UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
FORM 20-F
☐
☒
☐
☐
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___ .
OR
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report ___
OR
Commission file number: 001-38556
ENTERA BIO LTD.
(Exact name of Registrant as specified in its charter)
State of Israel
(Jurisdiction of incorporation or organization)
Mr. Adam Gridley, Chief Executive Officer
Kiryat Hadassah
Minrav Building - Fifth Floor
Jerusalem, Israel
Tel: +972-2-532-7151
(Name, Telephone E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class
Ordinary Shares, par value of NIS 0.0000769
Warrants, each warrant exercisable for 0.5 shares of
Ordinary Shares at an exercise price of $5.85 per
Ordinary Share.
Trading Symbol
ENTX
ENTXW
Name of each exchange on which registered
NASDAQ Capital Market
NASDAQ Capital Market
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period
covered by the annual report.
18,202,237 Ordinary Shares, par value NIS 0.0000769 per share.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934.
☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
☐ Yes ☒ No
☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an
emerging growth company (as defined in Rule 12b-2 of the Act).
Large Accelerated Filer ☐
Accelerated Filer ☐
Non-Accelerated Filer ☒
Emerging growth company ☒
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this
filing:
U.S. GAAP ☐
International Financial Reporting Standards as
issued by the
International Accounting Standards Board ☒
Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the
registrant has elected to follow.
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Item 17 ☐ Item 18 ☐
☐ Yes ☒ No
2
Item Number
Title
PART ONE
TABLE OF CONTENTS
Item 1
Item 2
Item 3
Item 4
Item 4A
Item 5
Item 6
Item 7
Item 8
Item 9
Item 10
Item 11
Item 12
PART TWO
Item 13
Item 14
Item 15
Item 16A
Item 16B
Item 16C
Item 16D
Item 16E
Item 16F
Item 16G
Item 16H
PART THREE
Item 17
Item 18
Item 19
Identity of Directors, Senior Management and Advisers
Offer Statistics and Expected Timetable
Key Information
Information on the Company
Unresolved Staff Comments
Operating and Financial Review and Prospects
Directors, Senior Management and Employees
Major Shareholders and Related Party Transactions
Financial Information
The Offer and Listing
Additional Information
Quantitative and Qualitative Disclosures About Market Risk
Description of Securities Other than Equity Securities
Defaults, Dividend Arrearages and Delinquencies
Material Modifications to the Rights of Security Holders and Use of Proceeds
Controls and Procedures
Audit Committee Financial Expert
Code of Ethics
Principal Accountant Fees and Services
Exemptions from the Listing Standards for Audit Committees
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Change in Registrant’s Certifying Accountant
Corporate Governance
Mine Safety Disclosure
Financial Statements
Financial Statements
Exhibits
3
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148
148
149
149
150
150
150
150
150
155
156
156
157
Unless otherwise indicated, all references to the “Company,” “we,” “us,” “our” and “Entera” refer to Entera Bio Ltd. and its
wholly owned subsidiary, Entera Bio Inc., a Delaware corporation, unless the context otherwise requires.
DEFINITIONS
References to the “Companies Law” are to Israel’s Companies Law, 5759-1999, as currently amended;
References to the “Exchange Act” are to the Securities Exchange Act of 1934, as amended;
References to the “FDA” are to the United States Food and Drug Administration;
References to “Nasdaq” are to the Nasdaq Capital Market;
References to “Ordinary Shares” are to our ordinary shares, par value of NIS 0.0000769 per share;
References to “IPO Warrants” are to our warrants listed on the Nasdaq under the symbol ENTXW;
Reference to “Investor Warrants” are to our unregistered warrants issued in connection with our Private Placement (as defined
below in Item 10.C “Material Contracts—Investor Warrants”);
References to the “SEC” are to the United States Securities and Exchange Commission;
References to the “Securities Act” are to the Securities Act of 1933, as amended; and
References to “U.S. dollars” and “$” are to currency of the United States of America, “euro” or “€” are to the Euro, the legal
currency of certain countries of the European Union and references to “NIS” are to new Israeli shekels.
We do not endorse or adopt any third-party research or forecast firms’ statements or reports referred to in this Annual Report
and assume no responsibility for the contents or opinions represented in such statements or reports, nor for the updating of any
information contained therein.
PRESENTATION OF FINANCIAL INFORMATION
We report under International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards
Board, or the IASB. None of the financial statements were prepared in accordance with generally accepted accounting principles
in the United States. We present our financial statements in U.S. dollars. We have made rounding adjustments to some of the
figures included in this Annual Report. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic
aggregation of the figures that precede them.
Items included in our financial statements are measured using the currency of the primary economic environment in which we
operate, the U.S. dollar, or the Functional Currency. Our financial statements and other financial information included in this
Annual Report are presented in U.S. dollars unless otherwise noted. See Note 2 of our audited consolidated financial statements
for the year ended December 31, 2019, included elsewhere in this Annual Report.
USE OF TRADEMARKS
“Entera Bio,” “Enterabio,” “Entera,” the EnteraBio logo and other trademarks, trade names or service marks of Entera
appearing in this Annual Report are the property of Entera. This Form 20-F also contains trade names, trademarks and service
marks of others, which are the property of their respective owners. We do not intend our use or display of other companies’ trade
names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.
Solely for the convenience of the reader, we only use the ® symbol the first time any federal or trade name is mentioned. Each
trademark or tradename of any other company appearing in this Annual Report is, to our knowledge, owned by such company.
4
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Various statements in this report are “forward-looking statements” within the meaning of the Private Securities Litigation
Reform Act of 1995 and other U.S. Federal securities laws. In addition, historic results of scientific research and clinical and
preclinical trials do not guarantee that the conclusions of future research or trials would not be different, and historic results
referred to in this Annual Report may be interpreted differently in light of additional research and clinical and preclinical trials
results. Forward-looking statements include all statements that are not historical facts. We have based these forward-looking
statements largely on our management’s current expectations and future events and financial trends that we believe may affect
our financial condition, results of operations, business strategy and financial needs. Forward-looking statements involve
substantial risks and uncertainties. All statements, other than statements of historical facts, included in this report regarding our
strategy, future operations, future financial position, projected costs, prospects, plans and objectives of management are forward-
looking statements. These statements are subject to risks and uncertainties and are based on information currently available to our
management. Words such as, but not limited to, “anticipate,” “believe,” “contemplates,” “continue,” “could,” “design,”
“estimate,” “expect,” “intend,” “likely,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “will,” “would,” “seek,”
“should,” “target,” or the negative of these terms and similar expressions or words, identify forward-looking statements. The
events and circumstances reflected in our forward-looking statements may not occur and actual results could differ materially
from those projected in our forward-looking statements. Meaningful factors which could cause actual results to differ include, but
are not limited to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the scope, progress and costs of developing our product candidates such as EB613 for Osteoporosis and EB 612 for Hypoparathyroidism;
the accuracy of our estimates regarding expenses, capital requirements, the sufficiency of our cash resources and the need for additional financing;
our ability to raise additional funds on commercially reasonable terms;
our ability to develop, advance product candidates into, and successfully complete, clinical studies such as our ongoing Phase 2 clinical trial of
EB613 in osteoporosis;
our reliance on third parties to conduct our clinical trials and on third-party suppliers to supply or produce our product candidates;
our expectations regarding licensing, business transactions and strategic collaborations;
our operation as a development stage company with limited operating history and a history of operating losses and our ability to fund our
operations going forward;
our ability to continue as a going concern absent access to sources of liquidity;
our interpretation of FDA feedback and guidance and how such guidance may impact our clinical development plans, specifically our ability to
utilize the 505(b)(2) pathway for the development and potential approval of EB613 and any other product candidates we may develop;
our ability to obtain and maintain regulatory approval for any of our product candidates;
our competitive position, especially with respect to Forteo® and other products on the market or in development for the treatment of osteoporosis;
our ability to establish and maintain development and commercialization collaborations;
any potential commercial launch of current or future product candidates, and the timing, cost or other aspects of such commercialization;
our ability to manufacture and supply sufficient amounts of material to support our clinical trials and any potential future commercial requirements;
5
•
•
•
•
•
•
•
•
•
•
our ability to use and expand our drug delivery technology to additional product candidates;
the safety and efficacy of therapeutics marketed by competitors that are targeted toward indications for which we are developing product
candidates;
the size of any market we may target and the adoption of our product candidates, if approved, by physicians and patients;
our ability to obtain, maintain and protect our intellectual property and operate our business without infringing misappropriating or otherwise
violating any intellectual property rights of others;
our ability to retain key personnel and recruit additional qualified personnel;
the possibility that competing products or technologies may make any product candidates we may develop and commercialize or our oral delivery
technology obsolete;
the pricing and reimbursement of our product candidates, if approved;
our ability to develop a sales, marketing and distribution infrastructure, if any;
our ability to manage growth; and
the duration and severity of the recent coronavirus (COVID-19) outbreak, the actions that may be required to contain the Coronavirus or treat its
impact, and its impact on our operations and workforce, including our research and development and clinical trials.1
All written and verbal forward-looking statements attributable to us or any person acting on our behalf are expressly qualified
in their entirety by the cautionary statements contained or referred to in this section. We caution investors not to rely too heavily
on the forward-looking statements we make or that are made on our behalf. Except as required by law, we are under no duty, and
expressly disclaim any obligation, to update or revise publicly any forward-looking statements, whether as a result of new
information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects
in any annual, quarterly or current reports that we may file with the Securities and Exchange Commission.
We encourage you to read the discussion and analysis of our financial condition and our consolidated financial statements
contained in this Annual Report. We also encourage you to read Item 3.D of Part 1 of this Annual Report, entitled “Risk Factors,”
and Item 5.A of Part 1 of this Annual Report, entitled “Operating and Financial Review and Prospects” for a more complete
discussion of the risks and uncertainties associated with our business. In addition to the risks described above and in Items 3.D
and 5.A of this report, other unknown or unpredictable factors also could affect our results. There can be no assurance that the
actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected
consequences to, or effects on, us. Therefore, no assurance can be given that the outcomes stated in such forward-looking
statements and estimates will be achieved.
6
PART ONE
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
3.A. Selected Financial Data
Our historical consolidated financial statements are prepared in accordance with IFRS and are presented in U.S. dollars. The
selected historical consolidated financial information for the years ended December 31, 2019, 2018 and 2017 and the selected
statements of financial position data as of December 31, 2019 and 2018 have been derived from, and should be read in
conjunction with, the audited consolidated financial statements of Entera Bio Ltd. and notes thereto appearing elsewhere in this
Annual Report. The selected historical consolidated financial position data as of December 31, 2017 and 2016 and financial
information for the year ended December 31, 2016 has been derived from our audited consolidated financial statements not
included in this Annual Report.
On January 1, 2019 we adopted IFRS 16. Consequently, financial information for dates and periods before January 1, 2019
was not updated and the disclosures required under the new standard are not provided. In addition, we adopted the amendment to
IAS 1, financial information was updated for dates and periods before January 1, 2019. Accordingly, we classified in comparable
periods the relevant financial liabilities as current liabilities.
The information presented below is qualified by the more detailed historical consolidated financial statements set forth in this
Annual Report, and should be read in conjunction with those consolidated financial statements, the notes thereto and the
discussion under “Item 5–Operating and Financial Review and Prospects” included elsewhere in this Annual Report.
We have not included selected historical consolidated financial data for the year ended December 31, 2015 in the table below
as we qualify as an emerging growth company under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act
(“Emerging Growth Company”), and we make use of an accommodation for reduced reporting.
7
Consolidated Statements of Comprehensive Loss Data
Consolidated statements of comprehensive loss:
Revenue
Cost of revenue
Research and development expenses, net
General and administrative expenses
Total operating loss
Financial income:
Income from change in fair value of financial liabilities at fair value through
profit or loss
Other financial expenses (income), net
Financial income, net
Net comprehensive loss
Loss per ordinary share(1)
Basic
Diluted
Weighted average number of Ordinary Shares used in computing basic loss per
ordinary share(1)
Weighted average number of Ordinary Shares used in computing diluted loss per
ordinary share(1)
Year Ended December 31,
2019
2018
2017
2016
(In thousands, except shares and per share data)
$
$
$
$
$
236
210
7,199
4,281
11,454
(743)
84
(659)
10,795
0.89
0.89
$
$
$
$
$
500
-
8,518
2,843
10,861
$
(523)
(34)
(557)
$
10,304
1.30
1.31
$
$
-
-
2,768
8,575
11,343
$
(251)
105
(146)
$
11,197
2.49
2.49
$
$
-
-
2,648
2,719
5,367
(4,311)
143
(4,168)
1,199
0.27
0.78
12,146,729
7,955,447
4,490,720
4,473,170
12,146,729
7,983,402
4,490,720
6, 756,360
(1) Basic and diluted loss per Ordinary Share and basic and diluted weighted average number of Ordinary Shares in 2017 and
2016 were retroactively adjusted due to Ordinary Shares split of 1 for 130. Basic and diluted loss per Ordinary Share in 2019
and 2017 are the same because the financial instruments as described in the financial statements were excluded from the
calculation since their effect was anti-dilutive. See Note 15 of our consolidated financial statements for the year ended
December 31, 2019, included elsewhere in this Annual Report for further details on the calculation of basic and diluted loss
per ordinary share.
8
Consolidated Statements of Financial Position Data:
2019
2018
2017
2016
As of December 31,
(In thousands)
Consolidated statements of financial position data:
Cash and cash equivalents
Short-term bank deposits
Restricted deposits
Accounts receivable
Other current assets
Total current assets
Property and equipment
Right of use assets
Intangible assets
15,185
-
-
278
173
15,636
202
260
605
7,506
4,015
-
725
220
12,466
224
-
651
11,746
-
-
-
671
12,417
207
-
654
Total assets
$
16,703
$
13,341
$
13,278 $
Accounts payable-Trade and other
Lease liabilities
Contract liabilities
Convertible Loans
Preferred shares
Warrants to purchase Ordinary Shares
and preferred shares
Total current liabilities
Liability to issue preferred shares and warrants
Lease liabilities
Severance pay obligations, net
Total non-current liabilities
Total liabilities
Shareholders’ equity (Capital deficiency)
Working capital(1)
1,704
177
267
-
-
2,444
4,592
-
122
70
192
4,784
11,919
11,044
$
$
$
1,563
2,020
225
-
-
1,372
3,160
-
-
65
65
3,225
10,116
9,306
$
$
$
-
3,893
33,455
5,398
44,766
-
-
70
70
44,836 $
(31,558) $
(32,349) $
$
$
$
4,163
-
1,075
-
195
5,433
199
-
654
6,286
657
-
14,720
11,031
4,800
31,208
273
-
51
324
31,532
(25,246)
(25,775)
(1) Working capital is defined as total current assets minus total current liabilities.
3.B. Capitalization and Indebtedness
Not applicable.
3.C. Reasons For the Offer and Use of Proceeds
Not applicable.
3.D. Risk Factors
Any investment in our securities involves a high degree of risk. You should consider carefully the following factors and all
other information contained in this Annual Report before you make a decision to invest in our Ordinary Shares and IPO
Warrants. If any of the negative events referred to below occur, our business, prospects, financial condition and results of
operations could be materially and adversely affected. In any such case, the trading price of our Ordinary Shares could decline,
and you could lose all or part of your investment.
9
Risks Related to Our Financial Position
We have incurred significant losses since our inception and anticipate that we will continue to incur substantial losses for the
next several years.
We have incurred net losses in each year since our inception, including net losses of $10.8 million in 2019 and $10.3 million
in 2018. As of December 31, 2019 we had an accumulated deficit of $62.9 million. We expect to continue to incur substantial
losses for the next several years, and we expect these losses to increase as we continue our development of and potentially seek
regulatory approval for, EB613 and EB612 and potentially develop future product candidates. In addition, if we receive
regulatory approval to market EB613 or any of our other current or future product candidates, we will incur additional losses as
we scale-up manufacturing and potentially prepare to commercialize any approved products. We anticipate that our net losses and
accumulated deficit for the next several years will be significant as we conduct our planned operations. Given our current
development plans, we anticipate that our existing cash and cash equivalents and will be sufficient to fund our operations into the
second quarter of 2021. Accordingly, these factors, among others, raise substantial doubt about our ability to continue as a going
concern. Because of the numerous risks and uncertainties associated with the development and commercialization of our product
candidates, we are unable to accurately predict the timing or amount of the development and clinical expenses or when, or if we
will be able to achieve, or maintain, profitability. In addition, our expenses could increase if we are required by the FDA or
comparable foreign regulatory authorities to perform preclinical or clinical studies or trials in addition to those currently
expected, or if there are any delays in completing our clinical trials or the development and potential commercialization of EB613
or any other product candidates. The amount of our future net losses will depend, in part, on the amount and timing of our
expenses, our ability to generate revenue and our ability to raise additional capital. These net losses have had, and will continue
to have, an adverse effect on our stockholders’ equity and working capital.
Management has performed an analysis of our ability to continue as a going concern. In addition, our independent registered
public accounting firm has raised substantial doubt as to our ability to continue as a going concern.
Based on its assessment, management has raised substantial doubt about our ability to continue as a going concern. In
addition, our independent registered public accounting firm expressed substantial doubt as to our ability to continue as a going
concern in their report accompanying our audited consolidated financial statements. As of March 15, 2020, we had cash and cash
equivalents of approximately $13.7 million. Our ability to continue as a going concern will depend on our ability to obtain
additional financing. Management is in the process of evaluating various financing alternatives in the public or private equity
markets, debt financings, government grants or through license of the company’s technology to additional external parties
through partnerships or research collaborations as the Company will need to finance future research and development activities
and general and administrative expenses through fund raising. A going concern opinion could impair our ability to finance our
operations through public or private equity offerings or debt financings, or a combination of one or more of these funding
sources. Any additional equity or debt financing could be extremely dilutive to our current shareholders. Additional capital may
not be available on reasonable terms, or at all, and we may be required to terminate or significantly curtail our operations, or
enter into arrangements with collaborative partners or others that may require us to relinquish rights to certain aspects of our
product candidates, or potential markets that we would not otherwise relinquish. If we are unable to obtain capital, our business,
including our ability to conduct studies and develop our product candidates, would be jeopardized and we may not be able to
continue operations.
Due to our limited resources and access to capital, we must and have in the past decided to prioritize development of certain
product candidates; these decisions may prove to have been wrong and may adversely affect our revenues.
Because we have limited resources and access to capital to fund our operations, we must decide which product candidates to
pursue and the amount of resources to allocate to each. As such, we are currently primarily focused on the development of EB613
and EB612 for the treatment of osteoporosis and hypoparathyroidism, respectively. Our decisions concerning the allocation of
research, collaboration, management and financial resources toward particular compounds, product candidates or therapeutic
areas may not lead to the development of viable commercial products and may divert resources away from better opportunities.
Similarly, our current or potential decisions to delay, terminate or collaborate with third parties with respect to certain product
development programs may also be sub-optimal and could cause us to miss valuable opportunities. If we make incorrect
determinations regarding the market potential of our product candidates or misread trends in the biopharmaceutical industry, our
business, financial condition and results of operations could be materially adversely affected.
10
We will require substantial additional funding, which may not be available to us on acceptable terms, or at all, and, if not
available, may require us to delay, reduce or cease our product development activities and operations.
We are currently advancing our lead product candidate EB613 through clinical development. Developing therapeutics,
including conducting preclinical studies and clinical trials, is expensive. We will require substantial additional capital in order to
complete filings with the regulatory agencies including the FDA and European Medicines Agency, or the EMA, secure
commercial manufacturing supply for and commercialize EB613 and conduct the research and development and clinical and
regulatory activities necessary to bring other product candidates to market. If the FDA or comparable foreign regulatory
authorities require that we perform additional preclinical studies or clinical trials at any point, our expenses would further
increase beyond what we currently expect, and the anticipated timing of any future clinical development activities and potential
regulatory approvals may be delayed depending upon our allocation of resources and available funding. The recent outbreak of
the coronavirus known as COVID-19 has significantly disrupted world financial markets and may reduce opportunities for us to
seek out additional funding. Additional funds may not be available when we need them on terms that are acceptable to us, or at
all. If adequate funds are not available to us on a timely basis, or on acceptable terms, we may be required to delay, limit, reduce
or terminate preclinical studies, clinical trials or other development activities for one or more of our product candidates or delay,
limit, reduce or terminate our establishment of manufacturing, sales and marketing capabilities or other activities that may be
necessary to commercialize our product candidates.
We expect that we would need to raise additional funds to support the execution of our long-term growth strategy, including
for a potential Phase 3 trial comparing EB613 with Forteo®, additional non-clinical studies for EB613, and further development
of our technology platform and product pipeline. We can provide no assurance that additional funding will be available on a
timely basis, on terms acceptable to us, or at all. As a result of our Private Placement (as defined below in Item 7.B “Item 7.B.
Related Party Transactions—Private Placement”) in 2019, some investors have one-year preemptive rights to participate in
subsequent financing rounds, subject to certain conditions, which may delay or frustrate our ability to raising additional funding.
Because successful development of our product candidates is uncertain, we are unable to estimate the actual amount of financing
we will require to complete research and development and to commercialize our product candidates. We may also require
additional financing if we are forced to delay and curtail our research activities and clinical trials due to the impact of COVID-19.
The amount and timing of our funding requirements will depend on many factors, including but not limited to:
•
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•
•
•
•
•
•
•
•
the number and characteristics of product candidates that we pursue;
the scope, progress, timing, cost and results of research, preclinical development, and clinical trials;
the costs, timing and outcome of seeking and obtaining approvals from the FDA, EMA or other regulatory agencies;
the costs associated with manufacturing our product candidates and establishing sales, marketing, and distribution capabilities;
the costs associated with obtaining, maintaining, expanding, defending and enforcing the scope of our intellectual property portfolio, including the
amount and timing of any payments we may be required to make in connection with the licensing, filing, defense and enforcement of any patents
or other intellectual property rights;
the extent to which we acquire or in-license other products or technologies;
the economic and other terms, timing of and success of any collaboration, licensing, or other arrangements into which we entered or may enter in
the future, including the timing of achievement of milestones and receipt of any milestone or royalty payments under these agreements;
our need and ability to hire additional management, scientific, and medical personnel;
the effect of competing products that may limit market penetration of our product candidates;
the amount and timing of revenues, if any, we receive from commercial sales of any product candidates for which we receive marketing approval
in the future;
11
•
•
our need to implement additional internal systems and infrastructure, including financial and reporting systems to support our current operations as
a public company; and
the impact of COVID-19, once known, on our clinical trials, regulatory timelines, business operations and financial stability.
Many of these factors are outside of our control. Based upon our currently expected level of operating expenditures, we
believe that we will be able to fund our operations into the second quarter of 2021. Our expectations are based on management’s
current assumptions, clinical development plans and regulatory submission timelines, which may prove to be wrong, and we
could spend our available financial resources much faster than we currently expect. This period could be shortened if there are
any unanticipated increases in spending on development programs or other unanticipated increases in spending related to
circumstances outside of our control, including, without limitation, costs associated with litigation or other legal proceedings,
hiring of additional consultants and personnel or procurement of additional raw materials. Our existing cash and cash equivalents
will not be sufficient to obtain regulatory approval for any of our product candidates. Accordingly, we continue to require
substantial additional capital. In order to fund our future capital needs, we may seek additional funding through equity or debt
financings, development partnering arrangements, lines of credit or other sources. These conditions raise substantial doubt about
our ability to continue as a going concern, and we will be required to raise additional funds, seek alternative means of financial
support, or both, in order to continue operations. The accompanying financial statements have been prepared assuming that we
will continue as a going concern and do not include adjustments that might result from the outcome of this uncertainty. If we are
unable to raise the requisite funds, we will need to curtail or cease operations.
Our fundraising efforts in the future to secure additional financing will divert our management from our day-to-day activities,
which may adversely affect our ability to develop and commercialize our product candidates. In addition, we cannot guarantee
that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. If we are unable to raise
additional capital when required or on acceptable terms, we may be required to significantly delay, reduce or discontinue the
development or commercialization of one or more of our product candidates or curtail our operations, which will have an adverse
effect on our business, operating results and prospects.
We have a limited operating history and no history of commercializing pharmaceutical products, which may make it difficult
to evaluate the prospects for our future viability and making an investment in our common stock unsuitable for many
investors.
We began operations in 2010. Our operations to date have been limited to financing and staffing our company, developing our
drug delivery technology and developing our product candidates. We have not yet demonstrated an ability successfully to
complete a large-scale, pivotal clinical trial, obtain marketing approval, manufacture a commercial scale product or conduct sales
and marketing activities necessary for successful product commercialization. Consequently, predictions about our future success
or viability may not be as accurate as they could be if we had a history of successfully developing and commercializing
pharmaceutical products.
Raising additional capital may cause dilution to our shareholders, and these financings, or disputes with shareholders in
connection therewith, may restrict our operations or require us to relinquish substantial rights or result in unanticipated legal
or other costs.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a
combination of public or private equity offerings, debt financings, strategic collaborations and grant funding. We do not have any
committed external sources of funds and we will need to raise additional capital. To the extent that we raise additional capital
through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these new
securities may include liquidation or other preferences that adversely affect your rights as a holder of our Ordinary Shares. Debt
financing, if available at all, may involve agreements that include covenants limiting or restricting our ability to take specific
actions such as incurring additional debt, making capital expenditures, or declaring dividends, and may be secured by all or a
portion of our assets. Further, we may incur substantial costs in pursuing future capital and/or financing, including investment
banking fees, legal fees, accounting fees, printing and distribution expenses and other costs and such efforts may divert our
management from their day-to-day activities, which may compromise our ability to develop and market our product candidates.
We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible
notes and warrants, which could cause our operating results to fluctuate on a quarterly basis.
12
Shareholders who invested prior to the Company’s initial public offering, or IPO, lenders whose indebtedness converted upon
consummation of the IPO into our Ordinary Shares or shareholders who invested in our January 2018 private placement offering
may raise claims concerning their pre-existing contractual rights as lenders or shareholders or oppose actions taken by the
Company with respect to the terms of existing or future financing transactions. Any such dispute could be time-consuming or
costly to the Company or require us to seek alternative financing arrangements.
If we raise additional funds through collaborations, strategic alliances, or licensing arrangements with third parties, we may
have to relinquish valuable rights to our technologies, product candidates, or future revenue streams, or grant licenses on terms
that are not favorable to us. We cannot assure you that we will be able to obtain additional funding if and when necessary. If we
are unable to obtain adequate financing on a timely basis, we could be required to delay, scale back or eliminate one or more of
our development programs or grant rights to develop and market product candidates that we would otherwise prefer to develop
and market ourselves.
Our failure to fulfill all of our registration requirements may cause us to suffer liquidated damages, which may be very costly.
Pursuant to the terms of the registration rights agreement that we entered into with certain investors in our 2019 Private
Placement, we are required to file a registration statement with respect to securities issued and are required to maintain the
effectiveness of such registration statement. The failure to do so could result in the payment of liquidated damages by us in the
event that we do not meet any of the foregoing requirement in an amount equal to 1% per month of the aggregate purchase price
paid in cash by such investors to us. There can be no assurance that we will be able to obtain or maintain the effectiveness of any
registration statement, and therefore there can be no assurance that we will not incur damages with respect to such agreements.
The requirements of being a public company may strain our resources and distract our management, which could make it
difficult to manage our business, particularly after we are no longer an Emerging Growth Company.
As a public company, we are required to comply with various regulatory and reporting requirements, including those required
by the SEC. Complying with these reporting and regulatory requirements are time consuming, result in increased costs to us and
could have a negative effect on our business, results of operations and financial condition.
We are subject to the reporting requirements of the Exchange Act, and the requirements of the Sarbanes-Oxley Act of 2002, as
amended, or the Sarbanes-Oxley Act. These requirements may place a strain on our systems and resources. The Exchange Act
requires that we file annual and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act
requires that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are
implementing procedures and processes for the purpose of addressing the standards and requirements applicable to public
companies. Complying with these requirements is costly and time consuming. In the event that we are unable to demonstrate
compliance with our obligations as a public company in a timely manner, or are unable to produce timely or accurate financial
statements, we may be subject to sanctions or investigations by regulatory authorities, such as the SEC or Nasdaq, investors may
lose confidence in our operating results and the price of our Ordinary Shares could decline. These activities may divert
management’s attention from other business concerns, which could have a material adverse effect on our business, financial
condition, results of operations and cash flows.
As an Emerging Growth Company, we may take advantage of certain temporary exemptions from various reporting
requirements including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404
of the Sarbanes-Oxley Act and the rules and regulations of the SEC thereunder. We plan to take advantage of these exemptions
but we cannot guarantee that we will not be required to implement these requirements sooner than budgeted or planned and
thereby incur unexpected expenses. We will remain an Emerging Growth Company until the earliest of: (a) the last day of our
fiscal year during which we have total annual gross revenues of at least $1.07 billion; (b) the last day of our fiscal year following
the fifth anniversary of the completion of our IPO, specifically, December 31, 2023; (c) the date on which we have, during the
previous three-year period, issued more than $1.0 billion in non-convertible debt; or (d) the date on which we are deemed to be a
large accelerated filer, or Large Accelerated Filer, under the Exchange Act with at least $700 million of equity securities held by
non-affiliates. We cannot predict or estimate the amount of additional costs we may incur as a result of no longer being an
Emerging Growth Company or the timing of such costs.
Our Ordinary Shares and IPO Warrants are listed on Nasdaq. As a public company listed on Nasdaq, we incur significant
legal, accounting and other expenses. In addition, changing laws, regulations and standards, in the United States or Israel, relating
to corporate governance and public disclosure and other matters, may be implemented in the future, which may increase our legal
and financial compliance costs, make some activities more time consuming and divert management’s time and attention from
revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ
from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may
initiate legal proceedings against us and our business may be harmed. Furthermore, because we are a publicly traded company in
the United States and subject to U.S. rules and regulations it is more expensive for us to obtain director and officer liability
insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These
factors may also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to
serve on our audit committee, and qualified executive officers.
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Risks Related to Our Business and the Development of Our Product Candidates
All of our product candidates are in preclinical or clinical development and we have not yet successfully completed the
development of any product candidates.
We are a clinical-stage company focused on the development of orally delivered protein therapeutics to treat unmet medical
needs. We were formed in 2009 and have a limited operating history. Since inception we have devoted substantially all of our
resources to the development of our technology platform, the clinical and preclinical advancement of our product candidates, the
creation, licensing and protection of related intellectual property rights and the provision of general and administrative support
for these operations. We have not yet obtained regulatory approval for any product candidates in any jurisdiction or generated any
revenues from product sales. If any of our current or future product candidates fails in clinical trials or preclinical development,
or does not gain regulatory approval, or if our product candidates following regulatory approval, if any, do not achieve market
acceptance, we may never become profitable or sustain profitability.
We commenced our first clinical trials with our oral PTH candidates in Osteoporosis and Hypoparathyroidism, and we have a
limited operating history of developing products upon which you can evaluate our business and prospects. In addition, our current
ongoing clinical trial for EB613 for Osteoporosis is the largest clinical trial we have conducted to date and we have never
conducted clinical trials of a size required for regulatory approvals. Furthermore, we have not yet demonstrated an ability to
successfully overcome many of the risks and uncertainties frequently encountered by companies in rapidly evolving fields, such
as the oral delivery of protein therapeutics.
To become and remain profitable, we must succeed in developing and commercializing products that generate significant
market revenues. This will require us to be successful in a range of challenging activities for which we are only in the preliminary
stages, including developing product candidates, completing pre-clinical and clinical trials for such product candidates, obtaining
regulatory approval for them, and manufacturing, marketing and selling those products for which we may obtain regulatory
approval. We may never succeed in these activities and, even if we do, we may never generate revenue from product sales that is
significant enough to achieve profitability. Our ability to generate future revenue from product sales depends heavily on our
success in many areas, including but not limited to:
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complete our ongoing Phase 2 dose-ranging clinical trial for EB613 and any future development efforts for EB613 or other product candidates;
secure additional funding as may be needed to continue the development of EB613 or any other product candidates;
obtain required regulatory and marketing approvals for the manufacturing and commercialization of EB613 and any other product candidates we
may develop;
obtain adequate reimbursement from third-party payors for any product that may be commercialized, if approved;
• manage our spending as costs and expenses increase due to the preparation of regulatory filings, potential regulatory approvals, manufacturing
scale-up and potential commercialization;
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continue to build and maintain our intellectual property portfolio;
recruit and retain qualified executive management and other personnel;
build and maintain appropriate research and development, clinical, sales, manufacturing, financial reporting, distribution and marketing capabilities
on our own or through third parties;
gain broad market acceptance for our product candidates;
develop and maintain successful strategic relationships and collaborations;
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develop a sustainable and scalable manufacturing process for any approved product candidates and maintaining supply and manufacturing
relationships with third parties that can support clinical development and market demand for our product candidates, if approved;
establish sales, marketing, and distribution capabilities in the United States;
obtain market acceptance for any of our product candidates that receive marketing approval, if any, as viable treatment options;
address any competing technological and market developments;
negotiating favorable terms in any collaboration, licensing, or other arrangements into which we may enter; and
attracting, hiring and retaining qualified personnel.
If we are unsuccessful in accomplishing any of these objectives, we may not be able to develop product candidates, raise
capital, expand our business or continue our operations. Even if one or more of the product candidates that we develop is
approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product
candidate. Because of the numerous risks and uncertainties with pharmaceutical product development, we are unable to
accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. Even if we
achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our failure to become or
remain profitable would depress our market value and could impair our ability to raise capital, expand our business, develop
other product candidates, or continue our operations. A decline in the value of our company could also cause you to lose all or
part of your investment.
We depend on enrollment of patients in our clinical trials for our product candidates. If we are unable to enroll an adequate
number of volunteers or patients in our clinical trials, our research and development efforts could be materially adversely
affected.
Successful and timely completion of clinical trials will require that we enroll enough volunteers in early studies, or patients
with a specific disease in later trials. Trials may be subject to delays as a result of enrollment taking longer than anticipated or
subject withdrawal. Enrollment depends on many factors, including the size and nature of the patient population, eligibility
criteria for the trial, the proximity of patients to clinical sites, the design of the clinical protocol, the number of competing clinical
trials, the availability of drugs approved for the indication the clinical trial is investigating, and clinicians’ and patients’
perceptions as to the potential advantages of the product being studied in relation to other available therapies. Our most advanced
programs, EB613 and EB612 may compete with marketed drugs, such as Forteo (in Osteoporosis) and Natpara® (in
hypoparathyroidism), or other clinical trials for drugs in development to treat such conditions. Furthermore, EB612 has orphan
drug designation in the US which means that the potential patient population is limited. These factors may make it difficult for us
to enroll enough subjects to complete our clinical trials in a timely and cost-effective manner. Delays in the completion of any
clinical trial of our product candidates will increase our costs, slow down development of our product candidates and any
potential approvals and delay or potentially jeopardize our ability to commence product sales and generate revenue. In addition,
some of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead
to the denial of regulatory approval of our product candidates.
We may not be successful in our efforts to use and expand our drug delivery technology to other product candidates.
A key element of our strategy is to combine our oral drug delivery technology platform with a variety of proteins and large
molecule active pharmaceutical ingredients, or APIs, to build a pipeline of product candidates and progress these product
candidates through clinical development for the treatment of a variety of different types of diseases. We intend to use our
technology in combination with known APIs, to validate our platform and potentially minimize risk and development timelines.
Our initial product candidates combine our oral drug delivery technology with PTH, a hormone that has been used in
injectable form for many years for the treatment of osteoporosis and hypoparathyroidism. Our business is substantially dependent
on our ability to complete the development of, obtain regulatory approval for, and successfully commercialize our oral PTH
product candidates in a timely manner. If we are unable to validate our oral drug delivery technology with our PTH product
candidates, in particular our lead candidate EB613, we may be unsuccessful in leveraging our oral drug delivery technology for
use with other APIs. In addition, we may significantly modify the formulation of oral PTH to develop new formulations for
applications in hypoparathyroidism and other indications. If we are not successful in optimizing the formation of our PTH
product candidates for additional indications, or if we are not otherwise able to obtain regulatory approval for them or
successfully commercialize them, our business and prospects may be severely limited.
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In addition, our technology makes use of synthetically bioengineered ingredients. Although our product candidates utilize a
synthesized PTH molecule with a known mechanism of action, they may cause patients to exhibit safety or immune responses
that do not match the biological effect of a human protein produced by the parathyroid gland. Such responses could result in
increased regulatory scrutiny, delays or other impediments to our planned development or the public acceptance and
commercialization of our products. Even if we are successful in expanding our drug delivery technology to other APIs for other
indications, the potential product candidates that we identify may not be suitable for clinical development, to the extent they are
shown to have harmful side effects or other characteristics that indicate that they are unlikely to be products that will receive
marketing approval and achieve market acceptance. We may never successfully develop or commercialize our technology with
other APIs, which could limit our business and prospects.
If serious adverse, undesirable or unacceptable side effects are identified during the development of our product candidates,
marketing approval may be delayed or we may need to abandon our development of such product candidates, and if such side
effects are identified following regulatory approval, any approved product label may be limited or we may be subject to other
significant negative consequences.
All of our product candidates are still in clinical or non-clinical development and although our product candidates have
undergone or will undergo safety testing, not all adverse effects of drugs can be predicted or anticipated. Unforeseen side effects
from any of our product candidates could be recognized either during clinical development or, if such side effects are rare, after
our product candidates have been approved by regulatory authorities and the approved product has been marketed, resulting in
the exposure of additional patients. While our oral PTH has exhibited no serious drug related adverse events in our clinical trials
to date, the results of future clinical trials may show that our product candidates cause undesirable or unacceptable side effects,
which could interrupt, delay or halt clinical trials, and result in delay of, or failure to obtain, marketing approval from the FDA,
the EMA and other regulatory authorities, or result in marketing approval from the FDA, the EMA and other regulatory
authorities with restrictive label warnings or potential product liability claims. For instance, other PTH products have been issued
with labels that disclose a potential risk of osteosarcoma based on non-clinical studies.
Additionally, the FDA and foreign regulatory agency regulations require that we report certain information about adverse
medical events if our products may have caused or contributed to those adverse events. The timing of our obligation to report
would be triggered by the date on which we become aware of the adverse event as well as the nature of the event. We may fail to
report adverse events we become aware of within the prescribed timeframe. We may also fail to appreciate that we have become
aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is
unexpected or removed in time from the use of our products. If we fail to comply with our reporting obligations, the FDA or a
foreign regulatory agency could take action including criminal prosecution, the imposition of civil monetary penalties or seizure
of our products.
If any of our product candidates receives marketing approval and we or others later identify undesirable or unacceptable side
effects caused by such products:
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regulatory authorities may require us to take these products off the market;
regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and
pharmacies;
we may be required to change the way the product is administered, conduct additional clinical trials or change the labeling of the product;
we may be subject to limitations on how we may promote the product;
sales of the product may decrease significantly;
we may be subject to litigation or product liability claims; and
our reputation may suffer.
Any of these events could prevent us or any potential collaborators from achieving or maintaining market acceptance of the
affected product or could substantially increase commercialization costs and expenses, which in turn could delay or prevent us
from generating significant revenue from the sale of our products.
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We manage our business and develop our technology with a small number of employees and key consultants, and in the event
of their loss or unavailability we may not be able to grow our business or develop and commercialize our products.
We currently depend upon the efforts and abilities of our senior executives, including Adam Gridley our Chief Executive
Officer, Dr. Phillip Schwartz, our President of R&D and Executive Vice President, Hillel Galitzer, our Chief Operating Officer,
and a small number of employees and key consultants. Our success depends upon the continued contributions of these senior
executives, employees and consultants, many of whom have substantial scientific and technical experience with, and have been
instrumental for, us and our technology platform. Furthermore, recruiting and retaining new executive talent and qualified
scientific personnel to perform future research and development work will be critical to our success. Competition for skilled
personnel is intense and turnover rates are high, and our ability to attract and retain qualified personnel may be limited. The loss
or unavailability of the services of any of our key employees and consultants for any significant period of time or our inability to
attract and retain qualified skilled personnel could have a material adverse effect on our business, technology, prospects, financial
condition and results of operations. We do not maintain “key man” life insurance policies for any of our employees.
We expect to grow our organization, particularly in the United States, specifically to supplement and expand our senior
management, clinical development and regulatory capabilities and marketing infrastructure, and we may experience
difficulties in managing these changes and this growth, which could disrupt our operations.
As our clinical development and commercialization plans and strategies develop, we expect to supplement and expand our
employee base, particularly in the United States, for clinical development, regulatory, operational, sales, marketing, financial and
other capabilities and with senior managers who are either based in the U.S. or who have significant U.S. public company
experience. These changes may result in significant shifting of responsibilities or replacement of key personnel. The need to
identify, recruit, maintain, motivate and integrate additional employees and senior members of management, including senior
executives, is expected to impose significant responsibilities on our senior executives and may divert a disproportionate amount
of their attention away from our day-to-day activities. The addition of such employees and managers may have an impact on the
decisions that we make over time. As a result of these changes, we may cease to be a foreign private issuer, which would require
us to comply with U.S. regulations pertaining to domestic issuers instead.
In conjunction with the addition of these employees and senior members of management, we intend to grow our company.
Due to our limited financial resources and the limited experience of our management team, it is possible that our management,
finance, development personnel, systems and facilities currently in place may not be adequate to support this future growth. We
may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, give
rise to operational errors, loss of business opportunities, loss of employees and reduced productivity among remaining
employees. Our expected growth could require significant expenditures and may divert financial resources from other projects,
such as the development of existing and additional product candidates. If we are unable to effectively manage our expected
growth, our expenses may increase more than expected, our ability to generate or grow revenue could be reduced and we may not
be able to implement our strategy. Our future financial performance and our ability to develop our product candidates and
compete effectively with others in our industry will depend, in part, on our ability to effectively manage any future growth. In
addition, pursuant to both Israeli law and Nasdaq rules, we have appointed independent directors, which may result in a change in
the company’s direction over time, as discussed in further detail in “Item 6.C.—Board Practices—Board of Directors.”
We are increasingly dependent on information technology systems, infrastructure and data, and our internal computer
systems, or those of our collaborators, third-party clinical research organizations or other contractors or consultants, may fail
or suffer security breaches, which could result in a material disruption of our product development programs.
We are increasingly dependent upon information technology systems, infrastructure and data. Despite the implementation of
security measures, our internal computer systems and those of our development partners, third-party clinical research
organizations, data management organizations and other contractors and consultants are vulnerable to damage from service
interruption or destruction, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and
electrical failures. In addition, such systems are subject to compromise from internal threats, such as theft, misuse, unauthorized
access or other improper actions by employees, third-party service providers and other third parties with otherwise legitimate
access to our systems. Cyber-attacks are increasing in their frequency, sophistication and intensity, and have become increasingly
difficult to detect. Cyber-attacks could include the deployment of harmful malware, denial-of service, social engineering and
other means to affect service reliability and threaten data confidentiality, integrity and availability. It is possible that we may not
be able to anticipate, detect, appropriately react and respond to, or implement effective preventative measures against all
cybersecurity incidents. Our key business partners face similar risks, and a security breach of their systems could adversely affect
our security posture.
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While we have not experienced any such system failure, accident or security breach to date, if such an event were to occur and
cause interruptions in our operations, it could cause damage or destroy assets, compromise business systems, or otherwise result
in a material disruption of our programs and business operations. Security breaches further pose a risk that sensitive data,
including intellectual property, clinical data, trade secrets or personal information may be exposed to unauthorized persons or to
the public, altered or lost. For example, the loss of clinical trial data for any of our product candidates could result in delays in
our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any
disruption or security breach results in a loss of or damage to our data or applications or other data or applications relating to our
technology or product candidates, or inappropriate disclosure of confidential or proprietary information, we could incur
liabilities, damages or damage to our reputation and the further development of our product candidates could be delayed. We do
not currently maintain a cyber insurance policy and therefore the successful assertion of one or more large claims against us in
connection with a breach or other cybersecurity-related matter could materially adversely affect our business, financial condition
and operating results.
We rely on email and other messaging services in connection with our operations. We may be targeted by parties using
fraudulent spoofing and phishing emails to misappropriate passwords, payment information or other personal information or to
introduce viruses through Trojan horse programs or otherwise through our networks, computers, smartphones, tablets or other
devices. Despite our efforts to mitigate the effectiveness of such malicious email campaigns through a variety of control and non-
electronic checks, spoofing and phishing may damage our business and increase our costs. Any of these events or circumstances
could materially adversely affect our business, financial condition and operating results.
We may be required to expend significant capital and other resources to protect against, respond to, and recover from any
potential, attempted, or existing cybersecurity incidents. As cybersecurity incidents continue to evolve, we may be required to
expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate
any information security vulnerabilities. In addition, our remediation efforts may not be successful. Moreover, there could be
public announcements regarding any cybersecurity incidents and any steps we take to respond to or remediate such incidents, and
if securities analysts or investors perceive these announcements to be negative, it could, among other things, have a substantial
adverse effect on the price of our common stock. There can be no assurance that our efforts will prevent service interruptions, or
identify breaches in our systems, that could adversely affect our business and operations and/or result in the loss of critical or
sensitive information or the illegal transfer of funds to unknown persons, which could result in financial, legal, business or
reputational harm, and may harm our relationships with third parties.
Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards
and requirements and insider trading.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional
failures to comply with the regulations of the FDA or foreign regulators, failure to provide accurate information to regulatory
authorities, failure to comply with manufacturing standards we have established, failure to comply with federal and state health
care fraud and abuse laws and regulations in the United States and abroad, failure to report financial information or data
accurately, disclose unauthorized activities to us or failure to comply with our own internal company policies. In particular, sales,
marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent
fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide
range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business
arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials,
which could result in regulatory sanctions and cause harm to our reputation. We have adopted a code of business conduct and
ethics, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent
this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental
investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions
are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a
significant impact on our business, including the imposition of significant fines or other sanctions.
In addition, during the course of our operations our directors, executives and employees may have access to material,
nonpublic information regarding our business, our results of operations or potential transactions we are considering. We may not
be able to prevent a director, executive or employee from trading in our common stock on the basis of, or while having access to,
material, nonpublic information. If a director, executive or employee was to be investigated or an action was to be brought
against a director, executive or employee for insider trading, it could have a negative impact on our reputation and our stock
price. Such a claim, with or without merit, could also result in substantial expenditures of time and money and divert attention of
our management team from other tasks important to the success of our business.
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The results of the United Kingdom’s exit from the European Union may have a negative effect on global economic conditions,
financial markets and our business.
The United Kingdom, or the U.K. exited the European Union, or the EU on January 31, 2020, which will be followed by an
11-month transition period by which to leave the single market and customs union; however, ongoing uncertainty remains as to
what kind of post-Brexit agreement between the U.K. and the EU, if any, may be approved by the U.K. parliament. Brexit could
lead to legal and regulatory uncertainly and potentially divergent national laws and regulations, including with respect to data
privacy manufacturing, labor, environmental, competition and other matters. Since a significant proportion of the regulatory
framework in the United Kingdom is derived from EU directives and regulations, the withdrawal of the U.K. from the EU could
materially impact the regulatory regime with respect to our activities in the United Kingdom and could affect our activities in
other countries.
Since a significant proportion of the regulatory framework affecting the pharmaceutical and biotechnology industries in the
United Kingdom is derived from the European Union directives and regulations, the referendum could materially impact the
regulatory regime with respect to the approval of our product candidates in the United Kingdom and/or the European Union. In
addition, following the Brexit vote, the European Union moved the EMA, headquarters from the United Kingdom to the
Netherlands. This transition may cause disruption in the administrative and medical scientific links between the EMA and the
U.K. Medicines and Healthcare products Regulatory Agency, including delays in granting clinical trial authorization or marketing
authorization, disruption of import and export of active substance and other components of new drug formulations, and disruption
of the supply chain for clinical trial product and final authorized formulations. The cumulative effects of the disruption to the
regulatory framework may add considerably to the development lead time to marketing authorization and commercialization of
products in the United Kingdom and/or the European Union. Any delay in obtaining, or an inability to obtain, any marketing
approvals, as a result of Brexit or otherwise, would prevent us from commercializing our product candidates in the United
Kingdom and/or the European Union, and restrict our ability to generate revenue and achieve and sustain profitability. If any of
these outcomes occurs, we may be forced to restrict or delay efforts to seek regulatory approval in the United Kingdom and/or
European Union for our product candidates, which could significantly and materially harm our business.
The outbreak of COVID-19 in the United States, Israel and elsewhere has created significant business disruptions and will
adversely affect our business.
The outbreak of COVID-19 in the United States, Israel and elsewhere, has created significant business disruption and will
adversely affected our businesses. In December 2019, a novel strain of coronavirus, COVID-19, was identified in Wuhan, China.
As of March 2020, this virus has spread globally, including to the United States and Israel and continues to spread globally. The
spread of COVID-19 from China to other countries has resulted in the Director General of the World Health Organization
declaring the outbreak of COVID-19 as a pandemic. The COVID-19 outbreak continues to rapidly evolve.
In March 2020, the Government of Israel, where we run our research and development activities and clinical trials, imposed a
mandatory quarantine of all foreign visitors and, in addition, announced that non-Israeli residents or citizens traveling from
certain countries may be denied entry into Israel. Israel has further issued regulations imposing partial home confinement and
other movement restrictions, reducing staffing of non-essential businesses, restricting public transportation and other public
activities. We continue to monitor our operations and government regulations, guidelines and recommendations and may
temporarily close our office space to protect our employees. In addition, hospitals may reduce staffing and have begun to reduce
or postpone certain treatments in response to the spread of an infectious disease, including our clinical trials. Such events may
result in a period of business disruption, and in reduced operations, any of which could materially affect our business, financial
condition and results of operations.
Disruptions to our supply chain will prevent us from receiving necessary materials from manufacturers for our research and
may also delay third-party laboratories with which we work from performing research tasks. If individuals or site staff who, as
healthcare providers, may have heightened exposure to COVID-19, choose not to participate in or leave clinical trials being
conducted by us or our collaboration partners due to concerns over infection risk or if Israeli authorities fully close or curtail
access to the hospital facilities where many of our clinical trials are conducted for a prolonged time, our clinical trial operations
could be significantly and adversely affected. The diversion of healthcare resources away from the conduct of clinical trials to
focus on pandemic concerns, including the attention of physicians serving as our clinical trial investigators, diversion of hospitals
and medical centers or sites serving as our clinical trial sites and hospital or other staff supporting the conduct of our clinical
trials may significantly disrupt our research activities. Israeli authorities have begun repurposing certain medical institutions to
function as centers for COVID-19 treatment, including two centers where we conduct trials.
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Limitations on travel could interrupt key trial activities, such as clinical trial site initiations and monitoring of ongoing
stability studies or other such experiments associated with our upcoming preclinical studies or future collaborations, domestic
and international travel by employees, contractors or patients to clinical trial sites, including any government-imposed travel
restrictions or quarantines that may impact the ability or willingness of patients, employees or contractors to travel to our clinical
trial sites or secure visas or entry permissions, any of which could delay or adversely impact the conduct or progress of our
clinical trials. At this time, our employees are largely following a work from home policy and will be required to adapt or change
their current participation in our research as evolving government directives are released, including the cessation of non-essential
business activity, which may be interpreted by Israeli authorities to include our clinical trials. Limitations on or the closure of
mass transit may impact our business operations or delay necessary interactions with local regulators, ethics committees and
other important agencies and contractors.
We expect such disruptions will prevent or delay us from completing research and development activities and our clinical
trials. Depending on their duration, these restrictions could affect our ability to conclude our Phase 2 clinical trial of EB613 with
the 97 patients we currently have enrolled. If fewer patients are enrolled in our Phase 2 clinical trial, the FDA may determine that
we lack sufficient data to proceed with a Phase 3 clinical trial or may require that we alter the design of any future Phase 3
clinical trial, which may require us to expend additional resources. Our relationships with certain business partners or investors
may be impaired. While we may be able to adapt to these developments by testing patients in their homes, there is no guarantee
we will be able to continue doing so in the future if Israeli authorities enact a complete lockdown or require citizens to shelter in
place, as has already occurred in certain cities in China, the United States and Europe. Interruption or delays in the operations of
the FDA and foreign regulatory authorities may impact review and approval timelines. Regulatory authorities may also decide to
prioritize review of other pharmaceutical approval applications, including those related to treatment of COVID-19. We may also
be delayed in completing research we are contractually obligated to produce, including as part of our agreed collaboration with
Amgen or with other third-party partners.
As a result, the expected timeline for data readouts of our preclinical studies and clinical trials and certain regulatory filings
will likely be negatively impacted, which would adversely affect our ability to obtain regulatory approval for our product
candidates, increase our operating expenses and have a material adverse effect on our financial results. We may require additional
capital to continue our research activities, which funding may not be available entirely or at attractive terms.
These and other factors arising from the COVID-19 pandemic could worsen in countries that are already afflicted with
COVID-19, could continue to spread to additional countries, or could return to countries where the pandemic has been partially
contained, each of which could further adversely impact our ability to conduct clinical trials and our business generally, and could
have a material adverse impact on our operations, internal control over our financial reporting, financial condition and results. In
addition, the trading prices for our Ordinary Shares and other biopharmaceutical companies have been highly volatile as a result
of the COVID-19 pandemic. The extent to which the coronavirus impacts our business will depend on future developments,
which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity and
geographic reach of the coronavirus and the effectiveness of actions to contain the coronavirus or treat its impact, among others.
We are subject to risks related to restrictive data privacy regulations governing the collection, use, processing and cross-
border transfer of personal information.
In the ordinary course of our business, we may collect, process, use, store or transfer sensitive data in our data centers and on
our networks, including intellectual property, proprietary business information (both ours and that of our customers, suppliers and
business partners) and personally identifiable information, including in connection with conducting clinical trials. We are subject
to strict data privacy laws and regulations in the U.S., European Union, Israel and other jurisdictions in which we operate, as well
as contractual obligations, governing the collection, transmission, storage and use of personal information. The legislative and
regulatory landscape for data privacy and protection continues to evolve around the world and are increasingly rigorous, with
new and constantly changing requirements applicable to our business, including the U.S.’s federal Health Insurance Portability
and Accountability Act of 1996, as amended, or HIPAA, the EU General Data Protection Regulation ((EU) 2016/679), or the
GDPR, the Israeli Privacy Protection Law, 5741-1981, and other laws and regulations governing the collection, use, disclosure
and transmission of data. The enforcement practices of these laws and regulations are likely to remain uncertain for the
foreseeable future. These laws and regulations may be interpreted and applied differently over time and from jurisdiction to
jurisdiction, and it is possible that they will be interpreted and applied in ways that may have a material adverse effect on our
results of operations, financial condition and cash flows.
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For example, in the United States, various federal and state regulators have adopted, or are considering adopting, laws and
regulations concerning personal information and data security. Certain state laws may be more stringent or broader in scope, or
offer greater individual rights, with respect to personal information than federal, international or other state laws, and such laws
may differ from each other, all of which may complicate compliance efforts. For example, the California Consumer Privacy Act,
or the CCPA, which increases privacy rights for California residents and imposes obligations on companies that process their
personal information, came into effect on January 1, 2020. Among other things, the CCPA requires covered companies to provide
new disclosures to California consumers and provide such consumers new data protection and privacy rights, including the ability
to opt-out of certain sales of personal information. The CCPA provides for civil penalties for violations, as well as a private right
of action for certain data breaches that result in the loss of personal information. This private right of action may increase the
likelihood of, and risks associated with, data breach litigation. In addition, laws in all 50 U.S. states require businesses to provide
notice to consumers whose personal information has been disclosed as a result of a data breach. State laws are changing rapidly
and there is discussion in Congress of a new comprehensive federal data privacy law to which we would become subject if it is
enacted.
In addition, outside the United States, laws, regulations and standards in many jurisdictions apply broadly to the collection,
use, retention, security, disclosure, transfer and other processing of personal information. For example, the GDPR greatly
increased the European Commission’s jurisdictional reach of its laws and adds a broad array of requirements for handling
personal data. EU member states are tasked under the GDPR to enact, and have enacted, certain implementing legislation that
adds to and/or further interprets the GDPR requirements and potentially extends our obligations and potential liability for failing
to meet such obligations. The GDPR, together with national legislation, regulations and guidelines of the EU member states and
the United Kingdom governing the processing of personal data, impose strict obligations and restrictions on the ability to collect,
use, retain, protect, disclose, transfer and otherwise process personal data. Specifically, the GDPR’s requirements including
having legal bases for processing personal information relating to identifiable individuals and transferring such information
outside of the European Economic Area, including to the United States, and other countries providing details to those individuals
regarding the processing of their personal information, keeping personal information secure, having data processing agreements
with third parties who process personal information, responding to individuals’ requests to exercise their rights in respect of their
personal information, reporting security breaches involving personal data to the competent national data protection authority and
affected individuals, appointing data protection officers, conducting data protection impact assessments and record-keeping. The
GDPR imposes additional responsibilities and liabilities in relation to personal data that we process and authorizes fines for
certain violations of up to 4% of global annual revenue or €20 million, whichever is greater. As such, we may be required to put
in place additional mechanisms ensuring compliance with the new data protection rules.
All of these evolving compliance and operational requirements impose significant costs, such as costs related to
organizational changes, implementing additional protection technologies, training associates and engaging consultants, which are
likely to increase over time. In addition, such requirements may require us to modify our data processing practices and policies,
distract management or divert resources from other initiatives and projects. Any failure or perceived failure to comply with the
requirements of privacy laws and regulations, including the CCPA, GDPR and related national data protection laws of the
member states of the European Union, may result in damage to our reputation and our relationship with our customers, as well as
proceedings or litigation by governmental agencies or customers, including class action privacy litigation in certain jurisdictions,
which would subject us to significant fines, sanctions, awards, penalties or judgments, which could have a material adverse effect
on our business, prospects, financial condition and results of operations.
Risks Related to Regulatory Approval of Our Product Candidates
Clinical drug development is expensive, time consuming and uncertain. Development programs are subject to unanticipated
delays and we may ultimately not be able to obtain regulatory approvals for the commercialization of our product candidates.
Our lead product candidates are orally delivered tablet formulations of the synthetic form of the first 34 amino acids of human
PTH. We are developing EB613 to treat Osteoporosis and EB612 to treat of hypoparathyroidism. These product candidates, have
not yet reached late stage clinical development and are subject to the risks of failure inherent in drug development. The clinical
development, manufacturing, quality assurance, labeling, storage, record-keeping, advertising, promotion, pharmacovigilance,
import, export, marketing and distribution of our product candidates is subject to extensive regulation by the FDA in the United
States and by comparable authorities in foreign markets. We are not permitted to market our product candidates in the United
States until we receive approval of a new drug application, or NDA, from the FDA or in any other country until we receive
marketing approval from the applicable regulatory authorities in such countries. We have not yet submitted a marketing
application, or received marketing approval, for any of our product candidates and have limited experience in conducting and
managing the clinical trials necessary to obtain regulatory approvals. The process of obtaining regulatory approvals is expensive,
often takes many years, and can vary substantially based upon the type, complexity, and novelty of the products involved, as well
as the target indications. Approval policies or regulations may change and the regulatory agencies have substantial discretion in
the approval process for products, including the ability to delay, limit or deny approval of a product candidate for many reasons.
Obtaining approval of an NDA or other marketing application can be a lengthy, expensive and uncertain process. Despite the time
and expense invested in clinical development of product candidates, regulatory approval is never guaranteed.
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The FDA or comparable foreign regulatory authorities can delay, limit or deny approval of a product candidate for many
reasons, including:
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such authorities may disagree with the number, design, size, conduct or implementation of our clinical trials or any of our collaborators’ clinical
trials;
we or any of our development partners may be unable to demonstrate to the satisfaction of the FDA or other regulatory authorities that a product
candidate is safe and effective for any indication;
the results of clinical trials may not meet the level of statistical significance or clinical significance required by the FDA, EMA or other regulatory
agencies for approval;
such authorities may not accept clinical data from trials which are conducted at clinical facilities or in countries where the standard of care is
potentially different from that authority’s jurisdiction;
the data collected from non-clinical studies and clinical trials of our product candidates may not be sufficient to support the submission of an
application for regulatory approval;
the results of clinical trials may not demonstrate the safety or efficacy required by such authorities for approval;
we or any of our future development partners may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its
safety risks;
such authorities may disagree with our interpretation of data from preclinical studies or clinical trials or the use of results from studies that served
as precursors to our current or future product candidates;
such authorities may find deficiencies in our manufacturing processes or facilities or those of third-party manufacturers with which we or any of
our future development partners contract for clinical and commercial supplies;
the FDA may require development of a Risk Evaluation and Mitigation Strategy, or REMS, as a condition of approval; and
the approval policies or regulations of such authorities may significantly change in a manner rendering our or any of our future development
partners’ clinical data insufficient for approval.
Each of our oral PTH product candidates, including EB613 and EB612, are still in clinical development and face a variety of
risks and uncertainties, including the following:
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future clinical trial results may show that our oral PTH is not effective, including if our drug delivery technology is not effective, our product
candidates are not effective, our clinical trial designs are flawed, or clinical trial investigators or subjects do not comply with trial protocols;
our product candidates may not be well tolerated or may cause negative side effects;
our ability to complete the development and commercialization of our oral PTH for our intended uses may be significantly dependent upon our
ability to obtain and maintain experienced and committed collaborators to assist us with obtaining clinical and regulatory approvals for, and the
manufacturing, marketing and distribution of, our oral PTH;
even if our oral PTH is shown to be safe and effective for its intended purposes, we may face significant or unforeseen difficulties in obtaining or
manufacturing sufficient quantities at reasonable prices, or at all;
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even if our oral PTH is successfully developed, commercially produced and receives all necessary regulatory approvals, there is no guarantee that
there will be market acceptance;
even if our oral PTH is successfully developed, commercially produced and receives all necessary regulatory approvals for the treatment of
Osteoporosis, there is no guarantee that we will successfully develop and commercialize it for other indications, including hypoparathyroidism and
delayed union fractures; and
our competitors may develop therapeutics or other treatments that are superior to or less costly than our own with the result that our products, even
if they are successfully developed, manufactured and approved, may not generate significant revenues.
If we are unsuccessful in dealing with any of these risks, or if we or a potential partner are unable to successfully
commercialize our oral PTH or any other product candidates we may develop in the future, it would likely have a material
adverse effect on our business, prospects, financial condition and results of operations. In addition, in the event we are able to
successfully commercialize our oral PTH, we may sell the tablets at a discounted sales price for the initial period in order to gain
market acceptance of the product, which could adversely affect our financial condition and results of operations.
In addition, before we can submit an application for regulatory approval in the United States, we must conduct a pivotal trial
that will be substantially broader than our completed Phase 2a trial in hypoparathyroidism and our ongoing Phase 2 trial in
osteoporosis. We will also need to agree on a protocol with the FDA for a Phase 3 clinical trial before commencing the trial. The
outbreak of COVID-19 may impact whether the FDA would consider our Phase 2 clinical trial data to be sufficient for purposes
of commencing a Phase 3 clinical trial for osteoporosis. Phase 3 clinical trials frequently produce unsatisfactory results even
when prior clinical trials were successful. Therefore, even if the results of our Phase 2 trials are successful, the results of the
additional trials that we conduct may or may not be successful. Further, our product candidates may not be approved even if they
achieve their primary endpoints in Phase 3 clinical trials. For example, there is no FDA guidance on the acceptable level of
variability of absorption of orally delivered products with large molecule APIs, and, therefore we are unable to be certain that we
are designing our product candidates or clinical trials to satisfy the FDA in this regard. The FDA, EMA or other regulatory
agencies may require that we conduct additional clinical, nonclinical, manufacturing validation or drug product quality studies
beyond those planned and submit data from such trials before considering or reconsidering the application. Depending on the
extent of these or any other studies, approval of any applications that we submit may be delayed by several years or may require
us to expend more resources than we have available. It is also possible that additional studies, if performed and completed, may
not be considered sufficient by the FDA, EMA or other regulatory agencies. If any of these outcomes occur, we would not
receive approval for our oral PTH tablet or other product candidates we may develop in the future.
In addition, the FDA, EMA or other regulatory agencies may also approve a product candidate for fewer or more limited
indications than we request, may impose significant limitations related to use restrictions for certain age groups, warnings,
precautions or contraindications or may grant approval contingent on the performance of costly post-marketing clinical trials or
risk mitigation requirements. The FDA, EMA or other regulatory agencies may also not accept the labeling claims that we
believe would be necessary or desirable for the successful commercialization of our product candidates.
The commencement and completion of clinical trials can be delayed or prevented for a number of reasons.
EB613 is currently in a Phase 2 clinical trial for the treatment of osteoporosis and we had a Pre-IND meeting for EB613 with
the FDA in November 2018. Following FDA guidance on our proposed preclinical and clinical development plans, we intend to
further develop EB613 and conduct the required nonclinical studies and clinical trials in order to attain regulatory approval in the
United States and other countries. In addition, we plan to initiate a Phase 2b/3 clinical trial of EB612 in hypoparathyroidism that
would potentially support a submission for regulatory approval of EB612. Drug development is a long, expensive and uncertain
process, and delay or failure can occur at any stage of any of our clinical trials for a number of reasons including:
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difficulties obtaining regulatory approval to commence a clinical trial or complying with conditions imposed by a regulatory authority regarding
the scope or term of a clinical trial;
delays in reaching or failing to reach agreement on acceptable terms with prospective contract research organizations, or CROs, contract
manufacturing organizations, and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly;
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failure of our third-party contractors, such as CROs and contract manufacturing organizations, or our investigators to comply with regulatory
requirements or otherwise meet their contractual obligations in a timely manner;
insufficient or inadequate supply or quality of a product candidate or other materials necessary to conduct our clinical trials;
difficulties obtaining institutional review board, or IRB, or ethics committee approval to conduct a clinical trial at a prospective site;
the FDA, EMA or other regulatory authority may require changes to any of our trial designs, our pre-clinical strategy or our manufacturing plans;
various challenges recruiting and enrolling subjects to participate in clinical trials, including size and nature of subject population, proximity of
subjects to clinical sites, eligibility criteria for the trial, budgetary limitations, nature of trial protocol, the patient referral practices of physicians,
changes in the readiness of subjects to volunteer for a trial, the availability of approved effective treatments for the relevant disease and
competition from other clinical trial programs for similar indications;
difficulties in maintaining contact with subjects who withdraw from the trial, resulting in incomplete data;
governmental or regulatory delays and changes in regulatory requirements, policy and guidelines;
varying interpretations of data by the FDA and foreign regulatory agencies; and
inaccurate interpretations by us of the FDA’s guidance for the clinical and regulatory path for our product candidates.
If changes in regulatory requirements and guidance occur, we may need to significantly amend clinical trial protocols or
submit new clinical trial protocols with appropriate regulatory authorities to reflect these changes. Amendments may require us to
renegotiate terms with CROs, or resubmit clinical trial protocols to IRBs or ethics committees for re-examination, which may
impact the costs, timing or successful completion of a clinical trial. Our clinical trials may be suspended or terminated at any time
by the FDA (for trials in the U.S.), other regulatory authorities (for trials conducted outside the U.S.), the IRB /ethics committee
overseeing any given clinical trial, any of our clinical trial sites with respect to that site, or us, due to a number of factors,
including:
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failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;
findings of an inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities;
unforeseen issues, including serious adverse events associated with a product candidate, or lack of effectiveness or any determination that a
clinical trial presents unacceptable health risks;
lack of adequate funding to continue the clinical trial due to unforeseen costs or other business decisions; and
upon a breach or pursuant to the terms of any agreement with, or for any other reason by, current or future collaborators that have responsibility
for the clinical development of any of our product candidates.
Moreover, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time
and receive compensation in connection with such services. Under certain circumstances, we are required to report some of these
relationships to the FDA. The FDA may conclude that a financial relationship between us and a principal investigator has created
a conflict of interest or otherwise affected the investigator’s conduct of the trial. The FDA may therefore question the integrity of
the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result
in a delay in approval, or rejection, of our marketing applications by the FDA and may ultimately lead to the denial of marketing
approval of one or more of our product candidates.
If we do not succeed in conducting and managing our non-clinical development activities or clinical trials, or in obtaining
regulatory approvals, we might not be able to commercialize our product candidates, or might be significantly delayed in doing
so, which could have a material adverse effect on our business, prospects, financial condition and results of operations.
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The results of previous clinical trials may not be predictive of future results, our progress in trials for one product candidate
may not be indicative of progress in trials for other product candidates, and our trials may not be designed so as to support
regulatory approval.
We currently have no products approved for sale and we cannot guarantee that we will ever have marketable products.
Clinical failure can occur at any stage of clinical development. Clinical trials may produce negative or inconclusive results, and
we or any of our current and future collaborators may decide, or regulators may require us, to conduct additional clinical or non-
clinical testing. We will be required to demonstrate with substantial evidence through well-controlled clinical trials that our
product candidates are safe and effective for use in a diverse population before we can obtain regulatory approvals for their
commercial sale. Success in early clinical trials does not mean that future clinical trials will be successful because product
candidates in later-stage clinical trials may fail to demonstrate sufficient safety and efficacy to the satisfaction of the FDA and
non-U.S. regulatory authorities despite having progressed through initial clinical trials. Product candidates that have shown
promising results in early clinical trials may still suffer significant setbacks in subsequent clinical trials. Similarly, the outcome of
non-clinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a
clinical trial do not necessarily predict final results. Progress in trials of one product candidate does not indicate that we will
make similar progress in additional trials for that product candidate or in trials for our other product candidates. A number of
companies in the pharmaceutical industry, including those with greater resources and experience than us, have suffered
significant setbacks in advanced clinical trials, even after obtaining promising results in earlier clinical trials.
The design of a clinical trial can determine whether its results will support approval of a product. We may be unable to design
and/or execute a clinical trial to support regulatory approval. Flaws in the design of a clinical trial may not become apparent until
the clinical trial is well advanced or completed. In addition, we may have little control over whether subjects comply with
important aspects of clinical trial protocols. In particular, in trials of our oral PTH, if subjects do not comply with restrictions on
eating and drinking before and after administration of our product candidates, interaction between the drug and food in the
gastrointestinal tract, or a “food effect,” may decrease the bioavailability and increase the variability of drug delivered to the
subject, which may negatively impact efficacy.
In some instances, there can be significant variability in safety and/or efficacy results between different trials of the same
product candidate due to numerous factors, including changes in trial protocols, differences in size and type of the patient
populations, adherence to the dosing regimen and other trial protocols, modifications in the formulation throughout the course of
development and the rate of dropout among clinical trial participants. While we have not had any serious adverse events in our
clinical trials to date, that are believed to be related to our oral PTH product candidates, we may need to change future trial
designs in response to adverse events that occur during future clinical development. We do not know whether any Phase 2, Phase
3 or other clinical trials we or any of our collaborators may conduct will demonstrate consistent or adequate efficacy and safety to
obtain regulatory approval to market our product candidates.
Even if regulatory approvals are obtained for our product candidates, we will be subject to ongoing government regulation. If
we fail to comply with applicable current and future laws and government regulations, it could delay or prevent the
promotion, marketing or sale of our products.
Even if marketing approval is obtained for our product candidates, a regulatory authority may still impose significant
restrictions on a product’s indications, conditions for use, distribution or marketing or impose ongoing requirements for
potentially costly post-market surveillance, post-approval studies or clinical trials, all of which may result in significant expense
and limit our ability to commercialize our products. Our products will also be subject to ongoing requirements governing the
labeling, packaging, storage, advertising, distribution, promotion, recordkeeping and submission of safety and other post-market
information, including adverse events, and any changes to the approved product, product labeling or manufacturing process. In
addition, manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA
and other regulatory authorities for compliance with Current Good Manufacturing Practice, or cGMP, requirements and other
regulations.
If we, our drug products or the manufacturing facilities for our drug products fail to comply with applicable regulatory
requirements, a regulatory agency may:
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issue warning letters or untitled letters or take similar enforcement actions;
seek an injunction or impose civil or criminal penalties or monetary fines;
suspend or withdraw marketing approval;
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suspend any ongoing clinical trials;
refuse to approve pending applications or supplements to applications;
suspend or impose restrictions on operations, including costly new manufacturing requirements;
seize or detain products, refuse to permit the import or export of products, exclude products from federal healthcare programs, or request that we
initiate a product recall; or
refuse to allow us to enter into supply contracts, including government contracts.
We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or
administrative action, either in the United States or abroad, and compliance with such regulation may be expensive and consume
substantial financial and management resources. If we or any future marketing collaborators or contract manufacturers are slow
or unable to adapt to changes in existing requirements or the adoption of new requirements or policies or are not able to maintain
regulatory compliance, it could delay or prevent the promotion, marketing or sale of our products, which would adversely affect
our business and results of operations.
In order to obtain FDA approval for EB612 prior to the expiration of Natpara’s orphan drug exclusivity in 2022, we may need
to show that EB612 is clinically superior or otherwise makes a major contribution to patient care. Moreover, although we
have obtained orphan drug designation for EB612 for the treatment of hypoparathyroidism, we may be unable to maintain the
benefits associated with orphan drug designation, including the potential for market exclusivity.
Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs for relatively small
patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product candidate as an orphan drug
if it is a drug intended to treat a rare disease or condition, which is generally defined as a condition that affects fewer than
200,000 individuals in the United States or that affects more than 200,000 individuals in the United States and for which there is
no reasonable expectation that the cost of developing and making available the drug for the disease or condition will be recovered
from sales of the drug in the United States. In the European Union, the European Commission may designate a product candidate
as an orphan medicinal product if it is a medicine for the diagnosis, prevention or treatment of life-threatening or very serious
conditions that affects not more than five in 10,000 persons in the European Union, or it is unlikely that marketing of the
medicine would generate sufficient returns to justify the investment needed for its development and no satisfactory method of
diagnosis, prevention or treatment of the condition concerned is authorized, or, if such method exists, that the medicinal product
will be of significant benefit to those affected by the condition. We have received orphan drug designation for oral PTH,
specifically human PTH (1-34), for the treatment of hypoparathyroidism from the FDA, but orphan drug designation may not
ensure that we have market exclusivity in a particular market and there is no assurance we will be able to receive orphan drug
designation for any additional oral PTH product candidates for the treatment of other diseases. Further, the granting of a request
for orphan drug designation does not alter the standard regulatory requirements and process for obtaining marketing approval,
including the development time or regulatory review time of a drug.
Generally, if a product candidate with an orphan drug designation receives the first marketing approval for the indication for
which it has such designation, the product is entitled to a period of marketing exclusivity, which, subject to certain exceptions,
precludes the FDA from approving another drug with the same active moiety for the same indication for that time period or
precludes the EMA, and other national drug regulators in the European Union, from accepting the marketing application for a
similar medicinal product for the same indication. The applicable period is seven years in the United States and 10 years in the
European Union. The EU period can be reduced to six years if, at the end of the fifth year of marketing exclusivity, a product no
longer meets the criteria for orphan drug designation, for instance if the product is sufficiently profitable so that market
exclusivity is no longer justified. In the European Union, orphan exclusivity may also be extended for an additional two years
(i.e., a maximum of 12 years’ orphan exclusivity) if the product is approved on the basis of a dossier that includes pediatric
clinical trial data generated in accordance with an approved pediatric investigation plan. Orphan drug exclusivity may be lost in
the United States if the FDA determines that the request for designation was materially defective or if the manufacturer is unable
to assure sufficient quantity of the product to meet the needs of patients with the rare disease or condition.
Orphan drug exclusivity may not effectively protect the product from competition because exclusivity can be suspended under
certain circumstances. In the United States, even after an orphan drug is approved, the FDA can subsequently approve another
drug with the same active moiety for the same condition if the FDA concludes that the later drug is clinically superior in that it is
shown to be safer, more effective or otherwise makes a major contribution to patient care. In the European Union, orphan
exclusivity will not prevent a marketing authorization being granted for a similar medicinal product in the same indication if the
new product is safer, more effective or otherwise clinically superior to the first product or if the marketing authorization holder of
the first product is unable to supply sufficient quantities of the product.
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We believe that our key competitor in hypoparathyroidism treatment is Takeda Pharmaceutical Company Ltd., whose product
Natpara, an injectable bioengineered recombinant form of PTH (1-84), was approved by the FDA in January 2015, and
conditionally approved by the EMA in April 2017. Natpara has been granted orphan drug designation for hypoparathyroidism by
the FDA and, as the first approved product for this indication, has orphan drug market exclusivity for seven years in the United
States and, 10 years after receipt of market approval in the European Union. Therefore, we will only be able to obtain regulatory
approval for EB612 prior to expiration of Natpara’s orphan exclusivity period in the United States, which expires in January
2022, if we demonstrate EB612’s clinical superiority over Natpara in that it demonstrates greater effectiveness or safety than
Natpara or that it otherwise makes a major contribution to patient care. We believe that we will be able to demonstrate to the
satisfaction of the FDA and EMA that our formulation of PTH is clinically superior to Natpara, and therefore we do not believe
that the FDA or EMA will be precluded from approving a marketing application prior to Natpara’s expiration of orphan
exclusivity, but there can be no assurance that we will be able to demonstrate that EB612 is clinically superior to Natpara or
otherwise makes a major contribution to patient care, under the applicable FDA and EMA standards and obtain regulatory
approval even if EB612 would otherwise satisfy each regulator’s standards for approval. In 2019, Natpara was recalled due to
certain product format issues, and is not anticipated to return to the market until later in 2020.
Even if we obtain regulatory approval of EB612, we may not enjoy the benefits of our orphan designation for EB612 for
hypoparathyroidism. Regulatory approval of EB612 would not create exclusivity vis-a-vis Natpara, and we would still have to
compete with Natpara for market acceptance and on other factors that contribute to commercial success, such as reimbursement.
Moreover, even if we obtain orphan drug exclusivity for EB612 vis-à-vis other products in development, that exclusivity may not
effectively protect EB612 from competition because different drugs with different active moieties can be approved for the same
condition. Even after an orphan drug is approved, the FDA or EMA can subsequently approve the same drug with the same
active moiety for the same condition if the FDA or EMA concludes that the later drug is safer, more effective, or otherwise makes
a major contribution to patient care.
Healthcare legislative changes may harm our business and future prospects.
Healthcare costs have risen significantly over the past decade. Globally, governments are becoming increasingly aggressive in
imposing health care cost-containment measures. Certain proposals, if passed, would impose limitations on the prices we will be
able to charge for the products that we are developing, or the amounts of reimbursement available for these products from
governmental agencies or third-party payors. These limitations could in turn reduce the amount of revenues that we will be able
to generate in the future from sales of our products and licenses of our technology.
In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or MMA changed the
way Medicare covers and pays for pharmaceutical products. The MMA expanded Medicare coverage for outpatient drug
purchases by those covered by Medicare under a new Part D and introduced a new reimbursement methodology based on average
sales prices for Medicare Part B physician-administered drugs. In addition, the MMA authorized Medicare Part D prescription
drug plans to limit the number of drugs that will be covered in any therapeutic class. As a result of this legislation and the
expansion of federal coverage of drug products, we expect that there will be additional pressure to contain and reduce costs.
These cost reduction initiatives and other provisions of the MMA could decrease the coverage and price that we receive for any
approved products and could seriously harm our future business prospects. While this law applies only to drug benefits for
Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own
reimbursement rates, and any reduction in reimbursement that results from this law may result in a similar reduction in payments
from private payors.
In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health
Care and Education Reconciliation Act, or collectively, the ACA, a sweeping law intended to broaden access to health insurance,
reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency
requirements for health care and health insurance industries, impose new taxes and fees on the health industry and impose
additional health policy reforms. The ACA, among other things, increased rebates a manufacturer must pay to the Medicaid
program, addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are
calculated for drugs that are inhaled, infused, instilled, implanted or injected, established a new Medicare Part D coverage gap
discount program, in which manufacturers must provide 50% point-of-sale discounts on products covered under Part D and
implemented payment system reforms including a national pilot program on payment bundling to encourage hospitals, physicians
and other providers to improve the coordination, quality and efficiency of certain healthcare services through bundled payment
models. Further, the new law imposed a significant annual fee on companies that manufacture or import branded prescription
drug products. Substantial new provisions affecting compliance were enacted, which may affect our business practices with
health care practitioners. The ACA appears likely to continue the pressure on pharmaceutical pricing and may also increase our
regulatory burdens and operating costs.
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In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. In
2011, the U.S. Congress enacted the Budget Control Act of 2011 (the “Budget Control Act”), which included provisions intended
to reduce the federal deficit. The Budget Control Act resulted in the imposition of 2% reductions in Medicare payments to
providers beginning in 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2027
absent additional congressional action. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which,
among other things, reduced Medicare payments to several providers, and increased the statute of limitations period for the
government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in
Medicare and other healthcare funding, which could have a material adverse effect on customers for our drugs, if approved, and
accordingly, our financial operations. If government spending is further reduced, anticipated budgetary shortfalls may also impact
the ability of relevant agencies, such as the FDA, to continue to function at current levels, which may impact the ability of
relevant agencies to timely review and approve research and development, manufacturing and marketing activities, which may
delay our ability to develop, market and sell any product candidates we may develop. In addition, any significant spending
reductions affecting Medicare, Medicaid or other publicly funded or subsidized health programs that may be implemented, or any
significant taxes or fees that may be imposed on us, as part of any broader deficit reduction effort or legislative replacement to the
Budget Control Act, could have an adverse impact on our anticipated product revenues.
There have been judicial and Congressional challenges to certain aspects of the ACA, as well as recent efforts by the Trump
administration to repeal and replace certain aspects of the ACA, and we expect such challenges to continue. Since January 2017,
President Trump has signed two Executive Orders and other directives designed to delay the implementation of certain provisions
of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. In 2017, the U.S.
Congress enacted the Tax Cuts and Jobs Act (the “2017 Tax Act”), which eliminated the tax-based shared responsibility payment
imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is
commonly referred to as the “individual mandate.” On January 22, 2018, President Trump signed a continuing resolution on
appropriations for fiscal year 2018 that delayed the implementation of certain fees mandated by the ACA, including the so-called
“Cadillac” tax on certain high cost employer-sponsored insurance plans and the annual fee imposed on certain health insurance
providers based on market share. The Bipartisan Budget Act of 2018, or the BBA, among other things, amends the ACA,
effective January 1, 2019, to close the coverage gap in most Medicare drug plans. In July 2018, CMS published a final rule
permitting further collections and payments to and from certain ACA qualified health plans and health insurance issuers under
the ACA risk adjustment program in response to the outcome of federal district court litigation, regarding the method CMS uses
to determine this risk adjustment. On December 14, 2018, a federal judge in Texas ruled that the ACA is unconstitutional in its
entirety because the “individual mandate” was repealed by Congress as part of the 2017 Tax Act. While the judge, as well as the
Trump administration and CMS, have stated that the ruling will have no immediate effect pending appeal of the decision, it is
unclear how this decision, subsequent appeals, and other efforts to repeal and replace the ACA, will impact our business. On
December 18, 2019, the Fifth Circuit Court of Appeals upheld the lower court’s decision that the ACA was unconstitutional. On
March 2, 2020, the U.S. Supreme Court granted certiorari to review the case, with an outcome expected in summer 2020.
Moreover, recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for
their commercial products. There have been several recent U.S. Congressional inquiries and proposed and enacted federal and
state legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between
pricing and manufacturer patient programs, reduce the cost of drugs under Medicare, and reform government program
reimbursement methodologies for drugs. The Trump administration’s budget proposal for fiscal year 2019 contains additional
drug price control measures that could be enacted during the 2019 budget process or in other future legislation, including, for
example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some
states to negotiate drug prices under Medicaid and to eliminate cost sharing for generic drugs for low-income patients.
Additionally, the Trump administration released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs
that contains additional proposals to increase manufacturer competition, increase the negotiating power of certain federal
healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of drug
products paid by consumers. On January 31, 2019, the HHS Office of Inspector General proposed modifications to federal Anti-
Kickback Statute safe harbors, which, among other things, may affect rebates paid by manufacturers to Medicare Part D plans,
the purpose of which is to further reduce the cost of drug products to consumers. In addition, CMS issued a final rule, effective
on July 9, 2019, that requires direct-to-consumer advertisements of prescription drugs and biological products, for which
payment is available through or under Medicare or Medicaid, to include in the advertisement the Wholesale Acquisition Cost, or
list price, of that drug or biological product if it is equal to or greater than $35 for a monthly supply or usual course of treatment.
Prescription drugs and biological products that are in violation of these requirements will be included on a public list. Any
adopted health reform measure could reduce the ultimate demand for our products, if approved, or put pressure on our product
pricing. Individual states in the United States have also become increasingly active in passing legislation and implementing
regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts,
restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to
encourage importation from other countries and bulk purchasing. In addition, regional healthcare authorities and individual
hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be
included in their prescription drug and other healthcare programs. We expect that additional state and federal healthcare reform
measures will be adopted in the future.
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The delivery of healthcare in the European Union, including the establishment and operation of health services and the pricing
and reimbursement of medicines, is almost exclusively a matter for national, rather than EU, law and policy. National
governments and health service providers have different priorities and approaches to the delivery of health care and the pricing
and reimbursement of products in that context. In general, however, the healthcare budgetary constraints in most EU member
states have resulted in restrictions on the pricing and reimbursement of medicines by relevant health service providers. Coupled
with ever-increasing EU and national regulatory burdens on those wishing to develop and market products, this could prevent or
delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to
commercialize any products for which we obtain marketing approval. Both in the United States and in the European Union,
legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional
activities for pharmaceutical products. We do not know whether additional legislative changes will be enacted, or whether the
regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our
product candidates, if any, may be.
Our relationships with customers and payors are subject to applicable anti-kickback, fraud and abuse and other healthcare
laws and regulations, which, if violated, could expose us to criminal sanctions, civil penalties, exclusion from government
healthcare programs, contractual damages, reputational harm and diminished profits and future earnings.
Healthcare providers, physicians and others will play a primary role in the recommendation and prescription of any products
for which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to
broadly applicable fraud and abuse and other healthcare laws and regulations, primarily in the United States, that may constrain
the business or financial arrangements and relationships through which we market, sell and distribute our products for which we
obtain marketing approval. Restrictions under applicable healthcare laws and regulations, include the following:
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the federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing
remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or
recommendation of, any good or service, for which payment may be made, in whole or in part, under a federal health care program such as
Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have
committed a violation. In addition, the government may assert that a claim including items or services resulting from a violation of the federal
Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act;
the federal False Claims Act imposes civil penalties, and provides for civil whistleblower or qui tam actions, against individuals or entities for
knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false
statement to avoid, decrease or conceal an obligation to pay money to the federal government;
HIPAA imposes criminal and civil liability for executing a scheme to defraud any health care benefit program or making false statements relating
to health care matters. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or
specific intent to violate it in order to have committed a violation;
the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially
false statement in connection with the delivery of or payment for health care benefits, items or services;
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the federal transparency requirements under the ACA requires certain manufacturers of drugs, devices, biologics and medical supplies to report to
the Department of Health and Human Services information related to payments and other transfers of value to physicians and teaching hospitals
and the ownership and investment interests of such physicians or their family members;
the Physician Payments Sunshine Act, created under the ACA, and its implementing regulations, which requires specified manufacturers of drugs,
devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program,
with specific exceptions, to report annually to the Centers for Medicare & Medicaid Services, or CMS, information related to payments or other
“transfers of value” made to physicians. All such reported information is publicly available;
analogous state and non-U.S. laws and regulations, such as certain state anti-kickback and false claims laws which may apply to items or services
reimbursed by any third-party payor, including commercial insurers; state laws that require pharmaceutical companies to comply with the
industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict
payments that may be made to healthcare providers and other potential referral sources; state laws that require drug manufacturers to report
information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state laws
governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and
may not have the same effect, thus complicating compliance efforts; and
regulation by the Centers for Medicare and Medicaid Services and enforcement by the U.S. Department of Health and Human Services (Office of
Inspector General) or the U.S. Department of Justice.
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible
that some of our future business activities could be subject to challenge under one or more of such laws.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations
will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not
comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and
regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may
apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from U.S.
government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations.
If any of the physicians or other providers or entities with whom we expect to do business with are found to be not in compliance
with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government
funded healthcare programs.
Risks Related to Commercialization of Our Product Candidates
We are likely to face significant competition, and if our competitors’ products are more effective, safer or less expensive than
ours, our commercial opportunities will be negatively affected. Our lead product candidates, if approved, would compete with
existing products.
Our industry is highly competitive and subject to rapid and significant technological change. While we believe that our
technology, knowledge, experience and scientific resources provide us with competitive advantages, we face competition from
many different sources, including large pharmaceutical, specialty pharmaceutical, biotechnology and generic drug companies and
academic and government institutions. These organizations may have significantly greater resources than we do and conduct
similar research, seek and obtain patent protection that may impact our freedom to operate and establish collaborative
arrangements for research, development, manufacturing and marketing of products that compete with our product candidates. We
believe that the key competitive factors that will affect the development and commercial success of our oral PTH product
candidates, and any other product candidates that we develop, are efficacy, safety and tolerability profile, convenience in dosing,
product labeling, price and availability of reimbursement from the government and other third-parties. Our commercial
opportunity could be reduced or eliminated if our competitors have products that are better in one or more of these categories.
Furthermore, our competitors may, among other things: develop and commercialize products that are safer, more effective, less
expensive, or more convenient or easier to administer; obtain quicker regulatory approval; establish superior proprietary
positions; have access to more manufacturing capacity; implement more effective approaches to sales and marketing; or form
more advantageous strategic alliances.
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Our primary innovation is our development of an oral drug delivery technology for large peptides, protein and other large
molecules. If another company develops an alternative technology for oral delivery of such molecules that is equal to or better
than our technology, we may be unable to compete.
The osteoporosis market is already served by a variety of competing products based on a number of APIs. Many of these
existing products have achieved widespread acceptance among physicians, patients and payors for the treatment of osteoporosis.
The market has been dominated by bisphosphonates for many years, although bisphosphonates’ market share has declined due to
the occurrence of rare but potentially serious side effects, as well as the introduction of newly developed pharmacological
treatments. Many of the new drugs have serious side effects of their own. Eli Lilly’s Forteo, an injectable PTH (1-34), is one of
the most effective osteoporosis medications, and newer products such as Prolia® and EVENITY® have been launched by Amgen
Inc., or Amgen. We anticipate that our product candidate EB613, if approved, will compete with Forteo, Prolia, EVENITY, and
the rest of the pharmacological treatments for osteoporosis. Many of these products are available on a generic basis, and EB613
may not demonstrate sufficient additional clinical benefits to physicians, patients or payors as compared to generic products. In
many cases, insurers or other third-party payors, particularly Medicare, seek to encourage the use of generic products.
Furthermore, our competitors in this market are large pharmaceutical companies and the alternatives have been on the market for
many years and have widespread market acceptance.
We believe that our key competitor in hypoparathyroidism treatment is Natpara. If we obtain regulatory approval for EB612, it
will compete with Natpara, which by that time will have been marketed for several years and may have wide-spread market
acceptance that may be difficult to overcome. In order to obtain FDA approval for EB612 prior to the expiration of Natpara’s
orphan drug exclusivity in 2022, we need to show that EB612 is clinically superior to Natpara or otherwise makes a major
contribution to patient care. Moreover, although we have obtained orphan drug designation for EB612 for the treatment of
hypoparathyroidism, we may be unable to maintain the benefits associated with orphan drug designation, including the potential
for market exclusivity. In addition, Ascendis Pharma has reported that it is developing a long-acting, oral prodrug formulation of
PTH for the treatment of hypoparathyroidism. In 2019, Ascendis reported that it expects top-line results from a global Phase 2
trial in 2020, and anticipates initiating a Phase 3 trial by the end of 2021 or 2022.
We are subject to manufacturing risks that could substantially increase our costs and limit supply of our products.
The process of manufacturing our products is complex, highly regulated and subject to several risks, including:
• We do not have experience in manufacturing our product candidates at commercial scale. We may not succeed in the scaling up of our final
manufacturing process. We may need a larger-scale manufacturing process for our oral PTH than what we have planned, depending on the dose
and regimen that will be determined in future studies. Any changes in our manufacturing processes as a result of scaling up may result in the need
to obtain additional regulatory approvals. Difficulties in achieving commercial-scale production or the need for additional regulatory approvals as
a result of scaling up could delay the development and regulatory approval of our product candidates and ultimately affect our success. Contract
manufacturers may not have sufficient expertise to manufacture a dry oral formulation with a large molecule API, in which case we may have to
establish our own commercial manufacturing capabilities, which could be expensive and delay launch of product candidates.
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The manufacturing process for large molecules is more complex and subject to greater regulation than that of other drugs. The process of
manufacturing large molecules, such as our product candidates, is extremely susceptible to product loss due to contamination, equipment failure or
improper installation or operation of equipment, vendor or operator error, inconsistency in yields, variability in product characteristics and
difficulties in scaling the production process. Even minor deviations from normal manufacturing processes could result in reduced production
yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in our product candidates or in the
manufacturing facilities in which our product candidates are made, such manufacturing facilities may need to be closed for an extended period of
time to investigate and remedy the contamination.
The manufacturing facilities in which our product candidates are made could be adversely affected by equipment failures, labor shortages, natural
disasters, power failures, outbreaks of an infectious disease such as COVID-19 and numerous other factors.
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• We must comply with applicable current cGMP, regulations and guidelines. We may encounter difficulties in achieving quality control and quality
assurance and may experience shortages in qualified personnel. We are subject to inspections by the FDA and comparable agencies in other
jurisdictions to confirm compliance with applicable regulatory requirements. Any failure to follow cGMP or other regulatory requirements or
delay, interruption or other issues that arise in the manufacture, fill-finish, packaging, or storage of our product candidates as a result of a failure of
our facilities or the facilities or operations of third parties to comply with regulatory requirements or pass any regulatory authority inspection
could significantly impair our ability to develop and commercialize our product candidates, including leading to significant delays in the
availability of drug product for our clinical trials or the termination or hold on a clinical trial, or the delay or prevention of a filing or approval of
marketing applications for our product candidates. Significant noncompliance could also result in the imposition of sanctions, including fines,
injunctions, civil penalties, failure of regulatory authorities to grant marketing approvals for our product candidates, delays, suspension or
withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, any of which could
damage our reputation. If we are not able to maintain regulatory compliance, we may not be permitted to market our product candidates and/or
may be subject to product recalls, seizures, injunctions, or criminal prosecution.
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Any adverse developments affecting manufacturing operations for our product candidates, if any are approved, may result in shipment delays,
inventory shortages, lot failures, product withdrawals or recalls, or other interruptions in the supply of our products. We may also have to take
inventory write-offs and incur other charges and expenses for products that fail to meet specifications, undertake costly remediation efforts or seek
more costly manufacturing alternatives.
Our product candidates that have been produced and are stored for later use may degrade, become contaminated or suffer other quality defects,
which may cause the affected product candidates to no longer be suitable for their intended use in clinical trials or other development activities. If
the defective product candidates cannot be replaced in a timely fashion, we may incur significant delays in our development programs that could
adversely affect the value of such product candidates.
We currently have no sales, marketing or distribution infrastructure. Any failure or delay in the development of our internal
sales, marketing and distribution capabilities would adversely affect the commercialization of our products. If we enter into
collaborations to market and sell any approved products, our revenue may be lower and we will be dependent on the efforts of
a third party.
We have not yet established sales, marketing or distribution operations because our product candidates are in the early to mid-
stages of clinical development. If our product candidates are approved and we were to commercialize these products, such
activities would be expensive and time consuming. If we elect to fund and undertake commercialization activities on our own, we
may need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms or at all. In
addition, the costs of establishing sales and marketing operations may be incurred in advance of any approval of our product
candidates. Moreover, we may not be able to hire a sales force that is sufficient in size or has adequate expertise in the medical
markets that we intend to target. Any failure or delay in the development of our internal sales, marketing and distribution
capabilities would adversely affect the commercialization of our products.
Alternatively, we may consider entering into a collaboration to commercialize our oral PTH candidates globally or in selected
regions. Any such collaborator would be responsible for, or substantially support, late stage clinical trials of our oral PTH product
candidates, as well as regulatory approvals and registrations. These arrangements are typically complex and time consuming to
negotiate. To the extent that we enter into collaboration agreements with respect to marketing, sales or distribution, our product
revenue may be lower than if we directly marketed and sold any approved products. In addition, any revenue we receive will
depend in whole or in part upon the efforts of these third-party collaborators, which may not be successful and are generally not
within our control. If we are unable to enter into these arrangements on acceptable terms or at all, we may not be able to
successfully commercialize any approved products. If we are not successful in commercializing any approved products, either on
our own or through collaborations with one or more third parties, our future product revenue will suffer and we may incur
significant additional losses.
Even if approved, if any of our product candidates do not achieve broad market acceptance among physicians, patients, the
medical community and third-party payors, our revenue generated from their sales will be limited.
The commercial success of our product candidates will depend upon their acceptance among physicians, patients and the
medical community. The degree of market acceptance of our product candidates will depend on a number of factors, including:
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limitations or warnings contained in the approved labeling for a product candidate;
changes in the standard of care for the targeted indications for any of our product candidates;
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limitations in the approved clinical indications for our product candidates;
demonstrated clinical safety and efficacy compared to other products;
lack of significant adverse side effects;
sales, marketing and distribution support;
availability and extent of coverage and reimbursement from managed care plans and other third-party payors;
timing of market introduction and perceived effectiveness of competitive products;
the degree of cost-effectiveness of our product candidates;
availability of alternative therapies at similar or lower cost, including generic and over-the-counter products;
the extent to which the product candidate is approved for inclusion on formularies of hospitals and third-party payors, including managed care
organizations;
whether the product is designated under physician treatment guidelines as a first-line therapy or as a second- or third-line therapy for particular
diseases;
adverse publicity about our product candidates or favorable publicity about competitive products;
convenience and ease of administration of our products; and
potential product liability claims.
If any of our product candidates are approved, but do not achieve an adequate level of acceptance by physicians, patients and
the medical community, we may not generate sufficient revenue from these products, and we may not become or remain
profitable. In addition, efforts to educate the medical community and third-party payors on the benefits of our product candidates
may require significant resources and may never be successful.
Even if we obtain regulatory approval of any of our product candidates in a major pharmaceutical market such as the United
States or the European Union, we may never obtain approval or commercialize our products in other major markets, which
would limit our ability to realize their full market potential.
In order to market any products in a country or territory, we must establish and comply with numerous and varying regulatory
requirements of such countries or territories regarding safety and efficacy. Clinical trials conducted in one country may not be
accepted by regulatory authorities in other countries, and regulatory approval in one country does not mean that regulatory
approval will be obtained in any other country. Approval procedures vary among countries and can involve additional product
testing and validation and additional administrative review periods. Seeking regulatory approvals in all major markets could
result in significant delays, difficulties and costs for us and may require additional preclinical studies or clinical trials which
would be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or
prevent the introduction of our products in those countries. Satisfying these and other regulatory requirements is costly, time
consuming, uncertain and subject to unanticipated delays. In addition, our failure to obtain regulatory approval in any country
may delay or have negative effects on the process for regulatory approval in other countries. We do not have any product
candidates approved for sale in any jurisdiction, including international markets, and we do not have experience in obtaining
regulatory approval in international markets. If we fail to comply with regulatory requirements in international markets or to
obtain and maintain required approvals, our target market will be reduced and our ability to realize the full market potential of
our products will be harmed.
The successful commercialization of our product candidates, if approved, will depend in part on the extent to which
governmental authorities and third-party payors establish adequate coverage and reimbursement levels and pricing policies.
The successful commercialization of our product candidates, if approved, will depend, in part, on the extent to which coverage
and reimbursement for our products will be available from government and health administration authorities, private health
insurers and other third-party payors. To manage healthcare costs, many governments and third-party payors increasingly
scrutinize the pricing of new technologies and require greater levels of evidence of favorable clinical outcomes and cost-
effectiveness before extending coverage. In light of such challenges to prices and increasing levels of evidence of the benefits and
clinical outcomes required of new technologies, we cannot be sure that coverage will be available for our oral PTH product
candidates or any other product candidate that we commercialize and, if available, that the reimbursement rates will be adequate.
If we are unable to obtain adequate levels of coverage and reimbursement for our product candidates, their marketability will be
negatively and materially impacted.
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Reimbursement may impact the demand for, or the price of, any product for which we obtain marketing approval. In addition,
third-party payors are likely to impose strict requirements for reimbursement in order to limit off-label use of a higher priced
drug. Reimbursement by a third-party payor may depend upon a number of factors including the third-party payor’s
determination that use of a product is:
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a covered benefit under its health plan;
safe, effective and medically necessary;
appropriate for the specific patient;
cost-effective; and
neither experimental nor investigational.
Third party payors may deny coverage and reimbursement status altogether of a given drug product, or cover the product but
establish prices at levels that are too low to enable us to realize an appropriate return on our investment in product development.
Because the coverage and reimbursement policies may change frequently, in some cases at short notice, even when there is
favorable coverage and reimbursement, future changes may occur that adversely impact the favorable status. Further, the net
reimbursement for drug products may be subject to additional reductions if there are changes to laws that presently restrict
imports of drugs from countries where they may be sold at lower prices than in the United States.
The unavailability or inadequacy of third-party coverage and reimbursement could have a material adverse effect on the
market acceptance of our product candidates and the future revenues we may expect to receive from those products. In addition,
we are unable to predict what additional legislation or regulation relating to the healthcare industry or third-party coverage and
reimbursement may be enacted in the future, or what effect such legislation or regulation would have on our business.
Obtaining coverage and reimbursement approval for a product from a government or other third-party payor is a time-
consuming and costly process that could require us to provide supporting scientific, clinical and cost effectiveness data for the
use of our products to the payor. We may not be able to provide data sufficient to gain acceptance with respect to coverage and
reimbursement. We cannot be sure that coverage or adequate reimbursement will be available for our product candidates, if
approved. Also, we cannot be sure that reimbursement amounts will not reduce the demand for, or the price of, our future
products. If reimbursement is not available, or is available only to limited levels, we may not be able to commercialize our
product candidates, profitably or at all, even if approved.
We may become exposed to costly and damaging liability claims, either when testing our product candidates in the clinic or at
the commercial stage; and our product liability insurance may not cover all damages from such claims.
We are exposed to potential product liability and professional indemnity risks that are inherent in the research, development,
manufacturing, marketing and use of pharmaceutical products. Currently we have no products that have been approved for
commercial sale; however, the current and future use of product candidates by us in clinical trials, and the sale of any approved
products in the future, may expose us to liability claims. These claims might be made by patients that use the product, healthcare
providers, pharmaceutical companies, our collaborators or others selling such products. Any claims against us, regardless of their
merit, could be difficult and costly to defend and could materially adversely affect the market for our product candidates or any
prospects for commercialization of our product candidates. Regardless of the merits or eventual outcome, liability claims may
result in:
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decreased demand for any of our product candidates or products we develop;
injury to our reputation and significant negative media attention;
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withdrawal of clinical trial participants or cancellation of clinical trials;
costs to defend the related litigation, which may be only partially recoverable even in the event of successful defense;
a diversion of management’s time and our resources;
substantial monetary awards to trial participants or patients;
regulatory investigations, product recalls, withdrawals or labeling, marketing or promotional restrictions;
loss of revenues; and
the inability to commercialize any products we develop.
Although the clinical trial process is designed to identify and assess potential side effects, it is always possible that a drug,
even after regulatory approval, may exhibit unforeseen side effects. If any of our product candidates were to cause adverse side
effects during clinical trials or after approval of the product candidate, we may be exposed to substantial liabilities. Physicians
and patients may not comply with any warnings that identify known potential adverse effects and patients who should not use our
product candidates.
Although we maintain limited product liability insurance for our product candidates, it is possible that our liabilities could
exceed our insurance coverage. We intend to expand our insurance coverage to include the sale of commercial products if we
obtain marketing approval for any of our product candidates. However, we may not be able to maintain insurance coverage at a
reasonable cost or obtain insurance coverage that will be adequate to satisfy any liability that may arise. If a successful product
liability claim or series of claims is brought against us for uninsured liabilities or in excess of insured liabilities, our assets may
not be sufficient to cover such claims and our business operations could be impaired.
Should any of the events described above occur, this could have a material adverse effect on our business, financial condition
and results of operations.
Risks Related to Our Dependence on Third Parties
We are highly dependent upon our ability to enter into agreements with collaborators to develop, commercialize and market
our products.
We may enter into collaborations with third parties that we believe could provide us with funding, research support, and other
milestone payments. For example, we have recently entered into a research collaboration and license agreement with Amgen.
Under the agreement, the parties will collaborate for the development and discovery of clinical candidates in the field of
inflammatory disease and other serious illnesses. Further, under the terms of the agreement, we will engage in formulation and
preclinical development at Amgen’s expense. Amgen will be responsible for subsequent research, clinical development,
manufacturing and commercialization of any of the resulting programs, at its expense. We also anticipate seeking a collaborator
to develop EB613 for osteoporosis and that any such collaborator would be responsible for, or substantially support, late stage
clinical trials of EB613 as well as regulatory approvals and registrations and any potential commercialization activities.
We face significant competition in seeking appropriate collaborators. Our ability to reach a definitive agreement for a
collaboration will depend, inter alia, upon our assessment of the collaborator’s resources and expertise, the terms and conditions
of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. These factors may include the
design or results of clinical trials, the likelihood of approval by the FDA, the EMA or similar regulatory authorities, the potential
market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to
patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can
exist if there is a challenge to such ownership without regard to the merits of the challenge and industry and market conditions
generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be
available for collaboration and whether such a collaboration could be more attractive than the one with us for our product
candidate.
Collaborations are complex and time-consuming to negotiate and document. If we are unable to reach agreements with
suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail the development of a product
candidate, reduce or delay one or more of our other development programs, delay potential commercialization of a product
candidate or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or
commercialization activities at our own expense. If we fail to enter into collaborations and do not have sufficient funds or
expertise to undertake the necessary development and commercialization activities ourselves, we may not be able to further
develop our product candidates or bring them to market or continue to develop our technology platforms and our business may be
materially and adversely affected.
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Any collaboration we enter into may pose a number of risks, including the following:
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Collaborators may have significant discretion in determining the efforts and resources that they will apply to these collaborations;
Collaborators may not perform their obligations as expected;
Collaborators may not pursue development and commercialization of any product candidates that achieve regulatory approval or may elect not to
continue or renew development or commercialization programs based on clinical trial results, changes in the collaborators’ strategic focus or
available funding, or external factors, such as an acquisition, that divert resources or create competing priorities;
Collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate,
repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;
Collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product
candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under
terms that are more economically attractive than ours;
Product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with their own product candidates or
products, which may cause collaborators to cease to devote resources to the commercialization of our product candidates;
A collaborator with marketing and distribution rights to one or more of our product candidates that achieve regulatory approval may not commit
sufficient resources to the marketing and distribution of such product or products;
Disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development,
might cause delays or termination of the research, development or commercialization of product candidates, might lead to additional
responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming and
expensive;
Collaborators may not properly obtain, maintain, defend or enforce our intellectual property rights or may use our proprietary information in such
a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential
litigation or other intellectual property-related proceedings, including proceedings challenging the scope, ownership, validity and enforceability of
our intellectual property. For example, Amgen has the first right to enforce or defend certain of our intellectual property rights under our research
collaboration and license agreement, and although we may have the right to assume the enforcement and defense of such intellectual property
rights if Amgen does not, our ability to do so may be compromised by Amgen’s actions;
Collaborators may own or co-own intellectual property covering our product candidates or research programs that results from our collaboration
with them, and in such cases, we may not have the exclusive right to commercialize such intellectual property or such product candidates or
research programs;
Collaborators may infringe, misappropriate or otherwise violate the intellectual property rights of third parties, which may expose us to litigation
and potential liability;
Collaborators may fail to comply with applicable laws, rules or regulations when performing services for us, which may expose us to legal
proceedings and potential liability;
Collaborations may be terminated for convenience by the collaborator and, if terminated, we may suffer from negative publicity and we may find
it more difficult to attract new collaborators. For example, at any point in the research and development process, subject to certain conditions,
Amgen can terminate our research collaboration and license agreement in its entirety or with respect to a specific development program; and
The outbreak of COVID-19 may cause us to fail to meet contractually obligated deadlines with our collaboration partners or otherwise strain our
relationships with current collaborators or other business partners.
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If we enter into collaborations to develop and potentially commercialize any product candidates, we may not be able to realize
the benefit of such transactions if we or our collaborator elects not to exercise the rights granted under the agreement or if we or
our collaborator are unable to successfully integrate a product candidate into existing operations and company culture. In
addition, if our agreement with any of our collaborators terminates, our access to technology and intellectual property licensed to
us by that collaborator may be restricted or terminate entirely, which may delay our continued development of our product
candidates utilizing the collaborator’s technology or intellectual property or require us to stop development of such product
candidates completely. We may also find it more difficult to find a suitable replacement collaborator or attract new collaborators,
and our development programs may be delayed or the perception of us in the business and financial communities could be
adversely affected. All of the risks relating to product development, regulatory approval and commercialization described in this
Annual Report also apply to the activities of any of our future program collaborators.
Exclusivity and other governance provisions within our research collaboration and license agreement with Amgen may
prevent us from pursuing certain alternative product candidates and exercising complete control over our product candidates’
development.
During certain periods under our research collaboration and license agreement with Amgen, we may not, alone or with a third
party, research, develop, manufacture or commercialize certain products primarily interacting with the targets of the applicable
collaboration programs. Further, our collaboration with Amgen is governed by a joint research committee, or JRC, made up of
equal representatives of us and Amgen. The JRC may establish additional subcommittees to oversee particular projects or
activities. Subject to limitations specified in the agreement, if the JRC is unable to make a decision by consensus, the
disagreement is to be resolved through escalation to specified senior executive officers of the parties, although Amgen has the
final decision-making ability with respect to certain specified issues. These exclusivity and governance provisions may inhibit
our development efforts and could have a material adverse effect on our business, prospects, financial condition and results of
operations.
We may not be able to secure and maintain research institutions to conduct our clinical trials.
We rely on research institutions to conduct our clinical trials. Specifically, the limited number of centers experienced with
pharmaceutical product candidates heightens our dependence on such research institutions. Our reliance upon research
institutions, including hospitals and clinics, provides us with less control over the timing and cost of clinical trials and the ability
to recruit subjects. If we are unable to reach agreements with suitable research institutions on acceptable terms, if any resulting
agreement is terminated, if research institutions are closed down by public authorities for reasons outside of our control, such as
during the current COVID-19 outbreak, or if we cannot fulfill contractual commitments due to the impact of COVID-19, we may
be unable to quickly replace the research institution with another qualified institution on acceptable terms. Furthermore, we may
not be able to secure and maintain suitable research institutions to conduct our clinical trials.
Independent clinical investigators and CROs that we engage to conduct our clinical trials may not devote sufficient time or
attention to our clinical trials or be able to repeat their past success.
We expect to continue to depend on independent clinical investigators and CROs to conduct our clinical trials. CROs may also
assist us in the collection and analysis of data. There is a limited number of third-party service providers that specialize or have
the expertise required to achieve our business objectives. Identifying, qualifying and managing performance of third-party service
providers can be difficult, time consuming and cause delays in our development programs. These investigators and CROs will not
be our employees and we will not be able to control, other than by contract, the amount of resources, including time, which they
devote to our product candidates and clinical trials. If independent investigators or CROs fail to devote sufficient resources to the
development of our product candidates, or if their performance is substandard, it may delay or compromise the prospects for
approval and commercialization of any product candidates that we develop. In addition, the use of third-party service providers
requires us to disclose our proprietary information to these parties, which could increase the risk that this information will be
misappropriated. Further, the FDA and other regulatory authorities require that we comply with standards, commonly referred to
as Good Clinical Practice, or GCP, requirements for conducting, recording and reporting clinical trials to assure that data and
reported results are credible and accurate and that the rights, integrity and confidentiality of trial subjects are protected.
Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If
we or any of our CROs fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed
unreliable and the FDA, EMA or comparable regulatory authorities may require us to perform additional clinical trials before
approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory
authority will determine that any of our clinical trials comply with GCP regulations. In addition, our clinical trials must be
conducted with product produced under cGMP regulations. Our failure to comply with these regulations may require us to repeat
clinical trials, which would delay the regulatory approval process. Failure of clinical investigators or CROs to meet their
obligations to us or comply with GCP procedures could adversely affect the clinical development of our product candidates and
harm our business.
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If the third parties or consultants that assist us in conducting our clinical trials do not perform their contractual duties or
obligations, experience work stoppages, do not meet expected deadlines, terminate their agreements with us or need to be
replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical
trial protocols or GCPs, or for any other reason, we may need to conduct additional clinical trials or enter into new arrangements
with alternative third parties, which could be difficult, costly or impossible, and our clinical trials may be extended, delayed or
terminated or may need to be repeated. If any of the foregoing were to occur, we may not be able to obtain, or may be delayed in
obtaining, regulatory approval for the product candidates being tested in such trials, and will not be able to, or may be delayed in
our efforts to, successfully commercialize these product candidates.
We contract with third parties for the supply of materials used in drug formulation for clinical testing and expect to contract
with third parties for the manufacturing of our product candidates for large-scale testing. This reliance on third parties
increases the risk that we will not have sufficient quantities of our product candidates or products or such quantities at an
acceptable cost, which could delay, prevent or impair our development or commercialization efforts.
We anticipate continuing our engagement of third parties to provide our clinical supply as we advance our product candidates
into and through clinical development. We expect in the future to use third parties for the manufacture of our product candidates
for clinical testing, as well as for commercial manufacture. We plan to enter into long-term supply agreements with several
manufacturers for commercial supplies. We may be unable to reach agreement on satisfactory terms with contract manufacturers
to manufacture our product candidates. Additionally, the facilities to manufacture our product candidates must be the subject of a
satisfactory inspection before the FDA, the EMA or other regulatory authorities approve an NDA or grant a marketing
authorization for the product candidate manufactured at that facility. We will depend on these third-party manufacturers for
compliance with the FDA’s and EMA’s requirements for the manufacture of our finished products. We do not control the
manufacturing process of, and are completely dependent on, our contract manufacturers for compliance with cGMPs. If our
manufacturers cannot successfully manufacture material that conforms to our specifications and the FDA, European Commission
and other regulatory authorities’ cGMP requirements, they will not be able to secure and/or maintain regulatory approval for their
manufacturing facilities. In addition, we have no control over the ability of our contract manufacturers to maintain adequate
quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not
approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may
need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory
approval for or market our product candidates, if approved, and may subject us to recalls or enforcement action for products
already on the market.
Our failure or the failure of our third party subcontractors and suppliers to comply with applicable regulations could result in
sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license
revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, any of which could significantly and
adversely affect supplies of our product candidates that we may develop.
Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured the product
candidates ourselves, including:
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the possibility of a breach of the manufacturing agreements by the third parties because of factors beyond our control;
the possibility that the supply is inadequate or delayed;
the risk that the third party may enter the field and seek to compete and may no longer be willing to continue supplying;
the possibility of termination or nonrenewal of the agreements by the third parties before we are able to arrange for a qualified replacement third-
party manufacturer; and
the possibility that we may not be able to secure a manufacturer or manufacturing capacity in a timely manner and on satisfactory terms in order to
meet our manufacturing needs.
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Any of these factors could cause the delay of approval or commercialization of our product candidates, cause us to incur
higher costs or prevent us from commercializing our product candidates successfully. Furthermore, if any of our product
candidates are approved and contract manufacturers fail to deliver the required commercial quantities of finished product on a
timely basis and at commercially reasonable prices, and we are unable to find one or more replacement manufacturers capable of
production at a substantially equivalent cost, in substantially equivalent volumes and quality and on a timely basis, we would
likely be unable to meet demand for our products and could lose potential revenue. It may take several years to establish an
alternative source of supply for our product candidates and to have any such new source approved by the FDA, the EMA or any
other relevant regulatory authorities.
Risks Related to Our Intellectual Property
If we fail to establish, maintain, defend and enforce intellectual property rights with respect to our technology, our business,
prospects, financial condition and results of operations may be materially adversely affected.
Our success depends in large part on our ability to obtain and maintain protection with respect to our intellectual property and
proprietary technology. Our product candidates utilize our proprietary technology relating to the oral delivery of large molecules
for the treatment of certain conditions with oral PTH. We seek to protect our proprietary position by filing patent applications in
the United States and certain foreign jurisdictions relating to our product candidates and technologies that are important to our
business. This process is expensive, complex and time-consuming, and we may not be able to file and prosecute all necessary or
desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable
aspects of our research and development output before it is too late to obtain patent protection. If we do not adequately obtain,
maintain, protect and enforce our proprietary rights in our technologies, competitors may be able to use our technologies and
erode or negate any competitive advantage we may have, which could have a material adverse effect on our business and our
ability to achieve profitability.
We have limited patent protection with respect to our product candidates and technologies. We have been issued a patent that
contains claims directed to compositions comprising a protein, an absorption enhancer and a protease inhibitor, as well as
methods for oral administration of a protein with an enzymatic activity in each of the United States, Australia, Canada, Japan,
New Zealand, China, Israel and Russia. Related patent applications are pending in the United States, the European Union, Hong
Kong, Brazil, China and India. We have also filed six patent applications in various jurisdictions that currently contain claims
directed to oral administration technologies, including compositions and drug delivery devices utilizing an absorption enhancer
and methods of treating osteoporosis, hypoparathyroidism and bone fractures and related conditions with orally administered
parathyroid hormone. We cannot be certain that patents will be issued or granted with respect to any of our pending or future
patent applications, or that issued or granted patents will not later be found to be invalid or unenforceable. The patent position of
pharmaceutical companies is generally uncertain because it involves complex legal and factual considerations. The standards
applied by the United States Patent and Trademark Office, or USPTO, and foreign patent offices in granting patents are not
always applied uniformly or predictably, and can change. For example, there is no uniform worldwide policy regarding
patentable subject matter or the scope of claims allowable in pharmaceutical or biotechnology patents. Even if our pending patent
applications issue as patents, such patents may not cover our product candidates in the United States or in other countries.
Accordingly, we cannot predict whether additional patents protecting our technology will issue in the United States or in non-
U.S. jurisdictions, or whether any patents that do issue will have claims of adequate scope to provide us with a competitive
advantage.
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our patents may be
challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or in
patent claims being narrowed, invalidated or held unenforceable, which could limit our ability to stop others from using or
commercializing technology and products similar or identical to ours, or limit the duration of the patent protection covering our
technology and product candidates. In addition, patents have a limited lifespan. In the United States and most foreign
jurisdictions, the natural expiration of a patent is generally 20 years after its effective filing date. Various extensions may be
available; however, the life of a patent and the protection it affords is limited. For example, the Drug Price Competition and
Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, permits a patent term extension of up to five years beyond the
expiration date of a U.S. patent as partial compensation for the useful patent term lost, if any, during the FDA regulatory review
process. However, a patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date
of the product’s approval by the FDA, only one patent applicable to an approved drug is eligible for the extension, and only those
claims covering the approved drug, a method for using it or a method for manufacturing it may be extended. We may not be
granted an extension because we may fail to satisfy applicable requirements and even if we are granted an extension, the
applicable time period or the scope of patent protection afforded could be less than we request. In addition, if we encounter
delays in obtaining regulatory approvals, the period of time during which we could market a product under patent protection
could be reduced. Even if patents covering our product candidates are obtained, once such patents expire, we may be vulnerable
to competition from similar or generic products. Given the amount of time required for the development, testing and regulatory
review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are
commercialized. As a result, we cannot provide any assurance that any of our issued patents or any patents that may be issued to
us in the future will provide sufficient protections for our technology or product candidates, in whole or in part, or will effectively
prevent competitors from commercializing similar or identical technologies and products.
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Our issued patents may not be sufficient to provide us with a competitive advantage. For example, competitors and other third
parties may be able to circumvent our patents by developing similar or alternative technologies or products in a non-infringing
manner. We may also grant licenses under our intellectual property that may limit our ability to exploit such intellectual property.
For example, we are party to a patent transfer agreement with Oramed Ltd., or the Patent Transfer Agreement, pursuant to which
we have granted Oramed Ltd. an exclusive, worldwide, royalty-free, irrevocable and perpetual license, with the right to
sublicense, under certain of our patent rights to develop, manufacture and commercialize covered products or otherwise exploit
such patent rights in the fields of diabetes and influenza and we have agreed not to, directly or indirectly, engage in any activities
within the fields of diabetes and influenza. Even if such agreement were to be terminated, Oramed Ltd. would retain its exclusive
license under such patent rights.
In the future, we may enter into additional collaborative agreements or license agreements with third parties which may
subject us to obligations that must be fulfilled and require us to manage complex relationships with third parties. If we are unable
to meet our obligations or manage our relationships with our collaborators under these agreements, our revenue may decrease.
From the standpoint of our future strategic collaborators, the strength of the intellectual property under which we may grant
licenses can be a determinant of the value of these relationships. If we are unable to secure, protect and enforce our intellectual
property, it may become more difficult for us to attract strategic collaborators. The loss or diminution of our intellectual property
rights could also result in a decision by future third-party collaborators to terminate their agreements with us. In addition, these
agreements may be complex and may contain provisions that could give rise to legal disputes, including potential disputes
concerning financial obligations or ownership of intellectual property and data under such agreements. Such disputes can lead to
lengthy, expensive litigation or arbitration, requiring us to divert management time and resources to such dispute. Any such
development could have a material adverse effect on our business, prospects, financial condition and results of operations.
We may become involved in proceedings to protect or enforce our proprietary rights, which could be expensive and time
consuming, and may ultimately be unsuccessful.
Competitors or other third parties may infringe or otherwise violate our patents, trademarks, copyrights or other intellectual
property rights. To counter infringement or other violations, we may be required to file claims, which can be expensive and time
consuming. Any such claims could provoke these parties to assert counterclaims against us, including claims alleging that we
infringe their patents or other intellectual property rights. In addition, in a patent infringement proceeding, a court may decide
that one or more of the patents we assert is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly or
refuse to prevent the other party from using the technology at issue on the grounds that our patents do not cover the technology.
In any intellectual property litigation, even if we are successful, any award of monetary damages or other remedy we receive may
not be commercially valuable. Furthermore, because of the substantial amount of discovery required in connection with
intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure
during this type of litigation. Third parties may also raise challenges to the validity of our patent claims before administrative
bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post-grant
review and inter partes review proceedings and equivalent proceedings in foreign jurisdictions such as opposition proceedings. If
third parties have prepared and filed patent applications in the United States that also claim technology to which we have rights,
we may have to participate in interference proceedings in the USPTO, to determine priority of invention for patent applications
filed before March 16, 2013, or in derivation proceedings to determine inventorship for patent applications filed after such date.
Such proceedings could result in the revocation of, cancellation of, or amendment to our patents in such a way that they no longer
cover our product candidates or provide us with any competitive advantage.
In addition, we may be subject to third-party challenges regarding our exclusive ownership of our intellectual property. If a
third party were successful in challenging our exclusive ownership of any of our intellectual property, we may lose our right to
use such intellectual property, such third party may be able to license such intellectual property to other third parties, including
our competitors, and third parties could market competing products and technology.
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Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or
other proceedings, there is a risk that some of our confidential information could be compromised by disclosure during this type
of litigation or proceedings. In addition, during the course of this kind of litigation or proceedings, there could be public
announcements of the results of hearings, motions or other interim proceedings or developments or public access to related
documents. If investors perceive these results to be negative, the market price for our Ordinary Shares could be significantly
harmed.
Emisphere has notified us that it believes that, among other things, it is the exclusive owner of certain U.S. and related foreign
patents and patent applications we acquired from Oramed Ltd. If Emisphere were to initiate a legal proceeding against us
regarding its claim of ownership, we would vigorously defend against such claim. However, if Emisphere is ultimately successful
in obtaining ownership of the patent rights that are the subject of its claim, then we may lose our ability to enforce such patent
rights against any third party infringers. Moreover, if Emisphere is ultimately successful in obtaining ownership of such patent
rights and could successfully demonstrate that, absent a license from Emisphere, our product candidates, including EB612, or
technologies infringe such patent rights, then we would be required to redesign our product candidates or technologies so they are
no longer infringing or obtain a license from Emisphere to such patent rights, which may not be available on commercially
reasonable terms or at all. Even if we are successful in defending against Emisphere’s claim, litigation could result in substantial
costs and be a distraction to management. Any of the foregoing could have a material adverse effect on our competitive position,
business, financial conditions, results of operations, and prospects.
Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary
rights of third parties. We may face claims that we are violating the intellectual property rights of others.
Our success will depend in part on our ability to operate without infringing the proprietary rights of third parties. Other
entities may have or obtain patents or other proprietary rights that could limit our ability to make, use, sell, offer for sale or
import our product candidates and future approved products or impair our competitive position. We may face claims, including
from direct competitors, asserting that the commercial use of our technology infringes or otherwise violates the intellectual
property rights of others. We cannot be certain that our technologies and processes do not violate the intellectual property rights
of others. Third parties may assert infringement claims against us based on existing or future intellectual property rights. We
expect that we may increasingly be subject to such claims as our product candidates approach commercialization, and as we gain
greater visibility as a public company. We may not be aware of all such intellectual property rights potentially relating to our
product candidates and their uses. Thus, we do not know with certainty that our oral PTH (1-34) tablet or any other product
candidate, or our commercialization thereof, does not and will not infringe or otherwise violate any third party’s intellectual
property.
If we were found to infringe or otherwise violate the intellectual property rights of others, we could face significant costs to
implement work-arounds, and we cannot provide any assurance that any such work-around would be available or technically
equivalent to our current technology. In such cases, we might need to license a third party’s intellectual property, and such
required licenses might not be available on acceptable terms, or at all. Even if we were able to obtain a license, it could be non-
exclusive, thereby giving our competitors access to the same technologies licensed to us and could require us to make substantial
licensing and royalty payments. We could be forced, including by court order, to cease commercializing the infringing technology
or product. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are
found to have willfully infringed a patent or other intellectual property right. A finding of infringement could prevent us from
commercializing our product candidates or force us to cease some of our business operations, which could materially harm our
business. Claims that we have misappropriated the confidential information or trade secrets of third parties could expose us to
similar liabilities and have a similar negative impact on our business.
The pharmaceutical and biotechnology industries have produced a significant number of patents, and it may not always be
clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of
patents is subject to interpretation by the courts, and the interpretation is not always uniform or predictable. There is a substantial
amount of litigation involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries
generally, and these lawsuits can be very time consuming and costly. If we are sued for patent infringement, we would need to
demonstrate that our products or methods either do not infringe the patent claims of the relevant patent or that the patent claims
are invalid, and we may not be successful in doing so. Proving invalidity is difficult. For example, in the United States, proving
invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued
patents. Even if we are successful in these proceedings, we may incur substantial costs and divert management’s time and
attention in defending these proceedings, which could have a material adverse effect on our business.
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Also, to the extent that our agreements provide that we will defend and indemnify our suppliers, service providers, future
strategic collaborators or any other party for claims against them relating to any alleged infringement of the intellectual property
rights of third parties in connection with such suppliers’, service providers’, strategic collaborators’ or other parties’ use of our
technologies, we may incur substantial costs defending and indemnifying such parties to the extent they are subject to these types
of claims. Any claims brought against us, any suppliers, service providers, future strategic collaborators or any other party
indemnified by us alleging that we have violated the intellectual property of others could have a material adverse effect on our
business, prospects, financial condition and results of operations.
We may not be able to protect and enforce our intellectual property rights throughout the world.
We currently have limited patent protection for our product candidates and technologies, and filing, prosecuting, maintaining
and defending patents on product candidates in all countries throughout the world would be prohibitively expensive. In addition,
we may not pursue or obtain patent protection in all major markets. In addition, the legal systems of some countries, particularly
developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating
to life sciences. This could make it difficult for us to stop the infringement of our other intellectual property rights. For example,
many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to certain third parties.
Furthermore, many countries limit the enforceability of patents against third parties, including government agencies or
government contractors. In these countries, patents may provide limited or no benefit.
Competitors may use our technologies in jurisdictions where we have not obtained or are unable to adequately enforce patent
protection to develop or commercialize their own products. These products may compete with our future products, and our
patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Proceedings to
enforce our patent rights in such jurisdictions, whether or not successful, could result in substantial costs and divert our efforts
and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly, put our
patent applications at risk of not issuing and provoke third parties to assert claims against us. We may not prevail in any lawsuits
that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our
efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial
advantage from the intellectual property that we develop or license.
In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability
to obtain adequate protection for our technology and to enforce our intellectual property.
Changes in U.S. patent law could diminish the value of our future patents, if issued, thereby impairing our ability to protect
our product candidates.
As is the case with other pharmaceutical companies, our success is heavily dependent on intellectual property, particularly
patents. Obtaining and enforcing patents in the pharmaceutical industry involve both technological and legal complexity.
Therefore, obtaining and enforcing pharmaceutical patents is costly, time-consuming and inherently uncertain. In addition, the
United States has recently enacted wide-ranging patent reform legislation, which includes provisions that affect the way patent
applications are prosecuted, redefine prior art, may affect patent litigation, and switch the U.S. patent system from a “first to
invent” system to a “first inventor to file” system. It is not clear what, if any, impact such legislation will have on the operation of
our business. Additionally, the United States Supreme Court has ruled on several patent cases in recent years, either narrowing
the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In
addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created
uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts,
and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could increase the
uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of any U.S. patents
that may issue to us in the future, all of which could have a material adverse effect on our business and financial condition.
Intellectual property litigation may lead to unfavorable publicity that harms our reputation and causes the market price of our
Ordinary Shares to decline.
During the course of any intellectual property litigation, there could be public announcements of the results of hearings,
rulings on motions, and other interim proceedings. If securities analysts or investors regard these announcements as negative, the
perceived value of our product candidates or future products, services or intellectual property could be diminished and the market
price of our Ordinary Shares may decline as a result. Furthermore, such negative publicity could severely impair our capability to
enter into future agreements with key commercial collaborators.
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Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee
payment and other requirements imposed by government patent agencies, and our patent protection could be reduced or
eliminated for non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other government fees on patents and/or applications will be
due to be paid to the USPTO and various government patent agencies outside of the United States over the lifetime of our owned
patents and/or applications and any patent rights we may own or license in the future. The USPTO and various non-U.S.
government patent agencies require compliance with several procedural, documentary, fee payment and other similar provisions
during the patent application process. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other
means in accordance with the applicable rules. There are situations, however, in which non-compliance can result in
abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant
jurisdiction. In such an event, potential competitors might be able to enter the market and this circumstance could have a material
adverse effect on our business.
Under applicable employment laws, we may not be able to enforce covenants not to compete and therefore may be unable to
prevent our competitors from benefiting from the expertise of some of our former employees. In addition, our Israeli
employees may be entitled to seek compensation for their inventions irrespective of their contractual agreements with us.
Our agreements with our employees and key consultants generally include non-competition provisions. These provisions
prohibit such employees and key consultants, if they cease working for us, from competing directly with us or working for our
competitors or clients for a limited period of time. We may be unable to enforce these provisions under the laws of the
jurisdictions in which our employees and consultants work and it may be difficult for us to restrict our competitors from
benefitting from the expertise our former employees or consultants developed while working for us. For example, Israeli courts
have required employers seeking to enforce non-compete undertakings of a former employee to demonstrate that the competitive
activities of the former employee will harm one of a limited number of material interests of the employer which have been
recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its
intellectual property. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors
from benefiting from the expertise of our former employees or consultants and our ability to remain competitive may be
diminished. In addition, a significant portion of our intellectual property has been developed by our employees and consultants in
the course of their employment or consulting relationship with us. Under the Israeli Patent Law, 5727-1967, inventions conceived
by an employee or consultant during the scope of his or her employment or consulting relationship with a company are regarded
as “service inventions.” Even when our agreements with our employees and consultants include provisions regarding the
assignment and waiver of rights to additional compensation in respect of inventions created within the course of their
employment or consulting relationship with us, including in respect of service inventions, we cannot guarantee that such
provisions will be upheld by Israeli courts, as a result of uncertainty under Israeli law with respect to the efficacy of such
provisions. If we are required to pay additional compensation or face disputes relating to service inventions, our results of
operations could be adversely affected.
We may not be able to protect the confidentiality of our technology, which, if disseminated, could negatively impact our plan
of operations.
In addition to seeking patent protection, we also rely on trade secret protection and confidentiality agreements to protect
proprietary know-how that may not be patentable, processes for which patents may be difficult to obtain and/or enforce, and other
elements of our technology. Any disclosure to or misappropriation by third parties of our confidential proprietary information
could enable competitors to quickly duplicate or surpass our technological achievements, which would harm our competitive
position. While we strive to maintain systems and procedures to protect the confidentiality of our trade secrets and technical
know-how, these systems and procedures may fail to provide an adequate degree of protection. For example, although we
generally enter into agreements with our employees, consultants, advisors, and other collaborators restricting the disclosure and
use of trade secrets, technical know-how and confidential information, we cannot provide any assurance that these agreements
will be sufficient to prevent unauthorized use or disclosure of our trade secrets and technical know-how, that these agreements
will not be breached or that we have executed agreements with all parties who may have had access to our proprietary
information. We may not have adequate remedies in the case of a breach of any such agreements, and our competitors or others
may independently develop substantially equivalent or superior proprietary information and techniques or otherwise gain access
to our trade secrets or know-how. Monitoring and policing unauthorized use and disclosure of intellectual property is difficult.
Further, the laws of certain foreign countries do not protect proprietary rights to the same extent or in the same manner as the
laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual
property both in the United States and abroad. If we are unable to prevent material disclosure of the intellectual property related
to our technologies to third parties, or if our competitors or other third parties independently develop any of our trade secrets, we
will not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our
business, results of operations and financial condition.
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We currently have relationships with different consultants who perform research and development activities for us and who
are not employed by us, and we may enter into additional relationships of such nature in the future. We have limited control over
the activities of these consultants and can expect only limited amounts of their time to be dedicated to our activities. These
persons may have consulting, employment or advisory arrangements with other entities that may conflict with or compete with
their obligations to us. We typically require our consultants to sign agreements that require such consultants to treat our
proprietary information and results of studies as confidential. However, in connection with each such relationship, we may not be
able to maintain the confidentiality of our technology, the dissemination of which could hurt our competitive position and results
of operations. To the extent that our scientific consultants develop inventions or processes independently that may be applicable
to our product candidates, disputes may arise as to the ownership of the proprietary rights to such information, and we may
expend significant resources in such disputes and we may not win those disputes.
We may be subject to claims by third parties asserting that we or our employees, consultants or contractors have
misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property.
Certain of our employees, consultants and contractors were previously employed at other biotechnology or pharmaceutical
companies, including our competitors or potential competitors. Although we try to ensure that our employees, consultants and
contractors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that
we or these employees, consultants or contractors have used or disclosed intellectual property, including trade secrets or other
proprietary information, of any such employee’s, consultant’s or contractor’s former employer. Litigation may be necessary to
defend against these claims and, even if we are successful in defending ourselves, could result in substantial costs to us or be
distracting to our management. If we do not succeed with respect to any such claims, in addition to paying monetary damages
and possible ongoing royalties, we may lose valuable intellectual property rights or personnel. For example, as described above,
Emisphere has notified us that it believes that, among other things, it is the exclusive owner of certain U.S. and related foreign
patents and patent applications we acquired from Oramed Ltd. If Emisphere were to initiate a legal proceeding against us
regarding its claim of ownership, we would vigorously defend against such claim. However, if Emisphere is ultimately successful
in obtaining ownership of the patent rights that are the subject of its claim, then we may lose our ability to enforce such patent
rights against any third party infringers. Moreover, if Emisphere is ultimately successful in obtaining ownership of such patent
rights and could successfully demonstrate that, absent a license from Emisphere, our product candidates, including EB612, or
technologies infringe such patent rights, then we would be required to redesign our product candidates or technologies so they are
no longer infringing or obtain a license from Emisphere to such patent rights, which may not be available on commercially
reasonable terms or at all. Even if we are successful in defending against Emisphere’s claim, litigation could result in substantial
costs and be a distraction to management. Any of the foregoing could have a material adverse effect on our competitive position,
business, financial conditions, results of operations, and prospects.
In addition, while we typically require our employees, consultants and contractors who may be involved in the development of
intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such
an agreement with each party who in fact develops intellectual property that we regard as our own. Further, such assignment
agreements may not be self-executing, may be insufficient in scope or may be breached, and we may be forced to bring claims
against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual
property.
If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable
intellectual property rights or personnel. Even if we are successful in prosecuting or defending against such claims, litigation
could result in substantial costs and be a distraction to management.
If trademarks and trade names related to our product candidates are not adequately protected, then we may not be able to
build name recognition in our markets of interest and our business may be adversely affected.
We do not currently own or use any registered trademarks for our product candidates. In the future, our registered or
unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be
infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build
name recognition by potential collaborators or customers in our markets of interest. Any unauthorized use of these trademarks
could harm our reputation or commercial interests. In addition, our enforcement against third-party infringers or violators may be
unduly expensive and time-consuming, and the outcome may be an inadequate remedy. Over the long term, if we are unable to
establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our
business may be adversely affected.
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Risks Related to Our Ordinary Shares and IPO Warrants
The price of our Ordinary Shares and IPO Warrants may be volatile, and holders of our Ordinary Shares and IPO Warrants
could lose all or part of their investment
The price of securities for publicly traded emerging biopharmaceutical and drug discovery and development companies has
been highly volatile and is likely to remain highly volatile in the future. The market price of our Ordinary Shares and IPO
Warrants on Nasdaq may fluctuate as a result of a number of factors, some of which are beyond our control, including, but not
limited to:
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actual or anticipated fluctuations in our and our competitors’ results of operations and financial condition;
clinical trial results and the timing of the release of such results;
the amount of our cash resources and our ability to obtain additional funding;
announcements of research activities, business developments, technological innovations or new products, or acquisitions or expansion plans by us
or our competitors;
success or failure of our research and development projects or those of our competitors;
our entering into or terminating strategic relationships;
changes in laws or government regulation;
regulatory developments and the decisions of regulatory authorities as to the approval or rejection of new or modified products;
departure of our key personnel;
disputes related to proprietary rights, including patents, litigation matters and our ability to obtain intellectual property protection for our
technologies;
our sale, or the sale by our significant shareholders, of Ordinary Shares, IPO Warrants or other securities in the future;
public concern regarding the safety, efficacy or other aspects of the products or methodologies we are developing;
• market conditions in our industry and changes in estimates of the future size and growth rate of our markets;
• market acceptance of our products;
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the mix of products that we sell and related services that we provide;
the success or failure of our licensees to develop, obtain approval for and commercialize our licensed products, for which we are entitled to
contingent payments and royalties;
publication of the results of preclinical or clinical trials for EB613, EB612 or any other product candidates we may develop;
failure by us to achieve a publicly announced milestone;
delays between our expenditures to develop and market new or enhanced products and the generation of sales from those products;
changes in the amounts that we spend to develop, acquire or license new products, technologies or businesses;
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changes in our expenditures to promote our products;
variance in our financial performance from the expectations of market analysts;
the limited trading volume of our Ordinary Shares and IPO Warrants; and
general economic and market conditions, including factors unrelated to our industry or operating performance.
In addition, the stock market in general has recently experienced extreme price and volume fluctuations that have often been
unrelated or disproportionate to the operating performance of individual companies. Broad market and industry factors may
materially affect the market price of companies’ stock, including ours, regardless of actual operating performance.
We do not know whether a market for our Ordinary Shares or IPO Warrants will be sustained and as a result, it may be
difficult for holders of our Ordinary Shares to sell their shares.
Although our Ordinary Shares and IPO Warrants are listed on Nasdaq, an active trading market for our Ordinary Shares and
IPO Warrants may not be sustained. The lack of an active market may impair the ability of holders of our Ordinary Shares or IPO
Warrants to sell their Ordinary Shares or IPO Warrants at the time they wish to sell them or at a price that they consider
reasonable. The lack of an active market may also reduce the value of our Ordinary Shares or IPO Warrants, and may cause the
trading price of our Ordinary Shares or IPO Warrants to be more volatile. An inactive market may also impair our ability to raise
capital by selling Ordinary Shares or IPO Warrants and may impair our ability to acquire other companies by using our Ordinary
Shares or IPO Warrants as consideration.
Our stock price may continue to be volatile, and securities class action litigation has often been instituted against companies
following periods of volatility of their stock price. Any such litigation, if instituted against us, could result in substantial costs
and a diversion of our management’s attention and resources.
In the past, following periods of volatility in the overall market and the market price of a particular company’s securities,
securities class action litigation has often been instituted against these companies. Although there is no such shareholder litigation
currently pending or threatened against the Company, such litigation, if instituted against us, could result in substantial costs and
a diversion of our management’s attention and resources.
The IPO Warrants are speculative in nature and are a risky investment. You may not be able to recover your investment in the
IPO Warrants, and the IPO Warrants may expire worthless.
The value of the IPO Warrants will depend on the value of our Ordinary Shares, which will depend on factors related and
unrelated to the success of our clinical development program or other factors as detailed above and cannot be predicted at this
time.
If the price per share of our Ordinary Shares does not increase to an amount sufficiently above the applicable exercise price of
the IPO Warrants during the period the IPO Warrants are exercisable, and if a public market for our IPO Warrants does not
develop, the IPO Warrants may not have any value, and you may be unable to recover any or all of your investment in the IPO
Warrants. There can be no assurance that the market price of the Ordinary Shares will ever equal or exceed the exercise price of
the IPO Warrants, and consequently, whether it will ever be profitable for holders of the IPO Warrants to exercise the IPO
Warrants.
Holders of the IPO Warrants will have no rights as shareholders until they acquire our Ordinary Shares.
Until you acquire our Ordinary Shares upon exercise of the IPO Warrants, you will have no rights with respect to our Ordinary
Shares issuable upon exercise of the IPO Warrants, except as set forth in the IPO Warrants. Upon exercise of your IPO Warrants,
you will be entitled to exercise the rights of a shareholder only as to matters for which the record date occurs on or after the
exercise date, unless the IPO Warrants are settled via “cashless exercise” in which case you will be entitled to exercise such rights
only after the end of the relevant calculation period as defined in our Registration Statement on Form F-1 (File No. 333-221472)
filed with the SEC on June 27, 2018, under “Description of IPO Warrants - Exercisability, Exercise Price and Term.”
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Future sales by our shareholders may adversely affect our stock price and our ability to raise funds in new stock offerings.
Sales of our Ordinary Shares or IPO Warrants in the public market could lower the market price of our Ordinary Shares or
IPO Warrants. Sales may also make it more difficult for us to sell equity securities or equity-related securities in the future at a
time and price that our management deems acceptable or at all. Most of our outstanding Ordinary Shares and IPO Warrants are
not restricted from resale. In the event of a sale of Ordinary Shares or IPO Warrants offered by selling shareholders, the price of
our Ordinary Shares or IPO Warrants could decline, and such decline could be material.
The significant share ownership position of D.N.A Biomedical Solutions Ltd. that beneficially owns approximately 20.67% of
our Ordinary Shares may significantly influence the outcome of matters requiring shareholder approval.
D.N.A Biomedical Solutions Ltd. (“D.N.A Biomedical”), beneficially owns approximately 20.48% of our outstanding shares,
as of March 15, 2020. Accordingly, D.N.A Biomedical may be able to influence matters requiring shareholder approval,
including the election of directors and approval of significant corporate transactions, which could have the effect of delaying or
preventing either a third party from acquiring control over us or engaging in other purchases of our Ordinary Shares that might
otherwise give our shareholders the opportunity to realize a premium over the then-prevailing market price for our Ordinary
Shares or any changes, or from making any changes to our management or board of directors. D.N.A Biomedical could also sell
its stake in our company and effectively transfer a significant stake of our company to another party without your consent. D.N.A
Biomedical’s interests may not be consistent with those of our other shareholders. In addition, this significant interest in us may
discourage third parties from seeking to acquire control of us, which may adversely affect the market price of our Ordinary
Shares.
The market price of our Ordinary Shares and IPO Warrants could be negatively affected by future sales of our securities.
If our shareholders, particularly our directors or our executive officers and their affiliates, that in aggregate, beneficially own
approximately 28.29% of our Ordinary Shares as of March 15, 2020, sell substantial amounts of our Ordinary Shares or IPO
Warrants in the public market, or if there is a public perception that these sales may occur in the future, the market price of our
Ordinary Shares or IPO Warrants may decline. The perception in the public market that our shareholders might sell our Ordinary
Shares or IPO Warrants could also depress the market price of our Ordinary Shares or IPO Warrants and could impair our future
ability to obtain capital, especially through an offering of equity securities. In addition, our sale of additional Ordinary Shares or
IPO Warrants or other similar securities in order to raise capital might have a similar negative impact on the share price of our
Ordinary Shares or IPO Warrants. A decline in the price of our Ordinary Shares may impede our ability to raise capital through
the issuance of additional Ordinary Shares, IPO Warrants or other equity securities, and may cause holders of our Ordinary
Shares or IPO Warrants to lose part or all of their investment.
We have never paid, and we currently do not intend to pay dividends.
We have never declared or paid any cash dividends on our Ordinary Shares. We currently intend to retain any future earnings
to finance operations and to expand our business and, therefore, do not expect to pay any cash dividends in the foreseeable future.
As a result, capital appreciation, if any, of our Ordinary Shares will be investors’ sole source of gain for the foreseeable future. In
addition, Israeli law may limit our declaration or payment of dividends, and may subject our dividends to Israeli withholding
taxes.
We are currently a foreign private issuer and, as a result, we are not subject to U.S. proxy rules and are subject to Exchange
Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. domestic public
company.
We report under the Exchange Act as a non-U.S. company with foreign private issuer status. Because we qualify as a foreign
private issuer under the Exchange Act, we are exempt from certain provisions of the Exchange Act that are applicable to U.S.
domestic public companies, including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or
authorizations in respect of a security registered under the Exchange Act, (ii) the sections of the Exchange Act requiring insiders
to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a
short period of time and (iii) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-
Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of
specified significant events. We are, however, making available to our shareholders quarterly reports containing unaudited
financial information for each of the first three quarters of each fiscal year. In addition, foreign private issuers are not required to
file their annual report on Form 20-F until four months after the end of each fiscal year, while U.S. domestic issuers that are not
accelerated filers are required to file their annual report on Form 10-K within 90 days after the end of each fiscal year. Foreign
private issuers are also exempt from the Regulation Fair Disclosure, aimed at preventing issuers from making selective
disclosures of material information. As a result of the above, while we are generally filing public reports in accordance with U.S.
SEC regulations, you may not have the same protections afforded to shareholders of companies that are not foreign private
issuers.
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As a foreign private issuer and as permitted by Nasdaq rules, we follow certain home country governance practices rather
than the corporate governance requirements of Nasdaq.
As a foreign private issuer, we have the option to follow certain Israeli corporate governance practices rather than those of
Nasdaq, except to the extent that such laws would be contrary to U.S. securities laws, and provided that we disclose the
requirements we are not following and describe the home country practices we follow instead. We rely on this foreign private
issuer exemption, or Foreign Private Issuer Exemption, with respect to Nasdaq shareholder approval requirements in respect of
additional issuances of equity in either a public or private offering and equity-based compensation plans and the quorum
requirement for meetings of our shareholders. In addition, we rely on the Foreign Private Issuer Exemption with respect to
Nasdaq compensation committee requirements, independent approval of board nominations, the requirement to have a majority
of independent directors on our board, third party compensation of directors and director nominees and the requirement for
independent directors to hold executive sessions. We may in the future, as long as we are considered a foreign private issuer, elect
to follow home country practices in Israel with regard to other matters. As a result, our shareholders may not have the same
protections afforded to shareholders of companies that are subject to all Nasdaq corporate governance requirements.
We may lose our status as a foreign private issuer, which would increase our compliance costs and could thereby negatively
impact our results of operations.
We may no longer be a foreign private issuer as of June 30, 2020 the end of our second fiscal quarter in our current fiscal year,
which would require us to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act
applicable to U.S. domestic issuers as of January 1, 2021. We will not maintain our current status as a foreign private issuer, if as
of June 30, 2020 (a) a majority of our Ordinary Shares is not either directly or indirectly owned of record by non-residents of the
United States and (b) one of the following applies: (i) a majority of our executive officers or directors are United States citizens
or residents, (ii) more than 50 percent of our assets are located in the United States or (iii) our business is administered
principally inside the United States. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic
issuer may be significantly higher. If we are not a foreign private issuer, we will be required to file periodic reports and
registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms
available to a foreign private issuer. We may also be required to modify certain of our policies to comply with governance
practices associated with U.S. domestic issuers. Such modifications will involve additional costs. In addition, we may lose our
ability to rely upon exemptions from certain corporate governance requirements on Nasdaq that are available to foreign private
issuers. As a result, we expect that a loss of foreign private issuer status would increase our legal and financial compliance costs
and would make some activities highly time consuming and costly. We also expect that if we were required to comply with the
rules and regulations applicable to U.S. domestic issuers, it would make it more difficult and expensive for us to obtain director
and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain
coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified members of our board
of directors.
There is a risk that we may be a passive foreign investment company, for U.S. federal income tax purposes for any taxable
year, which generally would result in certain adverse U.S. federal income tax consequences to our U.S. investors.
There is a risk that we may be treated as a passive foreign investment company, or PFIC, for any taxable year. Although the
application of the PFIC rules to a company like us is subject to uncertainties in some respects, we believe that it is reasonable to
take the position that we were not a PFIC for 2019, but there can be no assurance that the Internal Revenue Service will agree or
that a court will uphold this position. For the reasons described below, we cannot express a view as to whether we will be a PFIC
for the current or any future taxable year. In general, a non-U.S. corporation is a PFIC for any taxable year in which (i) 75% or
more of its gross income consists of passive income, or the income test, or (ii) 50% or more of the average value of its assets
consists of assets (generally determined on a quarterly basis) that produce, or are held for the production of, passive income, or
the assets test. Generally, passive income includes interest, dividends, rents, royalties and certain gains, and cash is a passive
asset for PFIC purposes. The assets shown on our balance sheet consist, and are expected to continue to consist, primarily of cash
and cash equivalents for the foreseeable future. Therefore, whether we will satisfy the assets test for the current or any future
taxable year will depend largely on the quarterly value of our goodwill and on how quickly we utilize our cash in our business.
Because (i) the value of our goodwill may be determined by reference to the market price of our Ordinary Shares, which has
been, and may continue to be volatile given the nature and early stage of our business, (ii) we hold, and expect to continue to
hold, a significant amount of cash, and (iii) a company’s annual PFIC status can be determined only after the end of each taxable
year, we cannot express a view as to whether we will be a PFIC for the current or any future taxable year. In addition, it is not
clear how to apply the income test to a company like us, which is still developing its key intangible assets and whose overall
losses from research activities significantly exceed the amount of its income (including passive income). If our losses from
research and development activities are disregarded for purposes of the income test, we may be a PFIC for any taxable year if
75% or more of our gross income (as determined for U.S. federal income tax purposes) for the relevant year is from interest and
financial investments. Because the revenue shown on our financial statements is not calculated based on U.S. tax principles, and
because for any taxable year we may not have sufficient (or any) non-passive revenue, there is a risk that we may be or become a
PFIC under the income test for any taxable year. If we were a PFIC for any taxable year during which a U.S. investor owned our
Ordinary Shares (or under proposed Treasury regulations, IPO Warrants), such U.S. shareholder generally will be subject to
certain adverse U.S. federal income tax consequences, including increased tax liability on gains from dispositions of the Ordinary
Shares (or IPO Warrants) and certain distributions and a requirement to file annual reports with the Internal Revenue Service. See
“Item 10.E.—Taxation—Material U.S. Federal Income Tax Considerations for U.S. Holders—Passive Foreign Investment
Company Rules” for more information.
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We are an Emerging Growth Company and we cannot be certain whether the reduced requirements applicable to Emerging
Growth Companies will make our Ordinary Shares less attractive to investors.
We are an Emerging Growth Company, and we may take advantage of certain exemptions from various requirements that are
applicable to other public companies that are not Emerging Growth Companies. For instance, for as long as we remain an
Emerging Growth Company, we will not be subject to the provision of Section 404(b) of the Sarbanes-Oxley Act that requires
our independent registered public accounting firm to provide an attestation report on the effectiveness of our internal control over
financial reporting. This may increase the risk that we will fail to detect and remedy any weaknesses or deficiencies in our
internal control over financial reporting. We have elected to include three years of selected financial data compared to five years
for comparable data reported by other public companies. In general, these reduced reporting requirements may allow us to refrain
from disclosing information that you may find important.
We can qualify as an Emerging Growth Company for up to five years, although circumstances could cause us to lose that
status earlier, including, inter alia, if the market value of our Ordinary Shares held by non-affiliates exceeds $700 million as of
any June 30 (the end of our second fiscal quarter) before that time, in which case we would no longer be an Emerging Growth
Company as of the following December 31 (our fiscal year end). When we are no longer deemed to be an Emerging Growth
Company, we will not be entitled to the exemptions provided in the JOBS Act. We cannot predict if investors will find our
Ordinary Shares less attractive as a result of our reliance on exemptions under the JOBS Act. If some investors find our Ordinary
Shares less attractive as a result, there may be a less active trading market for our Ordinary Shares and our share price may be
more volatile.
Our ordinary shares may be delisted from the Nasdaq Capital Market if we are unable to maintain compliance with Nasdaq’s
continued listing standards.
Nasdaq imposes, among other requirements, continued listing standards including a minimum bid requirement. The price of
our ordinary shares must trade at or above $1.00 to comply with the minimum bid requirement for continued listing on the
Nasdaq Capital Market. If the closing bid price of our ordinary shares fails to meet Nasdaq’s minimum closing bid price
requirement for a period in excess of 30 consecutive days, or if we otherwise fail to meet any other applicable requirements of the
Nasdaq Capital Market and we are unable to regain compliance, Nasdaq may make a determination to delist our ordinary shares.
Any delisting of our ordinary shares would likely adversely affect the market liquidity and market price of our ordinary shares
and our ability to obtain financing for the continuation of our operations or result in the loss of confidence by investors.
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report
our financial results or prevent fraud. As a result, shareholders could lose confidence in our financial and other public
reporting, which would harm our business and the trading price of our common shares.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with
adequate disclosure controls and procedures, are designed to prevent fraud among other objectives. Any failure to implement
required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting
obligations. In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act of 2002, or any
subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over
financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our
financial statements or identify other areas for further attention or improvement. Inferior internal controls could also subject us to
regulatory scrutiny and sanctions, impair our ability to raise revenue and cause investors to lose confidence in our reported
financial information, which could have a negative effect on the trading price of our common shares.
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We are required to disclose changes made in our internal controls and procedures and our management is required to assess
the effectiveness of these controls annually. However, for as long as we are an “emerging growth company” under the JOBS Act,
our independent registered public accounting firm will not be required to attest to the effectiveness of our internal controls over
financial reporting pursuant to Section 404. An independent assessment of the effectiveness of our internal controls could detect
problems that our management’s assessment might not. Undetected material weaknesses in our internal controls could lead to
financial statement restatements and require us to incur the expense of remediation.
If securities or industry analysts do not publish research or reports or publish unfavorable research about our business, our
share price and trading volume could decline.
The trading market for our Ordinary Shares depends in part on the research and reports that securities or industry analysts
publish about us or our business. We do not have control over these analysts and we do not have commitments from them to write
research reports about us. If securities or industry analysts do not commence coverage of our company, the trading price for our
shares may be negatively affected. In the event we obtain securities or industry analyst coverage, if one or more of the analysts
who covers us downgrades our shares, our shares price would likely decline. If one or more of these analysts ceases to cover us
or fails to publish regular reports on us, interest in the purchase of our shares could decrease, which could cause our share price
or trading volume to decline.
Risks Relating to Our Incorporation and Location in Israel
The Israeli government grants we have received for research and development expenditures restrict our ability to manufacture
products and transfer technologies outside of Israel and require us to satisfy specified conditions. If we fail to satisfy these
conditions, we may be required to refund grants previously received together with interest and penalties or to pay other
amounts according to the formulas set out in the relevant laws.
Our research and development efforts have been financed, in part, through the grants that we have received from the Israeli
Innovation Authority (formerly known as the Office of Chief Scientist of the Israeli Ministry of Economy), or the IIA. Pursuant
to these grants, we must comply with the requirements of the Encouragement of Industrial Research, Development and
Technological Innovation in Industry Law 5744-1984 and the IIA regulations, or the Research Law. Until the grants are repaid
with interest, royalties are payable to the IIA in the amount of 3% on revenues derived from sales of products or services
developed in whole or in part using the IIA grants, including EB612, EB613 and any other oral PTH product candidates we may
develop. The royalty rate may increase to 5%, with respect to approved applications filed following any year in which we achieve
sales of over $70 million.
Under the Research Law, we are prohibited from manufacturing products developed using these grants outside of the State of
Israel without special approvals. We may not receive the required approvals for any proposed transfer of manufacturing activities.
Even if we do receive approval to manufacture products developed with government grants outside of Israel, the royalty rate may
be increased and we may be required to pay up to three times the grant amounts and the interest, depending on the manufacturing
volume that is performed outside of Israel. This restriction may impair our ability to outsource manufacturing or engage in our
own manufacturing operations for those products or technologies. For additional information, see “Item 4.B.—Business
Overview—The Israeli Innovation Authority Grant.”
Additionally, under the Research Law, we are prohibited from transferring in any manner (including by way of license), the
IIA-financed technologies and related rights (including know-how and other intellectual property rights) in or outside of the State
of Israel, except under limited circumstances and only with the approval of the IIA. We may not receive the required approvals
for any proposed transfer and, even if received, we may be required to pay the IIA a portion of the consideration that we receive
upon any transfer of such technology to a non-Israeli entity up to 600% of the grant amounts and the interest. The scope of the
IIA support received, the royalties that we have already paid to the IIA, the amount of time that has elapsed between the date on
which the know-how or other intellectual property rights were transferred and the date on which the IIA grants were received and
the sale price and the form of transaction will be taken into account in order to calculate the amount of the payment to the IIA.
Approval to transfer the technology to residents of the State of Israel is also required, and may be granted in specific
circumstances only if the recipient abides by the provisions of applicable laws, including the restrictions on the transfer of know-
how and the obligation to pay royalties. No assurance can be made that approval to any such transfer, if requested, will be
granted. Transfer of know-how or rights outside of the state of Israel without IIA approval is a criminal offense.
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These restrictions may impair our ability to sell our technology assets or to perform or outsource manufacturing outside of
Israel, engage in change of control transactions or otherwise transfer our know-how outside of Israel and may require us to obtain
the approval of the IIA for certain actions and transactions and pay additional royalties and other amounts to the IIA. In addition,
any change of control and any change of ownership of our Ordinary Shares that would make a non-Israeli citizen or resident an
interested party, as defined in the Israeli Securities Law, 5728-1968, as amended, requires written notice to the IIA, and our
failure to comply with this requirement could result in monetary fines. Such non-Israeli interested parties, which include 5%
shareholders and shareholders who have the right to appoint a director to our board of directors, are required to sign an
undertaking towards the IIA in which they would undertake to comply with the Research Law. Shareholders that purchase shares
in an IPO would not be required to sign such an undertaking.
These restrictions will continue to apply even after we have repaid the full amount of the grants and the interest. If we fail to
satisfy the conditions of the Research Law, we may be required to refund grants previously received together with interest and
penalties, to make other payments to the IIA or become subject to criminal charges.
Security, political and economic instability in the Middle East may harm our business.
Our principal research and development facilities are located in Israel. In addition, part of our key employees, officers and
directors are residents of Israel. Accordingly, political, economic and military conditions in the Middle East may affect our
business directly. Since the establishment of the State of Israel in 1948, a number of armed conflicts have occurred between Israel
and its neighboring countries, Hamas (an Islamist militia and political group in the Gaza Strip) and Hezbollah (an Islamist militia
and political group in Lebanon). Recent political uprisings, social unrest and violence in various countries in the Middle East,
including Israel’s neighbor Syria, are affecting the political stability of those countries. This instability may lead to deterioration
of the political relationships that exist between Israel and certain countries and have raised concerns regarding security in the
region and the potential for armed conflict. In addition, Iran has threatened to attack Israel. Iran is also believed to have a strong
influence among the Syrian government, Hamas and Hezbollah. These situations may potentially escalate in the future into more
violent events which may affect Israel and us. These situations, including conflicts which involved missile strikes against civilian
targets in various parts of Israel have in the past negatively affected business conditions in Israel.
Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners could
have a material adverse effect on our business. Although such hostilities did not in the past have a material adverse impact on our
business, we cannot guarantee that hostilities will not be renewed and have such an effect in the future. The political and security
situation in Israel may result in parties with whom we have contracts claiming that they are not obligated to perform their
commitments under those agreements pursuant to force majeure provisions. These or other Israeli political or economic factors
could harm our operations and product development. Any hostilities involving Israel or the interruption or curtailment of trade
between Israel and its present trading partners could adversely affect our operations and could make it more difficult for us to
raise capital. We could experience disruptions if acts associated with this conflict result in any serious damage to our facilities.
Furthermore, several countries, as well as certain companies and organizations, continue to restrict business with Israel and
Israeli companies, which could have an adverse effect on our business and financial condition in the future. Our business
interruption insurance may not adequately compensate us for losses, if at all, that may occur as a result of an event associated
with a security situation in the Middle East, and any losses or damages incurred by us could have a material adverse effect on our
business.
Our operations may be disrupted by the obligations of personnel to perform military service.
Our employees in Israel, including executive officers, generally, may be called upon to perform up to 42 days (and in some
cases more) of annual military reserve duty until they generally reach the age of 45 (or older in some cases) and, in emergency
circumstances, could be called to active duty. In response to increased tension and hostilities, since September 2000 there have
been occasional call-ups of military reservists, including in connection with the mid-2006 war in Lebanon and the December
2008, November 2012 and July 2014 conflicts with Hamas, and it is possible that there will be additional call-ups in the future.
Our operations could be disrupted by the absence of a significant number of our employees related to military service or the
absence for extended periods of one or more of our key employees for military service. Such disruption could materially
adversely affect our operations, business and results of operations.
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Our business is subject to currency exchange risk and fluctuations between the U.S. dollar and other currencies may
negatively affect our earnings and results of operations.
The U.S. dollar is both our functional and reporting currency. As a result, our results of operations may be adversely affected
by exchange rate fluctuations between the U.S. dollar and the NIS. A significant portion of the expenses associated with our
Israeli operations, including personnel and facilities related expenses, are incurred in NIS. Consequently, inflation in Israel will
have the effect of increasing the cost of our operations in Israel unless it is offset on a timely basis by a devaluation of the NIS
relative to the U.S. dollar. In addition, if the value of the U.S. dollar decreases against the NIS, our earnings may be negatively
impacted. Moreover, exchange rate fluctuations in currency exchange rates in countries other than Israel where we operate,
perform our clinical trials or conduct business may also negatively affect our earnings and results of operations. We cannot
predict any future trends in the rate of inflation or deflation in Israel or the rate of devaluation or appreciation of the NIS against
the U.S. dollar. If the dollar cost of our operations in Israel increases, our dollar-measured results of operations will be adversely
affected. For example, in 2019, the value of the NIS appreciated against the U.S. dollar by 7.8%, which appreciation was partially
offset by inflation in Israel of 0.3%. In 2018, the value of the NIS depreciated against the U.S. dollar by 8.1%, the effect of which
was partly offset by inflation in Israel at a rate of approximately 0.8%. As a result of these fluctuations, our NIS denominated
expenses were affected.
Potential future revenue may be derived from abroad, including outside of the United States. As a result, our business and
share price may be affected by fluctuations in foreign exchange rates with these other currencies, which may also have a
significant impact on our reported results of operations and cash flows from period to period. Currently, we do not have any
exchange rate hedging arrangements in place. Foreign currency fluctuations could materially adversely affect our results of
operations or could positively affect our results of operations in ways that may not necessarily be repeated in future periods.
It may be difficult to enforce a U.S. judgment against us or our officers and directors, to assert U.S. securities laws claims in
Israel or to serve process on our officers and directors.
We are incorporated under the laws of the State of Israel. Service of process upon us, our directors and officers and the Israeli
experts, if any, a significant number of whom reside outside the United States, may be difficult to obtain within the United States.
Furthermore, because the majority of our assets and investments, and substantially all of our directors, officers and such Israeli
experts, if any, are located outside the United States, any judgment obtained in the United States against us or any of them may be
difficult to collect within the United States. In addition, such judgment may not be enforced by an Israeli court.
In addition, it may also be difficult for an investor to effect service of process on these persons in the U.S. or to assert U.S.
securities law claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on an alleged violation
of U.S. securities laws reasoning that Israel is not the most appropriate forum to bring such a claim. In addition, even if an Israeli
court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to
be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process.
Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters
described above. See the section in our Registration Statement on Form F-1 filed under the Securities Act with the SEC on June
27, 2018, entitled “Enforceability of Civil Liabilities.” As a result of the difficulty associated with enforcing a judgment against
us in Israel, holders of our Ordinary Shares may not be able to collect any damages awarded by either a U.S. or foreign court.
Provisions of Israeli law and our amended Articles may give rise to withholding obligations or delay, prevent or make difficult
a change of control and therefore depress the price of our shares.
Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires
special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be
relevant to these types of transactions. For example, under the Companies Law, upon the request of a creditor of either party to a
proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that as a result
of the merger the surviving company will be unable to satisfy the obligations of any of the parties to the merger. Additionally, a
tender offer for all of a company’s issued and outstanding shares can only be completed if the acquirer receives positive
responses from the holders of at least 95% of the issued share capital. Completion of the tender offer also requires approval of a
majority of the offerees that do not have a personal interest in the tender offer unless, following consummation of the tender offer,
the acquirer would hold more than 98% of the company’s outstanding shares. Furthermore, the shareholders, including those who
indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer,
petition an Israeli court to alter the consideration for the acquisition, unless the acquirer stipulated in its tender offer that a
shareholder that accepts the offer may not seek such appraisal rights. For additional information regarding the regulation of
mergers and tender offers under the Israeli Companies Law, see “Item 16.G.–Corporate Governance— Anti-Takeover Measures
under Israeli Law; Acquisitions under Israeli Law.”
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Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to our shareholders whose
country of residence does not have a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax
law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law
allows for tax deferral in certain circumstances that makes the deferral contingent on the fulfillment of numerous conditions,
including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the
participating companies are, subject to certain exceptions, restricted. Moreover, with respect to certain share swap transactions,
the tax deferral is limited in time, and when the time expires, tax then becomes payable even if no actual disposition of the shares
has occurred.
Our amended Articles of Association, or Articles, provide that our directors (other than external directors) are elected on a
staggered basis such that a potential acquirer cannot readily replace our entire board of directors at a single general shareholders
meeting.
These provisions could cause our Ordinary Shares to trade at prices below the price for which third parties might be willing to
pay to gain control of us. Third parties who are otherwise willing to pay a premium over prevailing market prices to gain control
of us may be unable or unwilling to do so because of these provisions of Israeli law and our amended Articles.
Your rights and responsibilities as a shareholder are governed by Israeli law, which may differ in some respects from the
rights and responsibilities of shareholders of U.S. companies.
We are incorporated under Israeli law. The rights and responsibilities of the holders of our Ordinary Shares are governed by
our Articles and Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of
shareholders in typical U.S.-based corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith
and in a customary manner in exercising its rights and performing its obligations towards the company and other shareholders
and to refrain from abusing its power in the company, including, among other things, in voting at the general meeting of
shareholders on matters such as amendments to a company’s articles of association, increases in a company’s authorized share
capital, mergers and acquisitions and interested party transactions requiring shareholder approval. In addition, a shareholder who
knows that it possesses the power to determine the outcome of a shareholder vote or to appoint or prevent the appointment of a
director or executive officer in the company has a duty of fairness toward the company with regard to such vote or appointment.
There is limited case law available to assist us in understanding the implications of these provisions that govern shareholders’
actions, and these provisions may be interpreted to impose additional obligations and liabilities on holders of our Ordinary Shares
that are not typically imposed on shareholders of U.S. corporations.
Our business could be negatively affected as a result of actions of activist shareholders, and such activism could impact the
trading value of our securities.
In recent years, certain Israeli issuers listed on United States exchanges have been faced with governance-related demands
from activist shareholders, unsolicited tender offers and proxy contests. Responding to these types of actions by activist
shareholders could be costly and time-consuming, disrupting our operations and diverting the attention of management and our
employees. Such activities could interfere with our ability to execute our strategic plan. In addition, a proxy contest for the
election of directors at our annual meeting would require us to incur significant legal fees and proxy solicitation expenses and
require significant time and attention by management and our board of directors. The perceived uncertainties as to our future
direction also could affect the market price and volatility of our securities.
ITEM 4. INFORMATION ON THE COMPANY
4.A. History and Development
Our legal and commercial name is Entera Bio Ltd. We were incorporated as a limited liability company under the laws of the
State of Israel on September 30, 2009. We commenced operations in June 2010 as a joint venture of D.N.A Biomedical and
Oramed Ltd. (“Oramed”) to pursue the development of pharmaceutical products for the oral delivery of proteins. In connection
with our founding, Oramed licensed to us the use of certain of its patent rights relating to the oral delivery of proteins. In
February 2011, Oramed sold the majority of its holdings in us to D.N.A. Biomedical. In connection with the sale, Oramed
assigned to us the patent rights that it had previously licensed to us, in exchange for an exclusive license to use the assigned
patent rights in the fields of diabetes and influenza and for a 3% royalty on net revenues generated from our use or other
exploitation of the assigned patent rights. In March 2011, D.N.A Biomedical and Oramed terminated the joint venture. To date,
we have focused our operations on the development of our drug delivery technology for the oral administration of proteins and
large molecules, in particular our oral PTH (1-34) product candidates.
We are registered with the Israeli Registrar of Companies. Our registration number is 51-433060-4. Article 3 of our Articles
generally provides that our objectives are to engage in any lawful activity.
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Our principal executive offices are located at Kiryat Hadassah Minrav Building, 5th Floor, Jerusalem 9122002, Israel. Our
corporate offices in the United States are located at 37 Walnut Street, Suite 300, Wellesley Hills, MA. Our website is
https://www.enterabio.com/. The information contained on, or that can be accessed through, our website does not constitute a part
of this form and is not incorporated by reference herein. The SEC also maintains a website that contains reports, proxy and
information statements and other information regarding issuers that file electronically with the SEC. The address of this website
is http://www.sec.gov and you can access our filings on that website.
We have one wholly-owned subsidiary, Entera Bio, Inc., which was incorporated on January 8, 2018 under the laws of the
State of Delaware. While our operations were initially conducted in our research and development facilities in Israel, in 2018 we
started to expand our clinical and medical teams in the United States. In 2019, we hired a U.S.-based CEO and CFO and
established corporate offices in Boston, Massachusetts.
We are an Emerging Growth Company. As such, we are eligible to, and intend to, take advantage, for up to five years, of
certain exemptions from various reporting requirements applicable to other public companies that are not Emerging Growth
Companies, such as not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley
Act. We will remain an Emerging Growth Company until the earliest of: (i) the last day of our fiscal year during which we have
total annual gross revenues of at least $1.07 billion; (ii) the last day of our fiscal year following the fifth anniversary of the
closing of our IPO; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-
convertible debt; (iv) the date on which we are deemed to be a Large Accelerated Filer under the Exchange Act, with at least
$700 million of equity securities held by non-affiliates.
Further, under the JOBS act, Emerging Growth Companies can take advantage of an extended transition period for complying
with new or revised accounting standards. This provision allows an Emerging Growth Company to delay the adoption of some
accounting standards until those standards would otherwise apply to private companies. However, given that we currently report
under IFRS as required by the IASB, we will not be able to avail ourselves of this extended transition period and, as a result, we
will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required by the
IASB.
For information regarding our capital expenditures, see “Item 5.B.–Liquidity and Capital Resources.”
4.B. Business Overview
Who We Are
We are a clinical-stage biopharmaceutical company focused on the development and commercialization of orally delivered
macromolecule therapeutics for use in areas with significant unmet medical need where adoption of injectable therapies is limited
due to cost, convenience and compliance challenges for patients. Our current strategy for our lead product candidates is to use our
technology to develop an oral formulation of human parathyroid hormone (1-34), or PTH, which has been approved in the United
States in injectable form for over a decade.
Our lead oral PTH product candidates are EB613 for the treatment of osteoporosis and EB612 for the treatment of
hypoparathyroidism. In both of these indications, the leading products are daily injectable formulations of PTH. In total, more
than 180 healthy volunteers and patients, have received multiple doses of various formulations of our oral PTH (1-34).
Osteoporosis is a systemic skeletal disease characterized by low bone mass, deterioration of bone tissue and increased bone
fragility and susceptibility to fracture. Forteo® is a once-daily subcutaneous injectable form of PTH (1-34), marketed by Eli Lilly
and Company (“Eli Lilly”), that was approved in 2002 for the treatment of osteoporosis in the United States and is widely
considered one of the most effective treatments due to its ability to build bone. Because our product candidate EB613 is delivered
orally, we believe it will reduce the treatment and cost burden on patients and lead to significantly higher patient and physician
acceptance compared to an injectable form of PTH. Between 2013 and 2015, we conducted a Phase 1b, open label, crossover
design, pharmacokinetic or PK study, with nine to ten healthy male volunteers in three cohorts that received either 20 microgram
Forteo injections, or EB613. The pharmacokinetic profile of EB613 was characterized by rapid absorption and disappearance
rates, resulting in a short pharmacokinetic exposure to the drug (see graph below).
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Pharmacokinetic profiles following the administration of an oral formulation of PTH (1-34) versus Forteo ®
injections. Each data point represents the mean of observations in nine to ten volunteers.
With our current formulation of oral EB613, the total systemic exposure as measured by the area under the curve, or AUC, of
188pgm*hr/ml following the administration of oral EB613 was similar to the AUC of the Forteo injection of 182 pgm*hr/ml,
while the maximal plasma concentrations, also known as Cmax, of the oral EB613 formulation was approximately two-fold
higher than the Cmax of the injection. In addition, the duration of the exposure above the upper limit of the reference range of
endogenous parathyroid hormone, (equivalent to ≥28 pg/mL PTH(1-34), if adjusted on a molar basis), was approximately one
hour or two-fold less following the administration of oral EB613 in comparison to more than two hours for subjects receiving
Forteo . Lower exposure to the drug is believed to be preferable as extended exposure above the upper limit of the reference
range may lead to an increased incidence of hypercalcemia, an undesired side effect, observed in some patients treated with
subcutaneous injections of Forteo. As a result, the sharper and shorter duration of exposure, may be preferable for the treatment
of osteoporosis.
In an additional treatment arm of the above study, a lower dose was used to achieve a Cmax similar to the Cmax following a
Forteo injection with a lower AUC. Each data point below represents the mean of observations in nine to ten volunteers. The
activation of the various biological pathways is believed to be triggered by PTH levels above a specific threshold. It is possible
that a similar Cmax associated with a lower AUC and shorter exposure time may not only be sufficient to activate the anabolic
pathways, but may also reduce the risk of hypercalcemia adverse events.
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Pharmacokinetic profiles following the administration of an oral formulation of PTH (1-34) versus commercial
Forteo® injection in Phase 1b. Each data point represents the mean of observations in nine to ten volunteers.
Based on our Phase 1 studies, and our ongoing Phase 2 dose-ranging trial, EB613 appears to be safe and well tolerated with no
drug-related adverse events reported. In a single volunteer, two mild unrelated adverse events (cough and dyspepsia) were
reported one day after the oral drug administration. In contrast, three cases of transient increases in serum calcium above the
upper limit of normal, and a single case of vomiting, were observed following injections of Forteo.
Based on changes in general guidance issued by the FDA in 2018 and the similarity of our product’s PK profile to that of
Forteo, we requested and held a pre-IND meeting with the FDA to discuss our development plan of our oral PTH candidate,
EB613, for the treatment of osteoporosis. In addition to discussing various aspects of the nonclinical and clinical development
plan, the meeting focused on the use of the 505(b)(2) regulatory pathway and the use of bone mineral density, or BMD, rather
than fracture incidence as the primary endpoint to support an NDA. Based on the FDA’s response, we believe that we may be
able to use BMD as the primary efficacy endpoint for a Phase 3 trial and that a fracture endpoint trial will not be required.
In July 2019, we initiated a dose ranging Phase 2 multi-center trial in approximately 160 postmenopausal women with
osteoporosis, or low BMD. Following the analysis of the data from this study, we intend to design and execute Phase 3 pivotal
trial(s) in approximately 600-700 osteoporosis patients. We believe that the study design to achieve the BMD endpoint of the
alternative pathway, as discussed with the FDA, will have a much smaller number of patients and will be significantly shorter in
duration than a pathway that utilizes a placebo-controlled bone fracture endpoint. Based on directives from the Israeli Ministry of
Health and our affiliated medical institutions implemented in March 2020 due to COVID-19, we have temporarily suspended
enrollment of new patients in our ongoing Phase 2 clinical trial. At this time, we have 97 patients currently enrolled in this trial.
As of March 23, 2020, we are continuing to collect patient data from the currently enrolled patients in this trial through various
monitoring means established by the regulatory authorities.
Hypoparathyroidism is a rare condition in which the body fails to produce sufficient amounts of PTH or the PTH produced
lacks biologic activity. Historically, the treatments for hypoparathyroidism have been calcium supplements, active vitamin D
analogs (calcitriol or similar drugs) and occasionally phosphate binders, the chronic use of which results in serious side effects
with significant costs to patients and the healthcare system. A once-daily injectable form of PTH (1-84), or Natpara, has been
approved for the treatment of hypoparathyroidism. Our lead product candidate for hypoparathyroidism, EB612, is also delivered
orally and can be administered in customized doses several times a day. Studies performed by researchers at the NIH have shown
that dosing PTH multiple times per day significantly increases the efficacy of therapy and may be more effective for treating
hypoparathyroidism. These studies found that the total daily PTH dose required to maintain serum calcium in the normal or near-
normal range was reduced by 50% with twice-daily PTH (1-34) and also demonstrated that twice-daily dosing achieved better
control over serum calcium and urinary calcium excretion as compared to once-daily dosing. In addition, we believe patients
generally prefer orally-administered drugs. For these reasons, we believe EB612 dosed two or more times during the day may be
clinically superior to existing daily therapy and has the potential to become the standard of care, if approved, for
hypoparathyroidism.
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In 2015, we successfully completed a Phase 2a trial for EB612. Although our Phase 2a trial involved a smaller number of
patients, was conducted for a shorter duration and did not include an initial dose optimization period in comparison to the design
of the pivotal trial used for regulatory approval of Natpara (the REPLACE trial), our Phase 2a trial showed the potential for
similar efficacy. In the third quarter of 2019, we reported the results of a Phase 2 clinical trial that included one day of dosing
with EB612 to evaluate the pharmacokinetic/pharmacodynamics, or PK/PD, profile of various EB612 dose regimens compared
with Natpara. The results from this study demonstrated that EB612 was effectively delivered into the blood stream and activated
PTH-dependent biological pathways that are inadequately activated in patients with hypoparathyroidism. In addition, the various
dosing regimens demonstrated positive impacts on serum calcium, urine calcium and serum phosphate levels. No serious adverse
events were reported. We believe this Phase 2 trial will help determine the design of a definitive long-term Phase 3 trial of EB612
in patients with hypoparathyroidism in which the dose frequency would be titrated to control hypocalcemia, normalize serum
phosphate and reduce renal calcium excretion.
In the future, after the completion of additional formulation and development activities and subject to available funds, we
expect to initiate a multi-site Phase 2b/3 clinical trial of EB612 for the treatment of hypoparathyroidism, which will further
evaluate the dosage, effectiveness and safety profile of EB612 in an expanded population of patients with hypoparathyroidism.
We expect that this Phase 2b/3 trial, when initiated, will be designed to replicate the REPLACE trial in many aspects and to
achieve a significant reduction in urinary calcium. The phase 2b/3 clinical trial of EB612 in hypoparathyroidism may potentially
support a submission for regulatory approval of EB612, if successful.
In addition to the utilization of our technology to develop our own internal drug candidates, we intend to use our technology as
a platform for the oral delivery of other novel protein and large molecule therapeutics. Our proprietary technology has potential
advantages over alternative delivery options, and may enable us to create a potential pipeline of products across a range of
therapeutic indications. We have generated data on a number of additional proteins and peptides in molecules as large as 150
kDa, and may develop these candidates further internally, or explore potential research collaborations to advance these therapies
through clinical development and generate funding.
In December 2018, we entered into a research collaboration and license agreement with Amgen, Inc, or Amgen. Under the
agreement, the parties will collaborate on the development and discovery of clinical candidates in the field of inflammatory
disease and other serious illnesses. Specifically, we and Amgen will use our proprietary drug delivery platform to help Amgen
develop oral formulations for up to three large molecule drug candidates within Amgen’s pipeline. Further, under the terms of the
agreement, we will conduct preclinical development activities, at Amgen’s expense and Amgen will be responsible for research,
clinical development, manufacturing and commercialization of any of the resulting programs, at its expense. We will be eligible
to receive from Amgen aggregate payments of up to $270 million upon achievement of various clinical and commercial
milestones, or Amgen’s exercise of options to select an additional program to include in the collaboration, as well as tiered
royalty payments ranging from the low to mid-single digits based on the level of Amgen’s net sales of any applicable products, if
approved. We will retain all intellectual property rights to our drug delivery technology, which under this collaboration will be
licensed to Amgen exclusively for Amgen’s nominated drug targets. Amgen will retain all rights to its large molecules and any
subsequent improvements.
Our Pipeline
Drug development has shifted towards the use of biologics such as peptides, proteins and other large molecules for the
treatment of various diseases including orphan indications. For example, approximately 30% of the drugs approved by the FDA
between 2015 and 2018 were biologics. Currently, most large molecule therapeutics can only be delivered via injections and
other non-oral pathways because oral administration typically leads to poor absorption into the blood stream as well as enzymatic
degradation within the gastrointestinal tract. Oral drug delivery has the potential to reduce the treatment burden on patients
relative to injectable drugs and may provide significantly more flexibility, both in size and number of doses per day, than
injectable drugs. Our proprietary oral drug delivery technology is designed to address the issues of poor absorption, high
variability, and difficulties delivering such large molecules to the targeted location in the body by utilizing a combination of a
synthetic absorption enhancer, to facilitate the enhanced absorption of large molecules, and protease inhibitors to prevent
enzymatic degradation.
We have initially focused on the development of products which are based on previously approved therapeutic agents. We
believe this will allow us to more efficiently and predictably advance product candidates through the development cycle based on
well-defined clinical and regulatory pathways. We have conducted initial feasibility studies with a number of candidates,
including human growth hormone, or HGH, among others, and intend, subject to the availability of resources, to commence
preclinical and clinical development for our next, non-PTH product candidate in the future.
57
The following chart summarizes the current stage of development of each of our current product candidates, as well as their
indications.
Our Strategy
Our goal is to become a leading biopharmaceutical company focused on the development and commercialization of orally
delivered large molecule therapeutics in indications with significant unmet medical needs. The key elements of our strategy to
achieve this goal are to:
•
•
•
•
Advance EB613 into a Phase 3 clinical trial for the treatment of osteoporosis: We are currently conducting a dose ranging Phase 2 clinical trial of
EB613 for the treatment of osteoporosis. Based on FDA guidance received at our pre-IND meeting in November 2018, we intend to further
develop EB613 and conduct the required non-clinical and clinical trials in order to attain regulatory approval. We intend to conduct a single Phase
3, multicenter trial with a BMD endpoint comparing Oral PTH with Forteo over a 12-month treatment period. We believe this Phase 3 trial could
be initiated as early as 2021 or 2022, based on a successful outcome of the Phase 2 trial, pending the determination of the impact of COVID-19 on
our clinical trial enrollment, on our ability to collect sufficient data to proceed with a Phase 3 clinical trial and on the design of any such Phase 3
clinical trial, as well as on whether we will have adequate financial resources.
Advance EB612 through clinical development for the treatment of hypoparathyroidism: To date we have completed two Phase 2 clinical trials of
EB612 for the treatment of hypoparathyroidism. We reported positive results from the first trial in the third quarter of 2015, and then conducted a
Phase 2PK/PD trial in 2019 to evaluate the profile of various EB612 dose regimens. After the completion of additional formulation and
development activities to determine our final formulations, and subject to available funds, we expect to initiate a Phase 2b/3 clinical trial of EB612
for the treatment of hypoparathyroidism. The FDA and the EMA have granted EB612 orphan drug designation for the treatment of
hypoparathyroidism.
Leverage our expertise in the oral delivery of PTH to develop product candidates in additional indications: In the future, we may conduct
exploratory Phase 2 studies for the use of our oral PTH candidates in additional indications in which the anabolic effects of pulsatile PTH to
stimulate bone formation may play a key pharmacologic role, including in delayed union of fractures, an indication within the field of bone
healing after a fracture. We plan to use EB613, or a further modified formulation, if studies suggest we could achieve a PK profile that is more
efficacious, for these indications.
Identify and develop products based on FDA-approved injectable large molecule therapeutics: We intend to leverage our technology platform by
applying it to the development of known large molecule therapeutics and believe we can reduce the development and regulatory risks by working
on FDA-approved large molecule therapeutic agents with known mechanisms of action. We believe this will allow us to advance our product
candidates efficiently and predictably through the development cycle thereby offering us the option to either develop these products on our own or
to collaborate with the innovator companies.
58
•
•
Develop more effective novel large molecule therapeutics through collaborations and partnerships with other biotechnology or pharmaceutical
companies: Oral drug delivery lowers the treatment burden on patients relative to injectable drugs, leading to higher patient and physician
acceptance and compliance, and at a lower cost to patients. However, certain peptides, proteins and other large molecule therapeutics can currently
only be delivered via injections and other non-oral pathways because oral administration leads to negligible absorption into the blood stream as
well as enzymatic degradation within the gastrointestinal tract. Our technology is designed to overcome both of these issues by enabling enhanced
systemic absorption of large molecules and slowing their enzymatic degradation while in the gastrointestinal tract. For example, in December
2018, we entered into a research collaboration and license agreement with Amgen and we intend to explore additional collaborations to further
validate our technology and potentially generate value through funding from such collaborations. COVID-19 may impact our ability to conduct
research and development activities or to develop data that may lead to potential future collaborations (see “Risk Factors—The outbreak of
COVID-19 in the United States, Israel and elsewhere has created significant business disruptions and will adversely affect our business”).
Establish global and regional commercial partnerships, or selectively develop commercial capabilities for our lead oral PTH product candidates:
For our oral PTH product candidates that target orphan indications, we may determine to retain commercialization rights within key territories,
including the United States, because of the ability to commercialize efficiently with a small sales force or other contract selling organizations. For
product candidates that target indications with larger patient populations such as Osteoporosis, we may choose to partner with larger
biopharmaceutical companies ahead of late stage development and commercialization, or to license our technology to third parties for their
additional indications, pending our Phase 2 trial results and the potential impact of COVID-19 on those results or on our discussions with potential
collaboration or other business partners. We are building a corporate and business development capability to determine the appropriate
development and commercial strategies for our current and future product candidates.
Our Technology
We are focused on the development and commercialization of product candidates that leverage our proprietary technology for
the oral delivery of large molecule therapeutics. In recent years, drug development has shifted towards the use of peptides,
proteins and other large molecules for the treatment of various diseases. By lowering the treatment burden on patients, oral drug
delivery leads to higher patient and physician acceptance. In addition, oral drug delivery provides significantly more flexibility,
both in size of dose and number of doses per day, than injectable drugs, which are frequently administered by preset injection pen
and only once per day. Oral tablets are also less costly to manufacture than injectable biologics, which we expect will lower the
cost of our therapies to patients, thereby expanding access to a greater population of patients who can afford these therapies.
Currently, peptides, proteins and other large molecule therapeutics are typically delivered via injections and other non-oral
pathways because oral administration leads to poor absorption into the blood stream (bioavailability) due to enzymatic
degradation within the gastrointestinal tract and poor permeability though the intestinal wall. Most oral drug delivery
technologies attempting to overcome this hurdle only manage to attain very low bioavailability (less than 1%), which generally
results in high variability of dose exposure, both between patients and within the same patient at different times of administration.
These variability issues are due to the fact that small changes in the level of absorption lead to significant changes in the
bioavailability. As a result, absorption variability generally decreases as drug bioavailability increases.
Oral formulations of large molecules must therefore ensure that the large molecule is able to pass through the intestinal wall so
that it can be absorbed into the bloodstream and that the large molecule therapeutic is not exposed to enzymatic degradation in
order to protect its biological activity and availability for absorption.
Our proprietary technology is designed to address both of these issues by utilizing a combination of a synthetic absorption
enhancer, or carrier molecule, to facilitate the enhanced absorption of large molecules, and protease inhibitors to prevent
enzymatic degradation. By designing our product candidates to address both the issues of absorption and degradation, we have
been able to significantly increase bioavailability and decrease the variability of the PTH dose delivered in our clinical trials to
date.
59
Our carrier molecule is designed to create a weak association with our chosen large molecule therapeutic agents, leaving the
therapeutic agent chemically unmodified. The carrier molecule enables transport across the intestinal membrane via transcellular
absorption without compromising the integrity of the intestinal wall. Because of the weak association between the carrier
molecule and the therapeutic agent, the interaction is designed to be reversible and occurs spontaneously by simple dilution on
entering the blood. We selected protease inhibitors that act by specifically inhibiting a number of gastrointestinal enzymes
designed to assist in the degradation and digestion of proteins without interfering with normal gastrointestinal activity.
In order for large molecule therapeutics to benefit from the use of our oral delivery technology, they must demonstrate a
number of specific characteristics, including:
•
•
•
having the appropriate size, as measured by molecular weight, and other chemical/physical characteristics;
having a mechanism of action that favors delivery through the gastrointestinal tract rather than through injections, and;
having a dosing schedule that requires dosing one or more times per day for at least three months.
Based on these criteria, we chose to focus initially on product candidates related to oral delivery of PTH molecules, which
have the potential for therapeutic use in a number of indications including hypoparathyroidism, osteoporosis and non-union
fractures. We have also explored the use of our technology in other molecules such as HGH and a number of other
macromolecules, up to approximately 150kDa in size.
Based on the strength of our technology platform, in December 2018, we entered into a research collaboration and license
agreement with Amgen, under which, the parties will collaborate for the development and discovery of up to three clinical
candidates in the field of inflammatory disease and other serious illnesses. We will retain all intellectual property rights to our
drug delivery technology, which under this collaboration will be licensed to Amgen, exclusively for Amgen’s nominated drug
targets. Amgen will retain all rights to its certain large molecules and any subsequent improvements.
Our Product Candidates
The following table summarizes important information about each of our current oral PTH product candidates, including their
indications and their current stage of development. We have not out-licensed any intellectual property rights to our oral PTH
product candidates listed below, and, therefore, have retained the ability to pursue their worldwide commercialization, or
potential commercial partnerships.
Program
EB613
Indication
Description
Stage of
Development
Status
Osteoporosis
Oral PTH (1-34)
Phase 2
Pre-IND meeting conducted in Q4 2018
EB612
Hypoparathyroidism
Oral PTH (1-34)
Phase 2
Phase 2 dose ranging clinical trial initiated in 2019
Phase 3 initiation expected in 2021 or 2022.
Phase 2a successfully completed (results reported
2015)
Phase 2b PK/PD clinical trial head to head with
Natpara in hypoparathyroid patients results reported in
Q3 2019
Final formulation(s) to be selected in 2020
Oral PTH Therapeutics
PTH is a hormone that regulates the levels of calcium and phosphorus in the blood. The naturally occurring form of PTH that
is found in the human body is composed of 84 amino acids, although only the first 34 amino acids are believed to be responsible
for its biological effects. A recombinant injectable form of PTH that is comprised of only the first 34 amino acids, or PTH (1-34),
is used as a treatment for a number of indications, including hypoparathyroidism, osteoporosis and non-union fractures. A
subcutaneous injectable form of human PTH (1-34), marketed under the name Forteo®, has been approved in the United States
since 2002 and has been used by more than one million patients for the treatment of osteoporosis. An injectable form of full
length human PTH (1-84), marketed under the name Natpara®, has also been approved for the treatment of hypoparathyroidism.
We are developing multiple oral PTH (1-34) tablet candidates that can be used for a number of proposed indications. We believe
that our oral PTH product candidates, EB613 and EB612, if approved, have the potential to become the standard of care for
patients with osteoporosis, hypoparathyroidism and non-union fractures.
60
PTH regulates calcium and phosphate homeostasis and bone metabolism in the body. In normal healthy individuals, PTH is
generally produced at very low basal levels that produce a blood concentration of 15 - 25 pg/mL. On top of the basal PTH levels,
there are physiological pulses two to three times per day that result in transient increases in PTH levels reaching up to 65 pg/mL.
The changes in PTH secretion are in response to ionized calcium concentration in blood plasma that result from the entry of
calcium from nutrients in the intestine and resorption of calcium from bone. The pulses help encourage bone turnover through
activation of both osteoblasts and osteoclasts, the two main types of cells that are responsible for the process through which
bones are remodeled. In the absence of adequate parathyroid function producing these pulses in response to decreasing blood
calcium, it is difficult for the body to regulate normal homeostatic processes.
EB613 for Osteoporosis
Osteoporosis
We are developing an oral PTH program, EB613, for the treatment of osteoporosis. Osteoporosis is a systemic skeletal disease
characterized by low bone mass, deterioration of the microarchitecture of bone tissue and increased bone fragility and
susceptibility to fracture. It most commonly affects older populations, primarily postmenopausal women. All bones are subject to
an ongoing process of formation and degradation, whereby bone tissue is removed from the skeleton and new bone tissue is
formed. Two main types of cells are responsible for this process: osteoclasts, which break down bone tissue, and osteoblasts,
which secrete new bone tissue. In healthy individuals, bone resorption is matched by new bone formation. Osteoporosis develops
as the delicate balance between bone resorption by osteoclasts and bone formation by osteoblasts is not maintained, and not
enough bone tissue is formed, leading to frail and fracture-prone bones. Moreover, in many types of osteoporosis, the overall rate
of bone turnover is accelerated, increasing the rate of bone loss. These weak and brittle bones become susceptible to fractures
caused by fall, mild stress or even a cough, that would cause no harm to normal bones. The complications of fractures and
treatment in frail elderly individuals can even be fatal (for example, due to pulmonary embolism, pneumonia or urosepsis).
Osteoporosis often leads to loss of mobility, admission to nursing homes and dependence on caregivers resulting in substantial
costs to the healthcare system. The prevalence of osteoporosis is growing due to the aging of populations in developed countries,
and, according to the National Osteoporosis Foundation, or NOF, is significantly under-recognized and under-treated. While the
aging of the population is a primary driver of an increase in prevalence, osteoporosis is also increasing from the use of drugs that
induce bone loss, such as chronic use of glucocorticoids and aromatase inhibitors that are increasingly used for breast cancer and
the hormone deprivation therapies used for prostate cancer.
Market opportunity
The NOF has estimated that over 50 million people in the United States already have osteoporosis or have low bone mass
placing them at increased risk for osteoporosis. In addition, the NOF has estimated that osteoporosis is responsible for more than
two million fractures in the United States each year resulting in an estimated $19 billion in costs annually. The NOF expects that
the number of fractures in the United States due to osteoporosis will rise to three million by 2025, resulting in an estimated $25.3
billion in costs each year. Worldwide, osteoporosis affects an estimated 200 million women according to the International
Osteoporosis Foundation, or IOF, and causes more than 8.9 million fractures annually, which is equivalent to an osteoporotic
fracture occurring approximately every three seconds. The IOF has estimated that 1.6 million hip fractures occur worldwide each
year, and by 2050 this number could reach between 4.5 million and 6.3 million. The IOF estimates that in Europe alone, the
annual cost of osteoporotic fractures could surpass €76 billion by 2050.
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Limitations of current treatments for osteoporosis
The goal of pharmacological treatment of osteoporosis is to maintain or increase bone strength, to prevent factures and to
minimize osteoporosis-related morbidity and mortality caused by fractures throughout the patient’s life. Current treatments for
osteoporosis generally fall into two categories: antiresorptive medications that prevent bone loss but do not restore normal bone
mass and anabolic medications that increase the rate of bone formation, and at least in part, restore lost bone. The global
osteoporosis drug market was dominated for many years by bisphosphonates that inhibit bone resorption, although
bisphosphonates’ market share in the United States has declined over recent years due to fear of the occurrence of rare but
potentially serious side effects. In addition, anabolic drugs like Forteo (human PTH (1-34)), and the most recent new drug
abaloparatide (Tymlos ®) which is a synthetic PTH receptor agonist, have become more frequently used. Both anabolic drugs
require subcutaneous injection and are used for limited 1 to 2 year periods, followed by transition to an antiresorptive drug. More
recently, the market has seen the introduction of newly developed pharmacological treatments that also inhibit bone resorption,
including the RANK-ligand inhibitor denosumab (Prolia ®).
The primary current treatments for osteoporosis are summarized in the table below:
Class of Drug
Injectable PTH
Name
(Producer)
Forteo (Eli Lilly)
Monoclonal antibody
Prolia (Amgen)
Injectable
abaloparatide
Tymlos (Radius
Health)
Bisphosphonate
Fosamax (Merck)
Actonel, Boniva,
Zometa (IV)
(Novartis)
Method of Action
Increases bone mineral density by
increasing bone formation.
Blocks bone resorption by osteoclasts by
binding RANK-L a protein
is
essential to activate osteoclasts
that
Similar to PTH, binds to PTH receptors
and
formation and
increased bone mineral density
in bone
results
by
bone
Prevent
inhibiting
loss
osteoclasts. Effects reversible at low
doses but high
intravenous causes
apoptosis.
serious
Known Side Effects
Decrease in blood pressure, increase in serum
calcium in the blood; nausea, joint aches,
pain, leg cramps, injection site reactions
Hypocalcemia,
infections,
dermatologic adverse reactions, osteonecrosis
of the jaw, atypical femoral fractures, back
pain, pain in extremity, musculoskeletal pain,
hypercholesterolemia, and cystitis
hypotension,
Osteosarcoma,
hypercalcemia,
dizziness,
nausea, headache, palpitations, fatigue, upper
abdominal pain and vertigo
Irritation of
the gastrointestinal mucosa,
hypocalcemia, severe musculoskeletal pain,
osteonecrosis of the jaw, atypical femoral
fractures
orthostatic
hypercalciuria,
2019
Branded
Sales
(in millions)
$1,404
$2,672
$172
N/A
(Generic)
In osteoporosis patients, who have normal basal levels of PTH, therapeutic administration of PTH initially activates
osteoblasts, but eventually activates osteoclasts after several months of treatment. While both types of cells are activated when
PTH is administered, osteoblasts are activated to a greater extent, increasing net bone formation and bone mass. Injectable PTH
(1-34), in the form of Eli Lilly’s Forteo, is therefore one of the most effective osteoporosis medications on the market today and
demonstrably more efficacious in reducing the risk of spine fractures than bisphosphonates. However, there have not been
adequate head-to-head comparisons on the risk of non-vertebral fracture risk. Forteo is particularly advantageous in
glucocorticoid-induced osteoporosis produced by drugs like prednisone. A study published in the New England Journal of
Medicine found that over a period of 18 months bone mineral density in the lumbar spine in a group of patients with
glucocorticoid-induced osteoporosis treated with Forteo increased twice as much as that in the group treated with a
bisphosphonate.
Unlike our oral delivery system, Forteo is administered by subcutaneous injection, which has significant drawbacks. Patients
may reject this treatment due to the discomfort and local irritation associated with a daily injectable regimen. Additionally,
subcutaneous injection of Forteo has been shown to induce antibodies to the drug in approximately 3% of the patient population.
We believe an oral form of PTH (1-34) would significantly improve patient and physician acceptance. Eli Lilly has evaluated
several collaborations with developers of alternative transdermal delivery systems, including a micro needle patch system and a
nasal delivery system, none of which were successful. While a patch technology may reduce the discomfort associated with an
injection, we believe patients will prefer an oral form of PTH (1-34) over a patch form of delivery. In addition, several
pharmaceutical companies have previously attempted to develop an orally administered form of PTH, although none have been
successful to date due to issues including variability and low bioavailability.
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Other oral delivery technologies for the treatment of osteoporosis
We believe that our oral delivery technology is superior to other oral peptide delivery technologies that were and still may be
in development for osteoporosis patients. The table below presents a comparison and integration of available clinical trial results
to date:
Company/Technology
Entera Bio
Novartis/Emisphere (Eligen - CNAC) (1)
Enteris Biopharma - Unigen (Peptelligence) (2)
Multiple manufacturers(3)
Chiasma (TPE)(4)
Proxima Concepts (AXCESS)(5)
Molecule
PTH (1-34)
PTH (1-34)
PTH (1-31)
Desmopressin
Octreotide
Insulin
API MW (g/mole)
4118
4118
3719
1069
1019 (Cyclic peptide)
5733
Bioavailability (F)
1.5%
0.2 - 0.5%
0.52%
0.16%
0.67%
0.7%
(1) Source: The single dose pharmacokinetic profile of a novel oral human parathyroid hormone formulation in healthy postmenopausal women Sibylle P.
Hämmerle, et al. Bone. 2012 Apr;50(4):965-73. doi: 10.1016/j.bone.2012.01.009. Epub 2012 Jan 25.
(2) Source: Pharmacokinetics of oral recombinant human parathyroid hormone rhPTH (1-31)NH2 in postmenopausal women with osteoporosis. Sturmer
A1 et el. Clin Pharmacokinet. 2013 Nov;52(11):995-1004. doi: 10.1007/s40262-013-0083-4.
(3) Source: Public Assessment Report, Desmopressin Acetate 100 Microgram Tablet PL 24668/0177 and Desmopressin Acetate 200 Microgram Tablet
PL 24668/0178. Medicines and Healthcare Products Regulatory Agency.
(4) Source: Pharmacokinetic Modeling of Oral Octreotide (Octreolin™) in Healthy Volunteers and Dosing Regimen Optimization for Acromegaly
Patients. Shmuel Tuvia et al. Endocrine Society’s 94th Annual Meeting June 2012, OR29-6-OR29-6. Source: The glucose lowering effect of an oral
insulin (Capsulin) during an isoglycaemic clamp study in persons with type 2 diabetes S. D. Luzio et al. Diabetes Obes Metab. 2010 Jan;12(1):82-7.
doi: 10.1111/ j.1463-1326.2009.01146.x. Epub 2009 Sep 25.
Preclinical and Clinical Development of EB613
In preclinical and Phase 1 clinical development in which more than 70 healthy volunteers participated, EB613 exhibited no
serious drug related adverse events and displayed compelling PK and PD properties, in particular compared to the published data
from Forteo. In total, subjects received more than 350 administrations of various doses and formulations of oral PTH. The Phase
1 studies with EB613 took place over a 6 year period and, at each and every visit, vital signs and blood samples were taken over
an 8 hour period post administration of drug. In the totality of these administrations there were less than 3% transient mild to
moderate drug-related adverse events. These adverse events were expected and typical for PTH administration and usually occur
at an equal or higher rate in the clinical trials performed with Forteo (injectable PTH 1-34). Typical adverse events for PTH
treatment in our Phase 1b study included: mild hypercalcemia, tachycardia and headache. Other adverse events observed were
typical of those observed in the placebo group of our study and other clinical trials, which include anemia, musculoskeletal and
connective tissue event of knee cramps, nausea, muscle aches, and dizziness.
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Phase 1a Clinical Trial
Following proof-of-concept and safety studies in various animal models, we conducted a Phase 1a clinical trial with our initial
formulations to assess the safety and pharmacokinetic profile of our oral PTH formulations. This trial began in August 2011 and
was completed in early 2013 as multiple formulations of oral PTH (1-34) were tested.
The clinical trial was designed as a three-stage trial in 42 healthy volunteers. The first stage, in which 24 healthy volunteers
participated, was blinded and placebo-controlled for the study drug and placebo, and open label for subcutaneous injection of
Forteo. In the second, dose-escalation stage, six new volunteers were administered different formulations with modifications in
PTH dose and ratios of PTH to excipients, with doses up to 1.5 mg. The various formulations evaluated throughout the clinical
trial were all based on the same components and within a predefined range. In the third stage, the best formulation of our oral
PTH, selected based on data from the second stage, was compared to placebo and subcutaneous injection of Forteo in 12 healthy
volunteers. The primary endpoint of the clinical trial was safety. Bioavailability was also evaluated, and in the second and third
stages PK and PD data were also collected. In typical Phase 1 clinical trials, one formulation is tested for safety and, in certain
cases, PK and PD profile. Therefore, we believe the results from our Phase 1a clinical trial effectively represent the equivalent of
nine separate Phase 1 clinical trials. By combining these nine clinical trials into one protocol, we were able to achieve significant
economies of scale and time.
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Phase 1b Clinical Trial
In order to continually improve our formulations and evaluate different manufacturing technologies, between 2014 and 2017
we conducted an extended Phase 1b clinical trial that was designed to emulate multiple Phase 1b clinical trials. In this trial, we
evaluated different production methods, and multiple formulations and administration regimens of our oral PTH formulations for
safety, bioavailability, PK and PD data. This open-label clinical trial was designed to compare our various oral PTH formulations
to injectable Forteo in 30 healthy male volunteers. In this trial, each subject was administered a 20 µg dose of subcutaneous
injectable Forteo during the first visit to establish a baseline for comparison.
Subsequently, different formulations of our oral PTH were administered during eight to 14 successive visits, each separated by
at least a 48-hour washout period. The different formulations include various PTH doses (0.5mg - 3.0mg) and ratios of PTH to
excipients, as well as changes in production method and administration parameters. The primary purpose of this clinical trial was
to allow us to test a variety of manufacturing technologies. As a result of this clinical trial we have been able to further optimize
the formulation and achieve an increased bioavailability and reduced variability. The optimized formulation and the various
formulations evaluated throughout the clinical trial were all based on the same components and within a predefined range.
Low inter-patient variability observed in EB612 Phase 1b [x patients x dose]
Formulation
EB612 Oral PTH
Injectable PTH
Participants
10
10
Cmax
(pg/ml)
235.6 ± 36
184.2 ± 26
Tmax (min)
16.5 ± 1.2
16 ± 1.8
Coefficient
of
Variation
(%)
48
45
The PK and PD data indicated that our oral PTH formulations can successfully mimic injectable Forteo’s peak serum
concentration levels, or Cmax, after a single dose, as well as time to maximal concentration, or Tmax. The PK profile of the
absorbed PTH (1-34) was characterized by a sharp increase in concentration, forming a peak concentration within 60 minutes
post-drug administration, followed by a rapid decrease, which leads to the anabolic, or bone-building effect of PTH. In the
optimized formulations of oral PTH the average Cmax achieved by our oral PTH formulation was similar to the Cmax following
injectable Forteo or greater. There was a significant inter-patient and intra-patient variability, which is believed to be associated
with the variability of the gastric state of the volunteers on various treatment visit days and with some of the early formulations
used in the trial. However, in later visits of the clinical trial we were able to decrease the variability through optimization of our
formulation.
65
Analysis of the PD profile of our oral PTH formulation indicated that a biomarker of PTH activity, cyclic AMP, was activated
in a similar manner to that of injectable Forteo. Furthermore, analysis of serum calcium indicated that an increase can be obtained
by a single dose of our oral PTH formulation as indicated in the graph below:
Change in serum concentrations of albumin corrected calcium (green line) and the plasma concentrations of PTH (1-34)
(blue line) following the administration of oral PTH (1-34) (0.75mg) in ten healthy volunteers.
These indicate that our oral PTH formulation reaches the circulation, remains intact and has biological potency similar to that
observed with injectable Forteo. At present, we estimate that there are at least four million patient years’ experience with
injectable Forteo. We believe that reaching a similar peak plasma concentration and PD profile as Forteo significantly decreases
the risk that our oral PTH formulation will not have the desired clinical effect.
66
The graph below shows a linear dose/response relationship of oral PTH. An increase in absorption variability was observed
with the dose increase in Phase 1 studies.
EB613: Favorable Pharmacodynamic Profile
Cyclic AMP, or cAMP, is a known indicator of PTH activity. It is part of the signaling pathway activated by the PTH binding
to its cellular receptors. cAMP can be measured in the plasma and used as a biological marker of PTH activity. The graph below
shows a similar activation profile following dosing of both commercial Forteo and EB613.
In addition, the graph below shows the PK profile of injectable Forteo, EB613 and placebo from our Phase 1 clinical trial.
Both the injectable Forteo and our oral PTH formulation have a rapid increase in plasma concentrations followed by a fast
elimination phase. This is significant in attaining the desired anabolic effect by transiently activating the biological pathways.
Furthermore, because the PK profile of our oral PTH is sharper than the injection (a more rapid return to baseline) it may result in
a greater anabolic effect as it is believed that the prolonged increase in PTH levels may reduce the desired anabolic effect. Based
on the data we have generated to date, we believe that EB613 produces a blood level profile similar to Forteo (teriparatide),
which was approved by the FDA in 2002 for the treatment of osteoporosis in men and postmenopausal women who are at high
risk for fractures.
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Ongoing Phase 2 Trial and Planned Clinical Development
In November 2018, we held a pre-IND meeting with the FDA to discuss our development plan for oral PTH for the treatment
of osteoporosis. In addition to discussing various aspects of the nonclinical and clinical development plan, the meeting focused
on the potential use of the 505b(2) regulatory pathway and the use of BMD, rather than fracture incidence as the primary
endpoint to support a BLA. Following the FDA’s feedback, we initiated a Phase 2 multi-center dose-ranging trial of EB613 in
approximately 160 osteoporosis patients, at four leading osteoporosis centers in Israel. This trial, which was initiated in July 2019
and includes a treatment period of six months, is being conducted to evaluate both the safety of EB613 and to identify the optimal
dose that we will select to advance into a single Phase 3 pivotal trial. In this trial, we are evaluating, multiple bone markers, such
as P1NP – a bone formation marker, CTX – a bone resorption marker, BMD, and various additional safety endpoints. As of
March 16, 2020, we have enrolled approximately 60% of the patients in the Phase 2 trial of EB613, and to date, there have no
drug related serious adverse events reported. Based on directives from the Israeli Ministry of Health and our affiliated medical
institutions implemented in March 2020 due to COVID-19, we have temporarily suspended enrollment of new patients in our
ongoing Phase 2 clinical trial. At this time, we have 97 patients currently enrolled in this trial. As of March 23, 2020, we are
continuing to collect patient data from the currently enrolled patients in this trial through various monitoring means established
by the regulatory authorities.
In parallel, we are conducting several nonclinical safety assessment studies to support our regulatory filings, including a
planned IND in 2020, with the FDA to facilitate various IND-opening trials, and subsequently, to enable the start of a single
Phase 3 clinical trial in 2021 or 2022 using sites in the United States, Israel and other territories, subject to positive data from our
ongoing Phase 2 trial of EB613, pending the determination of the impact of COVID-19 on our clinical trial enrollment, on our
ability to collect sufficient data to proceed with a Phase 3 clinical trial and on the design of any such Phase 3 clinical trial. If
further governmental actions are taken in Israel, we may not be able to collect further data on our enrolled patients, or may not be
able to restart enrollment of the Phase 2 trial. While we believe the existing enrolled patient population may allow us to proceed
directly to a Phase 3 study, we will need to confirm these expectations about our future clinical trials with the FDA. For further
information on the potential impact of COVID-19, see “Risk Factors—The outbreak of COVID-19 in the United States, Israel
and elsewhere has created significant business disruptions and will adversely affect our business.”
Developers of osteoporosis drugs that contain new chemical entities are required to conduct extensive clinical studies that
employ an endpoint which measures the reduction in fractures. These trials often require thousands of patients over a multi-year
period, and typically cost hundreds of millions of dollars. However, once fracture risk reduction has been demonstrated, the FDA
and other regulatory agencies have allowed new formulations or treatment regimens of the same active ingredient to be approved
using BMD as the primary efficacy endpoint under the 505(b)(2) regulatory pathway in the United States or the comparable
regulation in other countries. Based on the FDA’s response in the November 2018 meeting, we believe that in our planned Phase
3 trial, BMD may be used as the primary efficacy endpoint and that a fracture endpoint trial will not be required.
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EB612 for Hypoparathyroidism
Hypoparathyroidism
Our lead product candidate for hypoparathyroidism, EB612, is an oral formulation of PTH (1-34). We believe that EB612, if
approved, has the potential to become the standard of care for hypoparathyroidism. Hypoparathyroidism is a rare condition in
which the parathyroid glands fail to produce sufficient amounts of PTH. In addition, there are rare genetic diseases where
mutations in the PTH gene results in PTH that lacks biologic activity. Individuals with a deficiency of parathyroid hormone may
exhibit hypocalcemia and hyperphosphatemia. Hypocalcemia can cause one or more of a variety of symptoms, including
weakness, muscle cramps, excessive nervousness, headaches and uncontrollable twitching and cramping spasms of muscles such
as those of the hands, feet, arms, legs and face, which is known as tetany. Numbness and tingling around the mouth and in the
fingers and toes can also occur. Acute hypocalcemia can result in cardiac failure, failure of nervous system functions and death.
Hyperphosphatemia can result in soft tissue calcium deposition, which may lead to severe issues, including damage to the
circulatory and central nervous systems. The most common cause of hypoparathyroidism is damage to, or removal of, the
parathyroid glands due to surgery for another condition. Hypoparathyroidism can also be caused by an autoimmune process
idiopathic reasons or occur in association with a number of different underlying disorders. In rare cases, hypoparathyroidism may
occur as a genetic disorder where mutations in the PTH gene results in the production of PTH that lacks biologic activity.
Market opportunity
The prevalence of hypoparathyroidism is estimated to be 37 per 100,000 in the United States, with 70% of cases caused by
surgery, 8% due to genetic disorder and 7% due to idiopathic origin. Although incidence rates have been difficult to quantify, it is
estimated that chronic hypoparathyroidism, which affects patients for more than six months, affects approximately 58,700
insured individuals in the United States, with an estimated 43% of these chronic cases characterized as mild, 39% characterized
as moderate, and 18% characterized as severe. The FDA has granted orphan drug designation to our oral PTH for the treatment of
hypoparathyroidism.
Limitations of current treatments for hypoparathyroidism
Historically, the treatments for hypoparathyroidism have been calcium supplements, vitamin D supplements and phosphate
binders. Although calcium and vitamin D can help alleviate hypocalcemia, their chronic use results in many serious side effects
with significant costs to the healthcare system. Hypoparathyroid patients often need to take large doses of calcium throughout the
day in order to maintain serum calcium near the lower limit of the normal range. Moreover, ordinary vitamin D is generally
insufficient as the body cannot produce adequate quantities of 1,25-dihydroxyvitamin D, the active hormone derived from
vitamin D. Drugs like calcitriol and alfacalcitol must be prescribed to stimulate calcium absorption. If excess calcium is
absorbed, it then falls upon the kidneys to dispose of excess calcium. Endogenous PTH normally regulates renal calcium
excretion, but this regulation is defective in patients with hypoparathyroidism. Over potentially years of treatment, kidney stones
may develop, and ultimately kidney failure may occur due to either kidney stones or deposition of calcium phosphate in kidney
tissue (called nephrocalcinosis). Even with the use of calcium and vitamin D supplements and other medications, many patients
with hypoparathyroidism continue to experience physical and cognitive symptoms.
Until recently, hypoparathyroidism was the only hormonal insufficiency state that did not have an approved hormone
replacement therapy. Natpara, which is administered once daily with a pre-set injection pen, was approved by the FDA in January
2015 and launched commercially in the United States later that year. Natpara was originally developed by NPS Pharmaceuticals,
Inc., which was acquired by Shire plc in 2015 and is now a part of Takeda Pharmaceuticals through its 2019 acquisition of Shire.
Natpara is a recombinant form of human PTH (1-84) that was developed as an injectable hormone replacement therapy for the
underlying cause of hypoparathyroidism, which is a lack of PTH. In the FDA’s advisory committee meeting for Natpara, a
number of observations were highlighted including that Natpara had limited clinical benefit in controlling excessive calcium in
the urine, or hypercalciuria, a condition commonly associated with hypoparathyroidism and the most commonly identifiable
cause of calcium kidney stone disease. Additional analysis by the FDA also noted that, due to a change in trial protocol that was
made after the initiation of the trial, the responder rate for the pivotal single-dose trial’s primary efficacy endpoint was 32.1%
under the original trial protocol versus the 54.8% that was ultimately reported. The FDA stated in its briefing report that the
results of this alternate analysis may be more clinically relevant, particularly if a clinician’s goal is to keep a patient’s serum
calcium in the lower half of the normal range.
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EB612 for the treatment of hypoparathyroidism
We believe EB612 may offer several advantages over Natpara for the following reasons:
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EB612 is designed to be dosed multiple times a day. Studies performed by the NIH have shown that dosing PTH multiple times per day
significantly increases the efficacy of therapy and would be more effective for treating hypoparathyroidism. These studies found that the total
daily PTH dose required to maintain serum calcium in the normal or near-normal range was reduced by 50% with twice-daily PTH (1-34) and also
demonstrated that twice-daily dosing achieved better control over serum calcium and urinary calcium excretion as compared to once-daily dosing.
EB612 is designed to be dosed according to patient needs. The hypoparathyroid population is heterogeneous and patients have highly variable
responsiveness to PTH. Therefore, the ability to customize PTH dosing throughout the day with an oral tablet is an advantage over a once-daily
preset injection pen.
EB612 is expected to have fewer adverse events of hypercalcemia. Our planned treatment regimen would be increased gradually and in parallel to
increases in serum calcium. As a result, calcium supplements active vitamin D metabolites (e.g., calcitriol) would be reduced gradually, while
maintaining a relatively stable level of serum calcium. This is in contrast with Natpara’s initial high dose, which requires an immediate reduction
in supplements in anticipation of a rapid increase in serum calcium levels. Furthermore, this immediate and prolonged increase in serum calcium
increases risk of prolonged hypercalcemia compared to EB612. Moreover, the target serum calcium level would be the lower end of the normal
range. If serum calcium were at, or greater than, the middle of the normal range, calcium supplements, active vitamin D metabolites and oral PTH
dose would be reduced.
EB612 can be administered in a more convenient manner. Natpara is administered by subcutaneous injection, must be stored under restrictive
conditions (refrigeration required with no freezing or shaking) and has a multi-step preparation that must be performed every two weeks. EB612
will not require such additional preparations and will have no significant storage restrictions.
As a result of its dose flexibility and the greater patient acceptance of oral formulations, we believe EB612, if approved, will
address a larger segment of the hypoparathyroid population than Natpara. For these reasons, we believe that EB612, if approved,
has the potential to become the standard of care for patients with hypoparathyroidism.
To date, no oral PTH formulation has been successfully developed because PTH, like many other hormonally active peptides,
degrades rapidly in the intestinal tract when taken orally. EB612 is a synthetic form of the first 34 amino acids of human PTH to
which we have applied our proprietary technology for the oral delivery of large molecule therapeutics. This technology permits
oral administration, enabling more frequent dosing throughout the day and greater sensitivity and flexibility in dosing than
injectable formulations of PTH. The carrier molecule and selection of protease inhibitors that are used in our technology are well-
characterized and have been used in large clinical trials. We have attempted to optimize EB612 to enable the most cost effective
and safest formulation while maintaining the required effect. These components, when used separately, have been shown to be
safe in doses significantly higher than those used in the clinical trials for our current product candidates.
We believe that EB612 will have inherent advantages compared to injectable forms, including convenience of application, that
no special preparation is required and that it can be stored under convenient storage conditions (room temperature or refrigeration
for long term storage). Additionally, based on the results of our preliminary studies, we believe that EB612 will have an enhanced
clinical profile as compared to Natpara, with an additional positive effect on elevated urinary calcium, as well as reduced side
effects. If our preliminary results are borne out in additional clinical trials, we believe this combination of advantages and long
term clinical benefits will be compelling to both patients and physicians.
EB612 Hypoparathyroidism Clinical Trials
We demonstrated with earlier formulations of what now is EB613 a large body of evidence in Phase 1 studies, which included
a Phase 1a clinical trial with multiple formulations of our oral PTH to evaluate safety and collect bioavailability, PK and PD data
in 42 healthy volunteers, and an extended Phase 1b clinical trial in an additional 30 volunteers to test a variety of manufacturing
technologies with multiple formulations, administration parameters and dosing regimens of our oral PTH. These earlier data and
oral PTH formulations led to several Phase 2 studies evaluating a number of EB612 formulations in hypoparathyroidism patients.
Phase 2a Clinical Trial
In 2015, we successfully completed a multicenter Phase 2a clinical trial of EB612 in hypoparathyroidism patients. The
endpoints in the trial were met, and 17 patients completed the four-month trial and reported no related serious adverse events.
Based on a review of the clinical data presented in Natpara’s REPLACE trial and our Phase 2a results, we believe EB612
potentially provides a more favorable therapy for hypoparathyroidism patients. Although our Phase 2a trial involved a smaller
number of patients (N=17 vs. N=84 + 40 placebo), lasted for a shorter duration (four months vs. six months) and did not include
a dose optimization period of ~2 - 16 weeks prior to treatment initiation, our results showed a greater absolute reduction in
calcium supplements (1278 ±880mg vs. 1152 ±1219mg) while the patients’ albumin adjusted serum calcium increased slightly as
opposed to a slight decrease in the REPLACE trial (baseline vs. end of treatment). In addition, serum phosphate levels were
significantly reduced into their normal range an hour after the first study drug was taken (11% reduction, p<0.01), and lower
serum phosphate levels were maintained for the duration of the study and until the final treatment day (14% reduction, p<0.01).
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Primary endpoints: Calcium intake reduced while serum levels were maintained or improved during Phase 2a
Secondary endpoints: decrease in phosphate levels observed during Phase 2a
Phase 2 PK/PD Clinical Trial
We initiated a two-part Phase 2 PK/PD trial in 2014. This trial was designed to provide a bridge from our completed Phase 2a
trial, which was conducted prior to the marketing approval of Natpara, and our planned Phase 2b/3 trial, and to also allow us to
better understand the relative strength and dose of our product as compared to the marketed product, Natpara. This trial was also
intended to provide valuable comparative data to Natpara that will further inform our Phase 2b/3 trial design. The relevant
endpoints for the PK/PD trial included an examination of levels of PTH (1-34), PTH (1-84) (Natpara), serum calcium, serum
phosphate, urinary calcium and urinary phosphate.
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In November 2018 we announced the completion of part I of this Phase 2 PK/PD trial to evaluate the PK/PD profile of various
EB612 dose regimens, while comparing such various dose regimens with Natpara. In Part I of the Trial, ten patients with
hypoparathyroidism completed two three-day in-patient visits. Throughout each of these three-day visits, patients remained on
their current standard medications. On the first day of each visit (baseline) patients received no additional treatments. On day
two, patients were randomized to receive one of three treatments: EB612 twice a day (BID), four times a day (QID), or Natpara*
once a day (QD). On day three, patients did not receive any additional treatments. In the second three-day visit, patients were
again randomized on day two to receive one of the treatment regimens they had not received previously. Throughout the three-
day visits, patients were continuously monitored clinically, and PTH, calcium, phosphate, and the hormonal metabolite of vitamin
D (1,25- dihydroxyvitamin D) levels were measured. PTH has several well-known physiological effects. It increases serum
calcium, decreases serum phosphate, increases reabsorption of calcium in the kidney, where it also increases 1,25-
dihydroxyvitamin D synthesis.
