Company Overview

We are a clinical-stage biopharmaceutical company developing novel ribonucleic acid (RNA)-modulating drug candidates, each designed to be a eukaryotic ribosomal selective glycoside (ERSG), formulated to treat rare and ultra-rare premature stop codon diseases. Premature stop codons are point mutations that disrupt the stability of the impacted messenger RNA (mRNA) and the protein synthesis from that mRNA. As a consequence, patients with premature stop codon diseases have reduced levels of, or no, protein from a gene whose product performs an essential function. This type of mutation accounts for some of the most severe phenotypes across genetic diseases. Nonsense mutations have been identified in over 1,800 rare and ultra-rare diseases.  Read-through therapeutic development is focused on increasing functional protein synthesis by enabling the cytoplasmic ribosome to read through premature stop codons to produce full-length proteins. As opposed to a typical gene therapy approach of targeting a single, unique mutation in a target disease, this small molecule strategy enables targeting an entire class of mutations across the rare disease landscape. Our small molecule approach has the potential to address a range of different premature stop codons in a single gene since our ERSG compounds are targeted to the ribosomes. ELX-02, our lead investigational drug product candidate, is a small molecule designed to restore production of full-length functional proteins. ELX-02 is in clinical development for systemic administration for cystic fibrosis. ELX-02 is an investigational drug that has not been approved by any global regulatory body. We are also conducting IND-enabling preclinical studies of ERSG compounds for autosomal dominant polycystic kidney disease (ADPKD) and in rare inherited retinal disorders (IRDs) by intravitreal administration with an initial focus on Usher Syndrome.  Our preclinical candidate pool consists of a library of novel ERSG drug candidates identified based on read-through potential and cytoplasmic ribosomal selectivity. We hold worldwide development and commercialization rights to ELX-02 and other novel compounds in our read-through library, for all indications, in all territories, under a license from the Technion Research and Development Foundation Ltd. (“TRDF”).

In 2019, we advanced our clinical program for ELX-02 into Phase 2 studies in cystic fibrosis and nephropathic cystinosis following completion of our MAD (multiple ascending dose) study in healthy volunteers and renal impairment study in healthy volunteers as well as volunteers with mild, moderate, and severe renal impairment. The results from the MAD study were presented in 2019 at both the European Cystic Fibrosis Society clinical meeting and the North American Cystic Fibrosis Conference (NACFC).  The results have also been published in the Journal of Clinical Pharmacology in Drug Development in January of 2021. The results from the renal impairment study, were presented at the 2019 American Society of Nephrology (ASN) Kidney Week and published in December 2020 in the Journal of Clinical Pharmacology.  The results from the renal impairment study, provided support for both continuing our clinical development programs and evaluating the suitability of our ERSG library for development in additional renal diseases, including ADPKD.  

Our research and development strategy targets rare or ultra-rare diseases where a high unmet medical need exists, a nonsense mutation-bearing patient population is established, preclinical read-through can be established in predictive personalized medicine models, and a defined path through Orphan Drug development, regulatory approval, patient access and commercialization is identified. We believe patient advocacy is an important element of patient focused drug development, and we seek opportunities to collaborate with patient advocacy groups throughout the discovery and development process. Our current clinical program for our lead investigational drug product candidate, ELX-02, consists of Phase 2 studies in cystic fibrosis.

We intend to be the global leader in the application of the science of translational read-through and the associated pathway of nonsense mediated decay (NMD). We believe that expanding our expertise across these basic science areas of mRNA regulation, ribosomal function, and protein translation forms a solid foundation to support our discovery and development activities. Our ERSG compounds modulate the activity of the ribosome, a ribonucleoprotein complex of RNAs and proteins responsible for protein production (a process also known as translation). These novel small molecule ERSG compounds are designed to allow the ribosome to read-through a nonsense mutation in mRNA (which is transcribed from the DNA sequence), to restore the translation process to produce full-length, functional proteins and increase the amount of mRNA that would otherwise be degraded as part of a phenomenon called nonsense mediated mRNA decay. As our ERSG compounds target the general mechanism for protein production in the cell, we believe they have the potential to treat numerous genetic diseases where nonsense mutations have impaired gene function. Since nonsense mutations may occur at different positions within a given gene, a potential advantage of the small molecule ERSG approach is being able to use one molecule to address a range of mutations within a given disease state. Our subcutaneously injected ERSG molecules have the potential to be self-administered for systemic disease and to be active across many of the body’s tissues.

We believe that our library of related novel small molecules holds the potential to be disease-modifying therapies that may change the course of numerous genetic diseases and improve the lives of patients. Our early

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preclinical data in animal models of nonsense mutations suggests that drug product candidates from our read-through compound ERSG library may have potential beneficial effects for each of the following diseases: cystic fibrosis, nephropathic cystinosis, ADPKD, a variety of IRDs (including Usher Syndrome), primary ciliary dyskinesia, mucopolysaccharidosis type 1, Duchenne muscular dystrophy and Rett syndrome, and have demonstrated the potential for beneficial effects in multiple organs such as the brain, eye, kidney, lungs, muscles and others. Of the novel compounds in our ERSG library, approximately 30 compounds have been selected, based on read-through activity, for continued preclinical research and we anticipate additional compounds advancing toward Investigational New Drug (IND) filings.

Our scientific manuscript titled “ELX-02 generates protein via premature stop codon read-through without inducing native stop codon read-through protein” was published in the August 2020 issue of the Journal of Pharmacology and Experimental Therapeutics (JPET). This manuscript demonstrates that while ELX-02 mediates read-through of premature stop codons, the fidelity of native stop codons found at the end of healthy transcripts is maintained. This indicates that translation integrity is preserved with target-therapeutic exposure of ELX-02, consistent with the favorable tolerability profile across our preclinical and clinical data sets.

Currently, the clinical program for our lead investigational drug candidate, ELX-02, is focused on development for cystic fibrosis patients with diagnosed nonsense mutations. We have completed a Phase 1 single ascending dose (SAD) trial, a multiple ascending dose (MAD) trial, and a renal impairment study with healthy volunteers as well as volunteers having mild, moderate and severe renal impairment. The results of the SAD study were published in Clinical Pharmacology in Drug Development in January 2019. The results from the MAD study were presented in 2019 at both the European Cystic Fibrosis Society clinical meeting and the North American Cystic Fibrosis Conference (NACFC).  The results have also been published in the Journal of Clinical Pharmacology in Drug Development in January of 2021. The results from the renal impairment study were presented at the 2019 American Society of Nephrology (ASN) Kidney Week and published in December 2020 in the Journal of Clinical Pharmacology.    

Our scientific review written by Professor Eitan Kerem, M.D., Senior Attending Physician at the Hadassah CF Center in Jerusalem, Israel and Senior Medical Consultant to Eloxx, titled “ELX-02: an investigational read-through agent for the treatment of nonsense mutation-related genetic disease” was published in October 2020 by the Journal Expert Opinion on Investigational Drugs.  This manuscript details the development of ELX-02 for the restoration of functional protein in nonsense-mediated disease in support of our ongoing Phase 2 trials.

Our scientific manuscript titled “Targeting G542X CFTR Nonsense Alleles With ELX-02 Restores CFTR Function in Human-Derived Intestinal Organoids” was published in the Journal of Cystic Fibrosis in February 2021.  This manuscript reviews the results of our evaluation of ELX-02 mediated read-though, using the CFTR-dependent Forskolin-induced swelling (FIS) assay across a selection of G542X homozygous and heterozygous patient-derived organoids, ELX-02 increased CFTR activity in a dose-dependent fashion across a variety of forskolin induction concentrations. The functional increases are similar to those obtained with tezacaftor/ivacaftor in an F508del homozygous organoid. Additionally, ELX-02 treatment of these patient-derived organoids results in a 5-fold increase in CFTR mRNA when compared with vehicle treated, resulting in normalization of CFTR mRNA as measured using Nanostring.

Our Phase 2 cystinosis trial involved two sequential cohorts with three escalating doses in three patients per cohort. The first cohort enrolled three homozygous W138X patients ages 23 to 38, with prior kidney transplants and varying degrees of renal insufficiency. In January 2020, we announced positive data from the first cohort of the Phase 2 study of ELX-02 in the treatment of patients with nonsense mutation-mediated nephropathic cystinosis. The results of the first cohort met the primary safety endpoint and the reductions in white blood cell (WBC) cystine provided a clear indication of biologic activity in these patients at nominal doses > 0.5 mg/kg/day. Following review of the safety and pharmacokinetic data by an independent Safety Review Committee (SRC), the SRC approved progressing to the second cohort that would enable enrolling patients ages 12 and older. Due to study design limitations, patients across all dose groups had elevated and uncontrolled pretreatment WBC cystine levels which made it difficult to fully evaluate ELX-02-mediated WBC cystine reductions. Therefore, we have discontinued this study and will not proceed with the second cohort as contemplated in the original protocol.  We plan to continue to review these data with a panel of scientific and clinical experts to determine appropriate modifications for a possible new study design.

The clear indications of biologic activity in this study provide human clinical proof of concept for ELX-02 and de-risk other clinical applications of our ERSG library using this dosage range. These encouraging results also

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provide a basis for expansion to studies of additional kidney diseases caused by nonsense mutations, such as ADPKD.

Our Phase 2 cystic fibrosis clinical trial program for ELX-02 is being conducted at leading global investigator sites in Europe, Israel and the United States. On March 25, 2020, we announced that enrollment in these trials had been paused temporarily in response to the global COVID-19 pandemic in order to avoid unnecessary exposure in at-risk populations, to maintain the integrity of our study data and to support global healthcare providers in their commitment to ensure patient safety. On June 17, 2020, we announced that enrollment had been resumed in Israel and Europe, and on August 12, 2020, we announced that enrollment had been resumed in the U.S.  The COVID-19 pandemic continues to evolve, and we continue to work closely with our clinical sites and investigators. We are also evaluating additional clinical sites in other countries where patient enrollment may be feasible. We remain committed to completing enrollment in these Phase 2 proof of concept clinical trials and reporting top line data in the first half of 2021, which is contingent on no further disruptions due to the COVID-19 pandemic. Several planned Safety Review Committee meetings have occurred and allowed dose escalation up to the top dose level with no drug-related serious adverse events reported to date. Multiple patients have progressed through the four-dose escalation range. The Cystic Fibrosis Foundation (“CF Foundation”) is providing funding for a portion of the U.S. program and in December of 2020, expanded its support to include our global clinical trial program. We have since formed a joint program advisory group with the CF Foundation focused on the development of ELX-02 for cystic fibrosis. The Cystic Fibrosis Therapeutics Development Network (“TDN”) has sanctioned the Phase 2 study protocol, which is being conducted at TDN member sites. Additional information about our clinical trials can be found at www.ClinicalTrials.gov (Identifiers: NCT04126473 and NCT04135495).

Professor Eitan Kerem, M.D., former Head of the Division of Pediatrics, Children’s Hospital, Hadassah Medical Center in Israel, has joined Eloxx as a Senior Medical Consultant. For the U.S. trial, Dr. Ahmet Uluer, Director of the Adult Cystic Fibrosis Program at the Boston Children’s Hospital/Brigham and Women’s Hospital CF Center, is the lead study investigator. The protocols have been sanctioned by the TDN in the U.S. and the European Cystic Fibrosis Society Clinical Trial Network (which has given our Europe/Israel trial a “high priority” ranking).  During October 2019, we completed an interim CMC review meeting with the U.S. Food and Drug Administration (the “FDA”) and we have gained alignment with the agency on our manufacturing formulation and process, which we believe will be suitable for our expected drug supply needs through completion of our pivotal trials. The in-person ECFS conference in Lyon, France scheduled for June 2020 was cancelled, and we withdrew our abstract. We presented data from two scientific abstracts at the North American Cystic Fibrosis Virtual Conference (NACFC). The two abstracts were also showcased in the NACFC virtual poster gallery and electronically published as a supplement to Pediatric Pulmonology. The live sessions and discussions took place through October 23, 2020. These virtual posters are available to registered attendees on the NACFC online conference platform. The preclinical study results demonstrate ELX-02’s selectivity for read-through of premature stop codons versus native stop codons and its ability to restore production of functional CFTR in patient-derived organoids.

We believe there is a significant unmet medical need in the treatment of cystic fibrosis patients carrying nonsense mutations on one or both alleles of the CFTR gene. Cystic fibrosis is the most prevalent genetic disease in the western world and there are no currently approved therapies that target the impairment associated with Class 1 CFTR mutations. We believe that nonsense mutations may impact a similar proportion of patients diagnosed with cystinosis. Given the high proportion of pediatric patients in many rare orphan diseases, we intend to apply for relevant Orphan Drug incentives in the U.S. and Europe, including the Rare Pediatric Disease Priority Review Voucher in the U.S. Currently, the European Medicines Agency (the “EMA”) has designated ELX-02 as an orphan medicine for the treatment of cystic fibrosis and mucopolysaccharidosis type I (MPS I).  The FDA had previously granted orphan drug designation to ELX-02 for the treatment of nephropathic cystinosis, MPS I, and Rett syndrome, and on August 4, 2020, we announced that the FDA had granted orphan drug designation for ELX-02 for the treatment of cystic fibrosis. The FDA’s Office of Orphan Drug Products grants orphan status to support the development of medicines for underserved patient populations, or rare disorders, that affect fewer than 200,000 people in the U.S.  Orphan drug designation provides certain benefits, including seven years of market exclusivity upon regulatory approval (if received), exemption from FDA application fees, tax credits on qualified U.S. clinical trials and eligibility for grant funding opportunities that can be used for clinical trial costs.

