functional Currency using the exchange rates at the dates of the transactions. Foreign exchange differences resulting from the settlement of such transactions and from the translation of period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recorded in the Statements of Comprehensive Loss under financial income or financial expenses.
c. Principles of consolidation
The Company’s consolidated financial statements include the accounts of the Company and its subsidiary. All intercompany balances and transactions have been eliminated in consolidation.
d. Cash and cash equivalents
Cash and cash equivalents include cash on hand and unrestricted short-term bank deposits with maturities of three months or less.
The Company adopted IFRIC Agenda Decision on Demand Deposits with Restrictions on Use arising from a Contract with a Third Party (IAS 7 - Statement of Cash Flows), issued in April 2022. The adoption of the agenda did not have an impact on the Company’s Financial statements as of December 31, 2022
e. Trade receivables
Trade receivables are recognized initially at the amount of consideration that is unconditional. They are subsequently measured at amortized cost using the effective interest method, less expected allowance for credit losses. See also note (i)(3).
f. Inventory
The Company’s inventory represents items purchased by the Company and held for sale in the ordinary course of business, as well as inventory in the process of production for a sale in the ordinary course of business or materials or supplies to be used in the production process, to the extent they are recoverable. The inventory is stated at the lower of cost or net realizable value. Cost of inventory is determined using the first-in, first-out method.
Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.
The Company continually evaluates inventory for potential loss due to excess quantity or obsolete or slow-moving inventory by comparing sales history and sales projections to the inventory on hand. When
F-20
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
evidence indicates that the carrying value of a product may not be recoverable, a charge is recorded to reduce the inventory to its current net realizable value.
g. Fixed assets
Fixed assets items are stated at cost less accumulated depreciation.
Depreciation is computed by the straight-line method, to reduce the cost of fixed assets to their residual value over their estimated useful lives as follows:
Leasehold improvements are depreciated by the straight-line method over the shorter of the term of the lease or the estimated useful life of the improvements.
h. Intangible assets
1) Licenses
The Company’s intangible assets represent in-licenses of development-phase compounds acquired by the Company, where the Company continues or has the option to continue to do the development work (“R&D assets”), as well as commercialization rights for approved products ("Commercialization assets").
R&D assets that are available for use are stated at cost and amortized on a straight-line basis over their useful life from the time they are available for use. R&D assets that are not available for use are not amortized and are tested for impairment at least annually.
Commercialization assets are stated at cost and are amortized on a straight-line basis over their useful life when they are available for use. These assets are subsequently carried at cost less accumulated amortization and impairment losses.
In determining the useful life of a commercialization asset, the Company considered, among other factors, the duration of the license, patent and regulatory data exclusivities of the product, anticipated duration of sales of the product following loss of exclusivity, and competitors in the marketplace.
Amounts due for future payment based on contractual agreements are accrued upon reaching the relevant milestones.
All intangible assets are tested for impairment if any events have occurred or changes in circumstances have taken place which might indicate that their carrying amounts may not be recoverable. See also note 3 for key assumptions used in the determination of the recoverable amounts.
An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).
F-21
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the assessments of market participants regarding the time value of money and the risks specific to the asset or cash-generating unit, for which the estimated future cash flows from the asset or cash-generating unit were not adjusted.
2) Research and development
Research expenses are recognized as an expense as incurred. An intangible asset arising from the development of the Company’s therapeutic candidates is recognized if all of the following conditions are met:
| ● | it is technically feasible to complete the intangible asset so that it will be available for use; |
| ● | management intends to complete the intangible asset and use it or sell it; |
| ● | there is an ability to use or sell the intangible asset; |
| ● | it can be demonstrated how the intangible asset will generate probable future economic benefits; |
| ● | adequate technical, financial and other resources to complete the development and to use or sell the intangible asset are available; |
| ● | costs associated with the intangible asset during development can be measured reliably. |
Other development costs that do not meet the above criteria are recognized as expenses as incurred. Development costs previously recognized as an expense are not recognized as an asset in a subsequent period.
Research and development costs for the performance of pre-clinical trials, clinical trials, and manufacturing by subcontractors are recognized as expenses when incurred.
i. Financial assets
| 1) | Classification |
The financial assets of the Company are classified into the following categories: financial assets at fair value through profit or loss, and financial assets at amortized cost. The classification is done on the basis of the Company’s business model for managing the financial asset and the contractual cash flow characteristics of the financial asset.
a)Financial
assets at amortized cost
Financial assets at amortized cost are assets held within a business model whose objective is to hold assets in order to collect contractual cash flows and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Financial assets at amortized cost are included in current assets, except for those with maturities greater than 12 months after the Statements of Financial Position date (for which they are classified as noncurrent assets).
Financial assets at amortized cost of the Company are included in trade receivables, cash and cash equivalents, restricted cash and other receivables and bank deposits in the Statements of Financial Position.
F-22
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| b) | Financial assets at fair value through profit or loss of the Company are assets not measured at amortized cost in accordance with (1)(a) above. Assets in this category are classified as current assets if they are expected to be settled within 12 months; otherwise, they are classified as noncurrent. |
2)Recognition
and measurement
Regular purchases and sales of financial assets are recognized on the settlement date, which is the date on which the asset is delivered to the Company or delivered by the Company. Investments are initially recognized at fair value plus direct incremental transaction costs for all financial assets not recorded at fair value through profit or loss, except for trade receivables, that are recognized initially at the amount of consideration that is unconditional.
Financial assets measured at fair value through profit or loss are initially recognized at fair value, related transaction costs are expensed to profit or loss. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. Financial assets at fair value through profit or loss are subsequently recorded at fair value. Financial assets at amortized cost are measured in subsequent periods at amortized cost using the effective interest method.
Gains or losses arising from changes in the fair value of financial assets at fair value through profit or loss are presented in the Statements of Comprehensive Loss under “Financial Expenses (Income), net.”
3)Impairment
The Company recognizes a loss allowance for expected credit losses on financial assets at amortized cost.
At each reporting date, the Company assesses whether the credit risk on a financial instrument has increased significantly since initial recognition. If the financial instrument is determined to have a low credit risk at the reporting date, the Company assumes that the credit risk on a financial instrument has not increased significantly since initial recognition.
The Company measures the loss allowance for expected credit losses on trade receivables that are within the scope of IFRS 15 and on financial instruments for which the credit risk has increased significantly since initial recognition based on lifetime expected credit losses. Otherwise, the Company measures the loss allowance at an amount equal to 12-month expected credit losses at the current reporting date.
j. Financial liabilities
Financial liabilities are initially recognized at their fair value minus transaction costs that are directly attributable to the issue of the financial liability and are subsequently measured at amortized cost. In case there is a difference between the fair value at initial recognition and the transaction price (“day 1 loss”), the financial liabilities are adjusted to reflect the day 1 loss and changes are recorded to profit or loss on a periodic basis while unrecognized day 1 loss is amortized over the contractual life of the instrument. Any amounts not recognized in profit or loss before the date of exercise or maturity will be recognized in profit or loss on that date.
F-23
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Warrants exercisable to the Company’s ordinary shares are classified as an equity instrument only if the warrants are settled by the Company exchanging a fixed amount of cash for a fixed number of its own equity instruments (the ‘fixed for fixed’ criteria). Otherwise, the warrants are classified as a derivative financial liability measured at fair value through profit or loss.
When either the Company or the holder have a choice over how the warrants are settled, the warrants are classified as a derivative financial liability measured at fair value through profit or loss, unless all of the settlement alternatives would result in the warrants classified as an equity instrument according to the ‘fixed for fixed’ criteria above.
Transaction costs relating to the issuance of derivative financial liabilities measured at fair value through profit or loss are expensed to profit or loss.
Financial liabilities at amortized cost are included in current liabilities, except for those with maturities greater than 12 months after the Statements of Financial Position date (for which they are classified as noncurrent liabilities).
k. Share capital
The Company’s ordinary shares are classified as the Company’s share capital. Incremental costs directly attributed to the issuance of new shares are presented under equity as a deduction from the proceeds of issuance.
l. Employee benefits
1) Pension and retirement benefit obligations
In any matter related to payment of pension and severance pay to employees in Israel to be dismissed or to retire from the Company, the Company operates in accordance with labor laws.
Labor laws and agreements in Israel, as well as the Company’s practice, require the Company to pay severance pay and/or pensions to employees dismissed or retired, in certain circumstances.
The Company has a severance pay plan in accordance with Section 14 of the Israeli Severance Pay Law which is treated as a defined contribution plan. According to the plan, the Company regularly makes payments to severance pay or pension funds without having a legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay the related payments to employees’ service in current and prior periods. Contributions for severance pay or pension are recognized as employee benefit expenses when they are due commensurate with receipt of work services from the employee, and no further provision is required in the financial statements.
The Company’s subsidiary provides, at will, defined contributions for its employees.
2) Vacation and recreation pay
Under Israeli law, each employee in Israel is entitled to vacation days and recreation pay, both computed on an annual basis. This entitlement is based on the period of employment. The Company records expenses and liability for vacation and recreation pay based on the benefit accumulated by each employee.
F-24
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
m. Share-based payments
The Company operates several equity-settled, share-based compensation plans to employees (as defined in IFRS 2 “Share-Based Payments”) and service providers. As part of the plans, the Company grants employees and service providers, from time to time and at its discretion, options to purchase Company shares. The fair value of the employee and service provider services received in exchange for the grant of the options is recognized as an expense in profit or loss and is recorded as accumulated deficit within equity. For employees, the total amount recognized as an expense over the vesting period of the options (the period during which all vesting conditions are expected to be met) is determined by reference to the fair value of the options granted at the date of grant. For service providers (including equity instruments granted in consideration for intangible assets, see note 15(4)), the Company measures the awards based on the fair value of the asset or service received.
Vesting conditions are included in the assumptions about the number of options that are expected to vest. The total expense is recognized over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied.
At the end of each reporting period, the Company revises its estimates of the number of options that are expected to vest based on non-market vesting conditions. The Company recognizes the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to accumulated deficit.
When exercising options, the Company issues new shares. The proceeds, less directly attributable transaction costs, are recognized as share capital (par value) and share premium.
n. Revenue from contracts with customers
The Company generated revenue in the years presented in these financial statements from product sales, including in-licensed products, and from promotional services provided in relation to third-party products.
| 1) | Revenue from the sale of products |
The Company sells products mainly to wholesale distributors. Revenue is recognized at a point in time when control over the product is transferred to the customer (upon delivery), at the net selling price, which reflects reserves for variable consideration, including discounts and allowances.
The transaction price in these arrangements is the consideration to which the Company expects to be entitled from the customer. The consideration promised in a contract with the Company’s customers may include fixed amounts and variable amounts. The Company estimates the variable consideration and includes it in the transaction price using the most likely outcome method, and only to the extent it is highly probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
The specific considerations the Company uses in estimating these amounts related to variable consideration are as follows:
Trade discounts and distribution fees - The Company offers discounts to its customers, as an incentive for prompt payment. The Company records these discounts as a reduction of revenue in the period the related revenue from the sale of products is recognized. In addition, distribution fees
F-25
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
are paid to certain distributors based on contractually determined rates from the gross consideration. As the fee paid to the customer is not for a distinct good or service, it is recognized as a reduction of revenue in the period the related revenue from the sale of products is recognized.
Rebates and patient discount programs - The Company offers various rebate and patient discount programs, which result in discounted prescriptions to qualified patients. The Company estimates the allowance for these rebates and coupons based on historical and estimated utilization of the rebate and discount programs, at the time the revenues are recognized. These estimates are recognized as a reduction of revenue. See also notes 3 and 13.
Product returns - The Company offers customers a right of return of expired products. The Company estimates the amount of product sales that may be returned by its customers and records this estimate as a reduction of revenue at the time of sale, based on historical rates of return, or, if such historical data is not available, the Company estimates product returns based on its own sales information, its visibility into the inventory remaining in the distribution channel and product dating. At the end of each reporting period, the Company may decide to constrain revenue for product returns based on information from various sources.
Principal versus agent considerations - When a third party is involved in providing goods or services to a customer, the Company analyzes whether the Company acts as a principal or an agent in the transaction, based on whether the Company obtains control of the product before it is transferred to the customer, using the indicators provided in IFRS 15, including: primary responsibility for fulfilling the promise to provide the products to its customers, inventory risk before and after transfer to the customers and discretion in establishing the selling price of each product. When determined to be the principal in the arrangements, the Company recognizes revenues in the gross amount it expects to be entitled in exchange for the products transferred to the customers.
| 2) | Practical expedients and exemptions |
The Company expenses sales commissions when incurred since the amortization period of the asset that the Company otherwise would have recognized would have been for less than one year. These costs are recorded as selling and marketing expenses.