Results from Part 1 of the PK/PD trial of Oral PTH (1-34) four times a day (QID) treatment included: (i) an increase in the
serum calcium by an average of approximately 0.3 mg/dL over baseline, with such increase maintained over a 24-hour period;
(ii) a decrease in serum phosphate by an average of 0.5 mg/dL below baseline with such decrease maintained over a 24-hour
period; (iii) an increase in average levels of serum active vitamin D of approximately 90% on the day of treatment as compared to
baseline; and (iv) a decrease in average levels of 24-hour urinary calcium of approximately 30% on the day of treatment as
compared to baseline. An initial analysis of the Part 1 data suggests that the QID regimen provided a greater effect on all of the
parameters measured as compared to the BID regimen. The concentration of PTH (1-34) in blood after administration of Oral
PTH (1-34) in the current trial was sufficient to produce the observed pharmacodynamic effects and did not induce
hypercalcemia. No serious adverse events were reported in the trial.
The second and final part of this PK/PD trial evaluated a variety of dosing treatment regimens with a high and low dose of
EB612 as well as Natpara with patients also receiving calcium supplements and either alfacalcidol or calcitriol. In September
2019 we presented the results of Part 2 of this PK/PD trial at the American Society for Bone and Mineral Research (ASBMR)
Annual Meeting. The trial conclusions noted that EB612 2.25 mg QID for one day is associated with an increase in serum
albumin-corrected calcium and 1,25(OH)2D (1,25-dihydroxyvitamin D), a decrease in serum phosphate, and a decrease in
urinary calcium in patients with hypoparathyroidism. EB612 produced similar biological effects to Natpara 100 µg QD, the
highest dose of hPTH (1-84) currently indicated for use in patients with hypoparathyroidism, on serum calcium, phosphate and
vitamin D. Additionally, EB612 effected a decrease in urinary calcium. These changes in serum PD parameters were sustained
over the 24-hour period of observation from time zero. BID, TID and QID regimens showed a dose-dependent increase in
1,25(OH)2D indicating that the long-term treatment, even with the less frequent regimens, may be an effective treatment option
for those patients suffering from less severe hypoparathyroidism. Treatment with Oral hPTH (1-34) dosed at multiple times
during the day has the potential to reduce calciuria generally associated with maintenance of serum calcium within the normal
range using calcium supplements and calcitriol analogs alone. There were no treatment-emergent adverse events of
hypercalcemia, as well as no treatment-emergent Serious Adverse Events reported in the trial.
Planned Additional Clinical Development and Regulatory Pathway
In the future, after the completion of additional formulation and development activities to inform our final formulations, and
subject to available funds, we expect to initiate a Phase 2b/3 clinical trial of EB612 for the treatment of hypoparathyroidism,
which will further evaluate the dosage, effectiveness and safety profile of EB612 in an expanded population of patients with
hypoparathyroidism conducted at multiple trial sites. We expect that this Phase 2b/3 trial, when initiated, will be designed to
replicate the REPLACE trial in many aspects and to achieve a significant reduction in urinary calcium. The phase 2b/3 clinical
trial of EB612 in hypoparathyroidism may potentially support a submission for regulatory approval of EB612, if successful.
The Phase 2b/3 trial would be placebo controlled with a “rescue” provision for patients who have substantial persistent
symptoms, hyperphosphatemia, hypocalcemia or hypercalciuria. The planned primary endpoints will be the proportion of patients
obtaining a serum calcium and phosphate within a “target” range, reducing hypercalciuria and from a safety perspective, the
incidence of clinically important hypercalcemia and decreased renal function adverse events. The trial will also compare the
reduction in calcium intake, reduction in active vitamin D in each treatment group. Secondary endpoints include mean absolute
levels of serum calcium and serum phosphate.
In April 2014, we received orphan drug designation from the FDA for our oral PTH in hypoparathyroidism. If a product
receives the first FDA approval of human PTH (1-34) for the indication for which it has orphan designation, the product is
entitled to orphan drug exclusivity, which means that FDA may not approve any other application to market the same drug for the
same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the
product with orphan exclusivity or where the manufacturer is unable to assure sufficient product quantity. In January 2015, the
FDA approved Natpara, an injectable form of PTH, for hypoparathyroidism, and awarded Natpara orphan drug exclusivity until
January 23, 2022. While Natpara has orphan drug exclusivity for hypoparathyroidism, we believe that we will be able to
demonstrate that our oral formulation of PTH is clinically superior to Natpara in that it demonstrates greater effectiveness or
safety than Natpara or that it otherwise makes a major contribution to patient care. Therefore, we believe that Natpara’s orphan
drug exclusivity will not prevent the FDA from approving our BLA for EB612. In June 2016, we received approval from the
EMA granting orphan status to our oral PTH in Europe.
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Development and License Agreements
In addition to the development of our product candidates, we have a research collaboration and license agreement with
Amgen, combining our proprietary drug delivery platform with drugs selected by Amgen to create new products. Pursuant to the
agreement, in January 2019, we received a non-refundable and non-creditable initial technology access fee of $725,000 from
Amgen and are eligible to receive from Amgen aggregate payments of up to $270 million upon achievement of various clinical
and commercial milestones or Amgen’s exercise of options to select an additional program to include in the collaboration, as well
as tiered royalty payments ranging from the low to mid single digits based on the level of Amgen’s net sales of the applicable
products. The agreement is exclusive only to the specific drug candidates that are developed and discovered under the
collaboration program, leaving us the rights to commercialize and develop products with other drugs using our proprietary
technology while also allowing Amgen to retain all rights to its certain large molecules and any subsequent improvements. The
first prospective product under the agreement with Amgen is currently in the preclinical and research and development phase.
Amgen also has options, limited in time, to select up to two additional programs to include in the collaboration. Under the
agreement, we will engage in preclinical development at Amgen’s expense and Amgen will conduct all research, clinical
development, manufacturing and commercialization activities.
Additional Research and Development
Future Development of Orally Delivered Large Molecule Therapeutics
We intend to use our technology as a platform for the oral delivery of low-bioavailability therapeutics, which may include
proteins and other large molecule therapeutics as well as small molecules with very low absorption due to poor permeability
properties (BCS class 3 drugs). We have conducted initial feasibility studies with a number of candidates, including HGH, and
intend to commence clinical development for our next, non-PTH, product candidate in the future. For example, in initial rodent
studies utilizing our drug delivery technology, an oral formulation of HGH obtained significant concentrations of intact HGH
throughout the blood stream.
We expect that the key criteria in selecting our next clinical candidate will include: the size of the molecule and other chemical
characteristics that would benefit from our technology, whether the molecule is best delivered through the intestinal tract rather
than through injection, and the drug’s dosing schedule, more specifically, whether it is prescribed for at least three months and
would likely be best administered at least once a day. Additionally, we may target large proteins that are prone to inducing
damaging immune responses when injected subcutaneously. In some cases, the immune response to the injection is so severe as
to reduce or eliminate all physiological effect of the drug upon the illness. We are also considering whether to partner the
development of any such additional product candidates and are in early stage discussions with a number of external parties.
Bone Healing/Non-Union Fractures
Currently, no pharmacological treatments are available that have been approved to either stimulate bone healing, treat delayed
union fractures or treat patients with non-union following a fracture. A number of studies suggest that PTH could be beneficial in
the treatment of such fractures, to potentially speed union and/or reduce the risk of non-union. While surgery is generally
required to treat patients with established fracture non-union, PTH might improve likelihood of a favorable surgical outcome.
PTH could thus be a potentially new treatment option for the induction of bone healing after a fracture. Non-union fractures
occur when the normal process of bone healing fails or is greatly delayed. Note the fracture malunion refers to a fracture that
heals, but with an important abnormal structure or alignment of the bone fragments. By definition, a non-union fracture will not
heal on its own. Most non-union fractures require surgery, which can involve bone grafts or stabilizing the affected bone by
affixing rods, plates or screws. Risks of surgery include neurovascular injury, infection and hemorrhage.
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In the United States, there are approximately seven million new fractures each year, with approximately 300,000 delayed
union or non-union fractures. Estimates for the average non-union treatment costs vary from approximately $25,000 to $45,000.
Depending on the nature of the fracture, non-surgical solutions can include electrical stimulation or fitting external braces.
Other more experimental techniques exist as well, including ultrasound stimulation, which has been approved by the FDA for
treating fresh fracture since the 1990s. Unlike the rigorous requirements for new drug approval, the FDA has not required the
same level of evidence for the efficacy of devices used to treat a medical condition. The major drawbacks of the more traditional
methods are invasiveness and the risks inherent with surgery. In addition, bone grafting is associated with considerable morbidity,
including chronic pain, injury to nerves and muscles and blood loss. Surgical cost is another significant concern. Experimental
techniques, such as stimulation of the bone with electricity or sound show some promise for healing, but data demonstrating its
effectiveness remains limited.
Our Potential Solution for Non-union or Delayed-Union of Fractures
Studies have suggested that PTH can accelerate bone healing. PTH increases the activity and number of osteoblasts, which are
responsible for bone formation, making it a potential treatment when bone healing is delayed.
We intend to investigate the efficacy of EB613 for delayed-union or non-union fractures. We may either pursue fracture
treatment as an additional use of EB613 or further modify the formulation if studies suggest we could achieve a PK profile that is
more efficacious for bone fractures. As treatment of non-union fractures and bone healing may entail three to six months of
treatment, we believe the acceptance of oral PTH will be higher than other potential pharmacological alternatives that require
injections. We believe we will be able to use the PK data generated with EB613 in Phase 1 clinical trials relating to osteoporosis
to progress directly to a Phase 2a clinical trial of our oral PTH product candidates for non-union or delayed-union of bone
fractures.
Intellectual Property
Our success depends in part on our ability to protect the proprietary nature of our product candidates, technology, and know-
how; operate without infringing on the proprietary rights of others; and prevent others from infringing on our proprietary rights.
We seek to protect our proprietary position by, among other methods, seeking patent protection in the United States and in certain
other jurisdictions for our product candidates and other technology that we consider important to the development of our
business, where such protection is available. We believe that our success will depend in part on our ability to obtain patent
protection for our intellectual property. We also intend to rely on trade secret protection, know-how and the exploitation of in-
licensing opportunities to develop our proprietary position.
Patent Rights
As of December 31, 2019, our global patent portfolio included the following patents and patent applications:
Patents claiming compositions comprising a protein, an absorption enhancer and a protease inhibitor as well as methods for
oral administration of a protein with an enzymatic activity, which compositions cover EB612 and EB613, have been issued in the
United States, Australia, Japan, China, Israel, Canada, New Zealand and Russia. Related patent applications are pending in the
United States, the European Union, Hong Kong, Brazil, China and India. Specifically, in the United States, Australia, Japan,
China, Hong Kong, Israel and Russia divisional or continuation patent application have been filed to specifically cover PTH (1-
34). Such patents have already been granted in the United States, Australia, Israel, Russia and Japan. Applications in the
remaining jurisdictions are pending. The current issued patents in the United States and China are limited to insulin. These issued
patents and any patents that may issue from the pending patent applications are currently expected to expire in August 2029,
assuming all annuity and maintenance payments are paid thereon. Rights to these patents and patent applications were assigned to
us pursuant to the Patent Transfer Agreement with Oramed.
Three patent applications filed in various jurisdictions, which we believe, if issued as patents containing substantially the same
claims as those in the applications, would cover certain oral administration technologies. The mentioned technologies include
compositions and drug delivery devices which utilize an absorption enhancer to enable the absorption of a therapeutically active
agent in a controlled manner. We believe that certain of the pending claims contained in these patent applications, if issued in
substantially the same form, would cover the formulations of EB612 and EB613. An application covering certain formulations
with a controlled absorption profile was filed in the United States, European Union, Canada, Hong Kong, Israel and Mexico.
Another application covering certain formulations for co-administration with an antacid or protease inhibitor was filed the United
States, European Union, Canada and Hong Kong (the application in the United States has been granted, and a divisional
application has been filed therein). Any patents that issue from these patent applications are expected to expire in February 2036,
assuming all annuity and maintenance payments are paid thereon. Another application covering certain formulations and
regimens was filed in the United States, European Union, Australia, Brazil, Canada, China, Hong Kong, India, Israel, Japan,
Mexico, New Zealand, Singapore, South Africa and South Korea. Any patents that issue from this patent application is expected
to expire in August 2037, assuming all annuity and maintenance payments are paid thereon.
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Three patent applications filed in various jurisdictions, which we believe, if issued as patents containing substantially the same
claims as those in the applications, would contain method of treatment claims covering the use of orally administered PTH for the
treatment of osteoporosis (filed in the United States, European Union, Canada, China, Hong Kong, Israel and Japan),
hypoparathyroidism (filed in the United States, European Union, Brazil, Canada, Hong Kong, Israel and Japan) and bone
fractures and related conditions (filed in the United States, European Union, Canada and Hong Kong). Any patents that issue
from these patent applications are expected to expire in February 2036, assuming all annuity and maintenance payments are paid
thereon.
Three patent applications, which we believe, if issued as national stage patents containing substantially the same claims as
those in the applications, would cover certain oral administration technologies. The mentioned technologies include compositions
and drug delivery devices which utilize an absorption enhancer to enable the absorption of a therapeutically active agent in a
controlled manner. We believe that certain of the pending claims contained in these patent applications, if issued in substantially
the same form, would cover the formulations of EB612 and EB613. Any patents that issue from these patent applications are
expected to expire in February 2036 or August 2037, as described hereinabove, assuming all annuity and maintenance payments
are paid thereon.
The term of individual patents depends upon the legal term for patents in the countries in which they are granted. In most
countries, including the United States, the patent term is generally 20 years from the earliest claimed filing date of a non-
provisional patent application in the applicable country. In the United States, a patent’s term may, in certain cases, be lengthened
by patent term adjustment, which compensates a patentee for administrative delays by the U.S. Patent and Trademark Office, or
USPTO, in examining and granting a patent, or may be shortened if a patent is terminally disclaimed over a commonly owned
patent or a patent naming a common inventor and having an earlier expiration date. The Drug Price Competition and Patent Term
Restoration Act of 1984, or the Hatch-Waxman Act, permits a patent term extension of up to five years beyond the expiration
date of a U.S. patent as partial compensation for the useful patent term lost, if any, during the FDA regulatory review process.
However, a patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of the
product’s approval by the FDA. The patent term extension period is generally one-half the time between the effective date of the
IND and the submission date of the NDA for the product, plus the time between the submission date of the NDA and the
approval of the application. Only one patent applicable to an approved drug is eligible for the extension and the application for
the extension must be submitted prior to the expiration of the patent. Only those claims covering the approved drug, a method for
using it or a method for manufacturing it may be extended. Moreover, we may not receive an extension because of, for example,
failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy
applicable requirements. Similar provisions are available in the European Union and certain other foreign jurisdictions to extend
the term of a patent that covers an approved drug. However, the length of any extension, if granted, could be less than we request.
Trade Secrets
In addition to patent rights, we also rely on unpatented trade secrets and know-how to protect our proprietary technology.
However, trade secrets can be difficult to protect. We seek to protect our proprietary technology, in part, by entering into
confidentiality agreements with our employees, consultants, contractors, manufacturers, outside scientific collaborators and
sponsored researchers, members of our board of directors, technical review board and other advisors upon their engagement.
These agreements generally provide that all confidential information developed or made known to the individual during the
course of the individual’s relationship with us is to be kept confidential and not to be disclosed to third parties except in specific
limited circumstances. We also generally require signed confidentiality or material transfer agreements from any company that is
to receive our confidential information. In the case of employees, consultants, and contractors, the agreements also generally
provide that all inventions conceived by the individual while rendering services to us shall be assigned to us as our exclusive
property. There can be no assurance, however, that we have entered into agreements with all applicable parties, that all persons
who we desire to sign such agreements will sign, or if they do, that such agreements will not be breached, that we would have
adequate remedies for any breach, or that our unpatented trade secrets or know-how will not otherwise become known or be
independently developed by competitors. Additionally, to the extent that our commercial partners, collaborators, employees, and
consultants use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or
resulting know-how and inventions. For this and a more comprehensive discussion of risks related to our intellectual property, see
“Item 3.D.–Risk Factors—Risks Related to Our Intellectual Property.”
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Commercialization Strategy
Our current main focus is developing an oral PTH (1-34) for the treatment of osteoporosis and orphan indications, and
specifically, EB613 for the treatment of osteoporosis and EB612 for the treatment of hypoparathyroidism. EB613 and EB612 are
two drug candidates based on oral PTH (1-34), with significantly distinct treatment approaches. In the future we plan to also
conduct clinical trials of EB613 for the treatment of non-union fractures. In addition, we have recently entered into a research
collaboration and license agreement with Amgen. Under the agreement with Amgen, the parties will collaborate for the
development and discovery of clinical candidates in the field of inflammatory disease and other serious illnesses. Further, under
the terms of the agreement, we will use our proprietary drug delivery platform to develop oral formulations for up to three large
molecule biological drug candidates currently being developed by Amgen. We are also investigating applying our oral drug
delivery platform to other FDA-approved proteins or large molecule therapeutics, including human growth hormone.
We have not yet established sales, marketing or product distribution operations because our product candidates are in clinical
development. We may seek a partner to develop EB613 and EB612, and anticipate that any such partner would be responsible
for, or substantially support, late stage clinical trials of both of these lead clinical candidates as well as submitting applications for
regulatory approvals and registrations. In our collaboration with Amgen, Amgen is responsible for the research, clinical
development, manufacturing and commercialization of any of the resulting programs.
Competition
The medical and pharmaceutical industries in which we operate are highly competitive and subject to rapid and significant
technological change and changes in practice. While we believe that our technology, knowledge, experience and scientific
resources provide us with competitive advantages, we face competition from many different sources, including large
pharmaceutical, specialty pharmaceutical, biotechnology, and generic drug companies and academic and government institutions.
We believe that the key competitive factors that will affect the development and commercial success of our oral PTH product
candidates for hypoparathyroidism, osteoporosis and non-union fractures, and any other product candidates that we develop, are
the efficacy, safety and tolerability profile, convenience in dosing, product labeling, price and availability of reimbursement from
the government and other third-parties. Our commercial opportunity could be reduced or eliminated if our competitors have
products that are better in one or more of these categories.
We expect that, if approved, our oral PTH product candidates for hypoparathyroidism, osteoporosis and non-union fractures,
and other product candidates that we develop, would compete with a number of existing products. Furthermore, we believe that
we face competition with regard to our oral drug delivery platform, as we believe that other non-invasive medical drug delivery
technologies, including alternative oral delivery systems as well as transdermal patches, are being developed by other parties.
Many of our potential competitors have substantially greater financial, technical, commercial and human resources than we do
and significantly more experience in the discovery, development and regulatory approvals of product candidates, and the
commercialization of those products. Accordingly, our competitors may be more successful than us in obtaining FDA approval
for product candidates and achieving widespread market acceptance. See “Item 3.D.–Risk Factors—Risks Related to
Commercialization of Our Product Candidates.”
EB613 for Osteoporosis
Current treatments for osteoporosis generally fall into two categories: antiresorptive medications to slow bone loss and
anabolic medications to increase the rate of bone formation. The global osteoporosis drug market has traditionally been
dominated by bisphosphonates, which slow bone loss. Although bisphosphonates’ market share has declined due to the
occurrence of serious side effects, as well as the introduction of newly developed pharmacological treatments, many of the new
drugs have serious side effects of their own. Eli Lilly’s Forteo, is one of the most effective osteoporosis medications, and newer
products such as Prolia® and EVENITY® have been launched by Amgen. We anticipate that our product candidate EB613 if
approved, will compete with Forteo, Prolia and EVENITY. We believe that EB613 may prove to be superior to Forteo due to its
oral administration, potentially leading to greater patient acceptance and its sharper pharmacokinetic profile which is expected to
have more potent anabolic effect. However, our competitors in this market are large pharmaceutical companies with greater
resources than us and the alternatives therapies have been on the market for many years and have widespread market acceptance.
EB612 for Hypoparathyroidism
Historically, the treatments for hypoparathyroidism have been calcium supplements, vitamin D supplements and phosphate
binders, however many serious side effects result from these products. Our product candidate EB612 is designed to deliver PTH
to hypoparathyroid patients to directly address the underlying PTH deficiency. Because our product would be a branded
pharmaceutical, in contrast to the over-the-counter supplements currently used by those with the condition, we believe that the
market acceptance will be strongest among patients whose disease is not well-controlled by over-the-counter supplements, or in
those patients who continue to suffer from side effects associated with therapy or symptoms associated with poor management of
their condition.
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We believe that our key competitor in hypoparathyroidism treatment is Takeda, which is now marketing Natpara, an injectable
bioengineered recombinant form of PTH (1-84) that was approved by the FDA in January 2015. Natpara has been granted orphan
drug designation for hypoparathyroidism by the FDA as the first approved product for this indication and has orphan drug market
exclusivity for seven years in the United States. Orphan drug market exclusivity means that the FDA may not approve any other
application to market the same drug for the same indication for a period of seven years, except in limited circumstances, such as a
showing of clinical superiority over the product with orphan exclusivity or where the manufacturer is unable to assure sufficient
product quantity. Therefore, we will only be able to obtain regulatory approval for EB612, which also has orphan drug
designation for hypoparathyroidism, if we demonstrate EB612’s clinical superiority over Natpara. For example, EB612 would
need to demonstrate either greater effectiveness or safety than Natpara or that it otherwise makes a major contribution to patient
care. We believe that we will be able to demonstrate that our oral formulation of PTH is clinically superior to Natpara in terms of
efficacy and safety, and therefore, that Natpara’s orphan drug exclusivity will not prevent the FDA from approving our NDA for
oral PTH prior to the expiration of Natpara’s market exclusivity period. In 2019, Natpara was recalled due to certain product
format issues, and is not anticipated to return to the market until later in 2020.
In addition, Ascendis Pharma has reported that it is developing a long-acting, oral prodrug formulation of PTH for the
treatment of hypoparathyroidism. In 2019, Ascendis reported that it expects top-line results from a global Phase 2 trial in 2020,
and anticipated initiating a Phase 3 trial by the end of 2021 or 2022. Other companies and groups that are developing or
commercializing therapies for hypoparathyroidism, include Chugai Pharmaceutical Co., Ltd., Extend Biosciences Inc.,
Massachusetts General Hospital, Alizé Pharma and Eli Lilly.
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The Israeli Innovation Authority Grants
We have received grants of approximately $0.5 million from the IIA to partially fund our research and development. The
grants are subject to certain requirements and restrictions in the Research Law. In general, until the grants are repaid with interest,
royalties are payable to the Israeli government in the amount of 3% on revenues derived from sales of products or services
developed in whole or in part using the IIA grants, including EB612, EB613 and any other oral PTH product candidates we may
develop. The royalty rate may increase to 5%, with respect to approved applications filed following any year in which we achieve
sales of over $70 million.
The amount that must be repaid may be increased to three times the amount of the grant received, and the rate of royalties may
be accelerated if manufacturing of the products developed with the grant money is transferred outside of the State of Israel. As of
December 31, 2018, the total royalty amounts payable to the IIA, including accrued interest, was approximately $0.5 million. As
of December 31, 2019, we paid royalties in the amount of $27,000 to the IIA.
In addition to paying any royalties due, we must abide by other restrictions associated with receiving such grants under the
Research Law that continue to apply even following repayment to the IIA. These restrictions may impair our ability to outsource
manufacturing, engage in change of control transactions or otherwise transfer our “know-how” (in its meaning under the
Research Law) in or outside of Israel, and may require us to obtain the approval of the IIA for certain actions and transactions
and pay additional royalties and other amounts to the IIA. We may not receive the required approvals for any proposed transfer
and, even if received, we may be required to pay the IIA a portion of the consideration that we receive upon any transfer of such
technology to a non-Israeli entity up to 600% of the grant amounts and the interest. The IIA approved the Company’s Research
Collaboration and License Agreement with Amgen Inc. as of December 2018, subject to payments to the IIA in the rate of 5.38%
out of any payment received from Amgen for the license and up to a total amount of six times the amount of the IIA funding and
the interest. In addition, as disclosed under “Item 4.B.–Business overview - Manufacturing,” we have signed a contract with a
U.K.-based contract manufacturing organization, to produce and supply pills for trials performed worldwide. We believe that,
because production is not being done for commercial purposes, the entry into the production agreement in the U.K. will not affect
the royalty rates to be paid to the IIA. Should it turn out that this position is not acceptable to the IIA, the maximum royalties to
be paid to the IIA will be three times the amount of the grants and the interest. In addition, any change of control and any change
of ownership of our Ordinary Shares that would cause a non-Israeli citizen or resident to become an interested party as defined in
the Research Law (which includes any person who holds 5% or more of our outstanding shares), requires written notice to the
IIA. Such a non-Israeli interested party is required to sign an undertaking towards the IIA in which it undertakes to comply with
the Research Law. If we fail to comply with the Research Law, we may be forced to return the grants and/or be subject to other
payments to the IIA, monetary fines and/or criminal charges.
Oramed Patent Transfer Agreement
In 2010, in connection with our establishment as a joint venture between D.N.A Biomedical and Oramed, a subsidiary of Oramed
Pharmaceuticals, Inc., we entered into a patent license agreement with Oramed pursuant to which Oramed granted us a
worldwide, royalty-bearing, exclusive, irrevocable, perpetual and sub-licensable license under certain Oramed patent rights, to
develop, manufacture and commercialize products for certain indications to be specified by us and Oramed, other than diabetes,
obesity and influenza. In February 2011, D.N.A Biomedical and Oramed entered into a share purchase agreement for the sale by
Oramed to D.N.A Biomedical of 47% of our Ordinary Shares. In connection with this transaction, in February 2011 we entered
into a Patent Transfer Agreement with Oramed, to replace the original 2010 license agreement.
Pursuant to the terms of the Patent Transfer Agreement, Oramed assigned to us all of its right, title and interest in the
previously licensed patent rights, and in return we granted to Oramed a worldwide, royalty-free, exclusive, irrevocable, perpetual
and sublicensable license under the assigned patent rights to develop, manufacture and commercialize products or otherwise
exploit such patent rights in the fields of diabetes and influenza. Additionally, we agreed not to engage, directly or indirectly, in
any activities in the fields of diabetes and influenza. In consideration for such assignment, we agreed to pay Oramed royalties
equal to 3% of our net revenues generated, directly or indirectly, from exploitation of the assigned patent rights, including the
sale, lease or transfer of the assigned patent rights or sales of products or services covered by the assigned patent rights. Either
party may terminate the Patent Transfer Agreement for the other party’s uncured material breach upon 45 days’ written notice
(and immediately upon written notice in the event of an incurable breach), or if the other party undergoes certain insolvency-
related events. The royalty obligations imposed on us will survive termination of the Patent Transfer Agreement.
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Manufacturing
We do not own or operate facilities for large scale product manufacturing, storage and distribution, or testing, nor do we
expect to in the future. Our current facility is limited to small-mid scale manufacturing, storage and distribution of materials and
oral drug formulations clinical studies. Our facility has ISO:9001:2015 quality management systems accreditation from The
Standards Institution of Israel for the production and development of functional excipients and oral drug formulations to be used
in clinical trials. The facility includes a dedicated Class D clean room for tablet production and a dedicated chemical synthesis
room designed to meet ISO 8 specifications.
Our manufacturing activities include the chemical synthesis of one of our non-active but functional drug components as well
as the formulation and production of the final drug, packaging, storage and distribution. Our QA/QC analytical laboratory
performs part of the release and stability testing for PTH tablets manufactured by the U.K.-based contract manufacturing facility.
In addition, our research and development team supports the manufacturing activities and develop/optimize analytical methods
used by the contract manufacturer in order to meet regulatory requirements for our clinical trials. We have signed a contract with
a U.K.-based contract manufacturing organization, to produce and supply pills for trials performed worldwide. This contract is
not exclusive and we may enter into additional contracts. Various materials included in the drug formulation and materials
procured for the chemical synthesis are commercially available from various accredited suppliers. We do not have supply
contracts with all such vendors and are not bound to any specific vendor at this point in time. However, it is our intention to
complete such contracts in anticipation of commercial manufacturing activities, so that if approved, we will have such contracts
in place.
In March 2017, we contracted with an FDA/EMA inspected-GMP subcontractor in the U.K. to outsource activities for
technical transfer and tablet production for our international clinical trials including the clinical drug supply for the Phase 2
PK/PD trial. We expect future clinical studies with our oral PTH (1-34) tablets, as well as the potential commercial supply, if
approved, will be provided by the same subcontractor.
Government Regulation and Product Approval
Government authorities in the United States, at the federal, state and local level, and in other countries and jurisdictions,
including the European Union, extensively regulate, inter alia, the research, development, testing, manufacture, pricing, quality
control, approval, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval
monitoring and reporting, and import and export of pharmaceutical products. The processes for obtaining regulatory approvals in
the United States and in other countries and jurisdictions, along with subsequent compliance with applicable statutes and
regulations and other regulatory authorities, require the expenditure of substantial time and financial resources.
Review and Approval of Drugs in the United States
In the United States, our product candidates are regulated by the FDA as drugs under the Federal Food, Drug, and Cosmetic
Act, or the FDCA, the Public Health Service Act, or the PHSA, and regulations implemented by the agency. The failure to
comply with the applicable requirements at any time during the product development process, including preclinical testing,
clinical testing, the approval process or post-approval process, may subject an applicant to delays in the conduct of clinical trials,
regulatory review and approval, and/or administrative or judicial sanctions. These sanctions may include, but are not limited to,
the FDA’s refusal to allow an applicant to proceed with clinical testing, refusal to approve pending applications, license
suspension or revocation, withdrawal of an approval, warning letters, adverse publicity, product recalls, product seizures, total or
partial suspension of production or distribution, injunctions, fines, and civil or criminal investigations and penalties brought by
the FDA or Department of Justice, or other governmental entities.
The process required by the FDA before a biologic may be marketed in the United States generally involves satisfactorily
completing each of the following steps:
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preclinical laboratory tests, animal studies and formulation studies all performed in accordance with the FDA’s Good Laboratory Practice
regulations;
submission to the FDA of an IND application for human clinical testing, which must become effective before human clinical trials may begin;
approval by an independent IRB, representing each clinical site before each clinical trial may be initiated;
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performance of adequate and well-controlled clinical trials to establish the safety and efficacy of the product candidate for each proposed
indication and conducted in accordance with GCP requirements;
submission of data supporting safety and efficacy as well as detailed information on the manufacture and composition of the product in clinical
development and proposed labeling;
preparation and submission to the FDA of a NDA;
review of the product by an FDA advisory committee, where appropriate or if applicable;
satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities, including those of third parties, at which the
product, or components thereof, are produced to assess compliance with cGMP requirements and to assure that the facilities, methods and controls
are adequate to preserve the product’s identity, strength, quality and purity;
satisfactory completion of any FDA audits of the non-clinical and clinical trial sites to assure compliance with GCP requirements and the integrity
of clinical data in support of the NDA;
payment of user fees and securing FDA approval of the NDA for the proposed indication; and
compliance with any post-approval requirements, including risk evaluation and mitigation strategies, or REMS, and any post-approval studies
required by the FDA.
Preclinical Studies and Investigational New Drug Application
Preclinical tests include laboratory evaluations of product chemistry, formulation and stability, as well as studies to evaluate
the potential for efficacy and toxicity in animals. The conduct of the preclinical tests and formulation of the compounds for
testing must comply with federal regulations and requirements. The results of the preclinical tests, together with manufacturing
information and analytical data, are submitted to the FDA as part of an IND application. Some preclinical tests may continue
even after submission of the IND application. The IND automatically becomes effective 30 days after receipt by the FDA, unless
before that time the FDA raises concerns or questions about the product or conduct of the proposed clinical trial, including
concerns that human research volunteers will be exposed to unreasonable health risks. In that case, the IND sponsor and the FDA
must resolve any outstanding FDA concerns before the clinical trial can begin.
As a result, submission of the IND may result in the FDA not allowing the clinical trials to commence or allowing the clinical
trial to commence on the terms originally specified by the sponsor in the IND. If the FDA raises concerns or questions either
during this initial 30-day period, or at any time during the IND process, it may choose to impose a partial or complete clinical
hold. This order issued by the FDA would delay either a proposed clinical trial or cause suspension of an ongoing clinical trial,
until all outstanding concerns have been adequately addressed and the FDA has notified the company that investigations may
proceed. This could cause significant delays or difficulties in completing planned clinical trials in a timely manner.
Clinical Trials
Clinical trials involve the administration of the investigational product candidate to healthy volunteers or patients with the
disease to be treated under the supervision of a qualified principal investigator in accordance with cGCP requirements. Clinical
trials are conducted under trial protocols detailing, among other things, the objectives of the clinical trial, inclusion and exclusion
criteria, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A protocol for each clinical
trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND.
A sponsor who wishes to conduct a clinical trial outside the United States may, but need not, obtain FDA authorization to
conduct the clinical trial under an IND. If a clinical trial outside the United States is not conducted under an IND, the sponsor
may submit data from the clinical trial to the FDA in support of a NDA so long as the clinical trial is conducted consistent with
the spirit of GCP and in compliance with an international guideline for the ethical conduct of clinical research known as the
Declaration of Helsinki and/or the laws and regulations of the country or countries in which the clinical trial is performed,
whichever provides the greater protection to the participants in the clinical trial.
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Further, each clinical trial must be reviewed and approved by an IRB either centrally or individually at each institution at
which the clinical trial will be conducted. The IRB will consider, among other things, clinical trial design, patient informed
consent, ethical factors, the safety of human subjects and the possible liability of the institution. An IRB must operate in
compliance with the FDA regulations. The FDA, IRB or the clinical trial sponsor may suspend or discontinue a clinical trial at
any time for various reasons, including a finding that the clinical trial is not being conducted in accordance with FDA
requirements or the subjects or patients are being exposed to an unacceptable health risk. Clinical testing also must satisfy
extensive GCP rules and the requirements for informed consent. Additionally, some clinical trials are overseen by an independent
group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This
group may recommend continuing the clinical trial as planned, make changes in clinical trial conduct, or cessation of the clinical
trial at designated check points based on access to certain data from the clinical trial.
Clinical trials typically are conducted in three sequential phases, but the phases may overlap or be combined. Annual progress
reports detailing the results of the clinical trials must be submitted to the FDA. Additional studies may be required after approval.
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Phase 1 clinical trials are initially conducted in a limited population to test the product candidate for safety, including adverse effects, dose
tolerance, absorption, metabolism, distribution, excretion and pharmacodynamics in healthy humans or, on occasion, in patients, such as cancer
patients.
Phase 2 clinical trials are generally conducted in a limited patient population to identify possible adverse effects and safety risks, evaluate the
efficacy of the product candidate for specific targeted indications and determine dose tolerance and optimal dosage. Multiple Phase 2 clinical trials
may be conducted by the sponsor to obtain information prior to beginning larger and more costly Phase 3 clinical trials.
Phase 3 clinical trials proceed if the Phase 2 clinical trials demonstrate that a dose range of the product candidate is potentially effective and has
an acceptable safety profile. Phase 3 clinical trials are undertaken to further evaluate, in a larger number of patients, dosage, provide substantial
evidence of clinical efficacy and further test for safety in an expanded and diverse patient population at multiple, geographically dispersed clinical
trial sites. A well-controlled, statistically robust Phase 3 trial may be designed to deliver the data that regulatory authorities will use to decide
whether or not to approve, and, if approved, how to appropriately label a drug: such Phase 3 studies are referred to as “pivotal.”
In some cases, the FDA may approve a NDA for a product candidate but require the sponsor to conduct additional clinical
trials to further assess the drug’s safety and effectiveness after NDA approval. Such post-approval trials are typically referred to
as Phase 4 clinical trials. These studies are used to gain additional experience from the treatment of patients in the intended
therapeutic indication and to document a clinical benefit in the case of drugs or biologics approved under accelerated approval
regulations. If the FDA approves a product while a company has ongoing clinical trials that were not necessary for approval, a
company may be able to use the data from these clinical trials to meet all or part of any Phase 4 clinical trial requirement or to
request a change in the product labeling. Failure to exhibit due diligence with regard to conducting Phase 4 clinical trials could
result in withdrawal of approval for products.
Compliance with Current Good Manufacturing Practice Requirements
Before approving a NDA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA
will not approve an application unless it determines that the manufacturing processes and facilities are in full compliance with
cGMP requirements and adequate to assure consistent production of the product within required specifications. The PHSA
emphasizes the importance of manufacturing control for products like biologics whose attributes cannot be precisely defined.
Manufacturers and others involved in the manufacture and distribution of products must also register their establishments with
the FDA and certain state agencies. Both U.S. and non-U.S. manufacturing establishments must register and provide additional
information to the FDA upon their initial participation in the manufacturing process. Any product manufactured by or imported
from a facility that has not registered, whether U.S. or non-U.S., is deemed misbranded under the FDCA. Establishments may be
subject to periodic unannounced inspections by government authorities to ensure compliance with cGMPs and other laws.
Inspections must follow a “risk-based schedule” that may result in certain establishments being inspected more frequently.
Manufacturers may also have to provide, on request, electronic or physical records regarding their establishments. Delaying,
denying, limiting, or refusing inspection by the FDA may lead to a product being deemed to be adulterated.
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Review and Approval of a New Drug Application
The results of product candidate development, preclinical testing and clinical trials, including negative or ambiguous results as
well as positive findings, are submitted to the FDA as part of a NDA requesting approval to market the product. The NDA also
must contain extensive manufacturing information and detailed information on the composition of the product and proposed
labeling as well as payment of a user fee. According to the FDA’s fee schedule, the user fee for an application requiring clinical
data, such as a NDA, is $2.9 million for 2020. However, we believe that we may apply for, and be granted, a waiver as a small
business for the first filing of a NDA for approval.
The FDA has 60 days after submission of the application to conduct an initial review to determine whether it is sufficient to
accept for filing based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. Once
the submission has been accepted for filing, the FDA begins an in-depth review of the application. Under the goals and policies
under the Prescription Drug User Fee Act, or the PDUFA, the FDA has ten months from the filing date in which to complete its
initial review of a standard application and respond to the applicant, and six months for a priority review of the application. The
FDA does not always meet its PDUFA goal dates for standard and priority applications. The review process may often be
significantly extended by FDA requests for additional information or clarification. The review process and the PDUFA goal date
may be extended by three months if the FDA requests, or the applicant otherwise provides additional information or clarification
regarding information already provided in the submission within the last three months before the PDUFA goal date.
Under the FDCA and the PHSA, the FDA may approve a NDA if it determines that the product is safe, pure and potent and
the facility where the product will be manufactured meets standards designed to ensure that it continues to be safe, pure and
potent.
On the basis of the FDA’s evaluation of the application and accompanying information, including the results of the inspection
of the manufacturing facilities, the FDA may issue an approval letter or a complete response letter. An approval letter authorizes
commercial marketing of the product with specific prescribing information for specific indications. If the application is not
approved, the FDA will issue a complete response letter, which will contain the conditions that must be met in order to secure
final approval of the application, and when possible will outline recommended actions the sponsor might take to obtain approval
of the application. Sponsors that receive a complete response letter may submit to the FDA information that represents a
complete response to the issues identified by the FDA. Such resubmissions are classified under PDUFA as either Class 1 or Class
2. The classification of a resubmission is based on the information submitted by an applicant in response to an action letter.
Under the goals and policies agreed to by the FDA under PDUFA, the FDA has two months to review a Class 1 resubmission and
six months to review a Class 2 resubmission from the date of receipt. The FDA will not approve an application until issues
identified in the complete response letter have been addressed.
The FDA may also refer the application to an advisory committee for review, evaluation and recommendation as to whether
the application should be approved. Typically, an advisory committee is a panel of independent experts, including clinicians and
other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved
and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such
recommendations carefully when making decisions.
If the FDA approves a new product, it may limit the approved indications for use of the product. It may also require that
contraindications, warnings or precautions be included in the product labeling. In addition, the FDA may call for post-approval
studies, including Phase 4 clinical trials, to further assess the product’s safety after approval. The agency may also require testing
and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution
restrictions or other risk management mechanisms, including a REMS, to help ensure that the benefits of the product outweigh
the potential risks. A REMS can include medication guides, communication plans for healthcare professionals, and elements to
assure safe use, or ETASU. ETASU can include, but are not limited to, special training or certification for prescribing or
dispensing, dispensing only under certain circumstances, special monitoring, and the use of patent registries. The FDA may
prevent or limit further marketing of a product based on the results of post-market studies or surveillance programs. After
approval, many types of changes to the approved product, such as adding new indications, manufacturing changes and additional
labeling claims, are subject to further testing requirements and FDA review and approval.
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Fast Track, Breakthrough Therapy and Priority Review Designations
The FDA is authorized to designate certain products for expedited review if they are intended to address an unmet medical
need in the treatment of a serious or life-threatening disease or condition. These programs are fast track designation,
breakthrough therapy designation and priority review designation.
Specifically, the FDA may designate a product for fast track review if it is intended, whether alone or in combination with one
or more other products, for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to
address unmet medical needs for such a disease or condition. For fast track products, sponsors may have greater interactions with
the FDA and the FDA may initiate review of sections of a fast track product’s application before the application is complete. This
rolling review may be available if the FDA determines, after preliminary evaluation of clinical data submitted by the sponsor, that
a fast track product may be effective. The sponsor must also provide, and the FDA must approve, a schedule for the submission
of the remaining information and the sponsor must pay applicable user fees. However, the FDA’s time period goal for reviewing a
fast track application does not begin until the last section of the application is submitted. In addition, the fast track designation
may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical
trial process.
Second, in 2012, Congress enacted the Food and Drug Administration Safety and Innovation Act, or FDASIA. This law
established a new regulatory scheme allowing for expedited review of products designated as “breakthrough therapies.” A
product may be designated as a breakthrough therapy if it is intended, either alone or in combination with one or more other
products, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product
may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as
substantial treatment effects observed early in clinical development. The FDA may take certain actions with respect to
breakthrough therapies, including holding meetings with the sponsor throughout the development process; providing timely
advice to the product sponsor regarding development and approval; involving more senior staff in the review process; assigning a
cross-disciplinary project lead for the review team; and taking other steps to design the clinical trials in an efficient manner.
Third, the FDA may designate a product for priority review if it is a product that treats a serious condition and, if approved,
would provide a significant improvement in safety or effectiveness. The FDA determines, on a case-by-case basis, whether the
proposed product represents a significant improvement when compared with other available therapies. Significant improvement
may be illustrated by evidence of increased effectiveness in the treatment of a condition, elimination or substantial reduction of a
treatment-limiting product reaction, documented enhancement of patient compliance that may lead to improvement in serious
outcomes, and evidence of safety and effectiveness in a new subpopulation. A priority designation is intended to direct overall
attention and resources to the evaluation of such applications, and to shorten the FDA’s goal for taking action on a marketing
application from ten months to six months.
Accelerated Approval Pathway
The FDA may grant accelerated approval to a product for a serious or life-threatening condition that provides meaningful
therapeutic advantage to patients over existing treatments based upon a determination that the product has an effect on a surrogate
endpoint that is reasonably likely to predict clinical benefit. The FDA may also grant accelerated approval for such a condition
when the product has an effect on an intermediate clinical endpoint that can be measured earlier than an effect on irreversible
morbidity or mortality, or IMM, and that is reasonably likely to predict an effect on irreversible morbidity or mortality or other
clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative
treatments. Products granted accelerated approval must meet the same statutory standards for safety and effectiveness as those
granted traditional approval.
For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic
image, physical sign, or other measure that is thought to predict clinical benefit, but is not itself a measure of clinical benefit.
Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. An intermediate clinical endpoint
is a measurement of a therapeutic effect that is considered reasonably likely to predict the clinical benefit of a product, such as an
effect on IMM. The FDA has limited experience with accelerated approvals based on intermediate clinical endpoints, but has
indicated that such endpoints generally may support accelerated approval where the therapeutic effect measured by the endpoint
is not itself a clinical benefit and basis for traditional approval, if there is a basis for concluding that the therapeutic effect is
reasonably likely to predict the ultimate clinical benefit of a product.
The accelerated approval pathway is most often used in settings in which the course of a disease is long and an extended
period of time is required to measure the intended clinical benefit of a product, even if the effect on the surrogate or intermediate
clinical endpoint occurs rapidly. Thus, accelerated approval has been used extensively in the development and approval of
products for treatment of a variety of cancers in which the goal of therapy is generally to improve survival or decrease morbidity
and the duration of the typical disease course requires lengthy and sometimes large clinical trials to demonstrate a clinical or
survival benefit.
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The accelerated approval pathway is usually contingent on a sponsor’s agreement to conduct, in a diligent manner, additional
post-approval confirmatory studies to verify and describe the product’s clinical benefit. As a result, a product candidate approved
on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval
clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or confirm a
clinical benefit during post-marketing studies, would allow the FDA to withdraw the product from the market on an expedited
basis. All promotional materials for product candidates approved under accelerated regulations are subject to prior review by the
FDA.
Post-Approval Regulation
If regulatory approval for marketing of a product or new indication for an existing product is obtained, the sponsor will be
required to comply with post-approval regulatory requirements, including any post-approval requirements that the FDA may have
imposed as a condition of approval. The sponsor will be required to report certain adverse reactions and production problems to
the FDA, provide updated safety and efficacy information and comply with requirements concerning advertising and promotional
labeling requirements. Drug manufacturers and certain of their subcontractors are required to register their establishments with
the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies
for compliance with ongoing regulatory requirements, including cGMP regulations, which impose certain procedural and
documentation requirements upon drug manufacturers. Accordingly, the sponsor and its third-party manufacturers must continue
to expend time, money and effort in the areas of production and quality control to maintain compliance with cGMP regulations
and other regulatory requirements.
A product may also be subject to official lot release, meaning that the manufacturer is required to perform certain tests on each
lot of the product before it is released for distribution. If the product is subject to official release, the manufacturer must submit
samples of each lot, together with a release protocol showing a summary of the history of manufacture of the lot and the results of
all of the manufacturer’s tests performed on the lot, to the FDA. The FDA may in addition perform certain confirmatory tests on
lots of some products before releasing the lots for distribution. Finally, the FDA will conduct laboratory research related to the
safety, purity, potency, and effectiveness of pharmaceutical products.
Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is
not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a
product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply
with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-
market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS
program. Other potential consequences include, among other things:
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restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;
fines, warning letters or holds on post-approval clinical trials;
refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product license approvals;
product seizure or detention, or refusal to permit the import or export of products; or
injunctions or the imposition of civil or criminal penalties.
The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Biologics
may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and
other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found
to have improperly promoted off-label uses may be subject to significant liability.
Orphan Drug Designation
Orphan drug designation in the United States is designed to encourage sponsors to develop drugs intended for rare diseases or
conditions. In the United States, a rare disease or condition is statutorily defined as a condition that affects fewer than 200,000
individuals in the United States, or that affects more than 200,000 individuals in the United States and for which there is no
reasonable expectation that the cost of developing and making available the drug for the disease or condition will be recovered
from sales of the drug in the United States.
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Orphan drug designation qualifies a company for tax credits, waiver of the NDA user fee and may confer market exclusivity
for seven years following the date of the drug’s marketing approval, if granted by the FDA, if a product that has orphan
designation subsequently receives the first FDA approval of that drug for the disease for which it has such designation. This
means that the FDA may not approve any other applications, including NDA to market the same biologic even in a different
formulation for the same indication for seven years, except in limited circumstances such as a showing of clinical superiority over
the product with orphan drug exclusivity or where the manufacturer is unable to assure sufficient product quantity. An application
for designation as an orphan product can be made any time prior to the filing of an application for approval to market the product.
A product becomes an orphan product when it receives orphan drug designation from the Office of Orphan Products
Development, or OOPD, at the FDA based on acceptable confidential requests made under the regulatory provisions. The product
must then go through the review and approval process like any other product.
A sponsor may request orphan drug designation of a previously unapproved product or new orphan indication for an already
marketed product. In addition, a sponsor of a product that is otherwise the same product as an already approved orphan drug may
seek and obtain orphan drug designation for the subsequent product for the same rare disease or condition if it can present a
plausible hypothesis that its product may be clinically superior to the first, approved product. More than one sponsor may receive
orphan drug designation for the same product for the same rare disease or condition, but each sponsor seeking orphan drug
designation must file a complete request for designation, and only the first sponsor that obtains approval for that drug for the
orphan indication will obtain market exclusivity, effectively preventing the FDA from approving products under development by
competitors for the same drug and same indication, unless the competitor is able to demonstrate that the product under
development is clinically superior to the approved product or the approved product is not available in sufficient quantities. To
permit the FDA to end another manufacturer’s orphan exclusivity period, the FDA must determine that the manufacturer has
demonstrated clinical superiority by showing the later drug is safer, more effective, or otherwise makes a major contribution to
patient care.
The period of exclusivity begins on the date that the marketing application is approved by the FDA and applies only to the
indication for which the product has been designated. The FDA may approve a second application for the same product for a
different use or a subsequent application for a different drug for the same indication. Orphan drug designation neither shortens
the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval
process.
Biosimilars and Exclusivity
The ACA, which was signed into law on March 23, 2010, included a subtitle called the Biologics Price Competition and
Innovation Act of 2009 or BPCIA. The BPCIA established a regulatory scheme authorizing the FDA to approve biosimilars and
interchangeable biosimilars. To date, five biosimilars have been licensed under the BPCIA, although numerous biosimilars have
been approved in Europe. The FDA has issued several draft guidance documents outlining an approach to review and approval of
biosimilars. Complexities associated with the larger, and often more complex, structures of biological products, as well as the
processes by which such products are manufactured, pose significant hurdles to implementation, which are still being worked out
by the FDA.
Under the BPCIA, a manufacturer may submit an application for licensure of a biologic product that is “biosimilar to” or
“interchangeable with” a previously approved biological product or “reference product.” In order for the FDA to approve a
biosimilar product, it must find that there are no clinically meaningful differences between the reference product and proposed
biosimilar product in terms of safety, purity, and potency. For the FDA to approve a biosimilar product as interchangeable with a
reference product, the agency must find that the biosimilar product can be expected to produce the same clinical results as the
reference product, and (for products administered multiple times) that the biologic and the reference biologic may be switched
after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use
of the reference biologic.
Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date
of approval of the reference product. The FDA may not approve a biosimilar product until 12 years from the date on which the
reference product was approved. Even if a product is considered to be a reference product eligible for exclusivity, another
company could market a competing version of that product if the FDA approves a full NDA for such product containing the
sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and
potency of their product. The BPCIA also created certain exclusivity periods for biosimilars approved as interchangeable
products.
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Patent Term Extension
A patent claiming a new drug or biologic product may be eligible for a limited patent term extension under the Hatch-Waxman
Act, which permits a patent extension of up to five years beyond the expiration date of a U.S. patent as partial compensation for
the useful patent term lost, if any, during the FDA regulatory review process. However, a patent term extension cannot extend the
remaining term of a patent beyond a total of 14 years from the date of the product’s approval by the FDA. The patent term
extension period granted is typically one-half the time between the effective date of the first IND and the submission date of the
NDA for the product, plus the time between the submission date of the NDA and the approval of that application. Only one
patent applicable to an approved product is eligible for the extension, and the application for the extension must be submitted
prior to the expiration of the patent in question. A patent that covers multiple products for which approval is sought can only be
extended in connection with one of the products. The USPTO reviews and approves the application for any patent term extension
or restoration in consultation with the FDA.
Regulation Outside the United States
In order to market any product outside of the United States, a company must also comply with numerous and varying
regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other
things, clinical trials, marketing authorization, commercial sales and distribution of drug products. Whether or not it obtains FDA
approval for a product, the company would need to obtain the necessary approvals by the comparable non-U.S. regulatory
authorities before it can commence clinical trials or marketing of the product in those countries or jurisdictions. The approval
process ultimately varies between countries and jurisdictions and can involve additional product testing and additional
administrative review periods. The time required to obtain approval in other countries and jurisdictions might differ from and be
longer than that required to obtain FDA approval. Regulatory approval in one country or jurisdiction does not ensure regulatory
approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact
the regulatory process in others.
Regulation and Marketing Authorization in the European Union
The EMA is the scientific agency of the European Union that coordinates the evaluation and monitoring of new and approved
medicinal products. It is responsible for the scientific evaluation of applications for EU marketing authorizations, as well as the
development of technical guidance and the provision of scientific advice to sponsors. The EMA decentralizes its scientific
assessment of medicines by working through a network of about 4,500 experts throughout the European Union, nominated by the
member states. The EMA draws on resources of over 40 National Competent Authorities of EU member states.
The process regarding approval of medicinal products in the European Union follows roughly the same lines as in the United
States and likewise generally involves satisfactorily completing each of the following:
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preclinical laboratory tests, animal studies and formulation studies all performed in accordance with the applicable EU Good Laboratory Practice
regulations;
submission to the relevant national authorities of a clinical trial application, or CTA, for each clinical trial, which must be approved before human
clinical trials may begin;
performance of adequate and well-controlled clinical trials to establish the safety and efficacy of the product for each proposed indication;
submission to the relevant competent authorities of a marketing authorization application, or MAA, which includes the data supporting safety and
efficacy as well as detailed information on the manufacture and composition of the product in clinical development and proposed labeling;
satisfactory completion of an inspection by the relevant national authorities of the manufacturing facility or facilities, including those of third
parties, at which the product is produced to assess compliance with strictly enforced cGMP;
potential audits of the non-clinical and clinical trial sites that generated the data in support of the MAA; and
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review and approval by the relevant competent authority of the MAA before any commercial marketing, sale or shipment of the product.
Preclinical Studies
Preclinical tests include laboratory evaluations of product chemistry, formulation and stability, as well as studies to evaluate
the potential efficacy and toxicity in animals. The conduct of the preclinical tests and formulation of the compounds for testing
must comply with the relevant EU regulations and requirements. The results of the preclinical tests, together with relevant
manufacturing information and analytical data, are submitted as part of the CTA when seeking approval to start a clinical trial,
and with the MAA when seeking marketing authorization.
Clinical Trial Approval
Requirements for the conduct of clinical trials in the European Union including cGCP, are implemented in the currently
Clinical Trials Directive 2001/20/EC and the GCP Directive 2005/28/EC. Pursuant to Directive 2001/20/EC and Directive
2005/28/EC, as amended, a system for the approval of clinical trials in the European Union has been implemented through
national legislation of the EU member states. Under this system, approval must be obtained from the competent national authority
of a EU member state in which a trial is planned to be conducted, or in multiple member states if the clinical trial is to be
conducted in a number of member states. To this end, a CTA is submitted, which must be supported by an investigational
medicinal product dossier, or IMPD, and further supporting information prescribed by Directive 2001/20/EC and Directive
2005/28/EC and other applicable guidance documents. Furthermore, a clinical trial may only be started after a competent ethics
committee has issued a favorable opinion on the clinical trial application in that country.
In April 2014, the European Union legislative body passed the new Clinical Trials Regulation (EU) No 536/2014 which is set
to replace the current Clinical Trials Directive 2001/20/EC. To ensure that the rules for clinical trials are identical throughout the
EU, the new EU clinical trials legislation was passed as a regulation which is directly applicable in all EU member states. All
clinical trials performed in the European Union are required to be conducted in accordance with the Clinical Trials Directive
2001/20/EC until the new Clinical Trials Regulation (EU) No 536/2014 will become applicable. According to the current plans of
the EMA, the new Clinical Trials Regulation will become applicable later this year. The Clinical Trials Directive 2001/20/EC
will, however, still apply three years from the date of entry into application of the Clinical Trials Regulation to (i) clinical trials
applications submitted before the entry into application and (ii) clinical trials applications submitted within one year after the
entry into application if the sponsor opts for the old system.
Regulation (EU) No 536/2014 aims to simplify and streamline the approval of clinical trial in the European Union. The main
characteristics of the regulation include:
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A streamlined application procedure via a single entry point, the EU portal;
A single set of documents to be prepared and submitted for the application as well as simplified reporting procedures which will spare sponsors
from submitting broadly identical information separately to various bodies and different Member States;
A harmonized procedure for the assessment of applications for clinical trials, which is divided in two parts. Part I is jointly assessed by all
Member States concerned. Part II is assessed by each Member State concerned separately;
Strictly defined deadlines for the assessment of clinical trial application; and
The involvement of the ethics committees in the assessment procedure in accordance with the national law of the Member State concerned but
within the overall timelines defined by the Regulation (EU) No 536/2014.
Marketing Authorization
Authorization to market a product in the member states of the European Union proceeds under one of four procedures: a
centralized authorization procedure, a mutual recognition procedure, a decentralized procedure or a national procedure.
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Centralized Authorization Procedure
The centralized procedure enables applicants to obtain a marketing authorization that is valid in all EU member states based
on a single application. Certain medicinal products, including products developed by means of biotechnological processes must
undergo the centralized authorization procedure for marketing authorization, which, if granted by the European Commission, is
automatically valid in all - currently 28 - European Union member states. Sponsors may elect to file an MAA through the
centralized procedures for other classes of products. The EMA and the European Commission administer this centralized
authorization procedure pursuant to Regulation (EC) No 726/2004. The other European Economic Area member states (namely
Norway, Iceland and Liechtenstein) are also obligated to recognize the Commission decision.
Pursuant to Regulation (EC) No 726/2004, this procedure is mandatory for:
• medicinal products developed by means of one of the following biotechnological processes:
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recombinant DNA technology;
controlled expression of genes coding for biologically active proteins in prokaryotes and eukaryotes including transformed mammalian cells;
hybridoma and monoclonal antibody methods;
advanced therapy medicinal products as defined in Article 2 of Regulation (EC) No 1394/2007 on advanced therapy medicinal products;
• medicinal products for human use containing a new active substance which, on the date of entry into force of this Regulation, was not authorized
in the European Union, for which the therapeutic indication is the treatment of any of the following diseases:
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acquired immune deficiency syndrome;
cancer;
neurodegenerative disorder;
diabetes;
auto-immune diseases and other immune dysfunctions;
viral diseases; and
• medicinal products that are designated as orphan medicinal products pursuant to Regulation (EC) No 141/2000.
The centralized authorization procedure is optional for other medicinal products if they contain a new active substance or if
the applicant shows that the medicinal product concerned constitutes a significant therapeutic, scientific or technical innovation
or that the granting of authorization is in the interest of patients in the European Union.
Administrative Procedure
Under the centralized authorization procedure, the EMA’s Committee for Human Medicinal Products, or CHMP serves as the
scientific committee that renders opinions about the safety, efficacy and quality of medicinal products for human use on behalf of
the EMA. The CHMP is composed of experts nominated by each member state’s national authority for medicinal products, with
one of them appointed to act as Rapporteur for the co-ordination of the evaluation with the possible assistance of a further
member of the Committee acting as a Co-Rapporteur. After approval, the Rapporteur(s) continue to monitor the product
throughout its life cycle. The CHMP has 210 days, to adopt an opinion as to whether a marketing authorization should be
granted. The process usually takes longer in case additional information is requested, which triggers clock-stops in the procedural
timelines. The process is complex and involves extensive consultation with the regulatory authorities of member states and a
number of experts. When an application is submitted for a marketing authorization in respect of a drug which is of major interest
from the point of view of public health and in particular from the viewpoint of therapeutic innovation, the applicant may pursuant
to Article 14(9) Regulation (EC) No 726/2004 request an accelerated assessment procedure. If the CHMP accepts such request,
the time-limit of 210 days will be reduced to 150 days but it is possible that the CHMP can revert to the standard time-limit for
the centralized procedure if it considers that it is no longer appropriate to conduct an accelerated assessment. Once the procedure
is completed, a European Public Assessment Report, or EPAR, is produced. If the opinion is negative, information is given as to
the grounds on which this conclusion was reached. After the adoption of the CHMP opinion, a decision on the MAA must be
adopted by the European Commission, after consulting the European Union member states, which in total can take more than 60
days. After a drug has been authorized and launched, it is a condition of maintaining the marketing authorization that all aspects
relating to its quality, safety and efficacy must be kept under review.
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Conditional Approval
In specific circumstances, EU legislation (Article 14(7) Regulation (EC) No 726/2004 and Regulation (EC) No 507/2006 on
Conditional Marketing Authorizations for Medicinal Products for Human Use) enables applicants to obtain a conditional
marketing authorization prior to obtaining the comprehensive clinical data required for an application for a full marketing
authorization. Such conditional approvals may be granted for products (including medicines designated as orphan medicinal
products), if (1) the risk-benefit balance of the product is positive, (2) it is likely that the applicant will be in a position to provide
the required comprehensive clinical trial data, (3) the product fulfills unmet medical needs, and (4) the benefit to public health of
the immediate availability on the market of the medicinal product concerned outweighs the risk inherent in the fact that additional
data are still required. A conditional marketing authorization may contain specific obligations to be fulfilled by the marketing
authorization holder, including obligations with respect to the completion of ongoing or new studies, and with respect to the
collection of pharmacovigilance data. Conditional marketing authorizations are valid for one year, and may be renewed annually,
if the risk-benefit balance remains positive, and after an assessment of the need for additional or modified conditions and/or
specific obligations. The timelines for the centralized procedure described above also apply with respect to the review by the
CHMP of applications for a conditional marketing authorization.
Marketing Authorization Under Exceptional Circumstances
As per Article 14(8) Regulation (EC) No 726/2004, products for which the applicant can demonstrate that comprehensive data
(in line with the requirements laid down in Annex I of Directive 2001/83/EC, as amended) cannot be provided (due to specific
reasons foreseen in the legislation) might be eligible for marketing authorization under exceptional circumstances. This type of
authorization is reviewed annually to reassess the risk-benefit balance. The fulfillment of any specific procedures/obligations
imposed as part of the marketing authorization under exceptional circumstances is aimed at the provision of information on the
safe and effective use of the product and will normally not lead to the completion of a full dossier/approval.
Market Authorizations Granted by Authorities of EU Member States
In general, if the centralized procedure is not followed, there are three alternative procedures to obtain a marketing
authorization in (one or several) EU member states as prescribed in Directive 2001/83/EC:
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The decentralized procedure allows applicants to file identical applications to several EU member states and receive simultaneous national
approvals based on the recognition by EU member states of an assessment by a reference member state.
The national procedure is only available for products intended to be authorized in a single EU member state.
A mutual recognition procedure similar to the decentralized procedure is available when a marketing authorization has already been obtained in at
least one European Union member state.
A marketing authorization may be granted only to an applicant established in the European Union.
Pediatric Studies
Prior to obtaining a marketing authorization in the European Union, applicants have to demonstrate compliance with all
measures included in an EMA-approved Pediatric Investigation Plan, or PIP, covering all subsets of the pediatric population,
unless the EMA has granted (1) a product-specific waiver, (2) a class waiver, or (3) a deferral for one or more of the measures
included in the PIP. The respective requirements for all marketing authorization procedures are laid down in Regulation (EC) No
1901/2006, the so called Pediatric Regulation. This requirement also applies when a company wants to add a new indication,
pharmaceutical form or route of administration for a medicine that is already authorized. The Pediatric Committee of the EMA,
or PDCO, may grant deferrals for some medicines, allowing a company to delay development of the medicine in children until
there is enough information to demonstrate its effectiveness and safety in adults. The PDCO may also grant waivers when
development of a medicine in children is not needed or is not appropriate, such as for diseases that only affect the elderly
population.
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Before a marketing authorization application can be filed, or an existing marketing authorization can be amended, the EMA
determines that companies actually comply with the agreed studies and measures listed in each relevant PIP.
Period of Authorization and Renewals
A marketing authorization will be valid for five years in principle, and the marketing authorization may be renewed after five
years on the basis of a re-evaluation of the risk-benefit balance by the EMA or by the competent authority of the authorizing
member state. To this end, the marketing authorization holder must provide the EMA or the competent authority with a
consolidated version of the file in respect of quality, safety and efficacy, including all variations introduced since the marketing
authorization was granted, at least six months before the marketing authorization ceases to be valid. Once renewed, the marketing
authorization will be valid for an unlimited period, unless the Commission or the competent authority decides, on justified
grounds relating to pharmacovigilance, to proceed with one additional five-year renewal. Any authorization that is not followed
by the actual placing of the drug on the EU market (in case of centralized procedure) or on the market of the authorizing member
state within three years after authorization will cease to be valid, the so-called “sunset clause.”
Orphan Drug Designation and Exclusivity
Pursuant to Regulation (EC) No 141/2000 and Regulation (EC) No. 847/2000 the European Commission can grant such
orphan medicinal product designation to products for which the sponsor can establish that it is intended for the diagnosis,
prevention, or treatment of (1) a life-threatening or chronically debilitating condition affecting not more than five in 10,000
people in the European Union, or (2) a life threatening, seriously debilitating or serious and chronic condition in the European
Union and that without incentives it is unlikely that sales of the drug in the European Union would generate a sufficient return to
justify the necessary investment. In addition, the sponsor must establish that there is no other satisfactory method approved in the
European Union of diagnosing, preventing or treating the condition, or if such a method exists, the proposed orphan drug will be
of significant benefit to patients.
Orphan drug designation provides a number of benefits, including fee reductions, regulatory assistance, and the possibility to
apply for a centralized EU marketing authorization (see “Item 4.B—Government Regulation and Product Approval—Centralized
Authorization Procedure”), as well as 10 years of market exclusivity following a marketing authorization. During this market
exclusivity period, neither the EMA, nor the European Commission nor the Member States can accept an application or grant a
marketing authorization for a “similar medicinal product.” A “similar medicinal product” is defined as a medicinal product
containing a similar active substance or substances as contained in an authorized orphan medicinal product, and which is
intended for the same therapeutic indication. The market exclusivity period for the authorized therapeutic indication may be
reduced to six years if, at the end of the fifth year, it is established that the orphan drug designation criteria are no longer met,
including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity. In addition,
a competing similar medicinal product may be authorized prior to the expiration of the market exclusivity period, including if it is
shown to be safer, more effective or otherwise clinically superior to the already approved orphan drug or if the holder of the
marketing authorization for the already approved orphan drug is unable to supply sufficient quantities of the product.
If the MAA of a medicinal product designated as an orphan drug includes the results of all studies conducted in compliance
with an agreed PIP, and a corresponding statement is subsequently included in the marketing authorization granted, the ten-year
period of market exclusivity will be extended to twelve years.
Regulatory Data Protection
European Union legislation also provides for a system of regulatory data and market exclusivity. According to Article 14(11)
of Regulation (EC) No 726/2004, as amended, and Article 10(1) of Directive 2001/83/EC, as amended, upon receiving marketing
authorization, new chemical entities approved on the basis of complete independent data package benefit from eight years of data
exclusivity and an additional two years of market exclusivity. Data exclusivity prevents regulatory authorities in the European
Union from referencing the innovator’s data to assess a generic (abbreviated) application. During the additional two-year period
of market exclusivity, a generic marketing authorization can be submitted, and the innovator’s data may be referenced, but no
generic medicinal product can be marketed until the expiration of the market exclusivity. The overall ten-year period will be
extended to a maximum of eleven years if, during the first eight years of those 10 years, the marketing authorization holder, or
MAH, obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their
authorization, are held to bring a significant clinical benefit in comparison with existing therapies. Even if a compound is
considered to be a new chemical entity and the innovator is able to gain the period of data exclusivity, another company
nevertheless could also market another version of the drug if such company obtained marketing authorization based on an MAA
with a complete independent data package of pharmaceutical test, pre-clinical tests and clinical trials. However, products
designated as orphan medicinal products enjoy, upon receiving marketing authorization, a period of 10 years of orphan market
exclusivity (see also “Item 4.B—Government Regulation and Product Approval—Regulation and Marketing Authorization in the
European Union—Orphan Drug Designation and Exclusivity”). Depending upon the timing and duration of the EU marketing
authorization process, products may be eligible for up to five years’ supplementary protection certificates, or SPCs, pursuant to
Regulation (EC) No 469/2009. Such SPCs extend the rights under the basic patent for the drug.
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Regulatory Requirements After a Marketing Authorization Has Been Obtained
If we obtain authorization for a medicinal product in the European Union, we will be required to comply with a range of
requirements applicable to the manufacturing, marketing, promotion and sale of medicinal products:
Pharmacovigilance and Other Requirements
We will, for example, have to comply with the EU’s stringent pharmacovigilance or safety reporting rules, pursuant to which
post-authorization studies and additional monitoring obligations can be imposed.
Other requirements relate to, for example, the manufacturing of products and APIs in accordance with good manufacturing
practice standards. EU regulators may conduct inspections to verify our compliance with applicable requirements, and we will
have to continue to expend time, money and effort to remain compliant. Non-compliance with EU requirements regarding safety
monitoring or pharmacovigilance, and with requirements related to the development of products for the pediatric population, can
also result in significant financial penalties in the European Union. Similarly, failure to comply with the EU’s requirements
regarding the protection of individual personal data can also lead to significant penalties and sanctions. Individual European
Union member states may also impose various sanctions and penalties in case we do not comply with locally applicable
requirements.
Manufacturing
The manufacturing of authorized drugs, for which a separate manufacturer’s license is mandatory, must be conducted in strict
compliance with the EMA’s cGMP requirements and comparable requirements of other regulatory bodies in the European Union,
which mandate the methods, facilities and controls used in manufacturing, processing and packing of drugs to assure their safety
and identity. The EMA enforces its cGMP requirements through mandatory registration of facilities and inspections of those
facilities. The EMA may have a coordinating role for these inspections while the responsibility for carrying them out rests with
the member states competent authority under whose responsibility the manufacturer falls. Failure to comply with these
requirements could interrupt supply and result in delays, unanticipated costs and lost revenues, and could subject the applicant to
potential legal or regulatory action, including but not limited to warning letters, suspension of manufacturing, seizure of product,
injunctive action or possible civil and criminal penalties.
Marketing and Promotion
The marketing and promotion of authorized drugs, including industry-sponsored continuing medical education and advertising
directed toward the prescribers of drugs and/or the general public, are strictly regulated in the European Union notably under
Directive 2001/83/EC, as amended. The applicable regulations aim to ensure that information provided by holders of marketing
authorizations regarding their products is truthful, balanced and accurately reflects the safety and efficacy claims authorized by
the EMA or by the competent authority of the authorizing member state. Failure to comply with these requirements can result in
adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties.
Clinical Testing in Israel
In order to conduct clinical trials on humans in Israel, prior authorization must be obtained (depending on the nature of the
trial) from either the medical director of the institution in which the clinical trials are scheduled to be conducted, or from the
general manager of the Israeli Ministry of Health, as required under the Guidelines for Clinical Trials in Human Subjects
implemented pursuant to the Israeli Public Health Regulations (Clinical Trials in Human Subjects), 5740-1980, as amended from
time to time. Pursuant to the Israeli Public Health Regulations, such authorization generally cannot be granted unless, among
other things, the relevant institutions ethics committee has provided its prior approval of the testing and that the trial complies
with the standards set forth by the Declaration of Helsinki. In certain circumstances, such as in the cases of genetic trials or
special fertility trials, a written opinion provided by the Ministry of Health’s ethics committee is also required in order to receive
such authorization. The Ministry of Health has provided emergency guidance associated with COVID-19 in March 2020 for
ongoing clinical trials, which we are complying with, and may issue additional guidance that may impact our ability to complete
our ongoing clinical trials of EB613 in Osteoporosis.
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The institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely to be derived from
the project to determine if it justifies the risks and inconvenience to be inflicted on the participating human subjects, and it must
also ensure that adequate protection exists for the rights and safety of the participants as well as the accuracy of the information
gathered in the course of the clinical testing.
Other Healthcare Laws
Health care providers, physicians and third-party payers play a primary role in the recommendation and prescription of drug
products that are granted marketing approval. Arrangements with third-party payers and customers are subject to broadly
applicable fraud and abuse and other health care laws and regulations. In the United States, such restrictions under applicable
federal and state healthcare laws and regulations, include the following:
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the federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing
remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or
recommendation of, any good or service, for which payment may be made, in whole or in part, under a federal health care program such as
Medicare and Medicaid. A person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute or specific intent to
violate it to have committed a violation; in addition, the government may assert that a claim including items or services resulting from a violation
of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act;
the federal False Claims Act imposes civil penalties, and provides for civil whistleblower or qui tam actions, against individuals or entities for
knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false
statement to avoid, decrease or conceal an obligation to pay money to the federal government;
HIPAA imposes criminal and civil liability for executing a scheme to defraud any health care benefit program or making false statements relating
to health care matters. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or
specific intent to violate it to have committed a violation;
the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially
false statement in connection with the delivery of or payment for health care benefits, items or services;
the federal transparency requirements under the ACA require certain manufacturers of drugs, devices, biologics and medical supplies to report to
the Department of Health and Human Services information related to payments and other transfers of value to physicians and teaching hospitals
and the ownership and investment interests of such physicians and their immediate family members;
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, which governs the conduct of certain electronic
healthcare transactions and protects the security and privacy of protected health information;
the Physician Payments Sunshine Act, created under the ACA, and its implementing regulations, which requires specified manufacturers of drugs,
devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program,
with specific exceptions, to report annually to the Centers for Medicare & Medicaid Services, or CMS, information related to payments or other
“transfers of value” made to physicians. All such reported information is publicly available;
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analogous state and non-U.S. laws and regulations, such as state anti-kickback and false claims laws which may apply to items or services
reimbursed by any payer, including commercial insurers; state laws that require pharmaceutical companies to comply with the industry’s voluntary
compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict payments that may be
made to healthcare providers and other potential referral sources; state laws that require pharmaceutical manufacturers to report information
related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state laws governing
the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not
have the same effect, thus complicating compliance efforts; and
regulation by the Centers for Medicare and Medicaid Services and enforcement by the U.S. Department of Health and Human Services (Office of
Inspector General) or the U.S. Department of Justice.
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible
that some of our future business activities could be subject to challenge under one or more of such laws. Efforts to ensure that our
business arrangements with third parties will comply with applicable laws and regulations will involve substantial costs. It is
possible that governmental authorities will conclude that our business practices may not comply with current or future statutes,
regulations or case law involving applicable fraud and abuse or other health care laws and regulations. If our operations are found
to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to
significant civil, criminal and administrative penalties, damages, fines, exclusion from government funded health care programs,
such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other providers
or entities with whom we expect to do business are found to be not in compliance with applicable laws, they may be subject to
criminal, civil or administrative sanctions, including exclusions from government funded health care programs.
Environmental, Health and Safety
We are further subject to various foreign, national, federal, state and local laws and regulations relating to environmental,
health and safety matters, in a number of jurisdictions, governing, inter alia, (i) the use, storage, registration, handling, emission
and disposal of chemicals, waste materials and sewage; and (ii) chemical, air, water and ground contamination, air emissions and
the cleanup of contaminated sites, including any contamination that results from spills due to our failure to properly dispose of
chemicals, waste materials and sewage. Our operations at our Jerusalem research and development facility use chemicals and
produce waste materials and sewage. Our activities require permits from various governmental authorities including, local
municipal authorities, the Ministry of Environmental Protection and the Ministry of Health. The Ministry of Environmental
Protection and the Ministry of Health, local authorities and the municipal water and sewage company conduct periodic
inspections in order to review and ensure our compliance with the various regulations.
Although we do not believe that we will be required to make material operating or capital expenditures in connection with
such laws and regulations, we may be required to incur significant costs to comply with these laws and regulations in the future,
and complying with these laws and regulations may result in a material adverse effect upon our business, financial condition and
results of operations. Further, our failure to comply with such laws and regulations could have a material adverse effect on our
business and reputation, result in an interruption or delay in the development or manufacture of our products, or increase the costs
for the development or manufacture of our products.
In addition, laws and regulations relating to environmental, health and safety matters are often subject to change. In the event
of any changes or new laws or regulations, we could be subject to new compliance measures or to penalties for activities which
were previously permitted. For instance, Israeli regulations were promulgated in 2011 relating to the discharge of industrial
sewage into the sewer system. These regulations establish new and potentially significant fees for discharging forbidden or
irregular sewage into the sewage system.
Pharmaceutical Pricing and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any drug products for which we plan to seek
regulatory approval. Sales of any of our product candidates, if approved, will depend, in part, on the extent to which the costs of
the products will be covered by third-party payors, including government health programs such as Medicare and Medicaid,
commercial health insurers and managed care organizations. Concerns about drug pricing have been expressed by both members
of the United States Congress and the administration. The process for determining whether a payer will provide coverage for a
drug product may be separate from the process for setting the price or reimbursement rate that the payer will pay for the drug
product once coverage is approved. Third-party payers may limit coverage to specific drug products on an approved list, or
formulary, which might not include all of the approved drugs for a particular indication.
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In order to secure coverage and reimbursement for any product that might be approved for sale, we may need to conduct
expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of the product, in
addition to the costs required to obtain FDA, EMA or other comparable regulatory approvals. Our product candidates may not be
considered medically necessary or cost-effective. A payer’s decision to provide coverage for a drug product does not imply that
an adequate reimbursement rate will be approved. Third-party reimbursement may not be sufficient to enable us to maintain price
levels high enough to realize an appropriate return on our investment in product development.
The containment of healthcare costs has become a priority of governments, and the prices of drugs have been a focus in this
effort. Third-party payers are increasingly challenging the prices charged for medical products and services and examining the
medical necessity and cost effectiveness of medical products in addition to their safety and efficacy. If these third-party payors do
not consider our products to be cost-effective compared to other available therapies, they may not cover our products if approved
under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our products at a profit. The U.S.
government, state legislatures and non-U.S. governments have shown significant interest in implementing cost containment
programs to limit the growth of government-paid health care costs, including price controls, restrictions on reimbursement and
requirements for substitution of generic products for branded prescription drugs. Adoption of such controls and measures, and
tightening of restrictive policies in jurisdictions with existing controls and measures, could limit payments for pharmaceuticals
such as the product candidates that we are developing and could adversely affect our net revenue and results.
Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be
marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that
compare the cost-effectiveness of a particular product candidate to currently available therapies. The conduct of such studies
could be expensive and result in delays in our commercializing efforts. The European Union provides options for its member
states to restrict the range of drug products for which their national health insurance systems provide reimbursement and to
control the prices of medicinal products for human use. European Union member states may approve a specific price for a drug
product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug product
on the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company
profits. The downward pressure on health care costs in general, particularly prescription drugs, has become very intense. As a
result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border
imports from low-priced markets exert competitive pressure that may reduce pricing within a country. There can be no assurance
that any country that has price controls or reimbursement limitations for drug products will allow favorable reimbursement and
pricing arrangements for any of our products.
The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government
and third-party payors fail to provide adequate coverage and reimbursement. In addition, emphasis on managed care in the United
States has increased and we expect will continue to increase the pressure on drug pricing. Coverage policies, third-party
reimbursement rates and drug pricing regulation may change at any time. Even if favorable coverage and reimbursement status is
attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement
rates may be implemented in the future.
Health Care Reform
In the United States, there have been and continue to be a number of significant legislative initiatives to contain healthcare
costs. The ACA was enacted in the United States in March 2010 and contains provisions that may reduce the profitability of drug
products, including, for example, increased rebates for drugs subject to the Medicaid Drug Rebate Program, extension of
Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and annual fees
based on pharmaceutical companies’ share of sales to federal health care programs.
In addition, other legislative changes have been proposed and adopted since the ACA was enacted. These changes included
aggregate reductions to Medicare payments to providers of 2% per fiscal year, effective April 1, 2013 and, due to subsequent
legislative amendments to the statute, will stay in effect through 2027, unless additional Congressional action is taken. In January
2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, reduced Medicare payments to
several providers, and increased the statute of limitations period for the government to recover overpayments to providers from
three to five years. These new laws may result in additional reductions in Medicare and other healthcare funding, which could
have a material adverse effect on customers for our drugs, if approved, and, accordingly, our financial operations.
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There have been judicial and Congressional challenges to certain aspects of the ACA, as well as recent efforts by the Trump
administration to repeal and replace certain aspects of the ACA, and we expect such challenges to continue. Since January 2017,
President Trump has signed two Executive Orders and other directives designed to delay the implementation of certain provisions
of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. In 2017, the U.S.
Congress enacted the 2017 Tax Act, which eliminated the tax-based shared responsibility payment imposed by the ACA on
certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the
“individual mandate.” On January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year
2018 that delayed the implementation of certain fees mandated by the ACA, including the so-called “Cadillac” tax on certain
high cost employer-sponsored insurance plans and the annual fee imposed on certain health insurance providers based on market
share. The Bipartisan Budget Act of 2018, or the BBA, among other things, amends the ACA, effective January 1, 2019, to close
the coverage gap in most Medicare drug plans. In July 2018, CMS published a final rule permitting further collections and
payments to and from certain ACA qualified health plans and health insurance issuers under the ACA risk adjustment program in
response to the outcome of federal district court litigation, regarding the method CMS uses to determine this risk adjustment. On
December 14, 2018, a federal judge in Texas ruled that the ACA is unconstitutional in its entirety because the “individual
mandate” was repealed by Congress as part of the 2017 Tax Act. While the judge, as well as the Trump administration and CMS,
have stated that the ruling will have no immediate effect pending appeal of the decision, it is unclear how this decision,
subsequent appeals, and other efforts to repeal and replace the ACA, will impact our business. On December 18, 2019, the Fifth
Circuit Court of Appeals upheld the lower court’s decision that the ACA was unconstitutional. On March 2, 2020, the U.S.
Supreme Court granted certiorari to review the case, with an outcome expected in summer 2020.
Moreover, recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for
their commercial products. There have been several recent U.S. Congressional inquiries and proposed and enacted federal and
state legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between
pricing and manufacturer patient programs, reduce the cost of drugs under Medicare, and reform government program
reimbursement methodologies for drugs. The Trump administration’s budget proposal for fiscal year 2019 contains additional
drug price control measures that could be enacted during the 2019 budget process or in other future legislation, including, for
example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some
states to negotiate drug prices under Medicaid and to eliminate cost sharing for generic drugs for low-income patients.
Additionally, the Trump administration released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that
contains additional proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare
programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of drug products
paid by consumers. On January 31, 2019, the HHS Office of Inspector General proposed modifications to federal Anti-Kickback
Statute safe harbors, which, among other things, may affect rebates paid by manufacturers to Medicare Part D plans, the purpose
of which is to further reduce the cost of drug products to consumers. In addition, CMS issued a final rule, effective on July 9,
2019, that requires direct-to-consumer advertisements of prescription drugs and biological products, for which payment is
available through or under Medicare or Medicaid, to include in the advertisement the Wholesale Acquisition Cost, or list price, of
that drug or biological product if it is equal to or greater than $35 for a monthly supply or usual course of treatment. Prescription
drugs and biological products that are in violation of these requirements will be included on a public list. Any adopted health
reform measure could reduce the ultimate demand for our products, if approved, or put pressure on our product pricing.
Individual states in the United States have also become increasingly active in passing legislation and implementing regulations
designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions
on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage
importation from other countries and bulk purchasing. In addition, regional healthcare authorities and individual hospitals are
increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their
prescription drug and other healthcare programs. We expect that additional state and federal healthcare reform measures will be
adopted in the future.
We expect that additional state and federal healthcare reform measures, as well as legal changes by foreign governments, will
be adopted in the future, any of which could limit the amounts that governments will pay for healthcare products and services,
which could result in reduced demand for our product candidates or additional pricing pressures.
Legal Proceedings
We are not currently a party to any material legal proceedings. Emisphere has notified us that it believes that it is the exclusive
owner of certain U.S. and related foreign patents and patent applications we acquired from Oramed Ltd.; however, Emisphere has
not initiated a legal proceeding against us regarding its claim. The matter is still in its early stages. If Emisphere were to initiate a
legal proceeding, we would vigorously defend against such claim and believe that Emisphere’s notification is without merit. For
more information on the risks related to Emisphere’s claim, see “Item 3.D.–Risk Factors—Risks Related to Our Intellectual
Property—We may become involved in proceedings to protect or enforce our proprietary rights, which could be expensive and
time consuming, and may ultimately be unsuccessful.”
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4.C. Organizational Structure
We were formed as a company in the State of Israel on September 30, 2009.
Our corporate structure consists of Entera Bio Ltd. and Entera Bio, Inc., our wholly-owned U.S. subsidiary.
4.D. Property, Plants and Equipment
Our facilities in Israel, which house our research and developments, clinical development, clinical operations, regulatory and
management functions are located in Jerusalem, Israel. Under a Lease Agreement with Unihead Biopark Ltd. as of December 31,
2019, we are leasing approximately 622 square meters of office and laboratory space pursuant to a lease agreement that will
expire on June 30, 2023, with a one-time option for early termination by us on December 31, 2021, subject to a notice period of
six months.
Our corporate offices in the United States are located just outside of Boston in Wellesley, Massachusetts. We currently lease
approximately 1,390 square feet of office space under a short-term lease that expires in October 2020, if not renewed for
successive periods.
We believe that our current offices and laboratory space in Israel, and our corporate headquarters in the United States is
sufficient to meet our anticipated needs for the foreseeable future and is suitable for the conduct of our business. We believe that
suitable additional space would be available if required in the future on commercially reasonable terms.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
5.A. Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with our
consolidated financial statements and the related notes included elsewhere in this Annual Report. This discussion contains
forward-looking statements that are subject to known and unknown risks and uncertainties. Actual results and the timing of
events may differ significantly from those expressed or implied in such forward-looking statements due to a number of factors,
including those set forth in the section entitled “Risk Factors” and elsewhere in this Annual Report. You should read the
following discussion in conjunction with “Special Note Regarding Forward-Looking Statements” and “Risk Factors” included
elsewhere in this Annual Report. We have prepared our consolidated financial statements in accordance with IFRS as issued by
IASB.
Overview
We are a clinical-stage biopharmaceutical company focused on the development and commercialization of orally delivered
macromolecule therapeutics for use in areas with significant unmet medical need where adoption of injectable therapies is limited
due to cost, convenience and compliance challenges for patients. Our current strategy for our lead product candidates is to use our
technology to develop an oral formulation of human parathyroid hormone (1-34), or PTH, which has been approved in the United
States in injectable form for over a decade. Our lead oral PTH product candidates are EB613 for the treatment of osteoporosis
and EB612 for the treatment of hypoparathyroidism. In both of these indications, the leading products are daily injectable
formulations of PTH. In total, more than 180 healthy volunteers and patients, have received multiple doses of various
formulations of our oral PTH (1-34).
We met with the Food and Drug Administration (FDA) in the fourth quarter of 2018 to discuss the development and regulatory
pathway for EB613 for the treatment of osteoporosis. In addition to discussing various aspects of the nonclinical and clinical
development plan, the meeting focused on the use of the 505(b)(2) regulatory pathway and the use of BMD rather than fracture
incidence as the primary endpoint to support an NDA. Based on the FDA’s response, we believe that we may be able to use BMD
as the primary efficacy endpoint for a Phase 3 trial and that a fracture endpoint trial will not be required. In July 2019, we
initiated a Phase 2 multi-center dose-ranging trial of EB613 in approximately 160 osteoporosis patients, at 4 leading osteoporosis
centers in Israel. This trial, which includes a treatment period of 6 months, is being conducted to evaluate both the safety of
EB613 and to identify the optimal dose that we will select to advance into a single Phase 3 pivotal trial. In this trial, we are
evaluating, multiple bone markers, such as P1NP – a bone formation marker, CTX – a bone resorption marker, BMD, and various
additional safety endpoints. Based on directives from the Israeli Ministry of Health and our affiliated medical institutions
implemented in March 2020 due to COVID-19, we have temporarily suspended enrollment of new patients in our ongoing Phase
2 clinical trial. At this time, we have 97 patients currently enrolled in this trial. As of March 23, 2020, we are continuing to
collect patient data from the currently enrolled patients in this trial through various monitoring means established by the
regulatory authorities.
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In parallel, we are conducting several nonclinical safety assessment studies to support our regulatory filings, including a
planned Investigational New Drug Application, or IND, with the FDA to facilitate various IND-enabling trials, and subsequently,
to enable the start of a single Phase 3 clinical trial in approximately 600-700 osteoporosis patients using sites in, the United
States, Israel and other territories, subject to positive data from our ongoing Phase 2 trial of EB613, pending the determination of
the impact of COVID-19 on the trial enrollment and its impact on such data. We believe that the study design to achieve the
BMD endpoint, as discussed with the FDA, will have a much smaller number of patients and be significantly shorter in duration
than a pathway that utilizes a placebo-controlled bone fracture endpoint. See “Item 4.B.–Business Overview—EB613 for
Osteoporosis.”
Our lead product candidate for hypoparathyroidism, EB612, is an oral formulation of PTH (1-34). We believe that EB612, if
approved, has the potential to become the standard of care for hypoparathyroidism. We have tested several formulations of our
oral PTH (1-34) in multiple Phase 1 clinical trials to test different manufacturing technologies, formulations, administration
parameters and dosing regimens. These data led to a number of Phase 2 studies evaluating different formulations of EB612 in
hypoparathyroidism patients including a multicenter Phase 2a clinical trial of EB612 in hypoparathyroidism patients. The
endpoints in these trials, included examination of the PK/PD levels of EB612, as well as serum calcium, serum phosphate,
urinary calcium and urinary phosphate. In these trials, EB612 was generally well tolerated and achieved the targeted blood levels
of PTH, serum calcium, serum phosphate, and the hormonal metabolite of vitamin D (1,25- dihydroxyvitamin D). See “Item
4.B.–Business Overview— EB612 for Hypoparathyroidism.”
In addition, we intend to use our technology as a platform for the oral delivery of other protein and large molecule therapeutics
as well as novel therapeutics. For example, in the fourth quarter of 2018, we signed a license agreement with Amgen and may
sign additional licensing or collaboration agreements in the future. We intend to utilize future funds, as available, to advance
EB613 and EB612 through clinical development and ultimately towards regulatory approval. To date, we have funded our
operations through our IPO, private placements of our ordinary shares and preferred shares, warrants, convertible debts,
government grants and through revenues generated from research collaboration and our license agreement with Amgen. We have
no products that have received regulatory approval and have never generated revenue from sales of any product. Since our
inception, we have raised a total of $56.9 million, including $14.3 million in our December 2019 private placement, $11.2 in our
IPO in 2018 and $31.3 in funding from grants, private placements of Ordinary Shares, preferred shares and debt prior to our IPO.
Since inception, we have incurred significant losses. For the years ended December 31, 2017, 2018 and 2019, our operating
losses were $11.3 million, $10.9 million and $11.5 million, respectively and we expect to continue to incur significant expenses
and losses for the next several years. As of December 31, 2019, we had an accumulated deficit of $62.9 million. Our losses may
fluctuate significantly from quarter to quarter and year to year, depending on the timing of our clinical trials, our expenditures on
any other research and development activities, the receipt of government grants and payments under the collaboration with
Amgen or any future collaborations into which we may enter.
As a result of our recurring losses from operations, negative cash flows and lack of liquidity, management is of the opinion
that there is substantial doubt as to the Company's ability to continue as a going concern. Our independent registered public
accounting firm included an explanatory paragraph in its report on our financial statements as of, and for the year ended,
December 31, 2019, expressing the existence of substantial doubt about our ability to continue as a going concern. The audited
consolidated financial statements included herein have been prepared assuming that we will continue as a going concern and do
not include adjustments that might result from the outcome of this uncertainty. If we are unable to raise the requisite funds, we
will need to curtail or cease operations. See “Item 3.D.–Risk Factors—Risks Related to Our Financial Position and Need for
Additional Capital.”
As of March 15, 2020, we had cash and cash equivalents of $13.7 million. In order to fund further operations, we will need to
raise additional capital. We may raise these funds through private and/or public equity offerings, debt financings, government
grants, strategic collaborations and licensing arrangements. Additional financing may not be available when we need it or may
not be available on terms that are favorable to us.
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As of March 15, 2020, we had 21 employees and five consultants who provide consulting services to us on a part-time basis.
Our operations are located in Jerusalem, Israel and in the United States, just outside of Boston in Wellesley Massachusetts.
Patent Transfer, Licensing Agreements and Grant Funding
Oramed Patent Transfer Agreement
In 2011, we entered into a patent transfer agreement with Oramed, or the Patent Transfer Agreement, pursuant to which
Oramed assigned to us all of its rights, title and interest in the patent rights Oramed licensed to us when we were originally
capitalized, subject to a worldwide, royalty-free, exclusive, irrevocable, perpetual and sub-licensable license granted to Oramed
under the assigned patent rights to develop, manufacture and commercialize products or otherwise exploit such patent rights in
the fields of diabetes and influenza. Additionally, we agreed not to engage, directly or indirectly, in any activities in the fields of
diabetes and influenza. Under the terms of the Patent Transfer Agreement, we agreed to pay Oramed royalties equal to 3% of our
net revenues generated, directly or indirectly, from exploitation of the assigned patent rights, including the sale, lease or transfer
of the assigned patent rights or sales of products or services covered by the assigned patent rights. See “Item 4.B.— Business
Overview—Patent Transfer, Licensing Agreements and Grant Funding—Oramed Patent Transfer Agreement.”
Amgen Research Collaboration and License Agreement
On December 10, 2018, we entered into a research collaboration and license agreement with Amgen, or the Amgen
Agreement in inflammatory disease and other serious illnesses. Pursuant to the Amgen Agreement, we and Amgen will use our
proprietary drug delivery platform to develop oral formulations for one preclinical large molecule program that Amgen has
selected. In exchange for entering into the agreement, Amgen paid us a non-refundable and non-creditable initial access fee of
$725,000 in the first quarter of 2019, of which $500,000 was attributed to the right to use the intellectual property and $225,000
was attributed to the pre-clinical R&D services that we are obligated to perform under the Amgen Agreement. Thus far during
our collaboration, Amgen has paid $503,000 for pre-clinical R&D services performed by us and will pay an additional $225,000
upon completion of services in the second year of the collaboration, In addition, under the Amgen Agreement, Amgen reimburses
us for additional expenses that we incur for any work we do under the collaboration.
Amgen also has options, limited in time, to select up to two additional programs to include in the collaboration. Amgen is
responsible for the clinical development, regulatory approval, manufacturing and worldwide commercialization of the programs.
Pursuant to the terms of the Amgen Agreement, Amgen is required to make aggregate payments of up to $270 million upon
achievement of various clinical and commercial milestones or its exercise of options to select the additional two programs to
include in the collaboration. In addition, Amgen is required to make tiered royalty payments ranging from the low to mid-single
digits based on the level of Amgen’s net sales of the applicable products covered by the Amgen Agreement. Amgen’s obligation
to pay royalties with respect to a product in a particular country commences upon the first commercial sale of such product in
such country and expires on a country-by-country and product-by-product basis on the later of (a) the date on which the sale of
the product is no longer covered by a valid claim of a patent licensed to Amgen under the Amgen Agreement, and (b) the tenth
anniversary of the first commercial sale of such product in such country.
Under the Amgen Agreement, we granted Amgen an exclusive, worldwide, sub-licensable license under certain of our
intellectual property relating to our drug delivery technology to develop, manufacture and commercialize the applicable products.
We will retain all intellectual property rights to our drug delivery technology, Amgen will retain all rights to its large molecules
and any subsequent improvements, and ownership of certain intellectual property developed through the performance of the
collaboration is to be determined by U.S. patent law. Each party is responsible for the filing and prosecution of patents relating to
its owned developments and, with respect to any jointly-owned developments, we are responsible for the filing and prosecution
of patents solely claiming improvements to our drug delivery technology and Amgen is responsible for the filing and prosecution
of any other jointly-owned developments. Amgen has the primary right to enforce any such patents against third-party
infringement with respect to a product that has the same mechanism of action as one of the collaboration programs, subject to
involvement by us in certain circumstances.
During certain periods covered by the Amgen Agreement, we may not alone, or with a third party, research, develop,
manufacture or commercialize certain products that interact with the targets of the applicable collaboration programs. The
collaboration is governed by a joint research committee, or JRC, made up of equal representatives of us and Amgen. The JRC
may establish additional subcommittees to oversee particular projects or activities. Subject to certain limitations, if the JRC is
unable to make a decision by consensus, the disagreement is to be resolved through escalation to specified senior executive
officers of the parties, although Amgen has the final decision-making ability with respect to certain pre-defined issues.
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The term of the Amgen Agreement commenced on December 10, 2018, and unless earlier terminated, shall continue in full
force and effect, on a product-by-product basis, until expiration of the last-to-expire royalty term with respect to such product. At
any point in the research, development or commercialization process, subject to certain conditions, Amgen can terminate the
Amgen Agreement in its entirety or with respect to a specific development program. Both parties can terminate the agreement for
a material breach by the other party that goes uncured, subject to a 90-day notice period.
The Israeli Innovation Authority Grant (formerly: The Office of the Chief Scientist)
We have received grants of approximately $0.5 million from the IIA to partially fund our research and development. The
grants are subject to certain requirements and restrictions under the Israeli Encouragement of Research, Development and
Technological Innovation in Industry Law 5477-1984, or the Research Law. In general, until the grants are repaid with interest,
royalties are payable to the Israeli government in the amount of 3% on revenues derived from sales of products or services
developed in whole or in part using the IIA grants, including EB613, EB612 and any other oral PTH product candidates we may
develop. The royalty rate may increase to 5%, with respect to approved applications filed following any year in which we achieve
sales of over $70 million.
The amount that must be repaid may be increased to three times the amount of the grant received, and the rate of royalties may
be accelerated, if manufacturing of the products developed with the grant money is transferred outside of the State of Israel.
Moreover, a payment of up to 600% of the grant received may be required upon the transfer of any IIA-funded know-how to a
non-Israeli entity. We signed a contract with a U.K.-based contract manufacturing organization (See “Item 4.B.–Business
overview—Manufacturing”), to produce and supply pills for trials performed worldwide. We believe that, because production is
not being done for commercial purposes, the entry into the production agreement in the U.K. will not affect the royalty rates to be
paid to the IIA. Should it turn out that this position is not acceptable to the IIA, the maximum royalties to be paid to the IIA will
be approximately $1.5 million, which is three times the amount of the original grant. Following the signing of the Amgen
Agreement, we are required to pay 5.38% of each payment by Amgen and up to 600% of the grant received. In February 2019,
we paid to the IIA $27,000 related to the Amgen Agreement.
In addition to paying any royalties due, we must abide by other restrictions associated with receiving such grants under the
Research Law that continue to apply following repayment to the IIA. See “Item 4.B.–Business Overview—The Israeli Innovation
Authority Grant.”
Financial Overview
Revenue
To date, we have not generated any revenue from sales of our products and we do not expect to receive any revenue from any
product candidates that we develop unless and until we obtain regulatory approval and successfully commercialize our products.
On December 10, 2018, we entered into the Amgen Agreement in inflammatory disease and other serious illnesses. As of
December 31, 2019, we received a non-refundable and non-creditable initial access payment of $725,000 from Amgen, of which
$500,000 related to a license fee and the remaining $225,000 related to the research and development services we provided to
Amgen in the first year of the Amgen Agreement. On January 24, 2020, we received $278,000 from Amgen for research and
development services to be provided in 2020, the second-year of the Amgen Agreement and we are eligible to receive in the first
quarter of 2021 an additional $225,000 upon completion of the research and development services we provide in 2020.
Revenues including revenues under the Amgen Agreement are recognized according to IFRS 15 – “Revenues from Contracts
with Customers.”
In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under our agreement, we
perform the following steps:
1.
Identification of the contract, or contracts, with a customer.
2.
Identification of the performance obligations in the contract.
3. Determination of the transaction price.
4. Allocation of the transaction price to the performance obligations in the contract.
5. Recognition of revenue.
99
We identified two distinct performance obligations in Amgen Agreement: a license to use our proprietary drug delivery
platform and preclinical R&D services. The preclinical R&D services include discovery and certain preclinical activities related
to the programs selected by Amgen.
We determined the license to our intellectual property to be a right to use that has significant standalone functionality
separately from the preclinical services, since we are not required to continue to support, develop or maintain the intellectual
property transferred and will not undertake any activities to change the standalone functionality of the intellectual property.
Therefore, the license to the intellectual property is a distinct performance obligation, and as such, we recognized the revenues
related to this performance obligation in December 2018 at the point in time that control of the license was transferred to Amgen.
We evaluated the selling price of the first-year preclinical services at $225,000, and the right to use the intellectual property at
$500,000.
Revenues attributed to the preclinical R&D services are recognized during the period the pre-clinical R&D services are
provided according to the input model method on a cost-to-cost basis
Under IFRS 15, the consideration that we would be entitled to upon the achievement of contractual milestones, which are
contingent upon the occurrence of future events of development and commercial progress, are a form of variable consideration.
When assessing the portion, if any, of such milestone-related consideration to be included in the transaction price, we first assess
the most likely outcome for each milestone, and exclude the consideration related to milestones of which the occurrence is not
considered the most likely outcome. We then evaluate if any of the variable consideration determined in the first step is
constrained. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future
reversal of cumulative revenue under the contract will not occur. Estimates of variable consideration and determination of
whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance
and all information (historical, current and forecasted) that is reasonably available. We did not recognize any revenues from
milestone payments.
Under IFRS-15, an entity should recognize revenue for a sales-based or usage-based royalty promised in exchange for a
license of intellectual property only when (or as) the later of the following events occurs:
•
•
The subsequent sale or usage occurs; and
The performance obligation to which some or all of the sales-based or usage-based royalty has been allocated has been satisfied (or partially
satisfied).
We did not recognize any revenues from royalties since royalties are payable based on future commercial sales, as defined in
the Amgen Agreement and there were no commercial sales as of the date of the financial statements
As of the years ended December 31, 2019 and 2018, we recognized revenues from the Amgen agreement in the total amount
of $236,000 and $500,000, respectively.
Research and Development Expenses
Research and development expenses consist of costs incurred for the development of our drug delivery technology and our
product candidates. Those expenses include:
•
•
•
•
•
•
employee-related expenses, including salaries, bonuses and share-based compensation expenses for employees and service providers in the
research and development function;
expenses incurred in operating our laboratories including our small-scale manufacturing facility;
expenses incurred under agreements with CROs, and investigative sites that conduct our clinical trials;
expenses related to outsourced and contracted services, such as external laboratories, consulting and advisory services;
supply, development and manufacturing costs relating to clinical trial materials; and
other costs associated with pre-clinical and clinical activities.
Research and development activities are the primary focus of our business. Product candidates in later stages of clinical
development generally have higher development costs than those in earlier stages of clinical development, primarily due to the
increased size and duration of later-stage clinical trials. We expect that our research and development expenses will increase
significantly in future periods as we advance EB613 and EB612 into later stages of clinical development and invest in additional
preclinical candidates.
100
Research expenses are generally recognized as incurred. An intangible asset arising from the development of our product
candidates is recognized if certain capitalization conditions are met. During the years ended December 31, 2017, 2018 and 2019,
we did not capitalize any development costs.
Our research and development expenses may vary substantially from period to period based on the timing of our research and
development activities, including due to the timing of initiation of clinical trials and the enrollment of patients in clinical trials.
For the years ended December 31, 2017, 2018 and 2019, our research and development expenses were $2.8 million, $8.5 million
and $7.2 million, respectively. Research and development expenses for the years ended December 31, 2017, 2018 and 2019 were
primarily for the development of EB613 and EB612. The successful development of our product candidates is highly uncertain.
At this time we cannot reasonably estimate the nature, timing and estimated costs of the efforts that will be necessary to complete
the development of, or the period, if any, in which material net cash inflows may commence from, any of our product candidates.
This is due to numerous risks and uncertainties associated with developing drugs, including:
•
•
•
•
•
•
the uncertainty of the scope, rate of progress, results and cost of our clinical trials, nonclinical testing and other related activities;
the cost of manufacturing clinical supplies and establishing commercial supplies of our product candidates and any products that we may develop;
the number and characteristics of product candidates that we pursue;
the cost, timing and outcomes of regulatory approvals;
the cost and timing of establishing any sales, marketing, and distribution capabilities; and
the terms and timing of any collaborative, licensing and other arrangements that we may establish, including any milestone and royalty payments
thereunder.
A change in the outcome of any of these variables with respect to the development of EB613, EB612 or any other product
candidate that we may develop could mean a significant change in the costs and timing associated with the development of such
product candidate. For example, if the FDA or other regulatory authority were to require us to conduct preclinical and/or clinical
studies beyond those which we currently anticipate will be required for the completion of clinical development, if we experience
significant delays in enrollment in any clinical trials or if we encounter difficulties in manufacturing our clinical supplies, we
could be required to expend significant additional financial resources and time on the completion of the clinical development.
General and Administrative Expenses
General and administrative expenses consist principally of salaries and related costs for directors and personnel in executive
and finance functions, such as salaries, benefits and share-based compensation. Other general and administrative expenses
include D&O insurance and other insurance, communication expenses, professional fees for legal and accounting services, patent
counseling and portfolio maintenance and business development expenses.
During 2017 and 2018, our general and administrative expenses increased in connection with becoming a public company and
maintaining compliance with Nasdaq and SEC rules and regulations, higher insurance, legal, accounting, transfer agent, printing
and director’s fees, as well as the addition of headcount to support compliance.
We expect that our general and administrative expenses will continue to increase in the future as we increase our headcount
and expand our administrative function to support our operations. In addition, if we lose our status as a foreign private issuer, we
will be subject to additional SEC reporting requirements that will likely result in additional costs, see “Risk Factors—Risks
Related to Our Ordinary Shares, and IPO Warrants.”
Financial Income Financial income was comprised mainly of gains resulting from the re-measurement of equity linked
instruments that were liability classified and measured at fair value through profit and loss.
In 2018, we recorded adjustments to the estimated fair value of the convertible loans, preferred shares, warrants to issue
preferred shares and shares until each were converted into our Ordinary Shares or IPO Warrants and options to purchase our
Ordinary Shares as part of our initial public offering. Subsequent to our IPO we stopped recording any related periodic fair value
adjustments with regard to these components. The IPO Warrants issued in the initial public offering and the Investor Warrants (as
defined below in Item 10.C “Material Contracts—Investor Warrants) issued in our December 2019 private placement were
classified as a financial liability since their exercise price and number of shares issuable upon exercise of each Investor Warrant
are subject to certain adjustments as described in the underlying warrant agreements. In 2019, changes in the fair value of the IPO
Warrants and the Investor Warrants resulted in net financial income in our consolidated statement of comprehensive loss. We will
continue to record fair value adjustments on these IPO Warrants until they expire, are repurchased by us or exercised and
converted into our Ordinary Shares.
101
Upon the consummation of our IPO, we adjusted our convertible loan liability, preferred shares and our warrants to issue
preferred shares to their fair value, evaluated based on the quoted closing price of our Ordinary Shares on Nasdaq. We recorded
additional financial expenses from the revaluation of our convertible loan liability, preferred shares and warrants. Under the terms
of the applicable agreements and pursuant to certain IPO transactions, the convertible loans and preferred shares were
automatically converted into our Ordinary Shares, and the warrants to purchase preferred shares were automatically converted
into warrants to purchase Ordinary Shares. The fair value of the IPO Warrants as of the IPO date, July 2, 2018 and as of
December 31, 2018 was based on quoted price per warrant on Nasdaq as of the respective date.
Other financial expenses are comprised mainly of interest income and exchange rate differences of certain currencies against
our Functional Currency.
Taxes on Income
Entera Bio Ltd. has not generated taxable income since our inception, and as of December 31, 2019 had carry-forward tax
losses of $31 million. We anticipate that we will be able to carry forward these tax losses indefinitely to future tax years.
Accordingly, we do not expect to pay taxes in Israel until we have taxable income after the full utilization of our carryforward tax
losses.
As of December 31, 2019, Entera Bio Inc. has no carry forward tax losses.
We have not created deferred tax assets on our tax loss carryforwards because their utilization is not expected in the
foreseeable future. We recognize deferred tax assets on losses for tax purposes carried forward to subsequent years if utilization
of the related tax benefit against a future taxable income is probable.
Critical Accounting Policies and Estimates
We describe our significant accounting policies more fully in Note 2 to our audited consolidated financial statements included
elsewhere in this Annual Report. We believe that the accounting policies below are critical in order to fully understand and
evaluate our financial condition and results of operations. The preparation of our consolidated financial statements requires us to
make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses and the disclosure
of contingent assets and liabilities in our consolidated financial statements and accompanying notes. The most significant
estimates in our consolidated financial statements relate to the valuation of equity awards, warrant liability and the recoverability
of deferred tax assets. We evaluate our estimates and assumptions on an ongoing basis and base such estimates and assumptions
on historical experience – when available – and on various factors – including expectations of future events – that we believe to
be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual
results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year are discussed below.
Revenue Recognition
With respect to the Amgen Agreement, we used our judgement to identify our deliverables in the agreement and whether the
deliverables are distinct performance obligation. In addition, we use our judgement to determine the allocation of the transaction
price between our identified distinct performance obligations. We also used significant judgment in order to determine the R&D
services period. For a description of our revenue recognition policy see “Note 2—Summary of Significant Accounting Policies—
P. Revenue Recognition” of our audited consolidated financial statements for the year ended December 31, 2019, included
elsewhere in this Annual Report.
Share-Based Compensation
In 2013 and in 2018, we adopted share-based compensation plans for employees, directors and service providers. Our share-
based compensation plan adopted in 2013 governs the issuance of equity incentive awards prior to our initial public offering, and
the share-based compensation plan adopted in 2018 governs the issuance of equity incentive awards from and after the closing of
our initial public offering. As part of the plans, we grant employees, directors and service providers, from time to time and at our
discretion, options to purchase our Ordinary Shares. The fair value of the services received in exchange for the grant of the
options is recognized as an expense in our statements of comprehensive loss with a corresponding adjustment to equity in our
statements of financial position. The total amount is recognized as an expense ratably over the service period of the options,
which is the period during which all vesting conditions are expected to be met.
102
We estimate the fair value of our share-based compensation to employees, directors and service providers using the Black-
Scholes option pricing model, which requires the input of highly subjective assumptions, including (a) the expected volatility of
our shares, (b) the expected term of the award, (c) the risk-free interest rate, (d) expected dividends and (e) the fair value of our
Ordinary Shares at the date of grant. Due to the lack of a public market for the trading of our shares prior to the initial public
offering and a lack of company-specific historical and implied volatility data, we have based our estimate of expected volatility
on the historic volatility of comparable companies that are publicly traded. We will continue to apply this process until a
sufficient amount of historical information regarding the volatility of our own share price becomes available.
For options granted in 2018, prior to the IPO, the fair value per Ordinary Share used in the Black-Scholes option pricing
model was evaluated using a hybrid model that uses an option pricing model within each applicable exit scenario of our
company. These valuations are highly subjective.
For the purpose of determining our enterprise value, prior to our IPO, we used the discounted cash flow, or DCF, method.
Under the DCF method, our projected after-tax cash flows were discounted back to present value, using the discount rate. The
discount rate, known as the weighted average cost of capital, or WACC, accounts for the time value of money and the appropriate
degree of risk inherent in our business. The DCF method requires significant assumptions, in particular, regarding our projected
cash flows and the discount rate applicable to our business.
Following the IPO, the fair value of our Ordinary Shares and IPO Warrants is determined based on the closing price of our
Ordinary Shares and IPO Warrants on Nasdaq.
We are also required to estimate forfeitures at the time of grant, and we revise those estimates in subsequent periods if actual
forfeitures differ from the estimates. Vesting conditions are included in assumptions about the number of options that are
expected to vest. At the end of each reporting period, we revise our estimates of the number of options that are expected to vest
based on the nonmarket vesting conditions. We recognize the impact of the revision to original estimates, if any, in profit or loss,
with a corresponding adjustment to equity.
The following table summarizes the allocation of our share-based compensation expense:
Research and development
General and administrative
Total
2019
$
$
701
782
1,483
Year ended
December 31,
2018 (1)
(in thousands)
1,333
$
$
(100)
$
1,233
$
2017
323
4,562
4,885
(1) The resignation of Mr. Beshar, the previous Chairman of our board of directors took effect on June 27, 2018. According to Mr. Beshar's options
terms, options which had yet to fully vest were forfeited, therefore 453,050 options forfeited and were recognized in the consolidated statement of
comprehensive loss as a reverse of expense under the General and administrative line item in the amount of $1.3 million.
Fair Value of Financial Liabilities Through Profit or Loss
Prior to our IPO, the Series A preferred shares and warrants to purchase Series A preferred shares, Series B preferred shares,
Series B-1 preferred shares, warrants to purchase Series B preferred shares and liability to issue preferred shares and warrants
were classified as financial liabilities because of the liquidation preference rights and conversion rights associated with the
preferred shares and were measured at fair value through profit or loss at each balance sheet date. To determine the fair value of
the convertible loans, preferred shares, and warrants, we used our judgment to select a variety of methods and made assumptions
that were mainly based on market conditions existing at the end of each reporting period prior to the IPO. The estimated fair
value of these liabilities might have been different if we had used different estimates and assumptions.