We are also evaluating the suitability of our ERSG library for development in renal diseases associated with nonsense mutations, such as ADPKD. ADPKD is a relatively common inherited genetic kidney disease occurring in between one in 400 and one in 1,000 patients and is the fourth leading cause of end-stage renal disease in the U.S. Over 25% of the primary genetic changes that cause ADPKD are nonsense mutations, where a premature stop codon in the gene leads to a truncated, often unstable, protein. We have evaluated the three most relevant ADPKD nonsense mutations in an in vitro read-through assay and have demonstrated significant levels of read-through for ELX-02 and several library compounds, which is the first step in our preclinical development toward an IND.

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We continue to progress our ERSG pipeline in IRDs, another area of high unmet medical need, that are associated with vision loss and blindness. There are over 300 IRDs associated with nonsense mutations. In 2020, we reported on a critical milestone demonstrating that several of our library compounds successfully reach retinal disorder-relevant tissue layers and can restore protein production in an animal model. These data support the suitability of our ERSG compounds for reaching and promoting read-through in target cells within the retina. We presented data at the Association for Research in Vision and Ophthalmology (ARVO) Annual Meeting in May 2020, which was held virtually.  Our IRD research also includes exploring multiple sustained release formulation technologies, and in vitro release rates achieved to date have been consistent with our target release profile of one to three months. Our scientific manuscript titled “Intravitreal administration of small molecule read-through agents demonstrate functional activity in a nonsense mutation mouse model” was published in October 2020 by the Journal of Experimental Eye Research. This manuscript demonstrates that multiple small molecules in our ERSG library mediate dose-dependent read-through at the back of the eye after a single intravitreal injection. Collectively, our manuscripts demonstrate the wide-ranging potential of our small molecule read-through approach to rare genetic disorders mediated by nonsense mutations; from targeted delivery for inherited retinal disorders to systemic delivery for multi-system disorders like cystic fibrosis.

On February 24, 2020, our Board of Directors approved a leadership and organizational realignment aimed at supporting our efforts to improve operating performance and concentrate development efforts on our core programs.  The organizational realignment reduced managerial layers and consolidated roles across the organization, resulting in the elimination of 13 full-time positions during the first quarter of 2020.  We incurred a resulting one-time pre-tax charge of $4.0 million during the first quarter of 2020.

Our Technology

Nonsense mutations, also known as premature termination or stop codons, are single point mutations within the DNA sequence which are either inherited or acquired that result in the premature termination of the translational process leading to truncated or absent proteins. Nonsense mutations are involved in a large number of genetic diseases such as cystic fibrosis, nephropathic cystinosis, ADPKD, primary ciliary dyskinesia, and an estimated 300 IRDs, including Usher Syndrome. According to the Human Gene Mutation Database (http://www.hgmd.cf.ac.uk/ac/index.php), nonsense mutations account for approximately twelve percent (12%) of patients with a given genetic disease. The disease phenotypes caused by nonsense mutations are frequently more severe than those caused by other kinds of mutations because these mutations often lead to a complete loss of protein production or function. In general, these diseases do not have specific therapies beyond symptomatic and palliative interventions.

In eukaryotic cells, the cytoplasmic ribosome is responsible for the production of proteins by a process called translation. As part of the translation process, the genetic information stored in DNA is transcribed to mRNA to specify the sequence of amino acids, the building blocks of protein, required to produce a functional product. The mRNA is decoded by a complex known as the ribosome in the cytoplasm of the cell. The ribosome ratchets along the mRNA and matches three nucleotide stretches, referred to as a codon, with a corresponding aminoacyl transfer RNA (a-tRNA) which carry the correct amino acid to add onto the growing protein chain.

Normal translation termination in eukaryotic cells occurs when a native (canonical) termination codon enters the ribosomal decoding region. The ribosome pauses at these special termination sequences, since there are no complementary a-tRNA for these codons. A complex of termination factors, including eRF1 and eRF3, will next bind to the ribosome and initiate the release of the newly synthesized protein.

When a nonsense mutation occurs, a single DNA nucleotide is substituted for the typical nucleotide, changing a codon for an amino acid into a stop codon. For example, a tryptophan “TGG” codon may be changed to read “TGA” or “TAG”, either of which would result in a premature termination signal for the protein. While non-functional, truncated proteins can result from this type of mutation, more often the protein product is unstable and degraded. Since most genes have two copies (referred to as alleles) within the genome, a nonsense mutation on a single copy may be compensated if the other copy still codes for a functional protein. However, when mutations occur on both alleles, disease may occur. The two mutations can be the same mutation (homozygous) or two different disease-causing mutations (heterozygous).  

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Cells have a system to detect nonsense mutation bearing mRNA copies and remove them from the cell. This process is called nonsense mediated mRNA decay. During the first round of translation, the ribosome removes proteins that are found along the newly made mRNA at regions called exon-exon borders. These regions are remnants of a splicing process that occurs in the nucleus while the RNA is being transcribed. If a stop codon is found by the ribosome during this first round of translation in a location before the last of these exon-exon junction protein complexes, the mRNA is targeted for degradation. Therefore, nonsense mutations result in a “double hit” for the gene, unstable mRNA and reduced functional protein (shown in Figure 1 below).    

Figure 1: Nonsense Mutations Cause Unstable mRNA and Reduced Functional Protein

Read-through of nonsense mutations is a naturally occurring process that can be attributed to the redundancy “wobble” in the three-nucleotide codon structure. Native read-through occurs in up to 1% of instances in which a ribosome pauses at a stop codon. During read-through, either the typical healthy or a near-cognate substitute tRNA out-competes the termination factor complex to enable the insertion of an amino acid and continuation of translation. By directly binding to the ribosome decoding region, ELX-02 enhances the likelihood of this process by increasing the probability of a tRNA to out-compete the termination complex. As read-through allows the ribosome to proceed with translation through the premature stop, a reduction in nonsense mediated decay and stabilization of the mRNA pool is an additional expected outcome of this process (shown in Figure 2 below). Indeed, ELX-02 is found to increase both the mRNA and functional protein across multiple nonsense mutations. Beyond ELX-02, multiple compounds within our ERSG library demonstrate results consistent with this mechanism of action.

Figure 2: Read-through Allows the Ribosome to Proceed with Translation through the Premature Stop, Reducing mRNA Decay and Increasing the Translation of Functional Protein

We believe that the segment of cystic fibrosis, nephropathic cystinosis, ADPKD, and IRD patients with diagnosed nonsense mutations on one or both alleles represents a high unmet medical need as there are currently no approved therapeutics targeting the impairment caused by these mutations. There are existing in vitro assays, animal models and/or biomarker screens that have been demonstrated to be useful in assessing the potential therapeutic benefit of development compounds for these disease states. The design of clinical trials and the endpoints for measuring clinical benefit have been established for the currently approved therapeutics for these disorders. We believe these to be attractive development targets based on the potential use of these precedents to de-risk the program.

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Current Data Indicating the Mechanism of Action of ELX-02

ELX-02 is a novel ERSG with increased selectivity for the eukaryotic ribosome. In contrast, aminoglycoside antibiotics, such as gentamicin, are potent antibiotics that bind with high affinity to the decoding site in the prokaryotic ribosome and inhibit protein translation in bacteria as well as the eukaryotic ribosomes. The early observations of eukaryotic read-through activity were made in patients treated with aminoglycosides due to bacterial infections. In eukaryotic cells, aminoglycosides may induce a conformational change that reduces the codon-anticodon recognition, enhancing the ability of an a-tRNA to compete with the release factor complex for binding to the premature termination codon and increasing the probability that translational read-through of premature termination codons occurs. However, despite the promising clinical observations of read-through activity, aminoglycoside antibiotics use as a read-through therapy is restricted since aminoglycosides may cause damage to the kidney and ear after prolonged administration. The effect of aminoglycoside antibiotics on the hair cells of the ear and the proximal tubular cells of the kidney may be attributed, in part, to the inhibition of mitochondrial protein production in these cells.  Due to the markedly decreased affinity for the prokaryotic and mitochondrial ribosomes, ERSG compounds have little of the antibiotic activity associated with aminoglycosides. When compared in laboratory tests to gentamicin (a classic aminoglycoside antibiotic), ELX-02 has shown a 100-fold lower antibacterial activity and nine-fold higher read-through activity for nonsense mutations; this has been attributed to higher selectivity towards the eukaryotic cytoplasmic ribosome. Because ERSGs are selective for the eukaryotic cytoplasmic ribosome and have markedly decreased affinity for the mitochondrial ribosome, ERSGs are anticipated to show an acceptable safety and tolerability profile for chronic use. We believe that our library of ERSG compounds has the potential to show improved read-through activity with a reduced potential for impairment of the mitochondrial ribosome and may have an improved safety profile.

ERSGs with improved selectivity for the eukaryotic cytoplasmic ribosome are expected to demonstrate improved rates of full-length protein translation and a reduction in triggered nonsense mediated decay. By binding to the cytoplasmic ribosome and reducing ribosomal stalling, ERSGs are expected to demonstrate increases in mRNA and full-length protein production. Therefore, our read-through activity screening program has used these endpoints to evaluate our compound library portfolio.

Using a well-characterized cell line bearing a nonsense mutation, we are evaluating our compound library for both read-through mediated protein restoration and stabilization of mRNA. While plasmid-based evaluations offer a convenient methodology to evaluate across disease related mutations, this approach is limited to demonstrating the potential for protein restoration alone. Therefore, we have focused on using our molecules to detect read-through of a native mutation, which is subject to nonsense mediated decay, in order to better model an actual disease setting. In this cell line, the protein of interest and its mRNA are significantly reduced. We evaluated a subset of our compounds in the cell by quantitative polymerase chain reaction (qPCR), western blot protein analysis and for proper localization of the restored protein by immunofluorescence. Consistent with our overall hypothesis, we have found that molecules in our library significantly increase both the mRNA (dose-dependent increases of 30-fold over vehicle control) and protein of interest (increased normalized full-length protein 4.7-fold over vehicle control) as well as the protein’s proper sub-cellular localization. In addition to supporting our overall mechanism of action hypothesis, these studies have enabled us to develop a robust (z’ factor = 0.88), high-throughput assay within this system to further evaluate compound-mediated read-through across our library.

Our mechanism of action is further supported within disease-relevant model systems, further detailed below. In vitro models of nephropathic cystinosis and cystic fibrosis demonstrate dose-dependent increases in target mRNA as well as significant increases in functional protein. Unlike previous read-through programs reported by other groups, our compounds have consistently demonstrated activity against both of these hallmark consequences of nonsense mutations. This understanding of our compounds’ activity has enabled our clinical development programs to move forward with confidence.

Scope of Activities

We intend to be the global leader in the application of the science of translational read-through and the associated pathway of NMD.

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Cystic Fibrosis

Cystic fibrosis (CF) is the most prevalent genetic disease in the western world and affects an estimated 70,000 to 100,000 patients worldwide, with the vast majority of affected individuals in the U.S., Canada, Europe, and Australia. CF is the most common fatal inherited disease in Caucasians. The incidence of CF varies across the globe ranging between one in 3,500 births in the U.S. and one in 2,000 to 3,000 births in Europe and Australia.

Approximately 12% of CF patients carry a nonsense mutation on the CFTR gene. CF is a progressive disease caused by a deficiency in CFTR activity with insufficient ionic transconductance in the cell membrane, which, in turn, leads to the accumulation of thick mucus in vital organs, particularly the lungs, pancreas and gastrointestinal tract. As a result, CF patients experience respiratory infections, chronic lung inflammation, and poor absorption of nutrients as well as many other conditions, and, in most cases, progressive respiratory failure. The life expectancy of CF patients has improved, and the CF Foundation has reported that a person born with cystic fibrosis (CF) between 2014 and 2018 can expect to live an average of 44 years.  

CF occurs at a rate of one in 2,500 to 6,000 births, depending on the region and ethnic origin. Patients with CF caused by nonsense mutations have some of the most severe forms of the disease and, other than palliative therapies, no treatment currently exists for them.  Mutations in the gene that encodes CFTR protein, which plays a critical role in regulating the viscosity of the mucus layer that lines human organs, cause CF. The CFTR protein forms an ion channel that regulates the flow of ions in and out of the cells of vital organs such as the lungs, pancreas and gastrointestinal tract. We refer to this as ion flow. In tissues like these, CFTR protein conducts ions leading to osmosis as water is drawn out of the cell hydrating the cell surface. Through regulation of the location of the ions across the cell membrane, the amount of salts in the fluid both inside and outside the cell remains balanced.

In CF patients, the CFTR gene is defective, and as a result, CF patients lack the functional CFTR protein ion channel necessary to regulate ion flow. An altered ion concentration gradient between the inside and the outside of the cell reduces the amount of water molecules outside the cell, causing the accumulation of thick mucus on the epithelial surface as shown below in Figure 3.

Figure 3: Ion Flow in Normal CFTR Protein Compared to Mutant CFTR Protein

The deficiency in CFTR protein activity in CF patients is particularly problematic in the lungs, where the build-up of thick mucus obstructs airflow and impairs proper immune response, which leads to chronic infection and persistent inflammation. In the pancreas and the gastrointestinal tract, the build-up of mucus prevents the release of digestive enzymes that help the body break down food and impairs the absorption of nutrients, resulting in poor growth and development.