3) Revenues from licensing
The Company accounts for licenses of intellectual property (“IP”) rights and manufacturing and supply services as distinct performance obligations if the customer can benefit from the good or services either on its own or together with other resources that are readily available to the customer (i.e. – the good or service is capable of being distinct) and if the Company’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e. – the promise is distinct within the context of the contract).
If the promise to grant the license is distinct, the Company determines whether the nature of the promise in granting the license to the customer is to provide the customer with either a right to access the entity’s IP as it exists throughout the license period or a right to use the entity’s IP as it exists at the point in time at which the license is granted. Accordingly, revenue from a license providing a right of use to the Company’s IP is recognized at the point in time when control of the distinct license is transferred to the customer. Revenue from a license providing a right of access to the Company’s IP is recognized over the access period.
Variable consideration, such as sales-based royalties and milestones that are allocated to license of IP are recognized only when (or as) the later of the following occurs: (a) the subsequent sale occurs;
F-26
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
and (b) the performance obligation to which some or all the sales-based royalty has been allocated has been satisfied (or partially satisfied).
Revenue from achieving additional milestones is recognized only when it is highly probable that a significant reversal of cumulative revenues will not occur, usually upon achievement of the specific milestone, in accordance with the relevant agreement.
o. Advertising and promotional expenses
Advertising and promotional costs include, among others, distribution of free samples of the commercialized products. These costs are recognized as an expense when incurred.
p. Loss per ordinary share
The computation of basic loss per share is based on the Company’s loss divided by the weighted average number of ordinary shares and pre-funded warrants outstanding during the period.
In calculating the diluted loss per share, the Company adds the weighted average of the number of shares to be issued to the average number of shares outstanding including pre-funded warrants used to calculate the basic loss per share, assuming all shares that have a potentially dilutive effect have been exercised into shares.
q. Deferred taxes
Deferred income tax is recognized using the liability method for temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in these financial statements.
Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the date of the Statements of Financial Position and are expected to apply when the related deferred income tax asset will be realized, or the deferred income tax liability will be settled. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.
Since the Company is unable to assess whether it will have taxable income in the foreseeable future, no deferred tax assets were recorded in these financial statements.
r. Leases
The leases are recognized as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Company. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments: fixed payments (including in-substance fixed payments) and variable lease payments that are based on an index or a rate.
The lease payments are discounted using the lessee’s incremental borrowing rate, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions.
F-27
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Right-of-use assets are measured at cost being the amount of the initial measurement of the lease liability.
Payments associated with short-term leases and leases of low-value assets are not recognized as right-of-use assets or lease liabilities but are recognized on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets include IT-equipment and small items of office furniture.
Contracts may contain both lease and non-lease components. For leases of properties, the Company allocates the consideration in the contract to the lease and non-lease components based on their relative stand-alone prices. However, for leases of vehicles, for which the Company is a lessee, it has elected not to separate lease and non-lease components and instead accounts for these as a single lease component.
s. Recently issued accounting pronouncements:
| 1) | Amendments to IAS 1 regarding classifying liabilities as current or non-current | |
In January 2020, the IASB issued amendment to IAS 1 to specify the requirements for classifying liabilities as current or non-current. The amendments clarify: the definition of a right to defer a settlement, that a right to defer must exist at the end of the reporting period, that classification is unaffected by the likelihood that an entity will exercise its deferral right, that only if an embedded derivative in a convertible liability is itself an equity instrument would the terms of a liability not impact its classification. The amendment is effective for annual periods beginning on or after January 1, 2024.
F-28
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In October 2022 the IASB published additional amendments specify that only covenants that an entity is required to comply with on or before the end of the reporting period affect the entity’s right to defer settlement of a liability for at least twelve months after the reporting date (and therefore must be considered in assessing the classification of the liability as current or non-current). Such covenants affect whether the right exists at the end of the reporting period, even if compliance with the covenant is assessed only after the reporting date. However, if the entity’s right to defer settlement of a liability is subject to the entity complying with covenants within twelve months after the reporting period, an entity discloses information that enables users of financial statements to understand the risk of the liabilities becoming repayable within twelve months after the reporting period. The 2022 and 2020 amendments are applied retrospectively for annual reporting periods beginning on or after 1 January 2024. Earlier application of the amendments is permitted. If an entity applies the 2022 amendments for an earlier period, it is also required to apply the 2020 amendments early. The Company is examining the consequences of the amendment on the financial statements.
| 2) | Amendment to IAS 1, Presentation of Financial Statements: disclosure of accounting policies | |
According to the amendment companies must provide disclosure of their material accounting policies rather than their significant accounting policies. Pursuant to the amendment, accounting policy information is material if, when considered with other information disclosed in the financial statements, it can be reasonably be expected to influence decisions that the users of the financial statements make on the basis of those financial statements. The amendment to IAS 1 also clarifies that accounting policy information is expected to be material if, without it, the users of the financial statements would be unable to understand other material information in the financial statements. The amendment also clarifies that immaterial accounting policy information need not be disclosed. The amendment is applicable for reporting periods beginning on or after January 1, 2023. The Company is examining the consequences of the amendment on the financial statements.
NOTE 3 - CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS:
The preparation of financial statements requires management to make estimates which, by definition, will seldom equal the actual results and will affect the reported amounts in the Company’s consolidated financial statements and the accompanying notes. Some of the policies described in note 2 of the Company’s consolidated financial statements involve a high degree of judgment or complexity. The Company believes that the most critical accounting policies and significant areas of judgment and estimation are in:
| ● | Recognition and measurement of allowance for rebates and patient discount programs. |
| ● | Impairment reviews of intangible R&D assets. |
| ● | Estimated useful life of the acquired assets in the Movantik® acquisition. |
Recognition and measurement of allowance for rebates and patient discount programs
The Company offers various rebate and patient discount programs, which result in discounted prescriptions to qualified patients. Rebates and discounts provided to the wholesalers and to the patients under these arrangements are accounted for as variable consideration, and recognized as a reduction in revenue, for which unsettled amounts are accrued. The allowance for these rebates is calculated based on historical and estimated utilization of the rebate and discount programs at the time the revenues are recognized. The main estimates used in recognizing and measuring this allowance relate to the amount of products sold to customers not yet prescribed to patients (units “in the channel”) and the projected duration of The Company to sell the units in the channel. The Company periodically evaluates its estimates against actual results and, if necessary, updates the estimates accordingly. See also note 13.
F-29
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Impairment reviews of intangible R&D assets
The Company reviews annually or when events or changes in circumstances indicate the carrying value of the R&D assets may not be recoverable.
When and if necessary, an impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is determined using discounted cash flow calculations where the asset’s expected post-tax cash flows are risk-adjusted over their estimated remaining useful economic life. The risk-adjusted cash flows are discounted using the estimated Company’s post-tax weighted average cost of capital (“WACC”) which is 15.9%.
The main estimates used in calculating the recoverable amount include: outcome of the therapeutic candidates R&D activities; probability of success in gaining regulatory approval, size of the potential market and the Company’s asset’s specific share in it and amount and timing of projected future cash flows.
During the year ended December 31, 2022, there was no impairment of intangible R&D assets.
Estimated useful life of the acquired assets in the Movantik® acquisition
In connection with the agreements mentioned in note 14 below, the Company accounted for the acquisition of rights to Movantik® as an asset acquisition. Since all acquired assets are intended to generate revenues from sales of Movantik® and have a similar useful life, the Company attributed this consideration to a single intangible asset representing the acquired rights to Movantik®. The Company determined the asset’s useful life, over which the asset will be amortized on a straight-line from its acquisition. The main estimate used in determining the useful life was the anticipated duration of sales of the product after its expected patent expiration. In 2021, due to a litigation settlement concerning Movantik®’s IP, the Company has revised its estimation of the useful life of these assets to be years from the date of acquisition.
NOTE 4 - FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT:
Financial risk management:
1) Financial risk factors
The Company’s activities expose it to a variety of financial risks: market risks (including foreign exchange risk and interest risk), credit risk and liquidity risk. The Company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s results of operations and financial position.
Risk management is performed by the Chief Financial Officer of the Company who identifies and evaluates financial risks in close cooperation with the Company’s Chief Executive Officer.
The Company’s finance department is responsible for carrying out financial risk management activities in accordance with policies approved by its BoD. The BoD provides general guidelines for overall financial risk management, as well as policies dealing with specific areas, such as exchange rate risk, interest rate risk, credit risk, use of financial instruments, and investment of excess cash. In order to minimize market risk and credit risk, the Company invests the majority of its cash balances in low-risk investments, such as (i) highly-rated bank deposits with terms of up to one-year term with exit points and (ii) a managed portfolio of select corporate bonds comprised of a diversified mix of highly-rated bonds. No more than 10% of the total value of the Company’s corporate bonds portfolio is invested in a single bond issuer.
F-30
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(a) Market risks
(i) The Company could be exposed to foreign exchange risk as a result of its payments to employees and service providers and investment of some liquidity in currencies other than the U.S. dollar (i.e., the Functional Currency). The Company manages the foreign exchange risk by aligning the currencies for holding liquidity with the currencies of expected expenses, based on the expected cash flows of the Company. Had the Functional Currency of the Company been stronger by 5% against the NIS, assuming all other variables remained constant, the Company would have recognized a negligible reduction in expenses in all the years presented in these financial statements. The foreign exchange risks associated with these balances are immaterial.
(ii) The Company’s main interest rate risk during the periods in this Financial Statements arose from long-term borrowing with interest on the outstanding loan computed as the 3-month USD LIBOR rate (hereinafter – the “LIBOR”), subject to a 1.75% floor rate, plus 8.2% fixed rate, which was decreased to 6.7%, starting April 1, 2021.
On June 17, 2022, RedHill Inc. signed an amendment to the Credit Agreement, see also note 14(a). The Amendment sets an increase of 0.5% to the interest on the outstanding term loan for the quarters ending June 30, 2022, and September 30, 2022, at 3-month LIBOR rate (“LIBOR”), subject to a 1.75% floor rate, plus 7.2% fixed rate, which was decreased to 6.7% thereafter.
The Company regularly monitors the LIBOR, as well as the LIBOR forward curve. As of December 31, 2022, LIBOR was 4.8%, higher than the floor rate.
In July 2017, the United Kingdom’s Financial Conduct Authority (“FCA”), which regulates LIBOR, announced its intention to stop compelling the group of major banks that sustain LIBOR to submit rate quotations after the end of 2021 (the “LIBOR Reform”). ICE Benchmark Administration Limited (IBA), the administrator of the LIBOR, intends to cease the publication of the LIBOR settings immediately following the LIBOR publication on June 30, 2023. The IBA noted that any publication of the LIBOR settings based on panel bank submissions beyond December 31, 2021, will need to comply with applicable regulations, including as to representativeness. Based on current information from panel banks, IBA anticipates there being a representative panel for the continuation of these USD LIBOR settings through to June 30, 2023. As to the extinguishment of the LIBOR linked loan to HCRM after the balance sheet date. See notes 14 and 27(a) below with regard to the agreement to extinguish the loan referred to in this paragraph.
(b) Credit risk
Credit risk arises mainly from cash and cash equivalents, bank deposits, restricted cash, and trade receivables. The Company estimates that since the liquid instruments are mainly invested with highly rated institutions, the credit and interest risks associated with these balances are low.
Credit risk of trade receivables is the risk that customers may fail to pay their debts. The Company manages credit risk by setting credit limits, performing controls and monitoring qualitative and quantitative indicators of trade receivable balances such as the period of credit taken and overdue payments. Customer credit risk also arises as a result of the concentration of the Company’s revenues with its largest customers. See also note 24(b).
The Company’s vast majority of sales is to three U.S.-based large wholesale customers, which their historical loss rate is practically zero. Based on the above information, as well as analyzing if there is any relevant forward-looking information related to the Company’s customers, the Company did not record a loss allowance for trade receivables as of December 31, 2022, and December 31, 2021.
F-31
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(c) Liquidity risk
Prudent liquidity risk management requires maintaining sufficient cash or the availability of funding through an adequate amount of committed credit facilities. Management monitors rolling forecasts of the Company’s liquidity reserve (comprising of cash and cash equivalents and deposits). This is generally carried out based on the expected cash flow in accordance with practices and limits set by the management of the Company.
As of December 31, 2022, the Company has generated revenues from commercialization activities, however, no sufficient revenue was generated to compensate for operating expenses and therefore the Company is exposed to liquidity risk and has substantial doubt about its ability to continue as a going concern (as described in note 1).