To determine the fair value of the convertible loans, which was a valuation that was not based on observable market data, or a
level 3 valuation, the debt component was evaluated based on the discounting of future payments of the debt. The convertible
components of the loans (the option to convert the principal amount of the loans and accrued interest into our Ordinary Shares,
subject to adjustment), were evaluated based on a combination of the probability weighted expected return method and the back
solve option pricing method model.
To determine the fair value of the preferred shares, warrants to purchase Series A preferred shares and warrants to purchase
Series B preferred shares and Series B-1 preferred shares, we prepared a valuation of the fair value of each of these components.
The components were evaluated using a combination of the probability weighted expected return method and a back solve option
pricing method model.
103
As of December 31, 2019 and 2018, there were no convertible loans, preferred shares and warrants to preferred shares
outstanding. The convertible loans, preferred shares and warrants to preferred shares were converted into Ordinary Shares or
warrants to purchase Ordinary Shares of the Company upon the closing of the Company’s IPO in July 2018.
The fair value of our IPO Warrants at December 31, 2019 and 2018, is based on the quoted price on Nasdaq (Level 1
valuation) as of the respective date.
The fair value of the Investor Warrants, which is a valuation that is not based on observable market data, or a level 3
valuation, was determined based on the on the Monte-Carlo pricing model as of the issuance date and as of December 31, 2019.
The following parameters were used:
Price per share*
Volatility
Risk free rate
Probability for IPO/shares registration
December
31, 2019
$1.84-$2.07
62%-63%
1.63%-1.71%
N/A
July 2,
2018
865
62%
N/A
-
100%
⁎
The price per share as of July 2, 2018 was based on the quoted price on Nasdaq prior to the share split.
Results of Operations
Comparison of Years Ended December 31, 2019 and 2018
Year Ended
December 31,
2019
2018
Increase (Decrease)
%
$
Revenues
Cost of revenues
Operating expenses:
Research and development expenses, net
General and administrative expenses
Operating loss
Financial income, net
Net loss
Revenue
$
$
$
(In thousands, except for percentage information)
236
210
(264)
210
500
$
$
7,199
4,281
11,454
(659)
10,795
$
$
$
8,518
2,843
10,861
(557)
$
10,304
(1,319)
1,438
593
102
491
(53.0)
100
(15.5)
(50.6)
5.5
18.3
4.7
Revenues for the year ended December 31, 2019 and 2018 were $0.2 million and $0.5 million, respectively. In 2019, our
revenues were attributable to R&D services provided to Amgen, whereas in 2018 revenues were attributable to the right to use
our intellectual property granted to Amgen pursuant to the Amgen Agreement. For the accounting treatment see above “—
Financial Overview—Critical Accounting Policies and Estimates—Revenue Recognition.” We did not generate any revenues
prior to the signing of the Amgen Agreement.
104
Research and Development Expenses, Net
Research and development expenses for the year ended December 31, 2019 were $7.2 million, compared to $8.5 million for
the year ended December 31, 2018, a decrease of $1.3 million. The decrease was primarily due to a reduction of $1.4 million in
materials and production costs and a decrease of $0.6 million in share-based compensation. The decline in materials and
production costs was driven primarily by significant manufacturing activities in 2018 to support our clinical trials and related pre-
clinical activities that were not repeated in 2019. The decline in share-based compensation was due to the fact that there were no
significant option grants to R&D personnel in 2019. These decreases were partially offset by an increase of $0.6 million in
consulting expenses and fees related to the preparation of our IND application and the initiation of the Phase 2 clinical trial of
EB613 as well as an increase of $0.2 million in depreciation and amortization expense due to IPR&D amortization commencing
in December 2018 and the implementation of IFRS 16, “leases” commencing January 1, 2019.
General and Administrative Expenses
General and administrative expenses for the year ended December 31, 2019 were $4.2 million, compared to $2.8 million for
the year ended December 31, 2018. The increase of $1.4 million was primarily due to increases of $0.9 million in compensation
related expenses, $0.3 million in directors’ fees and $0.2 million in insurance costs. The increase in compensation-related
expenses was primarily due to the hiring of our new CEO in August 2019 and options granted during 2019 to our directors and
executive officers, whereas in 2018 there was a reverse of expense due to options forfeited. The increase in directors’ fees in
2019 was generally due to hiring new directors after our IPO in 2018 and the increase of $0.2 million in insurance costs was due
to a significant increase in the cost of Directors and Officers insurance.
Financial Income (Expenses), Net
Financial income, net for the year ended December 31, 2019 was $0.7 million, compared to $0.6 million for the year ended
December 31, 2018. Our financial income is comprised mainly of gains resulting from the re-measurement of equity linked
instruments that were liability classified and measured at fair value through profit and loss. Financial income, net for the year
ended December 31, 2019 is comprised of financial income of $1.1 million related to a decrease in the fair value of the IPO
Warrants, partially offset by financial expenses of $0.4 million due to the increase of the fair value of the Investor Warrants.
Financial income, net for the year ended December 31, 2018 resulted mainly from financial income of $0.4 million related to
the change in the fair value of convertible loans, preferred shares and warrants to purchase preferred shares and income of $0.1
million related to an increase in the fair value of the IPO Warrants.
For the assumptions used in the valuation of the convertible loans, preferred shares components and warrants see above “—
Financial Overview—Critical Accounting Policies and Estimate—Fair Value of Financial Liabilities Through Profit or Loss.”
A discussion with respect to a comparison of the results of operations of 2018 and 2017 is contained under “Item 5.A.–
Results of Operations” our Annual Report on Form 20-F (File No. 001-38556) filed with the SEC on March 28, 2019.
5.B. Liquidity and Capital Resources
Since inception, we have incurred significant losses. As a result of our recurring losses from operations, negative cash flows
and lack of liquidity, our independent registered public accounting firm included an explanatory paragraph in its report on our
financial statements as of, and for the year ended, December 31, 2019, expressing the existence of substantial doubt about our
ability to continue as a going concern. For the years ended December 31, 2017, 2018 and 2019, our operating losses were $11.3
million, $10.9 million and $11.5 million, respectively. We expect to continue to incur significant expenses and losses for the next
several years as we advance our products through development and provide administrative support for our operations. As of
December 31, 2019, we had an accumulated deficit of $62.9 million. Since our inception and through December 31, 2019, we
have raised a total of $56.9 million, including $14.3 million from our Private Placement in December 2019 (of which $0.8
million were received in February 2020 as part of a separate closing with our shareholder D.N.A Biomedical), $11.2 million from
our initial public offering and $31.3 million from sales of our Ordinary Shares, preferred shares, warrants, convertible loans and
grants from IIA prior to our initial public offering. In addition, we have received $1.0 million under the Amgen Agreement. As of
March, 15, 2020, we had cash and cash equivalents of $13.7 million. Our primary uses of cash have been to fund research and
development, general and administrative and working capital requirements, and we expect these will continue to be our primary
uses of cash.
105
Funding Requirements
We believe that our existing capital resources, not including potential milestone payments, will be sufficient to meet our
projected operating requirements into the second quarter of 2021.
We have based these estimates on assumptions that may prove to be wrong, and we may use our available capital resources
sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development of our product
candidates, and the extent to which we may enter into collaborations with third parties for development of these or other product
candidates, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing
the development of our current and future product candidates. Our future capital requirements will depend on many factors,
including:
•
•
•
•
•
the costs, timing and outcome of clinical trials for, and regulatory review of, EB613, EB612 and any other product candidates we may develop;
the costs of development activities for any other product candidates we may pursue;
the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending
intellectual property-related claims;
the impact of COVID-19, once known, on our clinical trials, regulatory timelines, business operations and financial stability; and
our ability to establish collaborations on favorable terms, if at all.
We are in the process of evaluating various financing alternatives in the public or private equity markets, government grants or
through license of our technology to additional external parties through partnerships or research collaborations as we will need to
finance future research and development activities, general and administrative expenses and working capital through fund raising.
However, there is no certainty about our ability to obtain such funding.
We do not have any committed external sources of funds. To the extent that we raise additional capital through the sale of
equity or convertible debt securities, the ownership interest of our then-existing shareholders will be diluted, and the terms of
these securities may include liquidation or other preferences that may adversely affect your rights as a shareholder. Debt
financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions,
such as incurring additional debt, making capital expenditures or declaring dividends and may include requirements to hold
minimum levels of funding. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with
third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or research programs or grant
licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or
collaborations, when needed, we may be required to delay, limit, reduce or terminate our product development or future
commercialization efforts or grant rights to develop and market our oral PTH product candidates and any other product
candidates that we would otherwise prefer to develop and market ourselves.
Our audited consolidated financial statements for the year ended December 31, 2019, included elsewhere in this Annual
Report, note that there is substantial doubt about our ability to continue as a going concern as of such date; and in its report
accompanying our audited consolidated financial statements included herein, our independent registered public accounting firm
included an explanatory paragraph stating that our recurring losses from operations and lack of sufficient working capital raise
substantial doubt as to our ability to continue as a going concern. This means that our management and our independent
registered public accounting firm have expressed substantial doubt about our ability to continue our operations without an
additional infusion of capital from external sources. The audited consolidated financial statements have been prepared on a going
concern basis and do not include any adjustments that may be necessary should we be unable to continue as a going concern. If
we are unable to finance our operations, our business would be in jeopardy and we might not be able to continue operations and
might have to liquidate our assets. In that case, investors might receive less than the value at which those assets are carried on our
financial statements, and it is likely that investors would lose all or a part of their investment.
106
Cash Flows
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
The following table sets forth the primary sources and uses of cash for each of the periods set forth below:
Cash used in operating activities
Cash provided by (used in) investing activities
Cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Net Cash Used in Operating Activities
(audited)
Year ended December 31,
2019
2018
$
$
(in thousands)
(8,919) $
3.946
12,652
7,679
$
(9,796)
(4,068)
9,624
(4,240)
Net Cash used in operating activities for the year ended December 31, 2019 was $8.9 million consisting primarily of our
operating loss of $11.5 million which was partially offset by $1.5 million of share-based compensation, $0.3 million of
depreciation and amortization expenses and a $0.7 million increase in our working capital.
Net Cash used in operating activities for the year ended December 31, 2018 was $9.8 million consisting primarily of our
operating loss of $10.9 million which was partially offset by $1.2 million of share-based compensation and $0.3 million of
issuance costs related to our initial public offering both of which were offset by an increase of $0.5 million in working capital.
The decrease in cash used in operating activities from 2018 to 2019 was mainly due to a decrease of $1.4 million in materials,
clinical manufacturing and production capabilities, partially offset by an increase of $0.5 million in D&O insurance costs,
directors fees and payments for working capital.
Net Cash Used in Investing Activities
Net Cash provided by investing activities for the year ended December 31, 2019 consisted primarily of the withdrawal of
short-term bank deposits.
Net Cash used in investing activities for the year ended December 31, 2018 consisted primarily of our investment in short-
term bank deposits.
Net Cash Provided by Financing Activities
Net Cash provided by financing activities for the year ended December 31, 2019 mainly resulted from net proceeds of $12.5
million from issuance of the Ordinary Shares and IPO Warrants in our private placement offering which was completed in
December 2019.
Net Cash provided by financing activities for the year ended December 31, 2018 mainly resulted from net proceeds of $9.6
million from issuance of the Ordinary Shares and IPO Warrants in our initial public offering which was completed on July 2,
2018.
A discussion with respect to a comparison of the results of operations of 2018 and 2017 is contained under “Item 5.B.–
Liquidity and Capital Resources” our Annual Report on Form 20-F (File No. 001-38556) filed with the SEC on March 28, 2019.
5.C. [Reserved]
5.D. Trend Information.
We are currently in a development stage and we expect to remain in that stage for the upcoming year, and therefore trends
relating to production, sales, inventory, backlog and selling prices are not applicable. See “Item 5.–Operating and Financial
Review and Prospects” for a summary of recent trends.
5.E. Off-Balance Sheet Arrangements
Since our inception, we have not engaged in any off-balance sheet arrangements.
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5.F Contractual Obligations
The following tables summarize our contractual obligations and commitments as of December 31, 2019 that will affect our
future liquidity:
Contractual Obligations
Total
Less than
1 year
Payments due by period
1 - 3 years
(In thousands)
3 - 5 years
More than
5 years
Operating leases for facility and vehicles
Total
$
$
513 $
513 $
175 $
175 $
338 $
338 $
- $
- $
-
-
Severance Obligations
We have long-term liabilities for severance pay that are calculated pursuant to Israeli law generally based on the most recent
salary of the relevant employees multiplied by the number of years of employment to the extent not covered by our regular
deposits with defined contribution plans. As of December 31, 2019, our severance pay liability, net was immaterial. Because the
timing of any such payments is not fixed and determinable, we have not included these liabilities in the table above.
Contingencies
We also have obligations to make future payments to third parties that become due and payable on the achievement of certain
milestones, such as royalties upon sale of products or revenues from the Amgen Agreement. We have not included these
commitments in our statements of financial position or in the table above because the achievement and timing of these milestones
is not fixed and determinable. These potential future commitments include:
•
•
a commitment to pay Oramed royalties equal to 3% of our net revenues pursuant to the terms of the Patent Transfer Agreement between us and
Oramed; and
a commitment to pay royalties to the IIA. See “Item 4.B.—Business Overview—Patent Transfer, Licensing Agreement and Grant Funding.”
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
6.A. Directors and Senior Management
The following table sets forth information relating to our executive officers and directors as of the date of this report. Unless
otherwise stated, the address for our directors and executive officers is c/o Entera Bio Ltd., Kiryat Hadassah, Minrav Building -
Fifth Floor, Jerusalem, Israel and 37 Walnut Street, Suite 300 Wellesley Hills, Massachusetts, U.S.
Age
Position
47
50
36
58
41
69
Chief Executive Officer and Director
U.S.-based Chief Financial Officer
Israel-based Chief Financial Officer
President of Research and Development and Director
Chief Operating Officer
Chief Medical Officer
Name
Executive Officers
Adam Gridley
Jonathan Lieber
Dana Yaacov-Garbeli
Dr. Phillip Schwartz
Dr. Hillel Galitzer
Dr. Arthur Santora
Non-Employee Directors
Gerald Lieberman(2)
Dr. Roger J. Garceau
Zeev Bronfeld
Yonatan Malca
Faith L. Charles(1) (2) (3) (4)
Miranda J. Toledano(1) (2) (3) (4)
Gerald M. Ostrov(2) (3) (4)
Sean Ellis
_____________________________
(1) External Director under Israeli law.
(2) Independent director in accordance with SEC regulations and Nasdaq rules requirements applicable to us.
(3) Member of the Compensation Committee.
(4) Member of the Audit Committee.
Director, Chairman of the Board of Directors
Director, Chief Development Advisor
Director
Director
Director, Chairman of the Compensation Committee
Director, Chairman of the Audit Committee
Director
Director
73
66
68
53
58
43
70
45
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Our Senior Management
Adam Gridley has served as our Chief Executive Officer since August 2019 and as a director since November 2019. Mr.
Gridley is currently a director and Executive Chairman at LifeSprout and a member of the board of advisors for Life Science
Cares in Boston. From May 2014 to September 2019, Mr. Gridley previously served as the President and CEO, and a director of
Histogenics Corporation (NASDAQ: HSGX), a cell therapy company developing products for the orthopedics market. Before
joining Histogenics, Mr. Gridley served in several senior roles at Merz, a privately-held specialty healthcare company. As Senior
Vice President, Technical Operations at Merz, he led a variety of functions, including R&D, Manufacturing, Quality Operations,
Finance and IT for a portfolio of aesthetics, dermatology, neurology and OTC products that generated annual revenues of over
$300 million. Previously, Mr. Gridley was Senior Vice President of Corporate Development for BioForm Medical, which was
acquired by Merz in 2010. His responsibilities included all business development, investor relations, strategic planning, and R&D
functions, and he was part of the executive leadership team who led the Company’s $90 million IPO and subsequent acquisition
by Merz for approximately $250 million in 2010. Mr. Gridley holds a B.S. and a M.B.A. from the University of Denver.
Jonathan Lieber has served as our U.S based Chief Financial Officer since November 2019. Mr. Lieber currently serves as a
managing director of Danforth Advisors LLC. From July 2015 through September 2019, Mr. Lieber was Chief Financial Officer
of Histogenics Corporation (NASDAQ: HSGX) a cell therapy company developing products for the orthopedics market. Prior to
Histogenics, Mr. Lieber was Senior Vice President and Chief Financial Officer of Metamark Genetics, Inc., a privately held,
urology-focused, molecular diagnostics company, from January 2014 to June 2015. From September 2012 to September 2013,
Mr. Lieber served as the Chief Financial Officer and Treasurer of Repligen Corporation, a manufacturer and supplier of high-
value consumables to the life sciences industry. From June 2009 to May 2012, Mr. Lieber served as Chief Financial Officer and
Treasurer of Xcellerex, Inc., a privately held company engaged in the manufacture and sale of capital equipment and related
consumables to the biopharmaceutical industry. Mr. Lieber received an M.B.A. in finance from the Stern School of Business of
New York University and a B.S. in business administration from Boston University.
Dana Yaacov-Garbeli has served as our Israel-based Chief Financial Officer since June 2019. Ms. Yaacov-Garbeli is
currently a partner at A2Z Finance Ltd, where she serves as an outsourced CFO to both private and publicly traded companies
and provides additional consulting and accounting services. Ms. Yaacov-Garbeli previously served at PricewaterhouseCoopers
Israel, including a short secondment to PricewaterhouseCoopers New York as a Senior Manager on audits of both public and
privately held multi-national companies based in Israel, US and Europe, mainly in the pharmaceutical and biotech sectors. Ms.
Yaacov-Garbeli holds a B.A in accounting and business management and an MBA in financial management from The College of
Management and Academic studies. Ms. Yaacov-Garbeli is a Certified Public Accountant in Israel.
Dr. Phillip Schwartz has served as our President of Research and Development since August 2019, and as our director since
our inception in 2010. Dr. Schwartz has previously served as our Chief Executive Officer from our inception in 2010 to August
2019. Dr. Schwartz has more than 20 years of biotech and pharmaceutical industry experience. He previously served as the
manager of clinical affairs at Endo Pharmaceuticals plc from 2005 to 2010 and at Serono from 2002 to 2005, and held multiple
positions in medical affairs, business development and clinical trial development at each of Endo Pharmaceuticals plc and
Serono. He has also worked as an external consultant for a number of venture capital firms. He has also consulted privately and
served as an associate of Health Advances, LLC for more than 20 large biotech and pharmaceutical companies from 2000 to
2002. He has multiple publications in tier one peer-reviewed journals and has presented papers at numerous international
conferences. He has also worked in the neurobiology laboratory of Nobel Laureate Professor Torsten Wiesel of the Rockefeller
University. Dr. Schwartz holds a B.A. in psychology and architecture from Columbia University, an M.Sc. in immunology while
studying under Professor Irun Cohen at the Weizmann Institute, and a Ph.D. in neurobiology/development/oncology from
Harvard Medical School. In addition to his scientific training, Dr. Schwartz completed numerous clinical courses as part of his
program at Harvard Medical School. After completing his Ph.D., Dr. Schwartz was a fellow in pediatric oncology at the Dana
Farber Cancer Institute and an officer of Harvard University Medical School.
Dr. Hillel Galitzer has served as our Chief Operating Officer since February 2014, and prior to that served as our Director of
Scientific Development from July 2012. Dr. Galitzer has more than ten years of experience in medical research and molecular
biology. Between August 2010 and February 2014, Dr. Galitzer was an analyst and the chief operating officer for Hadasit Bio
Holdings Ltd., a publicly traded company on the Tel Aviv Stock Exchange (TASE: HDST) and OTC markets. He has more than
10 years of experience in medical research and molecular biology. He is the co-founder and former chief operating officer of
Optivasive Inc. He has written numerous publications in peer-reviewed journals and has lectured and presented in international
conferences and universities. Dr. Galitzer received his Ph.D. from the Hebrew University Medical School in Jerusalem, where he
was mentored by two world renowned researchers in the areas of parathyroid hormone and calcium regulation, his M.B.A. from
Bar Ilan University in Israel and his B.Med.Sc. from the Hebrew University Medical School in Jerusalem.
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Dr. Arthur Santora has served as our Chief Medical Officer since September 2018. Dr. Santora has more than 30 years of
experience in the biopharmaceutical industry. He spent the majority of his career in the clinical research team at Merck & Co.,
Inc., from June 1989 to March 2017, where he was the lead clinical research physician responsible for much of the clinical
development of Fosamax® (alendronate sodium), one of the world’s most prescribed osteoporosis treatments. He was closely
involved in the clinical development of Merck’s once-weekly Fosamax Plus D (alendronate sodium/ vitamin D3 combination
tablets), the first drug/vitamin combination tablet in the US. His position at Merck immediately prior to his termination of
services in 2017 was Scientific Associate Vice President of Clinical Research, where he was directly responsible for the technical
and scientific support for all clinical research of Fosamax/Fosamax plus D and contributed to the development of many other
osteoporosis and endocrine marketed and investigational drugs. Prior to joining Merck, he served as a Medical Officer at the US
FDA and subsequently was a faculty member at Wayne State University Medical School in Detroit. Dr. Santora is a Clinical
Associate Professor at the clinical faculty of Rutgers Robert Wood Johnson Medical School in New Brunswick, New Jersey. He
has graduate training in Internal Medicine at Emory, and its Endocrinology and Metabolism subspecialty at the NIH in Bethesda.
Dr. Santora received his M.D. and Ph.D. in biochemistry from Emory University in Atlanta.
Our Directors
Gerald Lieberman Mr. Lieberman has served as a member of our board of directors since April 2014 and became our
Chairman in July 2019. Mr. Lieberman is also a member of the board of directors of Teva Pharmaceutical Industries Ltd. (NYSE
and TASE: TEVA), a global leader in pharmaceuticals and the world’s largest generic drug developer and manufacturer, where he
chairs the Audit Committee and serves on both the Human Resources and Compensation Committee and the Finance Committee.
He also serves as Chairman of the Board of Directors of DosenRx, Ltd., a Digital health company that has developed a
personalized, patient-controlled device for delivering medication. He is also currently a special advisor at Reverence Capital
Partners, a private investment firm focused on the middle-market financial services industry. From 2000 to 2009, Mr. Lieberman
was an executive at Alliance Bernstein L.P., where he served as President and Chief Operating Officer from 2004 to 2009, as
Chief Operating Officer from 2003 to 2004 and as Executive Vice President, Finance and Operations from 2000 to 2003. From
1998 to 2000, he served as Senior Vice President, Finance and Administration at Sanford C. Bernstein & Co., Inc., until it was
acquired by Alliance Capital in 2000, forming AllianceBernstein L.P. Prior to that, he served in various executive positions at
Fidelity Investments and at Citicorp. Prior to joining Citicorp he was a certified public accountant with Arthur Andersen. He
previously served on the board of directors of Forest Laboratories, LLC from 2011 to 2014, Computershare Ltd. from 2010 to
2012 and AllianceBernstein L.P. from 2004 to 2009. Mr. Lieberman received a B.S. Beta Gamma Sigma with honors in business
from the University of Connecticut.
Dr. Roger J. Garceau has served as a member of our board of directors since March 2016, and as our Chief Development
Advisor since December 2016. Dr. Garceau has more than 30 years of broad pharmaceutical industry experience. He has been a
director of Enterome SA since December 2016, and a director of ArTara Therapeutics since January 2019. Prior to joining Entera,
Dr. Garceau served as Chief Medical Officer and Executive Vice President of NPS Pharmaceuticals, Inc. since December 2008
and January 2013 respectively, until February 2015, when NPS Pharmaceuticals, Inc., then traded on Nasdaq, was acquired by
Shire plc. (NASDAQ: SHPG). Previously, Dr. Garceau served in several managerial positions with Sanofi-Aventis (NYSE: SNY)
from 2002 until 2008, and Pharmacia Corporation from 1986 until 2002. Dr. Garceau is a board-certified pediatrician and is a
Fellow of the American Academy of Pediatrics. Dr. Garceau holds a B.S. in Biology from Fairfield University in Fairfield,
Connecticut and an M.D. from the University of Massachusetts Medical School.
Zeev Bronfeld has served as a member of our board of directors since 2010 and as chairman of our board of directors from
September 2014 until November 2016. Mr. Bronfeld has vast experience in the management and value building of biotechnology
companies. Mr. Bronfeld currently serves on the board of directors of D.N.A Biomedical, Electreon Wireless Ltd. and The
Trendlines Group Ltd. as well as on the board of director of a number of privately-held companies, including, Contipi Medical
Ltd. and as the chairman of the board of TransBiodiesel Ltd. Furthermore, since 2003, Mr. Bronfeld serves as the chief executive
officer of M.B.R.T Development and Investments Ltd. Until January 2017, he served as a director of Macrocure Ltd. and until
December 2016, he served as a director of D. Medical Industries Ltd. and Nasvax Ltd. Mr. Bronfeld, is a co-founder of Bio-Cell
Ltd., an Israeli publicly traded holding company specializing in biotechnology companies, and served as its chief executive
officer from 1986 until December 2014. Between 2010 through July 2014, he served as the chairman of the board of Protalix
BioTherapeutics, Inc. (NYSE: PLX) and has served as a member of its board of directors since 2006. Mr. Bronfeld holds a B.A.
in Economics from the Hebrew University of Jerusalem.
110
Yonatan Malca has served as a member of our board of directors since 2011. Mr. Malca currently serves as a Chief Executive
Officer and director of D.N.A Biomedical, a position he has held since 2010. Mr. Malca also serves as a director of Arko
Holdings Ltd. (TASE: ARKO), Nextgen-Biomed LTD. (TASE: NXGN) and of Tamda Ltd. (TASE: TMDA), all of which are
Israeli public companies. Mr. Malca also serves on the board of directors of a number of private companies, including as
chairman of the board of directors of Cardioart Technologies Ltd., a medical device company, and Beamed Ltd., a medical device
company (a subsidiary of D.N.A Biomedical). Mr. Malca holds a B.A. in Economics and Statistics from Bar-Ilan University and
an M.A. in Economics and Finance from Bar Ilan University, Israel.
Faith L. Charles has served as a member of our board of directors since September 2018. Ms. Charles is a partner in the
Corporate Transactions and Securities Practice, and the chair of the Life Sciences Group at Thompson Hine, LLP. since 2010. In
March 2019, Ms. Charles, joined the board of Amydis Inc., a private pharmaceutical company developing compounds and tests
for the early detection of Alzheimer’s and other Amyloid associate diseases. Since September 2018, Ms. Charles serves as a
member of the board of Sandstone Diagnostics, Inc., a private technology and healthcare company focused on using centrifugal
testing to improve healthcare. Since 2016, Ms. Charles serves as a member of the board of AgilVax Inc., a private biotechnology
company focused on cancer immunotherapies and targeted infectious vaccines, and as a member of the board of Gilda’s Club
New York City, an organization that provides medical, emotional and support services to cancer patients and their families. Ms.
Charles also serves as steering committee member and Co- Founder, and has previously served as chair, of Metro NY Women in
Bio, an organization of professionals committed to promoting careers, leadership and entrepreneurship for women in the life
sciences industry, since 2013. From 2000 until 2010, Ms. Charles served as partner at Mintz, Levin, Cohn, Ferris, Glovsky &
Popeo, P.C. Prior to that, starting in 1986, Ms. Charles served as partner and associate at other law firms, where she focused on
capital markets, licensing and other strategic collaborations and mergers and acquisitions for emerging and public companies.
Ms. Charles holds a J.D. degree from The George Washington University Law School and a B.A. in Psychology from Barnard
College, Columbia University. Ms. Charles is also a graduate of Women in Bio’s Boardroom Ready Program, an Executive
Education Program taught by The George Washington University School of Business.
Miranda J. Toledano has served as a member of our board of directors since September 2018. Ms. Toledano serves as Chief
Operating Officer / Chief Financial Officer of TRIGR Therapeutics, a clinical stage immuno-oncology company focused on
bispecific antibodies. Previously, from September 2016 until August 2017, Ms. Toledano served on the executive management
team of Sorrento Therapeutics (Nasdaq: SRNE) as EVP Corporate Development. From 2012 to 2016, Ms. Toledano served as
Head of Healthcare Investment Banking at MLV & Co. (acquired by B. Riley FBR & Co.), where she completed equity capital
market transactions totaling over $4 billion in aggregate value. Prior to joining MLV, from 2004 until 2010, Ms. Toledano served
in the investment group of Royalty Pharma, a leading investment firm with over $15 billion in biotherapeutic royalty assets.
From 1998 to 2003, Ms. Toledano led the Life Sciences Corporate Finance group at Ernst & Young (Israel). Ms. Toledano holds a
BA in Economics from Tufts University and an MBA in Finance and Entrepreneurship from the NYU Stern School of Business.
Gerald M. Ostrov has served as a member of our board of directors since January 2019. Mr. Ostrov consults and invests in
new technologies in the medical device and consumer products fields. Mr. Ostrov currently serves on the board of directors of
several privately held companies, including Mother’s Choice, a natural products company working with industry giants, Addon
Optics, an innovative technology company, and Nuvo, a developer of next generation baby and mother health monitoring for both
hospital and home use. From 2008 to 2010, he served as Chairman and CEO of Bausch & Lomb. There Mr. Ostrov led the
stabilization, streamlining and pipeline building of Bausch & Lomb following its going-private transaction. From 1998 until
2006, Mr. Ostrov very successfully served as Company Group Chairman for Johnson & Johnson’s Worldwide Vision Care
businesses. From 1991 to 1998, Mr. Ostrov worked for Johnson & Johnson and quickly rose to serve as Company Group
Chairman of the Consumer and Personal Care businesses in North America. From 1982 to 1991, he served as President of CIBA
Consumer Pharmaceuticals Company. From 1976 to 1982, he worked for the Health Care Division of Johnson & Johnson. From
1973 to 1976, Mr. Ostrov worked at Procter & Gamble. Mr. Ostrov holds a B.S. from Cornell and an M.B.A. from Harvard.
Sean Ellis has served as a member of our board of directors since June 2019. Mr. Ellis brings extensive knowledge of both life
science industries and the U.S. financial markets, with a longstanding history in asset management. Mr. Ellis is a fund manager of
Centillion Fund, a venture capital fund dedicated to Israeli investments, with a primary focus on investments in the biotech and
healthcare industries. Centillion is one of Entera Bio’s earliest investors and largest shareholders. Mr. Ellis is also the Managing
Partner and founder of Redstone Capital, a technology venture capital fund operating in Eastern Europe and funded by SBI Japan
and others. He holds a BA from New York University and MBA from Columbia University.
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Arrangements Concerning Election of Directors; Family Relationships
We are not a party to, and are not aware of, any voting agreements among our shareholders. In addition, there are no family
relationships among our executive officers and directors.
6.B. Compensation
Compensation of Executive Officers and Directors
The following table summarizes the compensation awarded to, earned by, or paid to each of our five most highly compensated
directors and executive officers during the twelve months ended on December 31, 2019 (in U.S. dollars), excluding amounts paid
to reimburse costs incurred in providing us services during such period:
Name
Position
Annual 2019 Compensation
Retirement,
Service Fees
and Other
Similar
Benefits ($)
Bonus ($)
Base Salary
and Related
Benefits ($)
(1)
Share Based
Compensation
($) (2)
Dr. Phillip Schwartz (3)
Mr. Adam Gridley (4)
Dr. Arthur Santora (5)
Dr. Hillel Galitzer (6)
Mrs, Faith Charles (7)
President of Research and
development and Director
Chief Executive Officer
and Director
Chief Medical Officer
Chief Operating Officer
Director
367,408
218,402
395,793
221,577
59,702
-
-
-
-
7,809
16,209
$
$
$
$
$
346,797
249,576
49,686
129,607
67,283
Total ($)
722,014
467,978
445,479
367,393
126,985
(1) Includes base salary, social benefits and car allowances. The amounts shown in this column represent expenses recorded or to be recorded by the
Company, calculated using the average monthly exchange rates of the relevant month in which the salary was recorded.
(2) Reflects the associated annual expense recorded in our financial statements for the year ended December 31, 2019, based on the grant date fair value of
the share-based compensation granted in exchange for the directors’ and officers’ services. The fair value amount is recognized as an expense over the
course of the vesting period of the options (subject to any applicable accounting adjustments during that period).
(3) Dr. Schwartz, who previously served as the Chief Executive Officer from January 1, 2019 through August 4, 2019, has served in his current position,
effective August 5, 2019. In November 2017, Dr. Schwartz was granted options to purchase 367,500 Ordinary Shares (with an exercise price of $6.31
per share) under our 2013 Equity Incentive Plan, of which 201,094 were vested as of March 15, 2020. The fair value of these options as of the grant
date was $1,442,474.
(4) Mr. Gridley was appointed as our Chief Executive Officer, effective August 5, 2019. In connection with his appointment, Mr. Gridley was granted
options to purchase 696,587 Ordinary Shares (with an exercise price of $2.75 per share) under our 2018 Equity Incentive Plan, or the 2018 Plan, none
of which were vested as of March 15, 2020. The options will expire within 10 years from the grant date. This grant was ratified by our shareholders on
October 3, 2019. The fair value of these options as of the grant date was $1,074,186.
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(5) In January 2019, Dr. Santora was granted options to purchase 25,000 Ordinary Shares (with an exercise price of $3.97 per share) under our 2018 Plan,
of which 12,500 were vested as of March 15, 2020. The options will expire within 10 years from the grant date. This grant was ratified by our
shareholders on May 20, 2019. The fair value of these options as of the grant date was $67,078.
(6) In November 2017, Dr. Galitzer was granted options to purchase 143,000 Ordinary Shares (with an exercise price of $6.31 per share) under our 2013
Equity Incentive Plan, of which 80,438 were vested as of March 15, 2020.The options will expire within 10 years from the grant date. The fair value of
these options as of the grant date was $547,002.
(7) In January 2019, Mrs. Charles was granted options to purchase 33,638 Ordinary Shares (with an exercise price of $3.97 per share) under our 2018
Plan, of which 14,015 were vested as of March 15, 2020. The options will expire within 10 years from the grant date. This grant was ratified by our
shareholders on May 20, 2019. The fair value of these options as of the grant date was $88,414.
The aggregate compensation paid and the associated annual expense relating to equity-based compensation and other
payments expensed by us to all of our directors and executive officers with respect to the year ended December 31, 2019 was
$2.9 million. This amount does not include business travel, professional and business association dues and expenses reimbursed
to office holders, and other benefits commonly reimbursed or paid by companies in our industry.
As of December 31, 2019, options to purchase a total of 2,030,618 Ordinary Shares granted to our current directors and
executive officers were outstanding under our Share Incentive Plan, or the 2013 Plan, and under our 2018 Plan, including options
to purchase 33,638 Ordinary Shares granted to Mr. Sean Ellis and 30,385 Ordinary Shares granted to Mr. Jonathan Lieber, each
approved by our shareholders on February 18, 2020. The weighted average exercise price of options as of December 31, 2019,
was $4.19 per share. For more information regarding our 2013 Plan and 2018 Plan, see “Item 6.E.—Share Ownership—Equity
Incentive Plans.”
Under the Companies Law, a shareholder-approved compensation policy must serve as the basis for decisions concerning the
terms of employment or engagement of our executive officers. For more information, please see “Item 6.C.—Board Practices—
Compensation Policy.”
The total amounts set aside or accrued by the company or its subsidiary to provide pension, retirement or similar benefits for
our executive officers and directors in 2019 amounted to approximately $70,000.
Compensation of Directors
The aggregate amount paid by us to our directors for the year ended December 31, 2019, was approximately $367,000. This
amount does not include reimbursements or coverage of expenses.
Each non-executive (including non-employee) director is entitled to receive an annual cash payment as well as participation
fees for attendance at board meetings and service on one or more board committees. Such amounts are equal to the maximum
fixed statutory amounts set forth in the Companies Regulations (Rules Regarding the Compensation and Expenses of an
External Director), 5760-2000, or Compensation Regulations, for companies with equity size and value similar to ours, subject to
certain reliefs included in Companies Regulations (Relief for Public Companies with Shares Listed for Trading on a Stock
Market Outside of Israel), 5760-2000, and further subject to adjustments. Each non-executive director is also entitled to
reimbursements or coverage of expenses (including travel expenses).
In the event that a non-executive director serves as a member of the board of directors during only part of a year, a pro rata
portion of the annual fee will be paid. Participation fees are paid, as applicable, by virtue of participation on one or more
committees in which the non-executive directors are members, and for participation in meetings of the board of directors or
written resolutions of such committee or the board of directors. The annual fee and the participation fees are paid on a quarterly
basis.
On May 20, 2019, our shareholders also approved the grant of options to purchase 33,638 Ordinary Shares under the
Company’s 2018 Plan, with an exercise price of $3.97, to each non-executive director then in office. Such options vest over three
years in twelve quarterly installments starting on September 27, 2018, except that the vesting period of the options granted to Mr.
Ostrov commenced on January 8, 2019, following his appointment. In addition, on February 18, 2020, our shareholders approved
the grant of options to Mr. Ellis to purchase 33,638 Ordinary Shares under the Company’s 2018 Plan, with an exercise price of
$2.53, which vest over three years in twelve equal quarterly installments starting June 24, 2019, following his appointment.
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In addition, we have entered into service agreements with one of our non-executive directors. For information with respect to
compensation arrangements with our directors that are also executive officers or employees, see “Item 7.B.—Related Party
Transaction—Service and Employment Agreements.”
Exculpation, Insurance and Indemnification of Directors and Officers
We have obtained, subject to shareholder approval, directors and officers liability insurance for the benefit of our office
holders. In addition, we have entered into agreements with each of our directors and executive officers exculpating them from
liability to us for damages caused to us as a result of a breach of duty of care and undertaking to indemnify them, in each case, to
the fullest extent permitted by our Articles and Israeli Law. For more information, please see “Item 6.C.—Board Practices—
Exculpation, Insurance and Indemnification of Directors and Officers”.
6.C. Board Practices
Board of Directors
Under the Companies Law, our board of directors is responsible for setting our general policies and supervising the
performance of management. Our board of directors may exercise all powers and may take all actions that are not specifically
granted to our shareholders or to management. Our executive officers are responsible for our day-to-day management and have
individual responsibilities established by our board of directors. Our chief executive officer is appointed by, and serves at the
discretion of, our board of directors, subject to the terms of the employment agreement that we have entered into with him. All
other executive officers are also appointed by our board of directors (unless the board of directors has delegated the ability to
appoint such other executive officers to the chief executive officer, either alone or together with other persons designated by the
Board), and are subject to the terms of any applicable employment agreements that we may enter into with them.
Our board of directors currently consists of ten directors, including our two external directors, Ms. Faith L. Charles and Ms.
Miranda J. Toledano, whose appointment fulfills the requirements of the Companies Law. See “—External Directors.” In
addition, these two directors qualify as independent directors under the corporate governance standards of the Nasdaq rules and
the audit committee independence requirements of Rule 10A-3 of the Exchange Act. Mr. Gerald Lieberman and Mr. Gerald M.
Ostrov also satisfy the independence requirements of the Nasdaq rules and the Exchange Act.
According to our Articles, the number of members of our board of directors must be at least three and cannot be more than ten.
Our board of directors, other than external directors, is divided into three classes, with staggered three-year terms and one
director class coming up for election each year. The Class I directors were re-elected at our 2018 annual meeting of shareholders
to serve until our annual meeting of shareholders in 2021. The Class II directors were re-elected at our 2019 annual meeting of
shareholders to serve until our annual meeting of shareholders in 2022. Our Class III directors will serve until our 2020 annual
meetings of shareholders. The members of the classes as of the date hereof is divided as follows:
•
•
•
the Class I directors are Zeev Bronfeld and Roger Garceau;
the Class II directors are Phillip Schwartz and Yonatan Malca; and
the Class III director is Gerald Lieberman.and Gerald M. Ostrov.
Mr. Sean Ellis and Mr. Adam Gridley were also appointed by our board to serve as our director in June and November 2019,
respectively. Mr. Ellis and Mr. Gridley will serve until our annual meeting of shareholders in 2020.
External Directors are elected at shareholder meetings as described under “—External Directors” below.
At each annual meeting of shareholders, directors will be elected to succeed the class of directors whose term has expired.
This classification of our board of directors could have the effect of increasing the length of time necessary to change the
composition of a majority of the board of directors. In general, at least two annual meetings of shareholders will be necessary for
shareholders to effect a change in a majority of the members of the board of directors.
In accordance with the exemption available to foreign private issuers, we do not follow the requirements of the Nasdaq rules
with regard to the process of nominating directors, and instead, follow Israeli law and practice, in accordance with which our
board of directors (or a committee thereof) is authorized to recommend to our shareholders director nominees for election.
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Under the Companies Law and our Articles, nominees for directors may also be proposed by any shareholder holding at least
one percent (1%) of our outstanding voting power. However, any such shareholder may propose a nominee only if a written
notice of such shareholder’s intent to propose a nominee has been given to our Secretary (or, if we have no such Secretary, our
Chief Executive Officer). Any such notice must include certain information, including, inter alia, a description of all
arrangements between the nominating shareholder and the proposed director nominee and any other person pursuant to which the
nomination is to be made by the nominating shareholder, the consent of the proposed director nominee to serve as our director if
elected and a declaration signed by the nominee declaring that there is no limitation under the Companies Law preventing his or
her election, and that all of the information that is required under the Companies Law to be provided to us in connection with
such election has been provided.
Our board of directors is also authorized to appoint directors in order to fill vacancies, including filling empty board seats if
the number of directors is below the maximum number permitted under our Articles. Each of our directors, other than our
external directors, will serve from the date of election or appointment until the next annual meeting of shareholders for which
such director’s class is due for reelection. The approval of at least a majority of the voting power in the Company is generally
required to remove any of our directors from office (other than external directors).
Under the Companies Law, our board of directors must also determine the minimum number of directors who are required to
have accounting and financial expertise (regardless of the requirement to appoint an external director with accounting and
financial expertise, as provided below under “—External Directors”). In determining the number of directors required to have
such expertise, our board of directors must consider, among other things, the type and size of the company and the scope and
complexity of its operations. Our board of directors has determined that the minimum number of directors of our company who
are required to have accounting and financial expertise is one. Our board of directors has determined that Mr. Gerald Lieberman
has financial and accounting expertise as defined in the regulations promulgated under the Companies Law, or Financial and
Accounting Expertise.
Our board has further determined that Ms. Miranda J. Toledano, an external director, also has Financial and Accounting
Expertise. In addition, our board of directors has determined that Ms. Toledano, who has been nominated to serve on our audit
committee, is financially literate as determined in accordance with the Nasdaq rules and is qualified to serve as an audit
committee financial expert as defined by SEC rules, or Audit Committee Financial Expert.
Other than with respect to our directors that are also executive officers or employees, there are no arrangements or
understandings between us, on the one hand, and any of our directors, on the other hand, providing for benefits upon termination
of their service as directors of our Company. For information with respect to compensation arrangements with our directors that
are also executive officers or employees, see “Item 7.B.—Related Party Transactions—Service and Employment Agreements,”
“Item 7.B.—Related Party Transactions—Indemnification Agreements and Directors’ and Officers’ Liability Insurance,” and
“Item 7.B.—Related Party Transactions—Employment Agreements with Executive Officers.”
Chairman of the Board
In accordance with our Articles, our board of directors is required to appoint one or more of its members to serve as chairman
of the board of directors. Our board of directors has appointed Mr. Gerald Lieberman to serve as chairman of our board of
directors.
Arrangements for Election of Directors
Pursuant to the terms of the Amended and Restated Investors’ Rights Agreement among us, the Centillion Fund, or Centillion,
and the other parties thereto, for as long as Centillion and its affiliates hold an aggregate of at least 10% of our issued and
outstanding Ordinary Shares, we will nominate, if so requested by Centillion and as permitted by applicable law, a designee of
Centillion for election by our shareholders as a member of our board of directors and will recommend that our shareholders vote
in favor of such election. As of December 31, 2019, Centillion holds approximately 7.70% of our issued and outstanding
Ordinary Shares.
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Alternate Directors
Our Articles provide that, as permitted under Israeli law, any director may appoint another person, who is qualified to be
appointed as a director and who is not a director or an alternate director, to serve as his or her alternate director, subject to the
approval of a majority of the members of the board of directors, excluding such director. The term of an alternate director could
be terminated at any time by the appointing director or our board of directors and would terminate under circumstances in which,
according to our Articles, the term of any director shall terminate or automatically terminate upon the termination of the term of
the appointing director. The Companies Law stipulates that an external director may not appoint an alternate director, except
under very limited circumstances. An alternate director has the same rights and responsibilities as a director, except for the right
to appoint an alternate director.
External Directors
Under the Companies Law, companies incorporated under the laws of the States of Israel that are “public companies,”
including companies with shares listed on Nasdaq, are generally required to have at least two external directors who meet certain
independence criteria to ensure that they are unaffiliated with the company and its controlling shareholder(s).
An external director must also have either Financial and Accounting Expertise or professional qualifications, as defined in
regulations promulgated under the Companies Law, while at least one of the external directors is required to have Financial and
Accounting Expertise. An external director is entitled to reimbursement of expenses and compensation as provided in regulations
promulgated under the Companies Law, but is otherwise prohibited from receiving any other compensation from us, directly or
indirectly, during his term and for two years thereafter, other than exculpation, insurance, an undertaking to indemnify or
indemnification.
Under the Companies Law, external directors must be elected at a shareholder meeting by a simple majority of the votes cast
on the matter, provided that (i) such majority includes a majority of the votes cast by non-controlling shareholders and
shareholders who do not have a personal interest in the election (excluding a personal interest that did not result from the
shareholder’s relationship with the controlling shareholder), or (ii) the total number of shares held by shareholders who do not
have a personal interest (as described herein, in sub-section (i)) who voted against the election did not exceed 2% of our
aggregate voting rights in the Company. External directors serve for up to three terms of three years each. Even if an external
director is not nominated by our board of directors for re-election for a second or third term, the external director may be
nominated for re-election by either (i) one or more shareholders holding at least 1% of our voting rights, or (ii) the external
director itself. If nominated by our board of directors, the re-election should be approved by the same process for initial election
as described hereinabove. If nominated by one or more shareholders holding at least 1% or by the external director itself, the re-
election can be approved by a simple majority, provided that (i) votes cast by controlling shareholders and shareholders who have
a personal interest in the election (excluding a personal interest that did not result from the shareholder’s relationship with the
controlling shareholder) and abstentions are not taken into account, (ii) the votes cast by such non-controlling and disinterested
shareholders for approval of the election exceed 2% of our aggregate voting rights, and (iii) the external director has no
affiliations listed in Section 245(a1)(1)(c) of the Companies Law. A term of an external director may be terminated prior to
expiration only by a shareholder vote (by the same threshold required for election), or by a court, but in each case only if the
external director ceases to meet the statutory qualifications for election or if the external director violates his duty of loyalty to us.
Each committee of a company’s board of directors that is authorized to exercise powers of the board of directors is required to
include at least one external director, and all external directors must be members of the company’s audit committee and
compensation committee. Ms. Faith L. Charles and Ms. Miranda J. Toledano were elected to serve as our external directors in our
2018 annual meeting of shareholders. The term of office of each of Ms. Charles and Ms. Toledano as an external director will
expire in September 2021.
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Board Committees
Our board of directors has established the following committees:
Audit Committee
Composition and Quorum
Under the Companies Law, the board of directors of a public company must establish an audit committee. The audit
committee must consist of at least three directors who meet certain independence criteria and must include all of the company’s
external directors, one of whom must serve as chairperson of the committee. The audit committee may not include the chairman
of the board, a controlling shareholder of the company, a relative of a controlling shareholder, a director employed by or
providing services on a regular basis to the company, to a controlling shareholder or to an entity controlled by a controlling
shareholder, or a director who derives most of his or her income from a controlling shareholder. In addition, under the Companies
Law, the majority of the directors serving on the audit committee of a publicly traded company must be unaffiliated directors. In
general, an “unaffiliated director” under the Companies Law for “public companies,” including companies with shares listed on
Nasdaq, is defined as either an external director or as a director who meets the following criteria:
•
•
he or she meets the primary qualifications for being appointed as an external director, except for the requirements that the director possess
accounting and financial expertise or professional qualifications; and
he or she has not served as a director of the company for a period exceeding nine consecutive years, subject to extension for additional terms under
certain circumstances. For this purpose, a break of less than two years in the service shall not be deemed to interrupt the continuation of the
service.
Under Nasdaq rules and SEC regulations applicable to foreign private issuers, we are required to maintain an audit committee
consisting of independent directors, one of whom has accounting or related financial management expertise and qualifies as an
Audit Committee Financial Expert as such term is defined in Item 407(d)(5) of Regulation S-K of the Securities and Exchange
Act of 1934.
In order for a director to be designated as “independent” under general Nasdaq rules and SEC regulations, he or she must not
have a material relationship with the company that would impair his or her independence, such as, inter alia, a commercial,
consulting, legal, accounting or familial relationships. However, ownership of a significant amount of shares or affiliation with a
major shareholder should not, in and of itself, preclude the board from determining that a director is independent, nor is the board
precluded from appointing its chairman as a member of the audit committee or as chairman of the committee.
In order for a director to be designated as “financially literate” under Nasdaq rules and SEC regulations, he or she is required
to have sufficient understanding of the language of accounting and corporate finance to act as an effective overseer of the
integrity of a company’s financial reporting process and its financial statements, including the selection and oversight of the
performance of the external and internal auditors.
In order for a director to qualify as an Audit Committee Financial Expert under SEC regulations he or she must have education
and experience as chief financial officer, chief accounting officer, controller, public accountant or auditor, or experience in one or
more positions that involve the performance of similar functions or in actively supervising such positions. If no audit committee
member qualifies, the company must state why its audit committee lacks a financial expert.
Our audit committee consists of Miranda J. Toledano (Chairman), Faith L. Charles and Gerald M. Ostrov. Each of the
members of our audit committee is eligible to be classified as an independent director in accordance with SEC regulations and
satisfies the independent director requirements under Nasdaq rules applicable to us. All designated members of our audit
committee meet the requirements for financial literacy Nasdaq rules and SEC regulations. Our board has determined that Ms.
Miranda J. Toledano is an Audit Committee Financial Expert, as such term is defined under applicable SEC rules. Ms. Faith L.
Charles and Ms. Miranda J. Toledano, members of our audit committee, serve as our external directors.
Roles, Responsibilities and Procedures
Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters
involving our accounting, auditing, financial reporting, internal control and legal compliance functions by pre-approving the
services performed by our independent accountants and reviewing their reports regarding our accounting practices. Our audit
committee also oversees the audit efforts of our independent accountants and takes those actions that it deems necessary to satisfy
itself that the accountants are independent of management.
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Our board of directors has adopted an audit committee charter that sets forth the responsibilities of the audit committee
consistent with the rules and regulations of the SEC and the Nasdaq, as well as the requirements for such committee under the
Israeli Companies Law, including: (a) oversight of our independent auditor and appointment, pre-approval of the engagement,
compensation, retention or termination of engagement of our independent auditor (subject to shareholder ratification), and
examination of the scope of work and fees of the independent auditor and submission of recommendations to our shareholders;
(b) review of the independence and quality control procedures of the independent auditor and the experience and qualifications of
the independent auditor’s senior personnel that are providing audit services to the Company; (c) meeting with the Company’s
management and independent auditor to discuss certain issues regarding the annual audit, separately meeting the independent
auditor to discuss certain other audit issues regarding the annual audit, reviewing our annual audited financial statements and
quarterly financial statements with management and the independent auditor, including a review of our disclosures under
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and with respect to the annual audit,
determining whether to recommend to the board of directors that the audited financial statements be included in the Company’s
Annual Report for the fiscal year subject to the audit; (d) discuss with management and the independent auditor the Company’s
earnings press releases, as well as financial information and earnings outlook provided to analysts and rating agencies; (e)
reviewing any impairment in the management of the Company’s business, and suggesting an appropriate course of action to the
board of directors; (f) to the extent required under applicable law, (i) conduct an appropriate review and oversight of all “related
party transactions” for potential conflict of interest situations on an ongoing basis, as required under applicable law, and approve
such transactions, where required; (ii) decide if an action of an officer is “material”; and (iii) decide if a transaction of the
Company with an officer or controlling shareholder (or in which they have a personal interest) is an extraordinary transaction, or
Extraordinary Transaction, and the way in which a non-redundant transaction, or Non-redundant Transaction, shall be approved,
including such type of Non-redundant Transaction which shall require the approval of the Committee; (g) discuss with the
independent auditor and any other organ of the Company as the committee deems appropriate at its sole discretion, any
correspondence from or with regulators or governmental agencies, any employee complaints or any published reports that raise
material issues regarding the Company’s financial statements, financial reporting process, accounting policies or internal audit
function; (h) establish procedures for the receipt, retention and treatment of complaints received by the Company regarding
impairment in the business management, accounting, internal accounting controls or auditing matters and establish procedures for
the confidential and anonymous submission by employees regarding questionable accounting or auditing matters; (i) providing
the Company with the report with respect to the audited financial statements for inclusion in each of the Company’s annual proxy
statements; (j) reporting regularly to, and review with the board of directors any issues that arise with respect to the quality or
integrity of the Company’s financial statements, the Company’s compliance with legal or regulatory requirements, the
performance and independence of the Company’s independent auditor, the performance of the Company’s internal audit function,
the internal auditor’s work plan or any other matter the committee determines necessary or advisable to report to the board of
directors, including any new or proposed accounting policies to be adopted by the Company or any new standards promulgated
by the SEC or other regulatory body; (k) at least annually, performing an evaluation of the performance of the committee and its
members, and, annually reviewing and re-assessing the committee’s charter and submitting any recommended changes to the
board of directors for its consideration; (l) without otherwise limiting or impacting the responsibilities of any other committee of
the board of directors pursuant to applicable law, proposing the appointment, termination and replacement of the internal auditor
to the board of directors as required under the Companies Law; (m) examining the internal audit function and performance and if
he/she has reasonably sufficient resources and tools in order to perform his or her role, taking into account the Company’s special
needs and size; (n) setting clear hiring policies for employees or former employees of the Company’s independent auditor; (o)
discussing the Company’s information security, business continuity programs and controls and systems to monitor and manage
business risk; and (p) any other responsibilities which may be assigned from time to time by the Company’s board of directors.
The responsibilities of an audit committee under the Companies Law include (a) identifying and addressing deficiencies in the
business management practices of the company, including, inter alia, in consultation with our internal auditor or the independent
auditor, and making recommendations to the board of directors as to how to correct such practices; (b) determining whether
certain related party transactions are extraordinary or material under the Israeli Companies Law, including transactions in which
an office holder has a personal interest, and whether to approve such transactions; (c) establishing the approval process for certain
transactions with a controlling shareholder or in which the controlling shareholder has a personal interest; (d) examining and
approving the work plan of the internal auditor, subject to any modifications in its discretion; (e) examining our internal audit
controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to fulfill his
responsibilities; (f) examining the scope of our independent auditor’s work and compensation and submitting its recommendation
with respect thereto to our board of directors or shareholders, depending on which of them is considering the appointment of our
auditor; and (g) establishing procedures for the handling of employees’ complaints as to the management of our business and the
protection to be provided to such employees.
Our audit committee is also responsible for assisting our board of directors in monitoring our financial statements and our
compliance with legal and regulatory requirements.
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A “personal interest” includes an interest of any person in an action or transaction of a company, excluding any interest arising
solely from holding the Company’s shares, but including the personal interest of such person’s spouse, siblings, parents,
grandparents, descendants, spouse’s descendants, siblings or parents or the spouse of any of such persons, and the personal
interest of any entity in which such person or one of the aforementioned relatives of such person serves as a director or chief
executive officer, owns 5% or more of such entity’s outstanding shares or voting rights or has the right to appoint one or more
directors or the chief executive officer. Further, in the case of a person voting by proxy at a shareholder meeting, “personal
interest” includes the personal interest of either the proxy holder or the shareholder granting the proxy, whether or not the proxy
holder has discretion how to vote.
Under the Israeli Companies Law, an Extraordinary Transaction is defined as any of the following:
•
•
•
a transaction other than in the ordinary course of business;
a transaction that is not on market terms; or
a transaction that may have a material impact on a company’s profitability, assets or liabilities.
Our audit committee may not approve any actions requiring its approval, unless, at the time of the approval, a majority of the
committee’s members are present, which majority consists of independent directors.
Compensation Committee
Composition and quorum
Under the Companies Law, the board of directors of a public company must establish a compensation committee. The
compensation committee must consist of at least three directors who meet certain independence criteria and must include all of
the company’s external directors.
Our compensation committee consists of Faith L. Charles (Chairman), Miranda J. Toledano and Gerald M. Ostrov. Our
compensation committee satisfies the requirements of the Companies Law, but not Nasdaq rules applicable to compensation
committees, which the Company has chosen to opt out of as a foreign private issuer. Nevertheless, each member of our
compensation committee is independent under Nasdaq rules. Ms. Faith L. Charles and Ms. Miranda J. Toledano, members of our
compensation committee, serve as our external directors. See “Item 16.G.—Corporate Governance Practices” below.
Roles, responsibilities and procedures
Our board of directors has established a compensation committee and adopted a charter setting forth its purpose, which
includes: (a) assisting the board of directors in discharging its responsibilities relating to (i) the compensation of the Company’s
directors, chief executive officer and other executive officers, and (ii) the overall Company’s compensation programs; (b)
recommending the approval of a compensation policy to the board, in accordance with the requirements of the Companies Law,
and any other incentive-based compensation plans and equity-based plans (collectively, the “Compensation Plans and Policies”);
(c) oversight of the development and implementation of the Compensation Plans and Policies that are appropriate for the
Company in light of all relevant circumstances, and recommend to the board of directors any amendments or modifications to the
Compensation Plans and Policies that the committee deems appropriate, including the extension of Compensation Plans and
Policies as required by the Companies Law; (d) determining whether to approve transactions concerning the terms of engagement
and employment of the Company’s chief executive officer, other executive officers and directors that require the Committee
approval under the Companies Law or the Compensation Plans and Policies; (e) taking any further actions as the committee is
required or allowed to under the Companies Law or the Compensation Plans and Policies; (f) reviewing and approving, or if
required by law, approving and recommending the board of directors to approve grants and awards under the Company’s equity
incentive plans; and (g) reviewing the adequacy of the committee’s charter on an annual basis, and recommending the board of
directors any amendments or modifications to the charter that the committee deems appropriate.
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Compensation Policy
Under the Israeli Companies Law, a compensation policy must be adopted by the board of directors after considering the
recommendations of the compensation committee and needs to be further brought before the company’s shareholders for
approval, referred to herein as the Special Majority Approval for Compensation. A Special Majority Approval for Compensation
requires shareholder approval by a majority vote of the shares present and voting at a meeting of shareholders called for such
purpose, provided that either: (a) such majority includes at least a majority of the shares held by all shareholders who are not
controlling shareholders and do not have a personal interest in such compensation arrangement; or (b) the total number of shares
of non-controlling shareholders and shareholders who do not have a personal interest in the compensation arrangement and who
vote against the arrangement does not exceed 2% of the company’s aggregate voting rights.
The compensation policy must serve as the basis for decisions concerning the terms of employment or engagement of office
holders, including exculpation, insurance, indemnification, indemnification undertakings and any monetary payment and
obligation of payment in respect of employment or engagement. The compensation policy must relate to certain factors, including
advancement of the company’s objectives, the company’s business plan and its long-term strategy, and creation of appropriate
incentives for office holders. It must also consider, inter alia, the company’s risk management, size and the nature of its
operations.
The compensation policy must furthermore consider additional factors, as follows: (a) the knowledge, skills, expertise and
accomplishments of the relevant office holder; (b) the office holder’s roles and responsibilities and prior compensation
agreements with him or her; (c) the ratio between the terms offered and the average compensation of the other employees of the
company, including those employed through manpower companies; (d) the impact of disparities in salary upon work relationships
in the company; (e) the possibility of reducing variable compensation at the discretion of the board of directors; (f) as to variable
compensation, the possibility of setting a limit on the exercise value of non-cash variable equity-based compensation; and (g) as
to severance compensation, the period of service of the office holder, the terms of his or her compensation during such service
period, the company’s performance during that period of service, the person’s contribution towards the company’s achievement
of its goals and the maximization of its profits, and the circumstances of termination of service.
A compensation policy must also include the following principles: (a) the link between variable compensation and long-term
performance and measurable criteria; (b) the ratio between variable and fixed compensation, and the ceiling for the value of
variable compensation; (c) the conditions under which an office holder would be required to repay compensation paid to him or
her if it was later shown that the data upon which such compensation was based was inaccurate and was required to be restated in
the company’s financial statements; (d) the minimum holding or vesting period for variable, equity-based compensation; and (e)
maximum limits for severance.
Under the Israeli Companies Law, every three years we are required to re-obtain the approval of our compensation committee,
board of directors and shareholders for either the continuation of our existing compensation policy or adoption of a new
compensation policy, provided however that the compensation policy adopted within nine months from the closing of our initial
public offering is valid for five years, specifically July 2, 2023. Our compensation policy was adopted by our shareholders on
September 27, 2018 (following our initial public offering dated July 2, 2018), after having been recommended by our
compensation committee and approved by our board of directors, and will therefore need to be either re-approved, amended, or
replaced by a new policy only in 2023, and every three years thereafter.
Our compensation committee may conduct or authorize investigations into, or studies of, matters within its scope of
responsibilities, and may retain or obtain the advice of a compensation consultant, legal counsel or other advisor in its sole
discretion. The compensation committee is directly responsible for the appointment, compensation and oversight of the work of
any compensation consultant, legal counsel or other advisor that it retains, at the expense of the Company. The compensation
committee may select, or receive advice from, a compensation consultant, legal counsel or other advisor to the compensation
committee, other than in-house legal counsel, only after conducting an assessment of, and determining, the advisor’s
independence, including whether the advisor’s work has raised any questions of independence or conflicts of interest, taking into
consideration the Exchange Act, the factors set forth in Nasdaq rules and any other factors that the committee deems relevant.
In 2017, in determining the compensation of certain executive officers, including bonus amounts, in 2018 in determining our
compensation policy and in 2019 in determining the compensation of our chief executive officer the compensation committee
retained the services of a compensation consultant, Brightman Almagor Zohar & co., or Deloitte, to conduct a comparative
survey of the compensation of such office holders. The 2017 and 2018 surveys examined the publicly-reported cash and equity
compensation of chief executive officers and other executive officers, of 8 comparable Israeli pharmaceutical and biotechnology
companies. The 2019 comparative survey examined the publicly-reported cash and equity compensation of board members of 9
comparable U.S., and 6 comparable Israeli pharmaceutical and biotechnology companies.
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Internal Auditor
Under the Companies Law, the board of directors is required to appoint an internal auditor recommended by the audit
committee. The role of the internal auditor is to examine, inter alia, whether the company’s actions comply with applicable law
and proper business procedures. The internal auditor may not be an interested party, an officer or director of the company, or a
relative of any of the foregoing, nor may the internal auditor be our independent accountant or any person on its behalf. An
“interested party” means any person who serves as a director or chief executive officer, owns 5% or more of such entity’s
outstanding shares or voting rights or has the right to appoint one or more directors or the chief executive officer. In January
2019, Ms. Irena Ben-Yakar from Deloitte was appointed as the Company’s internal auditor.
Exculpation, Insurance and Indemnification of Directors and Officers
Under the Companies Law, a company may not exculpate an office holder (including director) from liability for a breach of
the duty of loyalty. An Israeli company may exculpate an office holder in advance from liability to the company, in whole or in
part, for damages caused to the company as a result of a breach of duty of care but only if a provision authorizing such
exculpation is included in its articles of association. Our Articles include such a provision. Notwithstanding, a company may not
exculpate in advance a director from liability arising out of a breach of duty of care caused by dividend or distribution to
shareholders.
Under the Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses
incurred for acts performed by him or her as an office holder, either pursuant to an undertaking made in advance or following the
indemnified event, if its articles of association includes a provision allowing such indemnification:
•
•
•
financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved
by a court. However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking
must be limited to events which, in the opinion of the board of directors, can be foreseen based on the company’s activities when the undertaking
to indemnify is given, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and
such undertaking shall detail such foreseen events and amount or criteria;
reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (1) as a result of an investigation or proceeding instituted
against him or her by an authority authorized to conduct such investigation or proceeding, provided that (i) no indictment was filed against such
office holder as a result of such investigation or proceeding, and (ii) no financial liability was imposed upon him or her as a substitute for the
criminal proceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an
offense that does not require proof of criminal intent; and (2) in connection with a forfeit; and
reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him
or her by the company, on its behalf or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as
a result of a conviction for an offense that does not require proof of criminal intent.
Under the Companies Law, a company may insure an office holder against the following liabilities incurred for acts performed
by him or her as an office holder, if and to the extent provided in the company’s articles of association:
•
•
•
a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had reasonable grounds to believe that the
act would not harm the company;
a breach of the duty of care to the company or to a third party; and
a financial liability imposed on the office holder in favor of a third party.
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However, under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the
following:
•
•
•
•
a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the
office holder acted in good faith and had a reasonable grounds to believe that the act would not harm the company;
a breach of the duty of care committed intentionally or recklessly, excluding a breach arising out of the negligent conduct of the office holder;
an act or omission committed with intent to derive illegal personal benefit; or
a fine, monetary sanction, forfeit or penalty levied against, or imposed upon, the office holder.
Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be
approved by the compensation committee and the board of directors, and with respect to certain office holders or under certain
circumstances, also by the shareholders.
Our Articles permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted
by the Companies Law.
We have obtained, subject to shareholder approval, directors and officers liability insurance for the benefit of our office
holders of $15 million per annum. We intend to maintain such coverage and pay all premiums thereunder to the fullest extent
permitted by the Companies Law. In addition, we have entered into agreements with each of our directors and executive officers
exculpating them from liability to us for damages caused to us as a result of a breach of duty of care and undertaking to
indemnify them, in each case, to the fullest extent permitted by our Articles and Israeli Law.
6.D. Employees
As of December 31, 2019, we had 24 employees and consultants based in Israel, including 20 full-time employees, threepart
time employees, and one part-time consultant who serves as our Israel-based CFO. In addition, we had six employees and
consultants based in the U.S., including one full time employee, our CEO, and five additional part-time consultants, including our
CMO and U.S-based CFO. Six of our employees and consultants have either PhDs or MDs. The distribution of our full-time
employees according to main areas of activity is set forth in the following table:
Area of Activity:
Research and development
General and administrative
Total
Employees
15
6
21
Israeli labor laws govern the length of the workday and workweek, minimum wages for employees, procedures for hiring and
dismissing employees, determination of severance pay, annual leave, sick days, advance notice of termination, payments to the
National Insurance Institute, and other conditions of employment and include equal opportunity and anti-discrimination laws.
While we are not, and none of our employees is, party to any collective bargaining agreements, certain provisions of the
collective bargaining agreements between the Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of
Economic Organizations (including the Industrialists’ Associations) are applicable to our employees in Israel by order of the
Israeli Ministry of the Economy. These provisions primarily concern pension fund benefits for all employees, insurance for work-
related accidents, recuperation pay and travel expenses. We generally provide our employees with benefits and working
conditions beyond the required minimums. We have never experienced any employment-related work stoppages and believe our
relationships with our employees are good.
122
6.E. Share Ownership
The following table provides information with respect to our securities held by our directors and executive officers as of
March 15, 2020:
Type of
Security
Shares
Options
Options
Options
Shares
Options
Options
Name
Dr. Phillip
Schwartz
Mr. Adam
Gridley
Dr. Arthur
Sentora
Dr. Hillel
Galitzer
Mrs. Faith
Charles
Number of
Securities(1)
Options/warrants
Exercise Price ($)
Options/
warrants
Exercise Date
Expiration
Date
Percent of
Shares
Outstanding(2)
578,630
-
357,500
6.31
11/23/2021
11/23/2023
696,598
2.75
08/05/2023
08/05/2029
4.36%
-
25,000
3.97
1/16/2022
1/17/2029
*
36,010
143,000
6.31
11/15/2021
11/15/2023
33,638
3.97
09/27/2021
1/17/2029
*
*
* Less than 1%
(1) As of March 15, 2020.
(2) The percent of shares outstanding held by each beneficial ownership of our Ordinary Shares is determined in accordance with
the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such
rules, beneficial ownership, generally, includes any shares over which a person exercises sole or shared voting or investment
power, or the right to receive the economic benefit of ownership. For purposes of the table and the related footnotes, unless
described otherwise within the footnotes, we deem Ordinary Shares issuable pursuant to options or warrants that are currently
exercisable or exercisable within 60 days as of March 15, 2020 to be outstanding and to be beneficially owned by the person
holding the options or warrants for the purposes of computing the percentage ownership of that person, but we do not treat them
as outstanding for the purpose of computing the percentage ownership of any other person.
On May 20, 2019, and on February 18, 2020, our shareholders approved the grant of options to certain of our non-executive
directors. See “Item 6.B.—Compensation—Compensation of Executive Officers and Directors— Compensation of Directors.”
Equity Incentive Plans
Share Incentive Plan
On March 17, 2013, our board of directors approved our 2013 Plan for the granting of stock options, restricted share units,
restricted share awards and performance-based awards, in order to provide incentives to our employees, directors, consultants
and/or service providers. As of December 31, 2019, 1,680,469 Ordinary Shares were issuable upon the exercise of outstanding
awards under the 2013 Plan, at a weighted-average exercise price of $5.89 per share. Of the foregoing outstanding awards,
options to purchase 1,481,764 Ordinary Shares, in the aggregate, had vested under the 2013 Plan as of that date, with a weighted-
average exercise price of $5.82 per share.
Awards granted under the 2013 Plan are subject to vesting schedules and generally vest over a four-year period commencing
from the applicable grant date, such that 25% of the awards vest on the first anniversary of the applicable grant date and 75% of
the awards vest in 12 equal installments upon the lapse of each three-month period following the first anniversary of the
applicable grant date. Subject to the discretion of the 2013 Plan administrator, if an award has not been exercised within six years
after the date of the grant, the award expires. Any period in which a grantee is not our employee or has taken a leave of absence
will not be included in such vesting period.
123
The 2013 Plan provides for granting awards in compliance with Section 102 of the Israeli Income Tax Ordinance, 5721-1961,
or the Ordinance, which provides to employees, directors and officers, who are not controlling shareholders (as defined in the
Ordinance) and are Israeli residents, favorable tax treatment for compensation in the form of shares or equity awards issued or
granted, as applicable, to a trustee under the capital gains track, or Capital Gains Track, for the benefit of the relevant employee,
director or officer and are, or were, to be held by the trustee for at least two years after the date of grant or issuance. Under the
Capital Gains Track, any accounting expense with respect to the grant or issuance of such shares or awards which relates to gain
taxed as capital gains is not allowed as a deduction for tax purposes.
The 2013 Plan addresses the treatment of vested and unvested awards upon the cessation of employment or engagement of the
award holder as well as upon consummation of a merger, consolidation or similar transaction, or sale of all or substantially all of
our assets or sale of at least 80% of our outstanding securities. The 2013 Plan also provides for certain lock-up arrangements
upon consummation of a public offering.
The 2013 Plan is administered by our board of directors or by a committee appointed by our board of directors. Upon the
completion of our initial public offering, the remaining pool of reserved Ordinary Shares under the 2013 Plan was cancelled, and
the only reserved Ordinary Shares available for grants to our employees, directors, consultants and service providers in the future
are those under the 2018 Plan.
2018 Equity Incentive Plan
On July 2, 2018, in connection with the consummation of our initial public offering, our board of directors approved our 2018
Plan, with the purpose of advancing the interests of our shareholders by enhancing our ability to attract, retain and motivate
individuals to perform at the highest level. The 2018 Plan governs issuances of equity incentive awards from and after the closing
of our initial public offering. The maximum number of Ordinary Shares initially available for issuance under equity incentive
awards granted pursuant to the 2018 Plan could not exceed 12% of the total outstanding Ordinary Shares as of the time of
adoption. On January 1, 2019 and on January 1 of each calendar year thereafter, an additional number of shares equal to 5% of
the total outstanding Ordinary Shares on such date (or any lower number of shares as determined by our board of directors) have
and will become available for issuance under the 2018 Plan. As of December 31, 2019, a total of 207,563 Ordinary Shares
representing 6.53% of the total outstanding shares as of that date remained available for issuance under the 2018 Plan. In January
2020, pursuant to the annual evergreen provision and following the approval of our board of directors, an additional 893,234
Ordinary Shares, equal to 5% of the total outstanding shares as of January 1, 2020, became available for issuance under the 2018
Plan.
Equity incentive awards may be granted to our employees, non-employee directors, consultants or other advisors, as well as
holders of equity compensation awards granted by a company that may be acquired by us in the future. Awards under the 2018
Plan may be granted in the form of options, share appreciation rights, restricted shares, restricted share units, performance awards
or other share-based awards. Options and share appreciation rights will have an exercise price determined by the administrator
but that is no less than fair market value of the underlying Ordinary Shares on the date of grant.
The vesting conditions for grants under the 2018 Plan will be determined by the administrator and, in the case of restricted
shares and restricted share units, will be set forth in the applicable award documentation.
In the event of a participant’s termination of employment, the administrator may, in its discretion, determine the extent to
which an equity incentive award may be exercised, settled, vested, paid or forfeited. In the event of a change in control (as
defined in the 2018 Plan) of the Company, the compensation committee may, in its discretion, take a number of actions with
respect to awards outstanding under the 2018 Plan, including the following: (i) continuing awards or converting such awards into
an award or right with respect to shares of the successor or surviving corporation; (ii) immediately vesting and settling awards (or
in the case of options and share appreciation rights, providing that such awards will become fully exercisable); (iii) cancelling
unvested awards for no consideration; (iv) terminating or cancelling awards in exchange for a cash payment; and (v) providing
that awards may be assumed, exchanged, replaced or continued by the successor or surviving corporation with cash, securities,
rights or other property. In the event of a structural change of the Company (i.e., a transaction in which the Company’s shares
immediately prior to the transaction are converted into or exchanged for shares that represent at least a majority of the share
capital of the surviving corporation, such as a re-domestication of the Company or a share flip), outstanding awards will be
exchanged or converted into awards to acquire shares of the company (if it is the surviving corporation) or the successor
company in accordance with the applicable exchange ratio.
124
The 2018 Plan is administered by the board of directors, provided that the board of directors may delegate its authority to the
compensation committee to administer the 2018 Plan.
The 2018 Plan provides for granting awards in compliance with Section 102 of the Ordinance, which provides to employees,
directors and officers of the Company, who are not controlling shareholders (as defined in the Ordinance) of the Company and
are Israeli residents, potential favorable tax treatment for compensation in the form of shares or equity awards issued or granted,
as applicable, to a trustee under the Capital Gains Track for the benefit of the relevant employee, director or officer, subject to
compliance with the terms and conditions of such tax track. Under the Capital Gains Track, any accounting expense with respect
to the grant or issuance of such shares or awards which relates to gain taxed as capital gains is not allowed as a deduction for tax
purposes.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
7.A. Major Shareholders
The following table sets forth information with respect to the beneficial ownership of our Ordinary Shares (i) each person or
entity known by us to own beneficially 5% or more of our outstanding Ordinary Shares (as of the date of such shareholder’s
Schedule 13G filing for Entera Bio Ltd. with the SEC); (ii) each of our directors and executive officers individually; and (iii) all
of our executive officers and directors as a group.
According to our transfer agent, as of March 15, 2020, there were 92 record holders of our Ordinary Shares, among whom 75
are U.S. holders who beneficially own less than 50% of our Ordinary Shares. None of our shareholders has different voting rights
from other shareholders.
The beneficial ownership of our Ordinary Shares is determined in accordance with the rules of the SEC, and the information is
not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership, generally,
includes any shares over which a person exercises sole or shared voting or investment power, or the right to receive the economic
benefit of ownership. For purposes of the table and the related footnotes, unless described otherwise within the footnotes, we
deem Ordinary Shares issuable pursuant to options or warrants that are currently exercisable or exercisable within 60 days as of
March 15, 2020 to be outstanding and to be beneficially owned by the person holding the options or warrants for the purposes of
computing the percentage ownership of that person, but we do not treat them as outstanding for the purpose of computing the
percentage ownership of any other person, except with respect to the percentage ownership of all executive officers and directors
as a group. The percentage of Ordinary Shares beneficially owned is based on 18,202,237 Ordinary Shares outstanding as of
March 15, 2020. The beneficial ownership data provided below is based solely on information available to our Company and, in
the case of major shareholders, has not been verified further. Except where otherwise indicated, we believe, based on information
furnished to us by such owners, that the beneficial owners of the Ordinary Shares listed below have sole investment and voting
power with respect to such shares.
Unless otherwise noted below, each shareholder’s address is c/o Entera Bio Ltd., Kiryat Hadassah, Minrav Building - Fifth
Floor, Jerusalem, Israel and 37 Walnut Street, Suite 300 Wellesley Hills Massachusetts, U.S.
Name
5% or Greater Shareholders (other than directors and executive officers)
D.N.A Biomedical Solutions Ltd.(1)
Gakasa Holdings LLC(2)
Capital Point Ltd.(3)
Centillion Fund, Inc.(4)
Menachem Ehud Raphael(5)
Executive Officers and Directors:
Zeev Bronfeld(6)
Yonatan Malca(7)
Dr. Phillip Schwartz(8)
Gerald Lieberman(9)
Dr. Roger J. Garceau(10)
Dr. Hillel Galitzer(11)
Jonathan Lieber(12)
Dr. Arthur Santora(13)
Faith L. Charles(14)
Miranda J. Toledano(15)
Gerald M. Ostrov(16)
Sean Ellis(17)
Adam Gridley
Dana Yaacov-Garbeli
All Directors and Executive Officers as a Group (14 persons)(18)
Number and Percentage of
Ordinary Shares
Number
Percent
3,762,959
2,374,275
1,604,820
1,402,310
1,475,237
3,779,778
3,779,778
802,848
312,737
363,220
125,385
7,596
14,065
16,819
16,819
14,016
8,410
-
-
1,715,552
20.48%
12.61%
8.78%
7.59%
7.89%
20.56%
20.56%
4.36%
1.70%
1.96%
*
*
*
*
*
*
*
-
-
8.94%
125
* Less than 1%
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
Based partly on the Schedule 13G/A filed by D.N.A Biomedical with the SEC on February 18, 2020 regarding its holdings. Zeev Bronfeld is the
controlling shareholder of D.N.A Biomedical. By reason of such control, Zeev Bronfeld may be deemed to be beneficial owner of, and to share
the power to vote and dispose of, the shares beneficially owned by D.N.A Biomedical. Mr. Bronfeld disclaims beneficial ownership of the shares
held by D.N.A Biomedical. D.N.A’s holdings consisted of: (i) 3,256,630 Ordinary Shares as reported, (ii) 337,553 Ordinary Shares and (iii)
Investor Warrants to purchase 168,776 Ordinary Shares exercisable within 60 days as of March 15, 2020, issued to D.N.A on February 18, 2020
following our shareholders’ approval of D.N.A’s participation in our Private Placement. D.N.A’s address is at Shimon Hatarsi 43 St., Tel Aviv,
Israel.
Consists of (i) 1,741,363 Ordinary Shares and (ii) warrants to purchase 632,912 Ordinary Shares, exercisable within 60 days as of March 15,
2020. Gakasa Holdings LLC’s address is 201 S. Biscayne Blvd., Suite 800, Miami, Florida.
Based solely on the Schedule 13G/A filed by Capital Point Ltd. with the SEC on February 13, 2020 regarding its holdings as of December 31,
2019. Capital Point Ltd. reported that its holdings comprised of (i) 1,521,520 Ordinary Shares, and (ii) warrants to purchase 83,300 Ordinary
Shares exercisable within 60 days as of March 15, 2020. Capital Point Ltd.’s address is at 1 Azrieli Towers Tel Aviv, 67021 Israel.
Based on solely the Schedule 13G/A filed by Centillion Fund, Inc. with the SEC on March 11, 2020 regarding its holdings as of December 31,
2019. Centillion Fund Inc. reported that its holdings comprised of i) 1,131,130 Ordinary Shares and (ii) warrants to purchase 271,180 Ordinary
Shares, exercisable within 60 days as of March 15, 2020. Centillion Fund, Inc.’s address is at 10 Manoel Street, Castries, Saint Lucia.
Based solely on the Schedule 13G filed by Menachem Ehud Raphael with the SEC on March 9, 2020 regarding its holdings as of December 31,
2019. Menachem Ehud Raphael further reported that its holdings consist of (i) 975,258 Ordinary Shares, and (ii) 499,979 Ordinary Shares
underlying options to acquire Ordinary Shares, exercisable within 60 days as of December 31, 2019. Menachem Raphael’s address is at 12
Ha’seora, Tel Aviv, Israel.
Based on the Schedule 13G/A filed by Mr. Zeev Bronfeld with the SEC on February 18, 2020 regarding its holdings as of December 31, 2018.
Mr. Bronfeld is the controlling shareholder of D.N.A Biomedical. By reason of such control, Mr. Bronfeld may be deemed to be beneficial owner
of, and to share the power to vote and dispose of, the shares beneficially owned by D.N.A Biomedical. Mr. Bronfeld disclaims beneficial
ownership of the shares held by D.N.A Biomedical. D.N.A holdings comprised of: (1) 3,256,630 Ordinary Shares as reported, and (ii) on
February 18, 2020 following our shareholders’ approval of D.N.A investment, we issued to D.N.A 337,553 Ordinary Shares and warrants to
purchase 168,776 Ordinary Shares exercisable within 60 days as of March 15, 2020. In addition, his holdings consist of 16,819 Ordinary Shares
underlying options to acquire Ordinary Shares, exercisable within 60 days of March 15, 2020.
Mr. Yonatan Malca is the CEO and a director of D.N.A Biomedical. In addition, his holdings consists of 16,819 Ordinary Shares underlying
options to acquire Ordinary Shares, exercisable within 60 days of March 15, 2020.
Consists of (i) 579,410 Ordinary Shares and (ii) 223,438 Ordinary Shares underlying options to acquire Ordinary Shares, exercisable within 60
days of March 15, 2020.
Consists of (i) 97,872 Ordinary Shares, (ii) 175,159 Ordinary Shares underlying options to acquire Ordinary Shares, exercisable within 60 days
of March 15, 2020, and (iii) warrants to purchase 39,706 Ordinary Shares.
Consists of (i) 4,940 Ordinary Shares (ii) 356,330 Ordinary Shares underlying options to acquire Ordinary Shares, exercisable within 60 days of
March 15, 2020, and (iii) warrants to purchase 1,950 Ordinary Shares.
Consists of (i) 36,010 Ordinary Shares and (ii) 53,625 Ordinary Shares underlying options to acquire Ordinary Shares, exercisable within 60 days
of March 15, 2020.
Consists of 7,596 Ordinary Shares underlying options to acquire Ordinary Shares, exercisable within 60 days of March 15, 2020.
Consists of 14,065 Ordinary Shares underlying options to acquire Ordinary Shares, exercisable within 60 days of March 15, 2020.
Consists of 16,819 Ordinary Shares underlying options to acquire Ordinary Shares, exercisable within 60 days of March 15, 2020.
Consists of 16,819 Ordinary Shares underlying options to acquire Ordinary Shares, exercisable within 60 days of March 15, 2020.
Consists of 14,016 Ordinary Shares underlying options to acquire Ordinary Shares, exercisable within 60 days of March 15, 2020.
Consists of: 8,410 Ordinary Shares underlying options to acquire Ordinary Shares, exercisable within 60 days of March 15, 2020.
Consists of (i) 718,232 Ordinary Shares, (ii) options to acquire 955,664 Ordinary Shares, exercisable within 60 days of December 31, 2019, and
(iii) warrants to purchase 41,656 Ordinary Shares.
126
Changes in Ownership of Major Shareholders
During the last three years, there were significant changes in percentage ownership by major shareholders (i.e., holders of
5% or more of our Ordinary Shares), including as detailed below:
•
•
•
•
•
D.N.A Biomedical, a major shareholder, beneficially owned 34.8% of the Company at the time of our IPO, but owned 18.23% as of December 31,
2019.
Gakasa Holdings LLC, a new major shareholder, beneficially owned 13.04% of the Company as of December 11, 2019.
Centillion Fund, Inc., a major shareholder, beneficially owned 17.3% of the Company at the time of our IPO, but owned 7.59% as of December
31, 2019.6
Pontifax Management 4 GP (2015) Ltd., a former significant shareholder, ceased to beneficially own more than 5% of the Company in 2019, and
owned 1.3% as of December 31, 2019.
Phillip Schwartz, a former significant shareholder, ceased to beneficially own more than 5% of the Company in 2019, having dropped to 4.32% as
of December 31, 2019.
7.B. Related Party Transactions
For information regarding compensation of our directors and officers, see “Item 6.B.–Compensation.”
Private Placement
Between December 2019 and February 2020, we entered into a private placement offering (the “Private Placement”), with a
group of accredited investors, or the Investors, including D.N.A Biomedical, our largest shareholder, Mr. Gerald Lieberman, the
chairman of the board, Menachem Ehud Raphael and Gakasa Holdings LLC, both significant shareholders of the Company, for
an aggregate gross proceeds of $14.3 million from the sale of an aggregate amount of 6,047,706 Ordinary Shares, at a price of
$2.37 per share. In addition, we granted the Investors and certain finders an aggregate of 3,300,646 three-year Investor Warrants
to purchase up to an additional 3,300,646 Ordinary Shares at an exercise price in the range of $2.37 and $2.96 per share.
On the first closing, dated December 11, 2019, we received gross proceeds of $11.8 million from the sale of 4,982,301
Ordinary Shares. In addition, as part of the first closing of the Private Placement, we granted the Investors and certain finders an
aggregate 2,693,573 warrants to purchase up to an additional 2,693,573 Ordinary Shares. As part of the first closing, Mr. Gerald
Lieberman has invested an amount of $150,000 and was issued 63,292 Ordinary Shares and 31,646 Investor Warrants to purchase
up to an additional 31,646 Ordinary Shares.
On the second closing, dated December 18, 2019, we received gross proceeds of $1.7 million from the sale of 727,852
Ordinary Shares. In addition, as part of the closing of the second closing, we granted the Investors and certain finders an
aggregate 438,296 Investor Warrants to purchase up to an additional 438,296 Ordinary Shares.
On the final closing of the Private Placement, which occurred on February 18, 2020, we received gross proceeds of $0.8
million from D.N.A Biomedical, our principal shareholder, from the sale of 337,553 Ordinary Shares. In addition, as part of final
closing, we granted D.N.A Biomedical an aggregate of 168,776 Investor Warrants to purchase up to an additional 168,776
Ordinary Shares.
For further information with respect to the Private Placement, see “Item 10. Additional Information—C. Material Contracts—
Private Placement.” For further information with respect to the Investor Warrants, see “Item 10. Additional Information—A.
Share Capital—Investor Warrants.”
127
Agreements and Arrangements with, and Compensation of, Directors and Executive Officers
Service and Employment Agreements
Mr. Adam Gridley
We entered into an Employment Agreement, effective as of August 2019, with Mr. Adam Gridley, in connection with his
appointment as our Chief Executive Officer and a member of our board of directors. Pursuant to the agreement, Mr. Gridley is
entitled to an annual base salary of $475,000 and an annual bonus of up to 50% of his base salary (up to $237,500), subject to
achieving key performance indicators as determined by the compensation committee and Mr. Gridley’s continued employment
through the payment date. Additionally, Mr. Gridley is eligible to participate in the Company’s standard full-time employment
benefits that are offered by the Company from time to time, which currently include medical, short term disability and 401(k)
benefits. Mr. Gridley is also generally entitled to reimbursement for travel and other business expenses and other benefits,
including, vacation, holidays and sick leave. Subject to applicable law, as long as Mr. Gridley is employed by the Company, he is
also covered by our D&O insurance policy.
We have also granted Mr. Gridley options to purchase 696,591 Ordinary Shares under the 2018 Plan, effective as of August
2019, at an exercise price of $2.75, with 25% of the options vesting on the first anniversary of his employment commencement
date, and the remaining 75% of the options vesting in equal quarterly increments over the following three (3) years, so long as he
remains employed on a full time basis (irrespectively if he continues to serve as our director). In the event of a Change in Control
(as defined in the 2018 Plan) any outstanding unvested options shall vest and become fully exercisable (as long as Mr. Gridley
continues to provide services to the Company at that time).
Mr. Gridley’s employment can be terminated by either the Company or Mr. Gridley for any reason (or for no reason), at any
time, provided that if the termination is without Cause, thirty (30) days’ prior written notice will be required by either party. The
Company may elect to pay the applicable portion of Mr. Gridley’s annual base salary during the notice period in lieu of providing
notice. In the event Mr. Gridley’s employment is terminated by the Company without Cause, or if Mr. Gridley resigns for Good
Reason, he will be entitled to receive (i) a lump sum severance payment equal to one times his then-effective annual base salary
and (ii) a pro-rata portion of the then-applicable bonus payment. For the definitions of “Cause” and “Resignation for Good
Reason,” please see “Proposal 1” under the Company’s Proxy Statement on Form 6-K (File No. 001-38556) filed with the SEC
on August 29, 2019.
In March 2020, the board of directors approved a one- time bonus in the amount of $110,000 to Mr. Gridley, subject to
shareholders approval.
Dr. Phillip Schwartz
In June 2019, we amended the terms of the compensation of Dr. Phillip Schwartz in connection with the termination of his
office as our Chief Executive Officer and his appointment as President of Research and Development. Under the terms of the
amendment, the 357,000 options granted to Dr. Schwartz in November 2017 that remained outstanding will continue to vest so
long as Dr. Schwartz continues to be employed as an officer of the Company (irrespectively if he continues to serve as our
director). If Dr. Schwartz’s employment with the Company is terminated either by him for Good Reason or by the Company for
any reason other than for Cause, then 100% of such options will be accelerated and fully vested and exercisable as of such date of
termination. In the case of his involuntary termination for Good Reason, the exercise window of the options will be extended by a
twelve (12) month period. For the definitions of “Good Reason” and “Cause,” please see “Proposal 2” under the Company’s
Proxy Statement on Form 6-K (File No. 001-38556) filed with the SEC on August 29, 2019. Further, under the terms of the
amendment, in the event of a termination of Dr. Schwartz’s employment, Dr. Schwartz is required to give six (6) months’ prior
notice to the Company, and the Company is required to provide Dr. Schwartz with advance notice of one (1) month. On the last
day of Dr. Schwartz’s employment, the Company shall pay him severance in a lump sum in an amount equal to six (6) months of
his then-current base salary, as well as all accrued and unused vacation days and any accrued and unpaid bonuses (to the extent
that Dr. Schwartz is entitled to such bonus as of the termination date).
In March 2020, the board of directors determined to amend the terms of compensation of Dr. Schwartz, our President of Research
and Development, subject to shareholders approval. Under the amended terms, Dr. Schwartz will be entitle to an annual base
salary of $293,164, effective January 1, 2020. In addition, Dr. Schwartz is entitled to a one- time bonus in the amount of $30,000.
Mr. Jonathan Lieber
In November 2019, we entered into Consulting Agreement with Danforth Advisors, LLC, or Danforth, for the provision
of certain investor relations activities, U.S. financing activities and support finance team services, including CFO services, to be
rendered by Mr. Jonathan Lieber. The agreement is for an unlimited term, subject to a termination of Mr. Lieber’s services for
Cause, which requires thirty (30) days’ prior written notice , or termination without Cause, which requires sixty (60) days’ prior
written notice.“Cause,” includes (i) a breach of the terms of the agreement which is not cured within thirty days of written notice
of such default, or (ii) the commission of any act of fraud, embezzlement or deliberate disregard of a rule or policy of the
Company.
128
Pursuant to the agreement, Danforth is entitled to a fee of $350 per hour for the provision of CFO services by Mr. Lieber. Mr.
Lieber generally provides approximately 16 hours per week of service, and we anticipate that Mr. Lieber will continue to provide
the same number of hours per week. Danforth reserves the right to an annual increase in consultant rates of up to 4%, effective
January 1 of each year, commencing on January 1, 2020. In January 2020, the fees per hour increased and are $364 per hour.
Additionally, pursuant to the agreement, Danforth is entitled to reimbursement for reasonable out-of-pocket business expenses
incurred by Danforth in performing the services hereunder, including but not limited to travel and parking.
The terms of compensation for the provision of CFO services by Mr. Lieber also include the grant of options to Danforth.
Under the terms of the agreement, we granted Danforth options to purchase 30,385 Ordinary Shares of the Company, under the
Company’s 2018 Plan, with an exercise price of $2.53, which will vest over two years in 24 equal monthly installments starting
November 18, 2019 (provided that no earlier termination has occurred). If the Company terminates the Consulting Agreement
before November 18, 2020, other than for a Cause, all such options shall become fully vested.
Dr. Roger J. Garceau
In April 2017, and effective as of December 2016, the Company entered into a Service Agreement with our director, Dr. Roger
J. Garceau, pursuant to which Dr. Garceau will be entitled to a monthly fee in the amount of $6,500 per month, and to
reimbursements for certain expenses. On January 17, 2019, our board of directors approved an amendment to Dr. Garceau’s
Service Agreement, which provided that the scope of services would be reduced to 20 hours per month and the monthly payment
provided to Dr. Garceau was reduced to $4,000, effective as of November 1, 2018.
Mr. Chaim Davis
Pursuant to an arrangement between us and Mr. Chaim Davis, a former member of our board of directors, Mr. Davis provided
us with certain services related to corporate business development in consideration for a one-time payment of $25,000 paid in
April 2017 and a monthly fee of $6,500. In addition, in November 2017, our board of directors and our shareholders approved a
bonus of $35,000, which was paid to Mr. Davis in December 2017. Effective as of January 1, 2019, Mr. Davis’ monthly payment
for his services reduced to $4,000.
Dr. Arthur Santora
In September 2018, we entered into arrangements with Kinexum Services LLC, or Kinexum, for the provision of Chief
Medical Officer services, to be rendered by Dr. Arthur Santora. Such arrangements include a Statement of Work for the term
ending September 3, 2019, or the SOW, with an unlimited option to extend by mutual consent. Pursuant to the SOW, Kinexum is
entitled to a monthly retainer fee in the amount of $17,812.50 for providing a minimum of fifty hours of Chief Medical Officer
services (at a discounted rate). If Dr. Santora exceeds the monthly fifty-hour cap but does not exceed eighty hours, Kinexum shall
be entitled to an hourly fee of $356.25 for any hour exceeding the fifty-hour cap. In addition, Kinexum is entitled to $475 per
hour, for any hour exceeding eighty hours per month. In no event shall the amount of hours per each calendar month shall exceed
120 hours (maximum monthly fees are $47,500). Additionally, pursuant to the SOW, Kinexum is entitled to receive expenses and
other costs such as travel, lodging, and production/shipping. In 2019, we and Kinexum have agreed to extend the terms of the
SOW until further notice.
In addition, the Company and Dr. Santora entered into a direct arrangement for Dr. Santora’s services on behalf of Kinexum
on September 20, 2018, under which the Company undertook, inter alia, to appoint Dr. Santora as an executive officer of the
Company, and to grant Dr. Santora equity compensation to be determined by the Company. As of January 2019, we have granted
Dr. Santora options to purchase 25,000 Ordinary Shares under the Company’s 2018 Plan, at an exercise price of $3.97, with 25%
of the options vesting on March 1, 2019, and the remaining 75% of the options vesting equal quarterly increments over the
following three (3) years starting January 17, 2020.
In March 2020, the board of directors approved to grant Dr. Santora 40,000 options to purchase 40,000 Ordinary Shares of the
Company, under the Company’s 2018 Plan, with an exercise price of $2.14. The options vest over 4 years from the date of grant.
25% will vest on the first anniversary of the date of grant and the remaining 75% options shall vest in twelve equal quarterly
installments following the first anniversary of the grant date. The options grant is subject to shareholder approval.
Kinexum also provides general regulatory services to the Company, in the ordinary course of business, in addition to the
services provided by Dr. Santora as Chief Medical Officer.
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Dr. Hillel Galitzer
In March 2020, the board of directors determined to amend the terms of compensation of Dr. Galitzer, our Chief Operating
Officer. Under the amended terms, Dr. Galitzer will be entitled to an annual base salary of $203,987, effective January 1, 2020. In
addition, Dr. Galitzer is entitle to a one- time bonus in the amount of $50,000.We also granted Dr. Galitzer 175,000 options to
purchase 175,000 Ordinary Shares of the Company, under the Company’s 2018 Plan, with an exercise price of $2.14. The options
vest over 4 years from the date of grant. 25% will vest on the first anniversary of the date of grant and the remaining 75% options
shall vest in twelve equal quarterly installments following the first anniversary of the grant date.
Ms. Dana Yaacov-Garbeli
In March 2020, the board of directors determined to amend the terms of the consulting agreement with Ms. Yaacov- Garbeli,
our Israeli-based CFO, subject to shareholder approval. Under the amended terms, Ms. Yaacov-Garbeli will be entitled to a
monthly fee of $14,000, effective January 1, 2020. We also granted Ms. Yaacov-Garbeli 35,000 options to purchase
35,000 Ordinary Shares of the Company, under the Company’s 2018 Plan, with an exercise price of $2.14. The options vest over
4 years from the date of grant. 25% will vest on the first anniversary of the date of grant and the remaining 75% options shall vest
in twelve equal quarterly installments following the first anniversary of the grant date.
Pre-IPO Registration Rights
We, certain of our shareholders and certain lenders with which we entered into loan agreements in 2012, have entered into an
Amended and Restated Investors’ Rights Agreement dated as of October 4, 2017, or the Investors’ Rights Agreement, pursuant to
which these shareholders and lenders have the right, following the closing of our initial public offering, to demand that we file a
registration statement or to request that their shares be covered by a registration statement that we are otherwise filing under the
Securities Act. Registration of these shares would result in these shares becoming freely tradable without restriction under the
Securities Act immediately upon the registered sale of such securities.
Demand Registration Rights
Pursuant to the investors’ rights agreement, at any time beginning 180 days after the closing of our initial public offering and
for so long as we are eligible to file a registration statement on Form F-3, any shareholder or group of shareholders holding an
aggregate of at least 10% of the registrable securities under the investors’ rights agreement that are not held by D.N.A
Biomedical, may request in writing that we effect the registration under the Securities Act of the sale or other transfer of such
shareholder or shareholders’ Ordinary Shares, provided that we are not required to effect more than three such registrations.
Form F-3 Registration Statement
Any shareholder or group of shareholders holding an aggregate of at least 10% of the registrable securities under the investors’
rights agreement that are not held by D.N.A Biomedical may request in writing that we effect a registration of the sale or other
transfer of such shares, provided that the aggregate anticipated proceeds from the sale of such shares equals at least $1.0 million
and that we are not required to effect more than three such registrations.
We will not be obligated to file a registration statement on Form F-3 in certain cases including if in the good faith judgment of
our board of directors (as reflected in a certificate delivered by our chief executive officer), such registration would be seriously
detrimental to our company or its shareholders, provided that we do not use this exemption more than once in any 12-month
period. We also have the right not to effect a Form F-3 registration statement during the period from 60 days prior to the filing of,
to six months following the effective date of, a previous registration statements.
Piggyback Registration Rights
The investors’ rights agreement also provides our shareholders with “piggy back” registration rights in the event that we
determine to register the sale of any of our securities following our initial public offering. With respect to such registration rights,
we have committed to use our reasonable best efforts to include in a registration statement a prospectus relating to the resale of
certain securities held by certain of our shareholders, or to file concurrently with a registration statement with respect to the resale
under the Securities Act of such securities held by such shareholders, so as to permit their disposition (such securities held by
such shareholders and the rights attached to such securities are freely transferable by such shareholders).
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Private Placement Registration Rights
We also entered into a registration rights agreement with the Investors in the Private Placement (the “Private Placement
Registration Rights Agreement”). The summary is not complete and is subject to, and qualified in its entirety by the provisions
of, the Private Placement Registration Rights Agreement that has been filed as an exhibit to this Annual Report. Registration of
these shares would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon
the registered sale of such securities.
Form F-3 Registration Statement
Pursuant to the subscription agreements entered into by the Company as part of the Private Placement (as defined above), we
are obligated to file a registration statement on Form F-3 with the SEC for the resale of the Ordinary Shares issued in the Private
Placement (including those issued upon exercise of the Investor Warrants), or other additional securities, as we may find
necessary and at our sole discretion. We are required to effect this registration within seven months of the final closing, subject to
certain customary conditions. We are required to pay the Investors liquidated damages in the event that we do not meet any of the
foregoing requirement in an amount equal to 1% per month of the aggregate purchase price paid in cash by such purchasers to us.
The terms of the Private Placement Registration Rights Agreement will expire upon the second anniversary of the SEC declaring
the F-3 resale shelf effective. Furthermore, the Company will use commercially reasonable efforts to ensure that the securities
registered pursuant to the Private Placement Registration Rights Agreement are listed on Nasdaq Capital Market.
Director Designation Rights
Pursuant to the terms of the Investors’ Rights Agreement among us, Centillion and other parties thereto, following the
consummation of our initial public offering, for as long as Centillion and its affiliates hold an aggregate of at least 10% of our
issued and outstanding Ordinary Shares, we will nominate, if so requested by Centillion and as permitted by applicable law, a
designee of Centillion for election by our shareholders as a member of our board of directors and will recommend that our
shareholders vote in favor of such election. As of December 31, 2019, Centillion hold approximately 6.33% of our issued and
outstanding Ordinary Shares, and in the event that Centillion exercises in full all of the warrants to purchase our Ordinary Shares
that we have issued to it, Centillion will hold approximately 7.73% of our issued and outstanding Ordinary Shares.
Indemnification Agreements and Directors’ and Officers’ Liability Insurance
We have entered into indemnification agreements with each of our executive officers and directors. We also maintain an
insurance policy that covers liabilities of our directors and officers arising out of claims based on acts or omissions in their
capacities as directors or officers.
Employment-Based Restrictive Covenants
Under the employment agreements entered into with our executive officers, each officer is subject to restrictions with respect
to confidentiality, non-competition/non-solicitation and ownership of intellectual property. The non-competition provision applies
for a period that is generally 12 months following termination of employment. The enforceability of covenants not to compete in
Israel and the United States is subject to limitations. In addition, we are required to provide notice prior to terminating the
employment of our executive officers, other than in the case of a termination under circumstances which deprive the executive
officer of severance pay under Israeli law, a breach of trust, or the executive officer’s breach of the terms of confidentiality, non-
competition/non-solicitation and ownership of intellectual property provisions of the relevant employment agreement.
7.C. Interests of Experts and Counsel
Not applicable.
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ITEM 8. FINANCIAL INFORMATION
8.A. Consolidated Statements and Other Financial Information
See “Item 18.–Financial Statements.”
Legal proceedings
From time to time, we may become party to litigation or other legal proceedings that we consider to be a part of the ordinary
course of our business. We are not currently involved in any legal proceedings. However, we may become involved in material
legal proceedings in the future. Emisphere has notified us that it believes that it is the exclusive owner of certain U.S. and related
foreign patents and patent applications we acquired from Oramed; however, Emisphere has not initiated a legal proceeding
against us regarding its claim. For more information on the risks related to Emisphere’s claim, see “Item 3.D.—Risk Factors—
Risks Related to Our Intellectual Property—We may become involved in proceedings to protect or enforce our proprietary rights,
which could be expensive and time consuming, and may ultimately be unsuccessful.”
Dividends
We have never declared or paid cash dividends to our shareholders and we do not intend to pay cash dividends in the
foreseeable future. We intend to reinvest any earnings in developing and expanding our business. Any future determination
relating to our dividend policy will be at the discretion of our board of directors and will depend on a number of factors,
including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business
prospects, our strategic goals and plans to expand our business, applicable law and other factors that our board of directors may
deem relevant.
The Companies Law imposes further restrictions on our ability to declare and pay dividends. According to the Companies
Law, a company may generally distribute dividends out of its profits if there is no reasonable concern that the distribution may
prevent the company from meeting its existing and expected obligations when they become due. The Companies Law defines
profit as retained earnings or profits accrued in the last two years, whichever is greater, according to the last reviewed or audited
financial statements of the company, provided that the end of the period to which the financial statements relate is not more than
six months before the distribution. Declaration of dividends requires a resolution of our Board and does not require shareholder
approval.
Payment of dividends may be subject to Israeli withholding taxes. See “Item 10.E.—Taxation” for additional information.
8.B. Significant changes
Except as disclosed elsewhere in this Annual Report, there have been no other significant changes since December 31, 2019.
ITEM 9. THE OFFER AND LISTING
9.A.4 Offer and Listing Details
Not applicable.
9.B. Plan of Distribution
Not applicable.
9.C. Market for Ordinary Shares and Warrants
Our Ordinary Shares and IPO Warrants have been listed on Nasdaq since June 28, 2018, under the symbol “ENTX” and
“ENTXW,” respectively.
9.D. Selling Shareholders
Not applicable.
9.E. Dilution
Not applicable.
9.F. Expenses of the Issue
Not applicable.
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ITEM 10. ADDITIONAL INFORMATION
10.A. Share Capital
Ordinary Shares and IPO Warrants
For a description of our listed Ordinary Shares and IPO Warrants, refer to Exhibit 4.29, “Description of Securities,”
incorporated by reference into this Form 20-F.
Other Warrants
The following section is a summary of our warrants issued prior to our initial public offering and pursuant to our Private
Placement in 2019. Following the initial public offering, such pre-IPO warrants provide the applicable holder, subject to the
terms and conditions of the applicable warrant, rights to acquire Ordinary Shares.
Series A Warrants
As of December 31, 2019, we had 340,210 warrants, or Series A Warrants, outstanding to purchase 340,210 of our Ordinary
Shares, at an exercise price of $3.69.
Pursuant to the terms of the preferred share purchase agreements with Centillion and certain other previously preferred A
shareholders, preferred A shareholders have the right to purchase 332,020 of our ordinary shares, at an exercise price of $3.69 up
to July 20, 2019, or Preferred A Option, and to receive additional Series A Warrants to purchase 83,201 of our Ordinary Shares.
In July 2019, one of the shareholders exercised his right to purchase 32,500 ordinary shares at an exercise price of $3.69 and
received additional 8,190 Series A Warrants.
In addition, Centillion had a preemptive right to purchase 44,460 of our Ordinary Shares, at an exercise price of $3.69 up to
July 20, 2019, and to receive additional Series A Warrants to purchase 11,180 of our Ordinary Shares. Further, upon exercise of
the Preferred A Option by pre-IPO preferred A shareholders except Centillion, Centillion had the right to purchase additional
11,050 of our ordinary shares, at an exercise price of $3.69 up to July 20, 2019 and to receive additional Series A Warrants to
purchase 2,730 of our Ordinary Shares.
The following summary is of certain material terms and provisions of our Series A warrants which after the completion of our
initial public offering became warrants to purchase Ordinary Shares. The summary is not complete and is subject to, and qualified
in its entirety by the provisions of, the form of the warrant, which is filed as an exhibit to this Annual Report.
Exercisability. The Series A Warrants are exercisable immediately from issuance, and at any time up to the date that is two
years after our initial public offering, specifically, July 2, 2020. The Series A Warrants will be exercisable, at the option of each
holder, in whole or in part by delivering to us a duly executed exercise notice accompanied by payment in full for the applicable
number of our Ordinary Shares.
Applicable Shares. The class of shares that can be acquired upon exercise of the warrants will be our Ordinary Shares, and
upon any conversion, exchange, reclassification or change, any security into which our Ordinary Shares may be converted,
exchanged, reclassified or otherwise changed.
Exercise Price. $3.69 per share.
Transferability. Absent an effective registration statement filed with the SEC covering the disposition or sale of the Series A
Warrants or the shares issued or issuable upon exercise of the Series A Warrants, and registration or qualification under
applicable state securities laws, the holder cannot transfer any or all of the Series A Warrants or the applicable shares unless such
transfer is exempt from the registration requirements of the Securities Act and any applicable state securities laws.
Rights as a Shareholder. Except as otherwise provided in the Series A Warrants or by virtue of such holder’s ownership of
our Ordinary Shares, the holder of a Series A Warrants does not have the rights or privileges of a holder of Ordinary Shares,
including any voting rights, until the holder exercises the Series A Warrants.
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2016 Warrants
As of December 31, 2019, we had 687,960 2016 Warrants outstanding to purchase 687,960 of our Ordinary Shares at an
exercise price of $6.99 per Ordinary Share.
The following summary is of certain material terms and provisions of our 2016 Warrants. The summary is not complete and is
subject to, and qualified in its entirety by the provisions of, the form of the 2016 Warrant, which is filed as an exhibit to this
Annual Report.
Exercisability. The 2016 Warrants are exercisable until June 2020.
Applicable Securities. Ordinary shares.
Exercise Price. $6.99 per share.
Transferability. Absent an effective registration statement filed with the SEC covering the disposition or sale of the 2016
Warrants or the securities issued or issuable upon exercise of the 2016 Warrants, and registration or qualification under applicable
state securities laws, the holder cannot transfer any or all of the 2016 Warrants or the applicable underlying shares unless such
transfer is exempt from the registration requirements of the Securities Act and any applicable state securities laws.
Rights as a Shareholder. Except as otherwise provided in the 2016 Warrants or by virtue of such holder’s ownership of our
Ordinary Shares, the holder of a 2016 Warrant does not have the rights or privileges of a holder of Ordinary Shares, including any
voting rights, until the holder exercises the 2016 Warrant.
Series B Warrants
As of December 31, 2019, we had 68,380 outstanding warrants, or Series B Warrants, to purchase [68,380] Ordinary Shares, at
an exercise price of $6.99 per Ordinary Share.
The following is a summary of certain material terms and provisions of the Series B Warrants, which following the completion
of our initial public offering became warrants to purchase Ordinary Shares.
Exercisability. The Series B Warrants are exercisable on or before the earlier of: (i) expiration of five years from the date of
the Series B Warrants, specifically, 59,800 Series B Warrants exercisable until October 25, 2022, and 8,580 Series B Warrants
exercisable until December 18, 2022 or (ii) the occurrence of a liquidation, bankruptcy, reorganization, dissolution or winding up
of the Company, whether voluntary or involuntary.
Applicable Securities. Ordinary Shares.
Exercise Price. $6.99 per share.
Transferability. The Series B Warrants cannot be transferred to a third party, other than an affiliate of the holder of such
Series B Warrants (as defined and subject to the terms and conditions of the Series B Warrants) without (i) a registration under
the Securities Act or (ii) an exemption from such registration and, if requested by the Company, a written opinion of legal
counsel of the holder of the Series B Warrants, addressed to the Company stating that the proposed transfer of the Series B
Warrants may be effected without registration under the Securities Act, which opinion will be in form reasonably satisfactory to
the Company.
Rights as a Shareholder. Except as otherwise provided in the Series B Warrants or by virtue of such holder’s ownership of
our Ordinary Shares, the holder of a Series B Warrants does not have the rights or privileges of a holder of Ordinary Shares,
including any voting rights, until the holder exercises the Series B Warrants.
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Underwriter Warrants
As of December 31, 2019, we had 70,000 outstanding warrants, or Underwriter Warrants, granted to our initial public offering
underwriters, to purchase 70,000 Ordinary Shares, at an exercise price of $8.80 per Ordinary Share.
The following is a summary of certain material terms and provisions of the Underwriter Warrants. The summary is not
complete and is subject to, and qualified in its entirety by the provisions of, the form of the Underwriter Warrant, which is filed as
an exhibit to this Annual Report.
Exercisability. The underwriter warrants will be exercisable on or before the expiration of five years from the date of the
Underwriter Warrants, specifically, July 2, 2023. The Underwriter Warrants may be exercised on a cashless basis unless a
registration statement covering the exercise of the underwriter warrants and sale of the underlying shares by the holder thereof is
in effect and available.
