BioLineRx Ltd.
2010 ANNUAL REPORT
BioLineRx Ltd.
2010 ANNUAL REPORT
TABLE OF CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED FINANCIAL STATEMENTS:
Statements of financial position
Statements of comprehensive loss
Statements of changes in equity
Cash flow statements
Notes to the financial statements
Page
1
2
3
4
5 - 6
7 - 49
REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM
To the shareholders of
BioLineRx Ltd.
We have audited the accompanying consolidated statements of financial position of BioLineRx Ltd. (the
“Company”) and its consolidated entities as of December 31, 2009 and 2010 and the related consolidated
statements of comprehensive income (loss), changes in equity and cash flows for each of the three years in the
period ended December 31, 2010. These financial statements are the responsibility of the Company’s Board of
Directors and management. Our responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the Company’s Board of Directors and
management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
consolidated financial position of the Company and its consolidated entities as of December 31, 2009 and 2010
and their results of operations and cash flows for each of the three years in the period ended December 31, 2010,
in conformity with International Financial Reporting Standards (“IFRS”), as issued by the International
Accounting Standards Board (“IASB”).
Tel Aviv, Israel
March 27, 2011
Kesselman & Kesselman
Certified Public Accountants (Isr.)
Member of PricewaterhouseCoopers
International Ltd.
1
BioLineRx Ltd.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Note
2i, 5a
5b
2k,15
14a
2j, 12b(1)
14b
6
7
2s
3a
8
14c(1)
14c(2)
8
2s(1)
12
9
Convenience
translation
into USD
(Note 1b)
December 31,
2010
In thousands
32,102
8,054
13
-
1,814
41,983
693
56
1,295
388
-
2,432
44,415
88
1,106
1,722
428
3,031
6,375
124
8
132
December 31,
2009
2010
NIS in thousands
105,890
-
1,094
37,750
2,313
147,047
3,704
1,150
4,175
3,042
111,746
28,037
46
-
6,313
146,142
2,414
196
4,509
1,352
49
12,120
159,167
-
8,471
154,613
-
307
6,452
14,005
10,570
10,203
41,230
-
-
3,849
5,993
1,491
10,551
22,191
432
30
462
41,230
22,653
6,507
1,235
412,513
6,549
22,963
(325,323)
117,937
159,167
1,236
414,435
6,549
27,623
(317,883)
131,960
154,613
355
119,056
1,881
7,935
(91,319)
37,908
44,415
Assets
CURRENT ASSETS
Cash and cash equivalents
Short-term bank deposits
Prepaid expenses
Trade accounts receivable
Other receivables
Total current assets
NON-CURRENT ASSETS
Restricted deposits
Long-term prepaid expenses
Property and equipment, net
Intangible assets, net
Asset in respect of retirement benefit
obligations
Total non-current assets
Total assets
Liabilities and equity
CURRENT LIABILITIES
Current maturities of long-term bank loan
Accounts payable and accruals:
Trade
OCS
Licensors
Other
Total current liabilities
NON-CURRENT LIABILITIES
Long term bank loan, net of current maturities
Retirement benefit obligations
Total non-current liabilities
COMMITMENTS AND CONTINGENT
LIABILITIES
Total liabilities
EQUITY
Ordinary shares
Share premium
Warrants
Capital reserve
Accumulated deficit
Total equity
Total liabilities and equity
The accompanying notes are an integral part of the financial statements.
2
BioLineRx Ltd.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Note
15,16
14d
REVENUES
COST OF REVENUES
GROSS PROFIT
RESEARCH AND DEVELOPMENT
2008
Year ended December 31,
2009
NIS in thousands
2010
Convenience
translation
into USD
(Note 1b)
2010
In thousands
-
-
-
63,909
(22,622)
113,160
(25,571)
32,508
(7,346)
41,287
87,589
25,162
EXPENSES, NET
14e
(106,156)
(90,302)
(54,966)
(15,790)
SALES AND MARKETING
EXPENSES
GENERAL AND ADMINISTRATIVE
EXPENSES
GAIN ON ADJUSTMENT OF
WARRANTS TO FAIR VALUE
OPERATING INCOME (LOSS)
FINANCIAL INCOME
FINANCIAL EXPENSES
NET INCOME (LOSS) AND
COMPREHENSIVE INCOME
(LOSS) FOR THE YEAR
EARNINGS (LOSS) PER ORDINARY
SHARE - BASIC
EARNINGS PER ORDINARY
SHARE - DILUTED
14f
14g
2l
14h
14i
11a
11a
-
(3,085)
(4,609)
(1,324)
(13,083)
(11,182)
(14,875)
(4,273)
3,658
-
(115,581)
(63,282)
13,001
(12,269)
3,928
(2,164)
-
13,139
3,056
(8,755)
-
3,775
877
(2,515)
(114,849)
(61,518)
7,440
2,137
NIS
(1.44)
(0.63)
-
-
0.06
0.06
USD
0.02
0.02
The accompanying notes are an integral part of the financial statements.
3
BioLineRx Ltd.
STATEMENTS OF CHANGES IN EQUITY
Ordinary
shares
Warrants
Share
premium
Capital
Reserve
Accumulated
deficit
Total
NIS in thousands
-
307,658
23,926
(148,956)
183,253
BALANCE AT JANUARY 1, 2008
CHANGES IN 2008:
Warrants reclassified from liabilities to equity
Share-based compensation
Comprehensive loss for the year
BALANCE AT DECEMBER 31, 2008
CHANGES IN 2009:
Exercise of warrants
Expiration of warrants
Employee stock options exercised
Employee stock options expired
Issuance of share capital and warrants, net
Share-based compensation
Comprehensive loss for the year
625
-
-
-
625
*
-
30
-
580
-
-
BALANCE AT DECEMBER 31, 2009
1,235
CHANGES IN 2010:
Employee stock options exercised
Employee stock options expired
Share-based compensation
Comprehensive income for the year
1
-
-
-
947
-
-
947
*
(947)
-
-
6,549
-
-
6,549
-
-
-
-
-
-
-
307,658
3
947
13,143
340
90,422
-
-
412,513
291
1,631
-
-
-
9,035
-
32,961
-
-
(13,057)
(340)
-
3,399
-
22,963
(266)
(1,631)
6,557
-
27,623
-
-
(114,849)
(263,805)
947
9,035
(114,849)
78,386
-
-
-
-
-
-
(61,518)
3
-
116
-
97,551
3,399
(61,518)
(325,323)
117,937
-
-
-
7,440
26
-
6,557
7,440
(317,883)
131,960
BALANCE AT DECEMBER 31, 2010
1,236
6,549
414,435
*
Represents an amount less than NIS 1,000.
The accompanying notes are an integral part of the financial statements.
4
BioLineRx Ltd.
CONSOLIDATED CASH FLOW STATEMENTS
2008
Year ended December 31,
2009
NIS in thousands
2010
CASH FLOWS - OPERATING ACTIVITIES
Net income (loss) for the year
Adjustments required to reflect net cash used in
operating activities (see appendix below)
Net cash provided by (used in) operating activities
CASH FLOWS - INVESTING ACTIVITIES
Proceeds from sale of financial assets at fair value
(114,849)
(61,518)
7,440
21,080
(93,769)
(22,978)
(84,496)
33,231
40,671
through profit or loss
27,851
30,837
Proceeds from sale of financial assets at fair value
through profit or loss - restricted
Purchase of financial assets at fair value through
profit or loss
Purchase of financial assets at fair value through
profit or loss - restricted
Investment in short-term deposits
Investment in restricted deposits
Withdrawal of restricted deposits
Purchase of property and equipment
Grants received in respect of property and equipment
Proceeds from sale of property and equipment
Purchase of intangible assets
Net cash provided by (used in) investing activities
CASH FLOWS - FINANCING ACTIVITIES
Issuance of share capital and warrants, net of issuance
expenses
Proceeds of bank loan
Repayments of bank loan
Proceeds from exercise of warrants
Proceeds from exercise of employee stock options
Net cash provided by financing activities
INCREASE (DECREASE) IN CASH AND CASH
-
3,767
(58,327)
(3,757)
-
-
5,977
(3,255)
28
-
(1,790)
(33,273)
-
-
-
-
-
-
-
(3,147)
251
(235)
-
3
(628)
30,848
97,551
3
116
97,670
-
-
-
-
(28,333)
(206)
1,353
(1,853)
-
-
(492)
(29,531)
-
1,020
(281)
-
26
765
Convenience
translation
into USD
(Note 1b)
2010
In thousands
2,137
9,546
11,683
-
-
-
-
(8,139)
(59)
389
(532)
-
-
(141)
(8,482)
-
293
(81)
-
7
219
EQUIVALENTS
(127,042)
44,022
11,905
3,420
CASH AND CASH EQUIVALENTS – BEGINNING
OF YEAR
EXCHANGE DIFFERENCES ON CASH AND CASH
EQUIVALENTS
CASH AND CASH EQUIVALENTS - END OF
YEAR
193,798
60,379
105,890
30,420
(6,377)
1,489
(6,049)
(1,738)
60,379
105,890
111,746
32,102
The accompanying notes are an integral part of the financial statements.
5
BioLineRx Ltd.
CONSOLIDATED CASH FLOW STATEMENTS
2008
Year ended December 31,
2009
NIS in thousands
2010
Convenience
translation
into USD
(Note 1b)
2010
In thousands
APPENDIX
Adjustments required to reflect net cash used in
operating activities:
Income and expenses not involving cash flows:
Depreciation and amortization
Impairment of intangible assets
Retirement benefit obligations
Long-term prepaid expenses
Gain on adjusting warrants to fair value
Loss on sale of property and equipment
Exchange differences on cash and cash
equivalents
Gain on fair value adjustments to financial
assets at fair value through profit or loss
Share-based compensation
Interest and exchange differences on short-term
deposits
Interest and exchange differences on restricted
deposits
Changes in operating asset and liability items:
Decrease (increase) in trade accounts
receivable and other receivables
Increase (decrease) in accounts payable and
accruals
Supplementary information on investing and
financing activities not involving cash
flows:
Credit received in connection with purchase of
property and equipment
Credit received in connection with purchase of
intangible assets
Warrants reclassified from liabilities to equity
Supplementary information on interest received
in cash
1,676
603
-
(103)
(3,658)
-
1,754
584
(63)
(880)
-
1
6,377
(1,489)
(273)
9,035
(98)
3,399
1,814
1,846
79
954
-
-
6,049
-
6,557
296
156
13,813
(204)
3,004
143
17,738
521
530
23
274
-
-
1,738
-
1,884
85
41
5,096
(9,812)
(29,877)
34,798
9,996
17,079
7,267
3,895
(25,982)
(19,305)
15,493
(5,546)
4,450
21,080
(22,978)
33,231
9,546
238
947
3,901
245
-
443
104
100
-
30
29
-
1,013
291
The accompanying notes are an integral part of the financial statements.
6
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 – GENERAL INFORMATION
a. General
BioLineRx Ltd. (the “Company”) was incorporated and commenced operations in April 2003.
The Company’s headquarters are in Jerusalem, Israel.
Since incorporation, the Company has been engaged, both independently and through its
consolidated entities (collectively, the “Group”), in the development of therapeutics, from early-
stage development to advanced clinical trials, for a wide range of medical needs.