The tables below break down the Company’s financial liabilities into relevant maturity groupings based on their contractual and estimated maturities. The amounts disclosed in the tables are the contractual and estimated undiscounted cash flows.
|
Contractual maturities
of financial liabilities |
Less than 1 year |
|
2-5 years |
|
More than 5 |
|
Total contractual |
|
Carrying amount |
|
|
U.S. Dollars in Thousands | ||||||||
|
Account payable |
4,230 |
|
|
|
|
|
4,230 |
|
4,230 |
|
Lease liabilities |
1,723 |
|
4,079 |
|
5,723 |
|
11,525 |
|
7,475 |
|
Accrued expenses and other current liabilities |
17,949 |
|
|
|
|
|
17,949 |
|
17,949 |
|
Borrowing |
115,216 |
|
|
|
|
|
115,216 |
|
115,216 |
|
Payable in respect of intangible assets purchase |
11,650 |
|
|
|
|
|
11,650 |
|
11,157 |
|
Royalty obligation |
— |
|
197 |
|
1,449 |
|
1,646 |
|
750 |
|
Total |
150,768 |
|
4,276 |
|
7,172 |
|
162,216 |
|
156,777 |
|
Contractual maturities
of financial liabilities |
Less than 1 year |
|
2-5 years |
|
More than 5 |
|
Total contractual |
|
Carrying amount |
|
|
U.S. Dollars in Thousands | ||||||||
|
Accounts payable |
11,664 |
|
|
|
|
|
11,664 |
|
11,664 |
|
Lease liabilities |
2,109 |
|
2,553 |
|
— |
|
4,662 |
|
4,192 |
|
Accrued expenses and other current liabilities |
20,896 |
|
|
|
|
|
20,896 |
|
20,896 |
|
Borrowing |
9,159 |
|
107,213 |
|
9,000 |
|
125,372 |
|
83,620 |
|
Payable in respect of intangible assets purchase |
17,600 |
|
5,000 |
|
|
|
22,600 |
|
20,480 |
|
Royalty obligation |
— |
|
1,011 |
|
1,351 |
|
2,362 |
|
750 |
|
Total |
61,428 |
|
115,777 |
|
10,351 |
|
187,556 |
|
141,602 |
2) Capital risk management
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders, maintain optimal capital structure, and to reduce the cost of capital.
As discussed in note 14, the Credit Agreement contains a financial covenant requiring RedHill Inc. to maintain a minimum level of cash, as well as maintain minimum net sales of $75 million for the trailing four fiscal quarters periods ending June 30, 2022, and September 30, 2022, and $90 million each fiscal quarter thereafter. Following the amendment to the Credit Agreement that was signed On June 17, 2022, Redhill Inc. also required to maintain minimum net sales of $14 million for Movantik® each fiscal quarter starting the fiscal quarter ending June 30, 2022.
F-32
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As a result of the event of default described in note 14(a) as of December 31, 2022, the Company classified the Borrowing as a current liability and adjusted its carrying amount to reflect all amounts owing or payable under the Credit Agreement as being immediately due. See also note 14 (a).
| 3) | Fair value estimation | |
The carrying amount of cash equivalents, restricted cash, bank deposits, receivables, account payables and accrued expenses approximate their fair value due to their short-term characteristics.
The fair value of the Borrowing as of December 31, 2022, is approximately $115 million. This fair value is based on the adjusted of carrying amount to reflect all amounts owing or payable under the Credit Agreement as being immediately due. The fair value of the Borrowing as of December 31, 2021, was $96 million. These fair values are based on discounted cash flow using current borrowing rate.
The fair value of the Payable in respect of intangible assets purchase balances as of December 31, 2022 is $11 million (as of December 31, 2021 $23 million). These fair values are based on discounted cash flows using a current discounting rate.
The fair value of the Royalty obligation balance is not materially different from its carrying amount.
The following table presents the change in derivative liabilities measured at level 3 for the year ended December 31, 2022:
|
|
|
|
Derivative financial instruments |
| ||
|
|
|
|
Year Ended December 31, |
| ||
|
|
|
|
2022 |
|
2021 |
|
|
|
|
|
U.S. dollars in thousands |
| ||
|
Balance at beginning of the period |
|
|
— |
|
— |
|
|
Initial recognition of financial liability |
|
|
16,375 |
|
— |
|
|
Initial recognition of unrecognized day 1 loss |
|
|
(330) |
|
— |
|
|
Fair value adjustments recognized in profit or loss |
|
|
(13,422) |
|
— |
|
|
Balance at end of the period |
|
|
2,623 |
|
— |
|
See also notes 17(b) and 17 (c)
NOTE 5 - CASH AND CASH EQUIVALENTS:
|
|
|
December 31, | ||
|
|
|
2022 |
|
2021 |
|
|
|
U.S. dollars in thousands | ||
|
Cash in bank |
|
13,323 |
|
28,890 |
|
Short-term bank deposits |
|
6,645 |
|
584 |
|
|
|
19,968 |
|
29,474 |
The carrying amounts of the cash and cash equivalents approximate their fair values.
As of December 31, 2022, the bank deposits include deposits invested for terms of up to three months and bear interest at annual rates of between 1.88% - 4.3%.
F-33
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - PREPAID EXPENSES AND OTHER RECEIVABLES:
|
|
|
December 31, | ||
|
|
|
2022 |
|
2021 |
|
|
|
U.S. dollars in thousands | ||
|
Advance to suppliers |
|
1,033 |
|
632 |
|
Government institutions |
|
831 |
|
847 |
|
Prepaid expenses and others |
|
2,523 |
|
3,182 |
|
|
|
4,387 |
|
4,661 |
The fair value of other receivables which constitute of financial assets approximate their carrying amount.
NOTE 7 - INVENTORY:
|
|
|
December 31, | ||
|
|
|
2022 |
|
2021 |
|
|
|
U.S. dollars in thousands | ||
|
Raw materials |
|
1,797 |
|
3,012 |
|
Work in progress |
|
2,385 |
|
5,195 |
|
Finished goods |
|
6,827 |
|
6,603 |
|
|
|
11,009 |
|
14,810 |
During the years ended December 31, 2022, and 2021, the Company recognized amounts of $9.7 million and $7.7 million, respectively, in inventory cost as part of cost of revenues.
Write-downs of inventories to net realizable value amounted to $2.4 million in 2022 and $0.3 million in 2021. These were recognized as an expense, included in cost of revenues in the consolidated statements of comprehensive loss.
NOTE 8 - FIXED ASSETS:
The composition of assets and accumulated depreciation are grouped by major classifications:
|
|
|
Cost |
|
Accumulated depreciation |
|
Depreciated balance | ||||||
|
|
|
December 31 |
|
December 31 |
|
December 31 | ||||||
|
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
U.S. dollars in thousands | ||||||||||
|
Office furniture and equipment (including computers) |
|
1,199 |
|
1,024 |
|
933 |
|
677 |
|
266 |
|
347 |
|
Leasehold improvements |
|
379 |
|
357 |
|
143 |
|
132 |
|
236 |
|
225 |
|
|
|
1,578 |
|
1,381 |
|
1,076 |
|
809 |
|
502 |
|
572 |
NOTE 9 - LEASES:
Amounts recognized in the consolidated statements of financial position:
|
|
| ||
|
|
December 31, | ||
|
|
2022 |
|
2021 |
|
|
U.S dollars in thousands | ||
|
Right-of-use assets: |
|
|
|
F-34
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
Properties |
5,630 |
|
1,986 |
|
Vehicles |
1,062 |
|
1,665 |
|
|
6,692 |
|
3,651 |
|
Lease liabilities: |
|
|
|
|
Current |
1,032 |
|
1,618 |
|
Non-current |
6,443 |
|
2,574 |
|
|
7,475 |
|
4,192 |
|
Additions to the right-of-use assets and lease liabilities during and were $5.6 million and $0.4 million, respectively. In a $0.5 million decrease in lease liabilities (and a corresponding decrease in right-of-use assets) was recorded as a result of early termination of leases. |
|
|
|
|
Amounts recognized in the consolidated statements of comprehensive loss: |
|
| |
|
|
Year Ended December 31, | ||
|
|
2022 |
|
2021 |
|
Depreciation charge of right-of-use assets |
|
|
|
|
Properties |
924 |
|
608 |
|
Vehicles |
945 |
|
1,282 |
|
|
1,869 |
|
1,890 |
|
Interest expense |
430 |
|
355 |
|
Foreign exchange differences |
(140) |
|
32 |
|
Expenses relating to short-term leases and leases of low-value assets are immaterial. |
|
|
|
|
|
|
|
|
|
The total cash outflow for leases in 2022 and 2021 was $2 million and $1.9 million respectively.
In March 2022, the Company entered into a lease agreement for the U.S. offices it uses. The agreement will expire on July 31, 2034. There were no extension options that took in the account in the calculation of the recognized right-of-use asset and lease liability. The projected yearly rental for the first four years is approximately $400,000 per year and for the next 8 years are approximately $900,000 per year. The weighted average lessee’s incremental annual borrowing rate applied to the lease liabilities was 9.9%. |
|
|
|
|
|
|
|
|
|
|
|
|
|
F-35
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - INTANGIBLE ASSETS:
a. The Company’s intangible assets represent in-licenses of R&D assets and Commercialization assets (rights related to Movantik®). The changes in those assets are as follows:
|
|
|
Year Ended December 31, | ||
|
|
|
2022 |
|
2021 |
|
|
|
U.S. dollars in thousands | ||
|
|
|
|
|
|
|
R&D assets: |
|
|
|
|
|
Cost: |
|
|
|
|
|
Balance at beginning of year |
|
5,757 |
|
5,757 |
|
Balance at end of year |
|
5,757 |
|
5,757 |
|
Accumulated amortization: |
|
|
|
|
|
Balance at beginning of year |
|
(116) |
|
(50) |
|
Amortization charges |
|
(32) |
|
(66) |
|
Balance at end of year |
|
(148) |
|
(116) |
|
|
|
5,609 |
|
5,641 |
|
Commercialization assets: |
|
|
|
|
|
Cost: |
|
|
|
|
|
Balance at beginning of year |
|
89,373 |
|
89,373 |
|
Balance at end of year |
|
89,373 |
|
89,373 |
|
Accumulated impairments and amortization: |
|
|
|
|
|
Balance at beginning of year |
|
(23,370) |
|
(7,201) |
|
Amortization and impairment charges see (b) below |
|
(5,986) |
|
(16,169) |
|
Balance at end of year |
|
(29,356) |
|
(23,370) |
|
|
|
60,017 |
|
66,003 |
|
|
|
65,626 |
|
71,644 |
The Company estimated the useful life of assets related to Movantik® at years from the date of acquisition (April 2020). In 2021, due to a litigation settlement concerning Movantik®’s IP, the Company has revised its estimation of the useful life of this asset to be years from the date of acquisition. Moreover, the Company estimated the useful life of the assets related to Talicia® and Aemcolo® at approximately 15 years from marketing approval date and approximately 11 years from the date of acquisition, respectively (November 2019 and October 2019, respectively). The amortization expenses are recognized under Cost of Revenues in the Consolidated Statements of Comprehensive Loss. For further details regarding the intangible assets, see notes 2h, 3, and 15.
b. Intangible assets impairment:
| 1) | Following the decrease in Movantik® net revenues, the Company tested for impairment of the related intangible asset as of June 30, 2022, and determined the recoverable amount of the asset. The weighted average cost of capital (WACC) used to discount the asset’s cash flows was 17.8%. No impairment was required as the recoverable amount of the asset was higher than the asset’s book value as of June 30, 2022. As of December 31, 2022, the Company concluded that no indication that the asset may be impaired exists and therefore did not re-estimate the recoverable amount of the asset. The agreement described in notes 14 and 27(a) to extinguish of all of RedHill Inc. debt obligations in exchange for the transfer of its rights in Movantik® is an indication that the recoverable amount of the intangible asset related to Movantik® is higher than the asset’s book value as of December 31, 2022. |
| 2) | Following the prolongation of the COVID-19 pandemic and its significant impact on worldwide travel, the Company expected a continued decrease in U.S. outbound travel and the potential market for Aemcolo®, for traveler’s diarrhea. Accordingly, the Company has reevaluated the recoverable |
F-36
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| amount of the intangible asset related to Aemcolo®. Based mainly on estimates of the asset’s potential market, peak market share and the period in which it will be reached (including the likelihood of early termination of the license before it will be reached), the Company considered the Aemcolo® asset to be entirely impaired. Accordingly, as of December 31, 2021, the Company recognized an impairment loss of $8.9 million. The significant change in assumption is related to attributing a probability greater than zero to the possibility of early termination before the Company will generate meaningful revenues, that are greater than the Company’s investment in the asset. The impairment loss was recognized under Cost of Revenues in the Consolidated Statements of Comprehensive Loss. |
NOTE 11 - LIABILITY FOR EMPLOYEE RIGHTS UPON RETIREMENT:
a. Labor laws and agreements in Israel require the Company to pay severance pay and/or pensions to an employee dismissed or retiring from their employment in certain circumstances.
b. The Company’s pension liability and the Company’s liability for payment of severance pay for employees in Israel for whom the liability is within the scope of Section 14 of the Severance Pay Law, is covered by ongoing deposits with defined contribution plans. The amounts deposited are not included in the Statements of Financial Position.