The Underwriter Warrants are not redeemable by us. The underwriter warrants also provide for unlimited “piggyback”
registration rights at our expense with respect to the underlying ordinary shares during the seven-year period commencing on July
2, 2018, and for one demand registration right at our expense and an additional demand registration right at the Underwriter
Warrant holder’s expense during the five-year period commencing on July 2, 2018.
Exercise Price. $8.8 per share. The exercise price of the Underwriter Warrants (and the ordinary shares underlying such
warrants) is subject to adjustment provided under the Underwriter Warrants, for dilutive events such as a stock dividend or stock
split and for recapitalizations, mergers and other fundamental transactions.
Transferability. The Underwriter Warrants cannot be transferred to a third party, other than an affiliate of the holder of such
Underwriter Warrants (as defined and subject to the terms and conditions of the Underwriter Warrants) without (i) a registration
under the Securities Act or (ii) an exemption from such registration and, if requested by the Company, a written opinion of legal
counsel of the holder of the Underwriter Warrants addressed to the Company stating that the proposed transfer of the Underwriter
Warrants may be effected without registration under the Securities Act, which opinion will be in form reasonably satisfactory to
the Company.
Rights as a Shareholder. Except as otherwise provided in the Underwriters Warrants or by virtue of such holder’s ownership
of our Ordinary Shares, the holder of an Underwriters Warrant does not have the rights or privileges of a holder of our Ordinary
Shares, including any voting rights, until the holder exercises the Underwriters Warrant.
Investor Warrants
As of December 31, 2019, we had 2,855,095 warrants, or Series Investor Warrants, outstanding to purchase 2,855,095 of our
Ordinary Shares, at an exercise price of $2.96.
The following summary is of certain material terms and provisions of our Series Investor Warrants, Broker-A Warrants to
purchase Ordinary Shares. The summary is not complete and is subject to, and qualified in its entirety by the provisions of, the
form of Series Investor Warrants, which is filed as an exhibit to this Annual Report.
Exercisability. The Series Investor Warrants are exercisable immediately from issuance, and at any time up to the date that is
three years after our Private Placement, specifically, December 11, 2022 and December 18, 2022. The Private Placement
Warrants will be exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice
accompanied by payment in full for the applicable number of our Ordinary Shares.
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Applicable Shares. The class of shares that can be acquired upon exercise of the warrants will be our Ordinary Shares, and
upon any conversion, exchange, reclassification or change, any security into which our Ordinary Shares may be converted,
exchanged, reclassified or otherwise changed.
Exercise Price. $2.96 per share.
Transferability. Absent an effective registration statement filed with the SEC covering the disposition or sale of the Series
Investor Warrants or the shares issued or issuable upon exercise of the Series Investor Warrants, and registration or qualification
under applicable state securities laws, the holder cannot transfer any or all of the Series Investor Warrants or the applicable shares
unless such transfer is exempt from the registration requirements of the Securities Act and any applicable state securities laws.
Rights as a Shareholder. Except as otherwise provided in the Series Investor Warrants or by virtue of such holder’s
ownership of our Ordinary Shares, the holder of a Series Investor Warrant does not have the rights or privileges of a holder of
Ordinary Shares, including any voting rights, until the holder exercises the Series Investor Warrants.
Broker Warrants
As of December 31, 2019, we had 184,515 warrants, or Broker-A Warrants, outstanding to purchase 184,515 of our Ordinary
Shares, at an exercise price of $2.37, and we had 92,258 warrants, or Broker-B Warrants, outstanding to purchase 92,258 of our
Ordinary Shares, at an exercise price of $2.96 (the “Broker Warrants”).
The following summary is of certain material terms and provisions of our Broker warrants to purchase Ordinary Shares. The
summary is not complete and is subject to, and qualified in its entirety by the provisions of, the form of Broker-A Warrants and
Broker B Warrants, each of which is filed as an exhibit to this Annual Report.
Exercisability. The Broker-A Warrants and Broker-B Warrants are exercisable immediately from issuance, and at any time up
to the date that is three years after our Private Placement, specifically, December 11, 2022. The Broker-A Warrants and Broker-B
Warrants will each be exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise
notice accompanied by payment in full for the applicable number of our Ordinary Shares.
Applicable Shares. The class of shares that can be acquired upon exercise of the warrants will be our Ordinary Shares, and
upon any conversion, exchange, reclassification or change, any security into which our Ordinary Shares may be converted,
exchanged, reclassified or otherwise changed.
Exercise Price. $2.96 per share in the case of the Broker-A Warrants and $2.37 per share in the case of the Broker-A
Warrants.
Transferability. Absent an effective registration statement filed with the SEC covering the disposition or sale of the Broker-A
Warrants or Broker-B Warrants or the shares issued or issuable upon exercise of either of the Broker-A Warrants and Broker-B
Warrants, and registration or qualification under applicable state securities laws, the holder cannot transfer any or all of the
Broker-A Warrants and Broker-B Warrants or the applicable shares unless such transfer is exempt from the registration
requirements of the Securities Act and any applicable state securities laws.
Rights as a Shareholder. Except as otherwise provided in the Broker-A Warrants and Broker-B Warrants or by virtue of such
holder’s ownership of our Ordinary Shares, the holder of a Broker-A Warrant or Broker-B Warrant does not have the rights or
privileges of a holder of Ordinary Shares, including any voting rights, until the holder exercises such Broker-A Warrant or
Broker-B Warrant.
10.B. Memorandum and Articles of Association
We incorporate by reference into this Annual Report on Form 20-F the description of our Articles of Association effective upon
the closing of our initial public offering contained in our F-1 Registration Statement (File No. 333-221472) under “Description of
Share Capital” originally filed with the SEC on June 27, 2018. Such description sets forth a summary of certain provisions of our
Articles of Association, and certain descriptions of applicable Israeli law, each as currently in effect, except that on October 3,
2019, our shareholders approved an amendment to our Articles of Association to increase the maximum number of our directors
to ten.
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10.C. Material Contracts
Other than the Amgen Agreement, described above in “Item 5.A. Results of Operations—Patent Transfer, Licensing
Agreements and Grant Funding—Amgen Research Collaboration and License Agreement” and except for the Private Placement
described below, we are currently in the development stage and therefore we have not entered into any agreements, other than in
the ordinary course of our business, that we deem material in the reporting period.
From December 2019 to February 2020, we entered into the Private Placement (as defined above) with the Investors (as
defined above) for an aggregate gross proceeds of $14.3 million from the sale of an aggregate 6,047,706 Ordinary Shares, at a
price of $2.37 per share. In addition, we granted the Investors and certain finders an aggregate of 3,300,646 three-year warrants
to purchase up to an additional 3,300,646 Ordinary Shares at an exercise price in the range of $2.37 and $2.96 per share. For
further information, see “Item 7.B. Related Party Transactions—Private Placement.”
Subscription Agreement
In the Subscription Agreement entered between the Company and the Investors in connection with the Private Placement, or
the Subscription Agreement, the Company made customary representations and warranties and the investors made customary
representations and warranties. Among the Investors’ representations and warranties, each Investor, which is a U.S. Person for
purposes of the Securities Act, represents that it is an accredited Investor as defined in Rule 501(a) of Regulation D, as amended,
under the Securities Act.
The terms of the Subscription Agreement with the Investors in the Private Placement, are similar in all material respects to the
terms of the Subscription Agreement of D.N.A Biomedical, expect for non-material changes related to the relevant exemption
under the Securities Act utilized by us to issue shares and warrants to D.N.A Biomedical, given their status as an affiliate and
non-U.S. person under the Securities Act. The securities issued to D.N.A Biomedical, were issued pursuant to Regulation S under
the Securities Act. The securities under the Private Placement were not registered under the Securities Act or any state or other
jurisdiction’s securities laws and may not be offered or sold in the United States absent registration or an applicable exemption
from the registration requirements of the Securities Act and applicable state or other jurisdictions’ securities laws.
In addition, under the Subscription Agreement, each Investor has the right to participate, pro rata based on its respective
purchase amount under the Private Placement, in any future private placement offering of the Company of more than $2,500,000
that closes within one year following the final closing of the Private Placement, subject to the conditions thereto.
As a result of the closing of the Private Placement, the exercise price of the IPO Warrants listed on the Nasdaq has been
adjusted pursuant to the terms of the IPO Warrants, and effective as of the final closing of the Private Placement, the exercise
price of the IPO Warrants is equal to $5.85.
Investor Warrants
The following summary is of certain material terms and provisions of the warrants issued to the Investors in the Private
Placement (the “Investor Warrants”). The Company also issued 276,773 warrants to certain finders in the Private Placement (the
“Broker Warrants”). The terms of the Broker Warrants are substantially similar to those of the Investor Warrants. This summary
is not complete and is subject to, and qualified in its entirety by the provisions of, the form of the warrant, which is filed as an
exhibit to this Annual Report on Form 20-F.
Each Investor Warrant represents the right to purchase one Ordinary Share. As of December 31, 2019, 2,855,095 Investor
Warrants are outstanding and represent the right to purchase an aggregate of up to 2,855,095 Ordinary Shares, and as of February
19, 2020 (following the final closing of the Private Placement), 3,023,872 Investor Warrants are outstanding and represent the
right to purchase an aggregate of up to 3,023,872 Ordinary Shares. The exercise price of each 2019 Investor Warrant is $2.96 per
Ordinary Share. The Investor Warrants may be exercised for a period of three years from issuance. The Investor Warrant may be
exercised on a cashless basis.
Prior to the exercise of the Investor Warrants and for the duration of their term, the number of Ordinary Shares issuable upon
their exercise and the exercise price are subject to customary adjustments, including in the events of reorganizations or
reclassifications of the Company’s capital stock, upon payment of dividends or distributions to the Company’s shareholders, and
upon subsequent issuance of the Company’s capital stock at or below a price of $2.37.
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If we fail to timely effectuate an exercise under the terms of the Investor Warrants, the Investor Warrants provides for certain
liquidated damages and customary buy-in provisions.
For further information with respect to the Investor Warrants, see Item 10.A “Share Capital—Investor Warrants,” and Item
10.A “Share Capital—Broker Warrants” with respect to the Broker Warrants.
Registration Rights
For information with respect to the registration rights provided in connection with the Private Placement, see “Item 7.B.
Related Party Transactions—Private Placement Registration Rights.”
10.D. Exchange Controls
There are currently no Israeli currency control restrictions on the import or export of capital or the remittances of dividends on
our Ordinary Shares, proceeds from the sale of the shares or interest or other payments to non-residents of Israel, except for
shareholders who are subjects of countries that are, or have been, in a state of war with Israel.
10.E. Taxation
The following description is not intended to constitute a complete analysis of all tax consequences relating to the acquisition,
ownership and disposition of our Ordinary Shares and IPO Warrants. You are encouraged to consult your tax advisor concerning
the tax consequences of your particular situation, as well as any tax consequences that may arise under the laws of any state,
local, foreign or other taxing jurisdiction.
Israeli Tax Considerations
The following are material Israeli income tax consequences of the ownership and disposition of our Ordinary Shares and IPO
Warrants. It does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to
own or dispose of our Ordinary Shares or IPO Warrants. This discussion does not address all the aspects of Israeli tax laws that
may be relevant to an investor in light of its particular circumstances or to certain types of investors subject to special treatment
under applicable law. The following discussion also contains an overview of the current tax regime applicable to companies in
Israel, with specific reference to its effect on us. This discussion is based upon the tax laws of Israel and regulations promulgated
thereunder as of the date hereof, which are subject to change. Some parts of this discussion are based on new tax legislation
which has not been subject to judicial or administrative interpretation. The discussion should not be construed as legal or
professional tax advice and does not cover all possible tax considerations.
General Corporate Tax Structure
Israeli companies are generally subject to corporate tax on their taxable income currently at the rate of 23%. However, the
effective tax rate payable by a company that derives income from a “preferred enterprise,” “preferred technological enterprise” or
“preferred special technological enterprise” (as discussed below) may be considerably lower. Israeli companies are generally
subject to capital gains tax at the regular corporate tax rate.
Tax Benefits under the Law for the Encouragement of Industry (Taxes)
According to the Law for the Encouragement of Industry (Taxes), 5729-1969, or the Industry Encouragement Law, an
“industrial company,” is an Israeli resident company that was incorporated in Israel, of which 90% or more of its income in any
tax year, (other than income from certain government loans), is derived from an “industrial enterprise,” owned by it and located
in Israel or in the “area,” as such term is defined under Section 3a of the Ordinance. An “industrial enterprise” is generally
defined as an enterprise whose major activity in any tax year is industrial production.
Under the Industry Encouragement Law, industrial companies are entitled to the following tax-related benefits:
•
amortization over an eight-year period of the cost of purchased know-how and patents and rights to use a patent and know-how which are used for
the development or advancement of the “industrial enterprise,” commencing on the year in which such rights were first exercised;
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•
•
•
deductions over a three-year period of expenses incurred in connection with the issuance and listing of shares on a stock market;
the right to elect, under specified conditions, to file a consolidated tax return together with related Israeli industrial companies; and
accelerated depreciation rates on certain equipment and buildings.
Eligibility for benefits under the Industry Encouragement Law is not subject to receipt of prior approval from any
governmental authority.
As we have not generated income yet, there is no assurance that we qualify as an “industrial company” or that the benefits
described above will be available to us in the future.
Law for the Encouragement of Capital Investments, 5719-1959
Tax Benefits for Income from Preferred Enterprise
The Law for the Encouragement of Capital Investments, 5719-1959, generally referred to as the Investment Law, currently
provides certain tax benefits, inter alia, for income generated by “Preferred Companies” from their “preferred enterprises.” The
definition of a Preferred Company includes, inter alia, a company incorporated in Israel that (i) is not wholly-owned by a
governmental entity; (ii) owns a preferred enterprise, which is defined as an “industrial enterprise” (as defined under the
Investment Law); (iii) is controlled and managed from Israel; and (iv) satisfies further conditions set forth in the Investment Law.
A Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to income attributable to its “preferred
enterprise,” unless the “preferred enterprise” is located in a specified development zone, known as development zone A, in which
case the rate is currently 7.5%.
Dividends paid out of income attributed to a “preferred enterprise” are generally subject to tax at the rate of 20% or such lower
rate as may be provided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required
to be withheld (although, if the funds are subsequently distributed to individuals or non-Israeli residents (individuals and
corporations), the withholding tax would apply).
Moreover, an additional tax of 3% will be imposed on individuals whose annual taxable income exceeds a certain threshold
(NIS 649,560 for 2019, amount is linked to the annual change in the Israeli consumer price index).
As we have not yet generated income, there is no assurance that we qualify as a Preferred Company or that the benefits
described above will be available to us in the future.
Tax Benefits for Income from Preferred Technology Enterprise
An amendment to the Investment Law, or the 2017 Amendment, was enacted as part of the Economic Efficiency Law that was
published on December 29, 2016, and became effective as of January 1, 2017. The 2017 Amendment provides new tax benefits
to Preferred Companies for two types of technology enterprises, as described below, and is in addition to the other existing tax
beneficial programs under the Investment Law.
The 2017 Amendment provides that a technology company satisfying certain conditions will qualify as a “preferred
technology enterprise,” and may thereby enjoy a reduced corporate tax rate of 12% on income that qualifies as “preferred
technology income,” as defined in the Investment Law. The tax rate is further reduced to 7.5% for a “preferred technology
enterprise” located in development zone A. In addition, a “preferred technology enterprise” may enjoy a reduced corporate tax
rate of 12% on capital gain derived from the sale of certain “benefitted intangible assets,” as defined in the Investment Law, to a
related foreign company if the “benefitted intangible assets” were acquired from a foreign company on or after January 1, 2017
for at least NIS 200 million, and the sale receives prior approval from the IIA.
The 2017 Amendment further provides that a technology company satisfying certain conditions (including an annual turnover
of NIS 10 billion or more of the group that the technology company is a part) will qualify as a “special preferred technology
enterprise,” and may thereby enjoy a reduced corporate tax rate of 6% on Preferred Technology Income regardless of the
company’s geographic location within Israel. In addition, “a special preferred technology enterprise” will enjoy a reduced
corporate tax rate of 6% on capital gain derived from the sale of certain “benefitted intangible assets” to a related foreign
company if the “benefitted intangible assets” were either developed by an Israeli company or acquired from a foreign company,
in each case if the Benefited Intangible Assets were acquired on or after January 1, 2017, and the sale received prior approval
from the IIA. A “special preferred technology enterprise” that acquires “benefitted intangible assets” from a foreign company for
more than NIS 500 million will be eligible for these benefits for at least 10 years, subject to satisfying certain conditions and
obtaining certain approvals as specified in the Investment Law.
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The Income of a preferred Technological enterprise or a special preferred Technological enterprise needs to be segmented into
three different types of income: Income attributed to production, Income from an intangible asset used for marketing purposes
and technological income. Income attributable to production is determined by a Cost Plus 10% mechanism (This is the default
rate, but may be subject to change pursuant to a transfer pricing study) on the direct production costs, and may be eligible for
benefits as a preferred enterprise. Income from an intangible asset used for marketing, providing it is not immaterial (as defined
in the investment law) is not eligible for benefits and is subject to full corporate income tax. The part of the Technological income
that is considered Preferred Technological Income may be eligible for tax benefits as detailed above.
Dividends distributed by a “preferred technology enterprise” or a “special preferred technology enterprise,” paid out of
Preferred Technology Income, are subject to tax at the rate of 20%, and if distributed to a foreign company and other conditions
are met the tax rate may be 4%.
As we have not yet generated income, there is no assurance that we qualify as a “preferred technology enterprise” or “special
preferred technology enterprise” or that the benefits described above will be available to us in the future.
If in the future we generate taxable income, to the extent that we qualify as a Preferred Company, the benefits provided under
the Investment Law could potentially reduce our corporate tax liabilities. Therefore, the termination or substantial reduction of
the benefits available under the Investment Law could materially increase our tax liabilities.
Capital Gains Tax
The Ordinance generally imposes a capital gains tax on the sale of any capital assets including shares or warrants of Israeli
companies by Israeli and non-Israeli residents (unless, with respect to non-Israeli residents, a specific exemption is available or
unless a tax treaty between Israel and such non-Israeli resident’s country of residence provides otherwise, and subject to the
receipt in advance of a valid certificate from the Israel Tax Authority). The Ordinance distinguishes between real capital gain and
inflationary surplus. The inflationary surplus is a portion of the total capital gain that is attributable to the increase in the Israeli
consumer price index or, in certain circumstances, a foreign currency exchange rate between the date of purchase and the date of
sale. The real capital gain is the excess of the total capital gain over the inflationary surplus.
Israeli Resident Holders
Generally, the tax rate applicable to real capital gains derived from the sale of our Ordinary Shares or IPO Warrants for Israeli
individuals is the ordinary tax rate/s applicable under Section 91 of the Ordinance, provided that such rate shall not exceed 25%
(unless such holder claims a deduction for interest and linkage differentials expenses in connection with such securities, in which
case the capital gain will generally be taxed at a rate of 30%, until the promulgation of regulations setting forth the rules and
conditions for the deduction of real interest and linkage differentials under Section 101A(a)9 and 101A(b) of the Ordinance.
Additionally, if such holder is considered a “Significant Shareholder,” at the time of the sale or at any time during the 12-
month period preceding such sale, the tax rate applicable to the real capital gains will be the ordinary tax rate/s applicable under
Section 91 of the Ordinance, provided that such rate shall not exceed 30%. A Significant Shareholder is defined as a person who
holds, directly or indirectly, alone or together with another, at least 10% of any of our means of control (including, among other
things, the right to receive profits of the company, voting rights, the right to receive the company’s liquidation proceeds and the
right to appoint a director).
An additional tax of 3% will be imposed on individuals whose annual taxable income exceeds a certain threshold (NIS
649,560 for 2019, the amount is linked to the annual change in the Israeli consumer price index).
Israeli companies are subject to the corporate tax rate on real capital gains derived from the sale of securities at the rate of
23%. Individual holders dealing in securities in Israel are taxed at their marginal tax rates applicable to business income: up to
47% for individuals, plus an additional tax of 3%, which is imposed on individuals whose annual taxable income exceeds a
certain threshold (NIS 649,560 for 2019, the amount is linked to the annual change in the Israeli consumer price index).
Non-Israeli Resident Holders
Non-Israeli residents (individuals and corporations) are generally exempt from Israeli capital gains tax on any gains derived
from the sale, exchange or disposition of our Ordinary Shares and IPO Warrants, provided, among other things, that such holders
did not acquire their Ordinary Shares or IPO Warrants prior to the company’s initial public offering and the gains were not
derived from a permanent establishment of such holders in Israel.
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However, non-Israeli entity holders will not be entitled to such exemption if Israeli residents hold an interest of more than 25%
in such non-Israeli entities or are the beneficiaries of or are entitled to 25% or more of the revenues or profits of such non-Israeli
entity, whether directly or indirectly. This exemption is not applicable to a person whose gains from selling or otherwise
disposing of the securities are deemed to be business income.
In addition, a sale of securities may be exempt from Israeli capital gains tax under the provisions of an applicable tax treaty.
For example, pursuant to the Convention between the Government of the United States of America and the Government of Israel
with respect to Taxes on Income, or the U.S.-Israel Tax Treaty, capital gains arising from the sale, exchange or disposition of
Ordinary Shares by a person who qualifies as a resident of the United States within the meaning of the U.S.-Israel Tax Treaty and
who holds the shares as a capital asset and is entitled to claim the benefits afforded to such person by the U.S.-Israel Tax Treaty
generally will not be subject to the Israeli capital gains tax unless (i) such person holds, directly or indirectly, shares representing
10% or more of our voting power during any part of the 12-month period preceding such sale, exchange or disposition, subject to
particular conditions, (ii) the capital gains from such sale, exchange or disposition can be allocated to a permanent establishment
of the holder in Israel or (iii) such person is an individual and was present in Israel for a period or periods of 183 days or more in
the aggregate during the relevant tax year. In any such case, the sale, exchange or disposition of such shares would be subject to
Israeli tax, to the extent applicable. Eligibility to benefit from tax treaties is conditioned upon the holder presenting a withholding
certificate issued by the Israel Tax Authority prior to the applicable payment.
Exercise and Lapse of IPO Warrants
The following discussion relating to our IPO Warrants is not applicable to holders of IPO Warrants who are deemed
“controlling members” as defined in Section 3(i) of the Ordinance, which generally means a holder who holds or is entitled to
acquire, directly or indirectly, alone or together with his relative, (i) at least 5% of our issued share capital; (ii) at least 5% of our
voting power; (iii) the right to receive at least 5% of our profits or assets upon winding up; or (iv) the right to appoint a director.
A relative for this purpose means a spouse, brother, sister, parent, parent’s parent, descendant, the spouse’s descendant and the
spouse of any of the foresaid. Such holders should consult with their own tax advisors regarding the potential tax implications to
them of the receipt or exercise of our IPO Warrants.
Holders of our IPO Warrants generally will not recognize gain or loss upon the exercise of our IPO Warrants for cash. An
Ordinary Share acquired pursuant to the exercise of a Warrant for cash will generally have a tax basis equal to the holder’s tax
basis in the Warrant, increased by the amount paid to exercise the Warrant. If a Warrant is allowed to lapse unexercised, the
holder will generally recognize a capital loss equal to such holder’s tax basis in the Warrant.
It is possible that a cashless exercise of a Warrant would be treated as a taxable exchange in which gain or loss is recognized.
In such event, a holder could be deemed to have surrendered a number of IPO Warrants with a fair market value equal to the
exercise price for the number of IPO Warrants deemed exercised. For this purpose, the number of IPO Warrants deemed
exercised would be equal to the number of IPO Warrants that would entitle the holder to receive upon exercise the number of
Ordinary Shares issued pursuant to the cashless exercise of the IPO Warrants. In this situation, the holder would recognize capital
gain or loss in an amount equal to the difference between the fair market value of the IPO Warrants deemed surrendered to pay
the exercise price and the holder’s tax basis in the IPO Warrants deemed surrendered.
Holders of IPO Warrants should consult with their own tax advisors regarding the calculation of any tax basis adjustments and
the calculation of capital gains upon the sale or other disposition of our IPO Warrants.
Withholding and Reporting
Either the purchaser, the Israeli stockbrokers or financial institutions through which the Ordinary Shares and IPO Warrants are
held is obliged to withhold tax on the amount of consideration paid upon the sale of such securities (or on the capital gain
realized on the sale, if known) at the Israeli corporate tax rate for Israeli companies (currently 23%). In case the seller is an
individual, the applicable withholding tax rate would be 25% of the amount of the capital gain realized on the sale.
In some instances where our holders may be liable for Israeli tax on the sale of their Ordinary Shares or IPO Warrants, the
payment of the consideration may be subject to the withholding of Israeli tax at source. Holders, including non-Israeli resident
holders, may be required to demonstrate that they are exempt from tax on their capital gains in order to avoid withholding at
source at the time of sale.
In transactions involving a sale of all of the securities of an Israeli resident company, in the form of a merger or otherwise, the
Israel Tax Authority may require non-Israeli resident holders who are not liable for Israeli tax to sign a declaration in a form
specified by the Israel Tax Authority or obtain a specific exemption from the Israel Tax Authority to confirm their status as a non-
resident of Israel, and, in the absence of such declarations or exemptions, may require the purchaser of the securities to withhold
taxes at source.
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At the sale of securities traded on a stock exchange, a detailed return, including a computation of the tax due, must be filed and
an advanced payment must be paid on January 31 and July 31 of every tax year in respect of sales of securities made within the
previous six months. However, if all tax due was withheld at source according to applicable provisions of the Ordinance and the
regulations promulgated thereunder, then the aforementioned return need not be filed and no advance payment must be made.
Capital gain is also reportable on the annual income tax return.
Taxation of Dividend Distributions
Israeli Residents
Israeli resident individuals are generally subject to Israeli income tax on the receipt of dividends paid on our Ordinary Shares
(other than bonus shares). The tax rate applicable to such dividends is 25%, or 30% for a holder that is considered a Significant
Shareholder the time of distribution or at any time during the 12-month period preceding such distribution. Dividends paid from
income attributed to “preferred enterprises” are generally subject to tax at the rate of 20%. Dividends distributed by a “preferred
technology enterprise” or a “special preferred technology enterprise,” paid out of Preferred Technology Income, are generally
subject to tax at the rate of 20%.
Israeli resident companies are generally exempt from tax on the receipt of dividends paid on our Ordinary Shares.
If the dividend is attributable partly to income derived from a “preferred enterprise” or to Preferred Technology Income of a
“preferred technology enterprise” or a “special preferred technology enterprise” and partly to other sources of income, the tax
rate will be a blended rate reflecting the relative portions of the two types of income. We cannot assure you that we will designate
the profits that may be distributed in a way that will reduce holders’ tax liability.
Moreover, an additional tax of 3% will be imposed on individuals whose annual taxable income exceeds a certain threshold
(NIS 649,560 for 2019, amount is linked to the annual change in the Israeli consumer price index).
Payers of dividends on our shares, including the Israeli stockbroker effectuating the transaction, or the financial institution
through which the securities are held, are required, subject to any of the foregoing exemptions or reduced tax rates to withhold
taxes upon the distribution of dividends at a rate of 25%, provided that the shares are registered with a nominee company.
Non-Israeli Residents
Non-residents of Israel (whether individuals or corporations) are generally subject to Israeli income tax on the receipt of
dividends paid on Ordinary Shares at the rate of 25%, or 30% for a holder that is considered a Significant Shareholder at the time
of distribution or any time during the 12-month period preceding such distribution, or 20% if the dividend is distributed from
income attributable to a “preferred enterprise,” “preferred technology enterprise” or “special preferred technology enterprise,”
which tax is to be withheld at source, unless a different rate is provided in a treaty between Israel and the holder’s country of
residence. If the dividends paid out of Preferred Enterprise Technology Income are distributed to a foreign company and other
conditions are met, the withholding tax rate may be 4%. Eligibility to benefit from tax treaties is conditioned upon the holder
presenting a withholding certificate issued by the Israel Tax Authority prior to the applicable payment.
Payers of dividends on our shares, including the Israeli stockbroker effectuating the transaction, or the financial institution
through which the securities are held, are required, subject to any of the foregoing exemptions, reduced tax rates and the
demonstration of a shareholder of his, her or its foreign residency, to withhold taxes upon the distribution of dividends at a rate of
25%, provided that the shares are registered with a nominee company (for corporations and individuals and regardless of whether
a recipient is a significant shareholder).
Under the U.S.-Israel Tax Treaty, the maximum rate of tax withheld in Israel on dividends paid to a holder of Ordinary Shares
who qualifies as a resident of the United States within the meaning of the U.S.-Israel Tax Treaty is 25%. Such tax rate is
generally reduced to 12.5% (for distribution of income that is not attributable to a “preferred enterprise,” “preferred technology
enterprise” or “special preferred technology enterprise”) if the shareholder is a U.S. corporation and holds at least 10% of our
issued voting power during the tax year in which the dividend is distributed as well as during the whole of its prior tax year,
provided that not more than 25% of the gross income for such preceding year consists of certain types of interest or dividends and
a certificate for a reduced withholding tax rate is obtained in advance from the Israel Tax Authority.
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The aforementioned rates under the U.S.-Israel Tax Treaty will not apply if the dividend income was derived through a
permanent establishment of the U.S. resident in Israel.
A non-Israeli resident who receives dividend income derived from or accrued from Israel, from which the full amount of tax
was withheld at source, is generally exempt from the obligation to file tax returns in Israel with respect to such income, provided
that: (i) such income was not generated from business conducted in Israel by the taxpayer(ii) the taxpayer has no other taxable
sources of income in Israel with respect to which tax return is required to be filed, and (iii) the taxpayer is not obliged to pay
Excess Tax.
Eligibility to benefit from tax treaties is conditioned upon the holder presenting a withholding certificate issued by the Israel
Tax Authority prior to the applicable dividend distribution.
Taxation of Distributions on IPO Warrants
We do not currently expect to make distributions on our Ordinary Shares. However, if we make any distributions on our
Ordinary Shares (including cash distributions), we will be required to make distributions to holders of IPO Warrants. The gross
amount of any such distributions to holders of IPO Warrants may be treated as ordinary income for Israeli income tax purposes
and subject to ordinary income tax rates. Under applicable law, we will have withholding obligations and may be required to
withhold from the gross amount of such distribution at rates which could be up to the highest tax rates applicable to ordinary
income. Holders of our IPO Warrants should consult their own tax advisers concerning the Israeli income tax treatment of
distributions on our IPO Warrants including, with respect to non-Israeli resident holders, the credibility of any Israeli taxes
withheld on such distributions.
Material U.S. Federal Income Tax Considerations for U.S. Holders
The following are material U.S. federal income tax consequences to the U.S. Holders described below of owning and
disposing of our Ordinary Shares or IPO Warrants, but it does not purport to be a comprehensive description of all the tax
considerations that may be relevant to a particular person’s decision to own the Ordinary Shares or IPO Warrants. This discussion
applies only to a U.S. Holder that holds our Ordinary Shares or IPO Warrants as capital assets for U.S. federal income tax
purposes. This discussion does not address tax consequences of a fundamental transaction (as defined under the terms of the IPO
Warrants) to U.S. Holders of IPO Warrants. In addition, it does not describe all of the tax consequences that may be relevant in
light of a U.S. Holder’s particular circumstances, including alternative minimum tax consequences, any aspect of the provisions
of the Internal Revenue Code of 1986, as amended, or the Code, commonly known as the Medicare tax and tax consequences
applicable to U.S. Holders subject to special rules, such as:
•
•
•
•
•
•
•
•
certain financial institutions;
dealers or traders in securities that use a mark-to-market method of tax accounting;
persons holding Ordinary Shares or IPO Warrants as part of a “straddle” or integrated transaction or persons entering into a constructive sale with
respect to the Ordinary Shares or IPO Warrants;
persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;
entities classified as partnerships for U.S. federal income tax purposes;
tax exempt entities, “individual retirement accounts” or “Roth IRAs”;
persons that own or are deemed to own 10% or more of our stock by vote or value; or
persons holding our Ordinary Shares or IPO Warrants in connection with a trade or business conducted outside of the United States.
If an entity that is classified as a partnership for U.S. federal income tax purposes owns our Ordinary Shares or IPO Warrants,
the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the
partnership. Partnerships owning our Ordinary Shares or IPO Warrants and partners in such partnerships should consult their tax
advisers as to the particular U.S. federal tax consequences of owning and disposing of the Ordinary Shares or IPO Warrants.
This discussion is based on the Code, administrative pronouncements, judicial decisions, and final and proposed Treasury
regulations, changes to any of which subsequent to the date of this Annual Report may affect the tax consequences described
herein.
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For purposes of this discussion, a “U.S. Holder” is a person who, for U.S. federal income tax purposes, is a beneficial owner
of Ordinary Shares or IPO Warrants, as the case may be, and is:
•
•
•
a citizen or individual resident of the United States;
a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the
District of Columbia; or
an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
U.S. Holders should consult their tax advisers concerning the U.S. federal, state, local and foreign tax consequences of owning
and disposing of our Ordinary Shares or IPO Warrants in their particular circumstances.
Taxation of Distributions on Ordinary Shares
We currently do not expect to make distributions on our Ordinary Shares. Subject to the discussion below under “—Passive
Foreign Investment Company Rules,” any distributions paid on our Ordinary Shares (other than certain pro-rata distributions of
Ordinary Shares) will be treated as dividends to the extent paid out of our current or accumulated earnings and profits (as
determined under U.S. federal income tax principles). Because we do not calculate our earnings and profits under U.S. federal
income tax principles, it is expected that distributions generally will be reported to U.S. Holders as dividends. Subject to
applicable limitations, dividends paid to certain non-corporate U.S. Holders may be taxable at the favorable tax rates applicable
to “qualified dividend income.” Non-corporate U.S. Holders should consult their tax advisers regarding the availability of these
favorable rates on dividends in their particular circumstances. Dividends will not be eligible for the dividends received deduction
generally available to U.S. corporations under the Code and will generally be included in a U.S. Holder’s income on the date of
receipt.
Dividend income will include any amounts withheld in respect of Israeli taxes, and will be treated as foreign source income
for foreign tax credit purposes. Subject to applicable limitations, some of which vary depending upon the U.S. Holder’s
circumstances, Israeli taxes withheld from dividends on our Ordinary Shares will be creditable against the U.S. Holder’s U.S.
federal income tax liability. The rules governing foreign tax credits are complex and U.S. Holders should consult their tax
advisers regarding the creditability of foreign taxes in their particular circumstances. In lieu of claiming a foreign tax credit, U.S.
Holders may elect to deduct foreign taxes (including Israeli taxes) in computing their taxable income, subject to applicable
limitations. An election to deduct foreign taxes instead of claiming foreign tax credits applies to all foreign taxes paid or accrued
in the taxable year.
If any dividend is paid in foreign currency, the amount of dividend income will be the dividend’s U.S. dollar amount
calculated by reference to the exchange rate in effect on the date of receipt, regardless of whether the payment is in fact converted
into U.S. dollars. If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder should not be required to
recognize foreign currency gain or loss in respect of the dividend income. A U.S. Holder may have foreign currency gain or loss
if the dividend is converted into U.S. dollars after the date of receipt. Such gain or loss would generally be treated as U.S.-source
ordinary income or loss.
Sale or Other Taxable Disposition of Ordinary Shares
Subject to the discussion below under “Passive Foreign Investment Company Rules,” gain or loss realized on the sale or other
taxable disposition of our Ordinary Shares will be capital gain or loss and will be long-term capital gain or loss if the U.S. Holder
held the Ordinary Shares for more than one year. The amount of the gain or loss will equal the difference between the U.S.
Holder’s tax basis in the Ordinary Shares disposed of and the amount realized on the disposition. See “—Sale or Other
Disposition, Exercise or Expiration of IPO Warrants” below for a discussion regarding a U.S. Holder’s tax basis and holding
period for Ordinary Shares acquired pursuant to an exercise of IPO Warrants. This gain or loss will generally be U.S. source gain
or loss for foreign tax credit purposes. The deductibility of capital losses is subject to limitations.
Sale or Other Taxable Disposition, Exercise or Expiration of IPO Warrants
Subject to the discussion below under “—Passive Foreign Investment Company Rules,” gain or loss realized on the sale or
other taxable disposition of a Warrant (other than by way of exercise) will be capital gain or loss and will be long-term capital
gain or loss if the U.S. Holder held the Warrant for more than one year at the time of the sale or disposition. The amount of the
gain or loss will equal the difference between the U.S. Holder’s tax basis in the IPO Warrants disposed of and the amount realized
on the disposition.
In general, a U.S. Holder will not be required to recognize income, gain or loss upon the exercise of a Warrant by payment of
the exercise price in cash. A U.S. Holder’s tax basis in Ordinary Shares received upon exercise of IPO Warrants will be equal to
the sum of (1) the U.S. Holder’s tax basis in the Warrant and (2) the exercise price of the Warrant. A U.S. Holder’s holding period
in the Ordinary Shares received upon exercise will commence on the day the IPO Warrants are exercised.
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Although there is no direct legal authority as to the U.S. federal income tax treatment of an exercise of a Warrant on a cashless
basis, we believe that it is reasonable to take the position that such exercise will not be taxable (except with respect to cash
received in lieu of a fractional Ordinary Share), either because the exercise is not a gain realization event or because it qualifies
as a tax-free recapitalization. In the former case, subject to the discussion below under “—Passive Foreign Investment Company
Rules,” the holding period of the Ordinary Shares should commence on the day the IPO Warrants are exercised. In the latter case,
the holding period of the Ordinary Shares would include the holding period of the exercised IPO Warrants. In either case, the
U.S. Holder’s tax basis in the Ordinary Shares (including any fractional Ordinary Share) received generally would equal the U.S.
Holder’s tax basis in the IPO Warrants. However, such position regarding the treatment of a cashless exercise is not binding on
the Internal Revenue Service, or the IRS, and the IRS may treat a cashless exercise of a Warrant as a taxable exchange. U.S.
Holders are urged to consult their tax advisers as to the consequences of an exercise of a Warrant on a cashless basis. The receipt
of cash in lieu of a fractional Ordinary Share should result in a capital gain or loss equal to the difference between the cash
received and the U.S. Holder’s tax basis in the Ordinary Shares allocable to the fractional share.
If a Warrant expires without being exercised, a U.S. Holder will recognize a capital loss in an amount equal to such U.S.
Holder’s tax basis in the Warrant. This loss will be long-term capital loss if, at the time of the expiration, the U.S. Holder’s
holding period in the Warrant is more than one year. The deductibility of capital losses is subject to limitations.
Taxation of Distributions on IPO Warrants
We do not currently expect to make distributions on our Ordinary Shares. However, if we make any distributions on our
Ordinary Shares (including cash distributions), we will be required to make distributions to holders of IPO Warrants. The gross
amount of any such distributions to U.S. Holders of IPO Warrants (including any amounts withheld in respect of Israeli taxes)
will be treated as ordinary income for U.S. federal income tax purposes. U.S. Holders should expect that any such distributions
will not qualify for the preferential tax rates applicable to qualified dividend income of non-corporate shareholders. In addition, if
we are a PFIC for any taxable year, under proposed Treasury regulations any such distributions could be subject to the adverse
PFIC rules described in “—Passive Foreign Investment Company Rules.” U.S. Holders should consult their tax advisers
concerning the U.S. federal income tax treatment of distributions on IPO Warrants, including the credibility of any Israeli taxes
withheld on such distributions.
Passive Foreign Investment Company Rules
There is a risk that we may be treated as a PFIC for any taxable year. Although the application of the PFIC rules to a company
like us is subject to uncertainties in some respects, based on our market capitalization value and our income (including
governmental grants) for 2019, we believe that it is reasonable to take the position that we were not a PFIC for 2019, but there
can be no assurance that the Internal Revenue Service will agree or that a court will uphold this position. For the reasons
described below, we cannot express a view as to whether we will be a PFIC for the current or any future taxable year. In general,
a non-U.S. corporation is a PFIC for any taxable year in which (i) 75% or more of its gross income consists of passive income, or
the income test, or (ii) 50% or more of the average value of its assets consists of assets (generally determined on a quarterly
basis) that produce, or are held for the production of, passive income, or the assets test. Generally, passive income includes
interest, dividends, rents, royalties and certain gains, and cash is a passive asset for PFIC purposes.
The assets shown on our balance sheet consist, and are expected to continue to consist, primarily of cash and cash equivalents
for the foreseeable future. Therefore, whether we will satisfy the assets test for the current or any future taxable year will depend
largely on the quarterly value of our goodwill and on how quickly we utilize our cash in our business. Because (i) the value of our
goodwill may be determined by reference to the market price of our Ordinary Shares, which has been, and may continue to be
volatile given the nature and early stage of our business, (ii) we hold, and expect to continue to hold, a significant amount of
cash, and (iii) a company’s annual PFIC status can be determined only after the end of each taxable year, we cannot express a
view as to whether we will be a PFIC for the current or any future taxable year. In addition, it is not clear how to apply the
income test to a company like us, which is still developing its key intangible assets and whose overall losses from research
activities significantly exceed the amount of its income (including passive income). If our losses from research and development
activities are disregarded for purposes of the income test, we may be a PFIC for any taxable year if 75% or more of our gross
income (as determined for U.S. federal income tax purposes) for the relevant year is from interest and financial investments.
Because the revenue shown on our financial statements is not calculated based on U.S. tax principles, and because for any taxable
year we may not have sufficient (or any) non-passive revenue, there is a risk that we may be or become a PFIC under the income
test for any taxable year.
For purposes of the PFIC rules for any taxable year, a non-U.S. corporation that directly or indirectly owns at least 25% by
value of the shares of another corporation is treated as if it held its proportionate share of the assets of the other corporation and
received directly its proportionate share of the income of the other corporation.
145
Under attribution rules, if we were a PFIC for any taxable year and had any subsidiaries or other entities in which we held a
direct or indirect equity interest that are also PFICs, or Lower-tier PFICs, U.S. Holders would be deemed to own their
proportionate share of any such Lower-tier PFICs and would be subject to U.S. federal income tax according to the rules
described in the following paragraph on (i) certain distributions by a Lower-tier PFIC and (ii) a disposition of shares of a Lower-
tier PFIC, in each case as if the U.S. Holders held such shares or equity interests directly, even if the U.S. Holders do not receive
the proceeds of those distributions or dispositions.
If we were a PFIC for any taxable year during which a U.S. Holder held our Ordinary Shares (and, under proposed Treasury
regulations, IPO Warrants), an adverse tax regime would apply to the U.S. Holder’s investment in our Ordinary Shares (or IPO
Warrants). Generally, gain recognized upon a taxable disposition (including, under certain circumstances, a pledge) of Ordinary
Shares (or, under proposed Treasury regulations, IPO Warrants) by the U.S. Holder would be allocated ratably over the U.S.
Holder’s holding period for such Ordinary Shares (or IPO Warrants). The amounts allocated to the taxable year of disposition and
to taxable years prior to the first taxable year in which we were a PFIC would be taxed as ordinary income. The amount allocated
to each other taxable year would be subject to tax at the highest tax rate in effect for that taxable year for individuals or
corporations, as appropriate, and an interest charge would be imposed on the resulting tax liability for each such year. Further, to
the extent that any distribution received by a U.S. Holder on Ordinary Shares (or, under proposed Treasury regulations, IPO
Warrants) exceeded 125% of the average of the annual distributions received on such Ordinary Shares (or IPO Warrants) during
the preceding three years or the U.S. Holder’s holding period, whichever is shorter, that distribution would be subject to taxation
in the same manner. Under proposed Treasury regulations, if we were a PFIC during any taxable year during which a U.S. Holder
held our IPO Warrants, the holding period for the Ordinary Shares received upon exercise of such IPO Warrants would include
the holding period of the IPO Warrants.
If we were a PFIC for any year during which a U.S. Holder owns Ordinary Shares (or, under proposed Treasury regulations
that have a retroactive effective date, IPO Warrants), we generally would continue to be treated as a PFIC with respect to such
U.S. Holder’s Ordinary Shares (or IPO Warrants) unless (a) we ceased to be a PFIC and (b) the U.S. Holder has made a deemed
sale election under the PFIC rules which may result in recognition of gain (but not loss), taxable under the PFIC rules described
above, without the receipt of any corresponding cash.
Alternatively, if we were a PFIC and if the Ordinary Shares were regularly traded on a qualified exchange, a U.S. Holder
might be able to make a mark-to-market election with respect to our Ordinary Shares (but generally not with respect to Lower-
tier PFICs, if any) that would result in tax treatment different from the general tax treatment for PFICs described above. The
Ordinary Shares would be treated as regularly traded in any calendar year in which more than a de minimis quantity of the
Ordinary Shares were traded on a qualified exchange on at least 15 days during each calendar quarter. The Nasdaq, where our
Ordinary Shares are listed, is a qualified exchange for this purpose. If a U.S. Holder makes the mark-to-market election, the U.S.
Holder generally will recognize in each year that we are a PFIC as ordinary income any excess of the fair market value of the
Ordinary Shares at the end of the taxable year over their adjusted tax basis, and will recognize an ordinary loss in respect of any
excess of the adjusted tax basis of the Ordinary Shares over their fair market value at the end of the taxable year (but only to the
extent of the net amount of income previously included as a result of the mark-to-market election). If a U.S. Holder makes the
election, the U.S. Holder’s tax basis in the Ordinary Shares will be adjusted to reflect these income or loss amounts. In addition,
if a U.S. Holder makes the mark-to-market election, any gain that the U.S. Holder recognizes on the sale or other disposition of
Ordinary Shares in a year in which we are a PFIC will be treated as ordinary income and any loss will be treated as an ordinary
loss (but only to the extent of the net amount of income previously included as a result of the mark-to-market election). Under
current law, a mark-to-market election is not available with respect to the IPO Warrants and will likely not be available with
respect to any lower-tier PFICs. U.S. Holders should consult their tax advisers regarding the availability and advisability of
making a mark-to-market election in their particular circumstances.
We currently do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections, which,
if available, would result in a further alternative tax treatment.
If we were a PFIC or, with respect to a particular U.S. Holder, were treated as a PFIC for the taxable year in which we pay a
dividend or the prior taxable year, the preferential rates discussed above with respect to dividends paid to certain non-corporate
U.S. Holders of our Ordinary Shares would not apply. In addition, if we were a PFIC for any taxable year during which a U.S.
Holder owns Ordinary Shares (or, under proposed Treasury regulations, IPO Warrants), the U.S. Holder would be required to file
annual reports with the IRS, subject to certain exceptions.
U.S. Holders should consult their tax advisers regarding the potential application of the PFIC rules to their ownership in our
Ordinary Shares or IPO Warrants.
146
Information Reporting and Backup Withholding
Payments of distributions and sales proceeds that are made within the United States or through certain U.S. related financial
intermediaries generally are subject to information reporting, and may be subject to backup withholding, unless (i) the U.S.
Holder is a corporation or other exempt recipient or (ii) in the case of backup withholding, the U.S. Holder provides a correct
taxpayer identification number and certifies that it is not subject to backup withholding. Backup withholding is not an additional
tax. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s
U.S. federal income tax liability and may entitle it to a refund, provided that the required information is timely furnished to the
IRS.
Information with Respect to Foreign Financial Assets
Certain U.S. Holders who are individuals and certain specified entities may be required to report information relating to the
Ordinary Shares or IPO Warrants, unless the Ordinary Shares or IPO Warrants are held in an account maintained by a financial
institution (in which case the account itself may be reportable if maintained by a non-U.S. financial institution). U.S. Holders
should consult their tax advisors regarding their reporting obligations with respect to their ownership and disposition of the
Ordinary Shares and IPO Warrants.
10.F. Dividends and Paying Agents
Not applicable.
10.G. Statement by Experts
Not applicable.
10.H. Documents on Display
We are subject to certain of the information reporting requirements of the Exchange Act. As a foreign private issuer, we are
exempt from the rules and regulations under the Exchange Act prescribing the furnishing and content of proxy statements, and
our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions
contained in Section 16 of the Exchange Act, with respect to their purchase and sale of our shares. In addition, we are not
required to file reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are
registered under the Exchange Act. However, we are required to file with the SEC, within four months after the end of each fiscal
year, an annual report on Form 20-F containing financial statements audited by an independent accounting firm. We publish
unaudited interim financial information after the end of each quarter. We furnish this quarterly financial information to the SEC
under cover of a Form 6-K.
The SEC maintains a website that contains reports, proxy and information statements and other information regarding issuers
that file electronically with the SEC. The address of this website is http://www.sec.gov. The company’s website is
www.enterbio.com.
10.I. Subsidiary Information
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the ordinary course of our operations, we are exposed to certain market risks. Market risk represents the risk of loss that
may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is
primarily a result of foreign currency exchange rates.
Foreign Currency Exchange Risk
Our functional currency and reporting currency is the U.S. dollar. Although a substantial portion of our expenses (mainly
salaries and related costs) are denominated in NIS, accounting for 31%, 28% and 24% of our expenses in the years ended
December 31, 2019, 2018 and 2017, respectively, our revenues were generated under agreement denominated in U.S. dollars and
our proceeds from our public offerings, share issuance and convertible loan agreements, which are the main source of our
financing, are denominated in U.S. dollars. Fluctuations in the NIS to U.S. dollar exchange rate may affect our results because
some of our assets and liabilities are linked to the NIS and a portion of our operating expenses are denominated in NIS. In the
future, we also may be exposed to additional currency fluctuations against the U.S. dollar. See “Item 3.D.—Risk Factors—Our
business is subject to currency exchange risk and fluctuations between the U.S. dollar and other currencies may negatively affect
our earnings and results of operations.”
147
A devaluation of the NIS in relation to the U.S. dollar has the effect of reducing the U.S. dollar amount of our expenses or
payables that are payable in NIS, unless those expenses or payables are linked to the U.S. dollar. Conversely, any appreciation of
the NIS in relation to the U.S. dollar has the effect of increasing the U.S. dollar value of our unlinked NIS expenses, which would
have a negative impact on our profit margins. In 2019, the value of the NIS appreciated against the U.S. dollar by 7.8%, which
appreciation was partially offset by inflation in Israel of 0.3%. In 2018, the value of the NIS depreciated against the U.S. dollar
by approximately 8.1%, the effect of which was partly offset by inflation in Israel at a rate of approximately 0.8%.
Because exchange rates between the U.S. dollar and the NIS (as well as between the U.S. dollar and other currencies) fluctuate
continuously, such fluctuations have an impact on our results and period-to-period comparisons of our results. The effects of
foreign currency re-measurements are reported in our statements of operations.
We will continue to monitor exposure to currency fluctuations. We do not hedge our foreign currency exchange risk. In the
future, we may enter into formal currency hedging transactions to decrease the risk of financial exposure from fluctuations in the
exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material
adverse effects of such fluctuations.
Inflation Risk
We do not believe that inflation had a material effect on our business, financial condition or results of operations in the last
two fiscal years. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such
higher costs through hedging transactions. Our inability or failure to do so could harm our business, financial condition and
results of operations.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
12.A-D.2.
Not applicable.
12D.3-4.
Not Applicable.
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
PART TWO
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
None.
ITEM 15. CONTROLS AND PROCEDURES
(a)
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act and regulations promulgated thereunder) as of December 31, 2019, or the Evaluation Date. Based on such
evaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in
recording, processing, summarizing and reporting, on a timely basis, information required to be included in periodic filings under
the Exchange Act and that such information is accumulated and communicated to management, including our principal executive
and financial officers, as appropriate to allow timely decisions regarding required disclosure.
148
(b)
Management’s Annual Report on Internal Control over Financial Reporting
Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, is responsible for
establishing and maintaining adequate internal control over our financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of
the Exchange Act of 1934, as amended. The Company’s internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies
and procedures that:
•
•
•
•
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and asset dispositions;
provide reasonable assurance that transactions are recorded as necessary to permit the preparation of our financial statements in accordance with
generally accepted accounting principles;
provide reasonable assurance that receipts and expenditures are made only in accordance with authorizations of our management and board of
directors (as appropriate); and
provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have
a material effect on our financial statements.
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management, including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our
internal control over financial reporting as of December 31, 2019 based on criteria established in Internal Control-Integrated
Framework (2013) by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on such assessment, our management concluded that the Company’s internal control over financial reporting was
effective as of December 31, 2019.
(c)
Attestation Report of the Registered Public Accounting Firm
As long as we are deemed to be an Emerging Growth Company, we will not be required to include an attestation report of
our independent registered public accounting firm regarding internal control over financial reporting, due to an exemption for
emerging growth companies provided in the JOBS Act.
(d)
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-
15(f) under the Exchange Act) that occurred during the period covered by this Annual Report that have materially affected, or
that are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16A. Audit Committee Financial Expert
Our board has determined that Ms. Miranda J. Toledano qualifies to serve as an Audit Committee Financial Expert, as defined
under the SEC rules, and has Financial and Accounting Expertise, as defined in the regulations promulgated under the Companies
Law. Ms. Miranda J. Toledano, also qualifies as an external director under the Companies Law and as an independent director
under the corporate governance standards of the Nasdaq listing requirements and the audit committee independence requirements
of Rule 10A-3 of the Exchange Act. For more information see “Item 6.C.—Board Practices—Board of Directors.”
ITEM 16B. CODE OF ETHICS
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics applicable to all of our directors, executive officers and employees,
including our Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other persons
performing similar functions, which is a code of ethics as defined in Item 16B of Form 20-F promulgated by the SEC. The full
text of the Code of Business Conduct and Ethics can be found on our website at www.enterabio.com. Information contained on,
or that can be accessed through, our website does not constitute a part of this report and is not incorporated by reference herein. If
we make any amendment to the Code of Business Conduct and Ethics or grant any waivers, including any implicit waiver, from a
provision of the code of ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by
the rules and regulations of the SEC. Under Item 16B of Form 20-F, if a waiver or amendment of the Code of Business Conduct
and Ethics applies to our principal executive officer, principal financial officer, principal accounting officer or controller and
relates to standards promoting any of the values described in Item16B(b) of Form 20-F, we are required to disclose such waiver
or amendment on our website in accordance with the requirements of Instruction 4 to such Item 16B.
149
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Kesselman & Kesselman (a member firm of PricewaterhouseCoopers International Limited, or PwC), has served as our
principal independent registered public accounting firm for each of the two years ended December 31, 2018 and 2019.
The following table provides information regarding fees paid by us to PwC for all services, for the years ended December 31,
2019 and 2018:
Audit fees (1)
Tax fees(2)
Other services
Total fees
__________________________
Year Ended
December 31,
2019
2018
$
$
106,813 $
4,500
-
111,313 $
397,721
5,000
-
402,721
(1)
(2)
Includes professional services rendered in connection with the audit of our annual financial statements and the review of our interim financial
statements and services related to the company’s initial public offering and other registration statements.
Tax consulting services.
Pre-Approval of Auditors’ Compensation
Our audit committee is responsible for pre-approving audit and non-audit services provided to us by our independent registered
public accounting firm. All of the non-audit services provided to us by the independent auditors following the formation of our
audit committee were pre-approved by the audit committee.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
None.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
None.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
None.
ITEM 16G. CORPORATE GOVERNANCE
Corporate Governance Practices
We are incorporated in Israel and therefore are subject to various corporate governance practices under the Companies Law,
relating to such matters as external directors, financial experts, our audit committee, our compensation committee and our
internal auditor. These matters are in addition to the requirements of Nasdaq and other applicable provisions of U.S. securities
laws. As a foreign private issuer whose securities are listed on Nasdaq, we have the option to follow certain Israeli corporate
governance practices rather than those of Nasdaq, except to the extent that such laws would be contrary to U.S. securities laws
and provided that we disclose the practices that we are not following and describe the home country practices we follow instead.
Under Nasdaq rules, a foreign private issuer, such as us, may generally follow its home country rules of corporate governance in
lieu of the comparable requirements of Nasdaq rules, except for certain matters including (among others) the composition and
responsibilities of the audit committee and the independence of its members within the meaning of the rules and regulations of
the SEC.
150
We rely on the Foreign Private Issuer Exemption with respect to the following Nasdaq requirements:
•
•
•
•
•
•
•
Shareholder Approval. Although Nasdaq rules generally require shareholder approval of equity compensation plans and material amendments
thereto, we intend to follow Israeli practice, which is to have such plans and amendments approved only by the board of directors, unless such
arrangements are for the compensation of executive officers or directors, in which case they also require the approval of the compensation
committee, and in the case of directors and the chief executive officer (and under certain circumstances, other executive officers) the approval of
the shareholders. In addition, rather than following Nasdaq rules requiring shareholder approval for the issuance of securities in certain
circumstances, such as in private transactions exceeding 20% of the Company’s outstanding registered securities, we intend to follow Israeli law
applicable to us, which requires shareholder approval in the event of issuances to certain related parties, as described below under “—Fiduciary
Duties and Approval of Related Party Transactions—Approval of Related Party Transactions.”
Shareholder Quorum. Nasdaq rules require that an issuer have a quorum requirement for shareholder meetings of at least one-third of the
outstanding shares of the issuer’s common voting stock. As permitted under the Companies Law, pursuant to our amended Articles, the quorum
required for an ordinary meeting of shareholders will consist of at least two shareholders present in person or by proxy who hold in the aggregate
at least 25% of the voting power of our issued and outstanding shares and, in an adjourned meeting, subject to certain exceptions, any two
shareholders.
Compensation Committee. Nasdaq rules require a listed company to have a compensation committee composed entirely of independent directors
that operates pursuant to a written charter addressing its purpose, responsibilities and membership qualifications and may receive counseling from
independent consultants, after evaluating their independence. The purpose, responsibilities and membership qualifications of our compensation
committee are governed by the Companies Law, rather than the Nasdaq rules. In addition, under the Companies Law, there are no specific
independence evaluation requirements for outside consultants.
Independent Approval of Board Nominations. Nasdaq rules require a listed company to have independent control over the approval of board
nominations, either through an independent nominating committee or through a vote by a majority of the company’s independent directors. Under
the Companies Law, there is no requirement to have a nominating committee or that board nominees be approved by independent directors.
Independent Directors. Under Nasdaq rules, a majority of the board of directors must be independent. Under the Companies Law, there is no
requirement that a majority of the board be independent, rather only that at least two directors meet certain independence requirements and be
classified as external directors for purposes of the Companies Law. See “Item 6.C.—Board Practices—External Directors.”
Executive Sessions. Nasdaq rules require that independent directors hold regularly scheduled executive sessions, where only independent directors
are present. Under the Companies Law, our independent directors may choose to hold executive sessions at their discretion, but are not required to
do so.
Third Party Director Compensation. We follow Israeli law requirements with respect to disclosure of compensation for our directors and executive
officers. Israeli law does not require that we disclose information regarding third party compensation of our directors or director nominees. As a
result, our practice varies from the third-party compensation disclosure requirements of Nasdaq.
Except as stated above, we intend to substantially comply with the rules applicable to U.S. companies listed on the Nasdaq.
We may in the future decide to avail ourselves of other foreign private issuer exemptions with respect to some or all of the other
Nasdaq rules from which exemptions are available to foreign private issuers. Following our home country governance practices,
as opposed to the requirements that would otherwise apply to a company listed on Nasdaq, may provide less protection than is
accorded to investors under Nasdaq rules applicable to domestic issuers.
151
Fiduciary Duties and Approval of Related Party Transactions
Fiduciary Duties of Directors and Officers
Israeli law imposes a duty of care and a duty of loyalty on all directors and officers of a company. The duty of care requires a
director or officer to act with the level of care with which a reasonable director or officer in the same position would have acted
under the same circumstances. The duty of care includes, among other things, a duty to use reasonable means, under the
circumstances, to obtain information on the advisability of a given action brought for his or her approval or performed by virtue
of his or her position and other important information pertaining to such action. The duty of loyalty requires the director or
officer to act in good faith and for the benefit of the company. The duty of loyalty includes a duty to:
•
•
•
•
refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs;
refrain from any activity that is competitive with the company;
refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and
disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her
position as an office holder.
Disclosure of Personal Interests and Approval of Related Party Transactions
The Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or
she may be aware of and all related material information or documents concerning any existing or proposed transaction with the
company. An interested office holder’s disclosure must be made promptly and in any event no later than the first meeting of the
board of directors at which the transaction is considered. Pursuant to Israeli law, the disclosure requirements regarding personal
interests that apply to directors and executive officers also apply to a controlling shareholder of a public company. In the context
of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholder who holds 25% or
more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company. For
this purpose, the holdings of all shareholders who have a personal interest in the same transaction will be aggregated. For a
description regarding who is considered to have a personal interest, see “Item 6.C.—Board Practices—Board Committees.”
Under the Companies Law, a related party transaction may be approved only if it is for the benefit of the company. A
transaction that is not an Extraordinary Transaction in which a director or officer has a personal interest requires the approval of
the board of directors, unless the articles of association of the company provide otherwise. If the transaction is an Extraordinary
Transaction, it must be approved by the audit committee and the board of directors, and, under certain circumstances, by the
shareholders of the company, as well. An Extraordinary Transaction is a transaction other than in the ordinary course of business,
other than on market terms or that is likely to have a material impact on the company’s profitability, assets or liabilities.
Extraordinary Transactions in which a controlling shareholder has a personal interest require the approval of the audit
committee (or, in the case of compensation, indemnification or insurance of a controlling shareholder, the compensation
committee), the board of directors and the shareholders of the company. The shareholder approval must be by a simple majority
of all votes cast, provided that (i) such majority includes a simple majority of the votes cast by shareholders having no personal
interest in the matter or (ii) the total number of votes of shareholders mentioned in clause (i) above who voted against such
transaction does not exceed 2% of the total voting rights in the company. To the extent that any such transaction with a
controlling shareholder is for a period extending beyond three years and under certain conditions, five years from a company’s
initial public offering, approval is required at the end of such period unless, with respect to certain transactions, the audit
committee determines that the duration of the transaction is reasonable given the circumstances related thereto.
The Companies Law generally prohibits any director who has a personal interest in an Extraordinary Transaction from being
present for the discussion and voting pertaining to such transaction in the audit committee or board of directors, except in
circumstances where the majority of the board of directors or the audit committee has a personal interest in the transaction, in
which case such transaction also requires shareholder approval.
152
Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder or his or
her relative, or with directors or other office holders, that would otherwise require approval of a company’s shareholders may be
exempt from shareholder approval under certain conditions.
Approval of Director and Officer Compensation
Under the Companies Law, we are required to adopt a compensation policy with respect to our directors and officers once
every three years, provided however that the compensation policy adopted within nine months from the closing of the Company’s
initial public offering is valid for five years. The compensation policy must serve as the basis for decisions concerning the
financial terms of employment or engagement of office holders, including compensation, benefits, exculpation, insurance and
indemnification. The compensation policy must take into account certain factors, including advancement of the company’s
objectives, the company’s business plan and its long-term strategy, and creation of appropriate incentives. It must also consider,
among other things, the company’s risk management, size and the nature of its operations. The compensation policy must include
certain principles, such as: a link between variable compensation and long-term performance and measurable criteria; the
relationship between variable and fixed compensation; and the minimum holding or vesting period for variable, equity-based
compensation.
Following the recommendation of our compensation committee, the compensation policy must be approved by our board of
directors and shareholders. The shareholder approval must be by a simple majority of all votes cast, provided that (i) such
majority includes a simple majority of the votes cast by non-controlling shareholders having no personal interest in the matter or
(ii) the total number of votes of shareholders mentioned in clause (i) above who voted against such transaction does not exceed
2% of the total voting rights in the company. Even if shareholders do not approve the compensation policy, the board of directors
may resolve to approve the compensation policy, subject to certain conditions. We have adopted a compensation policy on
September 27, 2018.
In general, the compensation terms of directors, the chief executive officer and any employee or service provider who is
considered a controlling shareholder must be approved by the compensation committee, the board of directors and the
shareholders. Shareholder approval is not required for director compensation payable in cash up to the maximum amount set
forth in the regulations governing the compensation of external directors. The compensation terms of other officers who report
directly to the chief executive officer require the approval of the compensation committee and the board of directors (subject to
certain exceptions), and under certain circumstances may require shareholder approval.
Shareholder Duties
Pursuant to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company
and other shareholders and to refrain from abusing his or her power in the company, including, among other things, in voting at a
general meeting and at shareholder class meetings with respect to the following matters:
•
•
•
•
an amendment to the company’s articles of association;
an increase of the company’s authorized share capital;
a merger; or
the approval of related party transactions and acts of office holders that require shareholder approval.
A shareholder also has a general duty to refrain from discriminating against other shareholders.
In addition, certain shareholders have a duty of fairness toward the company. These shareholders include a controlling
shareholder, a shareholder who knows that he or she has the power to determine the outcome of a shareholder vote and a
shareholder who has the power to appoint or to prevent the appointment of an office holder of the company or other power
towards the company. The Companies Law does not define the substance of the duty of fairness, except to state that the remedies
generally available upon a breach of contract will also apply in the event of a breach of the duty to act with fairness.
153
Anti-Takeover Measures under Israeli Law
The Companies Law allows us to create and issue shares having rights different from those attached to our Ordinary Shares,
including shares providing certain preferred rights with respect to voting, distributions or other matters and shares having
preemptive rights. Currently there are no preferred shares authorized under our Articles. In the future, if we do authorize, create
and issue a specific class of preferred shares, such class of shares, depending on the specific rights that may be attached to it, may
have the ability to frustrate or prevent a takeover or otherwise prevent our shareholders from realizing a potential premium over
the market value of their Ordinary Shares. The authorization and designation of a class of preferred shares will require an
amendment to our Articles, which requires the prior approval of the holders of a majority of the voting power attaching to our
issued and outstanding shares at a general meeting. The convening of the meeting, the shareholders entitled to participate and the
majority vote required to be obtained at such a meeting will be subject to the requirements set forth in the Companies Law.
Acquisitions under Israeli Law
Full tender offer
A person wishing to acquire shares of an Israeli public company and who would as a result hold over 90% of the target
company’s issued and outstanding share capital is required by the Companies Law to make a tender offer to all of the company’s
shareholders for the purchase of all of the issued and outstanding shares of the company. A person wishing to acquire shares of a
public Israeli company and who would as a result hold over 90% of the issued and outstanding share capital of a certain class of
shares is required to make a tender offer to all of the shareholders who hold shares of the relevant class for the purchase of all of
the issued and outstanding shares of that class. If the shareholders who do not accept the offer hold less than 5% of the issued and
outstanding share capital of the company or of the applicable class, and more than half of the shareholders who do not have a
personal interest in the offer accept the offer, all of the shares that the acquirer offered to purchase will be transferred to the
acquirer by operation of law. However, a tender offer will also be accepted if the shareholders who do not accept the offer hold
less than 2% of the issued and outstanding share capital of the company or of the applicable class of shares.
Upon a successful completion of such a full tender offer, any shareholder that was an offeree in such tender offer, whether
such shareholder accepted the tender offer or not, may, within six months from the date of the tender offer, petition an Israeli
court to determine whether the tender offer was for less than fair value and that the fair value should be paid as determined by the
court. However, under certain conditions, the offeror may include in the terms of the tender offer that an offeree who accepted the
offer will not be entitled to petition the Israeli court as described above.
If (i) the shareholders who did not respond or accept the tender offer hold at least 5% of the issued and outstanding share
capital of the company or of the applicable class or the shareholders who accept the offer constitute less than a majority of the
offerees that do not have a personal interest in the acceptance of the tender offer, or (ii) the shareholders who did not accept the
tender offer hold 2% or more of the issued and outstanding share capital of the company (or of the applicable class), the acquirer
may not acquire shares from shareholders who accepted the tender offer that will increase its holdings to more than 90% of the
company’s issued and outstanding share capital or of the applicable class.
Special tender offer
The Companies Law provides that an acquisition of shares of an Israeli public company must be made by means of a special
tender offer if as a result of the acquisition the purchaser would become a holder of 25% or more of the voting rights in the
company. This requirement does not apply if there is already another holder of at least 25% of the voting rights in the company.
Similarly, the Companies Law provides that an acquisition of shares in a public company must be made by means of a special
tender offer if as a result of the acquisition the purchaser would become a holder of more than 45% of the voting rights in the
company, if there is no other shareholder of the company who holds more than 45% of the voting rights in the company, subject
to certain exceptions.
A special tender offer must be extended to all shareholders of a company but the offeror is not required to offer to purchase
shares representing more than 5% of the voting power attached to the company’s outstanding shares, regardless of how many
shares are tendered by shareholders. A special tender offer may be consummated only if (i) the offeror acquired shares
representing at least 5% of the voting power in the company and (ii) the number of shares tendered by shareholders who accept
the offer exceeds the number of shares held by shareholders who object to the offer (excluding the controlling shareholders of the
purchaser and holders of 25% or more of the voting rights in the company or any person having a personal interest in the
acceptance of the tender offer). If a special tender offer is accepted, the purchaser or any person or entity controlling it at the time
of the offer or under common control with the purchaser or such controlling person or entity at the time of the offer may not
make a subsequent tender offer for the purchase of shares of the target company and may not enter into a merger with the target
company for a period of one year from the date of the offer, unless the purchaser or such person or entity undertook to effect such
an offer or merger in the initial special tender offer.
154
Merger
The Companies Law permits merger transactions if approved by each party’s board of directors and, unless certain
requirements described under the Companies Law are met, by a majority vote of each party’s shareholders. In the case of the
target company, approval of the merger further requires a majority vote of each class of its shares.
For purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of
the votes of shares represented at the meeting of shareholders that are held by parties other than the shares held by the other party
to the merger, or by any person (or group of persons acting in concert) who holds (or hold, as the case may be) 25% or more of
the voting rights or the right to appoint 25% or more of the directors of the other party, vote against the merger. If, however, the
merger involves a merger with a company’s own controlling shareholder or if the controlling shareholder has a personal interest
in the merger, then the merger is instead subject to the same Special Majority approval that governs all Extraordinary
Transactions with controlling shareholders, as described in “Item 6.C.–Board Practices—Board Committees.”
If the transaction would have been approved by the shareholders of a merging company if it weren’t for the need for separate
approval of each class or the exclusion of the votes of certain shareholders as provided above, a court may still approve the
merger upon the petition of holders of at least 25% of the voting rights of a company. For such petition to be granted, the court
must find that the merger is fair and reasonable, taking into account the respective values assigned to each of the parties to the
merger and the consideration offered to the shareholders of the target company.
Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes
that there exists a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy the
obligations of the merging entities, and may further give instructions to secure the rights of creditors.
In addition, a merger may not be consummated unless at least 50 days have passed from the date on which a proposal for
approval of the merger is filed with the Israeli Registrar of Companies and at least 30 days have passed from the date on which
the merger was approved by the shareholders of each party.
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
155
PART THREE
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
The following audited consolidated financial statements, and the related notes thereto, and the Report of Independent Public
Accounting Firm are filed as a part of this Annual Report.
TABLE OF CONTENTS
Audited Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Financial Position
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Changes in Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
156
Page
F - 2
F - 3
F - 4
F-5 - F-6
F-7 - F-8
F-9 - F-40
ITEM 19. EXHIBITS
EXHIBIT
NUMBER
EXHIBIT INDEX
DESCRIPTION OF DOCUMENT
1.1*
2.1
2.2*
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
Amended and Restated Articles of Association of Entera Bio Ltd.
Amended and Restated Investor’s Rights Agreement, dated as of October 4, 2017, between the Registrant and the other parties thereto
(incorporated herein by reference to Exhibit 10.10 to the Company’s Registration Statement on Form F-1 (File No. 333-221472) filed
with the SEC on November 9, 2017)
Description of rights of each applicable class of securities registered under Section 12 of the Securities Exchange Act of 1934
Specimen Form of Ordinary Share Certificate (incorporated herein by reference to Exhibit 4.1 to the Company’s Registration
Statement on Form F-1 (File No. 333-221472) filed with the SEC on November 9, 2017)
Form of Warrant issued by the Registrant pursuant to our initial public offering (incorporated herein by reference to Exhibit 4.2 to the
Company’s Registration Statement on Form F-1 (File No. 333-221472) filed with the SEC on May 17, 2018)
Form of Underwriter Warrant issued by the Registrant to Maxim Group LLC (incorporated herein by reference to Exhibit 4.3 to the
Company’s Registration Statement on Form F-1 (File No. 333-221472) filed with the SEC on May 17, 2018)
Form of Warrant issued by the Registrant to Centillion Fund on each of January 29, 2014 and January 21, 2015 (incorporated herein by
reference to Exhibit 4.2 to the Company’s Registration Statement on Form F-1 (File No. 333-221472) filed with the SEC on November
9, 2017)
Form of additional Warrant issued by the Registrant to Centillion Fund on January 21, 2015 (incorporated herein by reference to
Exhibit 4.3 to the Company’s Registration Statement on Form F-1 (File No. 333-221472) filed with the SEC on November 9, 2017)
Form of Warrant issued by the Registrant to the lenders on June 24, 2016 (incorporated herein by reference to Exhibit 4.4 to the
Company’s Registration Statement on Form F-1 (File No. 333-221472) filed with the SEC on November 9, 2017)
Form of Warrant issued by the Registrant to GP Nurmenkari Inc. (incorporated herein by reference to Exhibit 4.5 to the Company’s
Registration Statement on Form F-1 (File No. 333-221472) filed with the SEC on November 9, 2017)
Patent Transfer Agreement, dated as of February 22, 2011, between the Registrant and Oramed Ltd. (incorporated herein by reference
to Exhibit 10.1 to the Company’s Registration Statement on Form F-1 (File No. 333-221472) filed with the SEC on November 9, 2017)
Convertible Financing Agreement, dated as of November 8, 2012, among the Registrant, D.N.A Biomedical Solutions, Ltd. and the
lenders thereto (incorporated herein by reference to Exhibit 10.2 to the Company’s Registration Statement on Form F-1 (File No. 333-
221472) filed with the SEC on November 9, 2017)
Convertible Financing Agreement, dated as of December 31, 2012, among the Registrant, D.N.A Biomedical Solutions, Ltd. and the
lenders thereto (incorporated herein by reference to Exhibit 10.3 to the Company’s Registration Statement on Form F-1 (File No. 333-
221472) filed with the SEC on November 9, 2017)
The Entera Bio Ltd. Share Incentive Plan (incorporated herein by reference to Exhibit 10.4 to the Company’s Registration Statement
on Form F-1 (File No. 333-221472) filed with the SEC on November 9, 2017)
Series A Preferred Share Purchase Agreement, dated as of January 29, 2014, between the Registrant and Centillion Fund (incorporated
herein by reference to Exhibit 10.5 to the Company’s Registration Statement on Form F-1 (File No. 333-221472) filed with the SEC on
November 9, 2017)
First Amendment to Series A Preferred Share Purchase Agreement, dated as of June 18, 2014, between the Registrant and Centillion
Fund (incorporated herein by reference to Exhibit 10.6 to the Company’s Registration Statement on Form F-1 (File No. 333-221472)
filed with the SEC on November 9, 2017)
Second Amendment to Series A Preferred Share Purchase Agreement, dated as of January 21, 2015, between the Registrant and
Centillion Fund (incorporated herein by reference to Exhibit 10.7 to the Company’s Registration Statement on Form F-1 (File No. 333-
221472) filed with the SEC on November 9, 2017)
Third Amendment to Series A Preferred Share Purchase Agreement, dated as of November 2015, between the Registrant and
Centillion Fund (incorporated herein by reference to Exhibit 10.8 to the Company’s Registration Statement on Form F-1 (File No. 333-
221472) filed with the SEC on November 20, 2017)
Fourth Amendment to Series A Preferred Share Purchase Agreement, dated as of July 20, 2017, between the Registrant and Centillion
Fund (incorporated herein by reference to Exhibit 10.8 to the Company’s Registration Statement on Form F-1 (File No. 333-221472)
filed with the SEC on November 20, 2017)
157
4.18
4.19
4.20
4.21
4.22
4.23
4.24 †
4.25*
4.26*
4.27*
4.28*
8.1*
12.1*
12.2*
13.1**
13.2**
15.1*
101
Form of indemnification agreement between the Registrant and its directors and executive officers (incorporated herein by reference to
Exhibit 10.12 to the Company’s Registration Statement on Form F-1 (File No. 333-221472) filed with the SEC on November 20, 2017)
Service Agreement, dated April 6, 2017, between Roger Garceau and the Company (incorporated herein by reference to Exhibit 10.13
to the Company’s Registration Statement on Form F-1 (File No. 333-221472) filed with the SEC on November 9, 2017)
2018 Equity Incentive Plan (incorporated herein by reference to Exhibit 99 to the Company’s Registration Statement on Form S-8 (File
No. 333-227488) filed with the SEC on September 24, 2018)
Form of Stock Option Award Agreement under the 2018 Equity Incentive Plan (incorporated herein by reference to Exhibit 4.25 to the
Company’s Annual Report on Form 20-F (File No. 001-38556) filed with the SEC on March 28, 2019)
Amendment No. 1 to the Series B Preferred Share Purchase Agreement, dated December 18, 2017, between the Registrant and the
other parties thereto (incorporated herein by reference to Exhibit 10.17 to the Company’s Registration Statement on Form F-1 (File No.
333-221472) filed with the SEC on January 5, 2018)
Form of Warrant Agency Agreement (incorporated herein by reference to Exhibit 10.18 to the Company’s Registration Statement on
Form F-1 (File No. 333-221472) filed with the SEC on June 15, 2018)
Research Collaboration and License Agreement, dated as of December 10, 2018, between Amgen Inc. and Entera Bio Ltd.
(incorporated herein by reference to Exhibit 4.28 to the Company’s Amended Annual Report on Form 20-F/A (File No. 001-38556)
filed with the SEC on April 17, 2019)
Form of Regulation D Private Placement Subscription Agreement
Subscription Agreement, dated December 13, 2019, between the Registrant and D.N.A Biomedical Solutions Ltd.
Form of Investor Warrant used by the Registrant pursuant to its 2019 Private Placement
Registration Rights Agreement, dated December 10, 2019, between the Registrant and the other parties thereto
List of subsidiaries
Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002
Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002
Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002
Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002
Consent of Kesselman & Kesselman, Certified Public Accountants, a member firm of PricewaterhouseCoopers International Limited,
an independent registered public accounting firm.
The following materials from our Annual Report on Form 20-F for the year ended December 31, 2019 formatted in XBRL (Extensible
Business Reporting Language) are furnished herewith: (i) the Report of Independent Registered Public Accounting Firm, (ii) the
consolidated statements of financial position, (iii) the consolidated statements of comprehensive loss, (iv) the consolidated statements
of changes in shareholders’ equity (capital deficiency), (v) the consolidated statements of cash flows, and (vi) the notes to consolidated
financial statements, tagged as blocks of text and in detail.
* Filed herewith.
** Furnished herewith.
† Confidential treatment granted as to portions of the exhibit. Confidential materials omitted and filed separately with the
Securities and Exchange Commission.
158
Entera Bio Ltd. hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and
authorized the undersigned to sign this Annual Report on its behalf.
SIGNATURES
ENTERA BIO LTD.
By:
/s/ Adam Gridley
Adam Gridley
Title: Chief Executive Officer
Date: March 26, 2020
159
ENTERA BIO LTD.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2019
ENTERA BIO LTD.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2019
TABLE OF CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Consolidated statements of financial position
Consolidated statements of comprehensive loss
Consolidated statements of changes in shareholders' equity (capital deficiency)
Consolidated statements of cash flows
Notes to the consolidated financial statements
Page
F-2
F-3
F-4
F-5 - F-6
F-7 - F-8
F-9 - F-40
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ENTERA BIO LTD.
To the board of directors and shareholders of
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of Entera Bio Ltd and its subsidiary (the
“Company”) as of December 31, 2019 and 2018, and the related consolidated statements of comprehensive loss, changes in
shareholders' equity (capital deficiency) and cash flows for each of the three years in the period ended December 31, 2019,
including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and
2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in
conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Substantial Doubt About the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going
concern. As discussed in note 1b to the consolidated financial statements, the Company has suffered recurring losses from
operations and has cash outflows from operating activities that raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in note 1b. The consolidated financial statements do
not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with
the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to
the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of
the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/S/ Kesselman & Kesselman
Certified Public Accountants (Isr.)
A member of PricewaterhouseCoopers International Limited
Tel-Aviv, Israel
March 26, 2020
We have served as the Company's auditor since 2010.
Kesselman & Kesselman, Trade Tower, 25 Hamered Street, Tel-Aviv 6812508, Israel, P.O Box 50005 Tel-Aviv
6150001 Telephone: +972 -3- 7954555, Fax:+972 -3- 7954556, www.pwc.com/il
F - 2
ENTERA BIO LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
A s s e t s
CURRENT ASSETS:
Cash and cash equivalents
Short-term bank deposits
Accounts receivable
Other current assets
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS:
Property and equipment
Right of use assets
Intangible assets
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
Liabilities and shareholders' equity
CURRENT LIABILITIES:
Accounts payable:
Trade
Other
Current maturities of lease liabilities
Warrants to purchase ordinary shares
Contract liabilities
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES:
Lease liabilities
Severance pay obligations, net
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Note
5
13
14a
10
6
14b
10
11
10
9
11
Ordinary Shares, NIS 0.0000769 par value:
Authorized - as of December 31, 2019 and December 31, 2018, 140,010,000 shares; issued and
outstanding: as of December 31, 2019, and December 31, 2018
-17,864,684 and 11,459,780 shares, respectively
Accumulated other comprehensive income
Other reserves
Additional paid in capital
Accumulated deficit
TOTAL SHAREHOLDERS' EQUITY
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
* Represents an amount less than one thousand US dollars.
The accompanying notes are an integral part of the consolidated financial statements.
F - 3
December 31
2019
2018
U.S. dollars in thousands
15,185
-
278
173
15,636
202
260
605
1,067
16,703
334
1,370
177
2,444
267
4,592
122
70
192
4,784
7,506
4,015
725
220
12,466
224
-
651
875
13,341
473
1,090
-
1,372
225
3,160
-
65
65
3,225
*
41
11,398
63,392
(62,912)
11,919
16,703
*
41
13,019
49,173
(52,117)
10,116
13,341
ENTERA BIO LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
REVENUE
COST OF REVENUE
RESEARCH AND DEVELOPMENT EXPENSES, NET
GENERAL AND ADMINISTRATIVE EXPENSES
OPERATING LOSS
FINANCIAL INCOME:
Income from change in fair value of financial
liabilities at fair value through profit or loss, net
Other financial expenses (income), net
FINANCIAL INCOME, net
NET COMPREHENSIVE LOSS
Note
13
7,8,11
LOSS PER ORDINARY SHARE* -
15
Basic
Diluted
WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES* -
Basic
Diluted
*Retroactively adjusted due to ordinary shares split, see note 11.
2019
Year ended December 31
2018
U.S. dollars in thousands
2017
236
210
7,199
4,281
11,454
(743)
84
(659)
10,795
500
-
8,518
2,843
10,861
(523)
(34)
(557)
10,304
-
-
2,768
8,575
11,343
(251)
105
(146)
11,197
U.S. dollars (except for share numbers)
0.89
0.89
1.30
1.31
2.49
2.49
12,146,729
7,955,447
4,490,720
12,146,729
7,983,402
4,490,720
The accompanying notes are an integral part of the consolidated financial statements
F - 4
ENTERA BIO LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY)
BALANCE AT JANUARY 1, 2017
CHANGES DURING THE YEAR
ENDED DECEMBER 31, 2017:
Loss for the year
Share based compensation
Reclassification of capital contribution from
controlling shareholder (note 7a)
Reclassification due to share-based
compensation expired
BALANCE AT DECEMBER 31, 2017
CHANGES DURING THE YEAR
ENDED DECEMBER 31, 2018:
Loss for the year
Share-based compensation
Issuance of shares and warrants, net
Conversion of Preferred shares into
Ordinary shares
Conversion of convertible loan into
Ordinary shares
Classification of Warrants to purchase
preferred shares and shares into Warrants
to purchase ordinary shares
Reclassification due to share-based
compensation expired
Exercise of options to ordinary shares
Reclassification of capital contribution from
controlling shareholder (note 7a)
BALANCE AT DECEMBER 31, 2018
Number of
ordinary
shares
Ordinary
Shares-
Amount
Accumulated
other
comprehensive
income
Other
reserves
Additional
paid in
capital
U.S. dollars in thousands
Accumulated
deficit
Total
4,490,720
*
41
2,844
2,485
(30,616)
(25,246)
-
-
-
-
4,490,720
-
-
1,410,000
4,905,420
622,180
-
-
31,460
-
11,459,780
-
-
-
-
*
-
-
*
*
*
-
-
*
-
*
-
-
-
4,885
-
-
(11,197)
-
(11,197)
4,885
-
(333)
333
-
-
-
41
(35)
7,361
35
2,853
-
(41,813)
-
(31,558)
-
-
-
-
-
-
1,233
427
-
-
8,011
(10,304)
-
-
(10,304)
1,233
8,438
-
32,621
-
32,621
-
4,138
-
4,138
-
5,548
-
-
5,548
-
-
(1,195)
(304)
1,195
304
-
-
-
-
-
41
(51)
13,019
51
49,173
-
(52,117)
-
10,116
* Represents an amount of less than one thousand.
The accompanying notes are an integral part of the consolidated financial statements
F - 5
ENTERA BIO LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Number of
ordinary
shares
Ordinary
Shares-
Amount
Accumulated
other
comprehensive
income
Other
reserves
Additional
paid in
capital
U.S. dollars in thousands
Accumulated
deficit
Total
11,459,780
*
41
13,019
49,173
(52,117)
10,116
662,251
32,500
5,710,153
-
-
17,864,684
*
*
*
-
-
*
(10,795)
(10,795)
-
(586)
724
-
(99)
199
-
-
138
100
205
10,672
-
-
41
(2,624)
1,483
11,398
2,624
-
63,392
-
-
62,912
10,877
-
1,483
11,919
BALANCE AT JANUARY 1, 2019
CHANGES DURING THE YEAR
ENDED DECEMBER 31, 2019:
Loss for the year
Exercise of options to ordinary shares
Issuance of shares due to exercise of
right to purchase ordinary shares
Issuance of shares and warrant due to a
private placement, net of issuance
costs
Reclassification due to share-based
compensation and warrants expired
Share-based compensation
BALANCE AT DECEMBER 31, 2019
* Represents an amount of less than one thousand.
The accompanying notes are an integral part of the consolidated financial statements
F - 6
ENTERA BIO LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS USED IN OPERATING ACTIVITIES:
Loss for the year
Adjustments required to reflect net cash
used in operating activities (see appendix A)
Net cash used in operating activities
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Decrease (increase) in restricted deposits
Short-term bank deposits
Purchase of property and equipment
Net cash provided by (used in) investing activities
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Principle element of lease payments
Proceeds from Issuance of ordinary shares and warrants, net of issuance costs
Proceeds from exercise of warrants
Proceeds from exercise of options
Proceeds from issuance of preferred shares and warrants, net of issuance costs
Maturity of Convertible loans
Net cash generated from financing activities
2019
Year ended December 31
2018
U.S. dollars in thousands
2017
(10,795)
(10,304)
(11,197)
1,876
(8,919)
508
(9,796)
6,671
(4,526)
(14)
4,000
(40)
3,946
(114)
12,528
100
138
-
-
12,652
-
(4,000)
(68)
(4,068)
-
9,624
-
-
-
-
9,624
1,053
-
(51)
1,002
-
-
-
-
12,087
(980)
11,107
7,583
4,163
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
7,679
(4,240)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR
7,506
11,746
CASH AND CASH EQUIVALENTS AT END OF THE YEAR
15,185
7,506
11,746
F - 7
ENTERA BIO LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
APPENDIX A:
Adjustments required to reflect net cash used in operating activities:
Depreciation and amortization
Change in fair value of financial liabilities at fair
value through profit or loss
Issuance costs
Financial expenses, net
Net changes in severance pay obligation
Share-based compensation
Changes in working capital:
Decrease (increase) in accounts receivable
Decrease (increase) in other current assets
Increase (decrease) in accounts payable:
Trade
Other
Increase (decrease) in contract liabilities
Cash used for operating activities:
Interest received
Interest paid
2019
Year ended December 31
2018
U.S. dollars in thousands
2017
238
54
43
(743)
164
10
5
1,483
1,157
447
61
(139)
280
42
691
83
(55)
1,876
(523)
270
21
(5)
1,233
1,050
(725)
451
(123)
(334)
225
(506)
(251)
1,091
48
19
4,885
5,835
(454)
543
820
909
(36)
508
(73)
6,671
32,621
4,138
APPENDIX B:
Supplementary information on investing and financing activities not involving cash flows:
Conversion of preferred shares into ordinary shares
Conversion of convertible loan into ordinary shares
Right of use assets on obtained in exchange for new operating lease liabilities
224
As to extinguishment and conversion of convertible loans to preferred shares in 2018 see note 7a2 and 7a3, respectively.
As to change in conditions of the liability to issue preferred shares and warrants to warrants in 2018 see note 8a.
The accompanying notes are an integral part of the consolidated financial statements
F - 8
ENTERA BIO LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL INFORMATION:
a. General:
1. Entera Bio Ltd. (collectively with its subsidiary, the "Company") was incorporated on September 30, 2009 and commenced operation
on June 1, 2010. On January 8, 2018 the Company incorporated Entera Bio Inc., a fully owned subsidiary incorporated in Delaware
USA. The Company is a leader in the development and commercialization of orally delivered macromolecule therapeutics for use in
areas with significant unmet medical need where adoption of injectable therapies is limited due to cost, convenience and compliance
challenges for patients. The Company’s most advanced product candidates, EB613 for the treatment of osteoporosis and EB612 for
the treatment of hypoparathyroidism, are based on its proprietary technology platform and are both in Phase 2 clinical development.
The Company also licenses its technology to biopharmaceutical companies for use with their proprietary compounds and, to date, has
completed one such collaboration with Amgen Inc.
2. The Company's securities have been listed for trading on the Nasdaq Capital Market since the Company’s initial public offering in
July 2018, where a total of 1, 400,000 new ordinary shares were issued in consideration of net proceeds of $9.6 million, after
deducting offering expenses (see note 11b).
3. On December 10, 2018, the Company entered into a research collaboration and license agreement (the “Amgen Agreement”) with
Amgen Inc. (“Amgen”) in inflammatory disease and other serious illnesses. Pursuant to the Amgen Agreement, the Company and
Amgen use the Company’s proprietary drug delivery platform to develop oral formulations for one preclinical large molecule
program that Amgen has selected. Amgen also has options to select up to two additional programs to include in the collaboration.
Amgen is responsible for the clinical development, regulatory approval, manufacturing and worldwide commercialization of the
programs.
The Company granted Amgen an exclusive, worldwide, sublicensable license under certain of its intellectual
property relating to its drug delivery technology to develop, manufacture and commercialize the applicable
products. The Company will retain all intellectual property rights to its drug delivery technology, and Amgen
will retain all rights to its large molecules and any subsequent improvements, and ownership of certain
intellectual property developed through the performance of the collaboration is to be determined by U.S.
patent law. See additional information in note 13.
b. Since the Company is engaged in research and development activities, it has not derived significant income from its activities and has
incurred accumulated losses in the amount of $62.9 million through December 31, 2019 and negative cash flows from operating
activities. The Company's management is of the opinion that its available funds as of December 31, 2019 will allow the Company
to operate under its current plans into the second quarter of 2021, due to delays in certain activities as a result of the
recent coronavirus (COVID-19) outbreak. These factors raise substantial doubt as to the Company's ability to continue as a going
concern.
Management is in the process of evaluating various financing alternatives in the public or private equity markets,
government grants or through license of the company's technology to additional external parties through
partnerships or research collaborations as the Company will need to finance future research and development
activities, general and administrative expenses and working capital through fund raising. However, there is no
certainty about the Company's ability to obtain such funding.
F - 9
ENTERA BIO LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - GENERAL INFORMATION (continued):
The financial information has been prepared on a going concern basis, which assumes the Company will continue
to realize its assets and discharge its liabilities in the normal course of business. If the Company does not raise the
requisite funds, it will need to curtail or cease operations. These financial statements do not include any
adjustments that may be necessary should the Company be unable to continue as a going concern.
C. Approval of financial statements
These financial statements were approved by the Company's Board of Directors on March 26, 2020.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a.
Basis of preparation of the financial statements:
The consolidated statements of financial position of the Company as of December 31, 2019 and 2018, and the
related consolidated statements of comprehensive loss, changes in shareholders' equity and consolidated statement
of cash flows for each of the three years ended December 31, 2019 have been prepared in accordance with
International Financial Reporting Standards, ("IFRS"), as issued by the International Accounting Standards Board
("IASB").
The significant accounting policies described below have been applied consistently in relation to all the periods
presented, unless otherwise stated.
The financial statements have been prepared under the historical cost except for financial liabilities at fair value
through profit or loss.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting
estimates. It also requires management to exercise its judgment in the process of applying the Company’s
accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions
and estimates are significant to the financial statements are disclosed in note 3. Actual results could differ from
those estimates
and assumptions.
b.
Functional and presentation currency:
1)
Functional and presentation currency
Items included in the financial statements of the Company are measured using the currency of the primary
economic environment in which the entity operates (“the functional currency”). The U.S. dollar is the
currency of the primary economic environment in which the operations of the Company is conducted. The
financial statements are presented in U.S. dollars.
2)
Transactions and balances
Foreign currency transactions are translated into the functional currency using exchange rates prevailing at the
dates of the transactions. 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 the statements of comprehensive loss within financial income or expenses.
Translation differences on non-monetary financial assets and liabilities at fair value through profit or loss are
recognized in profit or loss as part of the fair value gain or loss within financial income or expenses.
F - 10
ENTERA BIO LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
c. Basis of consolidation
The consolidated financial statements include the accounts of the Company and its subsidiary, Entera Bio Inc.
Intercompany transactions and balances have been eliminated upon consolidation.
d. Cash and cash equivalents
Cash and cash equivalents include cash on hand and short-term bank deposits (with original maturities of three
months or less) that are not restricted as to withdrawal or use and are therefore considered to be cash
equivalents.
e.
Short-term bank deposits
Bank deposits with maturities of more than three months but less than one year are included in short-term
bank deposits. The fair value of short-term bank deposits approximates their carrying value, since they bear
interest at rates close to the prevailing market rates.
f.
Restricted deposits
Restricted deposits relate to accounts where withdrawals are restricted under contractual
agreements.
g.
Property and equipment
1)
Property and equipment are stated at historical cost less accumulated depreciation and impairment. Historical cost includes
expenditures that are directly attributable to the acquisition of the items. Repairs and maintenance are charged to the statement of
comprehensive loss during the period in which they are incurred.
2)
The assets are depreciated using the straight-line method to allocate their cost over their estimated useful lives, as follows:
Computers equipment
Office furniture
Lab equipment
Leasehold improvements*
Years
3-5
5
7-10
3-5
*Leasehold improvements are depreciated over the lease period or the expected useful life of the
improvements, whichever is shorter.
F - 11
ENTERA BIO LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
h.
Intangible assets:
1) Research and development expenses
Research expenses are charged to profit or loss as incurred. An intangible asset arising from development of
the Company's products is recognized if all of the following conditions are met:
It is technically feasible to complete the intangible asset so that it will be available for use;
•
• Management intends to complete the intangible asset and use it or sell it;
• There is an ability to use or sell the intangible asset;
•
• Adequate technical, financial and other resources to complete the development and to use or sell the intangible asset are
It can be demonstrated how the intangible asset will generate probable future economic benefits;
available; and costs associated with the intangible asset during development can be measured reliably.
Other development costs that do not meet the above criteria are recognized as expenses as incurred.
Development costs previously recognized as an expense are not recognized as an asset in a subsequent period.
As of December 31, 2019, the Company has not capitalized development costs.
2)
In process research and development (IPR&D)
IPR&D acquired is presented based on the fair value at the date of the acquisition. Such assets are tested annually for impairment.
i.
Impairment of non-financial assets
Intangible assets not ready to use are not subject to amortization and are tested annually for impairment. Assets
that are subject to depreciation are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the
asset carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair
value less costs to dispose and its value in use. For the purposes of assessing impairment, assets are grouped at the
lowest levels for which there are separately identifiable cash flows (cash-generating units).
For the years ended December 31, 2019 and 2018, no impairment has been recognized.
j. Leases
Commencing 1/1/2019, leases are recognized as a right-of-use asset and a corresponding liability at the same
amount as of the date in which the leased asset is available for use by the Company. Each payment is allocated
between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to
produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-
use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include
the net present value of the future expected lease payments during the lease term.
F - 12
ENTERA BIO LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
The lease term includes extension options (or periods after termination options) if the lease is reasonably certain to
be extended (or not terminated). The lease payments during the term of the lease are discounted using the interest
rate implicit in the lease. If that rate cannot be determined, the lessee’s incremental borrowing rate is used, being
the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a
similar economic environment with similar terms and conditions.
Payments associated with short-term leases (leases with a lease term of 12 months or less) and leases of low-value
assets are recognized on a straight-line basis as an expense in profit or loss.
Until 2019, leases were classified as either finance or operating leases. Payments made under operating leases (net
of any incentives received from the lessor) were charged to profit or loss on a straight-line basis over the period of
the lease.
See also note 10.
k.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker, who is
responsible for allocating resources and assessing performance of the operating segments. The Company operates in one operating
segment.
l. financial instruments
Commencing January 1, 2018, accounts receivables that are considered as loans and receivables under IAS 39, are
now classified at amortized cost. This category is also subject to an impairment test under the expected credit
losses model in accordance with IFRS 9.
m. 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. In the event that the exercise price is not deemed to be fixed, the
warrants are classified as a derivative financial liability. This liability is initially recognized at its fair value on the
date the contract is entered into and subsequently accounted for at fair value at each reporting date. Gains or losses
arising from changes in the fair value of financial liabilities at fair value through profit or loss are presented in the
statement of comprehensive loss under "financial income" or "financial expenses". Transaction costs recorded as
an expense when they occur.
n. Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are
included in equity as a deduction from the proceeds.
o. Deferred income tax
Deferred income 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 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. Deferred income tax is determined using tax rates and laws that have been
enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred
income tax asset is realized or the deferred income tax liability is settled.
In the absence of expectation of taxable income in the future, no deferred tax assets are recorded in the financial
statements.
F - 13
ENTERA BIO LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
p. Share-based payments
In 2018 and 2013, the Company has adopted share-based compensation plans for employees, directors and service
providers. As part of the plans, the Company grants employees, directors and service providers, from time to time
and at its discretion, options to purchase Company's ordinary shares. The fair value of the employees', directors'
and service providers' services received in exchange for the grant of the options is recognized as an expense in the
statement of comprehensive loss. The total amount recognized as an expense over the vesting period of the options
was determined by reference to the fair value of the options granted at the date of grant.
Service conditions and performance 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 when the performance condition
is probable. The vesting period is the period over which all of the specified vesting conditions are to be satisfied.
At the end of each reporting period, the Company revises its estimates of the number of options that are expected
to vest based on the service conditions and performance conditions. The Company recognizes the impact of the
revision to original estimates, if any, in the statement of comprehensive loss, with a corresponding adjustment to
"other reserves".
When options are exercised, the Company issues new shares, with proceeds less directly attributable transaction
costs recognized as share capital (par value) and additional paid in capital.
q. Revenue recognition:
The Company recognized revenue from the Amgen Agreement which was signed in December 2018 according to
IFRS 15, "Revenues from Contracts with Customers”. Prior to the signing of the Amgen Agreement in 2018, the
Company did not have revenue.
In determining the appropriate amount of revenue to be recognized as the Company fulfills its obligations under
each of its agreements, the Company performs the following steps:
1. Identification of the contract, or contracts, with a customer.
2. Identification of the performance obligations in the contract.
3. Determination of the transaction price.
4. Allocation of the transaction price to the performance obligations in the contract.
5. Recognition of revenue.
On December 10, 2018, the Company entered into the Amgen Agreement in inflammatory disease and other
serious illnesses. As part of the agreement, the Company received non-refundable and non-creditable initial access
payment of $725 thousand from Amgen in January 2019. The Company identified two promises in the agreement:
License to use the Company's proprietary drug delivery platform and pre-clinical research and development
services (“pre-clinical R&D services”). The preclinical R&D services include discovery, research and design
preclinical activities relating to the programs selected by Amgen.
Each of these promises met the definition of distinct performance obligation. The Company evaluated the
standalone selling price of the pre-clinical R&D services at $225 thousand and the right to use the intellectual
property at $500 thousand.
F - 14
ENTERA BIO LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
q. Revenue recognition (continued):
The Company determined the license to the intellectual property to be a right to use that has significant standalone
functionality separately from the pre-clinical R&D services since the Company is not required to continue to
support, develop or maintain the intellectual property transferred and will not undertake any activities to change
the standalone functionality of the intellectual property. Therefore, the license to the intellectual property is a
distinct performance obligation and as such revenue is recognized at the point in time that control of the license is
transferred to Amgen on December 10, 2018.
Revenues attributed to the preclinical R&Ds services are recognized during the period of the pre-clinical R&D
services, over time according to the input model method on a cost-to-cost basis.
Under IFRS 15, the consideration that the Company would be entitled to upon the achievement of contractual
milestones, which are contingent upon the occurrence of future events of development and commercial progress,
are a form of variable consideration. When assessing the portion, if any, of such milestones-related consideration
to be included in the transaction price, the Company first assesses the most likely outcome for each milestone and
excludes the consideration related to milestones of which the occurrence is not considered the most likely
outcome. The Company then evaluates if any of the variable consideration determined in the first step is
constrained. Variable consideration is included in the transaction price if, in the Company’s judgment, it is highly
probable that a significant future reversal of cumulative revenue under the contract will not occur. Estimates of
variable consideration and determination of whether to include estimated amounts in the transaction price are
based largely on an assessment of the Company’s anticipated performance and all information (historical, current
and forecasted) that is reasonably available. The Company did not recognize any revenues from any potential
milestone payments.
An entity should recognize revenue for a sales-based or usage-based royalty promised in exchange for a license of
intellectual property only when (or as) the later of the following events occurs:
a) The subsequent sale or usage occurs; and
b) The performance obligation to which some or all of the sales based or usage-based royalty has been allocated has been satisfied (or
partially satisfied).
As royalties are payable based on future commercial sales, as defined in the agreement, which did not occur as of
the financial statements date, the Company did not recognize any revenues from royalties. See additional
information in note 13.
r. Government grants
Government grants, which are received from Israel Innovation Authority (the "IIA") by way of participation in
research and development that is conducted by the Company, fall within the scope of "forgivable loans", as set
forth in International Accounting Standard Number 20 "The Accounting Treatment of Government Grants and
Disclosure in respect of Government Assistance" ("IAS 20"). Since at the time of the receipt of the grants there is
no reasonable assurance that the grants that have been received will be repaid, at the time of their receipt they are
offset against the related research and development expenses in the statement of comprehensive loss. To the extent
that it will be considered "more likely than not" that the grants will be repaid in the future, the Company would
record a financial liability. Other government grants which are not subject to royalties are offset against related
research and development expenses in the statements of comprehensive loss.
F - 15
ENTERA BIO LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
s.
Loss per ordinary share
Basic loss per share is calculated by dividing the loss attributable to equity holders of the Company by the
weighted average number of ordinary shares issued and outstanding during the year. In computing diluted loss per
share, the basic loss per share is adjusted to take into account the potential dilution that could occur upon the
conversion of any dilutive financial instruments by subtracting from net loss the fair value changes of such
financial instruments, and by adjusting the weighted average number of outstanding ordinary shares, assuming
conversion of all such dilutive potential shares. As of December 31, 2019, the Company’s dilutive potential shares
consisted of options and warrants. Prior to the Company’s IPO, the dilutive potential shares consisted of shares
issuable upon conversion of convertible loan and preferred shares, warrants and options. Potential shares are only
dilutive if their conversion would increase the loss per share. If the loss per share would decrease, the shares are
anti-dilutive and are excluded from the diluted loss per share calculation.
t. Standards and interpretations to existing standards that are not yet in effect but have been early adopted
by the Company
Classification of Liabilities as Current or Non-current (Amendment to IAS 1) The IASB issued a narrow-scope
amendment to IAS 1 to clarify that liabilities are classified as either current or non-current, depending on the
rights that exist at the end of the reporting period. Inter alia, the amendment requires the following:
• Liabilities are classified as non-current if the entity has a substantive right to defer settlement for at least 12
months at the end of the reporting period. The amendment no longer refers to unconditional rights. The assessment
determines whether a right exists, but it does not consider whether the entity will exercise the right.
• ‘Settlement’ is defined as the extinguishment of a liability with cash, other economic resources or an entity’s
own equity instruments. There is an exception for convertible instruments that might be converted into equity, but
only for those instruments where the conversion option is classified as an equity instrument as a separate
component of a compound financial instrument.
The amendment would be applied retrospectively for annual periods beginning on or after 1 January 2022. Earlier
application is permitted. The Company chose to adopt this standard as of December 31, 2019. Accordingly, the
Company presented its warrants which were classified as financial liabilities as current liabilities.
F - 16
ENTERA BIO LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3 - CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances.
The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by
definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed
below:
Share-based payments
With respect to grants to employees, service providers and directors, the value of the labor services received in return is
measured on the date of grant, based on the fair value of the equity instruments granted to the employees and directors.
In order to measure the fair value of the labor service received, the Company uses the Black-Scholes model to value
the equity instrument. See note 11d.
Fair value of financial liabilities at fair value through profit or loss
To determine the fair value of Company’s financial instruments classified as financial liabilities, the Company uses its
judgment to select a variety of methods and make assumptions that are mainly based on market conditions existing at
the end of each reporting period or measurement date as well as using management judgment. In addition, these
liabilities are based on estimates that are subject to change based on the facts and circumstances at the times the
estimates are made. See note 7 and 8.
Revenue recognition
With respect to the Amgen Agreement the Company used its judgement to identify the Company's promises in the
agreement and whether the promises are distinct performance obligation. In addition, the Company uses its judgement
to determine the allocation of the transaction price between its identified distinct performance obligations. The
Company also used its significant judgment in order to determine the R&D services period. See note 13.
F - 17
ENTERA BIO LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 4 - FINANCIAL INSTRUMENTS:
a.
Financial risk management:
1)
Financial risk factors
The Company’s activities expose it to a variety of financial risks. The Company’s overall risk management
program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects
on the Company’s financial performance.
Risk management is performed by the Chief Financial Officer of the Company, who identifies and evaluates
financial risks in close cooperation with the Company's Chief Executive Officer.
The Company does not use financial instruments for hedging activity.
2) Credit risk
Credit and interest risk arise from cash and cash equivalents and deposits with banks. A portion of the liquid
instruments of the Company is invested in short-term deposits in leading Israeli banks. The Company
estimates that since the liquid instruments are mainly invested for the short-term and with a highly-rated
institution, the credit and interest risk associated with these balances is immaterial.
3)
Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash.
The Company is in a research stage and has not yet generated significant revenues from its activity. It is
therefore exposed to liquidity risk, taking into consideration the forecasts of cash flows required to finance its
investments and other activities.
3) Market risk—Foreign exchange risk
The Company might be exposed to foreign exchange risk as a result of making payments to employees or
service providers and investment of some liquidity in currencies other than the Company's functional
currency. The Company manages the foreign exchange risk by aligning the currencies for holding liquidity
with the currencies of expected expenses, based on the expected cash flows of the Company.
b. Capital risk management
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going
concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost
of capital. It should be noted that the Company is in the research and development stage and has not yet generated
significant revenues.
c. Fair value of financial instruments
The different levels of valuation of financial instruments are defined as follows:
Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2
Inputs, other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or
indirectly (derived from prices).
Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Level 3
The fair value of financial instruments traded in active markets is based on quoted market prices at the dates of the
statements of financial position.
F - 18
ENTERA BIO LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 4 - FINANCIAL INSTRUMENTS (continued):
A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer,
broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly
occurring market transactions on an arm’s length basis. These instruments are included in level 1.
The fair value of financial instruments that are not traded in an active market is determined by using valuation
techniques. These valuation techniques maximize the use of observable market data where it is available and rely
as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are
observable, the instrument is included in level 2.
If one or more of the significant inputs is not based on observable market data, the instrument is included in level
3.
As of December 31, 2019, and 2018, the fair value of cash and cash equivalents, short-term deposits, accounts
receivable, other receivables and accounts payable approximates their carrying value.
d. Classification of financial instruments by groups:
As of December 31,
2019:
Trade and other payable
Warrants to purchase ordinary shares (Level 1) (1)
Warrants to purchase ordinary shares (Level 3) (2)
As of December 31,
2018:
Trade and other payable
Warrants to purchase ordinary shares (Level 1) (1)
Financial
liabilities at
fair value
through
profit
or loss
Financial
liabilities at
amortized
cost
U.S. dollars in thousands
Total
-
266
2,178
2,444
-
1,372
1,372
1,704
-
-
1,704
1,563
-
1,563
1,704
266
2,178
4,148
1,563
1,372
2,935
(1)
(2)
Tradable warrants presented above are valuated based on the market price (a Level 1 valuation) as of December 31, 2019.
Warrants to purchase ordinary shares issued in December 2019 presented are valuated based on the Monte-Carlo pricing model
(a Level 3 valuation) as of December 31, 2019.
The main assumptions used are as follows:
Price per share
Volatility
Expected term
Risk free interest rate
Expected dividend
F - 19
December 31
2019
$1.84-$2.07
62%-63%
3
1.63%-1.71%
0%
ENTERA BIO LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5 - CASH AND CASH EQUIVALENTS
Cash in bank
Short-term bank deposits (1)
December 31,
2019
2018
U.S. dollars
in thousands
15,185
-
15,185
5,499
2,007
7,506
(1) The short-term bank deposit as of December 31, 2018 was in U.S. dollar and bear an annual interest rate of 2.17%.
NOTE 6 - INTANGIBLE ASSETS:
a. On June 1, 2010 D.N.A. Biomedical Solutions Ltd. ("D.N.A.") and Oramed Ltd., ("Oramed") entered into a joint venture agreement, (the
"Joint Venture Agreement") for the establishment of Entera Bio Ltd. According to the Joint Venture Agreement each of D.N.A. and
Oramed acquired 50% of the Company's ordinary shares. D.N.A invested $600,000 in the Company, and Oramed and the Company
entered into a Patent License Agreement pursuant to which Oramed licensed to the Company certain of Oramed's patent (the “IPR&D”).
The IPR&D was recorded as an intangible asset based on its fair value.
On February 22, 2011, Oramed and the Company entered into a patent transfer agreement, (the "Patent Transfer
Agreement"), that superseded the Patent License Agreement, whereby Oramed assigned to the Company all of its
rights, title and interest to its patent that Oramed licensed to the Company in 2010, under certain conditions. Under
this agreement, the Company is obligated to pay Oramed royalties equal to 3% of its net revenues (as defined in the
Patent Transfer Agreement).
b. The Company tests intangible assets for impairment at least once a year at December 31 by calculating the recoverable amount of the cash
generating unit to which the intangible asset belongs, which is the Company as a whole. The recoverable amount was calculated based on
a fair value less cost to sell. For the purpose of calculating fair value of the Company's equity as of December 31, 2019 and December 31,
2018, the Company applied the market approach and calculated its enterprise value based on the quoted price per share.
F - 20
ENTERA BIO LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7 - CONVERTIBLE LOANS:
a. As of December 31, 2019, and 2018, there were no convertible loans outstanding. The convertible loans were eventually converted into
ordinary shares of the Company upon the closing of the Company’s initial public offering in July 2018. See note 11.
1.