Cystinosis

Cystinosis is an ultra-rare autosomal recessive lysosomal storage disease. Mutations in the CTNS gene (cystinosin), on the short arm of chromosome 17 (17p13), cause the primary defect in the disease. Cystinosin is a ubiquitous cystine-selective transport channel in the lysosomal membrane. Loss-of-function mutations prevent cystine efflux from the lysosome, causing massive accumulation of intra-lysosomal cystine in tissues throughout the body, and lead to apoptotic cell death, impaired physiology and end organ damage.

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Affected children may appear fairly well until the age of 4 to 6 months, when progressive dysfunction and atrophy of the proximal renal tubule cause Fanconi syndrome and failure to thrive. By 10 to 12 years of age, dialysis or kidney transplantation is required to treat end-stage renal disease. Although the renal allograft is spared, lifespan is diminished by the inexorable dysfunction of other organs.

The most common nonsense mutation in the CTNS gene is W138X, which has an overall incidence rate of one in every 62,500 live births in Quebec, Canada.

Current treatment includes cysteamine bitartrate (Cystagon^® or Procysbi^®). Cystagon was approved in the U.S. and Europe in 1994 and Procysbi was approved in the U.S. and Europe in 2013. Both therapies delay but do not cure the condition and despite treatment, patients eventually require dialysis and renal transplantation and experience significant morbidity in other organ systems. See above for information about our Phase 2 clinical trial in nephropathic cystinosis.

Autosomal Dominant Polycystic Kidney Disease

Polycystic Kidney Disease (PKD) is a progressive genetic disorder causing the growth of cysts in the kidneys, reducing kidney function and ultimately leading to kidney failure or end stage renal disease. It is found in all races and occurs equally in men and women. The autosomal dominant form of polycystic kidney disease (ADPKD) is the most common genetic nephropathology, accounting for 5 to 8% of end stage renal disease. Worldwide, ADPKD affects approximately 4 to 7 million individuals and accounts for 7 to 15% of patients on renal replacement therapy. In North America and Europe, ADPKD is responsible for 6 to 10% of end stage renal disease cases. It is estimated that one per 800 to 1,000 in the population carries a mutation for this condition.

Approximately 85 to 90% of patients with ADPKD have the mutations in the PKD1 gene; most of the remaining patients have the PKD2 gene.  Estimates suggest over 30% of ADPKD mutations are nonsense variants and therefore represent a favorable target for read-through therapeutics given the large patient population, substantial subset of nonsense mutations, disease severity and limited treatment options. We have evaluated the three most relevant ADPKD nonsense mutations in an in vitro read-through assay and have demonstrated significant levels of read-through for ELX-02 and several library compounds which is the first step in our preclinical development toward IND.

Inherited Retinal Disorders

Inherited retinal disorders (also called inherited retinal dystrophies, or IRDs) are a group of rare eye disorders caused by inherited gene mutations which can result in vision loss or blindness. Some IRDs, such as Retinitis Pigmentosa (RP), Usher Syndrome, or Choroideremia (CHM) are associated with a gradual loss of vision, eventually leading to complete blindness. In other conditions such as Leber’s Congenital Amaurosis (LCA), patients may be born with or experience vision loss in infancy or early childhood.

Usher Syndrome is the most common genetic disorder involving hearing and vision abnormalities and is the most common cause of deafness-blindness with visual impairment due to photoreceptor degeneration. Three types of Usher Syndrome have been identified based on genetic causes, severity of hearing loss and age of onset. USH1 patients are typically born with severe hearing loss and are diagnosed early in life with vision problems beginning at or before age 10. USH2 patients are characterized by progressive hearing loss from birth, with onset of vision loss at adolescence. USH3 has the slowest progression, with vision loss developing in the second decade of life. In most countries, USH1 accounts for one-third of all patients with USH2 accounting for about two-thirds of all USH patients. U.S. prevalence is estimated at approximately 6,200 Type 1 and approximately 8,900 Type 2 patients. It is estimated that there are over 4,000 patients in North America with nonsense forms of Usher Syndrome. Effective read-through has been demonstrated in vitro for USH2A (USH2), PCDH15 (USH1) and USH1C (USH1) nonsense mutations. USH2A nonsense variants are estimated to affect more than 2,500 patients in the U.S. alone. There are four USH2A splice site variants, with the largest having over 70 exons, potentially limiting gene therapy development due to vector size limitations.

RP causes night blindness in adolescence and gradual visual field loss in adulthood (most patients are legally blind by age 40). RP can occur as a localized disorder with visual impairment only, or as part of a broader syndrome (e.g., Usher Syndrome). More than 50 different causative genes have been identified and the U.S. incidence is estimated at approximately 67,000 patients. Given this high genetic heterogeneity even in nonsense mediated disease (no single gene comprises more than 10% of RP cases), there is a significant need to identify broader cross-gene therapies.  Read-through proof of principle has been shown via in vitro models of USH2A, RHO, MERTK, and RP2 nonsense mutation variants, with 5 to 20% rescue of protein function demonstrated.

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In December 2017, the FDA approved Spark Therapeutics’ LuxturnaÒ as the first gene therapy for retinal dystrophy caused by mutations in the RPE65 gene and targeting approximately 1,000 to 2,000 patients with confirmed biallelic RPE65 mutation-associated retinal dystrophy. While many gene therapies focus on specific IRDs, many target genes share related ocular disease pathways, suggesting a broader gene-agnostic approach may provide greater treatment opportunities. IRDs such as Usher Syndrome and RP represent favorable targets for read-through therapeutics given the high unmet need and the opportunity to target multiple nonsense mutations across a variety of genes. Read-through therapeutics offer potential treatment for patient subsets not addressed by gene therapy due to gene size or small patient subsets.

Primary Ciliary Dyskinesia

Primary Ciliary Dyskinesia (PCD) is a genetically heterogeneous disease which is predominantly inherited as an autosomal recessive disorder. PCD is associated with abnormal ciliary function resulting in impaired mucociliary clearance, recurrent/chronic upper and lower respiratory tract infection and male infertility. PCD prevalence is estimated to involve one in 20,000 individuals; however, disease symptom variability and low familiarity with PCD likely leads to substantial patient under-diagnosis. PCD patient treatment largely focuses on airway clearance (devices and aerosolized therapies), infection control (anti-microbial therapy), and inflammation control (antibiotic therapy). There have been few randomized trials of PCD treatment to date.

More than 30 different genes have been identified to be causative for PCD with approximately 25% of identified gene mutations having nonsense mutations. In vitro studies of aminoglycoside-mediated read-through in PCD nonsense mutations found positive read-through efficacy in several UGA-associated stop codons. PCD is an attractive disease target given the high unmet medical need, positive preclinical read-through data, potential for treatment across multiple genes, high prevalence of nonsense mutations, and lack of disease modifying treatments.

Other Nonsense Mediated Genetic Disorders

Muscular dystrophies are genetic disorders involving progressive muscle wasting and weakness. Duchenne muscular dystrophy (DMD) is the most common and one of the most severe types of muscular dystrophy with the average age of death for DMD patients in the mid-twenties. DMD occurs when a mutation in the dystrophin gene prevents the cell from making a functional dystrophin protein. Because the dystrophin gene is located on the X chromosome, DMD occurs almost exclusively in young boys. Genetic tests are available to determine if a patient’s DMD is caused by a nonsense mutation. Based on a publication from Prior, et al. (1995) in the American Journal of Human Genetics, it is estimated that a nonsense mutation is the cause of DMD in approximately 13% of patients. Treatments for DMD include Translarna™ (ataluren), approved in the European Union (“EU”) for the treatment of the underlying cause of DMD. EXONDYS 51® (eteplirsen) injection is also approved in the U.S. for the treatment of DMD patients with exon 51 skipping mutations.

Mucopolysaccharidosis type I (MPS I) is a chronic, progressive genetic disorder caused by a deficiency of the enzyme alpha-L-iduronidase (IDUA). Children with severe MPS I often die in the first decade of life due to respiratory failure, cardiac valvulopathy, and cardiorespiratory problems. The deficiency of the IDUA enzyme leads to the accumulation of a class of molecules called glycosaminoglycans (GAGs). The accumulation of GAGs causes disruption in the movement of molecules inside the cell and leads to the subsequent dysfunction of cells, tissues and organs. Globally, MPS I occurs in about one in every 100,000 births for the severe form and one in 500,000 for the attenuated form. About 70% of MPS I patients carry one of two nonsense mutations: Q70X and W402X. Estimates suggest that 50 to 80% of all MPS I patients present with the severe versus attenuated form of the disease. MPS I disease-specific treatments include enzyme replacement therapy and hematopoietic stem cell transplantation.

Rett syndrome is a X-linked neurodevelopmental disorder that predominantly affects girls and has a worldwide incidence of one in every 10,000 to 15,000 female births. The condition generally follows normal development in the first 6 to 18 months of age, followed by a period of regression in language and motor skills including repetitive stereotyped hand movements. Rett syndrome patients also have numerous comorbidities that are thought to contribute to a shortened lifespan. There is a high unmet medical need in Rett syndrome given no current treatment exists for the underlying cause of the disease. Loss-of-function mutations in the gene encoding the transcriptional regulator methyl-CpG binding protein 2 (“MECP2”) account for most cases of Rett syndrome. Nonsense mutations in the MECP2 gene account for approximately 30% of Rett syndrome cases. The most prominent nonsense mutations found in Rett syndrome, R168X, R255X, R270X and R294X, are all caused by a change of arginine to the stop codon, UGA. 

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Status of Clinical Programs

We have completed our Phase 1a and Phase 1b studies of ELX-02. In support of our Phase 2 studies currently underway, we have advanced our global health authority interactions and manufacturing activities.

Phase 1 Clinical Studies

We completed a Phase 1 program in healthy volunteers designed to support studies of ELX-02 in patient populations in any indication caused by nonsense mutations and assess the safety of ELX-02. This phase of testing included a small number of healthy volunteers. The studies assessed the effects of ELX-02 on humans and measured bioavailability, excretion, safety and side effects, as well as the pharmacokinetics (what the body does to the drug) with increasing doses. Our Phase 1 studies included SAD and MAD studies.

The Phase 1a SAD study was completed in 2018 and the results were published in Clinical Pharmacology in Drug Development in January 2019. The SAD study included five doses of ELX-02 ranging from 0.3 mg/kg to 7.5 mg/kg in order to determine the pharmacokinetic profile and safety from single administration. ELX‐02 was shown to be generally well tolerated over the dose range with no observations of renal toxicity. During the study, observations of transient adverse events resulting from ELX-02 administration were mild with the exception of a single moderate auditory adverse effect of interest but of unclear physiological significance and without clinical impact. Overall the results were supportive of continued clinical development.        

In 2019, we completed a Phase 1b MAD study for ELX-02. The study was designed as a randomized, double-blinded, placebo-controlled, multiple dose escalating study in healthy subjects. The study was expanded to include additional cohorts to evaluate lower drug concentrations and/or administration schedule.  In addition, we completed a renal study with ELX-02 in subjects with mild, moderate, and severe renal impairment. The results from the renal impairment study provided support for both continuing our clinical development programs and evaluating the suitability of our ERSG library for development in additional renal disorders, including ADPKD and cystinuria.

The results from the MAD study were presented in 2019 at both the European Cystic Fibrosis clinical meeting and the North American Cystic Fibrosis Conference (NACFC).  The results have also been published in the Journal of Clinical Pharmacology in Drug Development in January of 2021. The results from the renal impairment study were presented at the 2019 American Society of Nephrology (ASN) Kidney Week and published in December 2020 in the Journal of Clinical Pharmacology.    

Phase 2 Clinical Studies

Currently, our Phase 2 clinical trial program for our lead investigational drug candidate, ELX-02, is focused on development for cystic fibrosis patients with diagnosed nonsense mutations.

Our Phase 2 program for ELX-02 is actively dosing patients and continuing to enroll patients at leading global investigator sites in the U.S., Europe and Israel. We expect to achieve full enrollment and report top line results during the first half of 2021. The CF Foundation is providing funding for a portion of the US program and in December of 2020, expanded its support to include our global clinical trial program. We have since formed a joint program advisory group with the CF Foundation focused on the development of ELX-02 for cystic fibrosis.

For the U.S. trial, Dr. Ahmet Uluer, Director of the Adult Cystic Fibrosis Program at the Boston Children’s Hospital/Brigham and Women’s Hospital CF Center, is the lead study investigator. The protocols have been sanctioned by the TDN in the U.S. and the European Cystic Fibrosis Society Clinical Trial Network (which has given our Europe/Israel trial a “high priority” ranking). In October 2019, we completed an interim CMC review meeting with the FDA, and we have gained alignment with the agency on our manufacturing formulation and process, which we believe will be suitable for our expected drug supply needs through completion of our pivotal trials.

Status of Preclinical Programs

We have completed a comprehensive series of preclinical studies to assess the safety, pharmacokinetics and pharmacology of ELX-02. In addition, we have verified read-through activity of additional library molecules and identified a set of promising candidate molecules to evaluate across new indications such as ADPKD. We have also continued our preclinical assessment of activity of our ELX compounds in IRDs, validating read-though activity against several Usher Syndrome mutations and initiating ocular tolerability and IND-enabling studies. We are also progressing preclinical development of our compounds in ADPKD.