The amounts charged as an expense with respect to defined contribution plans in 2022, 2021, and 2020 were $261,000, $285,000, and $214,000, respectively.
NOTE 12- ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
|
|
|
December 31, | ||
|
|
|
2022 |
|
2021 |
|
|
|
U.S. dollars in thousands | ||
|
Accrued expenses |
|
16,168 |
|
17,233 |
|
Employees and related liabilities |
|
1,667 |
|
3,496 |
|
Government institutions |
|
114 |
|
167 |
|
|
|
17,949 |
|
20,896 |
F-37
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - ALLOWANCE FOR DEDUCTIONS FROM REVENUES:
The following table shows the movement of the allowance for deductions from revenue:
|
|
|
Rebates and patient discount |
|
Product returns |
|
Total |
|
|
|
U.S. dollars in thousands | ||||
|
As of January 1, 2022 |
|
29,742 |
|
969 |
|
30,711 |
|
Increases |
|
123,878 |
|
2,547 |
|
126,425 |
|
Decreases (utilized) |
|
(108,531) |
|
(2,192) |
|
(110,723) |
|
Adjustments |
|
1,547 |
|
(90) |
|
1,457 |
|
As of December 31, 2022 |
|
46,636 |
|
1,234 |
|
47,870 |
|
|
|
Rebates and patient discount |
|
Product returns |
|
Total |
|
|
|
U.S. dollars in thousands | ||||
|
As of January 1, 2021 |
|
16,380 |
|
1,963 |
|
18,343 |
|
Increases |
|
94,640 |
|
851 |
|
95,491 |
|
Decreases (utilized) |
|
(80,633) |
|
(2,179) |
|
(82,812) |
|
Adjustments |
|
(645) |
|
334 |
|
(311) |
|
As of December 31, 2021 |
|
29,742 |
|
969 |
|
30,711 |
|
|
|
Rebates and patient discount |
|
Product returns |
|
Total |
|
|
|
U.S. dollars in thousands | ||||
|
As of January 1, 2020 |
|
1,001 |
|
266 |
|
1,267 |
|
Increases |
|
56,669 |
|
2,469 |
|
59,138 |
|
Decreases (utilized) |
|
(40,656) |
|
(772) |
|
(41,428) |
|
Adjustments |
|
(634) |
|
- |
|
(634) |
|
As of December 31, 2020 |
|
16,380 |
|
1,963 |
|
18,343 |
NOTE 14 – BORROWING:
a. Credit agreement with HCRM
On February 23, 2020 (“Closing Date”), RedHill Inc. entered into a credit agreement and certain security documents (the “Credit Agreement”) with HCRM.
Under the terms of the Credit Agreement, RedHill Inc. received on March 12, 2020, a $30 million term loan to support its commercial operations. On March 31, 2020, RedHill Inc. received an additional $50 million term loan to fund the acquisition of rights to Movantik® from AstraZeneca AB (“AstraZeneca”).
According to the Credit Agreement for each quarter for the period from January 1, 2021, to December 31, 2029, HCRM will receive royalties of 4% of the Company’s worldwide net revenues, subject to a $75 million cap per annum, as well as interest on the outstanding term loan to be computed as the 3-month LIBOR rate (“LIBOR”), subject to a 1.75% floor rate, plus 8.2% fixed rate, which was decreased to 6.7% starting April 1, 2021.
The weighted effective interest rate on the Closing Date was approximately 16.5%.
The term loans mature in six years with no principal payments required in the first three years. The term loans can be prepaid at RedHill Inc.’s discretion, subject to customary prepayment fees, which decrease over time. Upon the prepayment or repayment of all or any portion of the term loans, RedHill Inc. will pay HCRM 4% on the principal amount of the term loan being repaid or prepaid as an exit fee.
The borrowings under the Credit Agreement are secured by a first priority lien on substantially all of the current and future assets of RedHill Inc., all assets related in any material respect to Talicia®, and all of
F-38
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
the equity interests in RedHill Inc. The Credit Agreement also restricts the ability of RedHill Inc. to make certain payments, including paying dividends to the Company prior to the full repayment of the term loan facility.
The Credit Agreement contains certain customary affirmative and negative covenants. Inter alia, The Credit Agreement contains a financial covenant requiring RedHill Inc. to maintain a minimum level of cash (the “Minimum Cash”), as well as a covenant requiring it to maintain minimum net sales for the trailing four fiscal quarter periods, beginning with the fiscal quarter ending June 30, 2022. The Minimum Cash is relative to the amount borrowed under the term loan facility.
The Credit Agreement contains defined events of default, in certain cases subject to a grace period, following which the lenders may declare any outstanding principal and unpaid interest immediately due and payable.
As described above, the Credit Agreement contains a financial covenant requiring the Company to maintain a level of cash liquidity, on any business day from the Closing Date to the maturity date, in accounts that are subject to HCRM’s control. Therefore, the amounts of minimum cash and cash equivalents are excluded from cash and cash equivalents in the Statements of Financial Position and the Statements of Cash Flows. Instead, these amounts are presented as restricted cash in the Statements of Financial Position and the movements in this restricted cash are presented as financing activities in the Statements of Cash Flows. As of December 31, 2021, the minimum cash amount is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period and therefore is presented as a non-current asset.
On June 17, 2022, RedHill Inc. signed an amendment to the Credit Agreement, which requires Redhill Inc. to maintain minimum net sales of $75 million for the trailing four fiscal quarters periods ending June 30, 2022, and September 30, 2022, and $90 million each fiscal quarter thereafter. Redhill Inc. shall also be required to maintain minimum net sales of $14 million for Movantik® each fiscal quarter starting the fiscal quarter ending June 30, 2022. The Amendment further sets an increase of 0.5% to the interest on the outstanding term loan for the quarters ending June 30, 2022, and September 30, 2022, at 3-month LIBOR rate (“LIBOR”), subject to a 1.75% floor rate, plus 7.2% fixed rate, which will be decreased to 6.7%.
On September 13, 2022, the Company and RedHill Inc. received a notice of events of default and reservation of rights letter (the “Notice”) from HCRM. The Notice asserts that certain events of default occurred as a result of alleged breaches by RedHill Inc. of its representations and warranties and financial covenants under the Credit Agreement. As a result of the alleged events of default, the Notice provides that the outstanding obligations under the Credit Agreement now bear interest at the default rate prescribed therein and that the lenders may accelerate the obligations under the Credit Agreement. While not asserted in the Notice, the Company acknowledges that it has not satisfied its obligation to deliver to HCRM its condensed consolidated interim financial statements as of June 30, 2022, within 60 days after the end of the Company’s fiscal quarter. The Company disagrees with the assertions made by HCRM as the basis for the Notice and, accordingly, the validity of the Notice. Moreover, the Company disputes the alleged events of default asserted by HCRM and, on September 15, 2022, the Company sent a response letter to HCRM to this effect. In addition, the Company did not maintain minimum net sales of $75 million for the trailing four fiscal quarters periods ending September 30, 2022. In addition, the Company did not maintain minimum net sales of $90 million for the trailing four fiscal quarters periods ending December 31, 2022. Additionally, the Company did not maintain minimum net sales of $14 million for Movantik® in the fourth fiscal quarter ending December 31, 2022.
F-39
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As a result of the events of default described above and that as of December 31, 2022, the Company did not expect to obtain a waiver from HCRM, HCRM may proclaim acceleration of the Borrowing. Therefore, the Company classified the Borrowing as a current liability and adjusted its carrying amount to reflect all amounts owing or payable under the Credit Agreement as being immediately due. Accordingly, the Company recorded an adjustment of approximately $29.3 million in the carrying amount of the borrowing and a corresponding charge in the statements of comprehensive loss under financial expenses. As of December 31, 2022, the Company classified the minimum cash amount as a current asset, following the classification of the Borrowing as a current liability.
On September 29, 2022, HCRM exercised its rights under a Deposit Account Control Agreement to take control of RedHill Inc.’s account at PNC Bank, National Association (“PNC”). HCRM then instructed PNC to wire $16 million (the “Funds”), which is equivalent to the minimum cash required under the Credit Agreement, from the PNC account to an account held by HCRM. RedHill Inc.’s control over the PNC account has since been restored. HCRM has acknowledged that, despite receipt of the Funds in an account held in HCRM’s name, the Funds remain the property of RedHill Inc. and are held merely as security for RedHill Inc.’s obligations under the Credit Agreement.
On November 14, 2022, RedHill Inc. reached a non-binding agreement in principle and on February 2, 2023, it reached a definitive agreement with HCRM resulting in the extinguishment of all of RedHill Inc. debt obligations (including all principal, interest, revenue interest, prepayment premiums and exit fees) under the Credit Agreement in exchange for the transfer of its rights in Movantik® to Movantik Acquisition Co., an affiliate of HCRM. See also note 27(a).
Further details of the Company’s exposure to risks arising from the Credit Agreement, as well as maturities and fair value information, are set out in note 4.
b. Reconciliation of liabilities arising from financing activities:
F-40
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - COMMITMENTS:
Agreements to purchase intellectual property and commercial products:
1) On August 11, 2010, the Company entered into an agreement with a publicly-traded Australian company in an asset purchase agreement to acquire intellectual property relating to three therapeutic candidates for the treatment of gastrointestinal conditions. Pursuant to the asset purchase agreement, as amended, the Company paid the Australian company an initial amount of $500,000 and undertook to pay future payments in the range of 7% - 20% from the Company’s revenues that may be generated from the sale and sublicense of the therapeutic candidates, less certain deductible amounts, as detailed in the agreement. Such potential payments are due until termination or expiration of the last of the patents transferred to the Company pursuant to the agreement (each on a product-by-product basis).
Through December 31, 2022, the Company has paid the Australian company in total $1.5 million.
2) On June 30, 2014, the Company entered into an agreement with a German company that granted the Company the exclusive worldwide (excluding China, Hong Kong, Taiwan, and Macao) development and commercialization rights to all indications to a therapeutic candidate. Under the terms of the agreement, the Company paid the German company an upfront payment of $1 million and agreed to pay the German company potential tiered royalties, less certain deductible amounts, as detailed in the agreement, ranging from mid-teens and up to 30%. Such potential royalties are due until the later of (i) the expiration of the last to expire licensed patent that covers the product in the relevant country and (ii) the expiration of regulatory exclusivity in the relevant country. Through December 31, 2022, the Company has paid the German company only the initial amount mentioned above.
3) On March 30, 2015, the Company entered into an agreement with a U.S.-based private company that granted the Company the exclusive worldwide development and commercialization rights for all indications to a therapeutic candidate, and additional intellectual property rights, targeting multiple oncology, inflammatory and GI indications. Under the terms of the agreement, the Company undertook to pay the U.S. company an initial amount of $1.5 million and an additional amount of $2 million to be paid on a specific date. In addition, the Company undertook to pay up to $2 million in potential development milestone payments, and potential tiered royalties on revenues, less certain deductible amounts starting in the low double-digits, as detailed in the agreement. Such potential royalties are due until the later of (i) the expiration of the last to expire licensed patent that covers the product in the relevant country; and (ii) the expiration of regulatory exclusivity in the relevant country. Through December 31, 2022, the Company paid the U.S. company a total of $3 million.
Following an amendment to the agreement from February 2018, during December 2018, the Company elected to convert the remaining $0.5 million into increased future potential royalty payments. As of December 31, 2022, and December 31, 2021, the Company recognized $0.75 million, as a non-current liability for the increase in potential royalty payments.
4) On October 17, 2019, the Company entered into a strategic collaboration with Cosmo Pharmaceuticals N.V. (“Cosmo”), which includes an exclusive license agreement, as amended, for the U.S. rights to Aemcolo® and a simultaneous private investment by Cosmo.
Under the terms of the license agreement, Cosmo invested $36.3 million in cash and granted the Company the exclusive rights to commercialize Aemcolo® in the U.S. for travelers’ diarrhea.
F-41
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The license agreement also grants the Company certain rights related to the potential development of additional indications for Aemcolo®, as well as arrangements related to other pipeline therapeutic candidates of Cosmo. Under the terms of the agreements, the Company issued 5,185,715 ADSs to Cosmo for the cash investment and 1,714,286 ADSs to Cosmo Technologies Ltd, a wholly-owned subsidiary of, as an upfront payment for the U.S commercialization rights granted under the license. In addition, the Company agreed to pay Cosmo a royalty percentage in the high twenties on net sales generated from the commercialization of Aemcolo® in the U.S. The license agreement further provides for potential regulatory and commercial milestone payments to Cosmo totaling up to $100 million.