2012 Convertible Loan
In 2012, the Company entered into loan agreements with certain lenders for an aggregate amount of $1.2
million (the “2012 Convertible Loan”). Each of the loans bears interest at a rate of 0.6% per year, which is to
be repaid every five years, the loan is due and payable after a term of twenty years. Each of the investors has
the right during the term to convert its respective loan amount into ordinary shares at a conversion price of
$240.26 per ordinary share (before the IPO shares split) (subject to adjustment), and for a period of the initial
five years of the term of the loan agreement to exchange all such ordinary shares received into ordinary shares
of D.N.A at the rate of one of the Company's ordinary shares for 5,590 ordinary shares of D.N.A or 2,795
ordinary shares after the stock merge performed by D.N.A in October 2015 (also subject to adjustment) (the
“D.N.A option”). In addition, under the terms of the loan agreements the outstanding loan amounts will be
automatically converted into the Company's ordinary shares upon the closing of an initial public offering and
certain merger and acquisition transactions. The Company has designated the 2012 Convertible Loan on initial
recognition as a financial liability at fair value through profit or loss.
Following the Closing of the IPO (see note 11b below), the Company’s outstanding 2012 Convertible loans in
the amount of $4.1 million were automatically converted into 622,180 Ordinary Shares of the Company.
2.
2015 Convertible Loan
On August 5, 2015, the Company entered into a Convertible Promissory Note and Loan Agreement ("2015
Convertible Loan") with certain lenders. Pursuant to the loan agreement, the lenders loaned the Company an
aggregate amount of $2.0 million. The loan would have been automatically converted upon occurrence of
certain events. The loan would have converted into the same class of shares issued in such a transaction at a
25% discount to the applicable price per share in the Triggering Event. The loan was due to mature in
February 2017 and bore interest at a rate of 5% per year.
In addition the Company issued to the lenders warrants to purchase additional shares equal to 40% of the
shares issued upon conversion of the loan.
The Company measured the loan according to the amortized cost using the effective interest method. The
Company treated the warrants as a liability at fair value through profit or loss.
As part of the 2016 Convertible Loan agreement (See Note 7(a)(3)), the Company provided the right to the
lenders of the 2015 Convertible Loan to exchange the 2015 Convertible Loan for the 2016 Convertible Loan
including the maturity date. As a result, an amount of $1.1 million (from a total of $2.0 million), consisting
of $ 1.0 million principal amount plus interest accrued up to June 14, 2016 less withholding tax was
exchanged into the new convertible loan.
Since the terms of the loans are substantially different, the exchange was considered as an extinguishment,
which necessitated recording a loss due to 2015 Convertible Loan that was exchanged for the new convertible
loan recorded at fair value. The loss of extinguishment of $64,000 was recognized as a finance expense.
According to the 2016 Convertible Loan agreement, the Company deposited with the trustee an amount of
$1.1 million and on February 5, 2017 repaid the 2015 Convertible Loan using the cash deposited at the trustee.
F - 21
ENTERA BIO LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7 - CONVERTIBLE LOANS:
3.
2016 Convertible Loan
In June 2016, the Company closed a private placement (the "2016 Convertible Loan") with certain lenders in an aggregate amount of
approximately $7.4 million with the following terms:
i. The loan has a maturity of 18 months and bears interest at a rate of 5% per year. The loan will be automatically
converted upon occurrence of the following events as described in the agreement: IPO of at least $20 million, private
placement in an aggregate amount of no less than $10 million or change of control (the "Triggering Event").
Furthermore, in case of private placement in an aggregate amount of $4-$10 million the lenders shall have the right to
convert the loan to shares. The loan will convert into the same class of shares issued in such a transaction at the lower
of a 25% discount to the applicable price per share in the Triggering Event or the value of equity on a fully diluted basis
of $65 million.
The Company has designated the 2016 Convertible Loan on initial recognition as a financial liability at fair value
through profit or loss.
ii. Warrants to purchase additional shares (“2016 Warrants”) equal to 40% of the shares issued upon conversion in
exchange for an exercise price of the fair value of the shares in a Triggering Event. The warrant will be exercisable for
4 years from the grant date.
As part of the agreement, the Company gave the right to the lenders of the 2015 Convertible Loan
to exchange the 2015 Convertible Loan to the 2016
Convertible Loan including the maturity date. As a result, an amount of $1.1 million (consisting of
$ 1.0million principal amount plus interest accrued up to June 14, 2016 less withholding tax) was
exchanged into the 2016 Convertible Loan.
As described in note 8, as part of the Series B preferred share purchase agreement which occurred in
October 2017, the 2016 convertible loan together with the accrued interest was converted into 1,719,770
series B-1 preferred shares at a price per share of $5.24. Also, the 2016 Warrants became warrant to
purchase Series B preferred shares at an exercise price of $6.99.
b. The Company prepared a valuation of the 2012 Convertible loan and the 2016 convertible loan (a Level 3 valuation). The debt
component of the convertible loans was valued based on the discounting of future payments of the debt. The convertible components
(conversion option to the Company's ordinary shares) were valued based on a combination of the Probability-Weighted Expected Return
Method and Back Solve option pricing method model. The conversion of the 2012 Convertible loans into ordinary shares was performed
according to their fair value as of the IPO closing date, July 2, 2018. The following parameters were used:
Price per share*
Volatility
Probability of entering Phase 2b/3
Probability for IPO
July 2
2018
$
865
62%
NA
100%
* The price per share as of July 2, 2018 was based on quoted price on Nasdaq before the shares split.
F - 22
ENTERA BIO LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8 - PREFERRED SHARES AND WARRANTS TO PREFERED SHARES:
As of December 31, 2019, and 2018, there were no preferred shares outstanding. The preferred shares converted into
ordinary shares of the Company upon the closing of the Company’s initial public offering in July 2018. See note 11.
a.
In the course of 2014, and on January 11, 2015 the Company consummated the closing of the Series A Preferred Share Purchase
Agreements (the preferred share purchase agreements) with Centillion and certain shareholders (the “Investors”). Pursuant to the terms
of the preferred share purchase agreements the Company issued 5,111 preferred shares for an aggregate purchase price of $2.5 million.
The Company also issued warrant to purchase up to 1,277 of its applicable shares upon exercise of the warrant ("applicable shares") at
the per share purchase price. According to the preferred share purchase agreements, upon the Company's filing of a registration
statement for an initial public offering with the SEC no later than June 29, 2014 (which was extended to November 1, 2014) , or the "first
milestone", the Investors were required to purchase from the Company an additional 5,111 preferred shares at the per share purchase
price (for additional proceeds of $2.5 million) and the Company was required to issue to the Investors a warrant to purchase an
additional 1,277 applicable shares at the per share purchase price. Finally, pursuant to the terms of the preferred share purchase
agreements, upon the consummation of an initial public offering of the Company's ordinary shares on or prior to December 29, 2014
(which was extended to May 1, 2015, October 1, 2015, October 1, 2017 and later on to July 20, 2019), pursuant to which the ordinary
shares are listed on the Nasdaq or AMEX, or a "Qualified IPO" and such event the "second milestone", the Investors were required to
purchase from the Company an additional 2,555 preferred shares at the per share purchase price (for additional proceeds of $1.3 million)
and the Company was required to issue to the Investors a warrant to purchase an additional 639 preferred shares at the per share purchase
price. Centillion also had the right to acquire the preferred shares and warrant to be issued upon either of the milestones prior to the
applicable milestone date.
In January and May, 2015, the Company further amended the preferred share purchase agreements (the "second
amendment"). Pursuant to the second amendment, the Investors exercised their right to acquire the preferred
shares and warrant to be issued upon the first milestone although as of such date the Company had not filed a
registration statement for its initial public offering and the investors paid the Company $2.5 million. In
consideration therefor, the Company also issued to the Investors an additional warrant, or the "Additional
Warrant". The Additional Warrant is exercisable upon (and for a period of one year following) the first to occur of
a significant financing round, an M&A event (as defined in the warrant agreement) or the Company's initial
public offering, to purchase up to $2.5 million of the type of shares issued in such a transaction at a 25% discount
to the applicable price per share.
On July 20, 2017, the Company approved the amendment to the preferred share A purchase agreement with the
preferred shareholders. Pursuant to the amendment, the Investors shall have the option, at their sole discretion, to
invest any or all of the milestone investment amount. In addition, the exercise terms of the additional warrants
granted to the Investors in 2015 were changed to a period of two year following the event of the first to occur of a
significant financing round, an M&A event (as defined in the warrant agreement) or the Company's initial public
offering.
Following the completion of the Preferred B Financing as defined in note 8b, the additional warrants that the
Company previously issued in connection with the second amendment to the preferred share purchase agreements
became warrants to purchase Series B-1 preferred shares at an exercise price of $681.585.
On July 2, 2018, following the Closing of the IPO, see note 11b, the Company’s 10,222 preferred A shares were
automatically converted into 1,328,860 Ordinary Shares of the Company (after the share split). In addition, the
2,554 warrants to purchase preferred A shares were converted into 332,020 warrants to purchase ordinary shares
of the Company (after the share split) and certain additional options and warrants to issue preferred A shares were
automatically converted into options and warrants to purchase ordinary shares of the Company (after the share
split). In addition, the 3,594 additional warrants and options to purchase Preferred B-1 shares automatically
converted into 467,220 warrants to ordinary shares of the Company (after the share split).
F - 23
ENTERA BIO LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8 - PREFERRED SHARES AND WARRANTS TO PREFERED SHARES (continued):
In July 2019, one of the Company’ shareholders' exercised his right to acquire 32,500 ordinary shares for a total
consideration of $100,000 (upon achievement of the second milestone) in accordance with the preferred share A
purchase agreement signed in 2014 and the amendments.
On July 20, 2019, the 443,950 warrants and certain additional options to purchase 443,950 ordinary shares for a
purchase price of $3.69 per share (upon achievement of the second milestone) in accordance with the
abovementioned preferred share A purchase agreement and its amendments expired. Following the expiration, the
Company classified $1.4 million from Other Reserves to Additional paid in Capital.
On October 4, 2019 the 467,220 warrants to purchase ordinary shares at a purchase price of $5.24, in accordance
with the “2016 Convertible Loan” expired. Following the expiration, the Company classified $1.2 million from
Other Reserves to Additional paid in Capital.
b.
In October and December 2017, the Company entered into a Series B preferred share purchase agreement (the “Preferred B Financing”),
with certain investors, including D.N.A and Centillion (together, the “Investors”). Pursuant to the terms of the Series B preferred share
purchase agreement, the Company issued and sold to the Investors 14,283 Series B preferred shares at a price per share of $908.78, for
an aggregate purchase price of $13.0 million. The total consideration net of issuance costs which were paid in cash was $12.1 million.
In addition, the Company issued to a broker dealer, a warrant to purchase 526 Series B preferred shares, at a price of $908.78 per share
and recorded additional issuance costs of $198,000. Of the Investors, a number of related parties participated in the Preferred B
Financing and purchased 7,089 Series B preferred shares, in the amount of $6.4million.
The Preferred B Financing constitutes a Triggering Event as defined in the 2016 Convertible Loan and as a result,
the entire loan amount under the 2016 Convertible Loan, together with accrued interest in the amount of $9.0
million, was automatically converted into 13,229 Series B-1 preferred shares at a price per share of $681.585.
In addition, as a result of the Preferred B Financing, the 2016 Warrants became warrants to purchase Series B
preferred shares at an exercise price of $908.78.
As part of the automatic conversion of the 2016 Convertible Loans, the Company issued to four of its related
parties 1,834 (238,420 after share split) Series B-1 preferred shares, and their 2016 warrants became warrants to
purchase 733 (95,290 after share split) Series B preferred shares. The fair value of the preferred shares and
warrants was $1.6 million and $264,000, respectively.
The rights of the Series B-1 preferred shares are identical in all respects (other than the price per share) to the
Series B preferred shares.
F - 24
ENTERA BIO LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8 - PREFERRED SHARES AND WARRANTS TO PREFERED SHARES (continued):
c. For accounting of purposes, the preferred shares were classified as a financial liability considering, inter alia, the deemed liquidation
events mechanism as described under the agreement. In addition, the conversion ratio of Series A preferred shares, Series B preferred
shares and Series B-1 preferred shares into ordinary shares was subject to certain adjustments, which do not meet the 'fixed for fixed'
requirement of IAS 32. Therefore, the conversion option represents an embedded derivative, which should be bifurcated and accounted
for separately at fair value through profit or loss.
The Company elected to designate the entire instrument at fair value through profit or loss at each balance sheet date up to July 2, 2018
and on July 2, 2018.
The warrants to purchase preferred shares issued concurrently with the Series A preferred shares, Series B
preferred shares and the Series B-1 preferred shares also meet the definition of a financial liability since they were
exercisable into a financial liability. These warrants were measured at fair value through profit or loss at each
balance sheet date up to July 2, 2018 and on July 2, 2018.
Before the change in condition in July 2017, the liability for future issuances of preferred shares and warrants
upon fulfillment of the second milestones as described in (a) above, constituted contingent forward contracts, and
therefore accounted for at fair value through profit or loss at each balance sheet date.
Following the Closing of the IPO, all the Company’s preferred shares, warrants and options to purchase preferred
shares were automatically converted into ordinary shares and warrants and options to purchase ordinary shares.
Therefore, the company classified the financial liabilities to equity according to their value as of the IPO closing
date.
d. As of the closing of the IPO, July 2, 2018, the Company prepared valuations of the fair value of the instruments described above using a
combination of the Probability-Weighted Expected Return Method and Back Solve option pricing method model. The following
parameters were used:
Price per share*
Volatility
Probability of entering Phase 2b/3
Probability for IPO
$
July 2
2018
865
62%
NA
100%
* The price per share as of July 2, 2018 was based on quoted price on Nasdaq before shares split.
Immediately prior to the IPO, the fair value measurement of the preferred shares and the convertible loan was
based upon the fair value of the Company's share (the IPO price) only, which represents a level 1 measurement,
while the Fair value of the warrants to ordinary shares represent a level 3 measurement.
F - 25
ENTERA BIO LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 9 - COMMITMENTS:
a.
Pursuant to the Patent Transfer Agreement with Oramed, the Company is committed to pay royalties to Oramed –see note 6.
b.
The Company is committed to pay royalties to the Government of Israel on proceeds from sales of products in the research and
development of which the Government participates by way of grants. At the time the grants were received, successful development of the
related project was not assumed. In the case of failure of the project that was partly financed by the Government of Israel, the Company
is not obligated to pay any such royalties. Under the terms of the Company’s funding from the Israeli Government, royalties are payable
on sales of products developed from projects so funded of 3% during the first three years, from commencement of revenues, 4% during
the subsequent three years and 5% commencing the seventh year up to 100% of the amount of the grant received by the Company (dollar
linked) with the addition of annual interest based on Libor. The amount that must be repaid may be increased to three times the amount of
the grant received, and the rate of royalties may be accelerated, if manufacturing of the products developed with the grant money is
transferred outside of the State of Israel. As of December 31, 2019, the total royalty amount that would be payable by the Company,
before the additional Libor interest, is approximately $460,000.
Following the signing of the Amgen Agreement (see note 1a(4)), the Israeli Innovation Authority (the "IIA")
determined that the Company should pay 5.38% of each payment that will be received by the Company from
Amgen on the license of IP up to 6 times the grant received. On February 10, 2019 the Company paid $27,000 to
the Government of Israel.
c.
Emisphere Technologies, Inc., or Emisphere, has notified the Company that it believes that it is the exclusive owner of certain U.S. and
related foreign patents and patent applications the Company acquired from Oramed Ltd. Emisphere has not initiated a legal proceeding as
of the date of the approval of this financial statement. The matter is still in its early stages. If Emisphere were to initiate a legal
proceeding, we would vigorously defend against such claim and believe that Emisphere’s notification is without merit.
F - 26
ENTERA BIO LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 – LEASES:
Effective January 1, 2019, the Company early adopted IFRS 16. The Company has not restated prior reporting period, as
permitted under the specific transitional provisions in the standard. The reclassifications and the adjustments arising from
the new leasing rules are therefore recognized in the opening balance sheet on January 1, 2019.
On initial application, the company recognized lease liabilities in relation to leases which had previously been classified
as ‘operating leases’ under the principles of IAS 17 Leases. These liabilities were measured at the present value of the
remaining lease payments, discounted using the lessee’s incremental borrowing rate as of January 1, 2019. The weighted
average lessee’s incremental borrowing rate applied to the lease liabilities on January 1, 2019 was 16%. The Company has
elected to record right-of-use assets based on the corresponding lease liability.
In applying IFRS 16 for the first time, the Company had used the following practical expedients permitted by the
standard:
•
•
•
•
Use of a single discount rate to a portfolio of leases with reasonably similar characteristics;
Reliance on previous assessments on whether leases are onerous;
Exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application;
Use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
The Company has also elected not to reassess whether a contract is, or contains, a lease at the date of initial application.
Instead, for contracts entered into before the transition date, the Company relied on its assessment made applying IAS 17
and IFRIC 4, “Determining whether an Arrangement contains a Lease.
Office lease agreement
The Company leases office and research and development space under several agreements. The annual lease
consideration is in total amount of $164,000. The lease agreements will expire on June 30, 2023, with a one-time option
for early termination by us on December 31, 2021, subject to a notice period of six months. These agreements are
considered as operating leases and presented under operating lease right-of-use assets.
As of December 31, 2019, the Company provided bank guarantees of approximately $30,000, in the aggregate, to secure
the fulfillment of its obligations under the lease agreements.
The Following table is the composition of right-of-use assets by type:
Facility
Vehicles
Total right-of-use asset
F - 27
As of January
1, 2019
As of
December 31,
2019
151
15
166
253
7
260
ENTERA BIO LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 – LEASES (continued):
The following table summarize the contractual obligations:
Operating leases for facility and vehicles as of December 31, 2018
Operating leases for facility and vehicles as of December 31, 2019
Total
$
$
Payments due by period
Less than
1 year
(In thousands)
87
$
$
123
346
$
177
$
1 - 3 years
36
169
Depreciation expense:
Facility
Vehicles
Financial expense
Cash paid for amounts included in the measurement of lease liabilities
Right of use assets obtained in exchange for new operating lease liabilities
NOTE 11 - SHARE CAPITAL:
a.
The share capital composed of ordinary shares of NIS 0.0000769 par value, as follows:
Authorized
Issued
twelve
months
ended
December 31,
2019
121
9
55
169
224
Number of ordinary shares
December 31
2019
2018
140,010,000 140,010,000
17,864,684 11,459,780
The ordinary shares confer upon their holders the following rights: (i) the right to vote in any general meeting of
the Company, (ii) the right to receive dividends, if and when declared by the Board of Directors and (iii) the right
to receive upon liquidation of the Company a sum equal to the nominal value of the share, and if a surplus
remains, to receive such surplus, subject to the rights conferred on any class of shares which may be issued in the
future.
F - 28
ENTERA BIO LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 11 - SHARE CAPITAL (continued):
b.
Initial Public Offering (“IPO”)
On July 02, 2018 the Company completed the IPO and offered 1,400,000 ordinary shares and 1,400,000 warrants
(the “tradable warrants”) to purchase up to 700,000 ordinary shares for a gross consideration of $11.2 million
before issuance costs ($9.6 million net of issuance costs in cash which included $0.9 million underwriters’ fees
and an additional approximately $0.7 million of other issuance costs). The ordinary shares and the tradable
warrants sold in units (each a “unit”), with each unit consisting of one ordinary share and one tradable warrant to
purchase 0.5 of an ordinary shares. The public offering price was $8.0 per unit.
The ordinary shares and warrants were immediately separable and started to trade separately upon completion of
the Company’s IPO in July 2018.
In Connection with the IPO certain actions were completed, including:
1) A 1-for- 130 split of the Company's ordinary shares. Following the split, the Company retrospectively reflected the change in the
share capital of the Company for all periods presented. Unless otherwise indicated, all of the ordinary share numbers, losses per
ordinary share, share prices, options and warrants in these financial statements have been adjusted, on a retroactive basis, to
reflect this 1-for- 130 split.
2) The Company’s outstanding 2012 Convertible loans were automatically converted into 622,180 Ordinary Shares of the Company.
3) The Company's series A preferred shares, series B preferred shares and series B-1 preferred shares were automatically converted
into 1,328,860, 1,856,790 and 1,719,770, Ordinary Shares of the Company, respectively.
4) The Company's warrants to purchase series A preferred shares, warrants to purchase Series B preferred shares and warrants to
purchase Series B-1 preferred shares were automatically converted into 343,200, 756,340 and 467,220 warrants, respectively, to
purchase Ordinary Shares of the Company.
5) Existing options to purchase Series A preferred shares and warrants to purchase Series A preferred shares, granted to certain
holders of our Series A preferred shares that were exercisable upon the closing of the IPO, were automatically converted into
options to purchase 387,530 Ordinary Shares of the Company and into warrants to purchase 85,931 Ordinary Shares of the
Company.
On July 26, 2018, the Company's underwriters exercised their overallotment option to purchase 210,000 warrants
to purchase 105,000 Ordinary Shares of the Company for a total consideration of $2,100. The fair value of the
warrants on the issuance date was $172 thousand. The Company recorded the fair value as issuance costs.
The Company also issued to the underwriters 10,000 ordinary shares following the closing of the IPO, as well as
70,000 underwriter warrants at an exercise price of $8.8 to purchase 70,000 ordinary shares. The underwriter
warrants may be exercised on a cashless basis under certain circumstances as described in the warrant agreement.
The underwriter warrants will be exercisable 180 days following June 29, 2018 until the fifth anniversary of such
effective date. The underwriter warrants are not redeemable by the company and have some registration rights as
described in the warrant. The underwriter warrants will provide for adjustment of the exercise price of such
warrants (and the ordinary shares underlying such warrants) for dilutive events such as a stock dividend or stock
split and for recapitalizations, mergers and other fundamental transactions.
The shares and warrants issued to the underwriters were recorded as an issuance cost based on fair value of
$66,500 and $255,000 respectively.
F - 29
ENTERA BIO LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 11 - SHARE CAPITAL (continued):
b.
IPO (continued):
The Company allocated the total consideration from the issuance of the units between the ordinary shares and the
tradable warrants as follows: the tradable warrants were recorded at fair value based on the quoted price on
Nasdaq as of July 2,2018 and the residual amount was allocated to the ordinary shares.
Issuance costs were allocated to the ordinary shares and the tradable warrants according to their fair values.
Issuance costs which were allocated to the ordinary shares were deducted from shareholders' equity, and issuance
costs that were allocated to the tradable warrants were expensed immediately.
Tradable warrants
As described above, the Company issued 1,400,000 tradable warrants to purchase 700,000 ordinary shares of the
Company. The tradable warrants are exercisable immediately at an initial exercise price of $8.4 per ordinary share
for a period of five years, unless earlier repurchased by the Company under "Fundamental Transactions” as
described in the warrant agreement or early expired as described below and in the warrant agreement.
The exercise of the warrants is in cash, unless the warrant holder is utilizing the “cashless” exercise provision of
the warrants, prior to the termination date under certain circumstances as described in the warrant agreement. On
the termination date, any warrants not previously exercised, repurchased by the Company or subject to early
expiration will terminate and expire worthless.
The exercise price and number of shares issuable upon exercise of each warrant are subject to standard
adjustments. The exercise price is subject to reduction if, within two years of the date of original issuance of the
warrants, the Company sells or grants any warrant or option (except in certain circumstances as described in the
warrant) at an effective price per share less than $8.0 per share (as adjusted in proportion with any adjustments
made from time to time), which reduction will be based on a weighted average, as described in the warrant.
The Company may accelerate the expiration date of the warrants upon written notice to the holders at any time if
the last reported sale price (as defined in the warrants) exceeds $24.00 per share, which is 300% of the IPO price
per unit (subject to adjustments) for a 10 consecutive trading day period. As described in note c, the Company
completed financing round in a price per share lower than the $8.0, therefore, the adjusted exercise price is $5.85.
For accounting purposes, the tradable warrants issued to the public were classified as a financial liability since
their exercise price and number of shares issuable upon exercise of each warrant are subject to certain adjustments
as described in the warrant agreement and also due to the cashless exercise option. The fair value of the tradable
warrants as of the IPO closing date and as of December 31, 2019 was based on quoted price on Nasdaq (Level 1
valuation) as of the respective date.
c. On December 11, 2019 and December 18, 2019 (“the first and second closing”), the Company entered into subscription agreements with
a select group of accredited investors, including certain board members or its affiliates for the private placement of 5,710,153 ordinary
shares for aggregate subscription proceeds to the Company of $13.5 million at $2.37 price per share. In addition, the Company granted
2,855,095 warrants, exercisable over a three-years period from the date of issuance, to purchase 2,855,095 ordinary shares at a per share
exercise price of $2.96 (“Investors Warrants”).
In addition, on December 13, 2019, D.N.A Biomedical Solutions Ltd. (“DNA”), an existing shareholder of the Company, subscribed to
the Private Placement (the “DNA Private Placement”) to purchase 337,553 ordinary shares for aggregate consideration of $800,000. In
connection with the transaction, the Company granted DNA warrants, exercisable over a three-year period from the date of issuance, to
purchase 168,776 ordinary shares at a per share exercise price of $2.96. This investment was subject to the approval of the shareholders
of the Company and was approved on February 18, 2020. See note 17b.
F - 30
ENTERA BIO LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 11 - SHARE CAPITAL (continued):
In connection therewith, the Company entered into Placement Agency agreement with GP Numenkari Inc., a
broker-dealer (“the Broker”). Based on the agreement, the Broker is entitled to the following consideration:
1) A cash fees equal to 10% of the total proceeds paid by subscribers invested through the Broker.
2) Three-years warrants to purchase ordinary shares in the amount equal to 10% of the number of shares issued to subscribers invested
through the Broker at a per share exercise price of $2.37 (“Broker Warrants Type 1”).
3) Three-years warrants to purchase ordinary share in the amount equal to 5% of number of shares issued to subscribers invested through
the Broker at a per share exercise price of $2.96 (“Broker Warrants Type 2”), together with the Broker Warrants Type 1 (the “Broker
Warrants”).
Following the first and second closing of the offering, the Company issued 184,515 Broker Warrants type 1 and
92,257 Broker Warrants type 2.
Prior to the exercise of the Investor Warrants and the Broker Warrants and for the duration of their term, the
number of ordinary shares issuable upon their exercise and the exercise price are subject to customary
adjustments, including in the events of reorganizations or reclassifications of the Company’s capital stock, upon
payment of dividends or distributions to the Company’s shareholders, and upon subsequent issuance of the
Company’s share capital at or below a price of $2.37. In addition, these warrants agreements have cashless
exercise option. In addition, The Warrants agreements has cashless exercise option Therefore, for accounting
purposes, the Investors Warrants issued were classified as a financial liability.
The Company had transaction costs of approximately $1.2 million, out of which $205 thousand are stock-based
compensation expenses due to issuance of Broker Warrants type 1 and Broker Warrants type 2.
The Company allocated the total consideration from the issuance of the units between the ordinary shares and the
warrants as following: the Investors Warrants were recorded at fair value based on its fair value as of the issuance
date and the residual amount was allocated to the ordinary shares.
Issuance costs were allocated to the ordinary shares and the tradable warrants according to their fair values.
Issuance costs which were allocated to the ordinary shares were deducted from shareholders' equity, and issuance
costs that were allocated to the Investors warrants were expensed immediately.
As part of the subscription agreements, the Company also entered into a Registration Rights Agreement (together
with the Warrants and the Subscription Agreement), pursuant to which within seven months of the final closing,
the Company shall file a registration statement on Form F-3 with the SEC for the resale of the Shares issued in the
first and second closing (including those issued upon exercise of the Warrants). Under the agreement, the
Company is required to pay the purchasers liquidated damages in the event that the Company does not meet the
foregoing requirement in an amount equal to 1% per month of the aggregate purchase price paid in cash by such
purchasers for their investment in the Company.
F - 31
ENTERA BIO LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 11 - SHARE CAPITAL (continued):
d.
Share based compensation:
1)
Share based compensation plan
On March 17, 2013, the Company's Board of Directors approved a Share Incentive Plan (the “2013
Plan”). Under the 2013 Plan, the Company shall reserve sufficient number of ordinary shares,
NIS 0.000769 par value, of the Company for allocation of stock options, restricted share units, restricted
share awards and performance-based awards (the "Option"), to employees and non-employees. Each
Option is exercisable for one ordinary share.
Any option granted under the 2013 Plan that is not exercised within six years from the date upon which it
becomes exercisable will expire.
On July 2, 2018, the Company's board of directors and shareholders of the Company approved a new
Share Incentive Plan (the “2018 Plan”) and reserved 1,371,398 ordinary shares of the Company for
allocation of stock options, restricted share units, restricted share awards and performance-based awards
(the "Option"), to employees and non-employees for issuance under the 2018 Plan. Each Option is
exercisable for one ordinary share NIS 0.0000769 par value.
Any option granted under 2018 Plan that is not exercised within 10 years from the date upon which it
becomes exercisable will expire.
The options granted to employees are subject to the terms stipulated by section 102(b)(2) of the Israeli
Income Tax Ordinance (the “Ordinance”). According to these provisions, the Company will not be
allowed to claim as an expense for tax purposes the amounts credited to the employees as a capital gain
benefit in respect of the options granted.
Options granted to related parties or non-employees of the Company are governed by Section 3(i) of the
Ordinance or NSO. The Company will be allowed to claim as an expense for tax purposes in the year in
which the related parties or non-employees exercised the options into shares.
As of December 31, 2019, 204,263 ordinary shares remain available for future grants under the Plan.
On January 22 2020 the Company’s Board of Directors approved an increase of 893,234 ordinary shares
that may be issued under the Company’s Plan.
F - 32
ENTERA BIO LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 11 - SHARE CAPITAL (continued):
2) Options grants to employees and directors:
a) On January 10, 2018, the Company appointed Dr. Eric Lang as the Company’s Chief Medical Officer, effective January 15,
2018. In connection with Dr. Lang’s appointment as the Company’s Chief Medical Officer, the Company’s Board of Directors
granted Dr. Lang options to purchase 110,500 ordinary shares at an exercise price of $6.31 per share. The options vest over 4
years from the date of grant; 1/4 vest on the date of grant and the remaining vest in twelve equal quarterly installments
following the first anniversary of the applicable grant date. The fair value of the options at the date of grant was $420,000. In
September 2018, Dr. Eric Lang's employment was terminated and the options were forfeited in December 2018.
b)
In January 2018, the Company granted options to purchase 32,500 ordinary shares to a certain consultant, with an exercise
price of $2.11. The options vested immediately. The fair value of the options at the date of grant was $138,000.
c) On January 17, 2019, the Company granted options to purchase 124,000 ordinary shares to certain employees, with an exercise
price of $3.97. The options vest over 4 years from the date of grant; 25% will vest on the first anniversary of the date of grant
and the remaining 75% options shall vest in twelve equal quarterly installments following the first anniversary of the grant
date. The fair value of the options at the date of grant was $341,000.
d) On January 17, 2019, the Company's Board of Directors approved to grant options to purchase 25,000 ordinary shares to the
CMO, with an exercise price of $3.97. From the total options, 25% will vest on March 1, 2019 and the remaining 75% options
shall vest in twelve equal quarterly installments over the next three years starting January 17, 2019. The grant was subject to
the approval by the shareholders of the Company and was subsequently approved in May 2019. The fair value of the options at
the date of grant was $68,000.
e) On January 17, 2019, the Company's Board of Directors approved to grant options to purchase 201,828 ordinary shares to non-
executive directors of the Company, with an exercise price of $3.97. The options will vest over 3 years in twelve equal
quarterly instalments starting in the vesting commencement date (as described in each agreement). The grant was subject to the
approval by the shareholders of the Company and was subsequently approved in May 2019. The fair value of the options at the
date of grant was $531,000.
f) On August 5, 2019, the Company’s Board of Directors approved to grant options to purchase 696,587 ordinary shares to the
new CEO, with an exercise price of $2.75 per share. The options vest over 4 years from the date of grant. 25% will vest on the
first anniversary of the date of grant and the remaining 75% options shall vest in twelve equal quarterly installments following
the first anniversary of the grant date. The grant was subject to the approval by the shareholders of the Company and was
subsequently approved in October 2019. The fair value of the options at the date of grant was $1.1million.
F - 33
ENTERA BIO LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 11 - SHARE CAPITAL (continued):
g) On November 18, 2019, the Company’s Board of Directors approved the following option grants:
1. Options grant to purchase 30,385 ordinary shares to the new US-based CFO, with an exercise price of $2.53 per share.
The options will vest over two years in equal monthly installments following the grant date. The grant was subject to
the approval by the shareholders of the Company and was subsequently approved in February 2020.The fair value of
the options at December 31, 2019 was $37,000.
2. Options grant to purchase 33,638 ordinary shares t0 non-executive director of the Company, with an exercise price of
$2.53. The options will vest over 3 years in twelve equal quarterly instalments starting on the vesting commencement
date (as described in the agreement). The grant was subject to the approval by the shareholders of the Company and
was subsequently approved in February 2020. The fair value of the options at December 31, 2019 was $43,000.
3) Options granted to service provider:
In November 2019, the Board of Directors approved an option grant to a services provider in accordance
with business development and advisory services agreement from August 2019. Under the terms of the
agreement, the Company agreed to grant options to purchase the Company’s ordinary shares in an amount
equal to $90,000 as of the date of grant, or 65,693 ordinary shares at an exercise price of $3.10. The options
will vest over six months in equal monthly instalments starting in August 2019.
4) The fair value of each option granted (except options with an exercise price of par value, as described below) is estimated at the
date of grant using the Black-Scholes option-pricing model, with the following weighted average assumptions:
Ordinary share price
Exercise price
Dividend yield
Expected volatility
Risk-free interest rate
Expected life – in years
$
$
2019
2018
2017
2.94
3.12
$
$
-
71%
1.86%
9.37
6.31
5.35
$
$
-
68%
2.23%
4.07
5.95
5.95
-
73.77%
1.67%
7.94
The fair value of each option with a par value exercise price is based on the fair value of ordinary share at the
date of grant. The ordinary share price is derived from the value of equity and is based on market value, or
prior to the IPO based on the valuation performed. The expected volatility is based on comparable
companies. The risk-free interest rate is determined based on rates of return on maturity of unlinked treasury
bonds with a time to maturity that equals the average life of the options.
F - 34
ENTERA BIO LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 11 - SHARE CAPITAL (continued):
5) Changes in the number of options and weighted average exercise prices are as follows:
2019
Year ended December 31,
2018
2017
Weighted
average
exercise
price
4.36
6.31
4.44
0.21
3.12
4.74
Weighted
average
exercise
price
4.59
-
5.73
-
5.35
4.36
Number of
options
1,136,590 $
-
(36,270)
-
1,944,670 $
3,044,990 $
Number of
options
3,044,990 $
-
(718,120)
(31,460)
143,000 $
2,438,410 $
Number of
options
2,438,410 $
(91,000)
(14,690)
(662,251)
1,177,131 $
2,847,600 $
Outstanding at beginning of year
Expired
Forfeited
Exercised (*)
Granted
Outstanding at end of year
Exercisable at end of year
1,525,618 $
5.62
1,837,160 $
1.67
1,430,780 $
(*) The total intrinsic value of options exercised during the year ended December 31, 2019, was approximately $2,391 thousand.
6) The following is information about the exercise price and remaining contractual life of outstanding options at year-end:
December 31, 2019
December 31, 2018
Weighted
average
exercise
price
1.43
-
2.27
-
6.39
4.59
2.92
Exercise price
*
1.85
2.43
2.11
2.53
2.75
1.85
3.10
3.69
3.97
6.31
7.54
$
$
$
$
$
$
$
$
$
$
$
Weighted average
of remaining
contractual life
2.79
1.22
-
0.05
9.89
9.60
-
4.89
2.36
9.05
5.85
3.26
Number of
options
outstanding at
end of year
602,810
27,560
36,010
65,000
-
-
11,050
-
205,920
-
1,342,770
147,290
Number of
options
outstanding at
end of year
4,680
11,050
-
65,000
64,023
696,587
-
65,693
203,970
340,828
1,248,479
147,290
* Par value
$
$
$
$
$
$
Exercise price
*
1.85
2.43
2.11
2.53
2.75
1.85
-
3.69
3.97
6.31
7.54
$
$
$
$
Weighted average
of remaining
contractual life
0.55
0.67
1.41
1.05
-
-
2.21
-
3.36
-
6.39
4.26
7) The remaining unrecognized compensation expense as of December 31, 2019 is $1.9 million and will be expensed in full at August
2023.
8) Exercise of options
During 2019, current and former executive officers exercised 662,251 options into 662,251 ordinary shares for
a total consideration of $138,000.
F - 35
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
ENTERA BIO LTD.
NOTE 12 - TAXES ON INCOME:
a. Entera Bio Ltd.
The Company is taxed according to Israeli tax laws:
1) Measurement of results for tax purposes
The Company measures its results for tax purposes in nominal terms in NIS based on financial reporting under
Israeli accounting principles, while (as detailed in note 2) the functional currency of the Company is the U.S.
dollar and the Company’s financial statements are measured in U.S. dollars and in accordance with IFRS.
Therefore, there are differences between the Company’s taxable income (loss) and income (loss) reflected in
these financial statements.
2)
Tax rates
The income of the Company is subject to the Israel corporate tax rates.
The corporate tax rate is 24% in 2017 and 23% in 2018 and thereafter.
Capital gains are subject to capital gain tax according to the corporate tax rate for the year during which the
assets are sold.
b. Entera Bio Inc.
Entera Bio Inc. is taxed according to U.S. tax laws. The Company’s income is taxed in the United
States at the rate of 21%.
c. Losses for tax purposes carried forward to future years
Entera Bio Ltd.
The balance of carryforward losses as of December 31, 2019 and 2018 are approximately $31 million and $21
million, respectively.
Under Israeli tax law, tax loss carry forward have no expiration date.
Deferred tax assets on losses for tax purposes carried forward to subsequent years are recognized if utilization of
the related tax benefit against a future taxable income is expected. The Company has not created deferred tax
assets based on its carry forward losses and other temporary assets since their utilization is not expected in the
foreseeable future.
d. Reconciliation of the theoretical tax expense to actual tax expense
The main reconciling item between the statutory tax rate of the Company and the effective rate is unrecognized tax
benefits from carry forward tax losses due to the uncertainty of the realization of such tax benefits (see above).
e. Tax assessments
In accordance with the Income Tax Ordinance, as of December 31, 2019, all of the Company's tax assessments
through tax year 2014 are considered final.
F - 36
ENTERA BIO LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 13 – REVENUE FROM COLLABORATION AND LICENSE AGREEMENT
On December 10, 2018, the Company entered into a research collaboration and license agreement (the “Amgen
Agreement”) with Amgen Inc. (“Amgen”) in inflammatory disease and other serious illnesses. Pursuant to the Amgen
Agreement, the Company and Amgen will use the Company’s proprietary drug delivery platform to develop oral
formulations for one preclinical large molecule program that Amgen has selected. Amgen also has options to select
up to two additional programs to include in the collaboration. Amgen is responsible for the clinical development,
regulatory approval, manufacturing and worldwide commercialization of the programs.
The Company granted Amgen an exclusive, worldwide, sublicensable license under certain of its intellectual property
relating to its drug delivery technology to develop, manufacture and commercialize the applicable products. The
Company will retain all intellectual property rights to its drug delivery technology, and Amgen will retain all rights to
its large molecules and any subsequent improvements, and ownership of certain intellectual property developed
through the performance of the collaboration is to be determined by U.S. patent law.
Pursuant to the terms of the Amgen Agreement, Amgen is required to make aggregate payments of up to $270 million
upon achievement of various clinical and commercial milestones or its exercise of options to select additional two
programs to include in the collaboration, as well as tiered royalty payments ranging from the low to mid-single digits
based on the level of Amgen’s net sales of the applicable products. Amgen is required to pay for the initial program
$450,000 for the second year of preclinical R&D services to be provided by the Company and must reimburse the
Company for further expenses as shall be agreed between the parties. Preclinical R&D services includes time spent
by the Company's employees performing the Company's activities under the work plan of collaboration program
Amgen’s obligation to pay royalties with respect to a product in a particular country commences upon the first
commercial sale of such product in such country and expires on a country-by-country and product-by-product basis
on the later of (a) the date on which the sale of the product is no longer covered by a valid claim of a patent licensed
to Amgen under the Amgen Agreement, and (b) the tenth anniversary of the first commercial sale of such product in
such country.
The term of the Amgen Agreement commenced on December 10, 2018, and unless earlier terminated, shall continue
in full force and effect, on a product-by-product basis, until expiration of the last-to-expire royalty term with respect
to such product.
In January 2019, as required by the Amgen Agreement, Amgen paid the Company a non-refundable and non-
creditable initial technology access fee of $725,000. The Company evaluated the selling price of the preclinical R&D
services at $225 thousand and the right to use the intellectual property (“License fees”) at $500 thousand. In
December 2018, the Company recognized $500,000 in revenues for the right to use the intellectual property.
Revenues attributed to the preclinical R&D services are recognized during the period of the pre-clinical R&D
services according to the input model method on a cost-to-cost basis. In January 2020, the Company received the first
installment of the second year pre-clinical R&D services in the amount of $225 thousands.
As of December 31, 2019, the Company recorded revenues of $236,000 related to services provided under the Amgen
Agreement.
In addition, as of December 31, 2019 and 2018 the company recorded a contract liability of $267 and $225 thousand,
respectively.
F - 37
ENTERA BIO LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 14 - SUPPLEMENTARY FINANCIAL INFORMATION:
a. Other current assets:
Prepaid expenses
Restricted deposits
Other
b. Accounts payable - other:
Employees and employees related
Provision for vacation
Accrued expenses and other
F - 38
December 31,
2019
2018
U.S. dollars in thousands
39
37
97
173
109
21
90
220
December 31,
2019
2018
U.S. dollars in thousands
345
231
794
1,370
120
215
755
1,090
ENTERA BIO LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 15 – BASIC AND DILUTED LOSS PER SHARE:
Basic
Basic loss per share is calculated by dividing the result attributable to equity holders of the Company by the
weighted average number of ordinary shares in issue during the year.
Diluted
Warrants to issue ordinary shares and all options, have been excluded from the calculation of the diluted loss per
share for the year ended December 31, 2019 since their effect was anti-dilutive. The total number of shares related to
the outstanding warrants to issue ordinary shares and options excluded from the calculation of diluted loss per share
was 4,849,855 for the year ended December 31, 2019.
The 2012 Convertible Loan, preferred shares, warrants to issue preferred shares A, warrants to issue preferred shares
B up to the closing of the IPO and warrants to issue ordinary shares and all options, have been excluded from the
calculation of the diluted loss per share for the year ended December 31, 2018 since their effect was anti-dilutive. The
total number of shares related to the outstanding options, the 2012 Convertible Loan, preferred shares, warrants to
issue preferred shares A, warrants to issue preferred shares B and warrants to issue ordinary shares and excluded from
the calculation of diluted loss per share was 10,596,130 for the year ended December 31, 2018.
All outstanding options, the 2012 Convertible Loan, 2016 Convertible loan, preferred shares and warrants to issue
preferred shares have been excluded from the calculation of the diluted loss per share for the year ended December
31, 2017 since their effect was anti-dilutive. The total number of ordinary shares related to the 2012 Convertible
Loan, 2016 Convertible Loan, preferred shares and warrants to issue preferred shares and excluded from the
calculation of diluted loss per share was 7,687,030 for the year ended December 31, 2017. The 2015 Convertible
Loan, warrants and liability to issue preferred shares were not taken into account in the diluted loss per share
calculation for the year ended December 31, 2017, as the conversion terms depend on future events.
Loss attributable to equity holders of the Company
Income from change in fair value of financial liabilities at fair value
Loss used for the computation of diluted loss per share
Weighted average number of ordinary shares used in
the computation of basic loss per share
Add:
Weighted average number of additional shares issuable upon the assumed
conversion/exercise of preferred shares and warrants to issue preferred shares and
shares
Weighted average number of ordinary shares used in the computation of diluted loss per
share
Basic loss per ordinary share
Diluted loss per ordinary share
F - 39
2019
Year ended December 31,
2018
U.S. dollars in thousand
(except for share numbers)
2017
10,795
-
10,795
10,304
135
10,439
11,197
-
11,197
12,146,729
7,955,447
4,490,720
-
27,955
-
12,146,729
7,983,402
4,490,720
0.89
0.89
1.30
1.31
2.49
2.49
ENTERA BIO LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 16 - RELATED PARTIES - TRANSACTIONS AND BALANCES:
a. Transactions with related parties:
1) Key management personnel include members of the Board of Directors, the Chief Executive Officer, Chief Operating Officer, Chief
Medical Officer and Chief Financial Officer.
2) The Company granted stock options to certain key management personnel and directors, see note 11d.
3) Key management compensation:
Labor cost and related expenses
Share-based compensation
Directors fee and services
Others
b. Balances with related parties:
Key management:
Payables and accrued expenses
Severance pay obligations
Provision for vacation
Directors fee and services
NOTE 17 - SUBSEQUENT EVENTS
2019
Year ended December 31,
2018
U.S. dollars in thousands
2017
1,537
1,146
415
23
3,121
1,180
868
429
30
2,507
1,048
4,694
577
109
6,428
December 31,
2019
2018
U.S. dollars in thousands
244
70
194
106
9
65
186
74
a. During January 2020, a consultant exercised 32,500 options into 32,500 ordinary shares for a total consideration of $69,000.
b. As described in note 11c, on February 18, 2020, the Company’s shareholders approved the $800,000 D.N.A. private placement.
c. On March 16, 2020, the Company’s Board of Directors approved options grants as follows:
i.
ii.
An options grant to purchase 201,600 ordinary shares to certain employees and 7,500 options granted to a service provider,
with an exercise price of $2.14 per share. The options vest over 4 years from the date of grant; 25% vest on the first
anniversary of the date of grant and the remaining 75% vest in twelve equal quarterly installments following the first
anniversary of the applicable grant date.
An options grant to purchase 250,000 ordinary shares to certain executive officers of the Company, with an exercise price
of $2.14. The options vest over 4 years from the date of grant; 25%vest on the first anniversary of the date of grant and the
remaining 75% vest in twelve equal quarterly installments following the first anniversary of the applicable grant date. The
grant is subject to the approval by the shareholders of the Company.
F - 40
Exhibit 1.1
ARTICLES OF ASSOCIATION
OF
ENTERA BIO LTD.
A COMPANY LIMITED BY SHARES
UNDER THE COMPANIES LAW, 5759–1999
1.
INTERPRETATION
1.1.
In these Articles, unless the context requires otherwise, the following capitalized terms shall have the meanings set opposite them:
“Alternate Nominee” has the meaning set out in Article 17.7;
“Alternate Director” has the meaning set out in Article 17.12;
“Articles” means these Articles of Association, as may be amended from time to time;
“Board” means all of the directors of the Company holding office pursuant to these Articles, including Alternate Directors, substitutes or
proxies;
“Business Day” means any day other than a Saturday, Sunday and any day in which banks in Israel are closed or in which the NASDAQ
Stock Market is closed.
“Chairman of the Board” has the meaning set out in in Article 18.4;
“Companies Law” means the Israeli Companies Law, 5759-1999, as amended from time to time, including the regulations promulgated
thereunder, or any other law which may come in its stead, including all amendments made thereto;
“Company” means Entera Bio Ltd.;
“Compensation Committee” has the meaning set out in the Companies Law;
“Derivative Transaction” has the meaning set out in Article 14.7;
“Effective Time” means the closing of the initial underwritten public offering of the Company’s ordinary shares, at which time these
Articles shall first become effective;
“External Director” has the meaning set out in the Companies Law;
“General Meeting” means either an annual or an extraordinary meeting of the shareholders;
“Incapacitated Person” as such term is used in the Israeli Legal Capacity and Guardianship Law, 5722-1962, as amended from time to
time, and includes a minor who has not yet attained the age of 18 years, a person of unsound mind and a bankrupt person in respect of
whom no rehabilitation has been granted;
“Israeli Securities Law” means the Israeli Securities Law, 5728-1968, as amended from time to time, including the regulations
promulgated thereunder, or any other law which may come in its stead, including all amendments made thereto;
“Nominees” has the meaning set out in Article 17.7;
“Office” means the registered office of the Company at that time;
“Office Holder” has the meaning set out in the Companies Law;
“Proposal Request” has the meaning set out in Article 14.5;
“Proposing Shareholder” has the meaning set out in Article 14.5;
“Register” means the register of shareholders administered in accordance with the Companies Law;
“Rights” has the meaning set out in Article 26.8;
“Special Fund” has the meaning set out in Article 26.8;
“U.S. Rules” means the applicable rules of the NASDAQ Stock Market and U.S. securities laws, rules and regulations, as amended from
time to time; and
1.2.
Reference to “writing”, “written” or similar expressions in these Articles means handwriting, typewriting, photography, telex, email or any
other legible form of writing. Reference to a “person” or “persons” shall also include corporations, companies, cooperative societies,
partnerships, trusts of any kind or any other body of persons, whether incorporated or otherwise.
1.3.
Subject to the provisions of this Article 1 and unless the context necessitates another meaning, terms and expressions in these Articles
which have been defined in the Companies Law shall have the meanings ascribed to them therein.
1.4 Words in the singular shall also include the plural, and vice versa. Words in the masculine shall include the feminine and vice versa.
1.5.
The captions to articles in these Articles are intended for the convenience of the reader only, and no use shall be made thereof in the
interpretation of these Articles.
2.
LIMITED LIABILITY
The Company is a limited liability company and therefore each shareholder’s liability for the Company’s obligations shall be limited to the
payment of the nominal value of the shares held by such shareholder, subject to the provisions of the Companies Law.
3.
OBJECTIVES
The Company’s objectives are to engage in any lawful activity. The Company may donate a reasonable amount of money for any purpose that the
Board finds appropriate, even if the donation is not for business considerations or for the purpose of achieving profits for the Company.
4.
REGISTERED OFFICE
The registered office shall be at such place as decided by the Board from time to time.
5.
AUTHORIZED SHARE CAPITAL
The authorized share capital of the Company shall consist of NIS 10,770 divided into 140,010,000 ordinary shares with a nominal value of NIS
0.0000769 each.
6.
RIGHTS ATTACHING TO THE ORDINARY SHARES
6.1.
6.2.
The ordinary shares in respect of which all calls have been fully paid shall confer on the holders thereof the right to attend and to vote at
General Meetings of the Company, both annual as well as extraordinary meetings. Each ordinary share shall confer on its holder one
vote at a General Meeting.
The ordinary shares shall confer on a holder thereof the right to receive a dividend, to participate in a distribution of bonus shares and to
participate in the distribution of the assets of the Company upon its winding-up, pro rata to the nominal amount paid up on the shares or
credited as paid up in respect thereof, and without reference to any premium which may have been paid in respect thereof.
7.
MODIFICATION OF CLASS RIGHTS
7.1.
7.2.
7.3.
Subject to applicable law, if at any time the share capital of the Company is divided into different classes of shares and unless the terms
of issue of such class of shares otherwise stipulate, the rights attaching to any class of shares (including rights prescribed in the terms of
issue of the shares) may be altered, modified or canceled by a resolution passed at a separate class meeting of the shareholders of that
class.
The provisions contained in these Articles with regard to General Meetings shall apply, mutatis mutandis as the case may be, to every
class meeting of the holders of each such class of the Company’s shares.
Unless otherwise provided by these Articles, the increase of an authorized class of shares, or the issuance of additional shares thereof
out of the authorized and unissued share capital, shall not be deemed, for purposes of this Article 7, to modify or abrogate the rights
attached to previously issued shares of such class or of any other class.
8.
UNISSUED SHARE CAPITAL
8.1.
8.2.
8.3.
The unissued shares in the capital of the Company shall be under the control of the Board, which shall be entitled to allot or otherwise
grant the same to such persons under such restrictions and conditions as it shall deem fit, whether for consideration or otherwise, and
whether for consideration in cash or for consideration which is not in cash, above their nominal value or at a discount, all on such
conditions, in such manner and at such times as the Board shall deem fit, subject to the provisions of the Companies Law. The Board
shall be entitled, inter alia, to differentiate between shareholders with regard to the amounts of calls in respect of the allotment of shares
(to the extent that there are calls) and with regard to the time for payment thereof. The Board may also issue options or warrants for the
purchase of shares of the Company and prescribe the manner of the exercise of such options or warrants, including the time and price
for such exercise and any other provision which is relevant to the method for distributing the issued shares of the Company amongst the
purchasers thereof.
The Board shall be entitled to prescribe the times for the issue of shares of the Company and the conditions therefor and any other
matter which may arise in connection with the issue thereof.
In every case of a rights offering, the Board shall be entitled, in its discretion, to resolve any problems and difficulties arising or that are
likely to arise in regard to fractions of rights, and without prejudice to the generality of the foregoing, the Board shall be entitled to
specify that no shares shall be allotted in respect of fractions of rights, or that fractions of rights shall be sold and the net proceeds shall
be paid to the persons entitled to the fractions of rights, or, in accordance with a decision by the Board, to the benefit of the Company.
9.
INCREASE OF CAPITAL; ALTERATIONS TO CAPITAL
9.1.
9.2.
9.3.
9.4.
The Company may, from time to time, by a resolution of the shareholders at a General Meeting, increase its share capital by way of the
creation of new shares, whether or not all the existing shares have been issued up to the date of the resolution, whether or not it has been
decided to issue same, and whether or not calls have been made on all the issued shares.
The increase of share capital shall be in such amount and divided into shares of such nominal value, and with such restrictions and
conditions and with such rights and privileges as the resolution dealing with the creation of the shares prescribes, and if no provisions
are contained in the resolution, then as the Board shall prescribe.
Unless otherwise stated in the resolution approving the increase of the share capital, the new shares shall be subject to those provisions
in regard to issue, allotment, alteration of rights, payment of calls, liens, forfeiture, transfer, transmission and other provisions which
apply to the shares of the Company.
By resolution of the shareholders in a General Meeting, the Company may, subject to any applicable provisions of the Companies Law:
9.4.1.
9.4.2.
consolidate its existing share capital, or any part thereof, into shares of a larger denomination than the existing shares;
sub-divide its share capital, in whole or in part, into shares of a smaller denomination than the nominal value of the existing
shares and without prejudice to the foregoing, one or more of the shares so created may be granted any preferred or deferred
rights or any special rights with regard to dividends, participation in assets upon winding-up, voting and so forth, subject to
the provisions of these Articles;
reduce its share capital; or
cancel any shares which on the date of passing of the resolution have not been issued and to reduce its share capital by the
amount of such shares.
9.4.3.
9.4.4.
9.5.
In the event that the Company’s shareholders shall adopt any of the resolutions described in Article 9.4 above, the Board shall be
entitled to prescribe arrangements necessary in order to resolve any difficulty arising or that are likely to arise in connection with such
resolutions, including, in the event of a consolidation, it shall be entitled to (i) allot, in contemplation of or subsequent to such
consolidation or other action, shares or fractional shares sufficient to preclude or remove fractional share holdings; (ii) redeem, in the
case of redeemable shares, and subject to applicable law, such shares or fractional shares sufficient to preclude or remove fractional
share holdings; (iii) round up, round down or round to the nearest whole number, any fractional shares resulting from the consolidation
or from any other action which may result in fractional shares; or (iv) cause the transfer of fractional shares by certain shareholders to
other shareholders thereof so as to most expediently preclude or remove any fractional shareholdings, and, cause the transferees of such
fractional shares to pay the transferors thereof the fair value thereof, and the Board is hereby authorized to act in connection with such
transfer, as agent for the transferors and transferees of any such fractional shares, with full power of substitution, for the purposes of
implementing the provisions of this Article 9.5.
10.
SHARE CERTIFICATES
10.1.
10.2.
10.3.
To the extent shares are certificated, share certificates evidencing title to the shares of the Company shall be issued under the seal or
rubber stamp of the Company, and together with the signatures of two members of the Board, or one director together with the Chief
Executive Officer, the Chief Financial Officer or any other person designated by the Board. The Board shall be entitled to decide that
the signatures be effected in any mechanical or electronic form, provided that the signature shall be effected under the supervision of
the Board in such manner as it prescribes.
Every shareholder shall be entitled, free of charge, to one certificate in respect of all the shares of a single class registered in his name in
the Register.
The Board shall not refuse a request by a shareholder to obtain several certificates in place of one certificate, unless such request is, in
the opinion of the Board, unreasonable. Where a shareholder has sold or transferred some of his shares, he shall be entitled, free of
charge, to receive a certificate in respect of his remaining shares, provided that the previous certificate is delivered to the Company
before the issuance of a new certificate.
10.4.
10.5.
10.6.
10.7.
Every share certificate shall specify the number of the shares in respect of which such certificate is issued and also the amounts which
have been paid up in respect of each share.
No person shall be recognized by the Company as having any right to a share unless such person is the registered owner of the shares in
the Register. The Company shall not be bound by and shall not recognize any right or privilege pursuant to the laws of equity, or a
fiduciary relationship or a chose in action, future or partial, in any share, or a right or privilege to a fraction of a share, or (unless these
Articles otherwise direct) any other right in respect of a share, except the absolute right to the share as a whole, where same is vested in
the owner registered in the Register.
A share certificate registered in the names of two or more persons shall be delivered to one of the joint holders, and the Company shall
not be obliged to issue more than one certificate to all the joint holders of shares and the delivery of such certificate to one of the joint
holders shall be deemed to be delivery to all of them.
If a share certificate should be lost, destroyed or defaced, the Board shall be entitled to issue a new certificate in its place, provided that
the certificate is delivered to it and destroyed by it, or it is proved to the satisfaction of the Board that the certificate was lost or
destroyed and security has been received to its satisfaction in respect of any possible damages and after payment of such amount as the
Board shall prescribe.
11.
CALLS ON SHARES
11.1.
11.2.
11.3.
The Board may from time to time, in its discretion, make calls on shareholders in respect of amounts which are still unpaid in respect of
the shares held by each of the shareholders (including premiums), if the terms of issue do not prescribe that same be paid at fixed times,
and every shareholder shall be obliged to pay the amount of the call made on him, at such time and at such place as stipulated by the
Board.
In respect of any such call, prior notice of at least fourteen (14) Business Days shall be given, stating to whom the amount called is to
be paid, the time for payment and the place thereof, provided that prior to the due date for payment of such call, the Board may, by
written notice to the shareholders to which the call was made, cancel the call or extend the date of payment thereof.
If according to the terms of issue of any share, or otherwise, any amount is required to be paid at a fixed time or in installments at fixed
times, whether the payment is made on account of the nominal value of the share or in form of a premium, every such payment or every
such installment shall be paid as if it was a call duly made by the Board, in respect of which notice was duly given, and all the
provisions contained in these Articles in regard to calls shall apply to such amount or to such installment.
11.4.
11.5.
11.6.
11.7.
Joint holders of a share shall be jointly and severally liable for the payment of all installments and calls due in respect of such share.
In the event that a call or installment due on account of a share is not paid on or before the date fixed for payment thereof, the holder of
the share, or the person to whom the share has been allotted, shall be obliged to pay linkage differentials and interest on the amount of
the call or the installment, at such rate as shall be determined by the Board, commencing from the date fixed for the payment thereof
and until the date of actual payment. The Board may, however, waive the payment of the linkage differentials or the interest or part
thereof.
A shareholder shall not be entitled (i) to receive a dividend and (ii) to exercise any right as a shareholder, including but not limited to,
the right to attend and vote at a General Meeting and to transfer the shares to another, unless he has paid all the calls payable from time
to time and which apply to any of his shares, whether he holds same alone or jointly with another, plus linkage differentials, interest and
expenses, if any.
The Board may, if it deems fit, accept payment from a shareholder wishing to advance the payment of all moneys which remain unpaid
on account of his shares, or part thereof which are over and above the amounts which have actually been called, and the Board shall be
entitled to pay such shareholder linkage differentials and interest in respect of the amounts paid in advance, or that portion thereof
which exceeds the amount called for the time being on account of the shares in respect of which the advance payment is made, at such
rate as is agreed upon between the Board and the shareholder, with this being in addition to dividends (if any) payable on the paid-up
portion of the share in respect of which the advance payment is made. The Board may, at any time, repay the amount paid in advance as
aforesaid, in whole or in part, in its sole discretion, without premium or penalty. Nothing in this Article 11.7 shall derogate from the
right of the Board to make any call for payment before or after receipt by the Company of any such advance.
12.
FORFEITURE AND LIEN
12.1.
12.2.
12.3.
12.4.
12.5.
12.6.
If a shareholder fails to make payment of any call or other installment on or before the date fixed for the payment thereof, the Board
may, at any time thereafter and for as long as the part of the call or installment remains unpaid, serve on such shareholder a notice
demanding that he make payment thereof, together with the linkage differentials and interest at such rate as is specified by the Board
and all the expenses incurred by the Company in consequence of such non-payment.
The notice shall specify a further date, which shall be at least fourteen (14) Business Days after the date of the delivery of the notice,
and a place or places at which such call or installment is to be paid, together with linkage differentials and interest and expenses as
aforesaid. The notice shall further state that, if the amount is not paid on or before the date specified, and at the place mentioned in such
notice, the shares in respect of which the call was made, or the installment is due, shall be liable to forfeiture.
If the demands contained in such notice are not complied with the Board may treat the shares in respect of which the notice referred to
in Articles 12.1 and 12.2 was given as forfeited. Such forfeiture shall include all dividends, bonus shares and other benefits which have
been declared in respect of the forfeited shares which have not actually been paid prior to the forfeiture.
Any share so forfeited or waived shall be deemed to be the property of the Company and the Board shall be entitled, subject to the
provisions of these Articles and the Companies Law, to sell, re-allot or otherwise dispose thereof, as it deems fit, whether the amount
paid previously in respect of that share is credited, in whole or in part.
The Board may, at any time before any share forfeited as aforesaid is sold or re-allotted or otherwise disposed of, cancel the forfeiture
on such conditions as it deems fit.
Any person whose shares have been forfeited shall cease to be a shareholder in respect of the forfeited shares, but shall, nonetheless
remain liable for the payment to the Company of all calls, installments, linkage differentials, interest and expenses due on account of or
in respect of such shares on the date of forfeiture, in respect of the forfeited shares, together with interest on such amounts reckoned
from the date of forfeiture until the date of payment, at such rate as the Board shall from time to time specify. However, such person’s
liability shall cease after the Company has received all the amounts called in respect of the shares as well as any expenses incurred by
the Company relating to collecting the amounts called. The Board shall be entitled to collect the moneys which have been forfeited, or
part thereof, as it shall deem fit, but it shall not be obliged to do so.
12.7.
12.8.
12.9.
12.10.
The provisions of these Articles in regard to forfeiture shall also apply to cases of non-payment of any amount, which, according to the
terms of issue of the share, or which under the conditions of allotment the due date for payment of which fell on a fixed date, whether
this be on account of the nominal value of the share or in the form of a premium, as if such amount was payable pursuant to a call duly
made and notified.
The Company shall have a first and paramount lien over all the shares which have not been fully paid up and which are registered in the
name of any shareholder (whether individually or jointly with others) and also over the proceeds of the sale thereof, as security for the
debts and obligations of such shareholder to the Company and his contractual engagements with it, either individually or together with
others. This right of lien shall apply whether or not the due date for payment of such debts or the fulfillment or performance of such
obligations has arrived, and no rights in equity shall be created in respect of any share over which there is a lien as aforesaid. The
aforesaid lien shall apply to all dividends or benefits which may be declared, from time to time, on such shares, unless the Board shall
decide otherwise.
In order to foreclose on such lien, the Board may sell the shares under lien at such time and in such manner as it shall deem fit, but no
share may be sold unless the period referred to below has elapsed and written notice has been given to the shareholder, his trustee,
liquidator, receiver, the executors of his estate, or anyone who acquires a right to shares in consequence of the bankruptcy of a
shareholder, as the case may be, stating that the Company intends to sell the shares, if he or they should fail to pay the aforesaid debts,
or fail to discharge or fulfill the aforesaid obligations within fourteen (14) Business Days from the date of the delivery of the notice.
The net proceeds of any such sale of shares, as contemplated by Article 12.9 above, after deduction of the expenses of the sale, shall
serve for the discharge of the debts of such shareholder or for performance of such shareholder’s obligations (including debts,
undertakings and contractual engagements the due date for the payment or performance of which has arrived) and the surplus, if any,
shall be paid to the shareholder, his trustee, liquidator, receiver, guardians, the executors of his estate, or to his successors-in-title.
12.11.
12.12.
In every case of a sale following forfeiture or waiver, or for purposes of executing a lien by exercising all of the powers conferred
above, the Board shall be entitled to appoint a person to sign an instrument of transfer of the shares sold, and to arrange for the
registration of the name of the buyer in the Register in respect of the shares sold.
An affidavit signed by the Chairman of the Board that a particular share of the Company was forfeited, waived or sold by the Company
by virtue of a lien, shall serve as conclusive evidence of the facts contained therein as against any person claiming a right in the share.
The purchaser of a share who relies on such affidavit shall not be obliged to investigate whether the sale, re-allotment or transfer, or the
amount of consideration and the manner of application of the proceeds of the sale, were lawfully effected, and after his name has been
registered in the Register he shall have a full right of title to the share and such right shall not be adversely affected by a defect or
invalidity which occurred in the forfeiture, waiver, sale, re-allotment or transfer of the share.
13.
TRANSFER AND TRANSMISSION OF SHARES
13.1.
13.2.
No transfer of shares shall be registered unless a proper instrument of transfer is delivered to the Company or, in the case of shares
registered with a transfer agent, delivered to such transfer agent or to such other place specified for this purpose by the Board. Subject
to the provisions of these Articles, an instrument of transfer of a share in the Company shall be signed by the transferor and the
transferee. The Board may approve other methods of recognizing the transfer of shares in order to facilitate the trading of the
Company’s shares on the Nasdaq Stock Market or on any other stock exchange. The transferor shall be deemed to remain the holder of
the share up until the time the name of the transferee is registered in the Register in respect of the transferred share.
Insofar as the circumstances permit, the instrument of transfer of a share shall be substantially in the form set out below, or in any other
form that the Board may approve.
I _______________, I.D. _______________ of _______________ (the “Transferor”), in consideration for an amount of
_______________ (in words) paid to me by _______________ I.D. _______________ of _______________ (hereinafter: the
“Transferee”), hereby transfer to the Transferee _______________ ______________ shares of nominal value NIS _______________
each, marked with the numbers _______________ to _______________ (inclusive) of Entera Bio Ltd., to be held by the Transferee, the
acquirers of his rights and his successors-in title, under all the same conditions under which I held same prior to the signing of this
instrument, and I, the Transferee, hereby agree to accept the aforementioned shares in accordance with the above mentioned conditions.
In witness whereof we have hereunto signed this _____ day of _______ 20__.
Transferor _______________ Transferee _______________
Witnesses to Signature _______________
13.3.
13.4.
13.5.
13.6.
13.7.
The Company may close the transfer registers and the Register for such period of time as the Board shall deem fit.
Every instrument of transfer shall be submitted to the Office or to such other place as the Board shall prescribe, for purposes of
registration, together with the share certificates to be transferred, or if no such certificate was issued, together with a letter of allotment
of the shares to be transferred, and such other proof as the Board may demand in regard to the transferor’s right of title or his right to
transfer the shares. The Board shall have the right to refuse to recognize a transfer of shares until the appropriate securities under the
circumstances have been provided, as shall be determined by the Board in a specific case or from time to time in general. Instruments of
transfer which serve as the basis for transfers that are registered shall remain with the Company.
Every instrument of transfer shall relate to one class of shares only, unless the Board shall otherwise agree.
The executors of the will or administrator of a deceased shareholder’s estate (such shareholder not being one of a joint owners of a
share) or, in the absence of an administrator of the estate or executor of the will, the persons specified in Article 13.7 below, shall be
entitled to demand that the Company recognize them as owners of rights in the share. The provisions of Article 13.4 above shall apply,
mutatis mutandis, also in regard to this Article.
In the case of the death of one of the holders of a share registered in the names of two or more persons, the Company shall recognize
only the surviving owners as persons having rights in the share. However, the aforementioned shall not be construed as releasing the
estate of a deceased joint shareholder from any and all undertakings in respect of the shares. Any person who shall become an owner of
shares following the death of a shareholder shall be entitled to be registered as owner of such shares after having presented to an officer
of the Company to be designated by the Chief Executive Officer an inheritance order or probation order or order of appointment of an
administrator of estate and any other proof as required - if these are sufficient in the opinion of such officer - testifying to such person’s
right to appear as a shareholder in accordance with these Articles, and which shall testify to his title to such shares. The provisions of
Article 13.4 above shall apply, mutatis mutandis, also in regard to this Article.
13.8.
13.9.
The receiver or liquidator of a shareholder who is a company or the trustee in bankruptcy or the official receiver of a shareholder who is
bankrupt, upon presenting appropriate proof to the satisfaction of an officer of the Company to be designated by the Chief Executive
Officer that such shareholder has the right to appear in this capacity and which testifies to such shareholder’s title, may, with the
consent of the Board (the Board shall not be obligated to give such consent) be registered as the owner of such shares. Furthermore,
such shareholder may assign such shares in accordance with the rules prescribed in these Articles. The provisions of Article 13.4 above
shall apply, mutatis mutandis, also in regard to this Article.
A person entitled to be registered as a shareholder following a transfer pursuant to these Articles shall be entitled, if approved by the
Board and to the extent and under the conditions prescribed by the Board, to dividends and any other monies paid in respect of the
shares, and shall be entitled to give the Company confirmation of the payments; however, he shall not be entitled to be present or to
vote at any General Meeting of the Company or, subject to the provisions of these Articles, to make use of any rights of shareholders,
until he has been registered as owner of such shares in the Register.
14.
GENERAL MEETING
14.1.
14.2.
14.3.
14.4.
A General Meeting shall be held at least once every year, not later than fifteen (15) months after the last General Meeting, at such time
and at such place as the Board shall determine. Such General Meeting shall be called an annual meeting, and all other meetings of the
shareholders shall be called extraordinary meetings.
The Board may call an extraordinary meeting whenever it sees fit to do so.
The Board shall be obliged to call an extraordinary meeting upon a requisition in writing in accordance with the Companies Law.
The Company shall provide prior notice in regard to the holding of an annual meeting or an extraordinary meeting in accordance with
the requirements of these Articles and the Companies Law. Subject to the provisions of the Companies Law, in counting the number of
days of prior notice given, the day of publication of notice shall not be counted, but the day of the meeting shall be counted. The notice
shall specify those items and contain such information as shall be required by the Companies Law and any other applicable law and
regulations.
14.5.
14.6.
Any shareholder holding at least 1% (one percent) of the outstanding voting rights in the Company requesting to add an item to the
agenda of a General Meeting (a “Proposing Shareholder”) may submit such a request in accordance with the Companies Law (a
“Proposal Request”). Subject to any requirements under the Companies Law, to be considered timely and thereby be added to such
agenda, a Proposal Request must be delivered, either in person or by certified mail, postage prepaid, and received at the Office, (i) in
the case of a General Meeting that is an annual meeting, no less than sixty (60) days nor more than one-hundred twenty (120) days prior
to the date of the first anniversary of the preceding year’s annual meeting, provided, however, that, in the event that the date of the
annual meeting is advanced more than thirty (30) days prior to or delayed by more than thirty (30) days after the anniversary of the
preceding year’s annual meeting, notice by the Proposing Shareholder, in order to be timely, must be received no earlier than the close
of business one-hundred twenty (120) days prior to such annual meeting and no later than the close of business on the later of ninety
(90) days prior to such annual meeting or the tenth (10th) day following the day on which public announcement of the date of such
meeting is first made, and (ii) in the case of a General Meeting that is an extraordinary meeting, no earlier than one-hundred twenty
(120) days prior to such extraordinary meeting and no later than the close of business on the later of sixty (60) days prior to such
extraordinary meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first
made, subject to applicable law.
Such request to add an item to the agenda of the General Meeting shall also set forth: (i) the name and address of the Proposing
Shareholder making the request; (ii) a representation that the Proposing Shareholder is a beneficial holder of shares of the Company
entitled to vote at such meeting and intends to appear in person or by proxy at the meeting; (iii) a description of all arrangements or
understandings between the Proposing Shareholder and any other person or persons (naming such person or persons) in connection with
the subject which is requested to be included in the agenda; (iv) a description of all Derivative Transactions (as defined below) by the
Proposing Shareholder during the previous twelve (12) month period, including the date of the transactions and the class, series and
number of securities involved in, and the material economic terms of, such Derivative Transactions; and (v) a declaration that all the
information that is required under the Companies Law and any other applicable law to be provided to the Company in connection with
such subject, if any, has been provided. Furthermore, the Board, may, in its discretion, to the extent it deems necessary, request that the
Proposing Shareholder(s) provide additional information necessary so as to include a subject in the agenda of a General Meeting, as the
Board may reasonably require. The information required pursuant to this Article 14.6 shall be updated as of the record date of the
General Meeting, five (5) Business Days before the General Meeting, and any adjournment or postponement thereof.
14.7.
14.8.
A “Derivative Transaction” means any agreement, arrangement, interest or understanding entered into by, or on behalf or for the
benefit of, any Proposing Shareholder or any of its affiliates or associates, whether of record or beneficial: (a) the value of which is
derived in whole or in part from the value of any class or series of shares or other securities of the Company, (b) which otherwise
provides any direct or indirect opportunity to gain or share in any gain derived from a change in the value of securities of the Company,
(c) the effect or intent of which is to mitigate loss, manage risk or benefit of security value or price changes, or (d) which provides the
right to vote or increase or decrease the voting power of such Proposing Shareholder, or any of its affiliates or associates, with respect
to any shares or other securities of the Company, which agreement, arrangement, interest or understanding may include, without
limitation, any option, warrant, debt position, note, bond, convertible security, swap, stock appreciation right, short position, profit
interest, hedge, right to dividends, voting agreement, performance-related fee or arrangement to borrow or lend shares (whether or not
subject to payment, settlement, exercise or conversion in any such class or series), and any proportionate interest of such Proposing
Shareholder in the shares or other securities of the Company held by any general or limited partnership, or any limited liability
company, of which such Proposing Shareholder is, directly or indirectly, a general partner or managing member.
Subject to Article 15.9 below, in the event that the Company has established that an adjourned meeting shall be held on such date which
is later than the date provided for in Section 78(b) of the Companies Law, such later date shall be included in the notice. The Company
may add additional places for shareholders to review the full text of the proposed resolutions, including an internet site. The notice shall
be provided in the manner prescribed in Article 29 below. In no event shall the public announcement of an adjournment or
postponement of a General Meeting commence a new time period (or extend any time period) for the giving of a shareholder’s notice as
described above.
14.9.
Subject to any requirements under the Companies Law, nominations of persons for election to the Board may be made at an
extraordinary meeting only if directors are to be elected at such meeting (a) by or at the direction of the Board, or (b) by any
shareholder who is entitled to vote at the meeting and who complies with the notice procedures set forth in Article 14.6 above.
15.
PROCEEDINGS AT GENERAL MEETING
15.1.
15.2.
15.3.
15.4.
No business shall be conducted at a General Meeting unless a quorum is present, and no resolution shall be passed unless a quorum is
present at the time the resolution is voted on. Except in cases where it is otherwise stipulated, a quorum shall be constituted when there
are personally present, or represented by proxy, at least two (2) shareholders who hold, in the aggregate, at least 25% of the voting
rights in the Company. A proxy may be deemed to be two (2) or more shareholders pursuant to the number of shareholders he
represents.
If within half an hour from the time appointed for the meeting, a quorum is not present, without there being an obligation to notify the
shareholders to that effect, the meeting shall be adjourned to the same day in the following week, at the same hour and at the same place
or to a later time and date if so specified in the notice of the meeting, unless such day shall fall on a statutory holiday (either in Israel or
in the United States), in which case the meeting will be adjourned to the first Business Day afterwards.
If the original meeting was convened upon requisition under Section 63 of the Companies Law, one or more shareholders, present in
person or by proxy and holding the number of shares required for making such requisition, shall constitute a quorum at the adjourned
meeting, but in any other case any two (2) shareholders present in person or by proxy shall constitute a quorum at the adjourned
meeting.
The Chairman of the Board, or any other person appointed for this purpose by the Board, shall preside at every General Meeting. If
within fifteen (15) minutes from the time appointed for the meeting, the designated chairman for the meeting shall not be present, the
shareholders present at the meeting shall elect one of their number to serve as chairman of the meeting.
15.5.
15.6.
15.7.
15.8.
15.9.
Except as required under the Companies Law or these Articles, any resolution of the shareholders shall be adopted by a majority of the
voting power present and voting on such resolution at the applicable General Meeting, in person or by proxy. Each shareholder shall be
entitled to the number of votes to which such shareholder is entitled on the basis of the number of ordinary shares held by such
shareholder and shall vote all of the ordinary shares or any part thereof at his sole discretion.
Where a poll has been demanded, the chairman of the meeting shall be entitled - but not obliged - to accede to the demand. Where the
chairman of the meeting has decided to hold a poll, such poll shall be held in such manner, at such time and at such place as the
chairman of the meeting directs, either immediately or after an interval or postponement, or in any other way, and the results of the vote
shall be deemed to be the resolution at the meeting for which the poll was demanded. A person demanding a poll may withdraw his
demand prior to the poll being held.
A demand for the holding of a poll shall not prevent the continued business of the meeting on all other questions apart of the question in
respect of which a poll was demanded.
The announcement by the chairman of the meeting that a resolution has been passed unanimously or by a particular majority, or has
been rejected, and a note recorded to that effect in the Company’s minute book, shall serve as prima facie proof of such fact, and there
shall be no necessity for proving the number of votes or the proportion of votes given for or against the resolution, unless otherwise
required under applicable law and regulation.
The chairman of a General Meeting at which a quorum is present may, with the consent of holders of a majority of the voting power
represented in person and by proxy and voting on the question of adjournment, adjourn the meeting from time to time and from place to
place, but no business shall be transacted at any adjourned meeting except business which might lawfully have been transacted at the
meeting as originally called. Subject to these Articles, it shall not be necessary to give any notice of an adjournment unless the meeting
is adjourned for more than twenty one (21) days, in which case notice thereof shall be given in the manner required for the meeting as
originally called. Where a General Meeting has been adjourned without changing its agenda, to a date which is not more than twenty
one (21) days, notices shall be given for the new date, as early as possible, and by no later than seventy two (72) hours before the
General Meeting.
16.
VOTES OF SHAREHOLDERS
16.1.
16.2.
16.3.
16.4.
16.5.
16.6.
The voting rights of every shareholder entitled to vote at a General Meeting shall be as set forth in Article 6.1 of these Articles.
In the case of joint shareholders, the vote of the senior joint holder, given personally or by proxy, shall be accepted, to the exclusion of
the vote of the remaining joint shareholders, and for these purposes the senior of the joint shareholders shall be the person amongst the
joint holders whose name appears first in the Register.
A shareholder who is an Incapacitated Person may vote solely through his guardian or other person who fulfills the function of such
guardian and who was appointed by a court, and any guardian or other person as aforesaid shall be entitled to vote by way of a proxy, or
in such manner as the court directs.
Any corporation which is a shareholder of the Company shall be entitled, by way of resolution of its board of directors or another organ
which manages said corporation, to appoint such person which it deems fit, whether or not such person is a shareholder of the
Company, to act as its representative at any General Meeting of the Company or at a meeting of a class of shares in the Company which
such corporation is entitled to attend and to vote thereat, and the appointed person as aforesaid shall be entitled, on behalf of the
corporation whom he represents, to exercise all of the same powers and authorities which the corporation itself could have exercised
had it been a natural person holding shares of the Company.
Every shareholder who is entitled to attend and vote at a General Meeting of the Company shall be entitled to appoint a proxy. A proxy
can be appointed by more than one shareholder and vote in different ways on behalf of each principal.
The instrument appointing a proxy shall be in writing signed by the person making the appointment or by his authorized representative,
and if the person making the appointment is a corporation, the power of attorney shall be signed in the manner in which the corporation
signs on documents which bind it, and a certificate of an attorney with regard to the authority of the signatories to bind the corporation
shall be attached thereto. The proxy need not be a shareholder of the Company.
16.7.
16.8.
The instrument appointing a proxy, or a copy thereof certified by an attorney, shall be lodged at the Office, or at such other place as the
Board shall specify, not less than forty-eight (48) hours prior to the General Meeting at which the proxy intends to vote based on such
instrument of proxy. Notwithstanding the above, the chairman of the meeting shall have the right to waive the time requirement
provided above with respect to all instruments of proxies and to accept any and all instruments of proxy until the beginning of a General
Meeting. A document appointing a proxy shall be valid for every adjourned meeting of the General Meeting to which the document
relates.
Every instrument appointing a proxy, whether for a meeting specifically indicated, or otherwise, shall, as far as circumstances permit,
be substantially in the following form, or in any other form approved by the Board:
I ______________ of ______________ being a shareholder holding shares in Entera Bio Ltd., hereby appoint Mr. ______________ of
______________ or failing him, Mr. ______________ of ______________, or failing him, Mr. ______________ of ______________,
to vote in my name, place and stead at the (annual/extraordinary) General Meeting of the Company to be held on the ____ of ______
20__, and at any adjourned meeting thereof.
In witness whereof I have hereto set my hand on the _____ day of _____.
16.9.
16.10.
No shareholder shall be entitled to vote at a General Meeting unless he has paid all of the calls and all of the amounts due from him, for
the time being, in respect of his shares.
A vote given in accordance with the instructions contained in an instrument appointing a proxy shall be valid notwithstanding the death
or bankruptcy of the appointer, or the revocation of the proxy, or the transfer of the share in respect of which the vote was given as
aforesaid, unless notice in writing of the death, revocation or transfer is received at the Office, or by the chairman of the meeting, prior
to such vote.
16.11.
Subject to the Companies Law, an instrument appointing a proxy shall be deemed revoked (i) upon receipt by the Company or the
chairman of the meeting, subsequent to receipt by the Company of such instrument, of written notice signed by the person signing such
instrument or by the shareholder appointing such proxy canceling the appointment thereunder (or the authority pursuant to which such
instrument was signed) or of an instrument appointing a different proxy, provided such notice of cancellation or instrument appointing a
different proxy were so received at the place and within the time for delivery of the instrument revoked thereby as referred to in Article
16.7 above, or (ii) if the appointing shareholder is present in person at the meeting for which such instrument of proxy was delivered,
upon receipt by the chairman of such meeting of written notice from such shareholder of the revocation of such appointment, or if and
when such shareholder votes at such meeting. A vote cast in accordance with an instrument appointing a proxy shall be valid
notwithstanding the revocation or purported cancellation of the appointment, or the presence in person or vote of the appointing
shareholder at a meeting for which it was rendered, unless such instrument of appointment was deemed revoked in accordance with the
foregoing provisions of this Article 16.11 at or prior to the time such vote was cast.
17.
THE BOARD OF DIRECTORS
17.1.
17.2
17.3
Unless otherwise resolved by a resolution of the General Meeting, the prescribed number of directors of the Company shall be between
three (3) and ten (10) (including the External Directors), as may be fixed from time to time by the Board. Any director shall be eligible
for re-election upon termination of his term of office, subject to applicable law.
The directors of the Company (other than any External Directors elected pursuant to the Companies Law) shall be divided into three
classes, designated class I, class II and class III. Each class of directors shall consist, as nearly as possible as determined by the Board,
of one-third of the total number of directors constituting the entire Board (excluding the External Directors). The first term of office of
the class I directors shall expire at the annual General Meeting occurring in 2018; the first term of office of the class II directors shall
expire at the annual General Meeting in 2019; and the first term of office of the class III directors shall expire at the annual General
Meeting in 2020. Any director whose term has expired may be reelected to the Board except as provided by applicable law.
At each annual General Meeting, election or re-election of directors following the expiration of the term of office of the directors of a
certain class, will be for a term of office that expires on the third annual General Meeting following such election or reelection, such that
from 2018 and forward, each year the term of office of only one class of directors will expire (i.e., the term of office of Class I will
initially expire at the annual General Meeting held in 2018 and thereafter at the annual General Meeting in 2021, 2024 etc.). A director
shall hold office until the annual General Meeting for the year in which the term of the class to which he belongs expires.
17.4
17.5
17.6
17.7.
Upon a change in the number of directors (other than as a result of a vacancy), in accordance with the provisions hereof, any increase or
decrease shall be apportioned by the Board at their discretion among the classes so as to maintain the number of directors in each class
as nearly equal as possible.
Any director shall assume his or her position as director on the date of his or her election to the Board, unless a later date has been
designated in the resolution appointing such director.
The Board shall have power at any time and from time to time to appoint any person to be a director, either to fill an occasional vacancy
or as an addition to the existing Board, so long as the total number of directors shall not at any time exceed the maximum number
prescribed by the Articles and shall place any such new director in a class so that each class is as nearly equal as possible. Such Board-
appointed director (or directors) shall hold office until replaced in the manner set out in Articles 17.2 and 17.3 above. This Article 17.6
shall not apply to a vacated office of an External Director, which may be filled only in accordance with Article 17.11 below, unless there
are two (2) or more External Directors in office at that time in addition to the vacated office.
Prior to every annual General Meeting of the Company, the Board (or a committee of the Board) may select, via a resolution adopted by
a majority of the Board (or such committee), a number of persons to be proposed to the shareholders for election as directors at such
annual General Meeting (the “Nominees”). Any shareholder entitled under applicable law to propose one or more persons as nominees
for election as directors at a General Meeting (each such nominee, an “Alternate Nominee”) may make such proposal only if a written
notice of such shareholder’s intent to that effect has been given to the Secretary of the Company (or, if there is no such Secretary, the
Chief Executive Officer) within the periods set out in Article 14.5 above. Each such notice shall set forth: (a) the name and address of
the shareholder who intends to make the nomination and of the Alternate Nominees; (b) a representation that the shareholder is a
beneficial holder of shares of the Company entitled to vote at such meeting (including the number of shares held beneficially by the
shareholder) and intends to appear in person or by proxy at the meeting to nominate the Alternate Nominees; (c) a description of all
arrangements or understandings between the shareholder and each Alternate Nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be made by the shareholder; (d) the consent of each Alternate
Nominee to serve as a director of the Company if so elected and (e) a declaration signed by each Alternate Nominee declaring that there
is no limitation under the Companies Law for the appointment of such a nominee and that all of the information that is required under
the Companies Law to be provided to the Company in connection with such an appointment has been provided. The Nominees or
Alternate Nominees shall be elected by a resolution at the annual General Meeting at which they are subject to election. The Board may
refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure.
17.8.
17.9.
The directors in their capacity as such shall be entitled to receive remuneration as shall be determined in compliance with the
Companies Law. The conditions (including remuneration) of the terms of office of members of the Board shall be decided by the
Board or any committee thereof, but the same shall be valid only if ratified in the manner required under the Companies Law, if
required to be ratified. The remuneration of directors may be fixed as an overall payment or other consideration or as a payment or
other consideration in respect of attendance at meetings of the Board, or a combination of both. In addition to his remuneration, each
director shall be entitled to be reimbursed, retroactively or in advance, in respect of his reasonable expenses connected with
performing his functions and services as a director. Such entitlement shall be determined in accordance with, and shall be subject to, a
specific resolution or policy adopted by the Board regarding such matter and in accordance with the requirements of applicable law.
Subject to the provisions of the Companies Law with regard to External Directors and subject to Article 17.2 and 17.3 above, the
office of a member of the Board shall be vacated in any one of the following events:
17.9.1.
17.9.2.
17.9.3.
17.9.4.
if he resigns his office by way of a letter signed by him, lodged at the Office;
if he is declared bankrupt;
if he becomes insane or unsound of mind;
upon his death;
17.10.
17.11.
17.12
17.9.5.
17.9.6.
17.9.7.
17.9.8.
if he is prevented by applicable law from serving as a director of the Company;
if the Board terminates his office according to Section 231 of the Companies Law;
if a court order is given in accordance with Section 233 of the Companies Law;
if he is removed from office by a resolution at a General Meeting of the Company adopted by a majority of the voting
power in the Company; or
if his period of office has terminated in accordance with the provisions of these Articles.
17.9.9.
If the office of a member of the Board should be vacated, the remaining members of the Board shall be entitled to continue to act for
all purposes for as long as their number does not fall below the minimum, as prescribed in Article 17.1 above, without limiting their
right to fill the vacancy at any time in accordance with Article 17.6 above. Should their number fall below the aforesaid minimum, the
directors shall not be entitled to act, except for the appointment of additional directors, or for the purpose of calling a General Meeting
for the appointment of additional directors, or for the purpose of calling a General Meeting for the appointment of a new Board.
The office of an External Director shall be vacated and an External Director may be removed and replaced only in accordance with
the provisions for vacation of office, removal and appointment of External Directors under the Companies Law.
Subject to the provisions of the Companies Law, any director may, by written notice to the Company, appoint another person to serve
as his or her alternate director subject to the approval of a majority of the members of the Board excluding such director (in these
Articles, an “Alternate Director”), dismiss such Alternate Director and appoint, in the same manner as provided in this Article 17.12,
another Alternate Director in his or her place (or in place of any Alternate Director whose office has been vacated for any reason
whatsoever), whether for a certain meeting or a certain period of time or generally. Any notice given to the Company pursuant to this
Article shall be in writing, delivered to the Company and signed by the appointing or dismissing director, and shall become effective
on the date fixed therein, or upon the delivery thereof to the Company, whichever is later. Anyone who is not qualified to be appointed
as a director and/or anyone serving as a director or as an existing Alternate Director may not be appointed and may not serve as an
Alternate Director. Each of an Alternate Director shall have all of the authority of the director who appointed him (except that an
Alternate Director may not appoint an alternate for himself, unless the instrument appointing him otherwise expressly provides),
provided, however, that an Alternate Director shall have no standing at any meeting of the Board or any committee thereof while the
director who appointed him is present. The office of an Alternate Director shall be vacated: (i) under the circumstances, mutatis
mutandis, set forth in this Article 17, and such office shall ipso facto be vacated if the director who appointed such Alternate Director
ceases to be a director, (ii) at any time, by the Board, and (iii) at any time, by the appointing director.
18.
OTHER PROVISIONS REGARDING DIRECTORS
18.1.
18.2.
18.3.
Subject to any mandatory provisions of applicable law, a director shall not be disqualified by virtue of his office from holding another
office in the Company or in any other company in which the Company is a shareholder or in which it has any other form of interest, or
of entering into a contract with the Company, either as seller or buyer or otherwise. Likewise, no contract made by the Company or on
its behalf in which a director has any form of interest may be nullified and a director shall not be obliged to account to the Company
for any profit deriving from such office, or resulting from such contract, merely by virtue of the fact that he serves as a director or by
reason of the fiduciary relationship thereby created, but such director shall be obliged to disclose to the Board the nature of any such
interest at the first opportunity.
A general notice to the effect that a director is a shareholder or has any other form of interest in a particular firm or a particular
company and that he must be deemed to have an interest in any business with such firm or company shall be deemed to be adequate
disclosure for purposes of this Article in relation to such director, and after such general notice has been given, such director shall not
be obliged to give special notice in relation to any particular business with such firm or such company.
Subject to the provisions of the Companies Law and these Articles, the Company shall be entitled to enter into a transaction in which
an Office Holder of the Company has a personal interest, directly or indirectly, and may enter into any contract or otherwise transact
any business with any third party in which contract or business an Office Holder has a personal interest, directly or indirectly.
18.4.
18.5.
The Board shall elect one (1) or more of its members to serve as chairman (the “Chairman of the Board”), provided that, subject to
the provisions of Section 121(c) of the Companies Law, the Chief Executive Officer of the Company shall not serve as Chairman of
the Board. The office of Chairman of the Board shall be vacated in each of the cases mentioned in Article 17.9 above or by a decision
of the Board. The Board may also elect one or more members to serve as Vice Chairman, who shall have such duties and authorities
as the Board may assign to him, subject to applicable law.
A director shall not be obliged to hold any shares in the Company.
19.
PROCEEDINGS OF THE BOARD OF DIRECTORS
19.1.
19.2.
19.3.
19.4.
19.5.
The Board shall convene for a meeting at least once every calendar quarter.
The Board may meet in order to exercise its powers pursuant to Section 92 of the Companies Law, including without limitation to
supervise the Company’s affairs, and it may, subject to the provisions of the Companies Law, adjourn its meetings and regulate its
proceedings and operations as it deems fit. It may also prescribe the quorum required for the conduct of business. Until otherwise
decided by the Board, a quorum shall be constituted if a majority of the directors holding office for the time being are present.
Should a director or directors be barred from being present and voting at a meeting of the Board pursuant to Section 278 of the
Companies Law, the quorum shall be a majority of the directors entitled to be present and to vote at the meeting of the Board.
Any director, the Chief Executive Officer or the auditor of the Company in the event stipulated in Section 169 of the Companies Law,
may, at any time, demand the convening of a meeting of the Board. The Chairman of the Board shall be obliged, on such demand, to
call such meeting on the date requested by the director, the Chief Executive Officer or the auditor of the Company soliciting such a
meeting, provided that proper notice pursuant to Article 19.5 is given.
Every director shall be entitled to receive notice of meetings of the Board, and such notice may be in writing or by facsimile, or
electronic mail, sent to the last address (whether physical or electronic) or facsimile number given by the director for purposes of
receiving notices, provided that the notice shall be given at least a reasonable amount of time prior to the meeting and in no event less
than forty eight (48) hours prior notice, unless the urgency of the matter to be discussed at the meeting reasonably requires a shorter
notice period.
19.6.
19.7.
19.8.
19.9.
Every meeting of the Board at which a quorum is present shall have all the powers and authorities vested for the time being in the
Board. Any matter discussed in a meeting and brought up for decision by the Chairman of the Board shall be decided by a simple
majority of the directors attending such meeting and voting on such matter. In the case of an equality of votes of the Board, the
Chairman of the Board shall not have a second or casting vote, and the proposal shall be deemed to be defeated.
If the Chairman of the Board is not present within thirty (30) minutes after the time appointed for the meeting, the directors present
shall elect one of their members to preside at such meeting.
The Board may adopt resolutions, without actually convening a meeting of the Board, provided that all the directors entitled to
participate in the meeting and to vote on the subject brought for decision agree thereto. If resolutions are made as stated in this Article
19.8, the Chairman of the Board shall record minutes of the decisions stating the manner of voting of each director on the subjects
brought for decision, as well as the fact that all the directors agreed to take the decision without actually convening.
The Board may hold meetings by use of any means of communication, on condition that all participating directors can hear each other
at the same time. In the case of a resolution passed by way of a telephone call or any such other means of communication, a copy of
the text of the resolution shall be sent, as soon as possible thereafter, to the directors.
20.
GENERAL POWERS OF THE BOARD OF DIRECTORS
20.1.
20.2.
The supervision of the Company’s affairs shall be in the hands of the Board, which shall be entitled to exercise all of the powers and
authorities and to perform any act and deed which the Company is entitled to exercise and to perform in accordance with these
Articles, and in respect of which there is no mandatory provision or requirement in the Companies Law or in the U.S. Rules that such
powers and authorities be exercised or performed by the shareholders in a General Meeting or by a committee.
The Board may, from time to time, in its absolute discretion, borrow or secure any amounts of money required by the Company for
the conduct of its business. The Board shall be entitled to raise or secure the repayment of an amount obtained by it, in such way and
on such conditions and times as it deems fit.
20.3.
The Board shall be entitled to issue documents of undertaking, such as options, debentures or debenture stock, whether linked or
redeemable, convertible debentures or debentures convertible into other securities, or debentures which carry a right to purchase
shares or to purchase other securities, or any mortgage, pledge, collateral or other charge over the property of the Company and its
undertaking, in whole or in part, whether present or future, including the uncalled share capital or the share capital which has been
called but not yet paid. The deeds of undertaking, debentures of various types or other forms of collateral security may be issued at a
discount, at a premium or otherwise and with such preferential or deferred or other rights, as the Board shall, from time to time,
decide.
21.
BOARD COMMITTEES
21.1.
21.2.
The Board may, as it deems fit and subject to any applicable law, delegate to a committee certain of its powers and authorities, in
whole or in part, as appropriate. The curtailment or revocation of the powers and authorities of a committee by the Board shall not
invalidate a prior act of such committee or an act taken in accordance with its instructions, which would have been valid had the
powers and authorities of the committee not been altered or revoked by the Board. Subject to applicable law, a committee may be
comprised of one or more directors, and it may comprise persons who are not directors if it is appointed solely for the purpose of
advising the Board and is not delegated any of Board’s powers or authorities.
The meetings and proceedings of every such committee which is comprised of two (2) or more members shall be conducted in
accordance with the provisions contained in these Articles in regard to the conduct of meetings and proceedings of the Board to the
extent that the same are suitable for such committee, and so long as no provisions have been adopted in replacement thereof by the
Board.
22.
RATIFICATION OF ACTIONS
22.1.
22.2.
Subject to the Companies Law, all acts taken in good faith by the Board or a committee or by an individual acting as a member thereof
shall be valid even if it is subsequently discovered that there was a defect in the appointment of the Board, the committee or the
member, as the case may be, or that the members, or one of them, was or were disqualified from being appointed as a director(s) or to
a committee.
The Board or any committee may ratify any act the performance of which at the time of the ratification was within the scope of the
authority of the Board or the relevant committee. The General Meeting shall be entitled to ratify any act taken by the Board or any
committee without authority or which was tainted by some other defect. From the time of the ratification, every act ratified as
aforesaid, shall be treated as though lawfully performed from the outset.
23.
SIGNING POWERS
23.1.
23.2.
Subject to any other resolution on the subject passed by the Board, the Company shall be bound only pursuant to a document in
writing bearing its seal or its rubber stamp or its printed name, and the signature of whomever may be authorized by the Board, which
shall be entitled to empower any person, either alone or jointly with another, even if he is not a shareholder or a director, to sign and
act in the name and on behalf of the Company.
The Board shall be entitled to prescribe separate signing power in regard to different businesses of the Company and in respect of the
limit of the amounts in respect of which various persons shall be authorized to sign.
24.
CHIEF EXECUTIVE OFFICER
24.1.
24.2.
24.3.
24.4.
The Board shall, from time to time, appoint a Chief Executive Officer and subject to the provisions of the Companies Law delineate
his powers and authorities and his remuneration. Subject to any contract between the Chief Executive Officer and the Company, the
Board may dismiss him or replace him at any time it deems fit.
A Chief Executive Officer need not be a director or shareholder. Subject to the provisions of any contract between the Chief Executive
Officer and the Company, if the Chief Executive Officer is also a director, all of the same provisions with regard to appointment,
resignation and removal from office shall apply to the Chief Executive Officer in his capacity as a director, as apply to the Company’s
other directors.
The Board shall be entitled from time to time to delegate to the Chief Executive Officer for the time being such of the powers it has
pursuant to these Articles as it deems appropriate. The Board shall be entitled to grant such powers for such period, for such purposes,
on such conditions and with such restrictions as it deems appropriate, and it shall be entitled to grant such powers without renouncing
the powers and authorities of the Board in such regard. The Board may revoke, annul and alter such delegated powers and authorities,
in whole or in part, at any time.
Subject to the provisions of any applicable law, the remuneration of the Chief Executive Officer shall be fixed from time to time by
the Board (and, so long as required by the Companies Law, shall be approved by the Compensation Committee and by the
shareholders unless exempted from shareholders’ approval) and such remuneration may be in the form of a fixed salary or
commissions or a participation in profits, or combination thereof, or in any other manner which may be decided by the Board and
approved according to this Article 24.4.
25.
SECRETARY, OFFICE-HOLDERS, CLERKS AND REPRESENTATIVES
25.1.
25.2.
The Board shall be entitled, from time to time, to appoint, or to delegate to the Chief Executive Officer, either alone or together with
other persons designated by the Board, the ability to appoint Office Holders (other than directors), a Secretary for the Company,
employees and agents to such permanent, temporary or special positions, and to specify and change their titles, authorities and duties,
and may set, or delegate to the Chief Executive Officer, either alone or together with other persons designated by the Board, the
ability to set salaries, bonuses and other compensation of any employee or agent who is not an Office Holder. Salaries, bonuses and
compensation of Office Holders who are not directors shall be determined and approved by the Chief Executive Officer, or in such
other manner as may be required from time to time under the Companies Law. The Board, or the Chief Executive Officer, either alone
or together with other persons designated by the Board (in the case of any Office Holder, employee or agent appointed by the Board),
shall be entitled at any time, in its, his or their (as applicable) sole and absolute discretion, to terminate the services of one of more of
the foregoing persons (in the case of a director, however, subject to compliance with Article 17.9 above), subject to any other
requirements under applicable law.
The Board and the Chief Executive Officer may from time to time and at any time, subject to their powers under these Articles and
the Companies Law, empower any person to serve as representative of the Company for such purposes and with such powers and
authorities, instructions and discretions for such period and subject to such conditions as the Board or the Chief Executive Officer, as
the case may be, shall deem appropriate. The Board or Chief Executive Officer may grant such person, inter alia, the power to further
delegate the authority, powers and discretions vested in him, in whole or in part. The Board or the Chief Executive Officer, as the case
may be, may revoke, annul, vary or change any such power or authority, or all such powers or authorities collectively.
26.
DIVIDENDS, BONUS SHARES, FUNDS AND CAPITALIZATION OF FUNDS AND PROFITS
26.1.
26.2.
26.3.
Unless otherwise permitted by the Companies Law, no dividends shall be paid other than out of the Company’s profits available for
distribution as set forth in the Companies Law. The Board may decide on the payment of a dividend or on the distribution of bonus
shares. A dividend in cash or bonus shares shall be paid or distributed, as the case may be, equally to the holders of the ordinary
shares registered in the Register, pro rata to the nominal amount of capital paid up or credited as paid up on par value of the shares,
without reference to any premium which may have been paid thereon. However, whenever the rights attached to any shares or the
terms of issue of the shares do not provide otherwise, an amount paid on account of a share prior to the payment thereof having been
called, or prior to the due date for payment thereof, and on which the Company is paying interest, shall not be taken into account for
purposes of this Article as an amount paid-up on account of the share.
Unless other instructions are given, it shall be permissible to pay any dividend by way of a check or payment order to be sent by post
to the registered address of the shareholder or the person entitled thereto, or in the case of joint shareholders being registered, to the
shareholder whose name appears first in the Register in relation to the joint shareholding. Every such check shall be made in favor of
the person to whom it is sent. A receipt by the person whose name, on the date of declaration of the dividend, was registered in the
Register as the owner of the shares, or in the case of joint holders, by one of the joint holders, shall serve as a discharge with regard to
all the payments made in connection with such share.
The Board shall be entitled to invest any dividend which has not been claimed for a period of one (1) year after having been declared,
or to make use thereof in any other way for the benefit of the Company until such time as it is claimed. A dividend or other beneficial
rights in respect of shares shall not bear interest, and the Company shall not be obliged to pay interest or linkage in respect of an
unclaimed dividend. The payment by the Board of any unclaimed dividend into a separate account shall not make the Company a
trustee in respect thereof, and any dividend unclaimed after a period of seven (7) years from the date of declaration of such dividend
shall be forfeited and shall revert to the Company, provided, however, that the Board may, at its discretion, cause the Company to pay
any such dividend, or any part thereof, to a person who would have been entitled thereto had the same not reverted to the Company.
26.4.
26.5.
26.6.
26.7.
Unless otherwise specified in the terms of issue of shares or securities convertible into, or which grant a right to purchase, shares, any
shares that are fully paid-up or credited as paid-up shall at any time confer on their holders the right to participate in the full dividends
and in any other distribution for which the determining date for the right to receive the same is the date at which the aforesaid shares
were fully paid-up or credited as fully paid-up, as the case may be, or subsequent to such date.
The Board shall be entitled to deduct from any dividend or other beneficial rights, all amounts of money which the holder of the share
in respect of which the dividend is payable or in respect of which the other beneficial rights were given, may owe to the Company in
respect of such share, whether or not the due date for payment thereof has arrived. The Board shall be entitled to retain any dividend
or bonus shares or other beneficial rights in respect of a share in relation to which the Company has a lien, and to utilize any such
amount or the proceeds received from the sale of any bonus shares or other beneficial rights, for the discharge of the debts or
liabilities in respect of which the Company has a lien.
The Board may decide that a dividend is to be paid, in whole or in part, by way of a distribution of assets of the Company in kind,
including by way of debentures of the Company, or shares or debentures of any other company, or in any other way.
The Board may decide that any portion of the amounts standing for the time being to the credit of any capital fund (including a fund
created as a result of a revaluation of the assets of the Company), or which are held by the Company as profits available for
distribution, shall be capitalized subject to and in accordance with the provisions of the Companies Law and of these Articles, and
serve for the payment up in full (either at par or with a premium as prescribed by the Company) of shares which have not yet been
issued or of debentures of the Company, which shall then be allotted and distributed amongst the shareholders as fully paid-up shares
or debentures, pro rata to each shareholder’s entitlement under these Articles.
26.8.
26.9.
26.10.
In every case that the Company issues bonus shares by way of a capitalization of profits or funds at a time at which securities issued
by the Company are in circulation and confer on the holders thereof rights to convert the same into shares in the share capital of the
Company, or options to purchase shares in the share capital of the Company (such rights of conversion or options shall henceforth be
referred to as the “Rights”), the Board shall be entitled (in a case that the Rights or part thereof shall not be otherwise adjusted in
accordance with the terms of their issue) to transfer to a special fund designated for the distribution of bonus shares in the future (to be
called by any name that the Board may decide on and which shall henceforth be referred to as the “Special Fund”) an amount
equivalent to the nominal amount of the share capital to which some or all of the Rights holders would have been entitled as a result
of the issue of bonus shares, had they exercised their Rights prior to the determining date for the right to receive bonus shares,
including rights to fractions of bonus shares, and in the case of a second or additional distribution of bonus shares in respect of which
the Company acts pursuant to this Article, including entitlement stemming from a previous distribution of bonus shares.
In the case of the allotment of shares by the Company as a consequence of the exercise of entitlement by the owners of shares in those
cases in which the Board has made a transfer to the Special Fund in respect of the Rights pursuant to Article 26.8 above, the Board
shall allot to each such shareholder, in addition to the shares to which he is entitled by virtue of having exercised his rights, such
number of fully paid-up shares the nominal value of which is equivalent to the amount transferred to the Special Fund in respect of his
rights, by way of a capitalization to be effected by the Board of an appropriate amount out of the Special Fund. The Board shall be
entitled to decide on the manner of dealing with rights to fractions of shares in its sole discretion.
If after any transfer to the Special Fund has been made the Rights should lapse, or the period should end for the exercise of Rights in
respect of which the transfer was effected without such Rights being exercised, then any amount which was transferred to the Special
Fund in respect of the aforesaid unexercised Rights shall be released from the Special Fund, and the Company may deal with the
amount so released in any manner it would have been entitled to deal therewith had such amount not been transferred to the Special
Fund.
26.11.
26.12.
For the implementation of any resolution regarding a distribution of shares or debentures by way of a capitalization of profits as
aforesaid, the Board may:
26.11.1.
Resolve any difficulty which arises or may arise in regard to the distribution in such manner as it deems fit and may
take all of the steps that it deems appropriate in order to overcome such difficulty.
Issue certificates in respect of fractions of shares, or decide that fractions of less than an amount to be decided by the
Board shall not be taken into account for purposes of adjusting the rights of the shareholders or may sell the fractions
of shares and pay the net proceeds to the persons entitled thereto.
Sign, or appoint a person to sign, on behalf of the shareholders on any contract or other document which may be
required for purposes of giving effect to the distribution, and, in particular, shall be entitled to sign or appoint a person
who shall be entitled to appoint and submit a contract as referred to in Section 291 of the Companies Law.
Make any arrangement or other scheme which is required in the opinion of the Board in order to facilitate the
distribution.
26.11.2.
26.11.3.
26.11.4.
The Board shall be entitled, as it deems appropriate and expedient, to appoint trustees or nominees for those registered shareholders
who have failed to notify the Company of a change of their address and who have not applied to the Company in order to receive
dividends, shares or debentures out of capital, or other benefits during the aforesaid period. Such trustees or nominees shall be
appointed for the use, collection or receipt of dividends, shares or debentures out of capital and rights to subscribe for shares which
have not yet been issued and which are offered to the shareholders but they shall not be entitled to transfer the shares in respect of
which they were appointed, or to vote on the basis of holding such shares. In all of the terms and conditions governing such trusts and
the appointment of such nominees it shall be stipulated by the Company that upon the first demand by a beneficial holder of a share
being held by the trustee or nominee, such trustee or nominee shall be obliged to return to such shareholder the share in question and
all of those rights held by it on the shareholder’s behalf (all as the case may be). Any act or arrangement effected by any such
nominees or trustee and any agreement between the Board and a nominee or trustee shall be valid and binding in all respects.
27.
COMPANY RECORDS AND REGISTERS
27.1.
27.2.
27.3.
The Board shall comply with all the provisions of the Companies Law in regard to the recording of charges and the keeping and
maintaining of a register of directors, register of shareholders and register of charges.
Any book, register and record that the Company is obliged to keep in accordance with the Companies Law or pursuant to these
Articles shall be recorded in a regular book, or by digital, electronic or other means, as the Board shall decide.
Subject to and in accordance with the provisions of Sections 138 and 139 of the Companies Law, the Company may cause
supplementary registers to be kept in any place outside Israel as the Board may deem fit, and, subject to all applicable requirements of
the Companies Law, the Board may from time to time adopt such rules and procedures as it may deem fit in connection with the
keeping of such supplementary registers.
28.
BOOKS OF ACCOUNT
28.1.
28.2.
28.3.
The Board shall keep proper books of account in accordance with the provisions of the Companies Law. The books of account shall
be kept at the Office, or at such other place or places as the Board shall deem appropriate, and shall at all times be open to the
inspection of members of the Board. A shareholder of the Company who is not a member of the Board shall not have the right to
inspect any books or accounts or documents of the Company, unless such right has been expressly granted to him by the Companies
Law, or if he has been permitted to do so by the Board or by the shareholders based on a resolution adopted at a General Meeting.
At least once each year the accounts of the Company and the correctness of the statement of income and the balance sheet shall be
audited and confirmed by an independent auditor.
The Company shall, in an annual General Meeting, appoint an independent auditor who shall hold such position until the next annual
General Meeting, and his appointment, remuneration and rights and duties shall be subject to the provisions of the Companies Law,
provided, however, that in exercising its authority to fix the remuneration of the auditor, the shareholders in an annual General
Meeting may, by a resolution, act (and in the absence of any action in connection therewith shall be deemed to have so acted) to
authorize the Board to fix such remuneration subject to such criteria or standards, if any, as may be provided in such resolution, and if
no such criteria or standards are so provided, such remuneration shall be fixed in an amount commensurate with both the volume and
nature of the services rendered by the auditor. By an act appointing such auditor, the Company may appoint the auditor to serve for a
period which is longer than the aforementioned period, but no longer than until the third Annual Meeting after the meeting at which
the auditor has been appointed.
28.4.
28.5.
28.6.
The auditor shall be entitled to receive notices of every General Meeting of the Company and to attend such meetings and to express
his opinions on all matters pertaining to his function as the auditor of the Company.
Subject to the provisions of the Companies Law and the U.S. Rules, any act carried out by the auditor of the Company shall be valid
as against any person doing business in good faith with the Company, notwithstanding any defect in the appointment or qualification
of the auditor.
For as long as the Company is a public company, as defined in the Companies Law, it shall appoint an internal auditor possessing the
authorities set forth in the Companies Law. The internal auditor of the Company shall present all of its proposed work plans to the
audit committee of the Board, which shall have the authority to approve them, subject to any modifications in its discretion.
29.
NOTICES
29.1.
The Company may serve any written notice or other document on a shareholder by way of delivery by hand, by facsimile
transmission or by dispatch by prepaid registered mail to his address as recorded in the Register, or if there is no such recorded
address, to the address given by him to the Company for the sending of notices to him. Notwithstanding the foregoing or any other
provision to the contrary contained herein, notices or any other information or documents required to be delivered to a shareholder
shall be deemed to have been duly delivered if submitted, published, filed or lodged in any manner prescribed by applicable law. With
respect to the manner of providing such notices or other disclosures, the Company may distinguish between the shareholders listed on
its regular Registry and those listed in any “additional registry”, as defined in Section 138(a) of the Companies Law, administered by
a transfer agent or stock exchange registration company.
29.2.
29.3.
29.4.