In December 2004, the Company formed a limited partnership, BioLine Innovations Jerusalem
L.P. (the “Partnership”), which commenced operations on January 1, 2005. The Company holds
a 99% interest in the Partnership, with the remaining 1% held by a wholly-owned subsidiary of
the Company, BioLine Innovations Ltd. (the “Subsidiary”). The Partnership was established to
operate an industrial research and development center in an incubator located in Jerusalem (the
“Incubator”) under an agreement with the State of Israel. See Note 12a(1).
In February 2007, the Company listed its securities on the Tel Aviv Stock Exchange (“TASE”) –
see Note 9.
In January 2008, the Company established a wholly-owned subsidiary, BioLineRx USA Inc.,
which serves as the Group’s business development arm in the United States. In January 2011,
the Company announced its intention to transfer its business development activities to Israel.
As noted above, the Company has been engaged in the development of therapeutics since its
incorporation. As of the date of these financial statements, the Company has succeeded in out-
licensing two of its products. Nevertheless, the Company cannot determine with reasonable
certainty if and when it will become profitable on a current basis.
b. Convenience translation into US dollars (“dollars” or “USD”)
For the convenience of the reader, the reported New Israeli Shekel (NIS) amounts as of
December 31, 2010 have been translated into dollars, at the representative rate of exchange on
March 31, 2011 (USD 1 = NIS 3.481). The dollar amounts presented in these financial
statements should not be construed as representing amounts that are receivable or payable in
dollars or convertible into dollars, unless otherwise indicated.
c. Approval of consolidated financial statements
The consolidated financial statements of the Company for the year ended December 31, 2010
were approved by the Board of Directors of the Company on March 27, 2011, and signed on its
behalf by the Chairman of the Board, the Company’s Chief Executive Officer and the
Company’s Chief Financial and Operating Officer.
7
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
a. Basis of presentation
The Company’s consolidated financial statements as of December 31, 2010 and 2009, and for
each of the three years in the period ended December 31, 2010, have been prepared in
accordance with International Financial Reporting Standards (“IFRS”), as issued by the
International Accounting Standards Board (“IASB”). The significant accounting policies
described below have been applied on a consistent basis for all years presented, unless noted
otherwise.
The consolidated financial statements have been prepared on the basis of historical cost, subject
to adjustment of financial assets and liabilities to their fair value through profit or loss and
adjustment of assets and liabilities in connection with retirement benefit obligations.
The Company classifies its expenses on the statement of comprehensive income (loss) based on
the operating characteristics of such expenses. The Company’s annual operating cycle consists
of a standard 12-month period.
The preparation of financial statements in conformity with IFRS requires the use of certain
critical accounting estimates. It also requires management to exercise its judgment in the process
of applying the Group’s accounting policies. Areas involving a higher degree of judgment or
complexity, or areas where assumptions and estimates are significant to the consolidated
financial statements are disclosed in Note 4. Actual results may differ materially from estimates
and assumptions used by the Group’s management.
b. Consolidation of the financial statements
Consolidated entities (the Partnership and the Subsidiaries) include all entities over which the
Company has the power to govern the financial and operating policies, which generally involves
holding more than 50% of the shares or interests conferring voting rights of the applicable entity.
The existence and effect of potential voting rights that are currently exercisable or convertible
are considered when assessing whether the Company controls an entity. Consolidated entities
are fully consolidated from the date on which control of such entities is transferred to the
Company and they are de-consolidated from the date that control ceases. The purchase method
of accounting is used to account for the acquisition of subsidiaries by the Group.
c. Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the
currency of the primary economic environment in which each entity operates (the “functional
currency”). The consolidated financial statements are presented in NIS, which is the Group’s
functional and presentation currency.
Transactions that are executed in currencies other than the Group’s functional currency (“foreign
currency transactions”) are translated into the functional currency using the exchange rates
prevailing at the date of each transaction. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year-end exchange rates of monetary
assets and liabilities denominated in foreign currencies are recognized in profit or loss.
8
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)
d. Property and equipment
Property and equipment are stated at historical cost less depreciation and related grants received
from the Office of the Chief Scientist of the Israeli Ministry of Industry, Trade and Labor (the
“OCS”). Historical cost includes expenditures that are directly attributable to the acquisition of
the items. Assets are depreciated by the straight-line method over the estimated useful lives of
the assets, provided that the Group’s management believes the residual values of the assets to be
negligible, as follows:
Computers and communications equipment
Office furniture and equipment
Laboratory equipment
%
20-33
6-15
15-20
The assets’ residual values, methods of depreciation and useful lives are reviewed, and adjusted,
if appropriate, at each balance sheet date. An asset’s carrying amount is written down
immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated
recoverable amount.
Leasehold improvements are amortized by the straight-line method over the term of the lease,
which is shorter than the estimated useful life of the improvements.
Grants received from the OCS are recognized in profit or loss over the life of a depreciable asset
as a reduction in depreciation expense.
e.
Intangible assets
The Group applies the cost method of accounting in subsequent measurements of intangible
assets. Under this method of accounting, intangible assets are carried at cost less any
accumulated amortization and any accumulated impairment losses.
Intellectual property
The Group recognizes in its financial statements intangible assets developed by the Group to the
extent that the conditions stipulated in o. below are met. Intellectual property acquired by the
Group is initially measured at cost. Intellectual property acquired by the Group is not amortized
and is tested annually for impairment. See f. below.
Computer software
Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire
and bring to use the specific software. These costs are amortized over the estimated useful lives
of the software programs (3-5 years).
9
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)
f.
Impairment of non-financial assets
Intangible assets are tested annually for impairment, except for computer software that is
amortized, as detailed in 2e above. In addition, impairment testing of intellectual property is
required when the Group decides to terminate or suspend the development of a project based on
such intellectual property. Property and equipment, as well as computer software, are tested for
impairment whenever events or changes in circumstances indicate that the carrying amount may
not be recoverable. An impairment loss is recognized equal to the amount by which the asset’s
carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an
asset’s fair value less costs to sell and the asset’s value in use to the Group.
g. Government grants
Government grants are recognized at fair value, whenever it is probable that the grant will be
received and that the Group will comply with all the conditions in respect thereof.
Government grants related to periodic costs are deferred and recognized in profit or loss over the
period required to match the related costs.
Government grants related to fixed assets are recorded as a reduction in the book value of the
related assets, and are charged to profit and loss in accordance with the straight-line method.
h. Financial assets
1) Classification
The Group classifies its financial assets in the following categories: at fair value through
profit or loss and loans and receivables. The classification depends on the purpose for
which each financial asset was acquired. The Group’s management determines the
classification of financial assets at initial recognition:
a) Financial assets at fair value through profit or loss
A financial asset is classified in this category if management has designated it as a
financial asset upon initial recognition, because it is managed and its performance is
evaluated on a fair-value basis in accordance with a documented risk management or
investment strategy. The Group’s investment policy with regard to its excess cash, as
adopted by the Company’s Board of Directors, is composed of the following
objectives: (i) preserving investment principal, (ii) providing liquidity and (iii)
providing optimum yields pursuant to the policy guidelines and market conditions. The
policy provides detailed guidelines as to the securities and other financial instruments
in which the Group is allowed to invest. In addition, in order to maintain liquidity,
investments are structured to provide flexibility to liquidate at least 50% of all
investments within 15 business days. Information about these assets, including details
of the portfolio and income earned, is provided internally on a quarterly basis to the
Group’s key management personnel. Any divergence from this investment policy
requires approval from the Company’s Board of Directors.
10
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)
h. Financial assets (cont.)
b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. These assets are included in current
assets, except for installments which are due more than 12 months subsequent to the
balance sheet date. Such installments are included in non-current assets. The Group’s
loans and receivables include “accounts receivable,” “cash and cash equivalents,”
“short-term investments,” “restricted deposits” and “bank loans” in the balance sheet.
See Notes 2i, 2j and 2k.
2) Recognition and measurement
Regular purchases and sales of financial assets are recognized on the trade-date - the date
on which the Group commits to purchase or sell the asset. Investments are initially
recognized at fair value plus transaction costs for all financial assets not carried at fair value
through profit or loss. Financial assets carried at fair value through profit or loss are initially
recognized at fair value, and transaction costs are expensed in the income statement.
Financial assets are de-recognized when the rights to receive cash flows from the
investments have expired or have been transferred and the Group has transferred
substantially all risks and rewards of ownership. Financial assets at fair value through profit
or loss are subsequently carried at fair value. Loans and receivables are subsequently
carried at amortized cost using the effective interest method.
Gains or losses arising from changes in the fair value of the “financial assets at fair value
through profit or loss” category are presented in the income statement within “other
(losses)/gains - net” in the period in which they arise. Dividend income from financial
assets at fair value through profit or loss is recognized in the income statement as part of
other income when the Group’s right to receive payments is established.
3) Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the balance sheet
when there is a legally enforceable right to offset the recognized amounts and there is an
intention to settle on a net basis or realize the asset and settle the liability simultaneously.
i. Cash equivalents
In the consolidated statement of cash flows, cash and cash equivalents includes cash on hand and
short-term bank deposits (up to three months from date of deposit) that are not restricted as to
withdrawal or use, and are therefore considered to be cash equivalents.
j. Restricted deposits
The Company has placed a lien on NIS and dollar deposits in banks to secure its liabilities to
various parties. Those deposits are presented separately as non-current assets, in accordance with
the timing of the restriction. See Note 12b(1).
11
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)
k. Trade receivables
Trade receivable balances relate to amounts receivable from customers of the Group in respect
of sub-licenses granted, or services that have been provided, in the ordinary course of business.
If collection of these amounts is expected within one year or less, they are classified in current
assets; otherwise, they are reflected in non-current assets.
Trade receivables are initially recognized at their fair value. Thereafter, they are measured at
amortized cost, based on the effective interest method, less any allowance for doubtful accounts.
l. Warrants
Receipts in respect of warrants are classified as equity to the extent that they confer the right to
purchase a fixed number of shares for a fixed exercise price. As part of the Company’s initial
public offering on the TASE in February 2007, the Company issued Series 1 warrants with an
exercise price linked to the Israeli Consumer Price Index (“CPI”). Accordingly, the exercise
price was not deemed to be fixed and, as such, the Series 1 warrants did not qualify for equity
classification. As long as the exercise price was linked to the CPI, the Series 1 warrants were
classified as liabilities and carried at fair value, with changes in their fair value recognized in
profit or loss. The issuance costs of the Series 1 warrants were also directly charged to profit or
loss. Following the amendment in 2008 of the terms of the Series 1 warrants, pursuant to which
the linkage of the exercise price to the CPI was cancelled, the warrants were classified in equity.
m. Share capital
The Company’s Ordinary Shares are classified as equity. Incremental costs directly attributable
to the issuance of new shares or warrants are reflected in equity as a deduction from the issuance
proceeds.
n. Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the
ordinary course of business from suppliers. Accounts payable are classified as current liabilities
if payment is due within one year or less (or in the normal operating cycle of the business if
longer). If not, they are presented as non-current liabilities. Trade payables are recognized
initially at fair value and subsequently measured at amortized cost using the effective interest
method.
o. Deferred taxes
Deferred taxes are recognized using the liability method, on temporary differences arising
between the tax bases of assets and liabilities and their carrying amounts in the consolidated
financial statements. Deferred income tax assets are recognized only to the extent that it is
probable that future taxable income will be available against which the temporary differences
can be utilized.
As the Group is currently engaged primarily in development activities and is not expected to
generate taxable income in the foreseeable future, no deferred tax assets are included in the
financial statements.
12
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)
p. Revenue recognition
The Group recognizes revenue in accordance with International Accounting Standard (“IAS”)
18 – “Revenue,” including guidance regarding arrangements with multiple deliverables.