With respect to this agreement, the Company measured the commercialization rights based on their fair value (approximately $11.8 million, as of the date of the acquisition) with a corresponding credit to equity. As to impairment of the Aemcolo® intangible asset - See note 10(b).
5) Movantik® acquisition:
1. General
Effective April 1, 2020, RedHill Inc. entered into an exclusive license agreement (the “License Agreement”) with AstraZeneca, granting RedHill Inc. exclusive, worldwide (excluding Europe, Canada) commercialization and development rights to Movantik® (naloxegol). In addition, RedHill Inc. entered into certain related agreements, pursuant to which AstraZeneca provides RedHill Inc. transitional services for an agreed period.
On April 1, 2020 (“Effective Date”), RedHill Inc. made an upfront payment of $52.5 million to AstraZeneca, and the AstraZeneca License Agreement, the Supply Agreement and the TSA became effective. Under the terms of the AstraZeneca License Agreement, as amended on July 14, 2020, RedHill Inc. agreed to pay a further non-contingent payment of $15.5 million in December 2021.
On March 11, 2021, RedHill Inc and AstraZeneca signed an amendment to the License Agreement, pursuant to which, the $15.5 million payment due in December 2021 was adjusted to gradual payments starting in March 2021 and ending in December 2022, totaling $16 million. The amendment is not considered a substantial modification of the terms and resulted in an adjustment of approximately $0.5 million in the carrying amount of the payable in respect of intangible assets purchase and a corresponding charge in the consolidated statements of comprehensive loss, under financial expenses. As of December 31, 2022, the Company had an unsettled balance with respect to this payment. However, the outstanding balance was settled at the beginning of 2023, as agreed upon with Astrazeneca.
RedHill Inc. also assumed responsibility for sales-based royalty, currently at a rate of 20%, as well as sales-based potential milestone payments that AstraZeneca is required to pay to Nektar Therapeutics (“Nektar”), the originator of Movantik®. The Company considers the likelihood of having to pay the milestone payments or increased royalties as negligible.
In addition, AstraZeneca transferred on the Effective Date to RedHill Inc. a co-commercialization agreement with Daiichi Sankyo, Inc. (“DSI”) for Movantik® in the U.S, according to which, RedHill Inc. would share costs and pay sales-based payments to DSI under that agreement. Effective July 1, 2020, RedHill Inc. and DSI replaced this agreement with a new royalty-bearing agreement. See note 15(6) below. On October 6, 2020, the parties amended the License Agreement to grant RedHill Inc. also the exclusive commercialization and development rights to Movantik® (naloxegol) in Israel.
F-42
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
On February 22, 2021, Aether Therapeutics Inc. (“Aether”), filed a complaint against RedHill Inc in the United States District Court for the District of Delaware ("Aether Litigation"). The complaint asserts that the Company's marketing of the Movantik® product infringes certain U.S. Patents held by Aether (the "Aether Patents"). Aether has asserted the Aether Patents against other entities previously involved in the marketing of Movantik®. The complaint requests customary remedies for patent infringement. In November 2022 the Company and AstraZeneca have signed a settlement agreement, according to which AstraZeneca will be solely responsible for any costs incurred in the defense of this litigation, including any settlement amounts, damages awarded, and legal fees.
2. Accounting treatment
The total acquisition consideration, including upfront payment, discounted present value of the deferred payment and directly attributable transaction costs amounted to approximately $65 million. Since all acquired assets are intended to generate revenues from sales of Movantik® and have a similar useful life, the Company attributed this consideration to a single intangible asset representing the acquired rights to Movantik®. The intangible asset shall be amortized commencing the Effective Date on a straight-line basis over its useful life, which was re-estimated at approximately from the Effective Date (see also note 10(a) with regards to change in estimation of the useful life).
With respect to sales-based royalties and milestone payments aforementioned, the Company applied an accounting policy, pursuant to which these variable payments shall not be included in the initial measurement of the cost of the intangible asset acquired, as they are not a present obligation of RedHill Inc. The sales-based royalties are expensed as incurred and recognized under Cost of Revenues.
6) As described in note 15(5) above, as part of the Movantik® transaction, the Company undertook the pre-existing co-commercialization agreement with DSI, under which the Company and DSI share certain costs while paying DSI a significant share from its sales volume of Movantik®.
Effective July 1, 2020, RedHill Inc. and DSI replaced the co-commercialization agreement with a new royalty-bearing agreement, under which RedHill Inc. bears all responsibilities and costs for commercializing Movantik® in the U.S. During the term of this new agreement, RedHill Inc. will pay DSI a mid-teen royalty rate on net sales of Movantik® in the U.S. in addition to payments totaling $15.1 million, of which $5.1 million paid in January 2022, $5 million paid in July 2022, and the remaining of $5 million to be assumed by HCRM under the agreement described in notes 14 and 27(a), which was finalized on February 2, 2023. Additionally, in July 2020 as part of the new royalty bearing agreement, the Company also entered into a security purchase agreement, under which DSI received 283,387 ADSs as a partial consideration in relation to Movantik®.
In July 2020, the Company recognized an intangible asset in the amount of approximately $12.5 million. This amount includes approximately $10.5 million for the present value of the above-mentioned payments, recognized against a corresponding financial liability and approximately $2 million for the ADSs issued to DSI.
The intangible asset recognized has similar estimated useful life as the intangible asset discussed in note 15(5) above and is amortized on a straight-line basis over its useful life.
For more information on the transfer of the rights in Movantik® see also note 27(a) below.
|
7) |
In October 2021, the Company entered into an exclusive license agreement (the “License Agreement”) with Gaelan Medical Trade LLC ("Gaelan") for Talicia® in the United Arab Emirates |
F-43
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UAE). Under the terms of the License Agreement, the Company received in April 2022 an upfront payment of $ 2 million. In addition, the Company is eligible for additional milestone payments as well as tiered royalties up to mid-teens on net sales of Talicia® in the UAE. Gaelan will receive the exclusive rights to commercialize Talicia® in the UAE, as well as a right of first refusal to commercialize Talicia® in the Gulf Cooperation Council region (Saudi Arabia, Kuwait, Qatar, Bahrain, and Oman) for a pre-determined period. Gaelan shall be responsible for obtaining and maintaining regulatory approvals, as well as to conduct any and all required clinical and other studies. In March 2022, the Company and Gaelan signed an amendment to the License Agreement, according to which Gaelan may sublicense or assign any of its rights or obligations under the License Agreement.
In connection with the License Agreement, the Company and Gaelan entered into a supply agreement, according to which, the Company will exclusively manufacture (by a third party CMO) and supply Talicia® to Gaelan during the term of the agreement.
The Company accounted for the license of the Talicia® IP rights and manufacturing and supply services as distinct performance obligations, mainly due to the manufacturing not being specialized or unique and can be manufactured by others (i.e. – the good or service is capable of being distinct), as well as due to that the License Agreement and the manufacturing and supply services do not significantly affect each other (i.e. – the promise is distinct within the context of the contract). During 2022, the Company provided Gaelan substantially all the documentation which represents the right to use the Licensed IP, as well as the paperwork relating to the IP itself and its regulatory documents. Accordingly, and since the manufacturing services are priced at their standalone selling price, the Company recognized the $ 2 million upfront consideration as revenues in the Statement of Comprehensive Loss for the year ended 2022.
8) In March 2022, the Company entered into an exclusive license agreement with Kukbo Co. Ltd ("Kukbo") for oral opaganib for the treatment of COVID-19 in South Korea, following Kukbo's investment in the company. Under the terms of the license agreement, the Company would receive an upfront payment of $1.5 million, be eligible for up to $5.6 million in milestone payments, and receive low double-digit royalties on net sales of oral opaganib in South Korea. Kukbo will receive the exclusive rights to commercialize opaganib in South Korea for COVID-19
However, on September 2, 2022, the Company filed a lawsuit against Kukbo and is in the process of seeking a default judgment against Kukbo in a United States court, as a result of Kukbo’s default in delivering to the Company $5 million under the Subscription Agreement, dated October 25, 2021, in exchange for ADSs, and a further payment of $1.5 million due under the license agreement. On November 24, 2022, Kukbo responded in a letter to the lawsuit, stating that it intends to defend itself and bring a counterclaim against the Company.
The Company notes that Kukbo did not file a response in the U.S. court within the required timeframe. On December 17, 2022, Kukbo filed a counterclaim against the Company, prompting the Company to file a motion to dismiss Kukbo’s counterclaims. Legal proceedings are ongoing, but the Company believes in the merits of its lawsuit against Kukbo and will continue to decisively pursue a favorable judgment.
As of December 31, 2022, the Company has not recognized revenues from the license agreement as the criteria to do so was not fully met.
F-44
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - INCOME TAX:
a. Taxation of the Company in Israel:
1) Measurement of results for tax purposes
The Company elected to compute its taxable income in accordance with Income Tax Regulations (Rules for Accounting for Foreign Investors Companies and Certain Partnerships and Setting their Taxable Income), 1986. Accordingly, the Company’s taxable income or loss is calculated in U.S. dollars.
The results of the Company are measured for tax purposes in accordance with Accounting Principles Generally Accepted in Israel (Israeli GAAP). These financial statements are prepared in accordance with IFRS. The differences between IFRS and Israeli GAAP, both on an annual and a cumulative basis cause differences between taxable results and the results are reflected in these financial statements.
2) Tax rates
The net income of the Company is subject to the Israeli corporate tax rate. Israeli corporate tax rates is 23%.
b. U.S. subsidiary:
The Company’s subsidiary is incorporated in the U.S. and is taxed under U.S. tax laws. The applicable corporate tax rate is 21%.
As a general rule, inter-company transactions between the Israel-resident Company and its U.S-resident subsidiary are subject to the reporting provisions of the Income Tax Regulations, section 85-A, 2006 of the Israeli Tax Ordinance of the Israeli Tax Ordinance.
c. Carryforward losses:
As of December 31, 2022, the Company had net operating loss (“NOLs”) carried forward of approximately $283 million. Under Israeli tax laws, carryforward tax losses have no expiration date.
As of December 31, 2022, the U.S. subsidiary had a net operating loss carryforward of approximately $72 million, of which approximately $10 million expires in 2037, and approximately $62 million does not expire, but is limited to offset 80% of the net income in the year it is utilized.
Under U.S. tax laws, for NOLs arising after December 31, 2017, the 2017 Act limits a taxpayer’s ability to utilize NOL carryforwards to 80% of taxable income. In addition, NOLs arising after 2017 can be carried forward indefinitely, but carryback is generally prohibited. NOLs generated in tax years beginning before January 1, 2018, will not be subject to the foregoing taxable income limitation and will continue to have a two-year carryback and twenty-year carryforward period. Furthermore, in accordance with Coronavirus Aid, Relief, and Economic Security Act (CARES Act) of 2020, losses from tax years beginning in 2018, 2019 or 2020 can be carried back 5 years.
Deferred tax assets on losses for tax purposes carried forward to subsequent years are recognized if utilization of the related tax benefit against a future taxable income is expected. The Company has not created deferred taxes on its carryforward losses since their utilization is not expected in the foreseeable future.
F-45
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
d. Deductible temporary differences:
The amount of cumulative deductible temporary differences, other than carryforward losses (as mentioned in c. above), for which deferred tax assets have not been recognized in the Statements of Financial Position as of December 31, 2022, and 2021, were $14 million and $20 million, respectively. These temporary differences have no expiration dates.
e. Tax assessments:
The Company has not been assessed for tax purposes since its incorporation. The Company’s tax assessments for 2017 are therefore considered final.