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Safety and Pharmacokinetic Studies of ELX-02

A comprehensive toxicology program in accordance with the ICH guideline M3 (R2) was completed for ELX-02 to support clinical studies.

In definitive, 28-day, repeat-dose toxicity studies in rats and dogs, ELX-02 had little or no effect on body weight, food consumption, clinical signs of toxicity, ophthalmology, cardiovascular parameters, hematology or coagulation parameters. At dose levels higher than those intended for humans, ELX-02 has no cochlear toxicity as evidenced in anatomic and functional hearing studies in 28-day rat studies. We completed 3-month toxicology studies in juvenile rats and in young dogs, as well as chronic toxicology studies in these two species for 6 and 9months, respectively. These studies showed no mortality and no significant in-life toxicity. ELX-02 was not genotoxic in the core battery of in vitro and in vivo genotoxicity assays. Collectively, these results support the human lifetime use of ELX-02. ELX-02 is 98% bioavailable following sub-cutaneous administration. Additionally, ELX-02 does not undergo metabolization and is excreted unchanged almost exclusively via the urine.

Pharmacology Studies of ELX-02

We have conducted a series of preclinical studies to demonstrate the primary pharmacodynamics of ELX-02 in several genetic disease indications. We have tested the translational read-through capabilities of ELX-02 in vitro and in vivo, in cells and in animal models of nonsense mutations.

We have shown the in vitro read-through activity of ELX-02 in an array of plasmids engineered to contain nonsense mutations of genetic diseases and in cell-based models of CF, cystinosis, DMD, MPS I, and Rett syndrome.

In CF, ELX-02 induced about 30% of wild-type CFTR levels after 48 hours in heterozygous G542/F508del human bronchial epithelial cells. In the G542X transgenic mouse, ELX-02 showed an approximate 5-fold increase in CFTR activity compared to control after twice weekly treatment for four weeks with 60 mg/kg.

In order to evaluate read-through across a series of CF genotypes, we initiated a program to evaluate restoration of CFTR activity in patient-derived organoids. An organoid is a three-dimensional, multi-cellular in vitro system derived from stem cells isolated from rectal biopsies. When grown suspended in an extracellular matrix substrate, the cells adopt a polarized endothelial spheroid structure. CFTR protein localizes to the apical surface (the inner surface of the sphere) and is capable of driving chloride ions into the inner lumen. When an ion imbalance, relative to the ion concentration surrounding the organoid is present, water is driven into the inner lumen of the organoid as a means to equilibrate the concentration. This action results in the swelling of the organoid, a function measurable by high-content imaging. Similar to measuring CFTR conductivity in other systems, such as human bronchial epithelial cells, CFTR activity is stimulated in the organoid system with forskolin to produce cyclic adenosine monophosphate, a signaling molecule that stimulates CFTR channel activity. Organoids derived from nonsense mutation CF patients lack apparent swelling in this system due to their lack of functional CFTR. As a stem cell derived system, organoids are a renewable model permitting repeat testing from a single patient’s biopsy. We partner with Hubrecht Organoid Technology (HUB), a not-for-profit organization founded out of the Hubrecht Institute, KNAW and University Medical Center Utrecht in the Netherlands to evaluate the nonsense-bearing CF patient organoids in its biobank. These studies demonstrate that across the most common CF causing nonsense alleles (G542X, W1282X, R553X, R1162X, R1066C and E60X) accounting for greater than 75% of the CF nonsense allele population, ELX-02 significantly increases CFTR function and CFTR mRNA in a dose dependent fashion. ELX-02 mediated CFTR function is observed in both homozygous and complex heterozygous nonsense bearing patient-derived organoids. ELX-02 is the first clinical development candidate molecule to demonstrate activity against these nonsense mutations in the organoid model system. Activity in the organoid swelling assay is dependent on both proper production and localization of functional CFTR protein; therefore, the activity observed with ELX-02 supports that the CFTR protein resulting from read-through of these mutations is both functional and localized to the correct cellular location. CFTR mRNA levels were monitored by NanoString, which demonstrated that G542X and W1282X CF organoids have the expected reduction in CFTR mRNA resulting from nonsense mediated decay. ELX-02 increased CFTR mRNA dose-dependently to the range observed in healthy organoids. While approved CF therapies lack efficacy against this type of CF mutation, organoids with responsive mutations (e.g. G551D, F508del) demonstrate activity in the organoid swelling assay in a manner that correlates with clinical responsiveness in informative endpoints such as FEV1 and sweat chloride change. When considering the ELX-02 results with the correlation reports of other approved molecules in this assay, the response mediated by ELX-02 read-through meets or exceeds the activity necessary to significantly improve FEV1 and sweat chloride concentration.  We continue to evaluate new organoid genotypes in an effort to prioritize additional nonsense alleles for inclusion in future clinical trials.  

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Eloxx is a member of the European HIT-CF project consortium, a European Union-funded preclinical and clinical research program evaluating the efficacy and safety of disease modifying drug candidates, including ELX-02, in CF patients with rare genetic mutations. The goal of the project is to investigate whether a positive response to therapies in a patient derived organoid can be predictive of clinical response in a controlled trial.

HIT-CF represents a new era in CF treatment and personalized medicine, as it has the potential to shift therapeutic trials from patients to the laboratory. HIT-CF has informed Eloxx that over 100 organoids from unique individuals with rare nonsense mutations have already been enrolled in the program and preclinical drug response screening is ongoing. The HIT-CF consortium plans to complete the preclinical stage and initiate the clinical phase in 2021.

In cystinosis, ELX-02 increased read-through of the CTNS W138X mutation by 30-fold in a cell-free plasmid assay system. In primary homozygous W138X fibroblasts, ELX-02 led to a dose-dependent increase in normalized CTNS mRNA levels, consistent with a decrease in nonsense mediated mRNA decay. Functional protein restoration was supported in primary fibroblasts by demonstrating an ELX-02 mediated reduction in cellular cystine levels to wild-type levels. When combined with the standard of care, cysteamine, ELX-02 reduction in cellular cystine levels was additive. These data support that ELX-02 has the potential to impact the primary etiology of this ultra-rare disease.

In IRDs, a series of academic collaborations have shown that our candidate compounds demonstrate dose-dependent increases in read-through of Usher Syndrome 2A and 1F mutations in a cellular plasmid-based reporter assay; they also show restoration of Usher 1C protein and harmonin. Upcoming studies will confirm these findings. We are also evaluating multiple compounds for ocular tolerability, as measured by preservation of the electroretinogram and retinal histology, when delivered by intravitreal injection in rabbits. These studies demonstrate that our compounds have a favorable tolerability profile in comparison to the reference aminoglycoside, gentamicin. These findings are consistent with our hypothesis that the improved specificity for the eukaryotic cytosolic ribosome over the mitochondrial ribosome will reduce off-target associated toxicities.  

Ongoing Screening and IND-Enabling Studies of Eloxx ERSG Library Compounds

Screening of our ERSG library in new indications has provided a foundation for expansion into additional therapeutic efforts. In new indications, compounds are evaluated for read-through potential against prevalent gene-specific nonsense mutations, tissue exposure and functional evidence of the target protein’s production. This data-centric approach enables selection of the ideal ERSG and establishes the preclinical assays required for our genetics-based personalized medicine strategy in new indications. We believe that one or more of these preclinical ERSG drug candidates are potentially suitable for clinical development and we are continuing to conduct pre-IND studies to evaluate their potential.

Manufacturing Status

We have completed the manufacture of the clinical drug product to support our full Phase 2 clinical trial program. We have further identified a commercial manufacturer and are engaged in process development and scale-up activities required to support Phase 3 clinical development. In October 2019, we completed an interim CMC review meeting with the FDA, and we have gained alignment with the agency on our manufacturing formulation and process, which we believe will be suitable for our expected drug supply needs through completion of our pivotal trials.

Intellectual Property

Patent Portfolio

Our licensed and owned patent portfolio includes patents and applications relating to our lead compound, ELX-02 (formerly known as NB124), and over 40 other read-through inducing compounds, as well as methods of making and using these compounds.  Each of these families is described briefly below.

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With regard to ELX-02, our primary composition of matter coverage derives from a first patent family that we exclusively license under the Research and License Agreement with TRDF dated August 29, 2013.  As of December 31, 2020, this family included issued patents in the U.S., Europe, Canada, Hong Kong, Israel and Japan, and pending applications in the U.S., India, and Israel.  Issued patents in this family includes claims directed to ELX-02 and other read-through inducing compounds, as well as claims directed to pharmaceutical compositions of the disclosed compounds and methods of using the compounds and compositions to treat genetic disorders associated with premature stop codon mutations including cystic fibrosis, cystinosis, DMD, ataxia-telangiectasia, Hurler syndrome, hemophilia A and B, Usher Syndrome, and Tay-Sachs.  Patents that have issued or which may issue in the future from this family are currently expected to expire in 2031, not including any extensions of term for which we may be eligible that we may be granted.   A second patent family licensed under the Research and License Agreement with TRDF includes one issued U.S. patent with claims directed to the use of ELX-02 and other read-through inducing compounds to treat Rett syndrome.

We own two patent families that may provide additional protection for specific methods of using or manufacturing ELX-02 beyond the current expiration date of the primary composition of matter patents.  

The first of these families is directed to methods for large-scale synthesis of ELX-02 and other read-through inducing compounds.  As of December 31, 2020, this family included pending applications in the U.S., Europe, Australia, Brazil, Canada, China, Hong Kong, Israel, India, and Japan.  Any patents issuing from this family are currently expected to expire in 2038, not including any extensions of term for which we may be eligible that we may be granted.

The second family is directed to methods of using ELX-02 and other read-through inducing compounds to treat various ocular conditions associated with nonsense mutations, including retinitis pigmentosa, Usher Syndrome, Stickler Syndrome, aniridia, Leber congenital amaurosis, and choroideremia.  As of December 31, 2020, this family includes a pending Patent Cooperation Treaty (“PCT”) application.  Any patents issuing from this family are currently expected to expire in 2039, not including any extensions of term for which we may be eligible that we may be granted.

Three additional patent families licensed under the Research and License Agreement with TRDF are directed to additional read-through inducing compounds.

The first of these families includes claims directed to ELX-03 (formerly known as NB84) and other read-through inducing compounds, as well as claims directed to pharmaceutical compositions and methods of using the compounds and compositions to treat genetic disorders including cystic fibrosis, DMD, ataxia-telangiectasia, Hurler syndrome, hemophilia A, hemophilia B, Usher Syndrome, and Tay-Sachs.  As of December 31, 2020, this family included issued patents in the U.S., Europe, Canada, India, Israel and Japan, and pending applications in the U.S. Patents that have issued or which may issue in the future from this family are currently expected to expire in 2027 and 2028, not including any additional extensions of term for which we may be eligible that we may be granted.

The second family includes claims directed to ELX-10 (formerly known as NB157) and other read-through inducing compounds and pharmaceutical compositions and uses thereof.  As of December 31, 2020, this family included an issued patent in the U.S. and pending applications in the U.S., Europe, Australia, Brazil, Canada, China, Hong Kong, India, Israel and Japan. The other family includes pending applications in the U.S., Europe, Australia, Brazil, Canada, China, Hong Kong, Israel, India, and Japan.  Patents that have issued or which ay issue in the future from this family are currently expected to expire in 2036, not including any extensions of term for which we may be eligible that we may be granted.

The third family includes claims directed to additional read-through inducing compounds and pharmaceutical compositions and uses thereof.  As of December 31, 2020, this family included pending applications in the U.S., Europe, Australia, Brazil, Canada, China, EAPO, Hong Kong, India, Israel, Japan, Malaysia, Mexico, New Zealand, Singapore, and South Korea.  Patents that have issued or which may issue in the future from this family are currently expected to expire in 2038, not including any extensions of term for which we may be eligible that we may be granted.

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We own one additional patent family directed to the use of various Eloxx read-through inducing compounds to treat polycystic kidney disease (PKD).  As of December 31, 2020, this family included one pending PCT application.  Any patents that may issue in the future from this family are currently expected to expire in 2040, not including any extensions of term for which we may be eligible that we may be granted.

Patent Term Extension

The term of a U.S. patent is 20 years from its earliest effective filing date, assuming all maintenance fees are paid, the patent has not been terminally disclaimed, and the patent has not been invalidated through administrative and/or court proceedings.  The term of foreign patents varies but is generally also 20 years from the earliest effective filing date.  In certain instances, the term of U.S. and certain foreign patents may be extended.

In the U.S., patent term may be extended in certain instances by patent term adjustment, or PTA, which compensates for administrative delays by the U.S. Patent & Trademark Office during examination of the patent.  We have received a PTA for one of our exclusively licensed patents relating to ELX-01 and other related read-through inducing compounds, extending the expiration date of that patent from 2027 to 2028.  However, we do not know whether any PTA will be granted for any of our future patents.