Pursuant to this guidance, the Group applies revenue recognition criteria to the separately
identifiable components of a single transaction. The consideration from the arrangement is
allocated among the separately identifiable components by reference to their fair value.
Revenues incurred in connection with the out-licensing of the Group’s patents and other
intellectual property are recognized when all of the following criteria have been met as of the
balance sheet date:
The Group has transferred to the buyer the significant risks and rewards of ownership of
the patents and intellectual property.
The Group does not retain either the continuing managerial involvement to the degree
usually associated with ownership or the effective control over the patent and intellectual
property.
The amount of revenue can be measured reliably.
It is probable that the economic benefits associated with the transaction will flow to the
Group.
The costs incurred or to be incurred in respect of the sale can be measured reliably.
Revenues in connection with rendering of services are recognized by reference to the stage of
completion of the transaction as of the balance sheet date, if and when the outcome of the
transaction can be estimated reliably.
Revenues from royalties are recognized on an accrual basis in accordance with the substance of
the relevant agreement.
13
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)
q. Research and development expenses
Research expenses are charged to operations as incurred.
An intangible asset arising from development (or from the development phase of an internal
project) is recognized if all of the following conditions are fulfilled:
technical feasibility exists for completing development of the intangible asset so that it
will be available for use or sale.
it is management’s intention to complete development of the intangible asset for use or
sale.
the Company has the ability to use or sell the intangible asset.
it is probable that the intangible asset will generate future economic benefits, including
existence of a market for the output of the intangible asset or the intangible asset itself or,
if the intangible asset is to be used internally, the usefulness of the intangible asset.
adequate technical, financial and other resources are available to complete development of
the intangible asset, as well as the use or sale thereof.
the Company has the ability to reliably measure the expenditure attributable to the
intangible asset during its development.
Other development costs that do not meet the foregoing conditions are charged to operations as
incurred. Development costs previously expensed are not recognized as an asset in subsequent
periods. As of December 31, 2010, the Group has not yet capitalized development expenses.
r. Government participation in research and development expenses
The Group receives participation in research and development expenses from the State of Israel
through the OCS, both in the form of loans extended to the Incubator for research and
development, as described in Note 12a(1), and in the form of grants, as described in Note 12a(2).
Despite the formal difference between the two types of support from the OCS, there is no
material financial difference between them. Each loan and grant qualifies as a “forgivable loan”
in accordance with IAS 20, “Accounting for Government Grants and Disclosure of Government
Assistance,” since the loans and grants are repayable only if the Group generates revenues
related to the project that is the subject of the loan or grant.
14
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)
r. Government participation in research and development expenses (cont.)
The Company recognizes each forgivable loan on a systematic basis at the same time the
Company records, as an expense, the related development costs for which the grant/loan is
received, provided that there is reasonable assurance that (a) the Company complies with the
conditions attached to the grant/loan and (b) the grant/loan will be received. The amount of the
forgivable loan is recognized based on the participation rate approved by the OCS.
The Company accounts for each forgivable loan as a liability unless it is more likely than not
that the Company will meet the terms of forgiveness, in which case the forgivable loan is
accounted for as a government grant and carried to income as a reduction of research and
development expenses.
Government grants received in respect of investments in property and equipment are presented
as a reduction of the cost of such assets.
If forgivable loans are initially carried to income, as described above, and, in subsequent
periods, it appears more likely than not that the project will be successful and that the loans will
be repaid or royalties paid to the OCS, the Group recognizes a liability on the balance sheet.
s. Employee benefits
1) Pension and severance pay obligations
Israeli labor laws and the Group’s agreements require the Group to pay retirement benefits
to employees terminated or leaving their employ in certain other circumstances. Most of the
Group’s employees are covered by a defined contribution plan under Section 14 of the
Israel Severance Pay Law.
The amount recorded as an employee benefit expense in respect of defined contribution
plans for the years 2008, 2009 and 2010 was NIS 1,884,000, NIS 1,887,000, and
NIS 1,982,000, respectively.
With respect to the remaining employees, the Group records a liability on its balance sheet
for defined benefit plans that represents the present value of the defined benefit obligation
as of balance sheet date, net of the fair value of plan assets, and adjustments for
unrecognized actuarial gains or losses. The defined benefit obligation is computed annually
by independent actuaries, using the corridor method. The present value of the defined
benefit liability is determined by discounting the anticipated future cash outflows, using
interest rates that are denominated in the currency in which the benefits will be payable.
Actuarial gains and losses arising from experience adjustments and changes in actuarial
assumptions are charged to income.
Past-service costs are recognized immediately in income, unless the changes to the pension
plan are conditional on the employees remaining in service for a specified period of time
(the vesting period). In such cases, the past-service costs are amortized on a straight-line
basis over the vesting period.
15
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)
s. Employee benefits (cont.)
2) Vacation days and recreation pay
Labor laws in Israel provide that every employee is entitled to vacation days and recreation
pay, both of which are computed annually. The entitlement with respect to each employee
is based on the employee’s length of service with the Company. The Group recognizes a
liability and an expense in respect of vacation and recreation pay based on the individual
entitlement of each employee.
3) Share-based payments
The Group operates an equity-settled, share-based compensation plan, under which it
receives services from employees as consideration for equity instruments (options) of the
Group. The fair value of the employee services received in exchange for the grant of the
options is recognized as an expense. The total amount to be expensed is determined by
reference to the fair value of the options granted:
including any market performance conditions (for example, the Company’s share price);
excluding the impact of any service and non-market performance vesting conditions (for
example, profitability, sales growth targets and the employee remaining with the entity
over a specified time period); and
excluding the impact of any non-vesting conditions.
Non-market vesting conditions are included in assumptions about the number of options
that are expected to vest. The total expense is recognized over the vesting period, which is
the period over which all of the specified vesting conditions are to be satisfied. At the end
of each reporting period, the Group revises its estimates of the number of options that are
expected to vest based on the non-marketing vesting conditions. It recognizes the impact of
the revision to original estimates, if any, in the income statement, with a corresponding
adjustment to equity.
When the options are exercised, the Company issues new shares. The proceeds received,
net of any directly attributable transaction costs, are credited to share capital (at par value)
and share premium when the options are exercised.
t. Earnings (loss) per share
1) Basic
The basic earnings (loss) per share is calculated by dividing the earnings (loss) attributable
to the holders of Ordinary Shares by the weighted average number of outstanding Ordinary
Shares during the year.
2) Diluted
The diluted earnings (loss) per share is calculated by adjusting the weighted average
number of outstanding Ordinary Shares, assuming conversion of all dilutive potential
shares. The Company’s dilutive potential shares consist of warrants and options granted to
employees and service providers. The dilutive potential shares were not taken into account
in computing loss per share in 2008 and 2009, as their effect would not have been dilutive.
16
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)
u. Changes in accounting policy and disclosures
1) New and amended standards adopted during 2010
The Group has adopted the following new and amended accounting standards as of January
1, 2010, which did not have a material effect on the financial statements of the Group:
a)
b)
c)
IAS 27 (revised) requires the effects of all transactions with non-controlling interests to
be recorded in equity if there is no change in control and these transactions will no
longer result in goodwill or gains and losses. The standard also specifies the accounting
when control is lost. Any remaining interest in the entity is re-measured to fair value,
and a gain or loss is recognized in profit or loss. The Group did not carry out any
transactions with non-controlling interests during 2010 and, accordingly, the initial
adoption of IAS 27 (revised) did not have any impact on the Group’s financial
statements.
IFRS 3 (revised), “Business Combinations” is effective prospectively to business
combinations for which the acquisition date is on or after the beginning of the first
annual reporting period beginning on or after 1 July 2009. The revised standard
continues to apply the acquisition method to business combinations but with some
significant changes compared with IFRS 3. For example, all payments to purchase a
business are recorded at fair value at the acquisition date, with contingent payments
classified as debt subsequently remeasured through the statement of comprehensive
income. There is a choice on an acquisition-by-acquisition basis to measure the non-
controlling interest in the acquiree either at fair value or at the non-controlling
interest’s proportionate share of the acquiree’s net assets. All acquisition-related costs
are expensed. The Group elected to adopt IFRS 3 (revised) on a prospective basis for
all business combinations, effective January 1, 2010. The initial adoption of IFRS 3
(revised) did not have an effect on the Group’s financial statements.
IAS 1 (amendment), “Presentation of Financial Statements,” clarifies that the potential
settlement of a liability by the issue of equity is not relevant to its classification as
current or non-current. By amending the definition of current liability, the amendment
permits a liability to be classified as non-current (provided that the entity has an
unconditional right to defer settlement by transfer of cash or other assets for at least 12
months after the accounting period) notwithstanding the fact that the entity could be
required by the counterparty to settle in shares at any time. The Group adopted IAS 1
(amendment) effective January 1, 2010. The initial adoption of IAS 1 (amendment) did
not have an effect on the Group’s financial statements.
17
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)
u. Changes in accounting policy and disclosures (cont.)
1) New and amended standards adopted during 2010 (cont.)
d)
e)
IFRS 7 “Financial Instruments – Disclosures” (amendment), requires enhanced
disclosures about fair value measurement and liquidity risk. In particular, the
amendment requires disclosure of fair value measurements in accordance with a fair
value measurement hierarchy. The amendment did not have a material impact on the
Group’s financial statements for the periods reported herein.
IAS 38 (amendment), “Intangible Assets,” is part of the IASB’s annual improvements
project published in May 2008. The amendment provides that a prepayment may only
be recognized in the event that payment has been made in advance of obtaining the
right of access to goods or receipt of services.
The amendment also establishes that when re-measuring the book value of a debt
instrument at termination of fair value hedge accounting, the effective interest
calculated as of the date hedge accounting terminates should be used. The amendment
did not have a material impact on the Group’s financial statements for the periods
reported herein.
2) Standards, amendments and interpretations to existing standards that are not yet effective
and have not been early adopted by the Group, and which are not expected to have a
material impact on the Group’s financial statements
IAS 32 (amendment), “Classification of Rights Issues,” was issued in October 2009. For
rights issues offered for a fixed amount of foreign currency, current practice appears to
require such issues to be accounted for as derivative liabilities. The amendment states that if
such rights are issued pro rata to all existing shareholders of an entity in the same class for a
fixed amount of currency, they should be classified as equity regardless of the currency in
which the exercise price is denominated. The amendment will be effective for annual
periods beginning on or after February 1, 2010, with early application permissible. The
Group intends to apply this amendment in its financial statements beginning on January 1,
2011.
NOTE 3 – FINANCIAL RISK MANAGEMENT
According to estimates by the Group’s management, the Group’s exposure to credit risks as of
December 31, 2010 is immaterial (see Note 3b). The activities of the Group expose the Group to
market risks, particularly as a result of currency risks.
The Company’s finance department is responsible for carrying out risk management activities in
accordance with policies approved by the Company’s Board of Directors. In this regard, the finance
department identifies, defines and assesses financial risks in close cooperation with other Company
departments. The Board of Directors provides written guidelines for overall risk management, as well
as written policies dealing with specific areas, such as exchange rate risk, interest rate risk, credit
risk, use of financial instruments, and investment of excess cash.
18
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 3 – FINANCIAL RISK MANAGEMENT (cont.)
a. Market risks
1) Concentration of currency risks
The Group’s activities are partly denominated in foreign currency, which exposes the
Group to risks resulting from changes in exchange rates (primarily the dollar).