NOTE 17 - SHARE CAPITAL:
a. Composition:
Company share capital is composed of shares of NIS 0.01 par value, as follows:
|
|
|
Number of shares | ||
|
|
|
December 31, | ||
|
|
|
2022 |
|
2021 |
|
|
|
In thousands | ||
|
Authorized ordinary shares |
|
1,594,000 |
|
794,000 |
|
Authorized preferred shares (reserved) |
|
6,000 |
|
6,000 |
|
Issued and paid ordinary shares |
|
931,962 |
|
524,016 |
On May 13, 2022, the annual general meeting of shareholders approved the increase of the authorized share capital of the Company to 1,594,000,000 Ordinary Shares, NIS 0.01 par value per share. See also note 27(b) regarding ratio change of the Company's ADSs
During 2022, the Company sold 1,223,292 ADSs under the “at-the-market” equity offering program (“ATM program”) at an average price of $1.67 per ADS, for aggregate net proceeds of approximately $2 million, net of an immaterial amount of issuance expenses. The sales were under the Company's sales agreement with Cantor Fitzgerald & Co. upon the terms and subject to the conditions and limitations in the sales agreement, the Company may elect from time to time, to offer and sell its ADSs having aggregate gross sales proceeds of up to $100 million through the ATM program. During 2021, the Company sold 87,624 ADSs under an ATM program at an average price of $9.03 per ADS. Net and gross proceeds to the Company were approximately $0.8 million.
| b. | In May 2022, the Company entered into a definitive agreement with a single investor, which entailed the issuance of 10,563,380 ADSs (or ADS equivalent which consist of pre-funded warrants with an exercise price of $0.001 per pre-funded warrant) and grant of unregistered private warrants to purchase up to 13,204,225 ADSs, for a total net consideration of $14.4 million. |
The warrants have an exercise price of $1.48 per ADS, are exercisable six months after the issuance date, and have a term of . The warrants may be exercised either for cash or on a cashless basis. See note 27(c) with regards to repricing of these warrants.
The warrants were classified as a financial liability due to a net settlement provision. These derivatives were recognized and subsequently measured at fair value through profit or loss. The consideration, net of issue expenses, was allocated to the various issued instruments. Out of the gross consideration, $8.1 million was allocated to the warrants. The remainder of approximately $6.9 million was allocated to equity. Issuance expenses of approximately $0.6 million were
F-46
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
allocated as following: $0.3 million allocated to the liability instruments and were recorded directly to the statement of comprehensive loss and $0.3 million allocated to the equity component and were recorded against additional paid in capital.
The fair value of the warrants was computed using the Black and Scholes option pricing model. The fair value of the warrants as of December 31, 2022, was based on the price of an ADS on December 31, 2022, and based on the following parameters: risk-free interest rate of 4.00% and an average standard deviation of 81.75%.
| c. | In December 2022, the Company completed an underwritten public offering with gross proceeds to the Company of approximately $8 million. The offering consisted of 32,000,000 ADSs (or ADS equivalent which consist of pre-funded warrants with an exercise price of $0.001 per pre-funded warrant) as well as granted warrants to purchase up to 32,000,000 ADSs. Issuance expenses of approximately $0.6 million were recorded directly to the statement of comprehensive loss. |
The warrants have an exercise price of $0.25 per ADS, are exercisable immediately after the issuance date and have a term of 5 years. The warrants may be exercised either for cash or on a cashless basis.
The warrants were classified as a financial liability due to a net settlement provision. These derivatives were recognized and subsequently measured at fair value through profit or loss. Upon initial recognition the fair value of the warrants was adjusted to reflect the unrecognized day 1 loss. After initial recognition, the unrecognized day 1 loss of the warrants is amortized over its contractual life.
The fair value of the warrants as of December 31, 2022, was based on the price of an ADS on December 31, 2022, and based on the following parameters: risk-free interest rate of 3.99% and an average standard deviation of 81.71%.
| d. | During 2022, the Company issued 486,504 ADSs resulting from vested RSUs that had been issued to employees and consultants of the Company. |
| e. | In October 2021, the Company has entered into an agreement with Kukbo Co. Ltd. (“Kukbo”), a South Korean corporation, for the sale of the Company’s ADSs in a private placement of up to $10 million. Kukbo’s investment in the Company is to be made in two tranches, with the first tranche of $5 million paid in October 2021 and the second tranche of $5 million to follow within six months, subject to satisfaction of certain conditions. As part of the first tranche, The Company has issued 827,586 ADSs at a purchase price of $6.04, which represented a 20% premium over the weighted average price of the ADSs on the Nasdaq. The $5 million consideration for the first tranche was attributed in full to equity, Likewise, the number of ADSs to be issued in the second tranche will be calculated based on a price per ADS representing a 20% premium over the weighted average at the closing. The $5 million of the second trench has not yet been received as of the approval date of this financial statements, See also note 15(8) above. |
f. During 2021, the Company issued 565,998 ADSs for $4 million, resulting from exercises of options that had been issued to employees of the Company.
F-47
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - SHARE-BASED PAYMENTS:
On May 30, 2010, a general meeting of shareholders approved the option plan of the Company (the “Option Plan”), after being approved by the BoD. In 2017 the Option Plan was amended and restated as the 2010 Award Plan (the “Award Plan”). As of December 31, 2022, the Award Plan allows the Company to allocate up to 243,054,523 options to purchase ordinary shares and RSUs to employees, consultants, and directors and are reserved by the BoD for issuance under the Award Plan. The terms and conditions of the grants were determined by the BoD and are according to the Award Plan. See also note 27(b) regarding ratio change of the Company's ADSs.
a. The following is information on options granted in 2022:
1) The options will vest as follows: for directors, employees and consultants of the Company and the Company's subsidiary who had provided services exceeding one year as of the grant date, options will vest in 16 equal quarterly installments over a four-year period. For directors, employees and consultants of the Company and the Company's subsidiary who had not provided services exceeding one year as of the grant date, the options will vest as follows: of the options will vest one year following the grant date and the rest will vest over 12 equal quarterly installments. During the contractual term, the options will be exercisable, either in full or in part, from the vesting date until the end of 10 years from the date of grant.
The options are exercisable into the Company’s ADSs.
2) The fair value of the options was computed using the binomial model and the underlying data used was mainly the following: price of the Company’s ADSs: $1.67 - $2.45, expected volatility: 66.94% - 67.21%, risk-free interest rate: 1.73% - 1.78% and the expected term was derived based on the contractual term of the options, the expected exercise behavior and expected post-vesting forfeiture rates.
b. The following is information on RSUs granted in 2022:
1)The
RSUs vest as follows: 50%
of RSUs will vest one
year following the grant and 50%
will vest two
years following the grant.
F-48
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2)The
RSUs vest in 12
equal quarterly installments over three
year-period.
3)The
RSUs vest in 8
equal quarterly installments over two
year-period.
4)The
general meeting of the Company’s shareholders held on May 13, 2022 (the “May 2022 AGM”), subsequent to approval of the
Company’s BoD in January 2022, approved the grant of 140,000
RSUs under the Company’s Award plan to directors and to the Company's Chief Executive Officer in the same terms. The fair value
of these RSUs on the date of grant was $0.1
million.
In addition, In and the Company’s BoD, approved the grants of 216,030 RSUs under the Company’s Award plan to directors and to the Company's Chief Executive Officer in the same terms, subject to the Annual general meeting approval. The fair value of these RSUs on the date of approval was $0.1 million.
| 5) | The fair value of the RSUs were determined based on the price of an ADS on the date the RSUs were granted. |
| c. | During 2022, approximately 2.7 million options and RSUs were forfeited, resulting in $4.5 million in reversed expenses. |
d. The following is information on options granted in 2021:
| 1) | The options will vest as follows: for directors, employees and consultants of the Company and the Company's subsidiary who had provided services exceeding one year as of the grant date, options will vest in 16 equal quarterly installments over a four-year period. For directors, employees and consultants of the Company and the Company's subsidiary who had not provided services exceeding one year as of the grant date, the options will vest as follows: of the options will vest one year following the grant date and the rest will vest over 12 equal quarterly installments. During the contractual term, the options will be exercisable, either in full or in part, from the vesting date until the end of 10 years from the date of grant. |
| 2) | The general meeting of the Company’s shareholders held on July 26, 2021 (the “July 2021 AGM”), subsequent to approval of the Company’s BoD, approved the grant of 310,341 options under the Company’s Award Plan, to directors and to the Company's Chief Executive Officer. |
| 3) | The fair value of the options was computed using the binomial model and the underlying data used was mainly the following: price of the Company’s ADSs: $4.28 - $9.19, expected volatility: 64.05% |
F-49
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| - 66.65%, risk-free interest rate: 1.26% - 1.73% and the expected term was derived based on the contractual term of the options, the expected exercise behavior and expected post-vesting forfeiture rates. The expected volatility assumption used in based on the historical volatility of the Company’s ordinary share. |
| 4) | Exchange of options to purchase the Company’s ADSs: | |
| a. | On April 26, 2021, the Company made an offer (the “Exchange Offer”) to eligible option holders (as defined in the offer), subject to specified conditions, to exchange some or all of their outstanding options to purchase ADSs (the “Exchanged Options”) for new options to purchase ADSs (the “New Options”). On May 26, 2021, concurrently with the expiration of the Exchange Offer, the Company granted New Options to purchase 2,805,281 ADSs of the Company, pursuant to the terms of the Exchange Offer and the Company’s Amended and Restated Award Plan (2010). |
The New Options have lower exercise price per ADS than the Exchanged Options and subject to meeting certain performance conditions, specified in the Exchange Offer, may be further lowered. Other than the exercise price, each New Option has the same expiration date, vesting schedule and other terms as the Exchanged Options.
| b. | The incremental compensation expense recognized by the Company has been measured as the excess of the fair value of each New Option granted, as of the date the New Options were granted, over the fair value of the Exchanged Options, measured immediately prior to the exchange. The total incremental value measured by the Company is approximately $3.5 million, of which $3.3 million was recognized as an expense for the year ended December 31, 2021. The remaining incremental value will be recognized over the remaining vesting period of the New Options. |
c.
The incremental compensation expense was computed using the binomial model and the underlying data used was mainly the following:
exercise price of the Company's ADS: $4.3
- $7.0
expected volatility: 58.8%
- 65.28%,
risk-free interest rate: 0.01%
- 2.31%
and the expected term was derived based on the contractual term of the options, the expected exercise behavior and expected post-vesting
forfeiture rates.
e. Changes in the number of options in ADSs and weighted averages of exercise prices are as follows:
| f. | Changes in the number of RSUs in ADSs during the period are as follows: |
|
|
|
Year Ended December 31, | |||
F-50
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
2022 |
2021 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
Number of |
|
|
|
|
RSUs |
|
RSUs |
|
|
Outstanding at beginning of year |
|
— |
|
— |
|
|
Exercised |
|
(486,504) |
|
— |
|
|
Expired and forfeited |
|
(1,154,435) |
|
— |
|
|
Granted |
|
5,286,695 |
|
— |
|
|
Outstanding at end of year |
|
3,645,756 |
|
— |
|
| g. | The following is information about the exercise price and remaining useful life of outstanding options at year-end: |
h. Expenses recognized in profit or loss for the options and RSUs are as follows:
|
Year Ended December 31, | ||||
|
2022 |
|
2021 |
|
2020 |
|
U.S. dollars in thousands | ||||
|
5,675 |
|
10,212 |
|
4,202 |
The remaining compensation expenses as of December 31, 2022, are $4 million and will be expensed in full by December 2025.