For pharmaceutical products that have received FDA approval, the term of a U.S. patent covering the approved product, a method of manufacturing the approved product, or an approved method of use of the product may be extended under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Act, in certain instances if specific statutory and regulatory requirements are satisfied.  The Hatch-Waxman Act provides for a patent term extension, or PTE, of up to five years as compensation for effective patent term lost during product development and the FDA regulatory review process.  PTE is only available for the first approval of a particular product, the total patent term including the restoration period must not exceed 14 years from the date of FDA approval, and only one patent may be extended for a particular regulatory review period.  In Europe, a similar mechanism exists for extending patent term up to five years through the grant of a Supplementary Protection Certificate (SPC) following European Medicines Agency (the “EMA”) approval.  Similar regulatory extensions are available or may be available in the future in other jurisdictions.  If and when ELX-02 or other of our read-through inducing compounds are approved by the FDA, EMA, or other foreign regulatory authorities, we will apply for these and other patent term extensions on patents covering the approved products, methods of use, or methods of manufacture if the patents are eligible for such extension.  However, we cannot provide any assurance that such extensions will be granted for any of our currently issued or future patents.

Trade Secrets and Know-How

With respect to our ERSG-based technology platform, we primarily rely on trade secrets and know-how to protect the proprietary nature of our platform. However, trade secrets and know-how can be difficult to protect. We seek to protect our proprietary technology and processes, in part, by confidentiality agreements with our employees, consultants, scientific advisors and contractors. We also seek to preserve the integrity and confidentiality of our data, know-how and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our consultants, contractors or collaborators use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.

License Agreements

Research and License Agreement with Technion Research and Development Foundation Ltd.

On August 29, 2013, we entered into a license agreement with TRDF (the “Technion Agreement”), which was further amended and addended to reflect, inter alia, the assignment of patents and extension of research periods, with respect to certain technology relating to aminoglycosides and the redesign of aminoglycosides for the treatment of human genetic diseases caused by premature stop mutations and further results of the research of the technology, in order to develop and commercialize products based on such technology. The Technion Agreement provides us with an exclusive, worldwide, non-transferrable license, with a right to grant sublicenses, and royalty-bearing licenses to the TRDF inventions, TRDF patent rights, TRDF’s interest in the joint inventions and joint patent rights, and certain

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materials and research results owned by TRDF, solely with respect to products in the field of prevention, diagnosis or treatment of any human disease or condition therefor. In return for the license we will pay TRDF (i) milestone payments with respect to each licensed product upon the achievement of certain pre-defined goals by us or one of our sublicensees as follows: $100,000 upon first dosing of a patient in a Phase 2 clinical study (which we paid to TRDF in 2020 for ELX-02); $1,000,000 upon first dosing of a patient in a pivotal study; and $5,000,000 upon first filing of a new drug application (NDA); (ii) certain royalties in the low- to mid-single-digit percentages of all net sales (subject to change in the case of (a) sublicensing to a big pharmaceutical or biotechnology company, or (b) payment of royalties to third parties, or (c) commercialization by a third party of an authorized generic to a licensed product); and (iii) a low- to mid-double-digit percentage of any non-royalty sublicense income. In addition to the milestone payments, we undertook to annually fund the research activities under the license, currently in the estimated annual amount of $0.1 million per year. The Technion Agreement further provides TRDF with an additional pre-emptive right, in force until the first exit event, to invest an amount equal to up to 5% of the amount contemplated to be raised in a proposed investment. TRDF is also entitled, until the closing of an exit event, to appoint an observer to the board under certain restrictions such as confidentiality or conflict of interest. Furthermore, we will reimburse TRDF for all patent filing expenses as of the effective date of the Technion Agreement and for past patent filing expenses in the amount of several hundred thousand New Israeli Shekels upon the occurrence of certain conditions.

Under the Technion Agreement, TRDF reserved the right, for itself, the Technion and other not-for-profit research organizations to utilize the technology solely for educational purposes. Furthermore, Professor Baasov, the principal investigator, had ongoing research programs involving covered compounds (as defined in the agreement) that are being funded by the National Institute of Health in the U.S., or the NIH, under sub-awards from the University of Alabama and the University of Michigan, and it is possible that such research programs will overlap with the research conducted according to the terms of our agreement. In the case of any such overlap, the work product of such research will be subject to the terms and conditions of such sub-awards, including certain obligations under 35 U.S.C. §§ 200-212 or 37 C.F.R. § 401 et seq. in the case of any TRDF inventions that are also “subject invention” as defined in 35 U.S.C. § 201.

The license agreement shall continue in full force and effect on a product-by-product and country-by-country basis until the expiration of all payment obligations for any such licensed product as described above. Upon the expiration, we will have a fully paid-up, worldwide non-exclusive, perpetual, irrevocable license (with the right to grant sublicenses) to use certain materials and the research results, solely with respect to products in the field of prevention, diagnosis or treatment of any human disease or condition.

Manufacturing

ELX-02 is manufactured under current Good Manufacturing Practice (“cGMP”) conditions and is formulated as a sterile frozen liquid or lyophilized powder in glass vials. ELX-02 is administered by parenteral subcutaneous injection after appropriate dilution or reconstitution, as required.

We do not own or operate manufacturing or distribution facilities for the production of clinical quantities of ELX-02 or for our other preclinical product candidates. We currently rely, and expect to continue to rely, on third parties for the manufacture, packaging, labeling and distribution of clinical supplies of ELX-02 as well as any other candidate that we may develop.

We engage separate manufacturers for drug substance and drug product. We have a relationship with a manufacturer that is capable of providing fill and finish services for our clinical product at the current scale. To support later clinical trials, transfer of the manufacturing and release to a manufacturer with higher lot scale capacity will be needed for our clinical product.

All of our current drug candidates are organic compounds of low molecular weight. We have selected our lead compounds not only on the basis of their potential efficacy and safety but also for their ease of synthesis and reasonable cost of their starting materials. ELX-02 is manufactured in reliable and reproducible synthetic processes. We currently use a single third-party manufacturing source for the production of a key raw material, produced by bacterial fermentation; however, we have identified several other acceptable sources for this production.

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We currently obtain clinical supplies of ELX-02 from third-party manufacturers pursuant to agreements that include specific supply timelines and volume expectations. If a manufacturer should become unavailable to us for any reason, we would seek to obtain supply from another manufacturer engaged by us for the applicable product or service. In the event that we were unable to procure the applicable supply from a currently qualified manufacturer, we believe that there are a number of potential replacements for each of our outsourced services; however, we would likely experience delays in our ability to supply ELX-02 in advancing our clinical trials while we identify and qualify replacement suppliers.

Government Regulation

Drug Development and Approval in the United States

The preclinical studies and clinical testing, manufacture, labeling, storage, record keeping, advertising, promotion, export, and marketing, among other things, of our product candidates are subject to extensive regulation by governmental authorities in the U.S., the EU and other territories. In the U.S., pharmaceutical products are regulated by the FDA under the Federal Food, Drug, and Cosmetic Act (the “FDCA”) and other laws, including, in the case of biologics, the Public Health Service Act. Failure to comply with FDA requirements, both before and after product approval, may subject us and/or our partners, contract manufacturers, and suppliers to administrative or judicial sanctions, including FDA refusal to approve applications, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, fines and/or criminal prosecution.

The process for obtaining regulatory approval to market a medicine is expensive, often takes many years, and can vary substantially based on the type, complexity, and novelty of the product candidate involved. The steps required before a drug may be approved for marketing of an indication in the U.S. generally include:

Preclinical studies include laboratory evaluation of product chemistry and formulation, as well as toxicological and pharmacological animal studies to assess the potential safety and efficacy of the product candidate. Preclinical safety tests intended for submission to FDA must be conducted in compliance with FDA’s current Good Laboratory Practice (“cGLP”) regulations and the U.S. Department of Agriculture’s Animal Welfare Act. The results of the preclinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND application that must become effective before human clinical trials may be commenced. The IND will automatically become effective 30 days after receipt by the FDA, unless the FDA before that time raises concerns about the drug candidate or the conduct of the trials as outlined in the IND. The IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can proceed. We cannot assure you that submission of an IND will result in FDA authorization to commence clinical trials or that once commenced, other concerns will not arise. The FDA may stop the clinical trials at any time by placing them on “clinical hold” because of concerns about the safety of the product being tested, or for other reasons.

Clinical trials involve the administration of the investigational product to healthy volunteers or to patients, under the supervision of qualified principal investigators. The conduct of clinical trials is subject to extensive regulation, including compliance with the FDA’s bioresearch monitoring regulations and current Good Clinical Practice (“cGCP”) requirements, which establish standards for conducting, recording data from, and reporting the results of clinical trials, and are intended to assure that the data and reported results are credible and accurate, and that the rights, safety, and well-being of study participants are protected.

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Clinical trials must be conducted in accordance with protocols that detail the objectives of the study, the criteria for determining subject eligibility and ineligibility, the dosing plan, patient monitoring requirements, timely reporting of adverse events, and other elements necessary to ensure patient safety, and any efficacy criteria to be evaluated. Each protocol must be submitted to FDA as part of the IND; further, each clinical study at each clinical site must be reviewed and approved by an independent institutional review board, or IRB, prior to the recruitment of subjects. The IRB’s role is to protect the rights and welfare of human subjects involved in clinical studies by evaluating, among other things, the potential risks and benefits to subjects, processes for recruiting subjects and obtaining informed consent, monitoring of data to ensure subject safety, and provisions to protect the subjects’ privacy. Foreign studies conducted under an IND application must meet the same requirements that apply to studies being conducted in the U.S. Data from a foreign study not conducted under an IND may be submitted in support of an NDA if the study was conducted in accordance with cGCP and FDA is able to validate the data.

Clinical trials are typically conducted in three sequential phases, but the phases may overlap, and different trials may be initiated with the same drug candidate within the same phase of development in similar or differing patient populations. Phase 1 studies may be conducted in a limited number of patients but are usually conducted in healthy volunteer subjects. The drug is usually tested for safety and, as appropriate, for absorption, metabolism, distribution, excretion, pharmacokinetics and pharmacodynamics. Phase 2 usually involves studies in a larger, but still limited patient population to preliminarily evaluate the efficacy of the drug candidate for specific, targeted indications; to determine dosage tolerance and optimal dosage; and to identify possible short-term adverse effects and safety risks. Phase 3 trials are undertaken to gather additional information to evaluate the product’s overall risk-benefit profile, and to provide a basis for physician labeling. Phase 3 trials evaluate clinical efficacy of a specific endpoint and test further for safety within an expanded patient population at geographically dispersed clinical study sites. Phase 1, 2 or 3 testing might not be completed successfully within any specific time period, if at all, with respect to any of our product candidates. Results from one trial are not necessarily predictive of results from later trials. Furthermore, the FDA, sponsor, IRB or the Data Safety Monitoring Board (“DSMB”) for a trial may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk.

We must register each controlled clinical trial, other than Phase 1 trials, on a website administered by the NIH (http://clinicaltrials.gov). Registration must occur not later than 21 days after the first patient is enrolled, and the submission must include descriptive information (e.g., a summary in lay terms of the study design, type and desired outcome), recruitment information (e.g., target number of participants and whether healthy volunteers are accepted), location and contact information, and other administrative data (e.g., FDA identification numbers). Within one year of a trial’s completion, information about the trial including characteristics of the patient sample, primary and secondary outcomes, trial results written in lay and technical terms, and the full trial protocol must be submitted to the ClinicalTrials.gov databank. The results information is posted to the website unless the drug has not yet been approved, in which case the NIH posts the information shortly after approval. An NDA, and certain other submissions to the FDA, require certification of compliance with these clinical trials database requirements. There are proposals to expand the applicability of these registration requirements to additional studies.

The results of the preclinical studies and clinical trials, together with other detailed information, including information on the manufacture and composition of the product and proposed labeling for the product, are submitted to the FDA as part of an NDA requesting approval to market the product candidate for a proposed indication. Under the Prescription Drug User Fee Act, as amended, the fees payable to the FDA for reviewing an NDA, as well as annual fees for commercial manufacturing establishments and for approved products, can be substantial. The NDA review fee alone can exceed $2.87 million subject to certain limited deferrals, waivers and reductions that may be available to a qualifying NDA sponsor for a specific NDA. Each NDA submitted to the FDA for approval is typically reviewed for administrative completeness and reviewability within sixty days following submission of the application. If the FDA finds the NDA sufficiently complete, the FDA will “file” the NDA, thus triggering a full review of the application. The FDA may refuse to file any NDA that it deems incomplete or not properly reviewable at the time of submission. Current FDA performance goals provide for action on 90% of standard applications for a new molecular entity within 10 months of the 60-day filing date. However, the FDA may not approve a drug within these established timeline goals and its review clock for a particular NDA is subject to change from time to time because the review process is often significantly extended by FDA requests for additional information or clarification. We may encounter difficulties or unanticipated costs in our efforts to secure necessary FDA approvals, which could delay or preclude us from marketing our product candidates.  As part of its review, the FDA may refer applications for novel drug products or drug products that present difficult questions of safety or efficacy to an advisory committee composed of outside experts, for evaluation and a recommendation as to whether the application should be approved and under what conditions. The advisory committee process may cause delays in the approval timeline. The FDA is not bound by the recommendation of an advisory committee, but it considers such recommendations carefully, particularly after negative recommendations or limitations, when making drug approval decisions.

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Further, the outcome of the FDA review process, even if generally favorable, may not be an actual approval but instead a “complete response letter” communicating the FDA’s decision not to approve the application at that time, outlining the deficiencies in the NDA that need to be addressed in order to be eligible for approval, and identifying what information and/or data (including any additional preclinical or clinical data or manufacturing information) is required before the application can be approved. Even if such additional information and data are submitted, the FDA may decide that the NDA still does not meet the standards for approval. Data from clinical trials are not always conclusive, and the FDA may interpret data differently than we do.