The effect of fluctuations in various exchange rates on the Group’s income and equity is as
follows:
Sensitive instrument
10% increase
5% increase
Income (loss)
December 31, 2010
Value on
balance sheet
NIS in thousands
Income (loss)
5% decrease
10% decrease
Dollar-linked balances:
Cash and cash equivalents
Short-term bank deposits
Restricted deposits*
Other receivables
Trade payables
Payable to licensors
Total dollar-linked balances
Euro-linked trade payables
Total
7,339
2,804
57
529
(179)
(149)
10,401
(41)
10,360
3,670
1,402
28
265
(90)
(75)
5,200
(20)
5,180
73,394
28,037
569
5,294
(1,792)
(1,491)
104,011
(406)
103,605
(3,670)
(1,402)
(28)
(265)
90
75
(5,200)
20
(5,180)
(7,339)
(2,804)
(57)
(529)
179
149
(10,401)
41
(10,360)
* See also Note 12b(1).
The Group also maintains cash and cash equivalent balances that are linked to other
currencies in amounts that are not material.
The Company believes that the likelihood of a fluctuation in exchange rates of up to 10% in
the coming period is reasonable.
Sensitive instrument
10% increase
5% increase
Income (loss)
December 31, 2009
Value on
balance sheet
NIS in thousands
Income (loss)
5% decrease
10% decrease
Dollar-linked balances:
Cash and cash equivalents
Restricted deposits*
Trade receivables
Trade payables
Payable to licensors
Total dollar-linked balances
Euro-linked balances:
Cash and cash equivalents
Trade payables
Trade payables linked to
pound sterling
Total
3,367
60
3,775
(299)
(1,057)
5,846
155
(219)
(64)
40
5,882
1,684
30
1,888
(149)
(528)
2,925
77
(110)
(33)
20
2,912
33,674
604
37,750
(2,987)
(10,570)
58,471
1,550
(2,196)
(646)
399
58,224
(1,684)
(30)
(1,888)
149
528
(2,925)
(77)
110
33
(20)
(2,912)
(3,367)
(60)
(3,775)
299
1,057
(5,846)
(155)
219
64
(40)
(5,822)
* See also Note 12b(1).
19
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 3 – FINANCIAL RISK MANAGEMENT (cont.)
a. Market risks (cont.)
1) Concentration of currency risks (cont.)
Set forth below is data regarding exchange rates and the CPI:
As of December 31:
2009
2010
Percentage increase (decrease) in:
2009
2010
Exchange rate of
USD 1
NIS
Exchange rate of
€ 1
NIS
Exchange rate of
£ 1
NIS
Israeli CPI*
Points
3.775
3.549
(0.7)%
(6.0)%
5.442
4.738
6.111
5.493
2.7 %
(12.9 %)
10.2%
(10.1%)
122.57
125.83
3.9%
2.7%
* Based on the index for the month ending on each balance sheet date, on the basis of 2000
average = 100.
Set forth below is information on the linkage of monetary items:
December 31, 2009
Other
currencies
Dollar
December 31, 2010
Other
currencies
NIS
Dollar
NIS
NIS in thousands
Assets:
Current assets:
Cash and cash equivalents
Short term bank deposits
Other receivables
Trade receivables
Non-current assets:
Restricted deposits
Total assets
Liabilities:
Current liabilities:
Current maturities of bank loan:
Accounts payable and accruals:
Trade
OCS
Licensors
Other
Non-current liabilities:
Long-term bank loan, net of
current maturities
Total liabilities
Net asset value
33,674
-
-
37,750
604
72,028
-
2,987
-
10,570
-
1,949
-
-
-
-
1,949
-
2,221
-
-
-
70,267
-
2,313
-
3,100
75,680
73,394
28,037
5,294
-
569
107,294
-
-
1,244
14,005
-
10,203
1,792
-
1,491
-
320
-
-
-
-
320
-
515
-
-
-
38,032
-
1,019
-
1,845
40,896
307
1,542
5,993
-
6,775
-
13,557
58,471
-
2,221
(272)
-
25,452
50,228
-
3,283
104,011
-
515
(195)
432
15,049
25,847
20
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 3 – FINANCIAL RISK MANAGEMENT (cont.)
a. Market risks (cont.)
2) Fair value of financial instruments
As of December 31, 2010, the financial instruments of the Group consist of non-derivative
assets and liabilities (primarily working capital items and restricted deposits).
In view of their nature, the fair value of the financial instruments included in working
capital is generally close or identical to their carrying amount. The fair value of the
restricted cash in long-term deposits also approximates the carrying amount, as these
financial instruments bear interest at a rate similar to the prevailing interest rate.
3) Exposure to market risks and the management thereof
The trade receivable balance as of December 31, 2009 relates to the transaction with Ikaria
Holdings, Inc. (“Ikaria”), which, as described in Note 15, was collected in April 2010. The
Company has also invested in deposits and short-term government bonds. Accordingly, in
the opinion of the Company’s management, the market risks to which the Company is
exposed are primarily related to the exposure to currency risks, as mentioned above.
Additionally, the Company’s management does not consider the interest rate risk mentioned
in paragraph 4 below to be material.
4)
Interest rate risks
The Company’s management does not consider interest rate risk to be material as the
Company holds deposits and short-term government bonds whose fair value and/or cash
flows are not materially affected by changes in the interest rate.
b. Credit risks
Credit risks are managed at the Group level. These risks relate to cash and cash equivalents,
bank deposits and trade receivables.
The Group’s cash and cash equivalents at December 31, 2009 and 2010 were mainly deposited
with major Israeli banks. In the Company’s opinion, the credit risk in respect of these balances is
remote.
The Group considers its maximum exposure to credit risk to be as follows:
December 31,
2009
2010
NIS in thousands
105,890
-
37,750
2,313
3,704
149,657
111,746
28,037
-
6,313
2,414
148,510
Assets:
Cash and cash equivalents
Short term bank deposits
Trade accounts receivable
Other receivables
Restricted deposits
Total
21
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 3 – FINANCIAL RISK MANAGEMENT (cont.)
c. Liquidity risks
The Company’s management monitors rolling forecasts of the Group’s liquidity reserves on the
basis of anticipated cash flows and maintains the liquidity balances at a level that is sufficient to
meet its needs.
As mentioned in Note 1, although the Company has succeeded in out-licensing two of its
products, it cannot determine with reasonable certainty if and when it will become profitable on
a current basis. Management of the Company believes that the Company’s current cash balances
will enable it to execute its operating plans through the end of 2012. Accordingly, in the event
that the Company does not continue to generate cash from its operating activities, the
Company’s long-term operations in their current form are contingent on the Company’s raising
additional capital in the future.
d. Financial instruments
As of December 31, 2009 and 2010, the Group’s financial instruments consisted solely of loans
and receivables.
NOTE 4 – CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
As part of the financial reporting process, the Company’s management is required to make certain
assumptions and estimates that may affect the value of the assets, liabilities, income, expenses and
some of the disclosures included in the Company’s consolidated financial statements. By their very
nature, such estimates are subjective and complex and consequently may differ from actual results.
The accounting estimates and assumptions that are used in the preparation of the financial statements
are continually evaluated and are based on historical experience and other factors, including
expectation of future events that are believed to be reasonable under the circumstances.
Described below are the critical accounting estimates that are used in the preparation of the financial
statements, the formulation of which required the Company’s management to make assumptions as to
circumstances and events that involve significant uncertainty. In using its judgment to determine the
accounting estimates, the Company takes into consideration, as appropriate, the relevant facts, past
experience, the effect of external factors and reasonable assumptions under the circumstances.
a. Development expenses
Development expenses are capitalized in accordance with the accounting policy described in
Note 2o. The capitalization of costs is based on management’s judgment of technological and
economic feasibility, which is usually achieved when a product development project reaches a
predefined milestone, or when the Company enters into a transaction to sell the know-how that
resulted from the development process. In determining the amount to be capitalized,
management makes assumptions as to the future anticipated cash inflows from the assets, the
discount rate and the anticipated period of future benefits. The Company’s management has
concluded that, as of December 31, 2010, the foregoing conditions have not been met and
therefore development expenses have not been capitalized for any project.
If management had assessed that the aforementioned conditions had been met, the capitalization
of development costs would have increased the Group’s profit.
22
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4 – CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (cont.)
b. Grants/loans from the OCS
In accordance with the accounting treatment described in Note 2p, the Company’s management
is required to evaluate whether there is reasonable assurance that the grant/loan received will be
paid or repaid. Additionally, whenever the grant/loan is initially recognized as income,
management is required to evaluate whether the payment of royalties/repayment of loans to the
OCS is considered more likely than not.
See Notes 12a(1) and 12a(2) with regard to the expected amount repayable to the OCS as of
December 31, 2010.
c. Revenue recognition
In accordance with the accounting treatment described in Note 2p, the Company’s management
is required to evaluate whether it is probable that the economic benefits related to the out-
licensing agreements with Ikaria and Cypress Bioscience will flow to the Group and whether it
is possible to reliably measure the amount of the revenues relating to the transaction.
As of December 31, 2010, receipt of additional economic benefits associated with such
transactions was not considered probable. Accordingly, no revenues with respect to additional
milestone payments were recorded in the 2010 financial statements.
NOTE 5 – CASH, CASH EQUIVALENTS AND SHORT-TERM BANK DEPOSITS
a. Cash and cash equivalents
Cash on hand and in bank
Short-term bank deposits
December 31,
2009
2010
NIS in thousands
700
105,190
105,890
1,642
110,104
111,746
The short-term bank deposits included in cash and cash equivalents bear interest at annual rates
of between 0.65% and 1.51%. The carrying amount of cash and cash equivalents is close or
identical to their fair value, since they bear interest at rates similar to the prevailing market
interest rates.
b. Short-term bank deposits
The short-term bank deposits are linked to the dollar and bear interest at annual rates of between
1.03% and 1.67%.
23
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 6 – PROPERTY AND EQUIPMENT
Set forth below are the composition of property and equipment and the accumulated depreciation thereon, grouped by major
classifications, and the changes therein for the respective years:
Cost
Accumulated depreciation
Balance at Additions
beginning
of year
Deletions
during
during
year
year
NIS in thousands
Balance at Balance at Additions
beginning
of year
end of
year
Deletions
during
during
year
year
NIS in thousands
Balance at
end of
year
Net book value
December 31,
2007
2008
NIS in thousands
Composition in 2008
Office furniture and equipment
Computers and communications
equipment
Laboratory equipment, net*
Leasehold improvements
* Item is net of OCS grants
received - see b. below
Composition in 2009
Office furniture and equipment
Computers and communications
equipment
Laboratory equipment, net*
Leasehold improvements
* Item is net of OCS grants
received - see Note 12a(1)d
446
250
1,137
1,654
2,830
6,067
314
1,346
1,317
3,227
(2,222)
(28)
-
-
-
-
-
-
696
1,451
3,000
4,147
9,294
76
35
705
459
1,097
2,337
292
374
772
1,473
(2,250)
478
334
-
-
-
-
-
-
111
370
585
997
833
1,869
3,810
432
1,195
1,733
3,730
454
2,167
2,278
5,484
812
(1,744)
(1,438)
Cost
Accumulated depreciation
Balance at Additions
beginning
of year
Deletions
during
during
year
year
NIS in thousands
Balance at Balance at Additions
beginning
of year
end of
year
Deletions
during
during
year
year
NIS in thousands
Balance at
end of
year
Net book value
December 31,
2008
2009
NIS in thousands
696
1,451
3,000
4,147
9,294
(2,250)
-
106
136
-
242
-
-
8
-
-
8
-
696
111
58
1,549
3,136
4,147
9,528
997
833
1,869
3,810
258
467
764
1,547
(2,250)
812
338
-
(4)
-
-
(4)
-
169
585
527
1,251
1,300
2,633
5,353
454
2,167
2,278
5,484
298
1,836
1,514
4,175
1,150
(1,438)
(1,100)
24
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 6 – PROPERTY AND EQUIPMENT (cont.)