NOTE 19 - NET REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | ||||
|
|
|
|
2022 |
|
2021 |
|
2020 |
|
|
|
|
U.S dollars in thousands | ||||
|
Licensing revenues (1) |
|
|
2,000 |
|
— |
|
— |
|
Movantik® revenues |
|
|
52,098 |
|
76,767 |
|
59,356 |
|
Sales of Other products |
|
|
7,702 |
|
8,990 |
|
5,003 |
|
|
|
|
61,800 |
|
85,757 |
|
64,359 |
| 1) | See also note 15(7) above. |
F-51
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 - RESEARCH AND DEVELOPMENT EXPENSES:
|
|
|
Year Ended December 31, | ||||
|
|
|
2022 |
|
2021 |
|
2020 |
|
|
|
U.S. dollars in thousands | ||||
|
Payroll and related expenses |
|
661 |
|
839 |
|
636 |
|
Professional services |
|
1,210 |
|
1,821 |
|
1,752 |
|
Share-based payments |
|
1,151 |
|
1,910 |
|
883 |
|
Clinical and pre-clinical trials |
|
3,872 |
|
23,905 |
|
12,569 |
|
Intellectual property development |
|
180 |
|
349 |
|
298 |
|
Other |
|
205 |
|
674 |
|
353 |
|
|
|
7,279 |
|
29,498 |
|
16,491 |
NOTE 21 - SELLING AND MARKETING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | ||||
|
|
|
2022 |
|
2021 |
|
2020 |
|
|
|
U.S. dollars in thousands | ||||
|
Payroll and related expenses |
|
19,235 |
|
24,227 |
|
20,756 |
|
Share-based payments |
|
553 |
|
2,570 |
|
1,464 |
|
Professional services |
|
6,596 |
|
17,441 |
|
18,957 |
|
Samples |
|
836 |
|
1,008 |
|
438 |
|
Travel, Fleet, meals and related expenses |
|
5,136 |
|
7,305 |
|
5,729 |
|
Office-related expenses |
|
1,510 |
|
1,285 |
|
957 |
|
Other |
|
1,576 |
|
1,787 |
|
984 |
|
|
|
35,442 |
|
55,623 |
|
49,285 |
|
|
|
|
|
|
|
|
NOTE 22 - GENERAL AND ADMINISTRATIVE EXPENSES:
|
|
|
Year Ended December 31, | ||||
|
|
|
2022 |
|
2021 |
|
2020 |
|
|
|
U.S. dollars in thousands | ||||
|
Payroll and related expenses |
|
10,521 |
|
11,974 |
|
11,159 |
|
Share-based payments |
|
3,971 |
|
5,732 |
|
1,855 |
|
Professional services and supply chain |
|
10,787 |
|
11,040 |
|
9,132 |
|
Medical affairs |
|
1,214 |
|
1,600 |
|
1,052 |
|
Office-related expenses |
|
1,434 |
|
1,438 |
|
1,168 |
|
Other |
|
659 |
|
581 |
|
1,009 |
|
|
|
28,586 |
|
32,365 |
|
25,375 |
F-52
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 23 - FINANCIAL EXPENSES, net:
|
|
|
Year Ended December 31, | ||||
|
|
|
2022 |
|
2021 |
|
2020 |
|
|
|
U.S dollars in thousands | ||||
|
Financial income: |
|
|
|
|
|
|
|
Fair value gains on derivative financial instruments |
|
13,422 |
|
— |
|
— |
|
Gains on financial assets at fair value through profit or loss |
|
— |
|
— |
|
94 |
|
Interest from bank deposits |
|
140 |
|
51 |
|
176 |
|
|
|
13,562 |
|
51 |
|
270 |
|
Financial expenses: |
|
|
|
|
|
|
|
Interest for lease liabilities |
|
430 |
|
395 |
|
405 |
|
Issuance costs with respect of warrants |
|
958 |
|
— |
|
— |
|
Loss from changes in exchange rates |
|
40 |
|
28 |
|
9 |
|
Interest and royalties expenses related to borrowing and payable in respect of intangible assets purchase |
|
40,903 |
|
16,172 |
|
12,045 |
|
Other |
|
56 |
|
65 |
|
300 |
|
|
|
42,387 |
|
16,660 |
|
12,759 |
|
Financial expenses (income), net |
|
28,825 |
|
16,609 |
|
12,489 |
(
NOTE 24 - SEGMENT INFORMATION:
The Chief Executive Officer is the Company’s Chief Operating Decision Maker (“CODM”). The CODM allocates resources and assesses the Company’s performance based on the following segmentation: Commercial Operations and Research & Development. The Commercial Operations segment covers all areas relating to the commercial sales and is being performed by the Company’s U.S. subsidiary. The Research and Development segment includes all activities related to research and development and licensing of therapeutic candidates and is being performed by the Company.
The Company reports on revenue and segment Adjusted EBITDA. The CODM does not review assets by operating segment. Adjusted EBITDA represents net loss before depreciation, amortization, and financial expenses (income), adjusted to exclude share-based compensation and the Aemcolo® intangible asset impairment. (See also note 10b).
The following table presents segment profitability and a reconciliation to the consolidated net loss and comprehensive loss for the periods indicated:
Except for $2 million in licensing revenues reported for the year ended December 31, 2022, which are allocated to the Research and Development segment, all of the Company’s revenues are allocated to the Commercial Operations segment.
F-53
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
b. Major customers
The following table represent the percentages of total net revenues from the major customers:
|
|
Year Ended December 31, | ||
|
|
2022 |
2021 |
2020 |
|
Customer A |
32% |
32% |
35% |
|
Customer B |
30% |
31% |
28% |
|
Customer C |
33% |
32% |
35% |
The Company’s revenues were entirely in the U.S. except licensing revenues, and the payment terms for all customers are 30 to 66 days.
c. Assets by geographic location
The Company’s non-current assets located in Israel as of December 31, 2022, amount to $6.8 million (mainly intangible assets - $5.6 million and right-of-use assets - $0.9 million). The remainder of the consolidated non-current assets as of December 31, 2022, amount to $66.3 million and are located in the U.S (consisting mainly of intangible assets - $60 million, and right-of-use assets - $5.8 million).
NOTE 25 - LOSS PER ORDINARY SHARE:
| a. | Basic |
The basic loss per share is calculated by dividing the loss by the weighted average number of ordinary shares in issue during the period.
The following is data taken into account in the computation of basic loss per share:
| b. | Diluted |
Diluted loss per share is calculated by adjusting the weighted average number of ordinary shares outstanding, assuming conversion of all potentially dilutive ordinary shares, using the treasury stock method. The Company had two categories of potentially dilutive ordinary shares: warrants issued to investors and options issued to employees and service providers. The effect of these options and warrants for all reporting years is anti-dilutive.
F-54
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 26 - RELATED PARTIES:
a. Key management in 2022 includes members of the Board of Directors, including the Company’s Chief Commercial Officer and Chief Executive Officer:
|
|
|
Year Ended December 31, | ||||
|
|
|
2022 |
|
2021 |
|
2020 |
|
|
|
U.S. dollars in thousands | ||||
|
Key management compensation: |
|
|
|
|
|
|
|
Salaries and other short-term employee benefits |
|
1,486 |
|
1,668 |
|
1,526 |
|
Post-employment benefits |
|
64 |
|
91 |
|
61 |
|
Share-based payments |
|
1,041 |
|
1,611 |
|
661 |
|
Other long-term benefits |
|
44 |
|
54 |
|
33 |
b. Balances with related parties:
|
|
|
December 31, | ||
|
|
|
2022 |
|
2021 |
|
|
|
U.S. dollars in thousand | ||
|
Current liabilities - |
|
|
|
|
|
Credit balance in “accrued expenses and other current liabilities” |
|
191 |
|
399 |
F-55
REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 27 - EVENTS SUBSEQUENT TO DECEMBER 31, 2022:
| a. | On February 2, 2023, the Company and RedHill Inc. have reached an agreement with HCRM resulting in the extinguishment of all of RedHill Inc. debt obligations (including all principal, interest, revenue interest, prepayment premiums and exit fees) under the Credit Agreement in exchange for the transfer of its rights in Movantik® to Movantik Acquisition Co., an affiliate of HCRM. HCRM will assume substantially all post-closing liabilities, and RedHill Inc. will retain substantially all pre-closing liabilities relating to Movantik®. As part of the parties' arrangement, and to ensure continuous patient care, RedHill Inc. will provide HCRM with paid transition services for up to 12 months. HCRM will retain security interests in certain of the Company’s assets until substantially all pre-closing liabilities relating to Movantik® have been paid or other specific conditions are met. Following the sale of the rights to Movantik®, the $16 million held as restricted cash under the Credit Agreement was deposited into an escrow account to pay pre-closing liabilities related to Movantik®. See also notes 15(5) and 15(6). |
| b. | On March 23, 2023, the Company implemented a ratio change of the Company's ADSs to its non-traded ordinary shares from ratio of 1 ADS representing 10 ordinary shares to a new ratio of 1 ADS representing 400 ordinary shares. |
| c. | On April 3, 2023, the Company completed a Registered Direct Offering with gross proceeds to the Company of approximately $6 million, before deducting offering expenses of approximately $0.6 million. The offering consisted of 1,500,000 ADSs (or ADS equivalent) as well as granted (i) unregistered private warrants to purchase up to 1,500,000 ADSs. The warrants have an exercise price of $4.75 per ADS, are exercisable immediately after the issuance date and have a term of 5 years. (ii) unregistered private warrants to purchase up to 1,500,000 ADSs. The warrants have an exercise price of $4.00 per ADS, are exercisable immediately after the issuance date and have a term of 9 months. The Company also has agreed that certain existing warrants to purchase up to an aggregate of 330,106 ADSs at an exercise price of $59.20 per ADS ($1.48 per ADS prior to the ratio change describes in note 27 (b) above) and a termination date of November 11, 2027, were amended, so that the amended warrants have a reduced exercise price of $4.75 per share and a termination date of 5 years following the closing of the offering. In addition, the Company has agreed to issue to the Placement Agent, warrants to purchase up to 90,000 ADSs with an exercise price of $5.00 per share and exercisable for 5 years. All the warrants may be exercised either for cash or on a cashless basis. |
F-56
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
6. Indemnification of Directors and Officers.
Exemption,
Insurance and Indemnification of Directors and Officers
Exemption
of Officers and Directors
Under
the Israeli Companies Law, a company may not exempt an officer or director from liability with respect to a breach of his duty of loyalty
but may exempt in advance an officer or director from liability to the company, in whole or in part, with respect to a breach of his duty
of care, except in connection with a prohibited distribution made by the company, if so provided in its articles of association. Our articles
of association provide for this exemption from liability for our directors and officers.
Directors’
and Officers’ Insurance
The
Israeli Companies Law and our articles of association provide that, subject to the provisions of the Israeli Companies Law, we may obtain
insurance for our directors and officers for any liability stemming from any act performed by an officer or director in his capacity as
an officer or director, as the case may be with respect to any of the following:
| • |
a breach of such officer’s or director’s
duty of care to us or to another person; |
| • |
a breach of such officer’s or director’s
duty of loyalty to us, provided that such officer or director acted in good faith and had reasonable cause to assume that his act would
not prejudice our interests; |
| • |
a financial liability imposed upon such officer
or director in favor of another person; |
| • |
financial liability imposed on the officer or
director for payment to any Party Harmed by the Breach; |
| • |
expenses incurred by such officer or director
in connection with an administrative proceeding conducted in this matter, including reasonable litigation expenses, including legal fees;
or |
| • |
a breach of any duty or any other obligation,
to the extent insurance may be permitted by law. |
On
May 13, 2022, our shareholders approved the Compensation Policy for our directors and officers in accordance with the Israeli Companies
Law, pursuant to which we are required to determine the compensation of our directors and officers, and which must be approved by our
shareholders every three years. Pursuant to the Compensation Policy, we may obtain a directors’ and officers’ liability insurance
policy, which would apply to our or our subsidiaries’ directors and officers, as they may be, from time to time, subject to the
following terms and conditions: (a) the total insurance coverage under the insurance policy may not exceed $100 million; and (b) the purchase
of such policy shall be approved by the Compensation Committee (and, if required by law, by the Board of Directors) which shall determine
that such policy reflects the current market conditions, and it shall not materially affect the Company's profitability, assets or liabilities.
In addition, pursuant to our Compensation Policy, should we sell our operations (in whole or in part) or in case of merger, spin-off or
any other significant business combination involving us or part or all of our assets, we may obtain a director’s and officers’
liability insurance policy (run-off) for our directors and officers in office with regard to the relevant operations, subject to the following
terms and conditions: (a) the insurance term may not exceed seven years; (b) the coverage amount may not exceed $100 million; and (c)
the purchase of such policy shall be approved by the Compensation Committee (and, if required by law, by the Board of Directors) which
shall determine that such policy reflects the current market conditions, and it shall not materially affect the Company’s profitability,
assets or liabilities. The Compensation Policy is in effect for three years from the 2022 annual general meeting.
Pursuant
to the foregoing approvals, we carry directors’ and officers’ liability insurance. This insurance is renewed on an annual
basis.
Indemnification
of Officers and Directors
The Israeli Companies
Law provides that a company may indemnify an officer or director for payments or expenses associated with acts performed in his capacity
as an officer or director of the company, provided the company’s articles of association include the following provisions with respect
to indemnification:
| • |
a provision authorizing the company to indemnify
an officer or director for future events with respect to a monetary liability imposed on him in favor of another person pursuant to a
judgment (including a judgment given in a settlement or an arbitrator’s award approved by the court), so long as such indemnification
is limited to types of events which, in the board of directors’ opinion, are foreseeable at the time of granting the indemnity undertaking
given the company’s actual business, and in such amount or standard as the board of directors deems reasonable under the circumstances.