The development testing and approval processes require substantial time, effort and financial resources, and each may take years to complete. Data obtained from clinical trials are not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. The FDA may not grant approval on a timely basis, or at all.

The FDA typically will inspect one or more clinical sites to assure compliance with cGCP before approving an NDA. The FDA also will inspect the facility or the facilities at which the product is manufactured before the NDA is approved to assure compliance with cGMP. The FDA will not approve the product unless cGCP and cGMP compliance is satisfactory. The FDA may also take into account results of inspections performed by certain counterpart foreign regulatory agencies in assessing compliance with cGCP or cGMP. The FDA has entered into international agreements with foreign agencies, including the EMA, in order to facilitate this type of information sharing. If the FDA determines the application, clinical sites, manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in the NDA submission and often will request additional testing or information.

The FDA may deny approval of an NDA if applicable statutory or regulatory criteria are not satisfied, or may require additional testing or information, which can delay the approval process. FDA approval of any application may include many delays or may never be granted. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that an NDA does not satisfy the regulatory criteria for approval. If a product is approved, the approval will impose limitations on the indicated use or uses for which the product may be marketed, may require that warning statements be included in the product labeling, and may require that additional studies be conducted following approval as a condition of the approval. The FDA may limit the indications for use, approve narrow labeling relegating a drug to second-line or later-line use, add limitations of use to the labeling or place other conditions on approvals, which could restrict the marketing of an approved product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling. FDA also may impose restrictions and conditions on product distribution, prescribing or dispensing in the form of a Risk Evaluation Mitigation Strategy (“REMS”) to ensure the safe use of the drug, or otherwise limit the scope of any approval. In determining whether a REMS is necessary, the FDA must consider the size of the population likely to use the drug, the seriousness of the disease or condition to be treated, the expected benefit of the drug, the duration of treatment, the seriousness of known or potential adverse events, and whether the drug is a new molecular entity. A REMS may be required to include various elements, such as a medication guide or patient package insert, a communication plan to educate health care providers of the drug’s risks, limitations on who may prescribe or dispense the drug, or other measures that the FDA deems necessary to assure the safe use of the drug. To market an approved product for other indicated uses, or to make certain manufacturing or other changes, FDA review and approval of an NDA Supplement or new NDA are required, which may themselves necessitate further clinical testing, and the payment of applicable review fees. Additional post-marketing testing and surveillance to monitor the safety and/or efficacy of a product may be required. In addition, new government requirements may be established that could delay or prevent regulatory approval of our product candidates under development.

Under the Pediatric Research Equity Act of 2003 (“PREA”), NDAs or supplements to NDAs must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the drug is determined by the FDA to be safe and effective. The FDA may grant deferrals for submission of data or full or partial waivers, to a qualifying NDA sponsor. Unless otherwise required by regulation, PREA does not apply to any drug for an indication for which orphan designation has been granted. As the FDA has not issued regulations applying PREA to orphan-designated indications, submission of a pediatric assessment is not presently required for an application to market a product for an orphan-designated indication. However, PREA compliance may be required if approval is sought for other indications for which the drug has not received orphan designation.

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Post-approval Requirements

After FDA approval of a product is obtained, we will be required to comply with a number of post-approval requirements, including, among other things, establishment registration and product listing, prescription drug program fees, record-keeping requirements, reporting certain adverse reactions and production problems to the FDA, providing updated safety and efficacy information, and complying with requirements concerning advertising and promotional labeling. As a condition of approval of an NDA, the FDA may require the applicant to conduct additional clinical trials or other post-marketing testing and surveillance to further monitor and assess the drug’s safety and efficacy.

The FDA regulates strictly the marketing, labeling, advertising and promotion of drug products that are placed on the market. Although physicians may prescribe a drug for off-label uses, manufacturers may only promote for the approved indication(s) and in accordance with the approved labeling. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses and any other false or misleading promotion. Failure to comply with the laws and regulations governing advertising and promotion can have negative consequences, including adverse publicity, warning and untitled letters from the FDA, requests for corrective advertising or communications with doctors, and civil penalties or criminal prosecution.

In addition, the distribution of approved prescription pharmaceutical products is subject to the Prescription Drug Marketing Act (“PDMA”), which regulates the distribution of drugs and drug samples at the federal level and sets minimum standards for the registration and regulation of drug distributors by the states. Similarly, the Drug Supply Chain Security Act (“DSCSA”) regulates the distribution of prescription pharmaceutical drugs, requiring implementation of an electronic interoperable system to identify and trace each prescription drug at the saleable unit level through the distribution system. The DSCSA also imposes obligations on drug manufacturers related to suspect product identification and removal, verification, dealing only with authorized trading partners, and other elements. The DSCSA is planned to be incrementally implemented over a 10-year period, with serialization of prescription drug products distributed in the U.S. effective November 27, 2017 for drug manufacturers. The PDMA, DSCSA, and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure accountability in distribution.

Also, quality control and manufacturing procedures must continue to conform to cGMP after approval. The FDA periodically inspects manufacturing facilities post-approval to assess continued compliance with cGMP, which imposes certain procedural and recordkeeping requirements. Accordingly, manufacturers must continue to expend time, money and effort in the area of process and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.

We rely, and expect to continue to rely, on third parties for the production of clinical and any future commercial quantities of our product candidates. Future FDA inspections may identify compliance issues at our facilities or at the facilities of our contract manufacturers that may disrupt production or distribution or require substantial resources to correct. In addition, discovery of 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.

Once approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements is not maintained or if issues bearing on the product’s safety or efficacy are discovered. Newly discovered or developed safety or effectiveness data or other information may also necessitate changes to a product’s approved labeling, including the addition of new warnings and contraindications, and also may require the implementation of other risk management measures. New government requirements, including those resulting from new legislation, may be established that could delay or prevent FDA approval of our products under development or negatively impact the marketing of any future approved products.

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Orphan Drug Designation

We have received orphan drug designation from the FDA for ELX-02 for the treatment of cystic fibrosis, MPS I, Rett syndrome, and nephropathic cystinosis. The FDA may grant orphan drug designation to drugs intended to treat a “rare disease or condition,” which is defined as a disease or condition that affects fewer than 200,000 individuals in the U.S., or more than 200,000 individuals in the U.S. and for which there is no reasonable expectation that the cost of developing and making available in the U.S. a drug for this type of disease or condition will be recovered from sales in the U.S. for that drug. Orphan drug designation must be requested before applying for marketing approval. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. Orphan drug designation can provide opportunities for grant funding towards clinical trial costs, tax advantages and FDA user-fee benefits. In addition, if a product which has an orphan drug designation subsequently receives the first FDA approval for the indication for which it has such designation, the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other application to market the same drug for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity. Competitors may receive approval of different drugs or biologics for the indication(s) for which the orphan product has exclusivity.

Rare Pediatric Disease Designation and Priority Review Voucher

Some orphan drugs may also qualify for designation as a “rare pediatric disease” under Section 529 of the FDCA. Section 529 is similar to the Orphan Drug Act, as both require that the “rare disease or condition” affect fewer than 200,000 persons in the U.S. In the Advancing Hope Act of 2016, Section 529 was changed so that the “rare pediatric disease” must also meet the additional criteria of being a serious or life-threatening disease in which the serious or life-threatening manifestations primarily affect individuals aged from birth to 18 years, including age groups often called neonates, infants, children, and adolescents. Under Section 529 of the FDCA, the FDA will award priority review vouchers to sponsors of rare pediatric disease product applications that meet these criteria. Under this program, a sponsor who receives an approval for a drug or biologic for a “rare pediatric disease” may qualify for a voucher that can be redeemed to receive a priority review of a subsequent marketing application for a different product.

Hatch-Waxman Regulatory Exclusivity

Market and data exclusivity provisions under the FDCA can delay the submission or the approval of certain applications for competing products. The FDCA provides a five-year period of non-patent data exclusivity within the U.S. to the first applicant to gain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety. During the exclusivity period, the FDA generally may not accept for review an abbreviated new drug application (“ANDA”) or a 505(b)(2) NDA submitted by another company that references the previously approved drug. An ANDA or 505(b)(2) NDA may be submitted after four years if it contains a certification of patent invalidity or non-infringement.

For some applications that do not qualify for five-year exclusivity, the FDCA provides a shorter three-year period of market exclusivity. Three-year exclusivity applies to an NDA, 505(b)(2) NDA, or supplement to an existing NDA or 505(b)(2) NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant, are deemed by the FDA to be essential to the approval of the application, for example, for new indications, dosages, strengths or dosage forms of an existing drug. This three-year exclusivity covers only the conditions of use associated with the new clinical investigations and, as a general matter, does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for generic versions of the original, unmodified drug product. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA; however, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.

Pediatric Exclusivity

Pediatric exclusivity is another type of non-patent market exclusivity in the U.S. and, if granted, provides for the attachment of an additional six months of market protection to the term of any existing Orange Book-listed patents or regulatory exclusivity, including the non-patent exclusivity periods described above. This six-month exclusivity may be granted based on the voluntary completion of a pediatric study or studies in accordance with an FDA-issued “Written Request” for such a study or studies.

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Regulation Outside the United States

In order to market any product outside of the U.S., we would need to comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy and governing, among other things, preclinical studies, clinical trials, marketing authorization, commercial sales and distribution of any future approved products. Whether or not we obtain FDA approval for a product, we would need to obtain the necessary approvals by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the product in those countries. The approval process varies from country to country and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may negatively impact the regulatory process in others.

Regulation in the European Union

We have obtained an orphan medicinal product designation from the European Commission, following an evaluation by the EMA’s Committee for Orphan Medicinal Products, for ELX-02 for the treatment of cystic fibrosis and MPS I. The European Commission can grant orphan medicinal product designation to products for which the sponsor can establish that it is intended for the diagnosis, prevention, or treatment of (1) a life-threatening or chronically debilitating condition affecting not more than five in 10,000 people in the EU, or (2) a life-threatening, seriously debilitating or serious and chronic condition in the EU and that without incentives it is unlikely that sales of the drug in the EU would generate a sufficient return to justify the necessary investment. In addition, the sponsor must establish that there is no other satisfactory method approved in the EU of diagnosing, preventing or treating the condition, or if such a method exists, the proposed orphan drug will be of significant benefit to patients. Orphan medicinal product designation is not a marketing authorization. It is a designation that provides a number of benefits, including fee reductions, regulatory assistance, and the opportunity to apply for a centralized EU marketing authorization, as well as 10 years of market exclusivity following a marketing authorization. During this market exclusivity period, neither the EMA, nor the European Commission nor the Member States can accept an application or grant a marketing authorization for a “similar medicinal product.” A “similar medicinal product” is defined as a medicinal product containing a similar active substance or substances as contained in an authorized orphan medicinal product, and which is intended for the same therapeutic indication. The market exclusivity period for the authorized therapeutic indication may be reduced to six years if, at the end of the fifth year, it is established that the orphan designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity. In addition, a competing similar medicinal product may in limited circumstances be authorized prior to the expiration of the market exclusivity period, including if it is shown to be safer, more effective or otherwise clinically superior to our product. Our product can lose orphan designation, and the related benefits, prior to us obtaining a marketing authorization if it is demonstrated that the orphan designation criteria are no longer met.

Overview of Application Process

To obtain regulatory approval of a drug under the EU’s regulatory systems and authorization procedures, an applicant may submit a Marketing Authorization Application (“MAA”) under a centralized, decentralized, or national procedure. The centralized procedure is compulsory for certain medicinal products, including orphan medicinal products, like ELX-02 and medicinal products produced by certain biotechnological processes, and optional for certain other innovative products. The centralized procedure enables applicants to obtain a marketing authorization that is valid in all EU member states based on a single application. Under the centralized procedure, the EMA’s Committee for Human Medicinal Products (“CHMP”) is required to adopt an opinion on a valid application within 210 days, excluding clock stops, during which additional written or oral information is to be provided by the applicant in response to questions. More specifically, on day 120 of the procedure, once the CHMP has received the preliminary assessment reports and opinions from the rapporteur and co-rapporteur, the CHMP prepares a list of potential outstanding issues, referred to as “other concerns” or “major objections.” These are sent to the applicant together with CHMP’s recommendation. The CHMP can make one of two recommendations: (1) the marketing authorization could be granted provided that satisfactory answers are given to the “other concerns” and/or “major objections” identified and that all conditions outlined in the list of outstanding issues are implemented and complied with; or (2) the product is not approvable since there are “major objections.”

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Applicants have three months from the date of receiving the potential outstanding issues to respond to the CHMP and can request a three-month extension if necessary. The granting of a marketing authorization will depend on the recommendations and potential major objections identified by the CHMP as well as the ability of the applicant to adequately respond to these findings. An accelerated assessment can be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of major public health interest, in particular from the viewpoint of therapeutic innovation. In this circumstance, the EMA ensures that the opinion of the CHMP is given within 150 days. After the adoption of the CHMP opinion, a decision on the MAA must be adopted by the European Commission, after consulting the EU member states, which in total should be completed in 67 days.

An applicant for an MAA may request a re-examination in the event of a negative opinion, in connection with which CHMP appoints new rapporteurs. Within 60 days of receipt of the negative opinion, the applicant must submit a document explaining the basis for its request for re-examination. The CHMP has 60 days to consider the applicant’s request for re-examination. The applicant may request an oral explanation before the CHMP, which is routinely granted, following which CHMP will adopt a final opinion. The final opinion, whether positive or negative, is published by the CHMP shortly following the CHMP meeting at which the oral explanation takes place.