Set forth below are the composition of property and equipment and the accumulated depreciation thereon, grouped by major
classifications, and the changes therein for the respective years (cont.):
Cost
Accumulated depreciation
Balance at Additions
beginning
of year
Deletions
during
during
year
year
NIS in thousands
Balance at Balance at Additions
beginning
of year
end of
year
Deletions
during
during
year
year
NIS in thousands
Balance at
end of
year
Net book value
December 31,
2009
2010
NIS in thousands
Composition in 2010
Office furniture and equipment
Computers and communications
equipment
Laboratory equipment, net*
Leasehold improvements
* Item is net of OCS grants
received - see Note 12a(1)d
696
1,549
3,136
4,147
9,528
28
372
1,510
47
1,957
-
724
169
42
-
211
527
513
(772)
-
-
(772)
1,1 49
4,646
4,194
10,713
1,251
1,300
2,633
5,353
234
611
736
1,623
(772)
-
-
(772)
713
1,911
3,369
6,204
298
1,836
1,514
4,175
436
2,735
825
4,509
(2,250)
-
-
(2,250)
1,150
338
-
1,488
(1,100)
(762)
25
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 7 – INTANGIBLE ASSETS
Cost
Accumulated depreciation and impairment
Composition in 2008
Intellectual property
Computer software
Composition in 2009
Intellectual property
Computer software
Composition in 2010
Intellectual property
Computer software
Balance at Additions
beginning
of year
Deletions
during
during
year
year
NIS in thousands
Balance at Balance at Additions
beginning
of year
end of
year
Deletions
during
during
year
year
NIS in thousands
Balance at
end of
year
Net book value
December 31,
2007
2008
NIS in thousands
1,568
549
2,117
1,856
172
2,028
-
-
-
3,424
721
4,145
-
134
134
-
203
203
603
-
603
603
337
940
1,568
415
1,983
2,821
384
3,205
Cost
Accumulated depreciation
Balance at Additions
beginning
of year
Deletions
during
during
year
year
NIS in thousands
Balance at Balance at Additions
beginning
of year
end of
year
Deletions
during
during
year
year
NIS in thousands
Balance at
end of
year
Net book value
December 31,
2008
2009
NIS in thousands
3,424
721
4,145
589
39
628
Cost
(436)
-
(436)
3,577
760
4,337
603
337
940
-
207
207
148
-
148
751
544
1,295
2,821
384
3,205
2,826
216
3,042
Accumulated depreciation
Balance at Additions
beginning
of year
Deletions
during
during
year
year
NIS in thousands
Balance at Balance at Additions
beginning
of year
end of
year
Deletions
during
during
year
year
NIS in thousands
Balance at
end of
year
Net book value
December 31,
2009
2010
NIS in thousands
3,577
760
4,337
-
347
347
(1,846)
-
(1,846)
1,731
1,107
2,838
751
544
1,295
-
191
191
-
-
-
751
735
1,486
2,826
216
3,042
980
372
1,352
During 2009, intellectual property dispositions with a total cost of NIS 436,000 were recorded to cost of revenues in respect of the BL-
1040 project (see Note 14). During 2010, the Group wrote-off intellectual property in the total amount of NIS 1,846,000 in respect of
three projects that were terminated – BL-2030, BL-4060 and BL-5020.
Depreciation in respect of computer software and the amortization of intellectual property in 2010 were included in research and
development expenses.
26
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 8 – LONG-TERM BANK LOAN
a. Composition:
Loan balance
Less current maturities
December 31,
2009
2010
NIS in thousands
-
-
-
739
(307)
432
The loan is denominated in NIS, linked to the CPI and bears interest at an annual rate of 2.4%.
The book value of the loan approximates its fair value.
The loan is repayable in 36 monthly installments.
b. Future repayments of long-term bank loans (other than current maturities) in the years
subsequent to the balance sheet date are as follows:
2012
2013
NOTE 9 – EQUITY
a. Share capital
307
125
432
As of December 31, 2009 and 2010, share capital is composed of Ordinary Shares, par value
NIS 0.01 per share, as follows:
Number of Ordinary Shares
December 31,
2009
2010
Authorized share capital
250,000,000
250,000,000
Issued share capital
123,497,029
123,558,660
Paid-up share capital
123,497,029
123,558,660
In NIS
December 31,
2009
2010
Authorized share capital
2,500,000
2,500,000
Issued share capital
1,234,970
1,235,587
Paid-up share capital
1,234,970
1,235,587
The Ordinary Shares are traded on the Tel Aviv Stock Exchange. The price per Ordinary Share
as of December 31, 2010 was NIS 3.21.
27
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 9 – EQUITY (cont.)
b. Rights related to shares
The Ordinary Shares confer upon their holders voting and dividend rights and the right to
receive assets of the Company upon its liquidation. As of December 31, 2010 and 2009, all
outstanding share capital consisted of Ordinary Shares.
c. Changes in the Company’s equity
1)
In February 2007, the Company conducted an initial public offering on the TASE of
28,690,000 Ordinary Shares and 14,345,000 Series 1 warrants. The net proceeds to the
Company from the issuance amounted to approximately NIS 198,000,000.
Each Series 1 warrant was exercisable into one Ordinary Share at an exercise price of NIS
8.50 which, in accordance with the original terms of such warrants, was linked to the CPI
(subject to adjustments). The warrants were exercisable over a period of two years from the
date of their listing for trading. The consideration allocated to the warrants was
approximately NIS 32,100,000, computed under the Black-Scholes model, which reflected
their fair value as of the issuance date. Issuance costs related to the warrants of
approximately NIS 2,100,000 were recorded as an expense. As of December 31, 2007, the
warrants were marked to market on the Company’s balance sheet (at the market price on the
TASE), with the change in fair value of the warrants recorded to income (see also Note 2l).
In July 2008, the exercise price of the warrants ceased to be linked to the CPI and,
accordingly, the market value of the warrants at that time, amounting to NIS 947,000, was
reclassified from current liabilities to equity.
In February 2009, 380 warrants were exercised for total consideration of NIS 3,000, and the
remaining 14,344,620 warrants expired.
2)
3)
In July 2009, the Company issued 46,667,719 Ordinary Shares in a public rights offering.
The total net proceeds from the offering amounted to NIS 51,800,000, after deducting NIS
900,000 of issuance costs. The rights offering included an embedded benefit of 25% to the
Company’s shareholders (such embedded benefit being essentially a stock dividend for
financial statement purposes).
In December 2009, the Company issued 11,293,419 Ordinary shares and 7,528,946 Series 2
warrants in a public offering. Each warrant is exercisable into one Ordinary Share at an
exercise price of NIS 6.08 (not linked). The warrants are exercisable for a period of two
years from the date that they were registered for trading.
The total net proceeds from the offering amounted to NIS 45,700,000, after deducting NIS
1,400,000 in issuance costs. The issuance costs have been allocated between share premium
and the warrants based on the relative market value (as indicated on the TASE) of the
shares and warrants on the date of the offering.
28
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 9 – EQUITY (cont.)
d. Share-based payments
1)
In 2003, the Company’s Board of Directors approved a stock compensation plan for
employees and consultants pursuant to which 1,328,500 Ordinary Shares were reserved for
issuance upon the exercise of options. In 2005, the Company’s Board of Directors approved
an expansion of the stock compensation plan for employees and consultants to allow the
allotment of an additional up to 2,136,022 options exercisable into Ordinary Shares. In
2007, the Company’s Board of Directors approved a grant to employees and consultants of
9,996,556 shares and options exercisable into Ordinary Shares.
In February and March 2010, the Company’s Board of Directors approved the grant of
4,020,300 options to the Company’s employees and members of the Scientific Advisory
Board. Each option is exercisable into one Ordinary Share, par value NIS 0.01. The options
vest as follows: 50% at the end of two years from the grant date; 25% at the end of three
years from the grant date; and the remaining 25% at the end of four years from the grant
date.
2) Employee stock options
The following table contains additional information concerning options granted to
employees and directors under the existing stock-option plans:
2008
Year ended December 31,
2009
2010
Weighted
average
exercise
price
(in NIS)
1.02
2.98
4.25
-
1.16
0.67
Number
of options
5,071,486
491,500
(53,000)
-
5,509,986
2,972,124
Weighted
average
exercise
price
(in NIS)
1.16
2.31
2.61
0.04
2.44
2.92
Weighted
average
exercise
price
(in NIS)
2.44
4.11
4.89
0.46
3.56
1.69
Number
of options
2,053,551
4,905,400
(443,873)
(53,103)
6,461,975
1,120,270
Number
of options
5,509,986
198,330
(658,137)
(2,996,628)
2,053,551
689,946
Outstanding at beginning of year
Granted
Forfeited
Exercised
Outstanding at end of year
Exercisable at end of year
The total consideration received from the exercise of stock options during 2009 and 2010
was NIS 116,000 and NIS 26,000, respectively.
The weighted average price of the Company’s shares on the dates of exercise was NIS 2.42
and NIS 3.53 for 2009 and 2010, respectively.
29
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 9 – EQUITY (cont.)
d. Share-based payments (cont.)
2) Employee stock options (cont.)
Set forth below is data regarding the range of exercise prices and weighted-average
remaining contractual life (in years) for the options outstanding at the end of each of the
years indicated.
As of December 31,
Number
of options
outstanding
Range of
exercise prices
(in NIS)
Weighted
average
remaining
contractual life
(in years)
2008
2009
2010
5,509,986
2,053,551
6,461,975
0.04 - 5.04
0.04 - 5.04
0.04 - 5.04
7.45
6.56
4.69
The Ordinary Shares allotted under these plans will confer the same rights as all other
Ordinary Shares in the Company.
Employees of the Group have been granted options under Section 102 of the Israeli Income
Tax Ordinance (the “Ordinance”). Non-employees of the Group (service providers,
consultants, etc.), as well as controlling shareholders in the Company (as this term is
defined in Section 32(9) of the Ordinance), have been granted options under Section 3(i) of
the Ordinance.
The fair value of all options granted to employees through December 31, 2010 has been
determined using the Black-Scholes option-pricing model. These values are based on the
following assumptions as of the applicable grant dates:
2008
2009
2010
Expected dividend yield
Expected volatility *
Risk-free interest rate
Expected life of options (in years)
0%
70%
5%
7
0%
64%
5%
7
0%
66%
4%
5
* Expected volatility has been computed on the basis of specific Company market data, as
well as the data of similar companies operating in the same industry.
30
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 9 – EQUITY (cont.)
d. Share-based payments (cont.)
3) Stock options to consultants
From inception through December 31, 2006, the Company issued to consultants options for
the purchase of 220,990 Ordinary Shares at an average exercise price of USD 0.01 per
share. In 2007, the Company changed the exercise price to NIS 0.039 per share. The options
vest over four years
In 2007, the Group issued options to consultants for the purchase of 144,242 Ordinary
Shares at an average exercise price of NIS 0.73 per share. The options vest over four years.
The above options may be exercised for a period of 10 years.