Any shareholder may serve any written notice or other document on the Company by way of delivery by hand at the Office, by
facsimile or email transmission to the Company or by dispatch by prepaid registered mail to the Company at the Office.
Any notice or document which is delivered or sent to a shareholder in accordance with these Articles shall be deemed to have been
duly delivered and sent in respect of the shares held by him (whether in respect of shares held by him alone or jointly with others),
notwithstanding the fact that such shareholder has died or been declared bankrupt at such time (whether or not the Company knew of
his death or bankruptcy), and shall be deemed to be sufficient delivery or dispatch to heirs, trustees, administrators or transferees and
any other persons (if any) who have a right in the shares.
Any such notice or other document shall be deemed to have been served:
29.4.1.
in the case of mailing, forty eight (48) hours after it has been posted, or when actually received by the addressee if
sooner than 48 hours after it has been posted;
in the case of overnight air courier, on the next day following the day sent, with receipt confirmed by the courier, or
when actually received by the addressee if sooner;
in the case of personal delivery, when actually tendered in person to such shareholder;
in the case of facsimile or other electronic transmission (including email), the next day following the date on which
the sender receives automatic electronic confirmation by the recipient’s facsimile machine or computer or other device
that such notice was received by the addressee; or
in the case a notice is, in fact, received by the addressee, when received, notwithstanding that it was defectively
addressed or failed, in some other respect, to comply with the provisions of this Article 29.4.
29.4.2.
29.4.3.
29.4.4.
29.4.5.
29.5.
Any shareholder whose address is not described in the Register, and who shall not have designated in writing an address for the
receipt of notices, shall not be entitled to receive any notice from the Company. In the case of joint holders of a share, the Company
shall be entitled to deliver a notice by dispatch to the joint holder whose name stands first in the Register in respect of such share.
29.6.
29.7.
Whenever it is necessary to give notice of a particular number of days or a notice for another period, the day of delivery shall be
counted in the number of calendar days or the period, unless otherwise specified.
Notwithstanding anything to the contrary contained herein, notice by the Company of a General Meeting, containing the information
required to be set forth in such notice under these Articles, which is published, within the time otherwise required for giving notice of
such meeting, in:
29.7.1.
the Company’s website shall be deemed to be notice of such meeting duly given, for the purposes of these Articles, to
any shareholder whose address as registered in the Register (or as designated in writing for the receipt of notices and
other documents) is located in the State of Israel; and
one (1) notification by international wire service press release and furnishing of such release on Form 6-K to the U.S.
Securities and Exchange Commission shall be deemed to be notice of such meeting duly given, for the purposes of
these Articles, to any shareholder whose address as registered in the Register (or as designated in writing for the
receipt of notices and other documents) is located outside the State of Israel.
29.7.2.
30.
INSURANCE, INDEMNITY AND EXCULPATION
30.1.
Subject to the provisions of the Companies Law, the Company shall be entitled to enter into a contract to insure all or part of the
liability of an Office Holder of the Company, imposed on him in consequence of an act which he has performed by virtue of being an
Office Holder, in respect of any of the following:
30.1.1.
The breach of a duty of care to the Company or to any other person, other than with respect to a distribution and
excluding a breach committed intentionally or recklessly (other than a breach arising out negligent conduct);
The breach of a fiduciary duty to the Company, provided that the Office Holder acted in good faith and had reasonable
grounds for believing that the action would not adversely affect the best interests of the Company;
A pecuniary liability imposed on him in favor of any other person in respect of an act done in his capacity as an Office
Holder.
Any other circumstances arising under the law with respect to which the Company may, or will be able to, insure an
Office Holder.
30.1.2.
30.1.3.
30.1.4.
30.2.
Subject to the provisions of the Companies Law, the Company shall be entitled to indemnify an Office Holder of the Company, to the
fullest extent permitted by applicable law. Subject to the provisions of the Companies Law, including the receipt of all approvals as
required therein or under any applicable law, the Company may resolve retroactively to indemnify an Office Holder with respect to
the following liabilities or expenses, provided, in each of the below cases, that such liabilities or expenses were imposed on such
Office Holder in such Office Holder’s capacity as an Office Holder of the Company:
30.2.1.
a financial liability imposed on him in favor of another person in any judgment, including a judgment imposed on him
in a settlement confirmed as judgment or an arbitrator’s decision that was approved by a court of law, in respect of an
act performed by the Office Holder by virtue of the Office Holder being an Office Holder of the Company; provided,
however, that: (a) any indemnification undertaking with respect to the foregoing shall be limited (i) to events which, in
the opinion of the Board, are foreseeable in light of the Company’s actual operations at the time of the granting of the
indemnification undertaking, and (ii) to an amount or by criteria determined by the Board to be reasonable in the given
circumstances; and (b) the events that in the opinion of the Board are foreseeable in light of the Company’s actual
operations at the time of the granting of the indemnification undertaking are listed in the indemnification undertaking
together with the amount or criteria determined by the Board to be reasonable in the given circumstances;
reasonable legal expenses, including attorney’s fees, expended by the Office Holder as a result of an investigation or
proceeding instituted against such Office Holder by a competent authority, and which investigation or proceeding: (i)
concluded without the filing of an indictment (as defined in the Companies Law) against such Office Holder and
without a financial liability having been imposed against such Office Holder in lieu of a criminal proceeding (as
defined in the Companies Law); (ii) concluded without the filing of an indictment against such Office Holder but with
a financial liability having been imposed against such Office Holder in lieu of a criminal proceeding but relates to a
criminal offense that does not require proof of criminal intent; or (iii) involves financial sanction;
30.2.2.
30.2.3.
30.2.4.
reasonable legal expenses, including attorney’s fees, paid for by the Office Holder, or which the Office Holder was
charged by a court of law, in a proceeding brought against the Office Holder by the Company, or by another person on
its behalf, or by a third party, or in a criminal prosecution in which the Office Holder was acquitted, or in which he
was convicted of an offense that does not require proof of criminal intent; and
any other event, occurrence or circumstances in respect of which the Company may lawfully indemnify an Office
Holder of the Company, including, without limitation: (i) a payment imposed on an Office Holder in favor of an
injured party as set forth in Section 52(54)(a)(1)(a) of the Israeli Securities Law; and (ii) reasonable litigation
expenses, including attorney fees, incurred by the director or officer in connection with a proceeding under Chapters
H’3, H’4 or I’1 of the Israeli Securities Law, or under Article D of the Fourth Chapter, Ninth Part of the Companies
Law, if applicable, including reasonable legal expenses, which term includes attorney fees.
30.3.
30.4.
30.5.
The Company may undertake to indemnify an Office Holder as aforesaid: (i) prospectively, provided that the undertaking is limited to
categories of events which in the opinion of the Board can be foreseen when the undertaking to indemnify is given, and to an amount
set by the Board as reasonable under the circumstances, and (ii) retroactively.
Subject to the provisions of the Companies Law including the receipt of all approvals as required therein or under any applicable law,
the Company may, to the maximum extent permitted by the Companies Law, exempt and release, in advance, any Office Holder from
any liability for damages arising out of a breach of a duty of care towards the Company, except in connection with distributions.
Any amendment to the Companies Law adversely affecting the right of any Office Holder to be indemnified or insured pursuant to
Articles 30.1, 30.2 and 30.4 and any amendments to such Articles shall be prospective in effect, and shall not affect the Company’s
obligation or ability to indemnify or insure an Office Holder for any act or omission occurring prior to such amendment, unless
otherwise provided by applicable law.
30.6.
The provisions of Articles 30.1, 30.2 and 30.4 are not intended, and shall not be interpreted so as to restrict the Company, in any
manner, in respect of the procurement of insurance or in respect of indemnification or exculpation, in favor of any person who is not
an Office Holder, including, without limitation, any employee, agent, consultant or contractor of the Company who is not an Office
Holder; or any Office Holder to the extent that such insurance and/or indemnification is not specifically prohibited under law.
31.
WINDING-UP AND REORGANIZATION
31.1.
31.2.
Should the Company be wound up and assets of the Company will remain available for distribution after covering all the Company’s
outstanding liabilities, such assets shall be distributed among the shareholders pro rata to the nominal value of the paid-up capital on
the shares held by each of them.
Upon the sale of the Company’s assets, the Board may, or in the case of a liquidation, the liquidators may, if authorized to do so by a
resolution of the Company, accept fully or partly paid-up shares, or securities of another company, Israeli or non-Israeli, whether in
existence at such time or about to be formed, in order to purchase the property of the Company, or part thereof, and to the extent
permitted under the Companies Law, the Board may (or in the case of a liquidation, the liquidators may) distribute the aforesaid
shares or securities or any other property of the Company among the shareholders without realizing the same, or may deposit the same
in the hands of trustees for the shareholders, and the General Meeting by a resolution may decide, subject to the provisions of the
Companies Law, on the distribution or allotment of cash, shares or other securities, or the property of the Company and on the
valuation of the aforesaid securities or property at such price and in such manner as the shareholders at such General Meeting shall
decide, and all of the shareholders shall be obliged to accept any valuation or distribution determined as aforesaid and to waive their
rights in this regard, except, in a case in which the Company is about to be wound-up and is in the process of liquidation, for those
legal rights (if any) which, according to the provisions of the Companies Law, may not be changed or modified.
32.
TRANSLATION AND BINDING EFFECT
These Articles may be translated into Hebrew and/or into other languages. Notwithstanding the aforesaid, the English version of these Articles
shall be binding upon the Company, its shareholders and/or any third party and shall supersede any translation thereof.
Description of Securities
Exhibit 2.2
The following is a summary of the material terms of our securities registered under Section 12 of the Securities Exchange
Act of 1934 (the “Exchange Act”). All references to the “Company,” “we,” “us,” “our” and “Entera” refer to Entera Bio Ltd.
As of December 31, 2019, our Ordinary Shares, par value NIS 0.0000769 per share (the “Ordinary Shares”), and our warrants,
each exercisable for 0.5 Ordinary Share at an exercise price of $5.85 per Ordinary Share (the “IPO Warrants”), are the only type
and class of securities of the Company that are registered under Section 12 of the Securities Exchange Act of 1934 (the
“Exchange Act”), as amended. We are incorporated as a limited liability company under the laws of the State of Israel.
Type and Class of Securities
Our Ordinary Shares and IPO Warrants are listed on the NASDAQ Capital Market under the symbol “ENTX” and
“ENTXW,” respectively. Our authorized share capital consists of 140,010,000 Ordinary Shares. All of our Ordinary Shares have
been validly issued, fully paid and are non-assessable. Our fully paid Ordinary Shares are issued in registered form and may be
freely transferred under our amended Articles of Association, subject to applicable law. We have issued 1,610,000 IPO Warrants,
which represent the rights to purchase an aggregate of up to 805,000 Ordinary Shares. Subject to applicable law, the IPO
Warrants may be offered for sale, sold, transferred or assigned without our consent.
For information about our securities not registered under Section 12 of the Exchange Act, see “Item 10.A Share Capital”
under our Annual Report on Form 20-F.
Rights of our Ordinary Shares
Dividends and Liquidation Rights
Subject to the rights of holders of shares with preferential or special rights that may be authorized in the future, holders of our
ordinary shares are entitled to participate in the payment of dividends pro rata in accordance with the amounts paid-up or credited
as paid-up on the par value of such ordinary shares at the time of payment without taking into account any premium paid thereon.
In the event of our liquidation, holders of our ordinary shares are entitled to a pro rata share of surplus assets remaining over
liabilities, subject to rights conferred on any class of shares which may be issued in the future, in accordance with the amounts
paid-up or credited as paid-up on the par value of such ordinary shares, without taking into account any premium paid thereon.
According to the Companies Law, a company may make a distribution of dividends out of its profits on the condition that
there is no reasonable concern that the distribution may prevent the company from meeting its existing and expected obligations
when they fall due. The Companies Law defines such profit as retained earnings or profits accrued in the last two years,
whichever is greater, according to the last reviewed or audited financial statements of the company, provided that the end of the
period to which the financial statements relate is not more than six months before the distribution. Declaration of dividends
requires a resolution of our Board and does not require shareholder approval.
Under Israeli law, holders of ordinary shares are permitted to freely convert dividends and liquidation distributions into non-
Israeli currencies. Such amounts may be subject to Israeli withholding tax and certain reporting obligations may apply. Pursuant
to Israeli law, currency control measures may be imposed by governmental action at any time.
Voting Rights
Holders of our ordinary shares are entitled to one vote for each ordinary share on all matters submitted to a vote of
shareholders, subject to any special rights of any class of shares that may be authorized in the future. Cumulative voting for the
election of directors is not permitted.
Quorum
The quorum required for a meeting of shareholders consists of at least two shareholders, present in person or by proxy,
holding at least 25% of our issued shares conferring voting rights. A shareholders’ meeting will be adjourned for lack of a
quorum, after half an hour from the time set for such meeting, to the same day in the following week at the same time and place,
or any time and place as the board of directors designates in a notice to the shareholders. If at such adjourned meeting a quorum
as specified above is not present within half an hour from the time designated for holding the meeting, subject to certain
exceptions, any two shareholders present in person or by proxy shall constitute a quorum.
Shareholders’ Meetings and Resolutions
The Chairman of our board of directors is entitled to preside as Chairman of each shareholders’ meeting. If he is absent, his
deputy or another person elected by the present shareholders will preside.
A simple majority is sufficient to approve most shareholders’ resolutions, including any amendment to our Articles of
Association, unless otherwise required by law or by our Articles of Association. For example, resolutions with respect to certain
interested party transactions, or with respect to tender offers may require a special majority.
We are required to hold an annual meeting of our shareholders once every calendar year, but no later than 15 months after the
date of the previous annual meeting. All meetings other than the annual meeting of shareholders are referred to as special
meetings. Our board of directors may call special meetings whenever it sees fit, at such time and place as it may determine. In
addition, the Companies Law provides that the board of directors of a public company is required to convene a special meeting
upon the request of:
• any two directors of the company or one quarter of the board of directors; or
• one or more shareholders holding, in the aggregate: (i) five percent of the outstanding shares of the company and one
percent of the voting power in the company; or (ii) five percent of the voting power in the company
The Companies Law enables our board of directors to fix a record date to allow us to determine the shareholders entitled to notice of, or to vote at, any
meeting of our shareholders. Under current regulations, the record date may be not more than forty days and not less than four days prior to the date of the
meeting and notice is required to be published at least 21 or 35 days prior to the meeting, depending on the items on the agenda. Under the Companies Law
and regulations promulgated thereunder, one or more shareholders holding at least 1% of the voting rights at a general meeting of shareholders may request
that the board of directors include a matter in the agenda of a general meeting of shareholders to be convened in the future, provided that such matter is
appropriate for discussion at the general meeting.
Modification of Shareholders’ Rights
The rights attached to a class of shares may be altered by the approval of the shareholders of such class holding a majority of
the voting rights of such class. The provisions in our Articles of Association pertaining to general meetings also apply to any
special meeting of a class of shareholders. The quorum required for such special meeting is at least two persons who are the
holders of at least 25% of the outstanding shares of that class represented in person or by proxy at such meeting. If such special
meeting is adjourned due to a lack of quorum, the quorum required at the subsequent meeting will be at least two persons who are
holders of issued shares of that class or their proxies.
Preemptive Rights
Pursuant to our Articles of Association, no preemptive rights are attached to our ordinary shares.
Restrictions on Non-Residents of Israel
The ownership or voting of our ordinary shares by non-residents of Israel is not restricted in any way by our Articles of
Association or the laws of Israel, except for ownership by nationals of some countries that are, or have been, in a state of war
with Israel.
2
Rights of our IPO Warrants
Exercisability, Exercise Price and Term
As provided above, each IPO Warrant represents the right to purchase 0.5 of an Ordinary Share. As of December 31, 2019,
1,610,000 IPO Warrants are outstanding.
The IPO Warrants are exercisable at any time up to the five-year anniversary of the original issuance date, the date of our
initial public offering, July 2, 2018, and is referred to as the termination date (provided, however, that if such date is not a
business day, the termination date will be the immediately following business day), unless earlier repurchased by us as described
below under “— Fundamental Transactions” or subject to early expiration as described below under “— Early Expiration upon
Satisfaction of Sale Price Condition”; provided, that any single exercise must be in relation to a whole number of Ordinary
Shares. A holder will initially be entitled to one Ordinary Share for every two IPO Warrants held and, as a result, will not be able
to exercise IPO Warrants other than in integral multiples of two. To exercise IPO Warrants prior to the termination date, within
one trading day (as defined in the IPO Warrants) of delivery of an exercise notice to the warrant agent, a IPO Warrant holder must
pay to us in cash the exercise price for the aggregate number of Ordinary Shares to be purchased, unless such Warrant holder is
utilizing the “cashless” exercise provision of the IPO Warrants, which is only available prior to the termination date if, at the time
of exercise, there is no effective registration statement registering with the SEC, or no prospectus contained in an effective
registration is available for, the issuance of the underlying Ordinary Shares, or, if required, there is not an effective state law
registration or exemption covering the issuance of the Ordinary Shares underlying the Warrants. On the termination date, any
Warrants not previously exercised, repurchased by us or subject to early expiration will terminate and expire worthless.
If a IPO Warrant is exercised via the “cashless” exercise provision, following delivery of an exercise notice to us a holder
will receive a number of Ordinary Shares equal to the quotient obtained by dividing (i) the difference between (x) the arithmetic
average of the volume-weighted average prices, or VWAPs (as determined pursuant to the terms of the Warrants) of the Ordinary
Shares over each of the 10 consecutive trading days during the related calculation period (as defined below), and (y) the exercise
price of the IPO Warrants multiplied by the number of Ordinary Shares issuable per Warrant by (ii) the 10-day average VWAP
determined under clause (i)(x) above. In lieu of fractional shares, we will, at our option, either (A) pay the holder an amount in
cash equal to the fractional amount multiplied by the market value of an Ordinary Share or (B) round up to the next whole share.
The “calculation period” means the 10 consecutive trading day period beginning on, and including, the trading day immediately
following the date on which a IPO Warrant is exercised (or deemed exercised) pursuant to the terms of the IPO Warrants.
A holder will not have the right to exercise any portion of its IPO Warrants if such holder (together with its affiliates, and
any other persons acting as a group with the holder or any of its affiliates) would beneficially own in excess of 4.99% of the
number of our Ordinary Shares outstanding immediately after giving effect to the exercise, as such percentage ownership is
determined in accordance with the terms of the IPO Warrants. A holder may give not less than 61 days’ prior notice to us to
increase such beneficial ownership limit, up to 9.99%. To the extent that the limitation under this paragraph applies, the
determination of a whether a IPO Warrant is exercisable, and of which portion of a IPO Warrant is exercisable, will be in the sole
discretion of the holder, and the submission of an exercise notice will be deemed to be the holder’s determination of whether a
IPO Warrant is exercisable (in relation to other securities owned by the holder together with any affiliates, and any other persons
acting as a group with the holder or any of its affiliates) and of which portion of the IPO Warrant is exercisable, in each case
subject to the foregoing beneficial ownership restrictions, and we shall have no obligation to verify or confirm the accuracy of
such determination and shall have no liability for exercises that are not in compliance with the beneficial ownership restrictions.
The foregoing beneficial ownership restrictions will not apply to the extent a holder (together with its affiliates, and any other
persons acting as a group with the holder or any of its affiliates) beneficially owned in excess of the foregoing beneficial
ownership thresholds prior to the date of original issuance of the IPO Warrants.
Failure to Timely Deliver Shares
If we fail to deliver to a holder the Ordinary Shares otherwise deliverable by the second trading day after the receipt of a
duly executed notice of exercise and the corresponding exercise price or, in the case of cashless exercise, by the second trading
day after the final day of the applicable calculation period, in each case as required by the IPO Warrants (other than any such
failure that is solely due to any action or inaction by the holder with respect to such exercise), and if the holder purchases the
Ordinary Shares after that second trading day to deliver in satisfaction of a sale by the holder of the underlying IPO Warrant
shares that the holder anticipated receiving from us, then, upon the holder’s request, we will (A) pay in cash to the holder the
amount, if any, by which (x) the holder’s total purchase price (including brokerage commissions, if any) for the Ordinary Shares
so purchased exceeds (y) the amount obtained by multiplying (1) the number of Ordinary Shares that we were required to deliver
to the holder in connection with the relevant IPO Warrant exercise by (2) the price at which the sell order giving rise to such
purchase obligation was executed, and (B) at the option of the holder, either reinstate the portion of the IPO Warrant and
equivalent number of IPO Warrant shares for which such exercise was not honored (in which case such exercise shall be deemed
rescinded) or deliver to the holder the number of Ordinary Shares that would have been issued had we timely complied with our
exercise and delivery obligations under the IPO Warrant.
3
Certain Adjustments
The exercise price and number of Ordinary Shares issuable upon exercise of each IPO Warrant are subject to appropriate
adjustment in the event of certain Ordinary Share dividends and distributions, share splits, stock combinations or similar events
affecting our Ordinary Shares. The exercise price is subject to reduction if, within two years of the date of original issuance of the
IPO Warrants, we sell or grant any IPO Warrant or option to subscribe for or purchase, or otherwise dispose of or issue, any
Ordinary Shares or Ordinary Share equivalents (as defined in the IPO Warrants) at effective price of less than the then effective
price per share (as adjusted in proportion with any adjustments made from time to time to the exercise price), which reduction
will be based on a weighted average taking into account the value of the Ordinary Shares outstanding immediately prior to such
new issuance, determined using the exercise price then in effect, and the value of the Ordinary Shares to be issued or sold or
deemed issued or sold in such new issuance, determined using the effective price of such new issuance; provided that this
sentence shall not apply to certain exempt issuances (as defined in the IPO Warrants). Notwithstanding the foregoing, in no event
will the exercise price per share be lower than the nominal value of an Ordinary Share, which is NIS 0.0000769 as of the date of
this annual report. From December 2019 to February 2020, we entered into a Private Placement Offering, or the Offering, with a
group of accredited investors. As a result of the closing of the Private Placement, the exercise price of the IPO Warrants listed on
the Nasdaq has been adjusted pursuant to the terms of the IPO Warrants, and effective as of the final closing of the Private
Placement, the exercise price of the IPO Warrants is equal to $5.85.
During such time as the IPO Warrants are outstanding, if we declare or make any dividend or other distribution of our assets,
(or rights to acquire our assets), or Distribution, to holders of Ordinary Shares, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin-
off, corporate rearrangement, scheme of arrangement or other similar transaction, other than (x) a reclassification as to which the
provisions described below under “— Fundamental Transactions” apply or (y) any issuance, deemed issuance or automatic
conversion of securities under the 2018 Plan), a IPO Warrant holder shall be entitled to participate to the same extent that the
holder would have participated in such Distribution if the holder had held the number of Ordinary Shares acquirable upon
complete exercise of its IPO Warrants (without regard to any limitations on exercise thereof, including without limitation, the
beneficial ownership restrictions described above under “— Exercisability, Exercise Price and Term”) immediately before the
record date for such Distribution (provided, however, to the extent that a holder’s right to participate in any such Distribution
would result in the holder exceeding the beneficial ownership restriction, the holder shall not be entitled to participate in such
Distribution to such extent (or in the beneficial ownership of any Ordinary Shares as a result of such Distribution to such extent)
and the portion of such Distribution will be held in abeyance for the benefit of such holder until the earlier of (i) such time, if
ever, as the delivery to the holder of such position would not result in such holder exceeding the beneficial ownership restriction
and (ii) such time as the holder has exercised its IPO Warrants.
Fundamental Transactions
If (i) we effect any merger or consolidation of the Company with or into another person, (ii) we effect any sale, lease or
other disposition of all or substantially all of our assets (other than, for the avoidance of doubt, pursuant to a licensing
arrangement so long as, after giving effect to such arrangement, our Ordinary Shares are listed or quoted on a Designated Market
(as defined below)), (iii) any purchase offer, tender offer or exchange offer (whether by us or another person) is completed
pursuant to which holders of Ordinary Shares are permitted to sell, tender or exchange their Ordinary Shares for other securities,
cash or property and has been accepted by the holders of 50% or more of the outstanding Ordinary Shares, (iv) we effect any
reclassification, reorganization or recapitalization of the Ordinary Shares or any compulsory share exchange pursuant to which
the Ordinary Shares are effectively converted into or exchanged for other securities, cash or property, or (v) we consummate a
stock or share purchase agreement or other business combination with another person or group of persons whereby such other
person or group acquires more than 50% of our outstanding Ordinary Shares (each a “Fundamental Transaction”), then following
such Fundamental Transaction, the holders of the IPO Warrants will be entitled to receive upon exercise thereof the kind and
amount of securities, cash or other property that the holders would have received had they exercised the IPO Warrants
immediately prior to such event. Any successor to us or surviving entity is required to assume the obligations under the IPO
Warrants. Notwithstanding the foregoing, in the event of a Fundamental Transaction (other than any Fundamental Transaction
that is (x) not within our control, including not approved by our board of directors, or (y) a Specified Fundamental Transaction
(as defined below), in each case, as to which the right described in this sentence shall not apply), the holders will have the option,
which may be exercised within 30 days after the consummation of the Fundamental Transaction (or, if later, the date of the public
announcement of the applicable Fundamental Transaction), to require us or the successor entity to purchase the IPO Warrants
from holders by paying to them an amount of cash equal to the Black Scholes value (determined in accordance with the
provisions of the IPO Warrants) of the remaining unexercised portion of the IPO Warrants on the date of the consummation of the
Fundamental Transaction; provided that if the Fundamental Transaction is not within our control, including not approved by our
board of directors, within 30 days of the date of consummation of such Fundamental Transaction, a holder will be entitled to
receive from us or any successor entity the same type or form of consideration (and in the same proportion), at the Black Scholes
value of the unexercised portion of the IPO Warrants, that is being offered and paid to holders of our Ordinary Shares in
connection with the Fundamental Transaction, whether that consideration be in the form of cash, stock or any combination
thereof, or whether the holders of our Ordinary Shares are given the choice to receive from among alternative forms of
consideration in connection with the Fundamental Transaction.
4
A “Specified Fundamental Transaction” means a Fundamental Transaction (I) described in clause (i) of the definition
thereof where, immediately after giving effect thereto (x) the holders of all of our classes of common equity immediately prior to
such transaction own, directly or indirectly, more than 50% of all classes of common equity of the continuing or surviving
corporation or transferee or the parent thereof immediately after such transaction in substantially the same proportions as such
ownership immediately prior to such transaction, or (y) we will be the surviving entity, or (II) a transaction for which at least 90%
of the consideration received or to be received by holders of Ordinary Shares, excluding cash payments for fractional shares and
cash payments pursuant to dissenters’ or appraisal rights, in connection with such Fundamental Transaction consists of Ordinary
Shares, common shares or American depository shares that are listed or quoted on any of the NYSE American, the Nasdaq, the
Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, OTCQB or OTCQX (or any of their
respective successors) (each, a “Designated Market”) or will be so listed or quoted when issued or exchange in connection with
such Fundamental Transaction.
Early Expiration upon Satisfaction of Sale Price Condition. We may accelerate the expiration date of the IPO Warrants upon
written notice to the holders at any time, if the last reported sale price (as defined in the IPO Warrants) exceeds $24.00 per share,
which is 300% of the initial public offering price per unit (as adjusted in proportion with any adjustments made from time to time
to the exercise price) for a 10 consecutive trading day period. Any IPO Warrants not exercised by 5:00 p.m., New York City time,
on the 30th calendar day following the date the acceleration notice is given will terminate and expire worthless.
Transferability. Subject to applicable laws, the IPO Warrants may be offered for sale, sold, transferred or assigned without
our consent.
Rights as a Shareholder. Except as otherwise provided in the IPO Warrants or by virtue of such holder’s ownership of our
Ordinary Shares, the holder of a IPO Warrant does not have the rights or privileges of a holder of our Ordinary Shares, including
any voting rights, until the holder exercises the IPO Warrant and delivers the corresponding executed exercise notice and exercise
price, if any.
Governing Law. The IPO Warrants are governed by, and construed and enforced in accordance with, the laws of the State of
New York. Matters involving the rights of shareholders, the issuance of Ordinary Shares and the validity of Ordinary Shares are
governed by the laws of Israel.
5
SUBSCRIPTION AGREEMENT
Exhibit 4.25
Entera Bio Ltd.
This Subscription Agreement (this “Agreement”) has been executed by the subscriber set forth on the signature page hereof (the
“Subscriber”) in connection with the private placement offering (the “Offering”) by Entera Bio Ltd., an Israeli company (the
“Company”) of a minimum of Seven Million Dollars ($7,000,000) (the “Minimum Offering”) and a maximum of Fourteen
Million Dollars ($14,000,000) (the “Maximum Offering”) of the Company’s ordinary shares, par value NIS 0.0000769 (the
“Ordinary Shares”) and warrants in the form annexed hereto as Exhibit A (the “Warrants”), to purchase additional Ordinary
Shares in an amount up to 50% of the number of Ordinary Shares purchased directly at an exercise price equal to 125% of the
price at which the Ordinary Shares being purchased directly are sold in the Offering. The purchase price (the “Purchase Price”)
for each Ordinary Share will be equal to the thirty- day moving average market price for the Ordinary Shares determined as of the
date which is 3rd trading day prior to the date of the initial Closing. Subject to the terms and conditions of this Agreement, the
Securities may be sold by the Company in one or more additional closings during the Offering Period. The Ordinary Shares and
Warrants shall hereafter be referred to collectively as the “Securities.”
The minimum subscription for each Subscriber is $100,000 (the “Minimum Subscription Amount per Subscriber”). The Company
may, however, accept subscriptions for less than the Minimum Subscription Amount per Subscriber in its sole discretion.
The Securities being subscribed for pursuant to this Agreement have not been registered under the Securities Act of 1933, as
amended (the “Securities Act”). The Offering to PA Subscribers, as defined below, to be made by the Placement Agent on a
reasonable best efforts basis to “accredited investors,” as defined in Regulation D under the Securities Act in reliance upon the
exemption from securities registration afforded by Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D.
The Subscriber acknowledges receipt of a copy of the Registration Rights Agreement, substantially in the form annexed hereto as
Exhibit B (the “Registration Rights Agreement”).
Each closing of the Offering (a “Closing,” and the date on which such Closing occurs hereinafter referred to as the “Closing
Date”) shall take place at such place as is mutually agreed to by the Company and the Placement Agent (as defined below).
Notwithstanding the foregoing, an additional Closing, comprised solely of Company shareholders not purchasing through the
Placement Agent (“Non-PA Subscribers”), may take place at such place elected solely by the Company. Such Closing may be the
final Closing. Such a Closing shall not require the agreement of the Placement Agent but advance written notice thereof,
including proof of deposit of subscription amounts by the Non-PA Subscribers, shall be provided to the Placement Agent by the
Company, if requested by the Placement Agent.
The initial Closing (the “initial Closing”) will not occur unless:
a.
funds deposited in escrow as described in Section 2(b) below and equal at least the Minimum Offering, and corresponding documentation with
respect to such amounts has been delivered by the Subscriber and other “Subscribers” under Subscription Agreements of like tenor with this
Agreement (collectively, the “Subscribers”) as described in Section 2(a) below; and
b.
the other conditions set forth in Sections 7 and 8 below shall have been satisfied.
Thereafter, the Company may conduct one or more additional Closings for the sale of the Securities up to the Maximum Offering
until the termination of the Offering. Unless terminated earlier by the Company, the Offering of at least the Minimum Offering
shall continue until on or about December 6, 2019 and through January 20, 2020 with respect to the Maximum Offering, provided
however that the Company and the Placement, at their sole discretion, shall be entitled to extend the Offering period for a period
of an additional month until February 20, 2020 (such date, the “Offering Termination Date”).
Any written disclosure schedules or other written information documents delivered to the Subscriber prior to Subscriber’s
execution of this Agreement, and any such document delivered to the Subscriber after Subscriber’s execution of this Agreement
and prior to the Closing of the Subscriber’s subscription hereunder, are collectively referred to as the “Disclosure Materials.”
“Business Day” means a day, other than a Saturday or Sunday, on which banks in New York City are open for the general
transaction of business.
1. Subscription. The undersigned Subscriber hereby subscribes to purchase the amount of Securities as shall be calculated
based on terms of this Agreement, for the aggregate Purchase Price as set forth on such Omnibus Signature Page, subject to the
terms and conditions of this Agreement and on the basis of the representations, warranties, covenants and agreements contained
herein.
2. Subscription Procedure. To complete a subscription for Securities, the Subscriber must fully comply with the
subscription procedure provided in this Section on or before the applicable Closing Date for Subscriber’s purchase of Securities.
a.
b.
c.
Subscription Documents. On or before the applicable Closing Date, Subscriber shall review, complete and execute the Omnibus Signature
Page to this Agreement, the Investor Profile, Anti-Money Laundering Form and Accredited Investor Certification, each attached hereto
following the Omnibus Signature Page (collectively, the “Subscription Documents”), and deliver the Subscription Documents to the
Company at the address set forth under the caption “How to subscribe for Securities in the private offering of Entera Bio Ltd.” below.
Executed documents may be delivered by the PA Subscriber to the Placement Agent that introduced them to the Offering by facsimile or
electronic mail (e-mail), if the Subscriber delivers the original copies of the documents to such Placement Agent as soon thereafter as is
practicable and such Placement Agent shall, in turn, deliver the documents to the Company.
Purchase Price. Simultaneously with the delivery of the Subscription Documents to the Company as provided herein, and in any event on or
prior to the applicable Closing Date, the Subscriber shall deliver to Delaware Trust Company, in its capacity as escrow agent (the “Escrow
Agent”), under an escrow agreement among the Company, the Placement Agents (as defined below), the Subscribers and the Escrow Agent
(the “Escrow Agreement”), the full Purchase Price by certified or other bank check or by wire transfer of immediately available funds,
pursuant to the instructions set forth under the caption “How to subscribe for Securities in the private offering of Entera Bio Ltd..” below.
Such funds will be held for the Subscriber’s benefit and will be returned promptly, without interest or offset, if this Subscription Agreement
is not accepted by the Company or the Offering is terminated pursuant to its terms by the Company prior to the Closing on such
subscription; provided however that with respect to a Closing subsequent to the Initial Closing involving only Non-PA Subscribers, such
Non-PA Subscribers shall be entitled to transfer their applicable portion of the Purchase Price directly to the Company’s bank account.
Company Discretion. The Subscriber understands and agrees that the Company in its sole discretion reserves the right to accept or reject
this or any other subscription for Securities, in whole or in part, notwithstanding prior receipt by the Subscriber of notice of acceptance of
this subscription. The Company shall have no obligation hereunder until the Company shall execute and deliver to the Subscriber an
executed copy of this Agreement. Upon each Closing, the Company shall provide a written notice of the final amount actually accepted by
the Company from the Subscribers in such Closing. If this subscription is rejected in whole, or the Offering is terminated, all funds received
from the Subscriber will be returned without interest or offset, and this Agreement shall thereafter be of no further force or effect. If this
subscription is rejected in part, the funds for the rejected portion of this subscription will be returned without interest or offset, and this
Agreement will continue in full force and effect to the extent this subscription was accepted.
3. Placement Agent – For Information Purposes Only. The Subscriber acknowledges that pursuant to an October 24, 2019
Placement Agency Agreement between the Company and GP Nurmenkari Inc. (“GPN”), a broker-dealer licensed with FINRA
(the “Placement Agent Agreement”), the Company has engaged GPN, on a non-exclusive basis, as placement agent (the
“Placement Agent”) for this Offering on a reasonable best efforts basis, provided that the Company may offer or sell Securities,
directly or indirectly, to Non-PA Subscribers, in the Company’s sole discretion. GPN and its sub-agents, as applicable, will be
paid at each Closing from the proceeds in the Escrow Account, aggregate cash commissions (the “Cash Fee”) equal, in the
aggregate, to 10% of the gross Purchase Price paid by Subscribers in the Offering purchasing through the Placement Agent (the
“PA Subscribers”) and will receive (i) three-year warrants to purchase Ordinary Shares in amounts equal in the aggregate to 10%
of the number of Ordinary Shares sold to PA Subscribers in the Offering purchasing through the Placement Agent, which
warrants shall have an exercise price equal to the price at which Ordinary Shares are sold to Subscribers in the Offering, and (ii)
three-year warrants to purchase Ordinary Shares in amounts equal in the aggregate to 5% of the number of Ordinary Shares sold
to PA Subscribers in the Offering purchasing through the Placement Agent, which warrants shall have an exercise price equal to
the exercise price for the Warrants. The warrants referenced in (i) and (ii) above shall hereafter be referred to collectively as the
“Broker Warrants.” Except as provided above, the Placement Agent Agreement provides that the Broker Warrants shall be
identical to the Warrants in all material respects. The Company will also pay certain expenses of the Placement Agent including
legal fees pursuant to the terms of the Placement Agency Agreement. The descriptions herein of the arrangement between the
Company and the Placement Agent are provided herein for informational purposes only and accordingly is qualified by the terms
of the Placement Agency Agreement (and, for the avoidance of doubt, no rights are granted by the Company to the Placement
Agent under this Section 3 and any all rights shall be granted solely according to the terms of the Placement Agency Agreement;
provided, further, that the Subscriber acknowledges that it has no rights or benefits under the Placement Agent Agreement which
is solely between the Placement Agent and the Company). In the event of any inconsistencies between the description herein and
the terms of the Placement Agency Agreement, the terms set forth in the Placement Agency Agreement shall be controlling.
4. Representations and Warranties of the Company. The Company hereby represents and warrants to each Subscriber, as
of the date hereof and on each applicable Closing Date (unless otherwise specified), the following:
a. Organization and Qualification. The Company is a corporation duly organized and validly existing under the laws of the State of Israel, has
all requisite corporate power and authority to carry on its business as presently conducted and as proposed to be conducted, and is qualified
and in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted by the Company or the
property owned or leased by the Company requires such qualification, except to the extent that the failure to be so qualified or be in good
standing would not have a Material Adverse Effect (as defined below). The Company has no subsidiaries other than Entera Bio Inc., a
Delaware corporation.
b. Authorization, Enforcement, Compliance with Other Instruments. (i) The Company has the requisite corporate power and authority to enter
into and perform its obligations under this Agreement, the Registration Rights Agreement, the Warrants, the Escrow Agreement and each of
the other agreements and documents that are exhibits hereto or thereto or are contemplated hereby or thereby or necessary or desirable to
effect the transactions contemplated hereby or thereby (the “Transaction Documents”) and to issue the Securities, the Ordinary Shares
issuable upon exercise of the Warrants (the “Warrant Shares”), and the securities issuable to the Placement Agent in accordance with the
terms hereof and thereof, (ii) the execution and delivery by the Company of each of the Transaction Documents and the consummation by it
of the transactions contemplated hereby and thereby, including, without limitation, the issuance of the Securities, the Warrant Shares and
the securities issuable to the Placement Agent, have been, or will be at the time of execution of such Transaction Document, duly
authorized by the Company’s board of directors (the “Board”), and no further consent or authorization is, or will be at the time of execution
of such Transaction Document, required by the Company, its Board of Directors or its shareholders, provided however that with respect to
any subscription and/or Closing to made under this Agreement by a Subscriber which is qualified as a controlling shareholder or controlling
shareholders of the Company (in accordance with the terms of the Israeli Companies Law 5759-1999 and the applicable rules and
regulations thereunder (the “Companies Law”)) with an interest respect to the transactions contemplated by this Agreement, will also have
to be approved by the audit committee of the Company and the Company’s shareholders in accordance with the Companies Law, (iii) each
of the Transaction Documents will be duly executed and delivered by the Company, (iv) the Transaction Documents when executed and
delivered by the Company and each other party thereto will constitute the valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity (regardless of
whether such enforceability is considered a proceeding at law or in equity), or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors’ rights and remedies now or
hereafter in effect, including the effect of statutory and other laws regarding fraudulent conveyances and preferential transfers, and except
that no representation is made herein regarding the enforceability of the Company’s obligations to provide indemnification and
contribution remedies under applicable securities laws.
The Transaction Documents have been prepared in conformity with all applicable laws and in compliance with Regulation D and/or Section
4(a)(2) of the Securities Act and the requirements of all other rules and regulations of the Securities and Exchange Commission related to
offerings of the type contemplated by the Offering and the applicable securities laws and the rules and regulations of those jurisdictions
wherein the Securities are to be offered and sold. Assuming the accuracy of the representations and warranties of the Subscribers contained
in Section 5(a) through 5(c) hereof, the Securities will be offered and sold pursuant to the registration exemption provided by Regulation D
and/or Section 4(a)(2) of the Securities Act and the requirements of any applicable state securities laws. To the knowledge of the Company,
the Transaction Documents do not include any untrue statement of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
To the extent the Offering is conducted on a Regulation D basis (i) none of Company, nor to the knowledge of the Company, any of its
directors, executive officers, other officers of the Company participating in the Offering, any beneficial owner of 20% or more of the
Company’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule
405 under the Securities Act) connected with the Company in any capacity at the time of sale (each an “Issuer Covered Person”) is subject
to any “Bad Actor” disqualifications described in Rule 506 (d)(1)(i)-(viii) under the Securities Act (a “Disqualification Event”), (ii) the
Company has exercised reasonable care to determine whether any Issuer Covered person is subject to a Disqualification Event and (iii) the
Company has complied, to the extent applicable, with its disclosure obligations under Rule 506(e).
c.
Capitalization. The authorized capital stock of the Company consists of 140,010,000 Ordinary Shares. As of the commencement of the
initial Closing of the Offering, the Company has such number of Ordinary Shares issued and outstanding as set forth under “Pro Forma
Capitalization” in Schedule 4c. All of the outstanding Ordinary Shares have been duly authorized, validly issued and are fully paid and
nonassessable. Immediately after giving effect to the closing of the Minimum Offering or the Maximum Offering, the pro forma
outstanding capitalization of the Company will be as set forth under “Pro Forma Capitalization” in Schedule 4c. On or prior to the date
hereof and on or prior to the applicable Closing Date, (i) except as set forth in Schedule 4c, no Ordinary Shares will be subject to
preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company; (ii) except as set forth in
Schedule 4c, there will be no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any Ordinary Shares, or contracts, commitments, understandings or arrangements by
which the Company is or may become bound to issue additional Ordinary Shares or to pay any dividend or make any distribution in respect
thereto; (iii) there will be no outstanding convertible debt securities of the Company other than the indebtedness as set forth in Schedule 4c;
(iv) except as set forth in Schedule 4c, other than pursuant to the Registration Rights Agreement, there will be no agreements or
arrangements under which the Company is obligated to register the sale of any of its securities under the Securities Act; (v) except as set
forth in Schedule 4c, there will be no securities or instruments of the Company containing anti-dilution or similar provisions, including the
right to adjust the exercise, exchange or reset price under such securities; and (vi) except as set forth in Schedule 4c, no co-sale right, right
of first refusal or other similar right will exist with respect to the Securities (or will exist with respect to the Warrant Shares) or the issuance
and sale thereof.
d.
Issuance of Securities. Prior to the initial Closing, the Securities, the Warrant Shares and the securities to be issued to the Placement Agent
will have been duly authorized and, upon issuance in accordance with the terms hereof (including full payment), shall be duly issued, fully
paid and nonassessable, and shall be free from all liens and charges with respect to the issuance thereof.
e. No Conflicts. None of the execution and delivery of or performance by the Company under each Transaction Document or the
consummation of the transactions contemplated by the Transaction Documents (including the issuance and sale of the Securities, the Broker
Warrants and Warrant Shares) conflicts with or violates, or causes a default under (with our without the passage of time or the giving of
notice), or will result in the creation or imposition of, any lien, charge or other encumbrance upon any of material assets of the Company
under any material agreement, evidence of indebtedness, joint venture, commitment or other material instrument to which the Company is a
party or by which the Company or its assets may be bound, any statute, rule, law or governmental regulation applicable to the Company, or
any term of the Company’s Articles of Association as in effect on the date hereof or any Closing Date for the Offering, or any license,
permit, judgment, decree, order, statute, rule or regulation applicable to the Company or any of its assets, except in the case of a conflict,
violation, lien, charge or other encumbrance (except as reflected in the Company’s Articles of Association or the Transaction Documents)
which would not, or could not reasonably be expected to, have a material adverse effect on the assets, liabilities, business, condition
(financial or otherwise) or results of operations of the Company or its ability to perform its obligations under this Agreement and the other
Transaction Documents (a “Material Adverse Effect”). Except as described herein and for the filing of reports and undertakings with the
Israeli National Technological Innovation Authority, formerly known as the Office of Chief Scientist, the notice to the Israeli Registrar of
Companies as may be required by law, if any, and notices to NASDAQ as required by NASDAQ rules, no consent, approval, authorization
or other order of, or registration, qualification or filing with, any regulatory body, administrative agency, or other governmental body is
required for the execution and delivery of the Transaction Documents and the valid issuance or sale of the Securities, the Warrant Shares,
and the securities to be issued to the Placement Agent other than such as have been made or obtained and that remain in full force and
effect, and except for the filing of a Form D, to the extent applicable, or any filings required to be made under the Securities Act (including
Forms 6-K) or state securities laws or foreign laws, as applicable, which shall be filed by the Company or any consents, approvals,
authorizations, orders, registrations, qualifications or filings the failure to make or obtain would, or could reasonably be expected to, have a
Material Adverse Effect. Except those which could not reasonably be expected to have a Material Adverse Effect, the Company is not in
violation of any term of or in default under its Articles of Association. Except those which could not reasonably be expected to have a
Material Adverse Effect, or as otherwise set forth in Schedule 4c, the Company is not in violation of any term of or in default under any
material contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation
applicable to the Company. The business of the Company is not being conducted in violation of any material law, ordinance, or regulation
of any governmental entity, except for any violation which could not reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect.
f.
Financial Statements; SEC Reports. The Company’s financial statements for the year ended December 31, 2018, as filed with the
Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2018, and the quarter ended September 30, 2019, as filed
with the Securities and Exchange Commission ( the “SEC”) on November 21, 2019, as Exhibit 99.1 to the Company’s Form 6-K, together
with related notes, if any, present fairly, in all material respects, the financial position of the Company as of the dates specified and the
results of operations for the periods covered thereby as of such dates (the “Financial Statements”). Such Financial Statements and related
notes were prepared in accordance with International Accounting Standards Board accounting principles as issued by the International
Financial Reporting Standards (“IFRS”) and applied on a consistent basis throughout the periods indicated. During the period of
engagement of the Company’s accountants, there have been no disagreements with the accounting firm and the Company on any matters of
accounting principles or practices, financial statement disclosure or auditing scope or procedures. The Company has made and kept books
and records and accounts which are in reasonable detail and which fairly and accurately reflect the activities of the Company in all material
respects, subject only to year-end adjustments. Except as set forth in such Financial Statements or otherwise disclosed in Schedule 4f, the
Company has no knowledge of any unpaid material single liability of any kind, whether accrued, absolute or contingent, or otherwise, in
any event above an amount of $100,000 for each such single liability, but excluding any liability incurred in the ordinary course of business
or any liability that is not required to be reflected in the Financial Statements according to IFRS.
The Company has filed all reports, schedules, forms, statements and other documents required to be filed by the Company under the
Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof for the two years preceding the date hereof (the
foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as
the “SEC Reports”). As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities
Act and Exchange Act, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances they
were made, not misleading.
g. Absence of Litigation. Except as set forth in Schedule 4g or as described in the Company’s Form 20-F for fiscal year ended December 31,
2018, to the knowledge of the Company, there are no actions, suits, claims, hearings, proceedings, inquiries or investigations pending
before or by any court, public board, governmental or administrative agency, arbitrator, self-regulatory organization or body or, to the
knowledge of the Company, threatened, against the Company, or involving its assets or any of its officers or directors (in their capacity as
such) which, if determined adversely to the Company or such officer or director, could reasonably be expected to have a Material Adverse
Effect or adversely affect the transactions contemplated by this Agreement and the other Transaction Documents or the enforceability
thereof. The Company is not subject to any injunction, judgment, decree or order of any court, regulatory body, arbitration panel,
administrative agency or other governmental body.
h. Acknowledgment Regarding Subscriber’s Purchase of the Securities. The Company acknowledges that each Subscriber is not acting as a
financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions
contemplated hereby and thereby and any advice given by such Subscriber or any of their respective representatives or agents in connection
with the Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to such Subscriber’s purchase of
the Securities (and the Warrant Shares, if applicable). The Company further represents to the Subscribers that the Company’s decision to
enter into the Transaction Documents has been based solely on the independent evaluation by the Company and its representatives.
i.
j.
k.
No General Solicitation. Neither the Company, nor any of its affiliates, nor, to the knowledge of the Company, any person acting on its or
their behalf, has engaged or will engage in any form of general solicitation or general advertising (within the meaning of Regulation D of
the Securities Act) in connection with the offer or sale of the Securities to be offered or sold in reliance on Regulation D of the Securities
Act.
No Integrated Offering. Neither the Company, nor any of its affiliates, nor, to the knowledge of the Company, any person acting on its or
their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under
circumstances that would require registration of the Securities or Warrant Shares under the Securities Act or cause this offering of Securities
to be integrated with prior offerings by the Company for purposes of the Securities Act.
Employee Relations. The Company is not a party to any collective bargaining agreement, except for those provisions of general agreements
between any employers’ or employees’ union and organization which are applicable by extension order to all employees in Israel or to all
companies in the same industry of the Company in Israel. The Company believes that its relations with its employees are good. No current
executive officer or key employee of the Company has notified the Company that such officer or key employee, as applicable, intends to
leave the Company or otherwise terminate such officer’s or key employee’s employment with the Company. No executive officer or key
employee of the Company, to the knowledge of the Company, is in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement with the
Company. The Company is in compliance with all Israeli laws and regulations involving labor, employment and employment practices and
benefits, terms and conditions of employment and wages and hours, except where the failure to be in compliance would not, either
individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.
l.
Intellectual Property Rights. Except as described in Schedule 41, or as described in the Company’s Form 20-F for fiscal year ended
December 31, 2018 or where it would not reasonably be expected to result in a Material Adverse Effect, (i) to the knowledge of the
Company, the Company has ownership, or licenses or legal rights to use all patents, copyrights, trade secrets, trademarks, trade names or
other proprietary rights (collectively, “Intellectual Property”) used in the business of the Company, (ii) the Company believes it has taken
all reasonable steps required in accordance with sound business practice and business judgment to establish and preserve its ownership of
all Intellectual Property owned by the Company and related to its products and technology, (iii) to the knowledge of the Company, there is
no infringement of the Intellectual Property owned by the Company by any third party, (iv) to the knowledge of the Company, the present
business, activities and products of the Company do not infringe any Intellectual Property of any other person, (v) there is no proceeding
charging the Company with infringement of any Intellectual Property adversely held by a third party which has been filed, (vi) no
proceedings have been instituted or are pending or, to the knowledge of the Company, threatened, which challenge the rights of the
Company to the use of the Intellectual Property owned by or licensed to the Company, (vii) the Intellectual Property owned by the
Company, and to the knowledge of the Company, the Intellectual Property licensed to the Company, has not been adjudged invalid or
unenforceable, in whole or in part and there is no pending or, to the knowledge of the Company, threatened proceeding by others
challenging the validity or scope of any such Intellectual Property, and the Company is unaware of any facts which are reasonably likely to
form a basis for any such claim, (viii) to the knowledge of the Company, the Company is not making unauthorized use of any confidential
information or trade secrets of any person, (ix) to the knowledge of the Company, the activities of any of the employees on behalf of the
Company do not violate any agreements between such employees and third parties relating to confidential information or trade secrets of
such third parties or that restrict any such employee’s engagement with the Company, (x) each employee or consultant of the Company that
is involved in the development of Intellectual Property for the Company is a party to a written contract with the Company that assigns to the
Company all rights to all inventions, improvements, discoveries and information relating to the Company and (xi) all licenses or other
agreements under which (A) the Company has obtained rights to use Intellectual Property, or (B) the Company has granted rights to others
to use Intellectual Property owned by or licensed to the Company are in full force and effect, and there is no default (and there exists no
condition which, with the passage of time or otherwise, would constitute a default by the Company) by the Company with respect thereto.
Notwithstanding the foregoing, it is hereby clarified that the Company has received grants from the Israeli National Technological
Innovation Authority (formerly known as the Office of Chief Scientist), and accordingly the Company is subject to the Israel’s
Encouragement of Research and Development Law, 1984 (the “R&D Law”) and the applicable rules and regulations as described in details
in the Company’s Form 20-F for fiscal year ended December 31, 2018.
m. Environmental Laws.
(i)
The Company has complied with all applicable Environmental Laws (as defined below), except for violations of Environmental
Laws that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect.
There is, to the knowledge of the Company, no pending or threatened civil or criminal litigation, written notice of violation, formal
administrative proceeding, or investigation, inquiry or information request, relating to any Environmental Law involving the
Company or any subsidiary of the Company, except for litigation, notices of violations, formal administrative proceedings or
investigations, inquiries or information requests that, individually or in the aggregate, have not had and would not reasonably be
expected to have a Material Adverse Effect. For purposes of this Agreement, “Environmental Law” means any national, state,
provincial or local law, statute, rule or regulation or the common law relating to the environment or occupational health and safety,
including without limitation any statute, regulation, administrative decision or order pertaining to (i) treatment, storage, disposal,
generation and transportation of industrial, toxic or hazardous materials or substances or solid or hazardous waste; (ii) air, water and
noise pollution; (iii) groundwater and soil contamination; (iv) the release or threatened release into the environment of industrial,
toxic or hazardous materials or substances, or solid or hazardous waste, including without limitation emissions, discharges,
injections, spills, escapes or dumping of pollutants, contaminants or chemicals; (v) the protection of wild life, marine life and
wetlands, including without limitation all endangered and threatened species; (vi) storage tanks, vessels, containers, abandoned or
discarded barrels, and other closed receptacles; (vii) health and safety of employees and other persons; and (viii) manufacturing,
processing, using, distributing, treating, storing, disposing, transporting or handling of materials regulated under any law as
pollutants, contaminants, toxic or hazardous materials or substances or oil or petroleum products or solid or hazardous waste.
(ii)
To the knowledge of the Company there is no material environmental liability with respect to any solid or hazardous waste
transporter or treatment, storage or disposal facility that has been used by the Company or any subsidiary of the Company.
(iii) The Company has received all permits, licenses or other approvals required of it under applicable Environmental Laws to conduct its
businesses and is in compliance, in all material respects, with all terms and conditions of any such permit, license or approval.
n.
Permits; Regulatory Compliance. Except as disclosed in the Company’s Form 20-F for the fiscal year ended December 31, 2018 or except
as disclosed in Schedule 4n, the Company does not own any equity interest and has not made any loans or advances to or guarantees of
indebtedness to any person, corporation, partnership or other entity and is not a party to any joint venture, other than travel advances and
expenses made in the ordinary course of business. Except as disclosed in Schedule 4n of the Disclosure Schedule or as disclosed in the
Company’s Form 20-F for the fiscal year ended December 31, 2018 and any 6-K filed thereafter, to the knowledge of the Company, the
conduct of business by the Company as presently and proposed to be conducted is not subject to continuing oversight, supervision,
regulation or examination by any governmental official or body of the United States, or any other jurisdiction wherein the Company
conducts or proposes to conduct such business, except (i) for the applicable laws, rules and regulations governing the drug and medical
industry, including the Food and Drug Administration (the “FDA” or “USFDA”), and other similar laws, rules and regulations or other
agencies, and governmental authorities around the world applicable to the Company or to its products, (ii) as described in the Subscription
Documents and except as such regulation is applicable to commercial enterprises generally, applicable to the industry of the Company or to
all companies in Israel or biomed companies in general. The Company has obtained all material licenses, permits and other governmental
authorizations necessary to conduct its business as presently conducted, except where the failure to do so would not be reasonably expected
to cause a Material Adverse Effect. The Company has not received any notice of any violation of, or noncompliance with, any material
federal, state, local or foreign laws, ordinances, regulations and orders (including, without limitation, those relating to environmental
protection, occupational safety and health, securities laws, equal employment opportunity) applicable to its business, the violation of, or
noncompliance with, would have a Material Adverse Effect, and the Company knows of no facts or set of circumstances which could give
rise to such a notice.
o.
Title. The Company owns no real property. Except as set forth in Schedule 4o or in the Company’s Form 20-F for the fiscal year ended
December 31, 2018 and the Company’s Form 6-K, which included financial statements for the quarter ended September 30, 2019, as filed
with the SEC on November 21 ,2019, as Exhibit 99.1, together with related notes, the Company has good and marketable title to all of its
personal property and assets free and clear of any material restriction, mortgage, deed of trust, pledge, lien, security interest or other charge,
claim or encumbrance which would have a Material Adverse Effect. With respect to properties and assets it leases, except as set forth in
Schedule 4o or in the Company’s Form 20-F for the fiscal year ended December 31, 2018, the Company is in material compliance with
such leases and holds a valid leasehold interest free of any liens, claims or encumbrances which would have a Material Adverse Effect.
p.
Shell Company Status. The Company is not and has never been a “shell company” as such term is defined in Section 405 of the Securities
Act.
q. No Material Adverse Breaches, etc. The Amended Articles of Association of the Company filed as Exhibit 3.2 to the Company’s Annual
Report on Form 20-F for the fiscal year ended December 31, 2018, as such articles were amended on the extraordinary general meeting of
shareholders of the Company on October 3, 2019, is a true, correct and complete copy of the Amended and Restated Articles of Association
of the Company, as in effect on the date hereof. Any subsequent amendments thereto prior to the initial or any subsequent Closings will be
promptly provided to all Subscribers. The Company is not (i) in violation of its Articles of Association; (ii) to the knowledge of the
Company, in default under any material contract, indenture, mortgage, note, loan agreement, security agreement, lease, alliance agreement,
joint venture agreement or other agreement, license, permit, consent, approval or instrument to which the Company is a party or by which it
is or may be bound or to which any of its assets may be subject, the default of which can be reasonably expected to have a Material Adverse
Effect; (iii) in violation of any statute, rule or regulation applicable to the Company, the violation of which would have a Material Adverse
Effect; or (iv) in violation of any judgment, decree or order of any court or governmental body having jurisdiction over the Company and
specifically naming the Company, which violation or violations individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
r.
s.
t.
Tax Status. The Company has made and filed, or filed appropriate extensions for, all applicable material federal, state and local income tax
returns and all other reports and declarations required by Israel and any other jurisdictions to which it is subject and (unless and only to the
extent that the Company has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) has
paid all material taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith and has set aside on its books, provisions reasonably adequate
for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid
taxes in any material amount claimed to be due from the Company by the taxing authority of Israel or any other jurisdiction, and officers of
the Company know of no basis for any such claim.
Rights of First Refusal. Except as set forth herein or in Schedule 4s or in the Company’s Form 20-F for the fiscal year ended December 31,
2018, there are no outstanding rights of first refusal or participation rights with respect to the offering of Company securities.
Reliance. The Company acknowledges that the Subscribers are relying on the representations and warranties made by the Company
hereunder and that such representations and warranties are a material inducement to the Subscriber purchasing the Securities. The Company
further acknowledges that without such representations and warranties of the Company made hereunder, the Subscribers would not enter
into this Agreement.
u.
v.
Brokers’ Fees. The Company does not have any liability or obligation to pay any fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement, except for the payment of fees to the Placement Agent, as specified in Section 3
above.
Insurance. The Company has insurance policies of the type and in amounts that the Company reasonably believes are adequate for its
business. There is no material claim pending under any such policy as to which coverage has been questioned, denied or disputed by the
underwriter of such policy.
w. Material Changes. Since September 30,2019, the Company has operated its business in the normal course and, except as specifically
disclosed in Schedule 4w, (i) there have been no events, occurrences or developments that have had or would reasonably be expected to
have a Material Adverse Effect with respect to the Company, (ii) the Company has not incurred any material liabilities (contingent or
otherwise) other than (A) trade payables, accrued expenses and other liabilities incurred in the ordinary course of business consistent with
past practice and (B) liabilities not required to be reflected in the Financial Statements of the Company, (iii) the Company has not materially
altered its method of accounting or the manner in which it keeps its accounting books and records, (iv) the Company has not declared or
made any dividend or distribution of cash or other property to its shareholders or purchased, redeemed or made any agreements to purchase
or redeem any shares of its capital stock, (v) the Company has not issued any equity securities to any officer, director or affiliate, except
Ordinary Shares issued in the ordinary course pursuant to existing Company stock option or stock purchase plans or executive and director
corporate arrangements, and (vi) there has not been any change or amendment to, or any waiver of any material right under, any material
contract under which the Company, or any of its assets are bound or subject.
x.
Transactions With Affiliates, Shareholders and Employees. Except as set forth in Section 7.B of the Company’s Annual Report on Form 20-
F for the fiscal year ended December 31, 2018 and the Company’s Form 6-K, which included financial statements for the quarter ended
September 30, 2019, as filed with the SEC on November 21 ,2019, as Exhibit 99.1 or in Schedule 4x, none of the officers, directors or
principal (10% or greater) shareholders of the Company, including affiliates of such parties, and, to the Company’s knowledge, none of the
employees of the Company, including affiliates of such employees, is a party to any transaction with the Company or to a transaction
contemplated by the Company (other than for services as employees, officers and directors) that are required to be disclosed by the
Company pursuant to item 7 of Form 20-F promulgated under the Securities Act, if applicable, except as contemplated by the Transaction
Documents.
y. Off-Balance Sheet Arrangements. The Company has no off-balance sheet transactions or arrangements.
z.
Investment Company. The Company is not required to be registered as, and is not an affiliate of, and as the result of the transactions
contemplated by the Offering will not be required to register as, an “investment company” within the meaning of the Investment Company
Act of 1940, as amended.
aa. Foreign Corrupt Practices. The Company is not (a) a person that is the subject of any sanctions administered by the U.S. Treasury
Department’s Office of Foreign Assets Control or the U.S. Commerce Department (collectively, “Sanctions”) or, to the best of the
Company’s knowledge, in violation of any regulations of such entities. Each of the Company, and to its knowledge, its respective officers,
directors, managers, or employees, is in compliance, in all material respects, with applicable: (a) anti-bribery laws, including but not limited
to, the U.S. Foreign Corrupt Practices Act of 1977, as amended, or any other law, rule or regulation of similar purposes and scope
applicable to the Company, (b) anti-money laundering laws, including the Bank Secrecy Act, as amended by the USA PATRIOT Act of
2001 (signed into law October 26, 2001), or (c) Sanctions. Neither the Company nor, to its knowledge, any director, officer, employee or
other person acting on behalf of the Company has, in the course of its actions for, or on behalf of, the Company (i) used any corporate funds
for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect
unlawful payment to any foreign or domestic government official or employee from corporate funds; or (iii) made any unlawful bribe,
rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee of such
government official.
bb. Material Contracts. All of the Company’s contracts involving an amount in excess of $150,000 (the “Material Contracts”) have been filed
with the SEC except as described in Schedule 4bb. There are no Material Contracts that are not in written form. Neither the Company, nor
to the Company’s knowledge, as of the date of this Agreement has any other party to a Material Contract breached, violated or defaulted
under, or received notice that it has breached, violated or defaulted under, any of the terms or conditions of any Material Contract in such
manner as would permit any other party to cancel or terminate any such Material Contract, or would permit any other party to seek
damages that constitutes a Material Adverse Effect. As of the date of this Agreement, each Material Contract is valid, binding, enforceable
and in full force and effect, subject to: (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors; and
(ii) rules of law governing specific performance, injunctive relief and other equitable remedies.
cc. Undisclosed Liabilities. As of the date of this Agreement, the Company has no liabilities, except for: (i) liabilities identified in the
Company balance sheet included with Financial Statements; (ii) normal and recurring current liabilities that have been incurred by the
Company since the date of such balance sheet in the ordinary course of business and that are not in excess of $150,000 in the aggregate;
(iii) liabilities for performance in the ordinary course of business of obligations of the Company under Company contracts, including the
reasonably expected performance of such Company contracts in accordance with their terms (which would not include, for example, any
instances of breach or indemnification); and (iv) liabilities described in Schedule 4cc.
dd. Registration Rights. Each Subscriber investing in this Offering shall be entitled to registration rights according to the terms and conditions
of the Registration Rights Agreement annexed hereto as Exhibit B. For the full terms of the registration rights, Subscribers should review
the Registration Rights Agreement. Pursuant to such Registration Rights Agreement, generally, within 7 months of the Final Closing, the
Company will file a registration statement on Form F-3 (or S-3, as applicable) (the “Registration Statement”) covering all of the Ordinary
Shares issued or issuable in connection with the Offering (including those issuable upon exercise of the Warrants and Broker Warrants) and
such other Company securities that the Company finds necessary in its sole discretion and will use its reasonable best efforts to have the
Registration Statement declared effective as soon as practicable following such filing. In the event of any inconsistencies between this
section 4(dd) and the terms of the Registration Rights Agreement, the terms set forth in the Registration Rights Agreement shall be
controlling.
ee. Reserved.
ff. No Other Representations or Warranties. Except for the representations and warranties of the Company contained in this Agreement, the
Company is not making and has not made, and no other person is making or has made on behalf of the Company, any express or implied
representation or warranty to prospective Subscribers in connection with this Agreement or the transactions contemplated hereby, and no
third party is authorized to make any such representations and warranties on behalf of the Company.
5. Representations, Warranties and Agreements of the Subscriber. The Subscriber acknowledge that the offer and sale
of the Securities and the Warrant Shares has not been registered under the Securities Act and such Securities and the Warrant
Shares are being offered and sold pursuant to an exemption from registration contained in the Securities Act based, in part, upon
Subscriber’s representations contained in this Agreement. The Subscriber represents and warrants to, and agrees with, the
Company the following:
a.
Investment Purpose. The Subscriber is, and will be, acquiring the Securities and Warrant Shares, for its own account for investment only
and not with a view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered or
exempted under the Securities Act; provided, however, that by making the representations herein, such Subscriber reserves the right to
dispose of the Securities and Warrant Shares, at any time in accordance with or pursuant to an effective registration statement covering such
Securities and Warrant Shares, or an available exemption under the Securities Act. The Subscriber agrees not to sell, hypothecate or
otherwise transfer the Securities or Warrant Shares unless such Securities or Warrant Shares are registered under the federal and applicable
state securities laws or unless, in the opinion of counsel satisfactory to the Company, an exemption from such law is available.
b.
Residence of Subscriber. The Subscriber resides in the jurisdiction set forth on the Subscriber Omnibus Signature Page affixed hereto.
c. Accredited Investor Status. The Subscriber meets the requirements of at least one of the suitability standards for an “Accredited Investor” as
that term is defined in Rule 501(a) of Regulation D, for the reason set forth on the Investor Certification attached hereto as Annex B and the
Subscriber represents that the information set forth in the Questionnaire is accurate and complete in all material respects.
d. Accredited Investor Qualifications. A Subscriber (i) if a natural person, represents that such Subscriber has reached the age of 21 and has
full power and authority to execute and deliver this Agreement and all other related agreements or certificates and to carry out the
provisions hereof and thereof; (ii) if a corporation, partnership, or limited liability company or partnership, or association, joint stock
company, trust, unincorporated organization or other entity, represents that such entity was not formed for the specific purpose of acquiring
the Securities, such entity is duly organized, validly existing and in good standing under the laws of the state of its organization, the
consummation of the transactions contemplated hereby is authorized by, and will not result in a violation of state law or its charter or other
organizational documents, such entity has full power and authority to execute and deliver this Agreement and all other related agreements
or certificates and to carry out the provisions hereof and thereof and to purchase and hold the Securities and underlying securities, the
execution and delivery of this Agreement has been duly authorized by all necessary action, this Agreement has been duly executed and
delivered on behalf of such entity and is a legal, valid and binding obligation of such entity; or (iii) if executing this Agreement in a
representative or fiduciary capacity, represents that it has full power and authority to execute and deliver this Agreement in such capacity
and on behalf of the subscribing individual, ward, partnership, trust, estate, corporation, or limited liability company or partnership, or other
entity for whom such Subscriber is executing this Agreement, and such individual, partnership, ward, trust, estate, corporation, or limited
liability company or partnership, or other entity has full right and power to perform pursuant to this Agreement and make an investment in
the Company, and represents that this Agreement constitutes a legal, valid and binding obligation of such entity. The execution and delivery
of this Agreement will not violate or be in conflict with any order, judgment, injunction, agreement or controlling document to which the
Subscriber is a party or by which it is bound.
e.
f.
g.
h.
i.
j.
k.
l.
Subscriber Relationship With Brokers. The Subscriber’s substantive relationship with a broker, if any, for the transactions contemplated
hereby, or a subagent thereof (collectively, “Brokers”), through which a Subscriber may be subscribing for the Securities predates such
Broker’s contact with the Subscriber regarding an investment in the Securities
Solicitation. The Subscriber is unaware of, is in no way relying on, and did not become aware of the offering of the Securities through or as
a result of, any form of general solicitation or general advertising including, without limitation, any article, notice, advertisement or other
communication published in any newspaper, magazine or similar media or broadcast over television or radio, in connection with the
offering and sale of the Securities and is not subscribing for the Securities and did not become aware of the offering of the Securities
through or as a result of any seminar or meeting to which the Subscriber was invited by, or any solicitation of a subscription by, a person
not previously known to the Subscriber in connection with investments in securities generally.
Brokerage Fees. Except as otherwise provided herein, the Subscriber has taken no action that would give rise to any claim by any person for
brokerage commissions, finders’ fees or the like relating to this Agreement or the transaction contemplated hereby.
Subscriber’s Advisors. The Subscriber and the Subscriber’s attorney, accountant, representative and/or tax advisor, if any (collectively, the
“Advisors”), as the case may be, has such knowledge and experience in financial, tax, and business matters, and, in particular, investments
in securities, so as to enable it to utilize the information made available to it in connection with the Securities to evaluate the merits and
risks of an investment in the Securities and the Company and to make an informed investment decision with respect thereto.
Subscriber Liquidity. The Subscriber has adequate means of providing for the Subscriber’s current financial needs and foreseeable
contingencies and has no need for liquidity of its investment in the Securities for an indefinite period of time, and after purchasing the
Securities, the Subscriber will be able to provide for any foreseeable current needs and possible personal contingencies. The Subscriber
must bear and acknowledges the substantial economic risks of the investment in the Securities including the risk of illiquidity and the risk
of a complete loss of this investment.
High Risk Investment. The Subscriber is aware that an investment in the Securities involves a number of very significant risks and has
carefully researched and reviewed and understands the risks of, and other considerations relating to, the purchase of the Securities,
including those set forth in the Company’s Annual Report on Form 20-F for the year ended December 31, 2018 filed with the SEC on
March 28, 2019 and any 6-K filed thereafter.
Reliance on Exemptions. The Subscriber understands that the Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities laws and/or other applicable state laws to the extent
applicable to Non-PA Subscribers and that the Company is relying in part upon the truth and accuracy of, and the Subscriber’s compliance
with, the representations, warranties, agreements, acknowledgments and understandings of the Subscriber set forth herein in order to
determine the availability of such exemptions and the eligibility of the Subscriber to acquire the Securities.
Information. The Subscriber and its Advisors have been furnished with all documents and materials relating to the business, finances and
operations of the Company and information that the Subscriber requested and deemed material to making an informed investment decision
regarding the Subscriber’s purchase of the Securities and the underlying securities. The Subscriber and its Advisors have been afforded the
opportunity to review such documents and materials, and the information contained therein. The Subscriber and its Advisors have been
afforded the opportunity to ask questions of the Company and its management. The Subscriber understands that such discussions, as well as
any written information provided by the Company, were intended to describe the aspects of the Company’s business and prospects which
the Company believes to be material, but were not necessarily a thorough or exhaustive description, and except as expressly set forth in this
Agreement, the Company makes no representation or warranty with respect to the completeness of such information and makes no
representation or warranty of any kind with respect to any information provided by any entity other than the Company. Some of such
information may include projections as to the future performance of the Company, which projections may not be realized, may be based on
assumptions which may not be correct and may be subject to numerous factors beyond the Company’s control. Additionally, the Subscriber
understands and represents that the Subscriber is purchasing the Securities notwithstanding the fact that the Company may disclose in the
future certain material information the Subscriber has not received, including the financial results of the Company for its current fiscal
quarter. Neither such inquiries, nor any other due diligence investigations conducted by the Subscriber or its Advisors, shall modify, amend
or affect the Subscriber’s right to rely on the Company’s representations and warranties contained in Section 4 above. The Subscriber has
sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its
acquisition of the Securities.
m. No Other Representations or Information. In evaluating the suitability of an investment in the Securities, the Subscriber has not relied upon
any representation or information (oral or written) with respect to the Company, or otherwise, other than as stated in this Agreement, the
other Transaction Documents and the Securities. No other oral or written representations have been made, or oral or written information
furnished, to the Subscriber or its Advisors, if any, in connection with the offering of the Securities.
n. No Governmental Review. The Subscriber understands that no United States federal or state agency or any other United States or foreign
government or governmental agency has passed on or made any recommendation or endorsement of the Securities, or the fairness or
suitability of the Securities, nor have such authorities passed upon or endorsed the merits of the offering of the Securities.
o.
Transfer or Resale. The Subscriber understands that: (i) the Securities and the Warrant Shares have not been and may not be registered
under the Securities Act or any state securities or other foreign laws, and may not be offered for sale, sold, assigned or transferred unless
(A) subsequently registered thereunder, or (B) the Subscriber shall have delivered to the Company an opinion of counsel, in a form
reasonably satisfactory to the Company, to the effect that such securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration requirements; (ii) any sale of such securities made in reliance on Rule 144
under the Securities Act (or a successor rule thereto) (“Rule 144”) may be made only in accordance with the terms of Rule 144 and further,
if Rule 144 is not applicable, any resale of such securities under circumstances in which the seller (or the person through whom the sale is
made) may be deemed to be an underwriter (as that term is defined in the Securities Act) may require compliance with some other
exemption under the Securities Act or the rules and regulations of the SEC thereunder; and (iii) except as otherwise set forth in this
Agreement, the Company is not, and no other person is, under any obligation to register such securities under the Securities Act or any state
securities laws or to comply with the terms and conditions of any exemption thereunder. The Company reserves the right to place stop
transfer instructions against the certificates for the Ordinary Shares and Warrant Shares to the extent specifically set forth under this
Agreement. There can be no assurance that there will be an active trading market or resale for the Ordinary Shares, or Warrant Shares, nor
can there be any assurance that the Ordinary Shares or Warrant Shares will be freely transferable at any time in the foreseeable future.
p.
Legends. The Subscriber understands that the certificates for the Ordinary Shares (to the extent Ordinary Shares, including those issuable
upon exercise of Warrants and Broker Warrants, are issued in certificated form) shall bear a restrictive legend in substantially the form
below (and a stop transfer order may be placed against transfer of such stock certificates). In addition, the Subscriber understand that the
Warrants shall include a legend substantially in the form of the first page of the Form of Warrant attached hereto as Exhibit A (and a stop
transfer order may be placed against transfer of such warrant certificates).
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH THE FOLLOWING
SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE
ACQUIRER:
(1) REPRESENTS THAT IT AND ANY ACCOUNT FOR WHICH IT IS ACTING IS AN
ACCREDITED INVESTOR (WITHIN THE MEANING OF RULE 501(a) UNDER THE
SECURITIES ACT) AND THAT IT EXERCISES SOLE INVESTMENT DISCRETION WITH
RESPECT TO EACH SUCH ACCOUNT, AND
(2) AGREES FOR THE BENEFIT OF ENTERA BIO LTD. (THE “COMPANY”) THAT IT
WILL NOT OFFER, SELL, PLEDGE OR OTHERWISE TRANSFER THIS SECURITY OR
ANY BENEFICIAL INTEREST HEREIN, EXCEPT:
(A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, OR
(B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BECOME
EFFECTIVE UNDER THE SECURITIES ACT, OR
(C) TO AN ACCREDITED INVESTOR IN COMPLIANCE WITH SECTION 4(a)(7) OF
THE SECURITIES ACT, OR
(D) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE
144 UNDER THE SECURITIES ACT OR ANY OTHER AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
PRIOR TO THE REGISTRATION OF ANY TRANSFER IN ACCORDANCE WITH CLAUSE (2)
ABOVE, THE COMPANY AND THE COMPANY’S TRANSFER AGENT RESERVE THE RIGHT TO
REQUIRE THE DELIVERY OF SUCH LEGAL OPINIONS, CERTIFICATIONS OR OTHER
EVIDENCE AS MAY REASONABLY BE REQUIRED IN ORDER TO DETERMINE THAT THE
PROPOSED TRANSFER IS BEING MADE IN COMPLIANCE WITH THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS. NO REPRESENTATION IS MADE AS TO THE
AVAILABILITY OF ANY EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT.
SECURITIES EVIDENCED HEREBY AND ORDINARY SHARES OF THE COMPANY ISSUED UPON
EXERCISE OF SUCH SECURITIES SHALL BE ENTITLED TO REGISTRATION RIGHTS UNDER A
REGISTRATION RIGHTS AGREEMENT TO BE EXECUTED BY THE COMPANY.
The Company shall use its commercially reasonable efforts to cause its transfer agent to remove the legend set
forth above from the Ordinary Shares and Warrant Shares subject to the Securities Act and the applicable law and,
within three (3) Business days, shall issue a certificate without such legend to the holder of such Ordinary Shares
or Warrant Shares upon which it is stamped, if, unless otherwise required by state securities laws, (i) the
Subscriber or its broker make the necessary representations and warranties to the transfer agent for the Ordinary
Shares that it has complied with the prospectus delivery requirements in connection with a sale transaction,
provided the Ordinary Shares and Warrant Shares, as applicable, are registered under the Securities Act, or (ii) in
connection with an actual sale transaction, after such holder provides the Company with an opinion of counsel
satisfactory to the Company, which opinion shall be in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that a public sale, assignment or transfer of the Ordinary Shares
and Warrant Shares, as applicable, may be made without registration under the Securities Act.
Notwithstanding the foregoing, in lieu of issuing the Ordinary Shares in certificated form, the Company may
provide Subscribers with book entry evidence of the Ordinary Shares. Any Ordinary Shares issued in such manner
would carry the same rights and limitations as those issued in certificated form.
q. Authorization, Enforcement. The Subscriber has the requisite power and authority to enter into and perform under this Agreement and the
other Transaction Documents, and to purchase the Securities and underlying securities being sold to it hereunder. The execution, delivery
and performance of this Agreement and the Transaction Documents by such Subscriber and the consummation by Subscriber of the
transactions contemplated hereby and thereby have been duly authorized by all necessary corporate or partnership action, and no further
consent or authorization of such Subscriber or Subscriber’s Board of Directors, stockholders, partners, members, as the case may be, is
required. This Agreement and the other Transaction Documents (to the extent the Subscriber is party thereto) have been duly authorized,
executed and delivered by such Subscriber and upon execution of this Agreement and the Transaction Documents by the other parties
hereto and thereto, constitute, or shall constitute when executed and delivered, a valid and binding obligation of such Subscriber
enforceable against such Subscriber in accordance with the terms hereof and thereof, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to,
or affecting generally, the enforcement of applicable creditors’ rights and remedies.
r.
s.
No Conflicts. The execution, delivery and performance of this Agreement and the other Transaction Documents and the consummation by
the Subscriber of the transactions contemplated hereby and thereby or relating hereto do not and will not (i) if the Subscriber is not an
individual, result in a violation of the Subscriber’s charter documents or bylaws or other organizational documents or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of any agreement, indenture or instrument or obligation to which the Subscriber is a
party or by which its properties or assets are bound, or result in a violation of any law, rule, or regulation, or any order, judgment or decree
of any court or governmental agency applicable to the Subscriber or its properties (except for such conflicts, defaults and violations as
would not, individually or in the aggregate, have a material adverse effect on the Subscriber). The Subscriber is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement and the other Transaction Documents or to purchase the Securities in
accordance with the terms hereof, provided that for purposes of the representation made in this sentence, the Subscriber is assuming and
relying upon the accuracy of the relevant representations and agreements of the Company herein.
Receipt of Documents. The Subscriber, its counsel and/or its Advisors have received and read in their entirety: (i) this Agreement and each
representation, warranty and covenant set forth herein; and (ii) all due diligence and other information necessary to verify the accuracy and
completeness of such representations, warranties and covenants; the Subscriber has received answers to all questions the Subscriber
submitted to the Company regarding an investment in the Company; and the Subscriber has relied on the information contained therein and
has not been furnished any other documents, literature, memorandum or prospectus.
t.
Trading Activities. The Subscriber’s trading activities with respect to the Ordinary Shares shall be in compliance with all applicable federal
and state securities laws, rules and regulations and the rules and regulations of the principal market on which the Ordinary Shares are listed
or traded. Except as set forth below, the Subscriber shall not, and shall cause its affiliates not to, engage in any short sale as defined in any
applicable SEC or Financial Industry Regulatory Authority (“FINRA”) rules or any hedging transactions with respect to the Common Stock
until the earlier to occur of (i) the first anniversary of the initial Closing Date and (ii) the Subscriber no longer owns Ordinary Shares,
Warrants or Warrant Shares. Without limiting the foregoing, the Subscriber agrees not to engage in any naked short transactions in excess of
the amount of shares owned (or an offsetting long position) by the Subscriber.
u. No Legal Advice from the Company. The Subscriber acknowledges that it had the opportunity to review this Agreement and the
transactions contemplated by this Agreement with its own legal counsel and investment and tax Advisors. The Subscriber is relying solely
on such Advisors and not on any statements or representations of the Company or any of its employees, representatives or agents for legal,
tax, economic and related considerations or investment advice with respect to this investment, the transactions contemplated by this
Agreement or the securities laws of any jurisdiction.
v. No Group Participation. The Subscriber and its affiliates is not a member of any group, nor is the Subscriber acting in concert with any
other person, including any other Subscriber, with respect to its acquisition of the Securities and underlying securities.
w. Reliance. Any information which the Subscriber has heretofore furnished or is furnishing herewith to the Company or any Broker is
complete and accurate and may be relied upon by the Company and any Broker in determining the availability of an exemption from
registration under U.S. federal and state securities laws in connection with the offering of securities as described in this Agreement and the
related summary term sheet and transmittal letter, if any. The Subscriber further represents and warrants that it will notify and supply
corrective information to the Company immediately upon the occurrence of any change therein occurring prior to the Company’s issuance
of the Securities. Within five (5) days after receipt of a request from the Company or any Broker, the Subscriber will provide such
information and deliver such documents as may reasonably be necessary to comply with any and all laws and ordinances to which the
Company or any Broker is subject.
x.
(For ERISA plan Subscribers only). The fiduciary of the ERISA plan represents that such fiduciary has been informed of and understands
the Company’s investment objectives, policies and strategies, and that the decision to invest “plan assets” (as such term is defined in
ERISA) in the Company is consistent with the provisions of ERISA that require diversification of plan assets and impose other fiduciary
responsibilities. The Subscriber fiduciary or plan (a) is responsible for the decision to invest in the Company; (b) is independent of the
Company or any of its affiliates; (c) is qualified to make such investment decision; and (d) in making such decision, the Subscriber
fiduciary or plan has not relied primarily on any advice or recommendation of the Company or any of its affiliates.
y. Anti-Money Laundering; OFAC.
[The Subscriber should check the Office of Foreign Assets Control (“OFAC”) website at http://www.treas.gov/ofac before making the
following representations.] The Subscriber represents that the amounts invested by it in the Company in the Securities were not and are not
directly or indirectly derived from activities that contravene U.S. federal or state or international laws and regulations, including anti-money
laundering laws and regulations. U.S. federal regulations and executive orders administered by OFAC prohibit, among other things, the
engagement in transactions with, and the provision of services to, certain foreign countries, territories, entities and individuals. The lists of
OFAC prohibited countries, territories, persons and entities can be found on the OFAC website at http://www.treas.gov/ofac. In addition, the
programs administered by OFAC (the “OFAC Programs”) prohibit dealing with individuals1 or entities in certain countries regardless of
whether such individuals or entities appear on the OFAC lists.
1 These individuals include specially designated nationals, specially designated narcotics traffickers and other parties subject to
OFAC sanctions and embargo programs.
To the best of the Subscriber’s knowledge, none of: (1) the Subscriber; (2) any person controlling or controlled by
the Subscriber; (3) if the Subscriber is a privately-held entity, any person having a beneficial interest in the
Subscriber; or (4) any person for whom the Subscriber is acting as agent or nominee in connection with this
investment is a country, territory, individual or entity named on an OFAC list, or a person or entity prohibited
under the OFAC Programs. Please be advised that the Company may not accept any amounts from a prospective
investor if such prospective investor cannot make the representation set forth in the preceding paragraph. The
Subscriber agrees to promptly notify the Company should the Subscriber become aware of any change in the
information set forth in these representations. The Subscriber understands and acknowledges that, by law, the
Company may be obligated to “freeze the account” of the Subscriber, either by prohibiting additional subscriptions
from the Subscriber, declining any redemption requests and/or segregating the assets in the account in compliance
with governmental regulations, and a Broker may also be required to report such action and to disclose the
Subscriber’s identity to OFAC. The Subscriber further acknowledges that the Company may, by written notice to
the Subscriber, suspend the redemption rights, if any, of the Subscriber if the Company reasonably deems it
necessary to do so to comply with anti-money laundering regulations applicable to the Company or any Broker or
any of the Company’s other service providers. These individuals include specially designated nationals, specially
designated narcotics traffickers and other parties subject to OFAC sanctions and embargo programs.
To the best of the Subscriber’s knowledge, none of: (1) the Subscriber; (2) any person controlling or controlled by
the Subscriber; (3) if the Subscriber is a privately-held entity, any person having a beneficial interest in the
Subscriber; or (4) any person for whom the Subscriber is acting as agent or nominee in connection with this
investment is a senior foreign political figure2, or any immediate family3 member or close associate4 of a senior
foreign political figure, as such terms are defined in the footnotes below.
If the Subscriber is affiliated with a non-U.S. banking institution (a “Foreign Bank”), or if the Subscriber receives
deposits from, makes payments on behalf of, or handles other financial transactions related to a Foreign Bank, the
Subscriber represents and warrants to the Company that: (1) the Foreign Bank has a fixed address, other than
solely an electronic address, in a country in which the Foreign Bank is authorized to conduct banking activities;
(2) the Foreign Bank maintains operating records related to its banking activities; (3) the Foreign Bank is subject
to inspection by the banking authority that licensed the Foreign Bank to conduct banking activities; and (4) the
Foreign Bank does not provide banking services to any other Foreign Bank that does not have a physical presence
in any country and that is not a regulated affiliate.
z.
Conflicts Waiver. Each PA Subscriber purchasing through GPN is aware that some of the members of Intuitive Venture Partners, LLC
(“Intuitive”) are registered representatives registered with GPN, and may receive a portion of the Cash Fee and/or Broker Warrants payable
to GPN, as described above. Each such PA Subscriber, for itself and on behalf of its affiliates, expressly waives any conflicts of interest or
potential conflicts of interest discussed in this paragraph and agrees that neither GPN nor its affiliates, officers, directors or members shall
have any liability to the Subscriber or its affiliates, and the Subscriber and its affiliates shall have no liability to GPN, or its affiliates,
officers, directors or members, with respect to such conflicts of interest or potential conflicts of interest.
aa. Funds Availability. The Subscriber has, or will have at the applicable Closing, sufficient cash, available lines of credit or other sources of
immediately available funds pursuant to the Agreement, to enable it to make pursuant to the terms of this Agreement.
6. Covenants.
(a) Best Efforts. Each party shall use its best efforts timely to satisfy each of the conditions to be satisfied by it as provided in Sections 7 and 8
of this Agreement.
(b) Form D and Blue Sky Laws. If the Company decides to rely on Regulation D for this offering, the Company will file a Form D, to the
extent applicable, with respect to the offer and sale of the Securities. The Company shall take such actions as the Company shall reasonably
determine is necessary to qualify the Securities and Warrant Shares, or obtain an exemption for the Securities and Warrant Shares for sale to
the Subscribers pursuant to this Agreement, under applicable US state blue sky laws.
2 A “senior foreign political figure” is defined as a senior official in the executive, legislative, administrative, military or judicial
branches of a foreign government (whether elected or not), a senior official of a major foreign political party, or a senior
executive of a foreign government-owned corporation. In addition, a “senior foreign political figure” includes any corporation,
business or other entity that has been formed by, or for the benefit of, a senior foreign political figure.
3 “Immediate family” of a senior foreign political figure typically includes the figure’s parents, siblings, spouse, children and in-
laws.
4 A “close associate” of a senior foreign political figure is a person who is widely and publicly known to maintain an unusually
close relationship with the senior foreign political figure, and includes a person who is in a position to conduct substantial
domestic and international financial transactions on behalf of the senior foreign political figure.
(c) Reporting Status; Rule 144. Through the date which is one-year after the final Closing Date, the Company shall, to the extent applicable,
maintain the registration of its ordinary shares under Section 12(b) or 12(g) of the Exchange Act and file in a timely manner (or, with
respect to Form 6-K Reports, shall use its commercially reasonable efforts to file in a timely manner) all reports required to be filed with the
SEC thereunder, and the Company shall not terminate its status as an issuer required to file reports under the Exchange Act even if the
Exchange Act or the rules and regulations thereunder would otherwise permit such termination. The Company further covenants that it will
take such actions which are in compliance with the applicable laws that any Subscriber may reasonably request to enable such Subscriber to
sell or transfer the Securities acquired in the Offering without registration under the Securities Act, including without limitation, pursuant to
Rule 144.
(d) Use of Proceeds. The Company shall use the net proceeds from the sale of the Securities (after deducting fees and expenses (including
brokerage fees, legal fees and expenses and fees payable to the Escrow Agent)) for (i) completion of P2 Osteoporosis trial and primary
readouts; (ii) filing of IND for osteoporosis program; (iii) research and development efforts to further develop additional compounds and
finalize Hypo formulations; and (iv) general and administrative expenses to, among other things, support the Company’s public listing and
registration statement, in each case, as such use of proceeds may be amended, at the discretion of the Company’s board of directors from
time to time.
(e) Survival. Notwithstanding anything to the contrary in this Agreement, the representations and warranties of the Company and the
Subscriber contained in Sections 4 and 5 shall survive the final Closing for a period of one year. The covenants contained in Sections 6 and
15 shall survive for the maximum period permitted by law. Each Subscriber shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.
(f) Listing of Ordinary Shares. Following the Offering, the Company shall, if allowed under applicable laws or NASDAQ rules, promptly
secure the listing of all Ordinary Shares (including those underlying the Warrants and Broker Warrants) on the NASDAQ National Market
or such other market then constituting the Company’s principal trading market.
7. Conditions to Company’s Obligations at each Closing. The Company’s obligation to complete the sale and issuance of
the Securities and deliver the Securities at each Closing shall be subject to the following conditions to the extent not waived by
the Company:
a.
b.
c.
Receipt of Payment. The Company shall have received payment, by certified or other bank check or by wire transfer of immediately
available funds, in the full amount of the Purchase Price for the amount of Securities being purchased by such Subscriber at such Closing.
Representations and Warranties. The representations and warranties made by the Subscriber in Section 5 hereof shall be true and correct in
all material respects as of, and as if made on, the date of this Agreement and as of such Closing Date with the same force and effect as if
they had been made on and as of said date (except in each case to the extent any such representation and warranty is qualified by
materiality, in which case, such representation and warranty shall be true and correct in all respects as so qualified). The Subscriber shall
have performed in all material respects all obligations and covenants herein required to be performed by them on or prior to such Closing
Date.
Receipt of Executed Documents. Such Subscriber shall have executed and delivered to the Company the Omnibus Signature Page, the
Investor Profile, Anti-Money Laundering Form and Accredited Investor Certification. In addition, the Subscriber is furnishing to the
Company an executed IRS Form W-8BEN or W-9, if either is applicable, or the correct form as described in the instructions in the attached
herein as an exhibit (“Internal Revenue Service Forms”) and the instructions accompanying the applicable form.
d. Minimum Offering. The initial Closing shall be at least for the amount of Securities in the Minimum Offering at the Purchase Price.
e.
f.
Judgments. No judgment, writ, order, injunction, award or decree of or by any court, or judge, justice or magistrate, including any
bankruptcy court or judge, or any order of or by any governmental authority, shall have been issued, and no action or proceeding shall have
been instituted by any governmental authority, enjoining or preventing the consummation of the transactions contemplated hereby.
Foreign Investors. If the Subscriber is not a United States person (as defined by Section 7701(a)(30) of the Internal Revenue Code),
Subscriber hereby represents that it has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any
invitation to subscribe for the Securities or any use of this Agreement, including (i) the legal requirements within its jurisdiction for the
purchase of the Securities, (ii) any foreign exchange restrictions applicable to such purchase, (iii) any government or other consents that
may need to be obtained, and (iv) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding,
redemption, sale or transfer of the Securities. Subscriber’s subscription and payment for and continued beneficial ownership of the
Securities will not violate any applicable securities or other laws of Subscriber’s jurisdiction.
8. Conditions to Subscribers’ Obligations at each Closing. Each Subscriber’s obligation to accept delivery of the
Securities and to pay for the Securities at each Closing shall be subject to the following conditions to the extent not waived by the
Placement Agent on behalf of the Subscribers:
a.
Representations and Warranties. The representations and warranties made by the Company in Section 4 hereof shall be true and correct in
all material respects (except to the extent any such representation and warranty is qualified by materiality or reference to Material Adverse
Effect, in which case, such representation and warranty shall be true and correct in all respects as so qualified) as of, and as if made on, the
date of this Agreement and as of such Closing Date with the same force and effect as if they had been made on and as of said date, except to
the extent any such representation or warranty expressly speaks as of an earlier date, in which case such representation or warranty shall be
true and in all material respects correct as of such earlier date (except in each case to the extent any such representation and warranty is
qualified by materiality or reference to Material Adverse Effect, in which case, such representation and warranty shall be true and correct in
all respects as so qualified). The Company shall have performed in all material respects all obligations and covenants herein required to be
performed by it on or prior to the applicable Closing Date.
b.
Receipt of Executed Transaction Documents. The Company shall have executed and delivered to the Placement Agent the Registration
Rights Agreement and the Escrow Agreement.
c. Minimum Offering. The initial Closing shall be at least for the amount of Securities in the Minimum Offering at the Purchase Price.
d.
e.
Judgments. No judgment, writ, order, injunction, award or decree of or by any court, or judge, justice or magistrate, including any
bankruptcy court or judge, or any order of or by any governmental authority, shall have been issued, and no action or proceeding shall have
been instituted by any governmental authority, enjoining or preventing the consummation of the transactions contemplated hereby.
Consents. The Company shall have obtained any and all consents, permits, approvals, registrations and waivers necessary or appropriate for
consummation by the Company of the purchase and sale of the Securities and the transactions contemplated hereby or under the
Transaction Documents, all of which shall be in full force and effect.
f.
Reserved.
g. Officer’s Certificate. The Company shall have delivered to the Subscribers a certificate, executed on its behalf by an appropriate officer,
dated as of the applicable Closing Date, certifying as to the matters set forth in Sections 8 a.-e. above, certifying the resolutions adopted by
its Board of Directors approving the transactions contemplated by this Agreement, the other Transaction Documents and the issuance of the
Securities, certifying that the current versions of its Articles of Association, and certifying as to the signatures and authority of persons
signing this Agreement on behalf of the Company. The foregoing certificate shall only be required to be delivered on the First Closing Date,
unless any information contained in the certificate has changed.
9. Indemnification. Subject to Section 6(e) above, the Subscriber agrees to indemnify and hold harmless the Company, the
Placement Agent and any other broker, agent or finder engaged by the Company for the Offering, and their respective directors,
officers, shareholders, members, partners, employees and agents (and any other persons with a functionally equivalent role of a
person holding such titles notwithstanding a lack of such title or any other title), each person who controls such persons (within
the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other persons with a functionally equivalent role of a person holding such titles
notwithstanding a lack of such title or any other title) of such controlling person, from and against all losses, liabilities, claims,
damages, out of pocket costs, fees and expenses whatsoever (including, but not limited to, any and all reasonable expenses
incurred in investigating, preparing or defending against any litigation commenced or threatened) based upon or arising out of the
Subscriber’s actual or alleged false acknowledgment, representation or warranty, or misrepresentation or omission to state a
material fact, or breach by the Subscriber of any covenant or agreement made by the Subscriber, contained herein or in any other
any other documents delivered by the Subscriber to the Company in connection with the transactions contemplated by this
Agreement. In the absence of fraud, the liability of the Subscriber under this paragraph shall not exceed the aggregate Purchase
Price paid by the Subscriber for Securities hereunder.
Subject to Section 6(e) above, the Company agrees to indemnify and hold harmless the Subscriber, its directors, officers,
shareholders, members, partners, employees and agents (and any other persons with a functionally equivalent role of a person
holding such titles notwithstanding a lack of such title or any other title), each person who controls such persons (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents,
members, partners or employees (and any other persons with a functionally equivalent role of a person holding such titles
notwithstanding a lack of such title or any other title) of such controlling person, from and against all losses, liabilities, claims,
damages, costs, fees and expenses whatsoever (including, but not limited to, any and all reasonable expenses incurred in
investigating, preparing or defending against any litigation commenced or threatened) based upon or arising out of the
Company’s actual or alleged false acknowledgment, representation or warranty, or misrepresentation or omission to state a
material fact, or breach by the Company of any covenant or agreement made by the Company, contained in this Agreement, the
Registration Rights Agreement, the Warrants or the Escrow Agreement or in any other Transaction Document. Notwithstanding
anything to the contrary in this Agreement, in the absence of fraud, (i) the liability of the Company under this Agreement shall
not exceed the aggregate Purchase Price paid by each Subscriber and actually received by the Company for Securities hereunder,
and (ii) The Company will have no liability with respect to the matters described in Section 9 until the total amount of all losses
with respect to such matters for all Subscribers in the aggregate exceeds $150,000, at which point the Company will be obligated
to indemnify for any losses from the first dollar.
10. Revocability; Binding Effect. The subscription hereunder may be revoked prior to the initial Closing, provided that
written notice of revocation is sent and is received by the Company or either of the Placement Agent at least two Business Days
prior to the initial Closing on such subscription. The Subscriber hereby acknowledges and agrees that this Agreement shall
survive the death or disability of the Subscriber and shall be binding upon and inure to the benefit of the parties and their heirs,
executors, administrators, successors, legal representatives and permitted assigns. If the Subscriber is more than one person, the
obligations of the Subscriber hereunder shall be joint and several and the agreements, representations, warranties and
acknowledgments herein shall be deemed to be made by and be binding upon each such person and such person’s heirs,
executors, administrators, successors, legal representatives and permitted assigns.
11. Immaterial Modifications to the Registration Rights Agreement. The Company may, at any time prior to the initial
Closing, amend the Registration Rights Agreement, if necessary to clarify any provision therein, without first providing notice or
obtaining prior consent of the Subscriber. This right shall not extend to material modifications to the Registration Rights
Agreement.
12. Third-Party Beneficiary. The Placement Agent shall be an express third-party beneficiary of the representations and
warranties included in this Agreement with respect to the Company and the PA Subscribers. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person, except as otherwise set forth in this Section 12.
13. Assignability. This Agreement and the rights, interests and obligations hereunder are not transferable or assignable by
the Subscriber, and the transfer or assignment of the Securities or the Warrant Shares shall be made only in accordance with the
terms and conditions of the Warrants (with respect to the Warrant) all applicable laws.
14. Applicable Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement
shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York.
15. Arbitration. The parties agree to submit all controversies to arbitration in accordance with the provisions set forth below
and understand that:
a. Arbitration shall be final and binding on the parties.
b.
c.
d.
THE PARTIES ARE WAIVING THEIR RIGHT TO SEEK REMEDIES IN COURT, AND EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY
DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.
Pre-arbitration discovery is generally more limited and different from court proceedings.
The arbitrator’s award is not required to include factual findings or legal reasoning and any party’s right to appeal or to seek modification of
rulings by arbitrators is strictly limited.
e.
The panel of arbitrators will typically include a minority of arbitrators who were or are affiliated with the securities industry.
f.
All controversies which may arise between the parties concerning this Agreement shall be determined by arbitration pursuant to the rules
then pertaining to the Financial Industry Regulatory Authority in New York City, New York. Judgment on any award of any such arbitration
may be entered in the Supreme Court of the State of New York or in any other court having jurisdiction of the person or persons against
whom such award is rendered. Any notice of such arbitration or for the confirmation of any award in any arbitration shall be sufficient if
given in accordance with the provisions of this Agreement. The parties agree that the determination of the arbitrators shall be binding and
conclusive upon them. The prevailing party, as determined by such arbitrators, in a legal proceeding shall be entitled to collect any costs,
disbursements and reasonable attorney’s fees from the other party. Prior to filing an arbitration, the parties hereby agree that they will
attempt to resolve their differences first by submitting the matter for resolution to a mediator, acceptable to all parties, and whose expenses
will be borne equally by all parties. The mediation will be held in the County of New York, State of New York, on an expedited basis. If the
parties cannot successfully resolve their differences through mediation, within sixty (60) days from the receipt of written notice of a
controversy from the notifying party, the matter will be submitted for resolution by arbitration. The arbitration shall take place in the
County of New York, State of New York, on an expedited basis.
16. Exemption from Qualification. The purchase of Securities under this Agreement is expressly conditioned upon the
exemption from qualification of the offer and sale of the Securities from any applicable US federal securities laws (including any
rules or regulations) and foreign securities laws of any jurisdiction (including any rules and regulations). The Company shall not
be required to qualify this transaction under any applicable US federal securities laws (including any rules or regulations) and any
foreign securities laws of any jurisdiction (including any rules and regulations) and, should qualification be necessary, the
Company shall be released from any and all obligations to maintain its offer, and may rescind any sale contracted, in such
jurisdiction.
17. Use of Pronouns. All pronouns and any variations thereof used herein shall be deemed to refer to the masculine,
feminine, neuter, singular or plural as the identity of the person or persons referred to may require.
18. Confidentiality. The Subscriber acknowledges and agrees that any information or data the Subscriber has acquired from
or about the Company or may acquire in the future, not otherwise properly in the public domain, was received in confidence. The
Subscriber agrees not to divulge, communicate or disclose, except as may be required by law or for the performance of this
Agreement, or use to the detriment of the Company or for the benefit of any other person, or misuse in any way, any confidential
information of the Company, including any scientific, technical, trade or business secrets of the Company and any scientific,
technical, trade or business materials that are treated by the Company as confidential or proprietary, including, but not limited to,
internal personnel and financial information of the Company or its affiliates, the manner and methods of conducting the business
of the Company or its affiliates and confidential information obtained by or given to the Company about or belonging to third
parties.
19. Potential Conflicts. The Placement Agent, its sub-agents, legal counsels to the Placement Agent, and/or their respective
affiliates, principals, representatives or employees may now or hereafter own shares or other securities of the Company.
20. Independent Nature of Each Subscriber’s Obligations and Rights. For avoidance of doubt, the obligations of the
Subscribers under this Agreement are several and not joint with the obligations of any other Subscribers, and each Subscriber
shall not be responsible in any way for the performance of the obligations of any other Subscriber under any other Subscription
Agreement. Nothing contained herein and no action taken by the Subscriber shall be deemed to constitute the Subscriber as a
partnership, an association, a joint venture, or any other kind of entity, or create a presumption that the Subscribers are in any way
acting in concert or as a group with respect to such obligations or the transactions contemplated by this Agreement and any other
subscription agreements.
21. Notices. All notice and other communications hereunder which are required or permitted under this Agreement will be in
writing and shall be deemed effectively given to a party by (a) the date of transmission if sent by facsimile or e-mail with
confirmation of transmission by the transmitting equipment if such notice or communication is delivered prior to 5:00 P.M., New
York City time, on a Business Day, or the next Business Day after the date of transmission, if such notice or communication is
delivered on a day that is not a business Day or later than 5:00 P.M., New York City time, on any Business Day; (b) seven (7)
days after deposit with the United States Post Office, by certified mail, return receipt requested, first-class mail, postage prepaid;
(c) on the date delivered, if delivered by hand or by messenger or overnight courier, addressee signature required (costs prepaid),
to the addresses below or at such other address and/or to such other persons as shall have been furnished by the parties:
If to the Company:
Entera Bio Ltd.
37 Walnut Street, Suite 300
Wellesley Hills, MA 02481
Attention: Adam Gridley, CEO
Email: adam@enterabio.com
With a copy to
(which shall not constitute notice)
If to GP Nurmenkari Inc.:
(which shall not constitute notice)
Herzog Fox & Neeman
4 Weizmann Street
Tel Aviv 6423904 Israel
Yair Geva, Adv. or Tomer Farkash, Adv.
Email: gevay@hfn.co.il; farkasht@hfn.co.il
Facsimile: +972 3 6966464; and
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017
Attention: Gil Savir, Esq.
Email: gil.savir@davispolk.com
GP Nurmenkari Inc.
22 Elizabeth Street
SONO Square, Suite 1J
Norwalk, CT 06854
Attention: Robert Fitzpatrick, CCO
Lucosky Brookman LLP
101 Wood Avenue South
Woodbridge, NJ 08830
Attention: Scott Rapfogel, Esq.
Email: srapfogel@lucbro.com
22. Omnibus Signature Page. This Agreement is intended to be read and construed in conjunction with the Registration
Rights Agreement and the Escrow Agreement. Accordingly, pursuant to the terms and conditions of this Agreement, the
Registration Rights Agreement and the Escrow Agreement, it is hereby agreed that the execution by the Subscriber of this
Agreement, in the place set forth on the applicable Omnibus Signature Page below, shall constitute agreement to be bound by the
terms and conditions hereof, and the terms and conditions of the Registration Rights Agreement and the Escrow Agreement, with
the same effect as if each of such separate but related agreement were separately signed.
23. Public Disclosure. The Subscriber nor any officer, manager, director, member, partner, stockholder, employee, affiliate,
affiliated person or entity of the Subscriber shall make or issue any press releases or otherwise make any public statements or
make any disclosures to any third person or entity with respect to the transactions contemplated herein and will not make or issue
any press releases or otherwise make any public statements of any nature whatsoever with respect to the Company without the
Company’s express prior approval. The Company has the right to withhold such approval in its sole discretion. Notwithstanding
the foregoing, the Subscriber may disclose information with respect to the transaction contemplated herein to the extent that the
Subscriber is required by any applicable governmental authority to do so; provided, however, that in such event, to the extent
permitted by applicable law, the Subscriber shall notify the Company five (5) business days in advance and shall cooperate with
the Company, solely at the Disclosing Party’s expense, in any attempt to contest or limit such required disclosure.
24. Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and
things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may
reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
25. Participation in Future Offerings.
a.
b.
Subject to the consumption of the Initial Closing, and subject to the terms and conditions of this Section 25 and applicable securities laws,
the Company agrees that each Subscriber will be entitled to purchase its pro-rata portion of the New Securities offered by the Company to
investors making a cash-investment in any private placement offering of the Company of more than $2,500,000 to be closed during a period
of one year following the final Closing Date of this Offering (the “Applicable Period”). The rights granted under this Section 25 to
Subscribers are personal to the Subscribers and accordingly such rights cannot be transferred or assigned to any other party.
The Company shall give notice (the “Offer Notice”) to each Eligible Subscriber, stating (i) its bona fide intention to offer such New
Securities, (ii) the number of such New Securities to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such
New Securities. By notification to the Company within five (5) days after the Offer Notice is given (the “Offer Period”), each Eligible
Subscriber may elect to purchase or otherwise acquire, at the price and on the terms specified in the Offer Notice, up to that portion of such
New Securities which equals to the proportion that the Securities actually purchased by such Eligible Subscriber in this Offering bears to
the total Securities actually sold by the Company in this Offering.
c. Notwithstanding any provision hereof to the contrary, in lieu of complying with the provisions of Section 25(b), the Company may elect to
give notice to the Eligible Subscriber within thirty (30) days after the issuance of New Securities. Such notice shall describe the type, price,
and terms of the New Securities. Each Eligible Subscriber shall have ten (10) days from the date notice is given according to this subsection
to elect to purchase up to the number of New Securities that would, if purchased by such Eligible Subscriber, would preserve such Eligible
Subscriber’s right to purchase its pro rata portion of the New Securities, calculated as set forth in Section 25(b).
d.
e.
f.
The covenants set forth in this Section 25 shall terminate and be of no further force or effect upon the earlier of (i) the end of the Applicable
Period, (ii) liquidation of the Company or (iii) the closing of merger or consolidation of the Company in which the Company is a
constituent party except any such merger or consolidation involving the Company in which the shares of capital of the Company
outstanding immediately prior to such merger or consolidation continue to represent, or are converted into or exchanged for shares of
capital that represent, immediately following such merger or consolidation, at least a majority, by voting power, of the capital stock of (1)
the surviving or resulting corporation; or (2) if the surviving or resulting corporation is a wholly owned subsidiary of another corporation
immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation.
If the offer to Eligible Subscribers under this Section 25 may, in the opinion of the Company’s counsel, constitute an offer to the public
under the applicable securities laws which is subject to prospectus or other requirements, then such offer shall be limited to the type of
offerees the offering to which is exempted from such prospectus requirement, and no offering shall be made to any Eligible Subscriber until
such Eligible Subscriber shall have provided the Company during the Offer Period with the satisfactory evidence of its compliance with the
applicable requirements under the securities laws.
The Term “New Securities” shall mean the issuance and sale of the Company’s shares or equity securities or securities converted into equity
securities of the Company, and shall exclude for the avoidance of doubt, any of the following securities or issuances: (i) shares, options or
convertible securities of the Company issued or granted as a dividend, bonus shares, stock split, split-up or other similar distribution or
recapitalization, to all shareholders or equity holders of the Company on a pro-rata basis, (ii) shares, options or convertible securities of the
Company issued or granted to: (a) employees or directors of, or consultants or advisors to, the Company or any of its subsidiaries pursuant
(or any shares issued upon the exercise of such options) to the Company’s share option plans, or (b) finders, broker-dealers, underwriters,
agents or other similar entities assisting the Company with the sale or issuance of the equity securities of the Company, (iii) shares, options,
rights or convertible securities of the Company actually issued upon the exercise of options, warrants or shares of the Company issued upon
the conversion or exchange of convertible securities existing prior to the date of the Initial Closing, in each case provided such issuance is
pursuant to the terms of such options or convertible securities, (iv) shares, options or convertible securities of the Company issued as
acquisition consideration pursuant to the acquisition of another corporation by the Company by merger, purchase of substantially all or
majority of the assets or other reorganization or to a joint venture agreement approved by the Board, (v) shares, options or convertible
securities of the Company issued in connection with sponsored research, collaboration, technology or patent license, development, OEM,
marketing, settlement of claims, or other similar agreements or strategic partnerships approved by the Board, (vi) Securities issued or sold
according to the terms of this Offering, or (vii) any issuance in which Eligible Subscribers purchasing 60% of the Securities purchased by
the Eligible Subscribers in this Offering have agreed in writing to exclude such issuance of new securities from the right of offer under this
Section 25.
26. Miscellaneous.
a.
This Agreement, together with the Registration Rights Agreement, the Securities, the Escrow Agreement, and any confidentiality
agreement between the Subscriber and the Company, constitutes the entire agreement between the Subscriber and the Company with
respect to the Offering and supersedes all prior oral or written agreements and understandings, if any, relating to the subject matter hereof.
Any term of this Agreement may be amended and the observance of any term hereof may be waived (either prospectively or retroactively
and either generally or in a particular instance) only with the written consent of (i) the Company, (ii) holders of 60% of the Purchase Price
by the Subscribers actually investing in this Offering, and (iii) the Placement Agent (the “Majority Subscribers”), provided however that (i)
no Subscriber shall be required to increase its respective Purchase Price or to make any additional representations or warranties without its
prior written consent, and (ii) any amendment or waiver that would adversely and directly affect any Subscribers in a disproportionate
manner relative to other Subscribers shall not be effective against the Subscribers without the prior written consent of the Subscriber (it is
agreed that the mere fact that that each Subscriber has provided the Company with a different portion of the Purchase Price, shall not be
deemed by itself to adversely affect the rights of such Subscribers in the context of amendment or waiver).
b.
c.