Conditional Marketing Authorizations

In specific circumstances, EU legislation enables applicants to obtain a marketing authorization on a conditional basis prior to obtaining the comprehensive clinical data required for an application for a full marketing authorization. Such conditional approvals may be granted for products designated as orphan medicinal products, if (1) the risk-benefit balance of the product is positive, (2) it is likely that the applicant will be in a position to provide the required comprehensive clinical trial data, (3) the product fulfills unmet medical needs, and (4) the benefit to public health of the immediate availability on the market of the medicinal product concerned outweighs the risk inherent in the fact that additional data are still required. A conditional marketing authorization may contain specific obligations to be fulfilled by the marketing authorization holder, including obligations with respect to the completion of ongoing or new studies, and with respect to the collection of pharmacovigilance data. Conditional marketing authorizations are valid for one year, and may be renewed annually, if the risk-benefit balance remains positive, and after an assessment of the need for additional or modified conditions and/or specific obligations. The timelines for the centralized procedure described above also apply with respect to the review by the CHMP of applications for a conditional marketing authorization. The granting of a conditional marketing authorization will depend on the applicant’s ability to fulfill the conditions imposed within the agreed upon deadline.

Variations to Conditional Marketing Authorizations

After the granting of a conditional marketing authorization, the marketing authorization holder may apply to vary the conditional marketing authorization under a variation procedure. In the case of the introduction of an additional therapeutic indication, the timeframe for the variation procedure for the initial assessment of the dossier is generally 90 days (plus up to 20 days for validation).

In the framework of a variation application assessment procedure, however, the EMA may send one or more requests for supplementary information to the marketing authorization holder, requiring that additional information be provided by the marketing authorization holder to support its variation application. Such supplementary requests will be sent together with a timetable stating the date by when the marketing authorization holder must submit the requested data and, where appropriate, the extended evaluation period to be applied to such variation procedure. The 90-day variation procedure may be suspended for up to three months for the marketing authorization holder to submit its responses to such supplementary requests. The marketing authorization holder will be notified of the outcome of the CHMP’s assessment of the variation procedure within 15 days from the adoption of the CHMP opinion. If unfavorable, the CHMP opinion may be subject to a re-examination procedure upon the marketing authorization holder’s request. This may imply an additional minimum two-month procedure. If the CHMP opinion is favorable, the European Commission will vary the marketing authorization to introduce the additional therapeutic indication within approximately two months from the receipt of the final CHMP opinion.

Additional Requirements and Considerations

Prior to obtaining a marketing authorization in the EU, applicants have to demonstrate compliance with all measures included in an EMA-approved Pediatric Investigation Plan (“PIP”), covering all subsets of the pediatric population, unless the EMA has granted (1) a product-specific waiver, (2) a class waiver, or (3) a deferral for one or more of the measures included in the PIP. In the case of orphan medicinal products, completion of an approved PIP can result in an extension of the aforementioned market exclusivity period from ten to twelve years.

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In the EU, independently generated data submitted as part of a full marketing authorization application dossier are protected by regulatory data protection (‘data exclusivity’) for a period of eight years from the granting of a marketing authorization for a ‘reference product’. This means that for a period of eight years, competent authorities may not accept marketing authorization applications that rely on the independently generated data in the marketing authorization dossier of the reference product. Generic medicinal products that rely on the independently generated data of the reference product may not be placed on the market for 10 years from the granting of the initial marketing authorization for the reference medicinal product. These periods of data exclusivity and market exclusivity do not prevent other companies from obtaining a marketing authorization based on their own independently generated data.

If we are able to obtain a marketing authorization for ELX-02 for any indication in the EU, we will be required to comply with a range of requirements applicable to the manufacturing, marketing, promotion and sale of medicinal products. We must, for example, comply with the EU’s stringent pharmacovigilance or safety reporting rules, pursuant to which post-authorization studies and additional monitoring obligations can be imposed. Other requirements relate to, for example, the manufacturing of products and active pharmaceutical ingredients in accordance with good manufacturing practice standards. Competent authorities of EU member states may conduct inspections to verify our compliance with applicable requirements, and we will have to continue to expend time, money and effort to remain compliant. Non-compliance with EU requirements regarding safety monitoring or pharmacovigilance, and with requirements related to the development of products for the pediatric population, can also result in significant financial penalties in the EU. Similarly, failure to comply with the EU’s requirements regarding the protection of individual personal data can also lead to significant penalties and sanctions. Individual EU member states may also impose various sanctions and penalties in case we do not comply with locally applicable requirements.

Off-label promotion of medicinal products is prohibited in the EU. The applicable laws at the EU level and in the individual EU member states also prohibit the direct-to-consumer advertising of prescription-only medicinal products. Violations of the rules governing the promotion of medicinal products in the EU could be penalized by administrative measures, fines and imprisonment. These laws may further limit or restrict our promotional activities with health care professionals. In addition, legislation adopted at the EU level and by individual EU member states require that promotional materials and advertising in relation to medicinal products comply with the product’s Summary of Product Characteristics (“SmPC”), as approved by the competent authorities. The SmPC is the document that provides information to physicians concerning the safe and effective use of the medicinal product. Promotion of indications not covered by the SmPC is specifically prohibited.

The EMA is responsible for coordinating inspections to verify compliance with the principles of GCP, cGMP, GLP, and good pharmacovigilance practices (“GVP”). These inspections are also intended to verify compliance with other aspects of the supervision of authorized medicinal products in use in the EU. The EMA coordinates any inspection requested by the CHMP in connection with the assessment of an MAA. Inspections may be routine or triggered by issues arising during the assessment of the dossier or by other information, such as previous inspection experience. Inspections usually are requested during the initial review of an MAA but could also arise post-authorization.

Inspectors are drawn from member states of the EU and the European Economic Area. Following an inspection, the inspectors provide a written inspection report to the inspected site or applicant and provide an opportunity for response. Some inspection reports require follow-up and may result in additional adverse consequences due to critical or major findings. The inspectors and the CHMP will comment on any response from an inspected site or applicant and may monitor future compliance with any proposed corrective action plan.

Possible consequences of critical and major findings resulting from GCP inspections include rejection of clinical trial data, causing significant delays in obtaining final marketing authorization, or other direct action by national regulatory authorities.

Early Access Programs

Many jurisdictions around the world allow the supply of unauthorized medicinal products in the context of strictly regulated and exceptional early access programs, and some countries may provide reimbursement for drugs provided in the context of such programs. In the EU, the legal basis for early access programs, also referred to as named-patient and compassionate use programs, is set out in the EU legislation regulating the authorization, manufacture, distribution and marketing of medicinal products. Detailed regulatory requirements applicable to early access programs have been adopted and implemented by EU member states in their national laws. The promotion, advertising and marketing of unauthorized medicinal products is generally prohibited, and authorization for early access programs must generally be obtained from national competent authorities, which might not grant such

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authorization. Obtaining authorization for an early access program in one country does not ensure that authorization will be obtained in another country. U.S. law permits “expanded access” (also known as compassionate use and treatment use) for certain patients with serious diseases who have no comparable alternative treatment options. To provide expanded access in the U.S., sponsors must submit detailed regulatory information to the FDA. FDA authorization depends on several different factors, including whether expanded access will interfere with related clinical trials or drug development. In addition, the Right to Try Act was signed into law in the U.S. on May 30, 2018 and allows certain eligible patients to have access to certain eligible investigational drugs outside of clinical trials if the patient’s licensed treating physician certifies that the patient has exhausted FDA-approved treatment options and cannot participate in a clinical trial of the investigational drug. Sponsors may not promote products as safe or effective for expanded access or right to try uses.

Pharmaceutical Pricing and Reimbursement

The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of pharmaceuticals have been a focus of this effort. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs to limit the growth of government-paid healthcare costs, including price controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs. For example, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 expanded Medicare coverage for drug purchases by the elderly and changed the way Medicare covers and pays for pharmaceutical products. Cost reduction initiatives and other provisions of this law may decrease the coverage and reimbursement rate that we may receive for any products approved in the U.S. Likewise, healthcare reform measures under the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010, referred to together as the Affordable Care Act, contain provisions that may reduce the profitability of drug products by increasing the minimum level of Medicaid rebates payable by manufacturers of brand-name drugs from 15.1% to 23.1%, effective 2011, extending the Medicaid rebate to Medicaid managed care plans, changing the Medicaid rebate rates for line extensions or new formulations of oral solid dosage forms, mandating discounts for certain Medicare Part D beneficiaries, and imposing a non-deductible annual fee on pharmaceutical manufacturers or importers who sell “branded prescription drugs,” effective 2011, expanding the types of entities eligible for the “Section 340B discounts” for outpatient drugs, requiring manufacturers to participate in a coverage gap discount program, under which they must agree to offer point-of-sale discounts (75% effective as of 2019) off negotiated prices of applicable branded drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D and creating a process for approval of biologic therapies that are similar to or interchangeable with approved biologics. There are numerous steps required to implement the Affordable Care Act, and implementation remains ongoing. Congress also has enacted, and may continue to seek, legislative changes that alter, delay, or eliminate some of its provisions. On February 1, 2016, the Centers for Medicare and Medicaid Services released a long-awaited new rule, the Medicaid Program Covered Outpatient Drug Final Rule, effective April 1, 2016, implementing various provisions of the Affordable Care Act related to “covered outpatient drugs,” including revising the calculation of “average manufacturer price” and addressing other issues relating to Medicaid price reporting and reimbursement. These and other changes contribute to the uncertainty of the ongoing implementation and impact of the Affordable Care Act; they also underscore the potential for additional reform going forward. Certain provisions of enacted or proposed legislative changes may negatively impact coverage and reimbursement of healthcare products and services.

Increasing pricing pressure continues from managed care organizations, government agencies and programs, particularly for new and innovative therapies, that could negatively affect sales and profit margins for any product candidate for which we receive regulatory approval for commercial sale. In the U.S., these include practices of managed care groups, federal and state exchanges, and institutional and governmental purchasers. Changes to the health care system enacted as part of health care reform in the U.S., as well as increased purchasing power of entities that negotiate on behalf of Medicare, Medicaid, and private sector beneficiaries, could negatively impact our sales and profit margins. Such pressures may also increase the risk of litigation or investigations by the government regarding pricing calculations. There has also been recent negative publicity and Congressional scrutiny around pharmaceutical drug pricing in the U.S. These dynamics may give rise to negative reactions to pricing decisions for products for which we may receive regulatory approval in the future, possibly limiting our ability to generate revenue and attain profitability. Moreover, the pharmaceutical industry will likely face greater regulation and political and legal action in the future. In this healthcare regulatory climate, there may be significant delays in and impediments to obtaining coverage and reimbursement for newly approved drugs. Any regulatory approval of our products is limited to specific diseases and indications for which our products have been deemed safe and effective by the FDA. Coverage by federal healthcare programs may be more limited than the purposes for which the drug is approved by the FDA or comparable foreign regulatory authorities’ coverage of the same products. In the U.S. and

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markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend in part on the extent to which the costs of the products will be covered and reimbursed by third-party payors, including government healthcare programs such as Medicare and Medicaid, private health insurers and other organizations. Obtaining reimbursement for orphan drugs may be particularly difficult because of the higher prices typically associated with drugs directed at smaller populations of patients. In addition, third-party payors are likely to impose strict requirements for reimbursement in connection with the use of a higher priced drug. Net prices for products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of products from countries where they may be sold at lower prices than in the U.S.

The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the product once coverage is approved. Third-party payors may limit coverage to specific products on an approved list, or formulary, which might not include all of the FDA-approved products for a particular indication. Third-party payors are increasingly challenging the price and examining the cost-effectiveness of medical products and services. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the cost-effectiveness of our products. Our product candidates may not be considered cost-effective. In the future, we may need to conduct direct head-to-head studies to demonstrate clinical superiority and cost-effectiveness. Our product candidates may not be considered clinically superior and cost-effective to competitor products.

The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and other third-party payors fail to provide adequate coverage and reimbursement. In addition, there is an increasing emphasis on managed care in the U.S. that may negatively impact pharmaceutical pricing.

In some countries, particularly in the EU, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing and reimbursement negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. In some countries, governments can set conditions that must be satisfied for prices to be set at a certain value. Political, economic and regulatory developments may further complicate pricing and reimbursement negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various EU member states, and parallel distribution (arbitrage between low-priced and high-priced member states), can further reduce prices. In some countries, we may be required to conduct a clinical trial or other studies that compare the cost-effectiveness of our product candidate to other available therapies in order to obtain reimbursement or pricing approval.

Freedom of Information Requests

We are also subject, in the U.S. and many other countries, to various regulatory schemes that require disclosure of clinical trial data or allow access to our data via freedom of information requests. We have been and may, from time to time, be notified by regulators, such as the EMA or the competent authorities of EU member states or the FDA that they have received a freedom of information request for documents that they hold relating to our company, including information related to our product candidates.

Fraud and Abuse Laws

Any present or future arrangements with third-party payors, healthcare providers and professionals and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may restrict certain marketing and contracting practices. These laws include, and are not limited to, anti-kickback and false claims statutes.