In 2010, the Group issued options to consultants for the purchase of 300,000 Ordinary
Shares at an average exercise price of NIS 4.03 per share. The options vest over four years
and may be exercised for a period of 5 years.
The Company’s management estimates the fair value of the options granted to consultants
based on the value of services received over the vesting period of the applicable options.
The value of such services (primarily in respect of clinical advisory services) is estimated
based on the additional cash compensation the Company would need to pay if such options
were not granted. The value of services recorded in 2008, 2009 and 2010 amounted to NIS
437,000, NIS 640,000 and NIS 1,054,000, respectively.
4) See Note 15 regarding the option provided to Cypress Bioscience to pay up to half of the
first milestone payment in consideration for the issuance of the Company’s Ordinary
Shares.
NOTE 10 – TAXES ON INCOME
a. Corporate taxation in Israel
Beginning with the 2008 tax year, the results of the Company and its Israeli subsidiaries for tax
purposes are measured in nominal terms. Prior to 2008, results for tax purposes had been
measured in real terms, taking into account changes in the CPI, pursuant to the Israeli
Inflationary Adjustments Law, 1985.
The Partnership is not subject to tax under Israeli tax law; rather, each of the partners thereof
(the Company and the Subsidiary) is liable for the tax applicable to the operations of the
Partnership in proportion to their respective share in the Partnership’s results.
b. Tax rates
The income of the Company and the Subsidiary is taxed at standard Israeli corporate tax rates.
Israeli corporate tax rates for 2008 and thereafter are as follows: 2008 - 27%, 2009 - 26%, 2010 -
25%, 2011 - 24%, 2012 - 23%, 2013 - 22%, 2014 - 21%, 2015 - 20%, 2016 and thereafter -
18%.
Capital gains (except “real” capital gains on the sale of marketable securities, which are taxed at
the standard corporate tax rates) are taxed as follows: capital gains derived after January 1, 2003
are subject to a tax rate of 25%, while capital gains derived until that date are taxed at the
standard corporate tax rate.
31
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10 – TAXES ON INCOME (cont.)
c. Tax loss carryforwards
As of December 31, 2010, the tax loss carryforwards of the Company were approximately NIS
252,000,000 and the tax loss carryforwards of the Subsidiary were approximately NIS
1,000,000. The tax loss carryforwards of the Company have no expiration date.
The Company has not created deferred tax assets in respect of these tax loss carryforwards. See
Note 2o.
d. Tax assessments
The Company and its subsidiaries have not been assessed for tax purposes since their respective
incorporation or formation.
e. Theoretical taxes
As described in Note 2o, the Company has not recognized any deferred tax assets in the
financial statements, since the Company does not expect to generate taxable income in the
foreseeable future. The tax on the Group’s profit before tax differs from the theoretical amount
that would arise using the weighted average tax rate applicable to profits of the consolidated
entities as follows:
Income (loss) before taxes
Theoretical tax expense (tax benefit)
Disallowed deductions (tax exempt income):
Gain on adjusting warrants to fair value
Share-based compensation
Other
Difference between the measurement basis of
income reported for tax purposes and the
measurement basis of income for financial
reporting purposes (see Note 9a)
Realization of tax loss carryforwards for
which deferred taxes were not created
Increase in taxes for tax losses and timing
differences incurred in the reporting year
for which deferred taxes were not
recognized
Taxes on income for the reported year
2008
NIS in
thousands
(114,849)
27%
Year ended December 31,
2009
NIS in
thousands
26%
(61,518)
25%
2010
NIS in
thousands
7,440
1,860
-
1,639
25
-
(3,652)
128
-
(31,009)
(15,995)
-
852
51
(10)
-
15,102
-
(988)
2,439
52
(2,491)
-
31,997
-
32
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10 – TAXES ON INCOME (cont.)
f. Deductible temporary differences
The amount of cumulative deductible temporary differences, other than unused tax loss
carryforwards (as mentioned in c. above), for which deferred tax assets have not been
recognized in the statement of financial position as of December 31, 2009 and 2010, were NIS
12,958,000 and NIS 13,086,000, respectively. These temporary differences have no expiration
dates.
g. Value-added tax (VAT)
The Company is jointly registered for VAT purposes together with certain of its subsidiaries.
NOTE 11 – EARNINGS (LOSS) PER SHARE
a. The following table contains the data used in the computation of the basic earnings (loss) per
share:
2008
Year ended December 31,
2009
NIS in thousands
2010
Income (loss) as reported in financial
statements
(114,849)
(61,518)
7,440
Income (loss) attributed to ordinary
shares
Number of shares used in basic
calculation (in thousands)
Adjustment for incremental dilutive
shares from the theoretical exercise
of options and warrants
Number of shares used in diluted
calculation (in thousands)
Basic earnings (loss) per ordinary
share*
Diluted earnings (loss) per ordinary
share*
(114,849)
(61,518)
7,440
78,131
96,693
123,512
-
-
-
-
1,035
124,547
NIS
(1.44)
(0.63)
-
-
0.06
0.06
* The loss per share and the number of shares for the years 2008 and 2009 have been retroactively
adjusted in order to give retroactive effect to the benefit embedded in the rights offering, as detailed in
Note 9c(3). The embedded benefit, which is the equivalent of a stock dividend, in such rights offering
was 25%.
Diluted loss per share data is not presented for 2008 and 2009, due to the antidilutive effect of
the inclusion of potentially dilutive shares.
33
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 12 – COMMITMENTS AND CONTINGENT LIABILITIES
a. Commitments
1) Agreement with the State of Israel for the operation of a biotechnology incubator (the
“Incubator”)
As part of the Incubator Agreement between the Partnership and the State of Israel,
represented by the OCS (see principal provisions below), the State of Israel has agreed to
grant loans to the Partnership to partially finance projects approved by the OCS.
The loans bear interest in accordance with the Interest and Linkage Law, 1961 (as of
December 31, 2009 and 2010 – 1.70% and 1.40%, respectively), and are repayable at the
discretion of the Partnership (but subject to the conditions described below concerning the
sale of project assets or the realization of income from the project), as follows:
In the three years of a project’s incubator stage, the loan is repayable, plus accrued
interest.
In the subsequent two years, the loan is repayable under the same terms, provided
that the Incubator undertakes to maintain the advancement of the project at a rate
similar to that of the preceding years.
In the three following years, the loan is repayable with the addition of a double
interest charge, provided that the Incubator undertakes to continue advancing the
project at a rate similar to that of the preceding years.
If the Incubator sells assets or generates income from a project (including any intellectual
property related thereto), at least 25% of the income from such sale must be used to repay
the project loan, up to the original amount of the loan with the addition of interest as
described herein. The Partnership is required to repay the loan in full upon the sale of a
project’s intellectual property or the grant of an exclusive license to use the project’s
intellectual property. The total payments to the State of Israel from such income will not
exceed the original amount of the applicable loan with the addition of interest and linkage
to the CPI. In certain circumstances, if the intellectual property or manufacturing rights are
transferred outside of Israel, the repayment amounts may be greater.
Pursuant to the Incubator Agreement, the Incubator has undertaken to register a first-
ranking pledge in favor of the OCS to cover the loans made to the Incubator. In accordance
with the agreement, each pledge is specific to a loan for a specific project and includes a
restriction on the transfer of, and/or licensing rights in, technologies that originate from the
project, and on any equipment purchased for the use of the project. The Group has signed
and submitted the pledge registration documents to the OCS.
The proceeds from the sale or use of a project-related intellectual property serve as the
exclusive source for repayment of OCS loans financing such projects, and the sole
collateral for the repayment of project loans are pledges on project-related intellectual
property and assets purchased with loan proceeds.
34
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 12 – COMMITMENTS AND CONTINGENT LIABILITIES (cont.)
a. Commitments (cont.)
1) Agreement with the State of Israel for the operation of a biotechnology incubator (cont.)
In 2008, 2009 and 2010, the Group received NIS 9,240,000, NIS 6,338,000, and NIS
1,916,000, respectively, from the OCS, of which NIS 6,902,000, NIS 3,491,000, and NIS
842,000, respectively, were related to discontinued projects. The Company has agreed with
the OCS on a procedure for the discontinuation of projects by the Incubator and the action
that should be taken to forgive or repay loans received in respect of such discontinued
projects.
The biotechnological incubators program is an initiative of the OCS that is designed to
strengthen and promote the Israeli biotechnology industry, as well as biotechnology
projects. This program was launched in late 2001, following publication of Directive No.
8.4 of the Director-General of Israel’s Ministry of Industry, Trade and Labor (“Directive
8.4”). This directive implements the recommendations of the “Monitor” report, which
reviewed ways to promote the Israeli biotechnology industry and recommended the
establishment of for-profit incubators to support commercially viable projects by providing
physical, organizational, professional, marketing and business infrastructure to promote
research and development by early-stage biotechnology enterprises.
Directive 8.4 was amended in May 2004, to prescribe two tracks for operating biotech
incubators (see (e) below). Immediately after the amendment of Directive 8.4, the OCS
issued a call for proposals to establish and operate incubators. The Company, whose
proposal was accepted by the OCS, entered into an agreement with the OCS, through the
Partnership, for the operation of a designated biotechnology incubator. The principal
provisions of the Incubator Agreement are as follows:
(a) Period of the agreement
The Incubator Agreement originally had a six-year period expiring on December 31,
2010. However, in accordance with an approval certificate that was received from the
OCS, the Incubator Agreement was extended for two additional years, through 2012,
and it was also agreed that the Group would be permitted to file a request for an
additional one-year extension (through December 2013) prior to expiration of the first
extension.
(b) Scope of Incubator operations
The Incubator is designed for the simultaneous operation of at least eight OCS-
approved projects. The Group may operate additional projects within the Incubator’s
facilities that are not funded by the State or under the incubator program, provided that
the operation of such additional projects does not interfere with OCS-approved
projects.
35
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 12 – COMMITMENTS AND CONTINGENT LIABILITIES (cont.)
a. Commitments (cont.)
1) Agreement with the State of Israel for the operation of a biotechnology incubator (cont.)
(c) Summary of the Group’s obligations
Within the framework of the Incubator Agreement, the Group has agreed to operate a
biotechnology-designated incubator, to identify projects suitable for OCS approval, to
make adequate premises and physical infrastructure available for at least eight projects
and to provide administrative, organizational, professional and business support to the
projects in order to facilitate research and development of commercially viable
biotechnology projects. Among other things, some minimum requirements have been
set for Incubator staff in terms of skills and employment levels. In addition, the Group
has agreed to maintain a central laboratory for the use of all projects, equip the
laboratory in accordance with the specifications provided in Directive 8.4 and in the
Group’s incubator proposal, and operate the Incubator using capable personnel. The
Group is also required to make consulting and auditing services (accounting, legal,
patent consulting, quality assurance,
information science services, regulatory
consulting and clinical trials) available to the projects at an acceptable scope and
quality, from service providers approved by the OCS. The Group has undertaken to
invest at least NIS 2,700,000 per year in the operation of the Incubator.
(d) Summary of OCS obligations
The OCS has undertaken to finance 50% of the cost of the equipment required for
setting up the central laboratory and to make available State loans to each of the
projects approved by the OCS at the rates of 85%, 80% and 75% of the project’s
approved budget in its first three years of operation, respectively, which are to be
repaid to the State as described above. Each Incubator project is limited to a period of
three years and a maximum budget of NIS 8,100,000, in respect of which the Group is
responsible for obtaining the complementary financing (15% to 25%) for all three
years, as described above.