Such undertaking must specify the events that, in the board of directors’ opinion, are foreseeable in view of the company’s
actual business at the time of the undertaking and the amount or the standards that the board of directors deemed reasonable at the time; |
| • |
a provision authorizing the company to indemnify
an officer or director for future events with respect to reasonable litigation expenses, including counsel fees, incurred by an officer
or director in which he is ordered to pay by a court, in proceedings that the company institutes against him or instituted on behalf of
the company or by another person, or in a criminal charge of which he was acquitted, or a criminal charge in which he was convicted of
a criminal offense that does not require proof of criminal intent; |
| • |
a provision authorizing the company to indemnify
an officer or director for future events with respect to reasonable litigation fees, including attorney’s fees, incurred by an officer
or director due to an investigation or proceeding filed against him by an authority that is authorized to conduct such investigation or
proceeding, and that resulted without filing an indictment against him and without imposing on him financial obligation in lieu of a criminal
proceeding, or that resulted without filing an indictment against him but with imposing on him a financial obligation as an alternative
to a criminal proceeding in respect of an offense that does not require the proof of criminal intent or in connection with a monetary
sanction; |
| • |
a provision authorizing the company to indemnify
an officer or director for future events with respect to a Party Harmed by the Breach; |
| • |
a provision authorizing the company to indemnify
an officer or director for future events with respect to expenses incurred by such officer or director in connection with an administrative
proceeding, including reasonable litigation expenses, including legal fees; and |
| • |
a provision authorizing the company to indemnify
an officer or director retroactively. |
Limitations
on Insurance, Exemption and Indemnification
The Israeli Companies
Law and our articles of association provide that a company may not exempt or indemnify a director or an officer nor enter into an insurance
contract, which would provide coverage for any monetary liability incurred as a result of any of the following:
| • |
a breach by the officer or director of his duty
of loyalty, except for insurance and indemnification where the officer or director acted in good faith and had a reasonable basis to believe
that the act would not prejudice the company; |
| • |
a breach by the officer or director of his duty
of care if the breach was done intentionally or recklessly, except if the breach was solely as a result of negligence; |
| • |
any act or omission done with the intent to derive
an illegal personal benefit; or |
| • |
any fine, civil fine, monetary sanctions, or forfeit
imposed on the officer or director. |
In
addition, under the Israeli Companies Law, exemption of, indemnification of, and procurement of insurance coverage for, our directors
and officers must be approved by our audit committee and board of directors and, in specified circumstances, by our shareholders.
Letters
of Indemnification
We
may provide a commitment to indemnify in advance any director or officer of ours in the course of such person’s position as our
director or officer, all subject to the letter of indemnification, as approved by our shareholders from time to time and in accordance
with our articles of association. We may provide retroactive indemnification to any officer to the extent allowed by the Israeli Companies
Law. As approved by our shareholders, the amount of the advance indemnity is limited to the higher of 25% of our then shareholders’
equity, per our most recent annual financial statements, or $10 million.
As
part of the indemnification letters, we exempted our directors and officers, in advance, to the extent permitted by law, from any liability
for any damage incurred by them, either directly or indirectly, due to the breach of an officer’s or director’s duty of care
vis- à-vis us, within his acts in his capacity as an officer or director. The letter provides that so long as not permitted by law,
we do not exempt an officer or director in advance from his liability to us for a breach of the duty of care upon distribution, to the
extent applicable to the officer or director, if any. The letter also exempts an officer or director from any liability for any damage
incurred by him, either directly or indirectly, due to the breach of the officer or director’s duty of care vis- à-vis us,
by his acts in his capacity as an officer or director prior to the letter of exemption and indemnification becoming effective.
Item
7. Recent Sales of Unregistered Securities.
The
following sets forth information regarding all unregistered securities sold since January 2021. These issuances did not result in changes
to the voting rights attached to the Ordinary Shares.
Issuance
of Capital Stock
On
May 11, 2022, in connection with a registered direct offering, we concurrently issued to a single investor unregistered warrants to purchase
up to 330,106 ADSs. The warrants became exercisable six months after the issuance date and have a term of five years. The
gross proceeds to us from the transaction were approximately $15 million, before deducting the placement agent’s
fees and other offering expenses payable by us.
On
March 8, 2023, we issued to a single investor a convertible promissory note in the principal amount of up to $6 million and a warrant
to purchase up to 59,523 ADSs in a private placement. We received an advance of $2 million under the note. On March 28, 2023, we entered
into a termination agreement with the investor, cancelling the convertible promissory note and warrant, and we paid $2,030,000 to the
investor.
On
July 25, 2023, in connection with a registered direct offering, we entered into a warrant reprice and reload letter with a certain holder
of Series A Warrants to purchase up to an aggregate of 1,500,000 ADSs and Series B Warrants to purchase up to an aggregate of 1,500,000
ADSs, each issued in April 2023, pursuant to which such holder exercised its Series A Warrants in full at a reduced exercise price of
$1.35 per ADS in exchange for new unregistered warrants to purchase up to an aggregate of 1,500,000 ADSs at an exercise price of $1.80
per ADS exercisable until April 3, 2028 and a reduction in the exercise price of various outstanding warrants. The gross
proceeds to us from the warrant reprice and reload letter were approximately $2,025,000, before deducting the placement agent’s
fees and other offering expenses payable by us.
In
September 2023, in connection with the September 2023 Warrant Exercise Transaction, pursuant to an inducement letter certain investors
agreed to exercise for cash their existing warrants to purchase an aggregate of 4,301,923 ADSs issued on May 11, 2022, December 6, 2022,
April 3, 2023 and July 25, 2023, at reduced exercise price of $0.47 per ADS, in consideration for the issuance to each such exercising
investor of new warrants to purchase up to an aggregate of 8,603,846 ADSs at an exercise price of $0.47 per ADS with exercise terms ranging
from eighteen months to five years.
In
connection with the January 2024 Offering, on January 26, 2024, we issued to certain institutional investors the unregistered Warrants
to purchase 10,000,000 ADSs. The Warrants have an exercise price of $1.00 per ADS, are exercisable immediately and will expire five years
from the date of issuance. The gross proceeds to us from the transaction were approximately $8 million, before deducting the placement
agent’s fees and other offering expenses payable by us.
In
addition, we issued to the Placement Agent the July 2023 Placement Agent Warrants, the July 2023 Placement Agent Exercise Warrants, the
September 2023 Placement Agent Warrants and the January 2024 Placement Agent Warrants.
For
additional information regarding the unregistered securities sold since January 2021, please see “Management’s Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources – Financing Activities”.
The
offers, sales and issuances of the securities described in the preceding paragraphs were exempt from registration under Section 4(a)(2)
of the Securities Act and the rules and regulations promulgated thereunder (including Regulation D and Rule 506), in that the transactions
were between an issuer and sophisticated investors or members of its senior executive management and did not involve any public offering
within the meaning of Section 4(a)(2).
Item
8. Exhibits and Financial Statements Schedules.
(a) Exhibits.
The following exhibits
are filed with this Registration Statement.
The
agreements included as exhibits to this registration statement contain representations and warranties by each of the parties to the applicable
agreement. These representations and warranties were made solely for the benefit of the other parties to the applicable agreement and
(i) were not intended to be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties
if those statements prove to be inaccurate; (ii) may have been qualified in such agreement by disclosures that were made to the other
party in connection with the negotiation of the applicable agreement; (iii) may apply contract standards of “materiality”
that are different from “materiality” under the applicable securities laws; and (iv) were made only as of the date of the
applicable agreement or such other date or dates as may be specified in the agreement.
The
undersigned registrant acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for
considering whether additional specific disclosures of material information regarding material contractual provisions are required to
make the statements in this registration statement not misleading.
|
Exhibit
Number |
Description
of Document | |
| 4.8 | ||
| 4.9 | ||
|
|
||
| 10.29 | ||
|
101
INS |
Inline
XBRL Instance Document | |
|
101
SCH |
Inline
XBRL Taxonomy Extension Schema Document | |
|
101
CAL |
Inline
XBRL Taxonomy Calculation Linkbase Document | |
|
101
LAB |
Inline
XBRL Taxonomy Labels Linkbase Document | |
|
101
PRE |
Inline
XBRL Taxonomy Presentation Linkbase Document |
|
101
DEF |
Inline
XBRL Taxonomy Extension Definition Linkbase Document | |
|
104 |
Cover
Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |
| * |
Confidential treatment granted with respect to
certain portions of this Exhibit. |
| † |
Certain identified confidential information in
this Exhibit has been omitted because such identified confidential information is (i) the type the Company treats as private or confidential
and (ii) is not material. |
| ˄ |
Certain schedules and/or exhibits to this Exhibit
have been omitted in accordance with the instructions to Item 19 of Form 20-F. A copy of any omitted schedule and/or exhibit will be furnished
supplementally to the Securities and Exchange Commission or its staff upon request. |
(b)
Financial Statement Schedules.
All
financial statement schedules have been omitted because either they are not required, are not applicable or the information required therein
is otherwise set forth in the Company’s financial statements and related notes thereto.
Item
9. Undertakings.
|
(a) |
The
undersigned Registrant hereby undertakes: |
|
(1) |
To
file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: |
|
i. |
to
include any prospectus required by section 10(a)(3) of the Securities Act of 1933; |
|
ii. |
to
reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Filing Fee
Tables” table in the effective registration statement; and |
|
iii. |
to
include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement. |
|
(2) |
that,
for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof. |
|
(3) |
to
remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination
of the offering. |
|
(4) |
to
file a post-effective amendment to the registration statement to include any financial statements required by Item 8.A. of Form 20-F at
the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section
10(a)(3) of the Act need not be furnished, provided that the registrant includes in the prospectus, by means of a post-effective amendment,
financial statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in
the prospectus is at least as current as the date of those financial statements. |
|
(5)
|
that,
for the purpose of determining liability under the Securities Act of 1933 to any purchaser each prospectus filed pursuant to Rule 424(b)
as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses
filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used
after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is
part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify
any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such
document immediately prior to such date of first use.
| |
|
(6) |
that,
for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution
of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant
to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities
are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to
the purchaser and will be considered to offer or sell securities to such purchaser: |
|
i. |
any
preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; |
|
ii. |
any
free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the
undersigned registrant; |
|
iii. |
the
portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant
or its securities provided by or on behalf of the undersigned registrant; and |
|
iv. |
any
other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
|
(b) |
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities
and Exchance Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of
such issue. |
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form F-1 and has duly caused this to the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Tel Aviv, Israel, on February 9, 2024.
|
REDHILL BIOPHARMA, LTD. | ||
|
By: |
/s/ Dror Ben-Asher | |
|
Name: |
Dror Ben-Asher | |
|
Title: |
Chief Executive Officer and Director | |
POWER
OF ATTORNEY
KNOW
ALL PERSONS BY THESE PRESENTS, each director and officer whose signature appears below constitutes and appoints, Mr. Dor Ben-Asher and
Mr. Razi Ingber, and each of them, individually, as his or her true and lawful attorney-in-fact and agent, with full power of substitution
and re-substitution, to sign in any and all capacities any and all amendments or post-effective amendments to this registration statement
on Form F-1, and to sign any and all additional registration statements relating to the same offering of securities of the Registration
Statement that are filed pursuant to Rule 462(b) of the Securities Act, and to file the same with all exhibits thereto and other documents
in connection therewith with the Securities and Exchange Commission, granting such attorney-in-fact and agent full power and authority
to do all such other acts and execute all such other documents as he may deem necessary or desirable in connection with the foregoing,
as fully as the undersigned may or could do in person, hereby ratifying and confirming all that such attorney-in-fact and agent may lawfully
do or cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities
and on the dates indicated.
|
Signature |
|
Title |
|
Date |
|
/s/
Dror Ben-Asher |
|
Chief Executive Officer
and Chairman of the Board of Directors |
|
February 9, 2024 |
|
Dror Ben-Asher |
|
(Principal Executive
Officer) |
|
|
|
|
|
|
|
|
|
/s/
Razi Ingber |
|
Chief Financial Officer |
|
February 9, 2024 |
|
Razi Ingber |
|
(Principal Financial
Officer and Principal Accounting Officer) |
|
|
|
|
|
|
|
|
|
/s/
Ofer Tsimchi |
|
Director |
|
February 9, 2024 |
|
Ofer Tsimchi |
|
|
|
|
|
|
|
|
|
|
|
/s/
Shmuel Cabilly |
|
Director |
|
February 9, 2024 |
|
Shmuel Cabilly |
|
|
| |
|
|
|
|
|
|
|
/s/
Kenneth Reed |
|
Director |
|
February 9, 2024 |
|
Dr. Kenneth Reed |
|
|
|
|
|
|
|
|
|
|
| /s/ Eric Swenden |
|
Director |
|
February 9, 2024 |
|
Eric Swenden |
|
|
|
|
|
|
|
|
|
|
|
/s/
Alla Felder |
|
Director |
|
February 9, 2024 |
|
Alla Felder |
|
|
|
|
|
|
|
|
|
|
|
/s/
Rick Scruggs |
|
Director and Chief Commercial
Officer |
|
February 9, 2024 |
Rick Scruggs
SIGNATURE
OF AUTHORIZED REPRESENTATIVE IN THE UNITED STATES
Pursuant
to the requirements of the Securities Act of 1933, as amended, the registrant’s duly authorized representative has signed this Registration
Statement on Form F-1 on this 9th day of February, 2024.
|
|
REDHILL
BIOPHARMA INC.
Authorized U.S. Representative
By: /s/
Rick Scruggs
Name: Rick Scruggs
Title: President &
Chief Commercial Officer |
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