Both the federal Foreign Corrupt Practices Act (“FCPA”), and the UK Bribery Act of 2010 (“Bribery Act”), are broad in scope and require companies to make and keep books and records that accurately and fairly reflect the transactions of the company and to devise and maintain an adequate system of internal accounting controls. The FCPA prohibits the offering, promising, giving, or authorizing others to give anything of value, either directly or indirectly, to a non-U.S. government official in order to improperly influence any act or decision, secure any other improper advantage, or obtain or retain business. Under the Bribery Act, companies which carry on a business or part of a business in the United Kingdom may be held liable for bribes given, offered or promised to any person, including non-UK government officials and private persons, by employees and persons associated with the company in order to obtain or retain business or a business advantage for the company.

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The federal Anti-Kickback Statute in the U.S. prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, in cash or kind, to induce or reward either the referral of an individual for, or the purchase, or order or recommendation of, any good or service, for which payment may be made under federal and state healthcare programs such as Medicare and Medicaid. This statute has been broadly interpreted to apply to manufacturer arrangements with prescribers, purchasers and formulary managers, among others. Although a number of statutory exemptions and regulatory safe harbors exist to protect certain common activities from prosecution, the exemptions and safe harbors for this statute are narrow, and practices that involve compensation intended to induce prescriptions, purchases, or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Our practices may not always meet all of the criteria for safe harbor protection. Further, the Affordable Care Act amended the intent requirement of the federal anti-kickback and criminal health care fraud statutes. This amendment provides that a person or entity no longer needs to have knowledge of these statutes or specific intent to violate them. In addition, 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 federal False Claims Act. Several other countries, including the United Kingdom, have enacted similar anti-kickback, fraud and abuse laws and regulations.

The federal False Claims Act imposes civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government. Several pharmaceutical and health care companies have been prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the free product. Other companies have been prosecuted for causing false claims to be submitted because of these companies’ marketing of a product for unapproved, and thus non-reimbursable, uses. Potential liability under the federal False Claims Act includes mandatory treble damages and significant per claim penalties, currently set at $11,665 to $23,331 per false claim. The majority of states also have statutes or regulations similar to the federal anti-kickback statute and False Claims Act, which apply to items and services reimbursed under Medicaid and other state programs; furthermore, in several states, these statutes and regulations apply regardless of the payor. Sanctions under these federal and state laws may include civil monetary penalties, exclusion of a manufacturer’s product from reimbursement under government programs, debarment, criminal fines, and imprisonment.

The Affordable Care Act included a provision requiring certain providers and suppliers of items and services to Federal Health Care Programs to report and return overpayments within sixty days after they are “identified,” or the Overpayment Statute. In February 2016, the Centers for Medicare and Medicaid Services (“CMS”) released long-awaited regulatory guidance (in the form of a final rule) to Medicare Part A and Part B providers and suppliers regarding how to comply with the Overpayment Statute. CMS had previously released a final rule addressing overpayments involving Medicare Part C and Part D providers in May 2014. Although Medicare Part A/B/C/D providers and suppliers have faced federal False Claims Act liability since 2010 for failures to comply with the Overpayment Statute, these final rules interpreting the Overpayment Statute provide guidance to providers and suppliers regarding how to comply appropriately with applicable obligations, and guidance to government regulators and enforcement authorities regarding monitoring and prosecuting suspected violations. This final rule is not directly applicable to manufacturers but may impact their customers and potential customers who are Medicare providers and suppliers.

The federal Physician Payments Sunshine Act, enacted as part of the Affordable Care Act, and its implementing regulations, require manufacturers of drugs, devices, biologics and medical supplies to report to the Department of Health and Human Services information related to payments and other transfers of value made to covered recipients, such as physicians and teaching hospitals, as well as physician ownership and investment interests. Payments made to physicians and certain research institutions for clinical trials are included within the scope of this law. Pharmaceutical manufacturers are required to report and disclose payments and ownership and investment interests held by physicians and their immediate family members during the preceding calendar year. Manufacturers were required to make these first reports for information collected in 2013 by March 31, 2014. Such information is publicly available from the Secretary of Health and Human Services in a searchable format, with data collected in each calendar year published the following June. Failure to submit required information may result in civil monetary penalties of up to $150,000 per year (and up to $1.0 million per year for “knowing failures”) for all payments, transfers of value or ownership or investment interests not reported in an annual submission. If not preempted by this federal law, several states currently require pharmaceutical companies to report expenses relating to the marketing and promotion of pharmaceutical products and to report gifts and payments to individual physicians in those states. Depending on the state, legislation may prohibit various other marketing related activities, or require the posting of information relating to clinical studies and their outcomes. In addition, certain states, such as California, Nevada, Connecticut and Massachusetts, require pharmaceutical companies to implement compliance programs or marketing codes and several other states are considering similar proposals. Manufacturers that fail to comply with these state laws can face civil penalties.

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Statutory requirements to disclose publicly payments made to healthcare professionals and healthcare organizations have also been enacted in certain EU member states. In addition, self-regulatory bodies of the pharmaceuticals industry, such as the European Federation of Pharmaceutical Industries and Associations have published codes of conduct to which its members have agreed to abide by, that require the public disclosure of payments made to healthcare professionals and healthcare organizations.

The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended by the Health Information Technology for Economic and Clinical Health Act, imposes criminal liability for executing a scheme to defraud any healthcare benefit program and for knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statements in connection with the delivery of or payment for healthcare benefits, items or services. HIPAA also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information, and imposes criminal and civil liability for violations of these obligations. Recently, the U.S. federal government criminally prosecuted an employee of a pharmaceutical company for an alleged violation of the privacy requirements under HIPAA. Furthermore, certain privacy laws and genetic testing laws may apply directly to our operations and/or those of our collaborators and may impose restrictions on our use and dissemination of individuals’ health information.

The foregoing discussion should be read in conjunction with the information appearing under “Risk Factors” and the subheading which begins “We and our collaborating partners may be subject, directly or indirectly, to federal and state healthcare fraud and abuse and false claims laws and regulations.”  This risk factor contains important information regarding some of the risks to our business arising as a result of fraud and abuse laws.

Competition

Our industry is highly competitive and subject to rapid and significant technological change. New therapies and treatments based on innovative discoveries emerge frequently.

Our potential competitors are public and private companies, pharmaceutical companies and biotechnology companies who may be engaged in targeting the same biological processes that our compounds are designed to impact and who may be developing products for the same indications as our investigational drug candidates. Potential competitors could also include academic institutions, government agencies, other public and private research organizations and charitable venture philanthropic organizations that conduct research, seek patent protection and/or establish collaborative arrangements for research, development, manufacturing and commercialization.

Many of our competitors have substantially greater financial resources, technical resources, expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials. As a result, our competitors may commercialize products more rapidly or effectively than we do, which would affect our competitive position, the likelihood that our drug candidates, if approved, would achieve and maintain market acceptance and our ability to generate meaningful revenues from our products.

Our commercial opportunities could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer side effects, are more convenient or are more affordable than any products that we develop. The key competitive factors affecting the success of ELX-02 and our other product candidates are their impact on the targeted diseases, superiority over competing products, long-term safety, convenience, price and the availability of coverage and reimbursement from government and other third-party payors.

Several companies are involved in researching and developing molecules targeting suppression of nonsense mutations and enhancement of translational read-through. However, we believe that ELX-02 is the only drug candidate in clinical development designed to treat nonsense mutations in CFTR, the underlying cause of cystic fibrosis (our lead indication) and cystinosis. Additional competition to ELX-02 may arise from other programs that do not target a specific CFTR mutation class but work via other mechanisms.

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COVID-19

The outbreak of COVID-19 and the preventive or protective actions that we, our employees, consultants, suppliers, contract research organizations (CROs), and other partners or governments may take may significantly disrupt our business operations. We are diligently working to ensure that we can continue to operate with minimal disruption, and to mitigate the impact of the pandemic on our employees’ health and safety and that of the patients and healthcare professionals in our clinical trials. However, given the significant uncertainty regarding the ongoing impact of the COVID-19 outbreak, there remains a risk that we or our employees, contractors, suppliers, and other partners may be prevented from conducting business activities for indefinite periods of time, including due to a substantial percentage of personnel contracting the virus or due to shutdowns that may be requested or mandated by governmental authorities.  Given the interconnectivity of the global economy and the possible rate of future global transmission of the virus, the full extent to which the pandemic could affect the global economy is unknown and its impact may extend beyond the areas which are currently known by us to be affected.

Our management and Board of Directors are focused on the operational challenges resulting from the COVID-19 pandemic.  To date, the pandemic has not had a material adverse impact on our financial condition, and we have not had to lay off or furlough any employees.  Operations have continued even though our clinical trials were temporarily paused. Both Phase 2 clinical trials have now resumed. We are evaluating various alternatives to remain flexible and adapt to changing circumstances that may arise in the near and long term.  We continue to monitor our operations, states of affairs in the regions in which we and our business partners operate and conduct research and clinical trial activities, and applicable government recommendations. As a result, we have made modifications to our normal operations, including restrictions on business travel and meetings, permitting employees to work remotely and the implementation of COVID-19 workplace safety guidelines to screen employees and office visitors for COVID-19 symptoms upon entering our offices. We have also implemented one-way traffic flows, social-distanced workspaces, additional cleaning requirements and mandatory face coverings for common spaces and provided components of Personal Protective Equipment (PPE) for all employees working out of our various office locations. Notwithstanding these measures, the COVID-19 pandemic could affect the health and availability of our workforce as well as those of the third parties we rely on. If members of our management and other key personnel in critical functions across our organization are unable to perform their duties or have limited availability due to COVID-19, we may not be able to execute on our business strategy and our operations may be adversely impacted. We may also experience limitations in employee resources, including due to illness of employees or their families or the desire of employees to avoid contact with individuals or large groups of people. In addition, we have experienced and will continue to experience disruptions to our business operations resulting from quarantines, self-isolations and travel and other restrictions on our employees which may impact their ability to perform their job responsibilities.

The extent and severity of the impact of the current global health crisis on our business and clinical trials will be determined largely by the ability of patients and prospective patients in our clinical trials to access trial sites, the ability of personnel from our CROs to oversee the administration of our drug in accordance with trial protocols and our ability to monitor and communicate effectively with our CROs, staff at clinical trial sites and principal investigators. In addition, the impact of the COVID-19 pandemic on the operations of the FDA and other health authorities may delay potential advancement of our product candidates.

Human Capital

In order to achieve our goals, it is crucial that we continue to attract and retain top talent. To facilitate talent attraction and retention, we strive to make our Company a safe and rewarding workplace, with opportunities for our employees to grow and develop in their careers, supported by strong compensation, benefits, health and wellness programs.

As of December 31, 2020, we had 20 employees in the United States and 5 employees in Israel. We believe that we have a good relationship with our employees.  

We strive to maintain an inclusive environment free from discrimination of any kind, including sexual or other discriminatory harassment. Our employees have multiple avenues available through which inappropriate behavior can be reported, including a confidential hotline.

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As of December 31, 2020, 40% of our employees were female and 60% were male. We are committed to creating and maintaining a diverse and inclusive workplace in which all employees have an opportunity to participate and contribute to the success of the business and are valued for their skills, experience, and unique perspectives. We seek and respect different perspectives, points of view, backgrounds, and communication styles.

The success of our business is fundamentally connected to the well-being of our employees. In response to the COVID-19 pandemic, we implemented modifications to our normal operations, including restrictions on business travel and meetings, permitting employees to work remotely and the implementation of COVID-19 workplace safety guidelines. Our COVID-19 workplace safety guidelines require screening of employees and office visitors for COVID-19 symptoms upon entering our offices, social-distanced workspaces, additional cleaning requirements and mandatory face coverings for common spaces. We also provide components of PPE for all employees working out of our various office locations.

We frequently benchmark our compensation practices and benefits programs against those of comparable industries and peer companies, and in the geographic areas where our facilities are located. We believe that our compensation and employee benefits are competitive and allow us to attract and retain qualified employees throughout our organization. In addition to salaries, employee benefits include annual discretionary bonuses, equity awards, a 401(k) plan for U.S. employees, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, and flexible work schedules, among others.

Additional Information

Our principal executive offices are located at 950 Winter Street, Waltham, Massachusetts 02451, and our phone number is (781) 577-5300.

Our corporate website is http://www.eloxxpharma.com. The public can access, through a link on the “Investors” section of our website, free of charge, all reports and other information on file with the United States Securities and Exchange Commission (“SEC”), immediately after we electronically submit such material to the SEC. In addition, we will provide electronic or paper copies of our filings free of charge upon request. Information contained on our corporate website or any other website is not incorporated into this Report and does not constitute a part of this Report.

In addition, the public may read and copy any materials filed by the Company with the SEC at the SEC’s Public Reference Room located 100 F Street, NE, Washington, DC 20549. Interested parties may call 1-800-SEC-0330 for further information. The SEC also maintains a website containing publicly available information, at https://www.sec.gov.

We post our code of business conduct and ethics, which applies to all employees, including all executive officers, senior financial officers and directors, in the “Corporate Governance” sub-section of the “Investors” section of our corporate website. Our code of business conduct and ethics complies with Item 406 of SEC Regulations S-K and the Rules of the NASDAQ Stock Market. We intend to disclose any changes to the code that affect the provisions required by Item 406 of Regulation S-K and any waivers of the code of ethics for our executive officers, senior financial officers or directors, on our corporate website.

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