In exchange for the services from the Incubator, the Group is entitled to receive
participation by the OCS in operating expenses of up to 20% of the personnel costs
associated with each project’s approved budget, and may not collect additional
payments in respect of the basket of services required by the OCS. The participation
limit also applies to the operating expenses of the central laboratory, but does not apply
to the costs of consumable materials.
(e) The different tracks
Directive 8.4 offers two tracks for the operation of an incubator. Under the first track,
each project is incorporated as a separate and independent company in which the
incubator receives shares (the separate companies will allocate at least 30% of their
share capital to the holder of the license/knowhow, up to 5% of the share capital for
incubator services, and the remaining shares will be allotted to the incubator and other
investors in proportion to their investments in the independent company, including the
incubator’s investments derived from State loans).
36
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 12 – COMMITMENTS AND CONTINGENT LIABILITIES (cont.)
a. Commitments (cont.)
1) Agreement with the State of Israel for the operation of a biotechnology incubator (cont.)
(e) The different tracks (cont.)
Under the second track, the projects are directly run within the incubator by the
concessioner, with the holder of the license/know-how being entitled to a fixed amount
for the use of his know-how as well as to royalties upon the sale of the knowhow and
in respect of the sales of a final product developed under the project. An incubator
operating under the second track is allowed to operate additional specific projects
under the guidelines of the first track, subject to fulfillment of the provisions in the
guidelines. The Group has elected to operate the Incubator under the second track.
(f) Primary restrictions imposed on the Group and the Incubator
The agreement stipulates certain restrictions regarding operation of the Incubator and
the projects, including, among others: maximum ownership of 15% in the Incubator by
university research institutions; a limitation of subcontracting to no more than 40% of
the approved budget; ownership by the Group (or the project company under the first
track) of the intellectual property created in the project (it should be noted that an
exception to this rule was carved out in a recent amendment to the R&D law from
January 2011 regarding academic institutions); a prohibition on duplicate grants and
participation or duplicity of projects; compliance with guidelines on investment of
funds; restrictions on the terms of the licensing agreements with the holders of the
know-how, which mainly involves securing the rights of the OCS; compliance with the
Israel R&D Law (the Encouragement of Research and Development in Industry Law)
in terms of keeping in Israel the intellectual property and manufacturing rights relating
to OCS-funded projects.
(g) Repayment of loans
Repayment of State loans is restricted to a project’s own resources out of the proceeds
received from the sale or licensing of a project (at least 25% of the proceeds). The sale
or licensing of the technology is subject to payment of the aforementioned royalties, up
to the amount of the loans received from the State for such project.
The State is entitled to foreclose on the collateral related to a given project to secure
repayment of the related loan at the end of eight years from the date of project
approval, or even earlier, in the event of a breach of the Incubator Agreement by the
Group, liquidation, and other events as set forth in the agreement.
37
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 12 – COMMITMENTS AND CONTINGENT LIABILITIES (cont.)
a. Commitments (cont.)
1) Agreement with the State of Israel for the operation of a biotechnology incubator (cont.)
(h) Security
The Group has provided a bank guarantee to the OCS in the amount of NIS 8,100,000
to secure its liabilities under the Incubator Agreement. After two years from the initial
date of the Incubator Agreement, the amount of the guarantee is reduced every year by
half the amount of the Incubator’s reported approved expenses, subject to a minimum
guarantee of NIS 1,500,000 (see Note 12b). Additionally, the rights in the various
projects are pledged to the State to secure repayment of the loan out of project
proceeds. With respect to incubators operating under the second track, a floating
charge is placed on all intellectual property and all equipment purchased in connection
with a project, including a restriction on the transfer or licensing of the technology
created in the project. The collateral discussed in this paragraph may be forfeited even
after the repayment period or upon breach of the Incubator Agreement.
(i) To the best knowledge of the Company’s management, as of the date of approval of
these financial statements, the Group is in compliance with its material obligations to
the OCS under the Incubator Agreement.
With respect to the accounting treatment of State loans, see Note 2r.
2) Obligation to pay royalties to the Government of Israel
The Company is required to pay royalties to the Government of Israel, computed on the
basis of proceeds from the sale or license of products whose development was supported by
Government grants.
This obligation relates solely to the Government’s financial participation in the
development of products by the Company outside the framework of the Incubator operated
by the Partnership.
In accordance with the terms of the financial participation, the Government is entitled to
royalties on the sale or license of any product whose development was supported with
Government participation. These royalties are 3% in the first three years from initial
repayment, 4% of sales in the three subsequent years and 5% of sales in the seventh year
until repayment of 100% of the grants (linked to the USD) received by the Company plus
annual interest at the LIBOR rate. As of December 31, 2010, the maximum amount of
royalties payable by the Company to the Government of Israel is NIS 3,000,000.
38
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 12 – COMMITMENTS AND CONTINGENT LIABILITIES (cont.)
a. Commitments (cont.)
3) Licensing agreements
From time to time, the Group enters into in-licensing agreements with academic
institutions, research institutions and companies in connection with development of certain
technologies (the “licensors”).
The objective of each engagement with a licensor is to obtain rights for one or more drugs
in the preliminary stages of development by the licensors, to continue joint development of
the drugs by the Group and the licensors until advanced stages of development and,
consequently, to manufacture, distribute and market the drugs or to out-license the
development, manufacture and commercialization rights to third parties. Such post-
development activities are carried out by either the Group and/or by companies or
institutions to which the Group has entered into an out-license agreement, subject to certain
restrictions stipulated in the various agreements.
The licenses that have been granted to the Group are broad and comprehensive, and
generally include various provisions and usage rights, as follows: (i) territorial scope of the
license (global); (ii) term of the license (unrestricted but not shorter than the life of the
patent); and (iii) development of the therapeutic compound (allowing the Group to perform
all development activities on its own, or by outsourcing under Group supervision, as well as
out-licensing development under the license to other companies, subject to the provisions of
the licensing agreements).
According to the provisions of the licensing agreements, the intellectual property rights in
the development of any licensed technology remain with the licensor until the date the
applicable license agreement is effective, while the rights in products and/or other
deliverables developed by the Group after the license is granted belong to the Group. In
cases where the licensor has a claim to an invention that was jointly developed with the
Group, the licensor also co-owns the related intellectual property. In any event, the scope of
the license also covers these rights.
In addition, the Group generally undertakes in the licensing agreements to protect registered
patents resulting from developments under the various licenses, to promote the registration
of developments in cooperation with the licensor, and to bear responsibility for all related
costs. Pursuant to the various agreements, the Group will work to register the various
patents worldwide, and if the Group decides not to initiate or continue a patent registration
proceeding in a given country, the Group is required to notify the applicable licensor to this
effect and the licensor will be entitled to take action for registration of the patent in such
country.
39
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 12 – COMMITMENTS AND CONTINGENT LIABILITIES (cont.)
a. Commitments (cont.)
3) Licensing agreements (cont.)
The consideration paid pursuant to the licensing agreements includes several components
that are payable over the license period and that relate, inter alia, to the progress made in
research and development activities, as well as commercial success, as follows: (a) one-
time payment of up to USD 200,000 and/or periodic payments of up to USD 30,000 per
year; (b) royalties on amounts the Group receives from an out-licensing transaction that
range from 20% to 29.5% of net consideration; (c) payments through the early stages of
development ( i.e. through the end of phase 2) of up to USD 150,000; (d) payments of up to
USD 2,000,000 upon the achievement of milestones necessary for advancing to phase 3; (e)
payments of up to USD 5,000,000 from the end of a successful phase 3 trial through
approval of the therapeutic compound; and (f) royalties on sales of the final product
resulting from development under the license or including any component thereof, ranging
between 3%-5% of the Group’s net sales of the product.
A license agreement may be cancelled, generally upon the occurrence of one of the
following events: (a) the Group’s failure to meet certain milestones stipulated in the
applicable license agreement and appended timetables; (b) default, insolvency, receivership,
liquidation, etc., of the Group that is not imposed and/or lifted within the timeframe
stipulated in the license agreement; and (c) fundamental breach of the license agreement
that is not corrected within the stipulated timeframe. In addition, some of the agreements
may be cancelled with prior notice of 30 to 90 days, due to unsuccessful development or
any other cause.
The Group has undertaken to indemnify the various licensors, their employees, officers,
representatives or anyone acting on their behalf for any damage and/or expense that they
may incur in connection with the Group’s use of a license granted to it, all in accordance
with the terms stipulated in the applicable license agreements.
Some of the license agreements are accompanied by consulting, support and cooperation
agreements, pursuant to which the Group is committed to pay the various licensers a fixed
monthly amount, over the period stipulated in the agreement, for their assistance in the
continued research and development under the license.
40
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 12 – COMMITMENTS AND CONTINGENT LIABILITIES (cont.)
a. Commitments (cont.)
4) Lease agreements
a) The Company has entered into an operating lease agreement in connection with the
lease of its premises. The agreement expires on December 15, 2012. The Group has an
option to extend the lease agreement for two additional periods of 24 months each. The
annual lease fees are linked to the dollar and amount to approximately NIS 921,000.
As to bank deposits pledged to secure the Company’s liability under the lease
agreement, see Note 12b(1).
b) The Company has entered into operating lease agreements in connection with a
number of vehicles. The lease periods are generally for three years. The annual lease
fees, linked to the dollar, are approximately NIS 1,816,000. To secure the terms of the
lease agreements, the Group has made certain prepayments to the leasing companies,
representing approximately two months of lease payments. These amounts were
recorded as prepaid expenses. See also Note 14b.
5) Early Development Program (“EDP”) agreement
In January 2007, the Company entered into an agreement with Pan Atlantic for the funding
of an early development program (the “EDP Agreement”). According to the EDP
Agreement, Pan Atlantic undertook to provide grants for the promotion of drug-
development projects in the preliminary stages of research in an aggregate amount of up to
USD 5,000,000, in semi-annual “calls” of up to USD 625,000 each, through April 2011. In
parallel, for every dollar of EDP project funding provided by Pan Atlantic, the Company
committed to provide twenty cents of funding (i.e., a funding ratio of 5:1). Pan Atlantic
undertakings under the EDP agreement are not subject to Pan Atlantic being a lender to, or
a shareholder of, the Company.
In consideration for the EDP funding commitment, the Company granted to Pan Atlantic
the right to participate in a future initial public offering of the Company outside of Israel, at
the public offering price, in an amount of up to USD 5,000,000.
During 2008, 2009 and 2010, Pan Atlantic provided funding to the Group of NIS 2,876,000,
NIS 4,881,000 and NIS 3,877,000, respectively, under the EDP Agreement. The amounts
recognized as a reduction of research and development expenses in 2008, 2009 and 2010
were NIS 2,525,000, NIS 3,297,000 and NIS 2,997,000, respectively.
41
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 12 – COMMITMENTS AND CONTINGENT LIABILITIES (cont.)
b. Contingent liabilities
Guarantees and liens:
1) As part of the Group’s obligations under the Incubator Agreement and to secure the
Group’s liabilities to the OCS, the Company has provided a NIS 8,100,000 bank guarantee
(linked to the CPI) in favor of Israel’s Ministry of Finance.
The guarantee is valid through March 2011. According to the Incubator Agreement, after
the two year anniversary of the initial date of the Incubator Agreement, the amount of the
guarantee will be reduced every year by half of the amount of the Incubator’s reported
approved expenses. As of December 31, 2010, the balance of the guarantee amounted to
approximately NIS 1,500,000.
To secure the above guarantee, the Group has pledged to a bank a short-term deposit in the
amount of NIS 1,800,000, which is presented under non-current assets.
2) To secure the Company’s liability to the lessor of its premises, the Group has pledged
several dollar-denominated bank deposits in the amount of USD 160,000 (NIS 569,000),
which are presented under non-current assets.
NOTE 13 – TRANSACTIONS AND BALANCES WITH RELATED PARTIES
Transactions with related parties
Expenses (income):
2008
Year ended December 31,
2009
NIS in thousands
2010
Participation in EDP project funding
(see below)
Benefits to related parties:
Compensation and benefits to senior
management, including benefit
component of option grants
Number of individuals to which this
benefit related
Compensation and benefits to directors,
including benefit component of
option grants
Number of individuals to which this
benefit related
(2,525)
(3,297)
(2,997)
10,561
7,039
8,208
5
6
5
1,074
3
584
3
858
3
This amount relates to a grant received from a related party of the Company, in accordance with
the EDP Agreement as detailed in Note 12a(5).
42
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 13 – TRANSACTIONS AND BALANCES WITH RELATED PARTIES (cont.)
Key management compensation
Key management includes directors (executive and non-executive), executive officers and the
internal auditor. The compensation paid or payable to key management for services during each of
the years indicated is presented below.
2008
Year ended December 31,
2009
NIS in thousands
2010
Salaries and other short-term employee
benefits
Post-employment benefits
Other long-term benefits
Share-based compensation
4,084
365
42
7,144
11,635
5,115
320
36
2,152
7,623
5,609
343
42
3,072
9,066
NOTE 14 – SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION
a. Other receivables
December 31,
2009
2010
NIS in thousands
-
1,991
322
2,313
5,294
649
370
6,313
Withholding tax*
Institutions
Grants receivable from the OCS
* See Note 15.
b. Long-term prepaid expenses
The prepaid expenses relate to operating lease agreements in respect of the vehicles used by the
Group, and, in 2009, materials utilized by the Company to produce the BL-1040 compound
amounting to NIS 880,000. During 2010, after an assessment of the Group regarding the
realizable value of the materials, they were written off to R&D expenses.
43
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 14 – SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (cont.)
c. Accounts payable and accruals
1) Trade:
Accounts payable:
In Israel
Overseas
Checks payable
2) Other:
Payroll and related expenses
Accrual for vacation and recreation
pay
Accrued expenses
Grants on account of EDP project
development financing not yet
recognized in income
Other
December 31,
2009
2010
NIS in thousands
1,224
5,208
20
6,452
1,318
881
4,924
1,539
2,307
3
3,849
1,496
1,092
4,176
2,896
184
10,203
3,776
11
10,551
The carrying amount of accounts payable and accruals is close or identical to their fair value, as
the effect of discounting is not material.
44
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 14 – SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (cont.)
d. Cost of revenues
2008
2010
Year ended December 31,
2009
NIS in thousands
17,817
4,369
436
22,622
-
-
-
-
25,571
-
-
25,571
Payments to licensors*
Payment to the OCS*
Intellectual property dispositions
*
See Notes 15 and 16
e. Research and development expenses – net
2008
Year ended December 31,
2009
NIS in thousands
2010
Payroll and related expenses,
including vehicles
Depreciation and amortization
Impairment of intellectual
property
Patent related expenses
Research and development
services
Professional fees
Materials
Overseas travel
Office supplies and telephone
Payments to the OCS (see Notes
15, 16)
Other
Less – OCS participations in
research and development costs
- see also Notes 12a(1) and (2)
Less – participations in research
and development costs by a
related party - see Note 13
21,161
2,180
16,384
1,633
18,566
1,705
-
3,841
95,665
594
1,693
2,231
2,699
148
2,907
66,534
1,113
248
471
2,661
-
1,691
131,755
8,739
187
101,025
1,846
1,770
16,265
1,999
301
215
2,682
17,438
360
63,147
(23,074)
(7,426)
(5,184)
(2,525)
106,156
(3,297)
90,302
(2,997)
54,966
45
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 14 – SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (cont.)
f. Sales and marketing expenses
2008
Year ended December 31,
2009
NIS in thousands
2010
Payroll and related expenses
Marketing
Overseas travel
-
-
-
-
1,396
1,400
289
3,085
2,090
2,258
261
4,609
g. General and administrative expenses
2008
Year ended December 31,
2009
NIS in thousands
2010
Payroll and related expenses,
including vehicles
Professional fees
Office supplies and telephone
Office maintenance
Depreciation
Other
7,863
3,707
170
100
99
1,144
13,083
6,792
2,499
121
117
121
1,532
11,182
6,205
6,540
111
69
109
1,841
14,875
h. Finance income
2008
Year ended December 31,
2009
NIS in thousands
2010
Gain on change in fair value of
financial assets at fair
value through profit or loss
Income from interest and
exchange differences on
deposits
273
98
-
12,728
13,001
3,830
3,928
3,056
3,056
i. Finance expenses
2008
Year ended December 31,
2009
NIS in thousands
2010
Exchange differences
Bank commissions
12,172
97
12,269
2,064
100
2,164
8,696
59
8,755
46
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 15 – IKARIA AGREEMENT
During the third quarter of 2009, the Group entered into an out-licensing agreement with Ikaria,
pursuant to which the Company granted Ikaria an exclusive, worldwide license to develop,
manufacture and commercialize BL-1040 – a compound for the treatment of patients that have
suffered an acute myocardial infarction (“AMI”). The agreement was signed in July 2009 and the
transaction closed in September 2009, following receipt by the Company of OCS approval for the
transaction, and transfer by the Company to Ikaria of all deliverables as stipulated under the
agreement.
In accordance with the agreement, Ikaria is obligated to use commercially reasonable efforts to
complete clinical development of and to commercialize BL-1040, and will bear all subsequent
costs involved in the continued development of the product, the conduct and funding of its
commercialization, and the prosecution and maintenance of patents.
Prior to execution of the agreement, the Company commenced a pilot phase 1/2 study designed to
assess the safety and preliminary efficacy of BL-1040. According to the agreement, the Company
was required to bear the costs related to completion of the study from that stage. Such costs, related
to follow up and documentation of results, were accrued in 2009.
Total payments to the Company under the agreement (not including royalties) are up to USD
282,500,000, subject to the achievement of certain milestones. Upon the closing of the agreement,
the Company became entitled to the first payment in the amount of USD 7,000,000, which was
received in October 2009. In connection with this payment, the Company undertook to indemnify
Ikaria for any obligations it may have had to withhold taxes on such payment. In April 2010, the
first milestone payment of USD 10,000,000 was received, in respect of which withholding tax of
15% was deducted. In March 2011, the Company filed an income tax return to request a refund of
the tax withheld. Approximately 50% of the remaining payments are subject to certain
development and regulatory milestones and the rest are subject to commercialization milestones.
The abovementioned first two payments were recognized as revenues in 2009, and future milestone
payments will be recognized as revenues if and when their receipt will become probable and their
amount can be reliably measured.
The Company is also entitled to royalties on the net sales of any product developed under the
agreement, ranging from 11% to 15%, depending on annual net sales levels.
The out-licensing agreement with Ikaria terminates on the date that the last patent rights in respect
of BL-1040 are still valid (through at least 2024).
The Group is required to pay to the licensors of the BL-1040 compound 28% of all consideration
received under the agreement. This expense is recorded in the statement of comprehensive income
(loss) as cost of revenues. Additionally, the Group is obligated to repay the grants and loans
received from the OCS regarding the BL-1040 project, in accordance with the Israeli R&D Law
and as agreed with the OCS. This expense, up to the amount of funding received from the OCS, has
been recorded in the statement of comprehensive (income) loss in research and development
expenses, with the balance recorded in cost of revenues.
47
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 16 – CYPRESS AGREEMENT
In June 2010, the Group entered into an exclusive, royalty-bearing out-licensing agreement with
Cypress Bioscience for United States, Canada and Mexico (the "territories"), with regard to BL-
1020, a therapeutic candidate for the treatment of schizophrenia. Under the agreement, Cypress
Bioscience is obligated to use commercially reasonable efforts to develop, obtain regulatory
approval for, and to commercialize BL-1020 in the territories, and will bear all subsequent costs
involved in the continued development of the product, the conduct and funding of its
commercialization, and the prosecution and maintenance of patents in the territories. The
agreement became effective in August 2010, upon receipt of the consent of the OCS.
The total potential payments from the agreement to the Group, not including royalties, are up to
USD 365,000,000, as follows: (1) USD 30,000,000 which was paid to the Group in August 2010
upon closing of the agreement; (2) up to USD 250,000,000 in connection with the achievement of
certain performance-based milestones; and (3) up to USD 85,000,000 upon the achievement of
certain sales-based milestones.
With regard to the first performance-based milestone of USD 10,000,000, Cypress Bioscience is
entitled to pay up to one-half of the amount as an investment in the Company’s Ordinary Shares. In
management’s estimation, based on a valuation received from an independent economic consulting
firm, the fair value of this derivative instrument is not material and, therefore, it has not been
deducted from the revenues recognized in respect of the upfront payment.
In addition to the above payments, the Group is also entitled under the agreement to royalties
ranging from 12% to 18% of net sales of BL-1020 in the territories.
The Group retained the rights to BL-1020 for the rest of the world outside of the territories. In
addition, pursuant to the agreement, the Group has the right to use all preclinical, clinical and other
similar data generated by or on behalf of Cypress Bioscience, including its regulatory filings,
subject to future reimbursement of 50% of expenses (as defined) incurred by Cypress Bioscience in
generating such data and other information.
The Group is required to pay 22.5% of all consideration received under the agreement to the
licensors of BL-1020. As a result, USD 6,750,000 was charged to cost of revenues during the
period in respect of the USD 30,000,000 upfront payment.
In addition, the Group is obligated to repay grants received from the OCS regarding the BL-1020
project, in accordance with the Israeli R&D Law and as agreed with the OCS. In this regard, during
the year, the Group recorded a liability to the OCS for the full amount of the grants received in
respect of the project, in the total amount of NIS 17,438,000. This amount has been reflected in
research and development expenses in these financial statements. The Group paid NIS 11,445,000
of this liability to the OCS in August 2010, leaving a remaining balance of NIS 5,993,000, reflected
in current liabilities as of December 31, 2010.
In January 2011, Cypress Bioscience was acquired by the Royalty Pharma Group.
48
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 17 –EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE
a. In January 2011, the Group announced its intention to transfer its business development activities
to Israel from the US.
b. In February 2011, the Company granted 15,000 options to an employee, exercisable into
Ordinary Shares at an exercise price of NIS 2.873 per share. The options vest over a four-year
period.
c. (Unaudited) In May 2011, the Company signed an agreement, effective June 1, 2011, to
reacquire all development and commercialization rights to BL-1020 granted to Cypress
Bioscience pursuant to the license agreement signed in June 2010 (see Note 16), as well as
terminate the license agreement. In consideration for the reacquisition of such rights, including
substantially all materials required for timely commencement of the BL-1020 clinical trial
expected to commence in June 2011, the Company is obligated to pay Cypress Bioscience a 1%
royalty on worldwide net sales of BL-1020 up to an aggregate cumulative amount of USD
80,000,000. In addition, the Company is obligated to pay Cypress Bioscience 10% of all future
one-time payments received in respect of BL-1020, not to exceed an aggregate cumulative
amount of USD 10,000,000, as reimbursement for costs that Cypress Bioscience incurred in
developing the intellectual property portfolio, designing the clinical trial and conducting
substantially all preparations to launch the trial.
49