This Agreement may be executed in one or more original or facsimile or by an e-mail which contains a portable document format (.pdf) file
of an executed signature page counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the
same instrument and which shall be enforceable against the parties actually executing such counterparts. The exchange of copies of this
Agreement and of signature pages by facsimile transmission or in .pdf format shall constitute effective execution and delivery of this
Agreement as to the parties and may be used in lieu of the original Agreement for all purposes. Signatures of the parties transmitted by
facsimile or by e-mail of a document in pdf format shall be deemed to be their original signatures for all purposes.
Each provision of this Agreement shall be considered separable and, if for any reason any provision or provisions hereof are determined to
be invalid or contrary to applicable law, such invalidity or illegality shall not impair the operation of or affect the remaining portions of this
Agreement.
d.
Paragraph titles are for descriptive purposes only and shall not control or alter the meaning of this Agreement as set forth in the text.
e.
f.
The Subscriber understands and acknowledges that there may be multiple Closings for the Offering.
The Subscriber hereby agrees to furnish the Company such other information as the Company may request prior to the applicable Closing
or reasonably request following post the request Closing with respect to its subscription hereunder.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the Company has duly executed this Subscription Agreement as of the ____ day of _______,
20__.
ENTERA BIO LTD
By:
Name: Adam Gridley
Title: Chief Executive Officer
How to subscribe for Securities in the private offering of
Entera Bio Ltd:
1. Date and Fill in the dollar amount of Securities being purchased and complete and sign the Omnibus Signature Page.
2.
Initial the Accredited Investor Certification in the appropriate place or places.
3. Complete and sign the Investor Profile.
4. Complete and sign the Anti-Money Laundering Information Form.
5. Date and sign the Confidentiality Agreement.
6. Fax or email all forms and then send all signed original documents to your registered representatives office:
GP Nurmenkari Inc.
Attn: Aaron Segal
122 East 42nd Street, Suite 1616
New York, NY 10168
Facsimile Number: 212.661.8786
Telephone Number: 212.612.3219
E-mail address: ams@intuitivevp.com
7.
If you are paying the Purchase Price by check, a certified or other bank check for the exact dollar amount of the Purchase Price for the Securities
you are purchasing should be made payable to the order of “Delaware Trust Company, as Escrow Agent for Entera Bio Ltd, Acct. # *********”
and should be sent directly to Delaware Trust Company, 251 Little Falls Drive, Wilmington, DE 19808, Attn: Trust Administration.
Checks take up to 5 business days to clear. A check must be received by the Escrow Agent at least 6 business days before the closing date.
8.
If you are paying the Purchase Price by wire transfer, you should send a wire transfer for the exact dollar amount of the Purchase Price for the
Notes you are purchasing according to the following instructions:
Bank:
ABA Routing #:
SWIFT CODE:
Account Name:
Account #:
Reference:
Thank you for your interest.
US Bank
5065 Wooster Road
Cincinnati, OH 45226
***********
***********
Delaware Trust Company
***********
************
[INSERT SUBSCRIBER’S NAME]”
_________________________
OMNIBUS SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT, REGISTRATION
RIGHTS AGREEMENT AND ESCROW AGREEMENT
The undersigned, desiring to: (i) enter into the Subscription Agreement, dated as of ____________ ___,1 2019 (the “Subscription
Agreement”), between the undersigned, Entera Bio Ltd., an Israeli corporation (the “Company”), and the other parties thereto, in
or substantially in the form furnished to the undersigned (ii) purchase Securities of the Company as set forth in the Subscription
Agreement, (iii) enter into the Registration Rights Agreement (the “Registration Rights Agreement”), among the undersigned, the
Company and the other parties thereto, in or substantially in the form furnished to the undersigned, and (iv) enter into the Escrow
Agreement (the “Escrow Agreement”) among the undersigned, the Company, Entera Bio Ltd, GPN Nurmenkari Inc. and the other
parties thereto, in or substantially in the form furnished to the undersigned, hereby agrees to purchase such securities from the
Company and further agrees to join the Private Placement Offering Master Agreement, the Registration Rights Agreement (if
applicable to the Subscriber) and the Escrow Agreement as a party thereto, with all the rights and privileges appertaining thereto,
and to be bound in all respects by the terms and conditions thereof. The undersigned specifically acknowledges having read the
representations section in the Private Placement Offering Master Agreement entitled “Representations, Warranties and
Agreements of the Subscriber” and hereby represents that the statements contained therein are complete and accurate with respect
to the undersigned as a Subscriber.
IN WITNESS WHEREOF, the Subscriber hereby executes this Agreement, the Registration Rights Agreement and the Escrow
Agreement.
Dated: _________________________, 20_____
SUBSCRIBER (individual)
Signature
Print Name
$_______________
Total Purchase Price
SUBSCRIBER (entity)
Name of Entity
By:__________________________________________
Signature
Signature (if Joint Tenants or Tenants in Common)
Print Name:
Title:
Address of Principal Residence:
Address of Executive Offices:
Social Security Number(s):
IRS Tax Identification Number:
Telephone Number:
Facsimile Number:
E-mail Address:
Telephone Number:
Facsimile Number:
E-mail Address:
Please also execute the incumbency certificate attached hereto as
Schedule 5
1 Will reflect the Closing Date. Not to be completed by Subscriber.
Exhibit 4.26
Entera Bio Ltd.
SUBSCRIPTION AGREEMENT
This Subscription Agreement (this “Agreement”) has been executed by the subscriber set forth on the signature page hereof (the
“Subscriber”) in connection with the private placement offering (the “Offering”) by Entera Bio Ltd., an Israeli company (the
“Company”) of a minimum of Seven Million Dollars ($7,000,000) (the “Minimum Offering”) and a maximum of Fourteen
Million Dollars ($14,000,000) (the “Maximum Offering”) of the Company’s ordinary shares, par value NIS 0.0000769 (the
“Ordinary Shares”) and warrants in the form annexed hereto as Exhibit A (the “Warrants”), to purchase additional Ordinary
Shares in an amount up to 50% of the number of Ordinary Shares purchased directly at an exercise price equal to 125% of the
price at which the Ordinary Shares being purchased directly are sold in the Offering. The purchase price (the “Purchase Price”)
for each Ordinary Share will be equal to the thirty- day moving average market price for the Ordinary Shares determined as of the
date which is 3rd trading day prior to the date of the initial Closing (which was held on December 11, 2019). Subject to the terms
and conditions of this Agreement, the Securities may be sold by the Company in one or more additional closings during the
Offering Period. The Ordinary Shares and Warrants shall hereafter be referred to collectively as the “Securities.”
The minimum subscription for each Subscriber is $100,000 (the “Minimum Subscription Amount per Subscriber”). The Company
may, however, accept subscriptions for less than the Minimum Subscription Amount per Subscriber in its sole discretion.
The Securities being subscribed for pursuant to this Agreement have not been registered under the Securities Act of 1933, as
amended (the “Securities Act”) in an “offshore transaction” (as defined in Regulation S) in reliance on Regulation S under the
Securities Act.
The Subscriber acknowledges receipt of a copy of the Registration Rights Agreement, substantially in the form annexed hereto as
Exhibit B (the “Registration Rights Agreement”).
Each closing of the Offering (a “Closing,” and the date on which such Closing occurs hereinafter referred to as the “Closing
Date”) shall take place at such place as is mutually agreed to by the Company and the Placement Agent (as defined below).
Notwithstanding the foregoing, an additional Closing, comprised solely of Company shareholders not purchasing through the
Placement Agent (“Non- PA Subscribers”), may take place at such place elected solely by the Company. Such Closing may be the
final Closing. Such a Closing shall not require the agreement of the Placement Agent but advance written notice thereof,
including proof of deposit of subscription amounts by the Non-PA Subscribers, shall be provided to the Placement Agent by the
Company, if requested by the Placement Agent.
The initial Closing (the “initial Closing”) will not occur unless:
a.
funds deposited in escrow as described in Section 2(b) below and equal at least the Minimum Offering, and corresponding documentation with
respect to such amounts has been delivered by the Subscriber and other “Subscribers” under Subscription Agreements of like tenor with this
Agreement (collectively, the “Subscribers”) as described in Section 2(a) below; and
b.
the other conditions set forth in Sections 7 and 8 below shall have been satisfied.
Thereafter, the Company may conduct one or more additional Closings for the sale of the Securities up to the Maximum Offering
until the termination of the Offering. Unless terminated earlier by the Company, the Offering of at least the Minimum Offering
shall continue until on or about December 6, 2019 and through January 20, 2020 with respect to the Maximum Offering, provided
however that the Company and the Placement, at their sole discretion, shall be entitled to extend the Offering period for a period
of an additional month until February 20, 2020 (such date, the “Offering Termination Date”).
Any written disclosure schedules or other written information documents delivered to the Subscriber prior to Subscriber’s
execution of this Agreement, and any such document delivered to the Subscriber after Subscriber’s execution of this Agreement
and prior to the Closing of the Subscriber’s subscription hereunder, are collectively referred to as the “Disclosure Materials.”
“Business Day” means a day, other than a Saturday or Sunday, on which banks in New York City are open for the general
transaction of business.
1.
Subscription. The undersigned Subscriber hereby subscribes to purchase the amount of Securities as shall be
calculated based on terms of this Agreement, for the aggregate Purchase Price as set forth on such Omnibus Signature Page,
subject to the terms and conditions of this Agreement and on the basis of the representations, warranties, covenants and
agreements contained herein.
2. Subscription Procedure. To complete a subscription for Securities, the Subscriber must fully comply with the
subscription procedure provided in this Section on or before the applicable Closing Date for Subscriber’s purchase of Securities.
a.
b.
c.
Subscription Documents. On or before the applicable Closing Date, Subscriber shall review, complete and execute the Omnibus
Signature Page to this Agreement, the Investor Profile, Anti-Money Laundering Form and Accredited Investor Certification, each
attached hereto following the Omnibus Signature Page (collectively, the “Subscription Documents”), and deliver the Subscription
Documents to the Company at the address set forth under the caption “How to subscribe for Securities in the private offering of Entera
Bio Ltd.” below. Executed documents may be delivered by the PA Subscriber to the Placement Agent that introduced them to the
Offering by facsimile or electronic mail (e-mail), if the Subscriberdelivers the original copies of the documents to such Placement Agent
as soon thereafter as is practicable and such Placement Agent shall, in turn, deliver the documents to the Company.
Purchase Price. Simultaneously with the delivery of the Subscription Documents to the Company as provided herein, and in any event on
or prior to the applicable Closing Date, the Subscriber shall deliver to Delaware Trust Company, in its capacity as escrow agent (the
“Escrow Agent”), under an escrow agreement among the Company, the Placement Agents (as defined below), the Subscribers and the
Escrow Agent (the “Escrow Agreement”), the full Purchase Price by certified or other bank check or by wire transfer of immediately
available funds, pursuant to the instructions set forth under the caption “How to subscribe for Securities in the private offering of Entera
Bio Ltd..” below. Such funds will be held for the Subscriber’s benefit and will be returned promptly, without interest or offset, if this
Subscription Agreement is not accepted by the Company or the Offering is terminated pursuant to its terms by the Company prior to the
Closing on such subscription; provided however that with respect to a Closing subsequent to the Initial Closing involving only Non- PA
Subscribers, such Non-PA Subscribers shall be entitled to transfer their applicable portion of the Purchase Pricedirectly to the Company’s
bank account.
Company Discretion. The Subscriber understands and agrees that the Company in its sole discretion reserves the right to accept or reject
this or any other subscription for Securities, in whole or in part, notwithstanding prior receipt by the Subscriber of notice of acceptance of
this subscription. The Company shall have no obligation hereunder until the Company shall execute and deliver to the Subscriber an
executed copy of this Agreement. Upon each Closing, the Company shall provide a written notice of the final amount actually accepted
by the Company from the Subscribers in such Closing. If this subscription is rejected in whole, or the Offering is terminated, all funds
received from the Subscriber will be returned without interest or offset, and this Agreement shall thereafter be of no further force or
effect. If this subscription is rejected in part, the funds for the rejected portion of this subscription will be returned withoutinterest or
offset, and this Agreement will continue in full force and effect to the extent this subscription was accepted.
3. Placement Agent – For Information Purposes Only. The Subscriber acknowledges that pursuant to an October 24,
2019 Placement Agency Agreement between the Company and GP Nurmenkari Inc. (“GPN”), a broker-dealer licensed with
FINRA (the “Placement Agent Agreement”), the Company has engaged GPN, on a non-exclusive basis, as placement agent (the
“Placement Agent”) for this Offering on a reasonable best efforts basis, provided that the Company may offer or sell Securities,
directly or indirectly, to Non-PA Subscribers, in the Company’s sole discretion. GPN and its sub-agents, as applicable, will be
paid at each Closing from the proceeds in the Escrow Account, aggregate cash commissions (the “Cash Fee”) equal, in the
aggregate, to 10% of the gross Purchase Price paid by Subscribers in the Offering purchasing through the Placement Agent (the
“PA Subscribers”) and will receive (i) three-year warrants to purchase Ordinary Shares in amounts equal in the aggregate to 10%
of the number of Ordinary Shares sold to PA Subscribers in the Offering purchasing through the Placement Agent, which
warrants shall have an exercise price equal to the price at which Ordinary Shares are sold to Subscribers in the Offering, and (ii)
three-year warrants to purchase Ordinary Shares in amounts equal in the aggregate to 5% of the number of Ordinary Shares sold
to PA Subscribers in the Offering purchasing through the Placement Agent, which warrants shall have an exercise price equal to
the exercise price for the Warrants. The warrants referenced in (i) and (ii) above shall hereafter be referred to collectively as the
“Broker Warrants.” Except as provided above, the Placement Agent Agreement provides that the Broker Warrants shall be
identical to the Warrants in all material respects. The Company will also pay certain expenses of the Placement Agent including
legal fees pursuant to the terms of the Placement Agency Agreement. The descriptions herein of the arrangement between the
Company and the Placement Agent are provided herein for informational purposes only and accordingly is qualified by the terms
of the Placement Agency Agreement (and, for the avoidance of doubt, no rights are granted by the Company to the Placement
Agent under this Section 3 and any all rights shall be granted solely according to the terms of the Placement Agency Agreement;
provided, further, that the Subscriber acknowledges that it has no rights or benefits under the Placement Agent Agreement which
is solely between the Placement Agent and the Company). In the event of any inconsistencies between the description herein and
the terms of the Placement Agency Agreement, the terms set forth in the Placement Agency Agreement shall be controlling.
2
4. Representations and Warranties of the Company. The Company hereby represents and warrants to each Subscriber,
as of the date hereof and on each applicable Closing Date (unless otherwise specified), the following:
a.
b.
c.
Organization and Qualification. The Company is a corporation duly organized and validly existing under the laws of the State of Israel,
has all requisite corporate power and authority to carry on its business as presently conducted and as proposed to be conducted, and is
qualified and in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted by the Company
or the property owned or leased by the Company requires suchqualification, except to the extent that the failure to be so qualified or be in
good standing would not have a Material Adverse Effect (as defined below). The Company has no subsidiaries other than Entera Bio Inc.,
a Delaware corporation.
Authorization, Enforcement, Compliance with Other Instruments. (i) The Company has the requisite corporate power and authority to
enter into and perform its obligations under this Agreement, the Registration Rights Agreement, the Warrants, the Escrow Agreement and
each of the other agreements and documents that are exhibits hereto or thereto or are contemplated hereby or thereby or necessary or
desirable to effect the transactions contemplated hereby or thereby (the “Transaction Documents”) and to issue the Securities, the
Ordinary Shares issuable upon exercise of the Warrants (the “Warrant Shares”), and the securities issuable to the Placement Agent in
accordance with the terms hereof and thereof, (ii) the execution and delivery by the Company of each of the Transaction Documents and
the consummation by it of the transactions contemplated hereby and thereby, including, without limitation, the issuance of the Securities,
the Warrant Shares and the securities issuable to the Placement Agent, have been, or will be at the time of execution of such Transaction
Document, duly authorized by the Company’s board of directors (the “Board”), and no further consent or authorization is, or will be at
the time of execution of such Transaction Document, required by the Company, its Board of Directors or its shareholders, provided
however that with respect to any subscription and/or Closing to made under this Agreement by a Subscriber which is qualified as a
controlling shareholder or controlling shareholders of the Company (in accordance with the terms of the Israeli Companies Law 5759-
1999 and the applicable rules and regulations thereunder (the “Companies Law”)) with an interest respect to the transactions
contemplated by this Agreement, will also have to be approved by the audit committee of the Company and the Company’s shareholders
in accordance with the Companies Law, (iii) each of the Transaction Documents will be duly executed and delivered by the Company,
(iv) the Transaction Documents when executed and delivered by the Company and each other party thereto will constitute the valid and
binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may
be limited by general principles of equity (regardless of whether such enforceability is considered a proceeding at law or in equity), or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of creditors’ rights and remedies now or hereafter in effect, including the effect of statutory and other laws regarding
fraudulent conveyances and preferential transfers, and except that no representation is made herein regarding the enforceability of the
Company’s obligations to provide indemnification and contribution remedies under applicable securities laws.
The Transaction Documents have been prepared in conformity with all applicable laws and in compliance with Regulation D and/or
Section 4(a)(2) of the Securities Act and the requirements of all other rules and regulations of the Securities and Exchange Commission
related to offerings of the type contemplated by the Offering and the applicable securities laws and the rules and regulations of those
jurisdictions wherein the Securities are to be offered and sold. Assuming the accuracy of the representations and warranties of the
Subscribers contained in Section 5(a) through 5(c) hereof, the Securities will be offered and sold pursuant to the registration exemption
provided by Regulation D and/or Section 4(a)(2) of the Securities Act and the requirements of any applicable state securities laws. To the
knowledge of the Company, the Transaction Documents do not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they
were made, not misleading.
To the extent the Offering is conducted on a Regulation D basis (i) none of Company, nor to the knowledge of the Company, any of its
directors, executive officers, other officers of the Company participating in the Offering, any beneficial owner of 20% or more of the
Company’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule
405 under the Securities Act) connected with the Company in any capacity at the time of sale (each an “Issuer Covered Person”) is
subject to any “Bad Actor” disqualifications described in Rule 506 (d)(1)(i)-(viii) under the Securities Act (a “Disqualification Event”),
(ii) the Company has exercised reasonable care to determine whether any Issuer Covered person is subject to a Disqualification Event and
(iii)the Company has complied, to the extent applicable, with its disclosure obligations under Rule 506(e).
Capitalization. The authorized capital stock of the Company consists of 140,010,000 Ordinary Shares. As of thecommencement
of the initial Closing of the Offering, the Company has such number of Ordinary Shares issued and outstanding as set forth under “Pro
Forma Capitalization” in Schedule 4c. All of the outstanding Ordinary Shares have been duly authorized, validly issued and are fully paid
and nonassessable. Immediately after giving effect to the closing of the Minimum Offering or the Maximum Offering, the pro forma
outstanding capitalization of the Company will be as set forth under “Pro Forma Capitalization” in Schedule 4c. On or prior to the date
hereof and on or prior to the applicable Closing Date, (i) except as set forth in Schedule 4c, no Ordinary Shares will be subject to
preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company; (ii) except as set forth
in Schedule 4c, there will be no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any Ordinary Shares, or contracts, commitments, understandings or
arrangements by which the Company is or may become bound to issue additional Ordinary Shares or to pay any dividend or make any
distribution in respect thereto; (iii) there will be no outstanding convertible debt securities of the Company other than the indebtedness as
set forth in Schedule 4c; (iv) except as set forth in Schedule 4c, other than pursuant to the Registration Rights Agreement, there will be no
agreements or arrangements under which the Company is obligated to register the sale of any of its securities under the Securities Act; (v)
except as set forth in Schedule 4c, there will be no securities or instruments of the Company containing anti-dilution or similar
provisions, including the right to adjust the exercise, exchange or reset price under such securities; and (vi) except as set forth in Schedule
4c, no co-sale right, right of first refusal or other similar right will exist with respect to the Securities (or will exist with respect to the
Warrant Shares) or the issuance and sale thereof.
3
d.
e.
f.
Issuance of Securities. Prior to the initial Closing, the Securities, the Warrant Shares and the securities to be issued to the Placement
Agent will have been duly authorized and, upon issuance in accordance with the terms hereof (including full payment), shall be duly
issued, fully paid and nonassessable, and shall be free from all liens and charges with respect to the issuance thereof.
No Conflicts. None of the execution and delivery of or performance by the Company under each Transaction Document or the
consummation of the transactions contemplated by the Transaction Documents (including the issuance and sale of the Securities, the
Broker Warrants and Warrant Shares) conflicts with or violates, or causes a default under (with our without the passage of time or the
giving of notice), or will result in the creation or imposition of, any lien, charge or other encumbrance upon any of material assets of the
Company under any material agreement, evidence of indebtedness, joint venture, commitment or other material instrument to which the
Company is a party or by which the Company or its assets may be bound, any statute, rule, law or governmental regulation applicable to
the Company, or any term of the Company’s Articles of Association as in effect on the date hereof or any Closing Date for the Offering,
or any license, permit, judgment, decree, order, statute, rule or regulation applicable to the Company or any of its assets, except in the
case of a conflict, violation, lien, charge or other encumbrance (except as reflected in the Company’s Articles of Association or the
Transaction Documents) which would not, or could not reasonably be expected to, have a material adverse effect on the assets, liabilities,
business, condition (financial or otherwise) or results of operations of the Company or its ability to perform its obligations under this
Agreement and the other Transaction Documents (a “Material Adverse Effect”). Except as described herein and for the filing of reports
and undertakings with the Israeli National Technological Innovation Authority, formerly known as the Office of Chief Scientist, the
notice to the Israeli Registrar of Companies as may be required by law, if any, and notices to NASDAQ as required by NASDAQ rules,
no consent, approval, authorization or other order of, or registration, qualification or filing with, any regulatory body, administrative
agency, or other governmental body is required for the execution and delivery of the Transaction Documents and the valid issuance or
sale of the Securities, the Warrant Shares, and the securities to be issued to the Placement Agent other than such as have been made or
obtained and that remain in full force and effect, and except for the filing of a Form D, to the extent applicable, or any filings required to
be made under the Securities Act (including Forms 6-K) or state securities laws or foreign laws, as applicable, which shall be filed by the
Company or any consents, approvals, authorizations, orders, registrations, qualifications or filings the failure to make or obtain would, or
could reasonably be expected to, have a Material Adverse Effect. Except those which could not reasonably be expected to have a Material
Adverse Effect, the Company is not in violation of any term of or in default under its Articles of Association. Except those which could
not reasonably be expected to have a Material Adverse Effect, or as otherwise set forth in Schedule 4c, the Company is not in violation of
any term of or in default under any material contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or
order or any statute, rule or regulation applicable to the Company. The business of the Company is not being conducted in violation of
any material law, ordinance, or regulation of any governmental entity, except for any violation which could not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect.
Financial Statements; SEC Reports. The Company’s financial statements for the year ended December 31, 2018, as filed with the
Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2018, and the quarter ended September 30, 2019, as
filed with the Securities and Exchange Commission ( the “SEC”) on November 21, 2019, as Exhibit 99.1 to the Company’s Form 6-K,
together with related notes, if any, present fairly, in all material respects, the financial position of the Company as of the dates specified
and the results of operations for the periods covered thereby as of such dates (the “Financial Statements”). Such Financial Statements and
related notes were prepared in accordance with International Accounting Standards Board accounting principles as issued by the
International Financial Reporting Standards (“IFRS”) and applied on a consistent basis throughout the periods indicated. During the
period of engagement of the Company’s accountants, there have been no disagreements with the accounting firm and the Company on
any matters of accounting principles or practices, financial statement disclosure or auditing scope or procedures. The Company has made
and kept books and records and accounts which are in reasonable detail and which fairly and accurately reflect the activities of the
Company in all material respects, subject only to year-end adjustments. Except as set forth in such Financial Statements or otherwise
disclosed in Schedule 4f, the Company has no knowledge of any unpaid material single liability of any kind, whether accrued, absolute or
contingent, or otherwise, in any event above an amount of $100,000 for each such single liability, but excluding any liability incurred in
the ordinary course of business or any liability that is not required to be reflected in the Financial Statements according to IFRS.
The Company has filed all reports, schedules, forms, statements and other documents required to be filed by the Company under the
Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof for the two years preceding the date hereof (the
foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein
as the “SEC Reports”). As of their respective dates, the SEC Reports complied in all material respects with the requirements of the
Securities Act and Exchange Act, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the
circumstances they were made, not misleading.
4
g.
h.
i.
j.
k.
l.
Absence of Litigation. Except as set forth in Schedule 4g or as described in the Company’s Form 20-F for fiscal year ended December
31, 2018, to the knowledge of the Company, there are no actions, suits, claims, hearings, proceedings, inquiries or investigations pending
before or by any court, public board, governmental or administrative agency, arbitrator, self-regulatory organization or body or, to the
knowledge of the Company, threatened, against the Company, or involving its assets or any of its officers or directors (in their capacity as
such) which, if determined adversely to the Company or such officer or director, could reasonably be expected to have a Material
Adverse Effect or adversely affect the transactions contemplated by this Agreement and the other Transaction Documents or the
enforceability thereof. The Company is not subject to any injunction, judgment, decree or order of any court, regulatory body, arbitration
panel, administrative agency or other governmental body.
Acknowledgment Regarding Subscriber’s Purchase of the Securities. The Company acknowledges that each Subscriber is not acting as a
financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions
contemplated hereby and thereby and any advice given by such Subscriber or any of their respective representatives or agents in
connection with the Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to such
Subscriber’s purchase of the Securities (and the Warrant Shares, if applicable). The Company further represents to the Subscribers that
the Company’s decision to enter into the Transaction Documents has been based solely on the independent evaluation by the Company
and its representatives.
No Directed Selling Efforts. None of the Company, its affiliates or any person acting on its or their behalf has engaged or will engage in
any directed selling efforts (within the meaning of Regulation S) with respect to the Securities and the Company and its affiliates and any
person acting on its or their behalf have complied and will comply with the offering restrictions requirement of Regulation S.
Regulation S. The Company and its affiliates and any person acting on its or their behalf in the context of the issue of the Bonds have
complied with and will comply with the offering restrictions as defined and required under Regulation S. The Company acknowledges
and agrees it has offered and sold the Securities, and will offer and sell the Securities (i) as part of its distribution at any time and (ii)
otherwise until 40 days after the later of the commencement of the offering and the Closing Date, only in accordance with Rule 903 of
Regulation S.
No General Solicitation. Neither the Company, nor any of its affiliates, nor, to the knowledge of the Company, any person acting on its or
their behalf, has engaged or will engage in any form of general solicitation or general advertising (within the meaning of Regulation D of
the Securities Act) in connection with the offer or sale of the Securities.
No Integrated Offering. Neither the Company, nor any of its affiliates, nor, to the knowledge of the Company, any person acting on its or
their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under
circumstances that would require registration of the Securities or Warrant Shares under the Securities Act or cause this offering of
Securities to be integrated with prior offerings by the Company for purposes of the Securities Act.
5
m.
n.
Employee Relations. The Company is not a party to any collective bargaining agreement, except for those provisions of general
agreements between any employers’ or employees’ union and organization which are applicable by extension order to all employees in
Israel or to all companies in the same industry of the Company in Israel. The Company believes that its relations with its employees are
good. No current executive officer or key employee of the Company has notified the Company that such officer or key employee, as
applicable, intends to leave the Company or otherwise terminate such officer’s or key employee’s employment with the Company. No
executive officer or key employee of the Company, to the knowledge of the Company, is in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract
or agreement with the Company. The Company is in compliance with all Israeli laws and regulations involving labor, employment and
employment practices and benefits, terms and conditions of employment and wages and hours, except where the failure to be in
compliance would not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.
Intellectual Property Rights. Except as described in Schedule 41, or as described in the Company’s Form 20-F for fiscal year ended
December 31, 2018 or where it would not reasonably be expected to result in a Material Adverse Effect, (i) to the knowledge of the
Company, the Company has ownership, or licenses or legal rights to use all patents, copyrights, trade secrets, trademarks, trade names or
other proprietary rights (collectively, “Intellectual Property”) used in the business of the Company, (ii) the Company believes it has taken
all reasonable steps required in accordance with sound business practice and business judgment to establish and preserve its ownership of
all Intellectual Property owned by the Company and related to its products and technology, (iii) to the knowledge of the Company, there
is no infringement of the Intellectual Property owned by the Company by any third party, (iv) to the knowledge of the Company, the
present business, activities and products of the Company do not infringe any Intellectual Property of any other person, (v) there is no
proceeding charging the Company with infringement of any Intellectual Property adversely held by a third party which has been filed,
(vi) no proceedings have been instituted or are pending or, to the knowledge of the Company, threatened, which challenge the rights of
the Company to the use of the Intellectual Property owned by or licensed to the Company, (vii) the Intellectual Property owned by the
Company, and to the knowledge of the Company, the Intellectual Property licensed to the Company, has not been adjudged invalid or
unenforceable, in whole or in part and there is no pending or, to the knowledge of the Company, threatened proceeding by others
challenging the validity or scope of any such Intellectual Property, and the Company is unaware of any facts which are reasonably likely
to form a basis for any such claim, (viii) to the knowledge of the Company, the Company is not making unauthorized use of any
confidential information or trade secrets of any person, (ix) to the knowledge of the Company, the activities of any of the employees on
behalf of the Company do not violate any agreements between such employees and third parties relating to confidential information or
trade secrets of such third parties or that restrict any such employee’s engagement with the Company, (x) each employee or consultant of
the Company that is involved in the development of Intellectual Property for the Company is a party to a written contract with the
Company that assigns to the Company all rights to all inventions, improvements, discoveries and information relating to the Company
and (xi) all licenses or other agreements under which (A) the Company has obtained rights to use Intellectual Property, or (B) the
Company has granted rights to others to use Intellectual Property owned by or licensed to the Company are in full force and effect, and
there is no default (and there exists no condition which, with the passage of time or otherwise, would constitute a default by the
Company) by the Company with respect thereto. Notwithstanding the foregoing, it is hereby clarified that the Company has received
grants from the Israeli National Technological Innovation Authority (formerly known as the Office of Chief Scientist), and accordingly
the Company is subject to the Israel’s Encouragement of Research and Development Law, 1984 (the “R&D Law”) and the applicable
rules and regulations as described in details in the Company’s Form 20-F for fiscal year ended December 31, 2018.
o.
Environmental Laws.
(i)
The Company has complied with all applicable Environmental Laws (as defined below), except for violations of Environmental
Laws that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse
Effect. There is, to the knowledge of the Company, no pending or threatened civil or criminal litigation, written notice of
violation, formal administrative proceeding, or investigation, inquiry or information request, relating to any Environmental Law
involving the Company or any subsidiary of the Company, except for litigation, notices of violations, formal administrative
proceedings or investigations, inquiries or information requests that, individually or in the aggregate, have not had and would
not reasonably be expected to have a Material Adverse Effect. For purposes of this Agreement, “Environmental Law” means any
national, state, provincial or local law, statute, rule or regulation or the common law relating to the environment or occupational
health and safety, including without limitation any statute, regulation, administrative decision or order pertaining to (i) treatment,
storage, disposal, generation and transportation of industrial, toxic or hazardous materials or substances or solid or hazardous
waste; (ii) air, water and noise pollution; (iii) groundwater and soil contamination; (iv) the release or threatened release into the
environment of industrial, toxic or hazardous materials or substances, or solid or hazardous waste, including without limitation
emissions, discharges, injections, spills, escapes or dumping of pollutants, contaminants or chemicals; (v) the protection of wild
life, marine life and wetlands, including without limitation all endangered and threatened species; (vi) storage tanks, vessels,
containers, abandoned or discarded barrels, and other closed receptacles; (vii) health and safety of employees and other persons;
and (viii) manufacturing, processing, using, distributing, treating, storing, disposing, transporting or handling of materials
regulated under any law as pollutants, contaminants, toxic or hazardous materials or substances or oil or petroleum products or
solid or hazardous waste.
6
(ii)
To the knowledge of the Company there is no material environmental liability with respect to any solid or hazardous waste
transporter or treatment, storage or disposal facility that has been used by the Company or any subsidiary of the Company.
p.
q.
(iii) The Company has received all permits, licenses or other approvals required of it under applicable Environmental Laws to
conduct its businesses and is in compliance, in all material respects, with all terms and conditions of any such permit, license or
approval.
Permits; Regulatory Compliance. Except as disclosed in the Company’s Form 20-F for the fiscal year ended December 31, 2018 or
except as disclosed in Schedule 4n, the Company does not own any equity interest and has not made any loans or advances to or
guarantees of indebtedness to any person, corporation, partnership or other entity and is not a party to any joint venture, other than travel
advances and expenses made in the ordinary course of business. Except as disclosed in Schedule 4n of the Disclosure Schedule or as
disclosed in the Company’s Form 20-F for the fiscal year ended December 31, 2018 and any 6-K filed thereafter, to the knowledge of the
Company, the conduct of business by the Company as presently and proposed to be conducted is not subject to continuing oversight,
supervision, regulation or examination by any governmental official or body of the United States, or any other jurisdiction wherein the
Company conducts or proposes to conduct such business, except (i) for the applicable laws, rules and regulations governing the drug and
medical industry, including the Food and Drug Administration (the “FDA” or “USFDA”), and other similar laws, rules and regulations or
other agencies, and governmental authorities around the world applicable to the Company or to its products, (ii) as described in the
Subscription Documents and except as such regulation is applicable to commercial enterprises generally, applicable to the industry of the
Company or to all companies in Israel or biomed companies in general. The Company has obtained all material licenses, permits and
other governmental authorizations necessary to conduct its business as presently conducted, except where the failure to do so would not
be reasonably expected to cause a Material Adverse Effect. The Company has not received any notice of any violation of, or
noncompliance with, any material federal, state, local or foreign laws, ordinances, regulations and orders (including, without limitation,
those relating to environmental protection, occupational safety and health, securities laws, equal employment opportunity) applicable to
its business, the violation of, or noncompliance with, would have a Material Adverse Effect, and the Company knows of no facts or set of
circumstances which could give rise to such a notice.
Title. The Company owns no real property. Except as set forth in Schedule 4o or in the Company’s Form 20-F for the fiscal year ended
December 31, 2018 and the Company’s Form 6-K, which included financial statements for the quarter ended September 30, 2019, as filed
with the SEC on November 21 ,2019, as Exhibit 99.1, together with related notes, the Company has good and marketable title to all of its
personal property and assets free and clear of any material restriction, mortgage, deed of trust, pledge, lien, security interest or other
charge, claim or encumbrance which would have a Material Adverse Effect. With respect to properties and assets it leases, except as set
forth in Schedule 4o or in the Company’s Form 20-F for the fiscal year ended December 31, 2018, the Company is in material
compliance with such leases and holds a valid leasehold interest free of any liens, claims or encumbrances which would have a Material
Adverse Effect.
r.
Shell Company Status. The Company is not and has never been a “shell company” as such term is defined in Section 405 of the
Securities Act.
7
s.
t.
u.
v.
w.
x.
y.
z.
No Material Adverse Breaches, etc. The Amended Articles of Association of the Company filed as Exhibit 3.2 to the Company’s Annual
Report on Form 20-F for the fiscal year ended December 31, 2018, as such articles were amended on the extraordinary general meeting
of shareholders of the Company on October 3, 2019, is a true, correct and complete copy of the Amended and Restated Articles of
Association of the Company, as in effect on the date hereof. Any subsequent amendments thereto prior to the initial or any subsequent
Closings will be promptly provided to all Subscribers. The Company is not (i) in violation of its Articles of Association; (ii) to the
knowledge of the Company, in default under any material contract, indenture, mortgage, note, loan agreement, security agreement, lease,
alliance agreement, joint venture agreement or other agreement, license, permit, consent, approval or instrument to which the Company is
a party or by which it is or may be bound or to which any of its assets may be subject, the default of which can be reasonably expected to
have a Material Adverse Effect; (iii) in violation of any statute, rule or regulation applicable to the Company, the violation of which
would have a Material Adverse Effect; or (iv) in violation of any judgment, decree or order of any court or governmental body having
jurisdiction over the Company and specifically naming the Company, which violation or violations individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
Tax Status. The Company has made and filed, or filed appropriate extensions for, all applicable material federal, state and local income
tax returns and all other reports and declarations required by Israel and any other jurisdictions to which it is subject and (unless and only
to the extent that the Company has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported
taxes) has paid all material taxes and other governmental assessments and charges that are material in amount, shown or determined to be
due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books, provisions
reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due from the Company by the taxing authority of Israel or any
other jurisdiction, and officers of the Company know of no basis for any such claim.
Rights of First Refusal. Except as set forth herein or in Schedule 4s or in the Company’s Form 20-F for the fiscal year ended December
31, 2018, there are no outstanding rights of first refusal or participation rights with respect to the offering of Company securities.
Reliance. The Company acknowledges that the Subscribers are relying on the representations and warranties made by the Company
hereunder and that such representations and warranties are a material inducement to the Subscriber purchasing the Securities. The
Company further acknowledges that without such representations and warranties of the Company made hereunder, the Subscribers would
not enter into this Agreement.
Brokers’ Fees. The Company does not have any liability or obligation to pay any fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement, except for the payment of fees to the Placement Agent, as specified in
Section 3 above.
Insurance. The Company has insurance policies of the type and in amounts that the Company reasonably believes are adequate for its
business. There is no material claim pending under any such policy as to which coverage has been questioned, denied or disputed by the
underwriter of such policy.
Material Changes. Since September 30,2019, the Company has operated its business in the normal course and, except as specifically
disclosed in Schedule 4w, (i) there have been no events, occurrences or developments that have had or would reasonably be expected to
have a Material Adverse Effect with respect to the Company, (ii) the Company has not incurred any material liabilities (contingent or
otherwise) other than (A) trade payables, accrued expenses and other liabilities incurred in the ordinary course of business consistent with
past practice and (B) liabilities not required to be reflected in the Financial Statements of the Company, (iii) the Company has not
materially altered its method of accounting or the manner in which it keeps its accounting books and records, (iv) the Company has not
declared or made any dividend or distribution of cash or other property to its shareholders or purchased, redeemed or made any
agreements to purchase or redeem any shares of its capital stock, (v) the Company has not issued any equity securities to any officer,
director or affiliate, except Ordinary Shares issued in the ordinary course pursuant to existing Company stock option or stock purchase
plans or executive and director corporate arrangements, and (vi) there has not been any change or amendment to, or any waiver of any
material right under, any material contract under which the Company, or any of its assets are bound or subject.
Transactions With Affiliates, Shareholders and Employees. Except as set forth in Section 7.B of the Company’s Annual Report on Form
20-F for the fiscal year ended December 31, 2018 and the Company’s Form 6-K, which included financial statements for the quarter
ended September 30, 2019, as filed with the SEC on November 21 ,2019, as Exhibit 99.1 or in Schedule 4x, none of the officers, directors
or principal (10% or greater) shareholders of the Company, including affiliates of such parties, and, to the Company’s knowledge, none of
the employees of the Company, including affiliates of such employees, is a party to any transaction with the Company or to a transaction
contemplated by the Company (other than for services as employees, officers and directors) that are required to be disclosed by the
Company pursuant to item 7 of Form 20-F promulgated under the Securities Act, if applicable, except as contemplated by the Transaction
Documents.
8
aa.
Off-Balance Sheet Arrangements. The Company has no off-balance sheet transactions or arrangements.
bb.
cc.
Investment Company. The Company is not required to be registered as, and is not an affiliate of, and as the result of the transactions
contemplated by the Offering will not be required to register as, an “investment company” within the meaning of the Investment
Company Act of 1940, as amended.
Foreign Corrupt Practices. The Company is not (a) a person that is the subject of any sanctions administered by the U.S. Treasury
Department’s Office of Foreign Assets Control or the U.S. Commerce Department (collectively, “Sanctions”) or, to the best of the
Company’s knowledge, in violation of any regulations of such entities. Each of the Company, and to its knowledge, its respective
officers, directors, managers, or employees, is in compliance, in all material respects, with applicable: (a) anti-bribery laws, including but
not limited to, the U.S. Foreign Corrupt Practices Act of 1977, as amended, or any other law, rule or regulation of similar purposes and
scope applicable to the Company, (b) anti-money laundering laws, including the Bank Secrecy Act, as amended by the USA PATRIOT
Act of 2001 (signed into law October 26, 2001), or (c) Sanctions. Neither the Company nor, to its knowledge, any director, officer,
employee or other person acting on behalf of the Company has, in the course of its actions for, or on behalf of, the Company (i) used any
corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any
direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; or (iii) made any
unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or
employee of such government official.
`
dd. Material Contracts. All of the Company’s contracts involving an amount in excess of $150,000 (the “Material Contracts”) have been
filed with the SEC except as described in Schedule 4bb. There are no Material Contracts that are not in written form. Neither the
Company, nor to the Company’s knowledge, as of the date of this Agreement has any other party to a Material Contract breached,
violated or defaulted under, or received notice that it has breached, violated or defaulted under, any of the terms or conditions of any
Material Contract in such manner as would permit any other party to cancel or terminate any such Material Contract, or would permit any
other party to seek damages that constitutes a Material Adverse Effect. As of the date of this Agreement, each Material Contract is valid,
binding, enforceable and in full force and effect, subject to: (i) laws of general application relating to bankruptcy, insolvency and the
relief of debtors; and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies.
ee.
ff.
Undisclosed Liabilities. As of the date of this Agreement, the Company has no liabilities, except for: (i) liabilities identified in the
Company balance sheet included with Financial Statements; (ii) normal and recurring current liabilities that have been incurred by the
Company since the date of such balance sheet in the ordinary course of business and that are not in excess of $150,000 in the aggregate;
(iii) liabilities for performance in the ordinary course of business of obligations of the Company under Company contracts, including the
reasonably expected performance of such Company contracts in accordance with their terms (which would not include, for example, any
instances of breach or indemnification); and (iv) liabilities described in Schedule 4cc.
Registration Rights. Each Subscriber investing in this Offering shall be entitled to registration rights according to the terms and
conditions of the Registration Rights Agreement annexed hereto as Exhibit B. For the full terms of the registration rights, Subscribers
should review the Registration Rights Agreement. Pursuant to such Registration Rights Agreement, generally, within 7 months of the
Final Closing, the Company will file a registration statement on Form F-3 (or S-3, as applicable) (the “Registration Statement”) covering
all of the Ordinary Shares issued or issuable in connection with the Offering (including those issuable upon exercise of the Warrants and
Broker Warrants) and such other Company securities that the Company finds necessary in its sole discretion and will use its reasonable
best efforts to have the Registration Statement declared effective as soon as practicable following such filing. In the event of any
inconsistencies between this section 4(dd) and the terms of the Registration Rights Agreement, the terms set forth in the Registration
Rights Agreement shall be controlling.
gg.
Reserved.
hh.
No Other Representations or Warranties. Except for the representations and warranties of the Company contained in this Agreement, the
Company is not making and has not made, and no other person is making or has made on behalf of the Company, any express or implied
representation or warranty to prospective Subscribers in connection with this Agreement or the transactions contemplated hereby, and no
third party is authorized to make any such representations and warranties on behalf of the Company.
9
5. Representations, Warranties and Agreements of the Subscriber. The Subscriber acknowledge that the offer and
sale of the Securities and the Warrant Shares has not been registered under the Securities Act and such Securities and the Warrant
Shares are being offered and sold pursuant to an exemption from registration contained in the Securities Act based, in part, upon
Subscriber’s representations contained in this Agreement. The Subscriber represents and warrants to, and agrees with, the
Company the following:
a.
b.
c.
d.
e.
Investment Purpose. The Subscriber is, and will be, acquiring the Securities and Warrant Shares, for its own account for investment only
and not with a view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered or
exempted under the Securities Act; provided, however, that by making the representations herein, such Subscriber reserves the right to
dispose of the Securities and Warrant Shares, at any time in accordance with or pursuant to an effective registration statement covering
such Securities and Warrant Shares, or an available exemption under the Securities Act. The Subscriber agrees not to sell, hypothecate or
otherwise transfer the Securities or Warrant Shares unless such Securities or Warrant Shares are registered under the federal and
applicable state securities laws or unless, in the opinion of counsel satisfactory to the Company, an exemption from such law is available.
Residence of Subscriber. The Subscriber resides in the jurisdiction set forth on the Subscriber Omnibus Signature Page affixed hereto.
Accredited Investor Status. The Subscriber meets the requirements of at least one of the suitability standards for an “Accredited Investor”
as that term is defined in Rule 501(a) of Regulation D, for the reason set forth on the Investor Certification attached hereto as Annex B
and the Subscriber represents that the information set forth in the Questionnaire is accurate and complete in all material respects.
Regulation S. The Subscriber (i) is not a U.S. person (as such term is used in Regulation S under the Securities Act) and is not acting for
the account or benefit of a U.S. person; (ii) is aware that the sale to us is being made in reliance on the Regulation S under the Securities
Act exemption from registration under the Securities Act; and (iii) is acquiring the Securities for its own account or for an account over
which it exercises sole discretion for another non-U.S. person
Accredited Investor Qualifications. A Subscriber (i) if a natural person, represents that such Subscriber has reached the age of 21 and has
full power and authority to execute and deliver this Agreement and all other related agreements or certificates and to carry out the
provisions hereof and thereof; (ii) if a corporation, partnership, or limited liability company or partnership, or association, joint stock
company, trust, unincorporated organization or other entity, represents that such entity was not formed for the specific purpose of
acquiring the Securities, such entity is duly organized, validly existing and in good standing under the laws of the state of its organization,
the consummation of the transactions contemplated hereby is authorized by, and will not result in a violation of state law or its charter or
other organizational documents, such entity has full power and authority to execute and deliver this Agreement and all other related
agreements or certificates and to carry out the provisions hereof and thereof and to purchase and hold the Securities and underlying
securities, the execution and delivery of this Agreement has been duly authorized by all necessary action, this Agreement has been duly
executed and delivered on behalf of such entity and is a legal, valid and binding obligation of such entity; or (iii) if executing this
Agreement in a representative or fiduciary capacity, represents that it has full power and authority to execute and deliver this Agreement
in such capacity and on behalf of the subscribing individual, ward, partnership, trust, estate, corporation, or limited liability company or
partnership, or other entity for whom such Subscriber is executing this Agreement, and such individual, partnership, ward, trust, estate,
corporation, or limited liability company or partnership, or other entity has full right and power to perform pursuant to this Agreement
and make an investment in the Company, and represents that this Agreement constitutes a legal, valid and binding obligation of such
entity. The execution and delivery of this Agreement will not violate or be in conflict with any order, judgment, injunction, agreement or
controlling document to which the Subscriber is a party or by which it is bound.
10
f.
g.
h.
i.
j.
k.
l.
m.
n.
Subscriber Relationship With Brokers. The Subscriber’s substantive relationship with a broker, if any, for the transactions contemplated
hereby, or a subagent thereof (collectively, “Brokers”), through which a Subscriber may be subscribing for the Securities predates such
Broker’s contact with the Subscriber regarding an investment in the Securities.
No Directed Selling Efforts. The Subscriber has not received and is not aware of any “directed selling efforts” (as such term is used in
Regulation S under the Securities Act) with regard to the transactions contemplated herein. The Subscriber did not receive any offer to
purchase securities while in the United States. At the time that our buy order for this transaction was originated and at the time of the
closing of this transaction, the Subscriber was outside the United States.
Solicitation. The Subscriber is unaware of, is in no way relying on, and did not become aware of the offering of the Securities through or
as a result of, any form of general solicitation or general advertising including, without limitation, any article, notice, advertisement or
other communication published in any newspaper, magazine or similar media or broadcast over television or radio, in connection with the
offering and sale of the Securities and is not subscribing for the Securities and did not become aware of the offering of the Securities
through or as a result of any seminar or meeting to which the Subscriber was invited by, or any solicitation of a subscription by, a person
not previously known to the Subscriber in connection with investments in securities generally.
Brokerage Fees. Except as otherwise provided herein, the Subscriber has taken no action that would give rise to any claim by any person
for brokerage commissions, finders’ fees or the like relating to this Agreement or the transaction contemplated hereby.
Subscriber’s Advisors. The Subscriber and the Subscriber’s attorney, accountant, representative and/or tax advisor, if any (collectively,
the “Advisors”), as the case may be, has such knowledge and experience in financial, tax, and business matters, and, in particular,
investments in securities, so as to enable it to utilize the information made available to it in connection with the Securities to evaluate the
merits and risks of an investment in the Securities and the Company and to make an informed investment decision with respect thereto.
Subscriber Liquidity. The Subscriber has adequate means of providing for the Subscriber’s current financial needs and foreseeable
contingencies and has no need for liquidity of its investment in the Securities for an indefinite period of time, and after purchasing the
Securities, the Subscriber will be able to provide for any foreseeable current needs and possible personal contingencies. The Subscriber
must bear and acknowledges the substantial economic risks of the investment in the Securities including the risk of illiquidity and the risk
of a complete loss of this investment.
High Risk Investment. The Subscriber is aware that an investment in the Securities involves a number of very significant risks and has
carefully researched and reviewed and understands the risks of, and other considerations relating to, the purchase of the Securities,
including those set forth in the Company’s Annual Report on Form 20-F for the year ended December 31, 2018 filed with the SEC on
March 28, 2019 and any 6-K filed thereafter.
Reliance on Exemptions. The Subscriber understands that the Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities laws and/or other applicable state laws to the extent
applicable to Non-PA Subscribers and that the Company is relying in part upon the truth and accuracy of, and the Subscriber’s
compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Subscriber set forth herein in
order to determine the availability of such exemptions and the eligibility of the Subscriber to acquire the Securities.
Information. The Subscriber and its Advisors have been furnished with all documents and materials relating to the business, finances and
operations of the Company and information that the Subscriber requested and deemed material to making an informed investment
decision regarding the Subscriber’s purchase of the Securities and the underlying securities. The Subscriber and its Advisors have been
afforded the opportunity to review such documents and materials, and the information contained therein. The Subscriber and its Advisors
have been afforded the opportunity to ask questions of the Company and its management. The Subscriber understands that such
discussions, as well as any written information provided by the Company, were intended to describe the aspects of the Company’s
business and prospects which the Company believes to be material, but were not necessarily a thorough or exhaustive description, and
except as expressly set forth in this Agreement, the Company makes no representation or warranty with respect to the completeness of
such information and makes no representation or warranty of any kind with respect to any information provided by any entity other than
the Company. Some of such information may include projections as to the future performance of the Company, which projections may
not be realized, may be based on assumptions which may not be correct and may be subject to numerous factors beyond the Company’s
control. Additionally, the Subscriber understands and represents that the Subscriber is purchasing the Securities notwithstanding the fact
that the Company may disclose in the future certain material information the Subscriber has not received, including the financial results
of the Company for its current fiscal quarter. Neither such inquiries, nor any other due diligence investigations conducted by the
Subscriber or its Advisors, shall modify, amend or affect the Subscriber’s right to rely on the Company’s representations and warranties
contained in Section 4 above. The Subscriber has sought such accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Securities.
11
o.
p.
q.
r.
No Other Representations or Information. In evaluating the suitability of an investment in the Securities, the Subscriber has not relied
upon any representation or information (oral or written) with respect to the Company, or otherwise, other than as stated in this
Agreement, the other Transaction Documents and the Securities. No other oral or written representations have been made, or oral or
written information furnished, to the Subscriber or its Advisors, if any, in connection with the offering of the Securities.
No Governmental Review. The Subscriber understands that no United States federal or state agency or any other United States or foreign
government or governmental agency has passed on or made any recommendation or endorsement of the Securities, or the fairness or
suitability of the Securities, nor have such authorities passed upon or endorsed the merits of the offering of the Securities.
Transfer or Resale. The Subscriber understands that: (i) the Securities and the Warrant Shares have not been and may not be registered
under the Securities Act or any state securities or other foreign laws, and may not be offered for sale, sold, assigned or transferred unless
(A) subsequently registered thereunder, or (B) the Subscriber shall have delivered to the Company an opinion of counsel, in a form
reasonably satisfactory to the Company, to the effect that such securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration requirements; (ii) any sale of such securities made in reliance on Rule 144
under the Securities Act (or a successor rule thereto) (“Rule 144”) may be made only in accordance with the terms of Rule 144 and
further, if Rule 144 is not applicable, any resale of such securities under circumstances in which the seller (or the person through whom
the sale is made) may be deemed to be an underwriter (as that term is defined in the Securities Act) may require compliance with some
other exemption under the Securities Act or the rules and regulations of the SEC thereunder; and (iii) except as otherwise set forth in this
Agreement, the Company is not, and no other person is, under any obligation to register such securities under the Securities Act or any
state securities laws or to comply with the terms and conditions of any exemption thereunder. The Company reserves the right to place
stop transfer instructions against the certificates for the Ordinary Shares and Warrant Shares to the extent specifically set forth under this
Agreement. There can be no assurance that there will be an active trading market or resale for the Ordinary Shares, or Warrant Shares,
nor can there be any assurance that the Ordinary Shares or Warrant Shares will be freely transferable at any time in the foreseeable future.
Legends. The Subscriber understands that the certificates for the Ordinary Shares (to the extent Ordinary Shares, including those issuable
upon exercise of Warrants and Broker Warrants, are issued in certificated form) shall bear a restrictive legend in substantially the form
below (and a stop transfer order may be placed against transfer of such stock certificates). In addition, the Subscriber understands that the
Warrants shall include a legend substantially in the form of the first page of the Form of Warrant attached hereto as Exhibit A (and a stop
transfer order may be placed against transfer of such warrant certificates).
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (I)
AS PART OF THEIR DISTRIBUTION AT ANY TIME OR (II) OTHERWISE UNTIL 40 DAYS AFTER THE LATER OF THE
COMMENCEMENT OF THE OFFERING AND THE CLOSING DATE, EXCEPT IN EITHER CASE IN ACCORDANCE
WITH REGULATION S (OR RULE 144A IF AVAILABLE) UNDER THE SECURITIES ACT EXCEPT IN ACCORDANCE
WITH THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN,
THE ACQUIRER:
(1) REPRESENTS THAT IT AND ANY ACCOUNT FOR WHICH IT IS ACTING IS AN NOT A U.S. PERSON (WITHIN
THE MEANING OF REGULATION S UNDER THE SECURITIES ACT) AND THAT IT EXERCISES SOLE INVESTMENT
DISCRETION WITH RESPECT TO EACH SUCH ACCOUNT, AND
(2) AGREES FOR THE BENEFIT OF ENTERA BIO LTD. (THE “COMPANY”) THAT IT WILL NOT OFFER, SELL,
PLEDGE OR OTHERWISE TRANSFER THIS SECURITY OR ANY BENEFICIAL INTEREST HEREIN, EXCEPT:
(A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, OR
(B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BECOME EFFECTIVE UNDER THE SECURITIES
ACT, OR
(C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF
RULE 904 OF REGULATION S UNDER THE SECURITIES ACT TO A PERSON THAT IS NOT A U.S. PERSON WHO
AGREES TO RESTRICTIONS ON RESALE THAT ARE CONSISTENT WITH THE REQUIREMENTS OF REGULATION S
UNDER THE SECURITIES ACT, OR
(D) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES
ACT.
PRIOR TO THE REGISTRATION OF ANY TRANSFER IN ACCORDANCE WITH THE PARAGRAPH ABOVE, THE
COMPANY AND THE COMPANY’S TRANSFER AGENT RESERVE THE RIGHT TO REQUIRE THE DELIVERY OF
SUCH LEGAL OPINIONS, CERTIFICATIONS OR OTHER EVIDENCE AS MAY REASONABLY BE REQUIRED IN
ORDER TO DETERMINE THAT THE PROPOSED TRANSFER IS BEING MADE IN COMPLIANCE WITH THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. NO REPRESENTATION IS MADE AS TO THE
AVAILABILITY OF ANY EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
SECURITIES EVIDENCED HEREBY AND ORDINARY SHARES OF THE COMPANY ISSUED UPON EXERCISE OF
SUCH SECURITIES SHALL BE ENTITLED TO REGISTRATION RIGHTS UNDER A REGISTRATION RIGHTS
AGREEMENT TO BE EXECUTED BY THE COMPANY.
12
The Company shall use its commercially reasonable efforts to cause its transfer agent to remove the legend set
forth above from the Ordinary Shares and Warrant Shares subject to the Securities Act and the applicable law
and, within three (3) Business days, shall issue a certificate without such legend to the holder of such
Ordinary Shares or Warrant Shares upon which it is stamped, if, unless otherwise required by state securities
laws, (i) the Subscriber or its broker make the necessary representations and warranties to the transfer agent
for the Ordinary Shares that it has complied with the prospectus delivery requirements in connection with a
sale transaction, provided the Ordinary Shares and Warrant Shares, as applicable, are registered under the
Securities Act, or (ii) in connection with an actual sale transaction, after such holder provides the Company
with an opinion of counsel satisfactory to the Company, which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions, to the effect that a public sale, assignment or
transfer of the Ordinary Shares and Warrant Shares, as applicable, may be made without registration under the
Securities Act.
Notwithstanding the foregoing, in lieu of issuing the Ordinary Shares in certificated form, the Company may
provide Subscribers with book entry evidence of the Ordinary Shares. Any Ordinary Shares issued in such
manner would carry the same rights and limitations as those issued in certificated form.
s.
t.
Authorization, Enforcement. The Subscriber has the requisite power and authority to enter into and perform under this Agreement and the
other Transaction Documents, and to purchase the Securities and underlying securities being sold to it hereunder. The execution, delivery
and performance of this Agreement and the Transaction Documents by such Subscriber and the consummation by Subscriber of the
transactions contemplated hereby and thereby have been duly authorized by all necessary corporate or partnership action, and no further
consent or authorization of such Subscriber or Subscriber’s Board of Directors, stockholders, partners, members, as the case may be, is
required. This Agreement and the other Transaction Documents (to the extent the Subscriber is party thereto) have been duly authorized,
executed and delivered by such Subscriber and upon execution of this Agreement and the Transaction Documents by the other parties
hereto and thereto, constitute, or shall constitute when executed and delivered, a valid and binding obligation of such Subscriber
enforceable against such Subscriber in accordance with the terms hereof and thereof, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating
to, or affecting generally, the enforcement of applicable creditors’ rights and remedies.
No Conflicts. The execution, delivery and performance of this Agreement and the other Transaction Documents and the consummation
by the Subscriber of the transactions contemplated hereby and thereby or relating hereto do not and will not (i) if the Subscriber is not an
individual, result in a violation of the Subscriber’s charter documents or bylaws or other organizational documents or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of any agreement, indenture or instrument or obligation to which the Subscriber is a
party or by which its properties or assets are bound, or result in a violation of any law, rule, or regulation, or any order, judgment or
decree of any court or governmental agency applicable to the Subscriber or its properties (except for such conflicts, defaults and
violations as would not, individually or in the aggregate, have a material adverse effect on the Subscriber). The Subscriber is not required
to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it
to execute, deliver or perform any of its obligations under this Agreement and the other Transaction Documents or to purchase the
Securities in accordance with the terms hereof, provided that for purposes of the representation made in this sentence, the Subscriber is
assuming and relying upon the accuracy of the relevant representations and agreements of the Company herein.
13
u.
v.
w.
x.
y.
z.
Receipt of Documents. The Subscriber, its counsel and/or its Advisors have received and read in their entirety: (i) this Agreement and
each representation, warranty and covenant set forth herein; and (ii) all due diligence and other information necessary to verify the
accuracy and completeness of such representations, warranties and covenants; the Subscriber has received answers to all questions the
Subscriber submitted to the Company regarding an investment in the Company; and the Subscriber has relied on the information
contained therein and has not been furnished any other documents, literature, memorandum or prospectus.
Trading Activities. The Subscriber’s trading activities with respect to the Ordinary Shares shall be in compliance with all applicable
federal and state securities laws, rules and regulations and the rules and regulations of the principal market on which the Ordinary Shares
are listed or traded. Except as set forth below, the Subscriber shall not, and shall cause its affiliates not to, engage in any short sale as
defined in any applicable SEC or Financial Industry Regulatory Authority (“FINRA”) rules or any hedging transactions with respect to
the Common Stock until the earlier to occur of (i) the first anniversary of the initial Closing Date and (ii) the Subscriber no longer owns
Ordinary Shares, Warrants or Warrant Shares. Without limiting the foregoing, the Subscriber agrees not to engage in any naked short
transactions in excess of the amount of shares owned (or an offsetting long position) by the Subscriber.
No Legal Advice from the Company. The Subscriber acknowledges that it had the opportunity to review this Agreement and the
transactions contemplated by this Agreement with its own legal counsel and investment and tax Advisors. The Subscriber is relying
solely on such Advisors and not on any statements or representations of the Company or any of its employees, representatives or agents
for legal, tax, economic and related considerations or investment advice with respect to this investment, the transactions contemplated by
this Agreement or the securities laws of any jurisdiction.
No Group Participation. The Subscriber and its affiliates is not a member of any group, nor is the Subscriber acting in concert with any
other person, including any other Subscriber, with respect to its acquisition of the Securities and underlying securities.
Reliance. Any information which the Subscriber has heretofore furnished or is furnishing herewith to the Company or any Broker is
complete and accurate and may be relied upon by the Company and any Broker in determining the availability of an exemption from
registration under U.S. federal and state securities laws in connection with the offering of securities as described in this Agreement and
the related summary term sheet and transmittal letter, if any. The Subscriber further represents and warrants that it will notify and supply
corrective information to the Company immediately upon the occurrence of any change therein occurring prior to the Company’s
issuance of the Securities. Within five (5) days after receipt of a request from the Company or any Broker, the Subscriber will provide
such information and deliver such documents as may reasonably be necessary to comply with any and all laws and ordinances to which
the Company or any Broker is subject.
(For ERISA plan Subscribers only). The fiduciary of the ERISA plan represents that such fiduciary has been informed of and
understands the Company’s investment objectives, policies and strategies, and that the decision to invest “plan assets” (as such term is
defined in ERISA) in the Company is consistent with the provisions of ERISA that require diversification of plan assets and impose other
fiduciary responsibilities. The Subscriber fiduciary or plan (a) is responsible for the decision to invest in the Company; (b) is independent
of the Company or any of its affiliates; (c) is qualified to make such investment decision; and (d) in making such decision, the Subscriber
fiduciary or plan has not relied primarily on any advice or recommendation of the Company or any of its affiliates.
14
aa.
Anti-Money Laundering; OFAC.
[The Subscriber should check the Office of Foreign Assets Control (“OFAC”) website at http://www.treas.gov/ofac before making the
following representations.] The Subscriber represents that the amounts invested by it in the Company in the Securities were not and are
not directly or indirectly derived from activities that contravene U.S. federal or state or international laws and regulations, including anti-
money laundering laws and regulations. U.S. federal regulations and executive orders administered by OFAC prohibit, among other
things, the engagement in transactions with, and the provision of services to, certain foreign countries, territories, entities and individuals.
The lists of OFAC prohibited countries, territories, persons and entities can be found on the OFAC website at http://www.treas.gov/ofac.
In addition, the programs administered by OFAC (the “OFAC Programs”) prohibit dealing with individuals1 or entities in certain
countries regardless of whether such individuals or entities appear on the OFAC lists.
To the best of the Subscriber’s knowledge, none of: (1) the Subscriber; (2) any person controlling or controlled by the Subscriber; (3) if
the Subscriber is a privately-held entity, any person having a beneficial interest in the Subscriber; or (4) any person for whom the
Subscriber is acting as agent or nominee in connection with this investment is a country, territory, individual or entity named on an OFAC
list, or a person or entity prohibited under the OFAC Programs. Please be advised that the Company may not accept any amounts from a
prospective investor if such prospective investor cannot make the representation set forth in the preceding paragraph. The Subscriber
agrees to promptly notify the Company should the Subscriber become aware of any change in the information set forth in these
representations. The Subscriber understands and acknowledges that, by law, the Company may be obligated to “freeze the account” of the
Subscriber, either by prohibiting additional subscriptions from the Subscriber, declining any redemption requests and/or segregating the
assets in the account in compliance with governmental regulations, and a Broker may also be required to report such action and to
disclose the Subscriber’s identity to OFAC. The Subscriber further acknowledges that the Company may, by written notice to the
Subscriber, suspend the redemption rights, if any, of the Subscriber if the Company reasonably deems it necessary to do so to comply
with anti-money laundering regulations applicable to the Company or any Broker or any of the Company’s other service providers. These
individuals include specially designated nationals, specially designated narcotics traffickers and other parties subject to OFAC sanctions
and embargo programs.
To the best of the Subscriber’s knowledge, none of: (1) the Subscriber; (2) any person controlling or controlled by the Subscriber; (3) if
the Subscriber is a privately-held entity, any person having a beneficial interest in the Subscriber; or (4) any person for whom the
Subscriber is acting as agent or nominee in connection with this investment is a senior foreign political figure2, or any immediate family3
member or close associate4 of a senior foreign political figure, as such terms are defined in the footnotes below.
If the Subscriber is affiliated with a non-U.S. banking institution (a “Foreign Bank”), or if the Subscriber receives deposits from, makes
payments on behalf of, or handles other financial transactions related to a Foreign Bank, the Subscriber represents and warrants to the
Company that: (1) the Foreign Bank has a fixed address, other than solely an electronic address, in a country in which the Foreign Bank
is authorized to conduct banking activities; (2) the Foreign Bank maintains operating records related to its banking activities; (3) the
Foreign Bank is subject to inspection by the banking authority that licensed the Foreign Bank to conduct banking activities; and (4) the
Foreign Bank does not provide banking services to any other Foreign Bank that does not have a physical presence in any country and that
is not a regulated affiliate.
bb.
Conflicts Waiver. Each PA Subscriber purchasing through GPN is aware that some of the members of Intuitive Venture Partners, LLC
(“Intuitive”) are registered representatives registered with GPN, and may receive a portion of the Cash Fee and/or Broker Warrants
payable to GPN, as described above. Each such PA Subscriber, for itself and on behalf of its affiliates, expressly waives any conflicts of
interest or potential conflicts of interest discussed in this paragraph and agrees that neither GPN nor its affiliates, officers, directors or
members shall have any liability to the Subscriber or its affiliates, and the Subscriber and its affiliates shall have no liability to GPN, or
its affiliates, officers, directors or members, with respect to such conflicts of interest or potential conflicts of interest.
cc.
Funds Availability. The Subscriber has, or will have at the applicable Closing, sufficient cash, available lines of credit or other sources of
immediately available funds pursuant to the Agreement, to enable it to make pursuant to the terms of this Agreement.
1 These individuals include specially designated nationals, specially designated narcotics traffickers and other parties subject to
OFAC sanctions and embargo programs.
2 A “senior foreign political figure” is defined as a senior official in the executive, legislative, administrative, military or judicial
branches of a foreign government (whether elected or not), a senior official of a major foreign political party, or a senior
executive of
a foreign government-owned corporation. In addition, a “senior foreign political figure” includes any corporation, business or
other entity that has been formed by, or for the benefit of, a senior foreign political figure.
3 “Immediate family” of a senior foreign political figure typically includes the figure’s parents, siblings, spouse, children and in-
laws.
4 A “close associate” of a senior foreign political figure is a person who is widely and publicly known to maintain an unusually
close relationship with the senior foreign political figure, and includes a person who is in a position to conduct substantial
domestic and
international financial transactions on behalf of the senior foreign political figure.
15
6. Covenants.
(a)
(b)
(c)
(d)
(e)
(f)
Best Efforts. Each party shall use its best efforts timely to satisfy each of the conditions to be satisfied by it as provided in Sections 7 and
8 of this Agreement.
Form D and Blue Sky Laws. If the Company decides to rely on Regulation D for this offering, the Company will file a Form D, to the
extent applicable, with respect to the offer and sale of the Securities. The Company shall take such actions as the Company shall
reasonably determine is necessary to qualify the Securities and Warrant Shares, or obtain an exemption for the Securities and Warrant
Shares for sale to the Subscribers pursuant to this Agreement, under applicable US state blue sky laws.
Reporting Status; Rule 144. Through the date which is one-year after the final Closing Date, the Company shall, to the extent applicable,
maintain the registration of its ordinary shares under Section 12(b) or 12(g) of the Exchange Act and file in a timely manner (or, with
respect to Form 6-K Reports, shall use its commercially reasonable efforts to file in a timely manner) all reports required to be filed with
the SEC thereunder, and the Company shall not terminate its status as an issuer required to file reports under the Exchange Act even if the
Exchange Act or the rules and regulations thereunder would otherwise permit such termination. The Company further covenants that it
will take such actions which are in compliance with the applicable laws that any Subscriber may reasonably request to enable such
Subscriber to sell or transfer the Securities acquired in the Offering without registration under the Securities Act, including without
limitation, pursuant to Rule 144.
Use of Proceeds. The Company shall use the net proceeds from the sale of the Securities (after deducting fees and expenses (including
brokerage fees, legal fees and expenses and fees payable to the Escrow Agent)) for (i) completion of P2 Osteoporosis trial and primary
readouts; (ii) filing of IND for osteoporosis program; (iii) research and development efforts to further develop additional compounds and
finalize Hypo formulations; and (iv) general and administrative expenses to, among other things, support the Company’s public listing
and registration statement, in each case, as such use of proceeds may be amended, at the discretion of the Company’s board of directors
from time to time.
Survival. Notwithstanding anything to the contrary in this Agreement, the representations and warranties of the Company and the
Subscriber contained in Sections 4 and 5 shall survive the final Closing for a period of one year. The covenants contained in Sections 6
and 15 shall survive for the maximum period permitted by law. Each Subscriber shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.
Listing of Ordinary Shares. Following the Offering, the Company shall, if allowed under applicable laws or NASDAQ rules, promptly
secure the listing of all Ordinary Shares (including those underlying the Warrants and Broker Warrants) on the NASDAQ National
Market or such other market then constituting the Company’s principal trading market.
7. Conditions to Company’s Obligations at each Closing. The Company’s obligation to complete the sale and issuance
of the Securities and deliver the Securities at each Closing shall be subject to the following conditions to the extent not waived by
the Company:
a.
b.
c.
Receipt of Payment. The Company shall have received payment, by certified or other bank check or by wire transfer of immediately
available funds, in the full amount of the Purchase Price for the amount of Securities being purchased by such Subscriber at such Closing.
Representations and Warranties. The representations and warranties made by the Subscriber in Section 5 hereof shall be true and correct
in all material respects as of, and as if made on, the date of this Agreement and as of such Closing Date with the same force and effect as
if they had been made on and as of said date (except in each case to the extent any such representation and warranty is qualified by
materiality, in which case, such representation and warranty shall be true and correct in all respects as so qualified). The Subscriber shall
have performed in all material respects all obligations and covenants herein required to be performed by them on or prior to such Closing
Date.
Receipt of Executed Documents. Such Subscriber shall have executed and delivered to the Company the Omnibus Signature Page, the
Investor Profile, Anti-Money Laundering Form and Accredited Investor Certification. In addition, the Subscriber is furnishing to the
Company an executed IRS Form W-8BEN or W-9, if either is applicable, or the correct form as described in the instructions in the
attached herein as an exhibit (“Internal Revenue Service Forms”) and the instructions accompanying the applicable form.
16
d.
e.
f.
Minimum Offering. The initial Closing shall be at least for the amount of Securities in the Minimum Offering at the Purchase Price.
Judgments. No judgment, writ, order, injunction, award or decree of or by any court, or judge, justice or magistrate, including any
bankruptcy court or judge, or any order of or by any governmental authority, shall have been issued, and no action or proceeding shall
have been instituted by any governmental authority, enjoining or preventing the consummation of the transactions contemplated hereby.
Foreign Investors. If the Subscriber is not a United States person (as defined by Section 7701(a)(30) of the Internal Revenue Code),
Subscriber hereby represents that it has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any
invitation to subscribe for the Securities or any use of this Agreement, including (i) the legal requirements within its jurisdiction for the
purchase of the Securities, (ii) any foreign exchange restrictions applicable to such purchase, (iii) any government or other consents that
may need to be obtained, and (iv) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding,
redemption, sale or transfer of the Securities. Subscriber’s subscription and payment for and continued beneficial ownership of the
Securities will not violate any applicable securities or other laws of Subscriber’s jurisdiction.
g.
Shareholder Approval. The Company shall have received any shareholder approval required under applicable law.
8. Conditions to Subscribers’ Obligations at each Closing. Each Subscriber’s obligation to accept delivery of the
Securities and to pay for the Securities at each Closing shall be subject to the following conditions to the extent not waived by the
Placement Agent on behalf of the Subscribers:
a.
b.
c.
d.
e.
f.
g.
Representations and Warranties. The representations and warranties made by the Company in Section 4 hereof shall be true and correct in
all material respects (except to the extent any such representation and warranty is qualified by materiality or reference to Material
Adverse Effect, in which case, such representation and warranty shall be true and correct in all respects as so qualified) as of, and as if
made on, the date of this Agreement and as of such Closing Date with the same force and effect as if they had been made on and as of
said date, except to the extent any such representation or warranty expressly speaks as of an earlier date, in which case such
representation or warranty shall be true and in all material respects correct as of such earlier date (except in each case to the extent any
such representation and warranty is qualified by materiality or reference to Material Adverse Effect, in which case, such representation
and warranty shall be true and correct in all respects as so qualified). The Company shall have performed in all material respects all
obligations and covenants herein required to be performed by it on or prior to the applicable Closing Date.
Receipt of Executed Transaction Documents. The Company shall have executed and delivered to the Placement Agent the Registration
Rights Agreement and the Escrow Agreement.
Minimum Offering. The initial Closing shall be at least for the amount of Securities in the Minimum Offering at thePurchase Price.
Judgments. No judgment, writ, order, injunction, award or decree of or by any court, or judge, justice or magistrate, including any
bankruptcy court or judge, or any order of or by any governmental authority, shall have been issued, and no action or proceeding shall
have been instituted by any governmental authority, enjoining or preventing the consummation of the transactions contemplated hereby.
Consents. The Company shall have obtained any and all consents, permits, approvals, registrations and waivers necessary or appropriate
for consummation by the Company of the purchase and sale of the Securities and the transactions contemplated hereby or under the
Transaction Documents, all of which shall be in full force and effect.
Reserved.
Officer’s Certificate. The Company shall have delivered to the Subscribers a certificate, executed on its behalf by an appropriate officer,
dated as of the applicable Closing Date, certifying as to the matters set forth in Sections 8 a.-e. above, certifying the resolutions adopted
by its Board of Directors approving the transactions contemplated by this Agreement, the other Transaction Documents and the issuance
of the Securities, certifying that the current versions of its Articles of Association, and certifying as to the signatures and authority of
persons signing this Agreement on behalf of the Company. The foregoing certificate shall only be required to be delivered on the First
Closing Date, unless any information contained in the certificate has changed.
h.
Shareholder Approval. The Subscriber shall have received any shareholder approval required under applicable law.
17
9.
Indemnification. Subject to Section 6(e) above, the Subscriber agrees to indemnify and hold harmless the Company,
the Placement Agent and any other broker, agent or finder engaged by the Company for the Offering, and their respective
directors, officers, shareholders, members, partners, employees and agents (and any other persons with a functionally equivalent
role of a person holding such titles notwithstanding a lack of such title or any other title), each person who controls such persons
(within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers,
shareholders, agents, members, partners or employees (and any other persons with a functionally equivalent role of a person
holding such titles notwithstanding a lack of such title or any other title) of such controlling person, from and against all losses,
liabilities, claims, damages, out of pocket costs, fees and expenses whatsoever (including, but not limited to, any and all
reasonable expenses incurred in investigating, preparing or defending against any litigation commenced or threatened) based
upon or arising out of the Subscriber’s actual or alleged false acknowledgment, representation or warranty, or misrepresentation
or omission to state a material fact, or breach by the Subscriber of any covenant or agreement made by the Subscriber, contained
herein or in any other any other documents delivered by the Subscriber to the Company in connection with the transactions
contemplated by this Agreement. In the absence of fraud, the liability of the Subscriber under this paragraph shall not exceed the
aggregate Purchase Price paid by the Subscriber for Securities hereunder.
Subject to Section 6(e) above, the Company agrees to indemnify and hold harmless the Subscriber, its directors, officers,
shareholders, members, partners, employees and agents (and any other persons with a functionally equivalent role of a person
holding such titles notwithstanding a lack of such title or any other title), each person who controls such persons (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents,
members, partners or employees (and any other persons with a functionally equivalent role of a person holding such titles
notwithstanding a lack of such title or any other title) of such controlling person, from and against all losses, liabilities, claims,
damages, costs, fees and expenses whatsoever (including, but not limited to, any and all reasonable expenses incurred in
investigating, preparing or defending against any litigation commenced or threatened) based upon or arising out of the
Company’s actual or alleged false acknowledgment, representation or warranty, or misrepresentation or omission to state a
material fact, or breach by the Company of any covenant or agreement made by the Company, contained in this Agreement, the
Registration Rights Agreement, the Warrants or the Escrow Agreement or in any other Transaction Document. Notwithstanding
anything to the contrary in this Agreement, in the absence of fraud, (i) the liability of the Company under this Agreement shall
not exceed the aggregate Purchase Price paid by each Subscriber and actually received by the Company for Securities hereunder,
and (ii) The Company will have no liability with respect to the matters described in Section 9 until the total amount of all losses
with respect to such matters for all Subscribers in the aggregate exceeds $150,000, at which point the Company will be obligated
to indemnify for any losses from the first dollar.
10. Revocability; Binding Effect. The subscription hereunder may be revoked prior to the initial Closing, provided that
written notice of revocation is sent and is received by the Company or either of the Placement Agent at least two Business Days
prior to the initial Closing on such subscription. The Subscriber hereby acknowledges and agrees that this Agreement shall
survive the death or disability of the Subscriber and shall be binding upon and inure to the benefit of the parties and their heirs,
executors, administrators, successors, legal representatives and permitted assigns. If the Subscriber is more than one person, the
obligations of the Subscriber hereunder shall be joint and several and the agreements, representations, warranties and
acknowledgments herein shall be deemed to be made by and be binding upon each such person and such person’s heirs,
executors, administrators, successors, legal representatives and permitted assigns.
11. Immaterial Modifications to the Registration Rights Agreement. The Company may, at any time prior to the initial
Closing, amend the Registration Rights Agreement, if necessary to clarify any provision therein, without first providing notice or
obtaining prior consent of the Subscriber. This right shall not extend to material modifications to the Registration Rights
Agreement.
12. Third-Party Beneficiary. The Placement Agent shall be an express third-party beneficiary of the representations and
warranties included in this Agreement with respect to the Company and the PA Subscribers. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person, except as otherwise set forth in this Section 12.
13. Assignability. This Agreement and the rights, interests and obligations hereunder are not transferable or assignable by
the Subscriber, and the transfer or assignment of the Securities or the Warrant Shares shall be made only in accordance with the
terms and conditions of the Warrants (with respect to the Warrant) all applicable laws.
18
14. Applicable Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement
shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York.
15. Arbitration. The parties agree to submit all controversies to arbitration in accordance with the provisions set forth
below and understand that:
a.
b.
c.
d.
e.
f.
Arbitration shall be final and binding on the parties.
THE PARTIES ARE WAIVING THEIR RIGHT TO SEEK REMEDIES IN COURT, AND EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY
DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.
Pre-arbitration discovery is generally more limited and different from court proceedings.
The arbitrator’s award is not required to include factual findings or legal reasoning and any party’s right to appeal or to seek modification
of rulings by arbitrators is strictly limited.
The panel of arbitrators will typically include a minority of arbitrators who were or are affiliated with the securities industry.
All controversies which may arise between the parties concerning this Agreement shall be determined by arbitration pursuant to the rules
then pertaining to the Financial Industry Regulatory Authority in New York City, New York. Judgment on any award of any such
arbitration may be entered in the Supreme Court of the State of New York or in any other court having jurisdiction of the person or
persons against whom such award is rendered. Any notice of such arbitration or for the confirmation of any award in any arbitration shall
be sufficient if given in accordance with the provisions of this Agreement. The parties agree that the determination of the arbitrators shall
be binding and conclusive upon them. The prevailing party, as determined by such arbitrators, in a legal proceeding shall be entitled to
collect any costs, disbursements and reasonable attorney’s fees from the other party. Prior to filing an arbitration, the parties hereby agree
that they will attempt to resolve their differences first by submitting the matter for resolution to a mediator, acceptable to all parties, and
whose expenses will be borne equally by all parties. The mediation will be held in the County of New York, State of New York, on an
expedited basis. If the parties cannot successfully resolve their differences through mediation, within sixty (60) days from the receipt of
written notice of a controversy from the notifying party, the matter will be submitted for resolution by arbitration. The arbitration shall
take place in the County of New York, State of New York, on an expedited basis.
16. Exemption from Qualification. The purchase of Securities under this Agreement is expressly conditioned upon the
exemption from qualification of the offer and sale of the Securities from any applicable US federal securities laws (including any
rules or regulations) and foreign securities laws of any jurisdiction (including any rules and regulations). The Company shall not
be required to qualify this transaction under any applicable US federal securities laws (including any rules or regulations) and any
foreign securities laws of any jurisdiction (including any rules and regulations) and, should qualification be necessary, the
Company shall be released from any and all obligations to maintain its offer, and may rescind any sale contracted, in such
jurisdiction.
17. Use of Pronouns. All pronouns and any variations thereof used herein shall be deemed to refer to the masculine,
feminine, neuter, singular or plural as the identity of the person or persons referred to may require.
18. Confidentiality. The Subscriber acknowledges and agrees that any information or data the Subscriber has acquired
from or about the Company or may acquire in the future, not otherwise properly in the public domain, was received in
confidence. The Subscriber agrees not to divulge, communicate or disclose, except as may be required by law or for the
performance of this Agreement, or use to the detriment of the Company or for the benefit of any other person, or misuse in any
way, any confidential information of the Company, including any scientific, technical, trade or business secrets of the Company
and any scientific, technical, trade or business materials that are treated by the Company as confidential or proprietary, including,
but not limited to, internal personnel and financial information of the Company or its affiliates, the manner and methods of
conducting the business of the Company or its affiliates and confidential information obtained by or given to the Company about
or belonging to third parties.
19. Potential Conflicts. The Placement Agent, its sub-agents, legal counsels to the Placement Agent, and/or their
respective affiliates, principals, representatives or employees may now or hereafter own shares or other securities of the
Company.
19
20. Independent Nature of Each Subscriber’s Obligations and Rights. For avoidance of doubt, the obligations of the
Subscribers under this Agreement are several and not joint with the obligations of any other Subscribers, and each Subscriber
shall not be responsible in any way for the performance of the obligations of any other Subscriber under any other Subscription
Agreement. Nothing contained herein and no action taken by the Subscriber shall be deemed to constitute the Subscriber as a
partnership, an association, a joint venture, or any other kind of entity, or create a presumption that the Subscribers are in any way
acting in concert or as a group with respect to such obligations or the transactions contemplated by this Agreement and any other
subscription agreements.
21. Notices. All notice and other communications hereunder which are required or permitted under this Agreement will
be in writing and shall be deemed effectively given to a party by (a) the date of transmission if sent by facsimile or e-mail with
confirmation of transmission by the transmitting equipment if such notice or communication is delivered prior to 5:00 P.M., New
York City time, on a Business Day, or the next Business Day after the date of transmission, if such notice or communication is
delivered on a day that is not a business Day or later than 5:00 P.M., New York City time, on any Business Day; (b) seven (7)
days after deposit with the United States Post Office, by certified mail, return receipt requested, first-class mail, postage prepaid;
(c) on the date delivered, if delivered by hand or by messenger or overnight courier, addressee signature required (costs prepaid),
to the addresses below or at such other address and/or to such other persons as shall have been furnished by the parties:
If to the Company:
With a copy to
(which shall not constitute notice)
If to GP Nurmenkari Inc.:
With a copy to:
(which shall not constitute notice)
Entera Bio Ltd.
37 Walnut Street, Suite 300
Wellesley Hills, MA 02481
Attention: Adam Gridley, CEO
Email: adam@enterabio.com
Herzog Fox & Neeman 4 Weizmann Street
Tel Aviv 6423904 Israel
Yair Geva, Adv. or Tomer Farkash, Adv.
Email: gevay@hfn.co.il; farkasht@hfn.co.il
Facsimile: +972 3 6966464; and
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017
Attention: Gil Savir, Esq.
Email: gil.savir@davispolk.com
GP Nurmenkari Inc.
22 Elizabeth Street
SONO Square, Suite 1J
Norwalk, CT 06854
Attention: Robert Fitzpatrick, CCO
Lucosky Brookman LLP
101 Wood Avenue South
Woodbridge, NJ 08830
Attention: Scott Rapfogel, Esq.
Email: srapfogel@lucbro.com
22. Omnibus Signature Page. This Agreement is intended to be read and construed in conjunction with the Registration
Rights Agreement and the Escrow Agreement. Accordingly, pursuant to the terms and conditions of this Agreement, the
Registration Rights Agreement and the Escrow Agreement, it is hereby agreed that the execution by the Subscriber of this
Agreement, in the place set forth on the applicable Omnibus Signature Page below, shall constitute agreement to be bound by the
terms and conditions hereof, and the terms and conditions of the Registration Rights Agreement and the Escrow Agreement, with
the same effect as if each of such separate but related agreement were separately signed.
20
23. Public Disclosure. The Subscriber nor any officer, manager, director, member, partner, stockholder, employee,
affiliate, affiliated person or entity of the Subscriber shall make or issue any press releases or otherwise make any public
statements or make any disclosures to any third person or entity with respect to the transactions contemplated herein and will not
make or issue any press releases or otherwise make any public statements of any nature whatsoever with respect to the Company
without the Company’s express prior approval. The Company has the right to withhold such approval in its sole discretion.
Notwithstanding the foregoing, the Subscriber may disclose information with respect to the transaction contemplated herein to
the extent that the Subscriber is required by any applicable governmental authority to do so; provided, however, that in such
event, to the extent permitted by applicable law, the Subscriber shall notify the Company five (5) business days in advance and
shall cooperate with the Company, solely at the Disclosing Party’s expense, in any attempt to contest or limit such required
disclosure.
24. Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and
things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may
reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
25. Participation in Future Offerings.
a.
b.
c.
Subject to the consumption of the Initial Closing, and subject to the terms and conditions of this Section 25 and applicable securities
laws, the Company agrees that each Subscriber will be entitled to purchase its pro-rata portion of the New Securities offered by the
Company to investors making a cash-investment in any private placement offering of the Company of more than $2,500,000 to be closed
during a period of one year following the final Closing Date of this Offering (the “Applicable Period”). The rights granted under this
Section 25 to Subscribers are personal to the Subscribers and accordingly such rights cannot be transferred or assigned to any other party.
The Company shall give notice (the “Offer Notice”) to each Eligible Subscriber, stating (i) its bona fide intention to offer such New
Securities, (ii) the number of such New Securities to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such
New Securities. By notification to the Company within five (5) days after the Offer Notice is given (the “Offer Period”), each Eligible
Subscriber may elect to purchase or otherwise acquire, at the price and on the terms specified in the Offer Notice, up to that portion of
such New Securities which equals to the proportion that the Securities actually purchased by such Eligible Subscriber in this Offering
bears to the total Securities actually sold by the Company in this Offering.
Notwithstanding any provision hereof to the contrary, in lieu of complying with the provisions of Section 25(b), the Company may elect
to give notice to the Eligible Subscriber within thirty (30) days after the issuance of New Securities. Such notice shall describe the type,
price, and terms of the New Securities. Each Eligible Subscriber shall have ten (10) days from the date notice is given according to this
subsection to elect to purchase up to the number of New Securities that would, if purchased by such Eligible Subscriber, would preserve
such Eligible Subscriber’s right to purchase its pro rata portion of the New Securities, calculated as set forth in Section 25(b).
21
d.
e.
f.
The covenants set forth in this Section 25 shall terminate and be of no further force or effect upon the earlier of (i) the end of the
Applicable Period, (ii) liquidation of the Company or (iii) the closing of merger or consolidation of the Company in which the Company
is a constituent party except any such merger or consolidation involving the Company in which the shares of capital of the Company
outstanding immediately prior to such merger or consolidation continue to represent, or are converted into or exchanged for shares of
capital that represent, immediately following such merger or consolidation, at least a majority, by voting power, of the capital stock of (1)
the surviving or resulting corporation; or (2) if the surviving or resulting corporation is a wholly owned subsidiary of another corporation
immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation.
If the offer to Eligible Subscribers under this Section 25 may, in the opinion of the Company’s counsel, constitute an offer to the public
under the applicable securities laws which is subject to prospectus or other requirements, then such offer shall be limited to the type of
offerees the offering to which is exempted from such prospectus requirement, and no offering shall be made to any Eligible Subscriber
until such Eligible Subscriber shall have provided the Company during the Offer Period with the satisfactory evidence of its compliance
with the applicable requirements under the securities laws.
The Term “New Securities” shall mean the issuance and sale of the Company’s shares or equity securities or securities converted into
equity securities of the Company, and shall exclude for the avoidance of doubt, any of the following securities or issuances: (i) shares,
options or convertible securities of the Company issued or granted as a dividend, bonus shares, stock split, split-up or other similar
distribution or recapitalization, to all shareholders or equity holders of the Company on a pro-rata basis, (ii) shares, options or convertible
securities of the Company issued or granted to: (a) employees or directors of, or consultants or advisors to, the Company or any of its
subsidiaries pursuant (or any shares issued upon the exercise of such options) to the Company’s share option plans, or (b) finders, broker-
dealers, underwriters, agents or other similar entities assisting the Company with the sale or issuance of the equity securities of the
Company, (iii) shares, options, rights or convertible securities of the Company actually issued upon the exercise of options, warrants or
shares of the Company issued upon the conversion or exchange of convertible securities existing prior to the date of the Initial Closing, in
each case provided such issuance is pursuant to the terms of such options or convertible securities, (iv) shares, options or convertible
securities of the Company issued as acquisition consideration pursuant to the acquisition of another corporation by the Company by
merger, purchase of substantially all or majority of the assets or other reorganization or to a joint venture agreement approved by the
Board, (v) shares, options or convertible securities of the Company issued in connection with sponsored research, collaboration,
technology or patent license, development, OEM, marketing, settlement of claims, or other similar agreements or strategic partnerships
approved by the Board, (vi) Securities issued or sold according to the terms of this Offering, or (vii) any issuance in which Eligible
Subscribers purchasing 60% of the Securities purchased by the Eligible Subscribers in this Offering have agreed in writing to exclude
such issuance of new securities from the right of offer under this Section 25.
22
26. Miscellaneous.
a.
b.
c.
d.
e.
f.
This Agreement, together with the Registration Rights Agreement, the Securities, the Escrow Agreement, and any confidentiality
agreement between the Subscriber and the Company, constitutes the entire agreement between the Subscriber and the Company with
respect to the Offering and supersedes all prior oral or written agreements and understandings, if any, relating to the subject matter
hereof. Any term of this Agreement may be amended and the observance of any term hereof may be waived (either prospectively or
retroactively and either generally or in a particular instance) only with the written consent of (i) the Company, (ii) holders of 60% of the
Purchase Price by the Subscribers actually investing in this Offering, and (iii) the Placement Agent (the “Majority Subscribers”),
provided however that (i) no Subscriber shall be required to increase its respective Purchase Price or to make any additional
representations or warranties without its prior written consent, and (ii) any amendment or waiver that would adversely and directly affect
any Subscribers in a disproportionate manner relative to other Subscribers shall not be effective against the Subscribers without the prior
written consent of the Subscriber (it is agreed that the mere fact that that each Subscriber has provided the Company with a different
portion of the Purchase Price, shall not be deemed by itself to adversely affect the rights of such Subscribers in the context of amendment
or waiver).
This Agreement may be executed in one or more original or facsimile or by an e-mail which contains a portable document format (.pdf)
file of an executed signature page counterparts, each of which shall be deemed an original, but all of which shall together constitute one
and the same instrument and which shall be enforceable against the parties actually executing such counterparts. The exchange of copies
of this Agreement and of signature pages by facsimile transmission or in .pdf format shall constitute effective execution and delivery of
this Agreement as to the parties and may be used in lieu of the original Agreement for all purposes. Signatures of the parties transmitted
by facsimile or by e- mail of a document in pdf format shall be deemed to be their original signatures for all purposes.
Each provision of this Agreement shall be considered separable and, if for any reason any provision or provisions hereof are determined
to be invalid or contrary to applicable law, such invalidity or illegality shall not impair the operation of or affect the remaining portions of
this Agreement.
Paragraph titles are for descriptive purposes only and shall not control or alter the meaning of this Agreement as set forth in the text.
The Subscriber understands and acknowledges that there may be multiple Closings for the Offering.
The Subscriber hereby agrees to furnish the Company such other information as the Company may request prior to the applicable Closing
or reasonably request following post the request Closing with respect to its subscription hereunder.
[SIGNATURE PAGE FOLLOWS]
23
IN WITNESS WHEREOF, the Company has duly executed this Subscription Agreement as of the 13th day of December,
2019.
ENTERA BIO LTD
By: /s/ Adam Gridley
Name: Adam Gridley
Title: Chief Executive Officer
[Signature Page to Subscription Agreement]
24
[How to subscribe for Securities in the private offering of Entera Bio Ltd:]
Date and Fill in the dollar amount of Securities being purchased and complete and sign the Omnibus Signature Page.
Initial the Accredited Investor Certification in the appropriate place or places.
Complete and sign the Investor Profile.
Complete and sign the Anti-Money Laundering Information Form.
Date and sign the Confidentiality Agreement.
Fax or email all forms and then send all signed original documents to your registered representatives office:
1.
2.
3.
4.
5.
6.
GP Nurmenkari Inc.
Attn: Aaron Segal
122 East 42nd Street, Suite 1616 New York, NY 10168
Facsimile Number: 212.661.8786
Telephone Number: 212.612.3219
E-mail address: ams@intuitivevp.com
7.
If you are paying the Purchase Price by check, a certified or other bank check for the exact dollar amount of the Purchase Price for the Securities
you are purchasing should be made payable to the order of “Delaware Trust Company, as Escrow Agent for Entera Bio Ltd. – Biomedical
Solutions, Acct. # *******” and should be sent directly to Delaware Trust Company, 251 Little Falls Drive, Wilmington, DE 19808, Attn: Trust
Administration.
Checks take up to 5 business days to clear. A check must be received by the Escrow Agent at least 6 business days before the closing date.
8.
If you are paying the Purchase Price by wire transfer, you should send a wire transfer for the exact dollar amount of the Purchase Price for the
Notes you are purchasing according to the following instructions:
Bank:
ABA Routing #:
SWIFT CODE:
Account Name:
Account #:
Reference:
Thank you for your interest.
US Bank
5065 Wooster Road
Cincinnati, OH 45226
**************
**************
Delaware Trust Company
**************
***************
[INSERT SUBSCRIBER’S NAME]”
______________________________
25
OMNIBUS SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT, REGISTRATION
RIGHTS AGREEMENT AND ESCROW AGREEMENT
The undersigned, desiring to: (i) enter into the Subscription Agreement, dated as of December 13, 2019 (the “Subscription
Agreement”), between the undersigned, Entera Bio Ltd., an Israeli corporation (the “Company”), and the other parties thereto, in
or substantially in the form furnished to the undersigned (ii) purchase Securities of the Company as set forth in the Subscription
Agreement, (iii) enter into the Registration Rights Agreement (the “Registration Rights Agreement”), among the undersigned, the
Company and the other parties thereto, in or substantially in the form furnished to the undersigned, and (iv) enter into the Escrow
Agreement (the “Escrow Agreement”) among the undersigned, the Company, Entera Bio Ltd, GPN Nurmenkari Inc. and the
other parties thereto, in or substantially in the form furnished to the undersigned, hereby agrees to purchase such securities from
the Company and further agrees to join the Private Placement Offering Master Agreement, the Registration Rights Agreement (if
applicable to the Subscriber) and the Escrow Agreement as a party thereto, with all the rights and privileges appertaining thereto,
and to be bound in all respects by the terms and conditions thereof. The undersigned specifically acknowledges having read the
representations section in the Private Placement Offering Master Agreement entitled “Representations, Warranties and
Agreements of the Subscriber” and hereby represents that the statements contained therein are complete and accurate with respect
to the undersigned as a Subscriber.
IN WITNESS WHEREOF, the Subscriber hereby executes this Agreement, the Registration Rights Agreement and the Escrow
Agreement. Dated: December 13, 2019
SUBSCRIBER (individual)
Signature
Print Name
$800,000
Total Purchase Price
SUBSCRIBER (entity)
D.N.A Biomedical Solutions Ltd.
Name of Entity
By: /s/ Yonatan Malca /s/ Tony Klein
Signature
Signature (if Joint Tenants or Tenants in Common)
Address of Principal Residence:
Print Name: Yonatan Malca Tony Klein
Title: CEOCFO
Address of Executive Offices:
************************___________________________
Social Security Number(s):
Telephone Number:
Facsimile Number:
E-mail Address:
IRS Tax Identification Number:
Telephone Number:
***************
Facsimile Number:
E-mail Address: *************
Please also execute the incumbency certificate attached
hereto as Schedule 5
1 Will reflect the Closing Date. Not to be completed by Subscriber.
26
Form of Warrant
Exhibit 4.27
THIS SECURITY AND THE ORDINARY SHARES ISSUABLE UPON EXERCISE OF THIS SECURITY HAVE NOT
BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
EXCEPT IN ACCORDANCE WITH THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A
BENEFICIAL INTEREST HEREIN, THE ACQUIRER:
(1) REPRESENTS THAT IT AND ANY ACCOUNT FOR WHICH IT IS ACTING IS AN ACCREDITED
INVESTOR (WITHIN THE MEANING OF RULE 501(a) UNDER THE SECURITIES ACT) AND THAT IT
EXERCISES SOLE INVESTMENT DISCRETION WITH RESPECT TO EACH SUCH ACCOUNT, AND
(2) AGREES FOR THE BENEFIT OF ENTERA BIO LTD. (THE “COMPANY”) THAT IT WILL NOT OFFER,
SELL, PLEDGE OR OTHERWISE TRANSFER THIS SECURITY OR ANY BENEFICIAL INTEREST HEREIN,
EXCEPT:
(A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, OR
(B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BECOME EFFECTIVE UNDER THE
SECURITIES ACT, OR
(C) TO AN ACCREDITED INVESTOR IN COMPLIANCE WITH SECTION 4(a)(7) OF THE SECURITIES ACT,
OR
(D) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT OR ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT.
PRIOR TO THE REGISTRATION OF ANY TRANSFER IN ACCORDANCE WITH CLAUSE (2)(D) ABOVE, THE
COMPANY AND THE COMPANY’S WARRANT AGENT RESERVE THE RIGHT TO REQUIRE THE DELIVERY OF
SUCH LEGAL OPINIONS, CERTIFICATIONS OR OTHER EVIDENCE AS MAY REASONABLY BE REQUIRED IN
ORDER TO DETERMINE THAT THE PROPOSED TRANSFER IS BEING MADE IN COMPLIANCE WITH THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. NO REPRESENTATION IS MADE AS TO THE
AVAILABILITY OF ANY EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
SECURITIES EVIDENCED HEREBY AND ORDINARY SHARES OF THE COMPANY ISSUED UPON EXERCISE OF
SUCH SECURITIES SHALL BE ENTITLED TO REGISTRATION RIGHTS UNDER A REGISTRATION RIGHTS
AGREEMENT TO BE EXECUTED BY THE COMPANY.
ORDINARY SHARE PURCHASE WARRANT
For the Purchase of [_____] Ordinary Shares
of
ENTERA BIO LTD.
Warrant Shares: [ ]
Warrant Number: [ ]
Series Investors Warrants
Initial Exercise Date: December 11, 2019
Issue Date: [ ], 2019
CUSIP: N/A
ISIN: N/A
THIS ORDINARY SHARE PURCHASE WARRANT (the “Warrant”) certifies that, for value received, American
Stock Transfer & Trust Company, LLC, as Warrant Agent, on behalf of the Persons whose names the Warrants are registered in
the relevant Warrant Register (the “Holders”) is entitled, upon the terms and subject to the limitations on exercise and the
conditions hereinafter set forth, at any time on or after December 11, 2019 (the “Initial Exercise Date”) and on or prior to 5:00
p.m., New York City time, on the third (3) year anniversary of the Initial Exercise Date, subject to early acceleration as set forth
in Section 3(h) below (the “Termination Date”) but not thereafter, to subscribe for and purchase from Entera Bio Ltd., a company
limited by shares incorporated under the laws of Israel (the “Company”), up to the number of Ordinary Shares shown on
Schedule 1 hereto (as subject to adjustment hereunder, the “Warrant Shares”). The purchase price of one Ordinary Share under
this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).
Section 1. Definitions. In addition to the terms defined elsewhere in this Warrant, the following terms shall have the
meanings indicated in this Section 1:
“2018 Plan” means the 2018 Equity Incentive Plan governing the issuance of equity incentive awards from and
after the Company’s initial public offering on July 2, 2018.
“Accredited Investor” has the meaning set forth in Rule 501 of Regulation D promulgated under the Securities
Act.
“Affiliate” means any Person that directly, or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under
the Securities Act.
“Adjustment Right” means any right granted with respect to any securities issued in connection with, or with
respect to, any issuance or sale (or deemed issuance or sale in accordance with Section 3(b)) of Ordinary Shares (other
than rights of the type described in Section 3(f) and (g) hereof) that could result in a decrease in the net consideration
received by the Company in connection with, or with respect to, such securities (including, without limitation, any cash
settlement rights, cash adjustment or other similar rights).
“Bloomberg” means Bloomberg L.P.
“Board of Directors” means the board of directors of the Company.
“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the
United States or Israel or any day on which banking institutions in the State of New York or Israel are authorized or
required by law or other governmental action to close.
“Calculation Period” means the 10 consecutive Trading Day period beginning on, and including, the Trading Day
immediately following the Cashless Exercise Date for a Warrant.
“Cashless Exercise Date” means the date on which a Holder complies with the applicable requirements for
cashless exercise as set forth in Sections 2(a) and 2(c); provided that, if such date is not a Trading Day or the Holder
satisfies such requirements after 5:00 p.m. on a Trading Day, then the Cashless Exercise Date shall be (i) the immediately
succeeding Trading Day, or (ii) if such date is the Termination Date, the immediately preceding Trading Day.
“Commission” means the United States Securities and Exchange Commission.
2
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“Exempt Issuance” means the issuance of (a) Ordinary Shares or options to employees, officers, consultants or
directors of the Company pursuant to any stock or option plan duly adopted by a majority of the non-employee members
of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors
established for such purpose for services rendered to the Company, provided, however, issuances to consultants shall not
exceed 250 Ordinary Shares during any calendar quarter (it being understood that this limitation, if applied to an issuance
of options to consultants during any calendar quarter, shall not apply to subsequent exercises of such options),
(b) securities to be sold pursuant to and issuable upon the exercise or exchange of any securities issued pursuant to this
Warrant and/or rights, options or other securities exercisable or exchangeable for or convertible into Ordinary Shares
issued and outstanding as of December 11, 2019, provided that such securities have not been amended since December
11, 2019 to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of
any such securities, (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the
disinterested directors of the Company, provided that any such issuance shall only be to a Person (or to the equityholders
of a Person) which is, itself or through its subsidiaries, an operating company or an asset in a business synergistic with the
business of the Company and shall provide to the Company additional benefits in addition to the investment of funds, but
shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to
an entity whose primary business is investing in securities and (d) securities in the Offering or the 2018 Plan, including
any deemed issuance or automatic conversion of securities issued therein (including, for the avoidance of doubt, the
issuance of shares upon conversion of convertible loans under the convertible financing agreements immediately prior to
the closing of the Company’s initial public offering).
“Offering” means the private placement offering by the Company of a minimum of Seven Million Dollars
($7,000,000) and a maximum of Fourteen Million Dollars ($14,000,000) of the Company’s Ordinary Shares in connection
with the offering the Warrants.
“Last Reported Sale Price” of the Ordinary Shares on any date means the closing sale price per share (or if no
closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the
average bid and the average ask prices) on that date as reported in composite transactions for the principal U.S. national or
regional securities exchange on which the Ordinary Shares are traded. If the Ordinary Shares are not listed for trading on
a U.S. national or regional securities exchange on the relevant date, the “Last Reported Sale Price” shall be the last quoted
bid price for the Ordinary Shares in the over-the-counter market on the relevant date as reported by OTC Markets Group
Inc. (or a similar organization or agency succeeding to its functions of reporting prices). If the Ordinary Shares (or such
other security) are not so quoted, the “Last Reported Sale Price” shall be the average of the mid-point of the last bid and
ask prices for the Ordinary Shares (or such other security) on the relevant date from a nationally recognized independent
investment banking firm selected by the Company for this purpose.
“Listed Stock Transaction” means a Fundamental Transaction for which at least 90% of the consideration received
or to be received by holders of Ordinary Shares, excluding cash payments for fractional shares and cash payments made
pursuant to dissenters’ or appraisal rights, in connection with such Fundamental Transaction consists of ordinary shares,
common shares or American Depositary shares that are listed or quoted on any of the NYSE American, the Nasdaq
Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, OTCQB or
OTCQX (or any of their respective successors) or will be so listed or quoted when issued or exchanged in connection with
such Fundamental Transaction.
“Market Disruption Event” means (a) a failure by the primary U.S. national or regional securities exchange or
market on which the Ordinary Shares are listed or admitted for trading to open for trading during its regular trading
session or (b) the occurrence or existence prior to 1:00 p.m., New York City time, on any Scheduled Trading Day for the
Ordinary Shares for more than one half-hour period in the aggregate during regular trading hours of any suspension or
limitation imposed on trading (by reason of movements in price exceeding limits permitted by the relevant stock
exchange or otherwise) in the Ordinary Shares or in any options contracts or futures contracts relating to the Ordinary
Shares.
3
“NIS” means the legal currency of Israel.
“Ordinary Share Equivalents” means any securities of the Company or the Subsidiaries which would entitle the
holder thereof to acquire at any time Ordinary Shares, including, without limitation, any debt, preferred stock, right,
option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise
entitles the holder thereof to receive, Ordinary Shares.
“Ordinary Shares” means the ordinary shares of the Company, nominal value NIS 0.0000769 per share, and any
other class of securities into which such securities may hereafter be reclassified or changed.
“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint
venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity
of any kind.
“Scheduled Trading Day” means a day that is scheduled to be a Trading Day on a Trading Market or, if the
Ordinary Shares are not then listed on a Trading Market, on the principal other U.S. national or regional securities
exchange on which the Ordinary Shares are then listed or admitted for trading. If the Ordinary Shares are not so listed or
admitted for trading, “Scheduled Trading Day” means a Business Day.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder.
“Specified Fundamental Transaction” means (I) one or more related transactions described in clause (i) of the first
sentence of Section 3(e) where, immediately after giving effect thereto (x) the holders of all of the Company’s classes of
common equity immediately prior to such transaction(s) own, directly or indirectly, more than 50% of all classes of
common equity of the continuing or surviving corporation or transferee or the parent thereof immediately after such
transaction(s) in substantially the same proportions as such ownership immediately prior to such transaction(s), or (y) the
Company will be the surviving entity or (II) a Listed Stock Transaction.
“Subsidiary” means any subsidiary of the Company and shall, where applicable, also include any direct or indirect
subsidiary of the Company formed or acquired after the date hereof.
“Trading Day” means a day on which (i) there is no Market Disruption Event and (ii) the Ordinary Shares are
traded on a Trading Market or, if the Ordinary Shares are not then listed on a Trading Market, on the principal other U.S.
national or regional securities exchange on which the Ordinary Shares are then listed or, if the Ordinary Shares are not
then listed on a U.S. national or regional securities exchange, on the principal other market on which the Ordinary Shares
are then traded; provided that if the Ordinary Shares are not so listed or traded, “Trading Day” means a Business Day.
“Trading Market” means any of the following markets or exchanges on which the Ordinary Shares are listed or
quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market,
the Nasdaq Global Select Market, the New York Stock Exchange, OTCQB or OTCQX (or any successors to any of the
foregoing).
“Transfer Agent” means American Stock Transfer & Trust Company, LLC, the current transfer agent for the
Ordinary Shares and the Warrants, with a mailing address of 6201 15th Avenue, Brooklyn, New York 11219 and a phone
number of (718) 921-8124 and any successor transfer agent for the Ordinary Shares and the Warrants.
“U.S. dollars” or “$” means United States dollars.
4
“VWAP” means, for any date, with respect to the Ordinary Shares or any other security, the price determined by
the first of the following clauses that applies: (a) if the Ordinary Shares or such other security are then listed or quoted on
a Trading Market, the daily volume-weighted average price per share of the Ordinary Shares or of such other security for
such date (or the nearest preceding date) on the primary Trading Market on which the Ordinary Shares or such other
security are then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m. (New York City
time) to 4:02 p.m. (New York City time)), (b) if the Ordinary Shares or such other security are not then listed or quoted
for trading on a Trading Market and if prices for the Ordinary Shares or such other security are then reported in the “Pink
Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the Ordinary Shares or such other security so reported, or (c) in all
other cases, the fair market value of an Ordinary Share or such other security as determined, using a volume-weighted
average method, by an independent appraiser selected in good faith by the holders of a majority in interest of the Warrants
then outstanding and reasonably acceptable to the Company, the reasonable fees and expenses of which shall be paid by
the Company.
“Warrant Agency Agreement” means that certain warrant agency agreement, dated as of the Initial Exercise Date,
between the Company and the Warrant Agent.
“Warrant Agent” means the Transfer Agent and any successor warrant agent of the Company.
“Warrants” means the Series Investors Warrants issued by the Company.
Section 2. Exercise.
a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole
or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to
the Company or the Warrant Agent (or such other office, agency or bank that the Company may designate by notice in
writing to the registered Holder at the address of the Holder appearing on the books of the Company), as applicable, of a
duly executed facsimile copy (or electronic copy, i.e. “PDF” or “TIF”, submitted by e-mail) of the Notice of Exercise in
the form annexed hereto as Exhibit A (“Notice of Exercise”), to be delivered to the Warrant Agent; provided that any
partial exercise of a Warrant hereunder must be in relation to a whole number of Warrant Shares. On the Termination
Date, this Warrant, to the extent not previously exercised or expired pursuant to Section 3(h), shall terminate and expire
worthless. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of
guarantee or notarization) of any Notice of Exercise be required. Partial exercises of this Warrant resulting in purchases
of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding
number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares so
purchased. The Warrant Agent shall reflect any such initial exercise on Schedule 1 hereto. The Company shall deliver
any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. Any reference in this
Warrant to the issuance of a certificate or the certificates representing the Warrant Shares shall be deemed to be a
reference to the book-entry issuance of such Warrant Shares. The Holder and any assignee, by acceptance of this
Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a
portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any
given time may be less than the amount stated on the face hereof.
b) Exercise Price. The exercise price per Ordinary Share under this Warrant shall be $2.96, subject to
adjustment hereunder (the “Exercise Price”); provided that in no event shall the Exercise Price be adjusted below the
nominal value (or U.S. dollar equivalent) of the Ordinary Shares.
c) Cashless Exercise. The Holder may exercise this Warrant to receive a number of Warrant Shares equal to
the quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = the arithmetic average of the VWAPs of the Ordinary Shares over each of the 10 consecutive Trading Days
during the related Calculation Period;
(B) = the Exercise Price of this Warrant, as adjusted hereunder; and
5
(X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the
terms of this Warrant, assuming such exercise were by means of a cash exercise rather than a cashless exercise.
The parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant
Shares shall take on the characteristics under the Securities Act of the Warrants being exercised. The Company agrees not
to take any position contrary to this Section 2(c).
d) Mechanics upon Exercise.
i.
ii.
iii.
Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be
transmitted by the Transfer Agent to the Holder (A) by crediting the Holder’s, or its designee’s, balance account with
The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is
then a participant in such system and such Warrant Shares are then eligible for sale by such Holder pursuant to Rule
144(b)(1)(i), and (B) otherwise by registering such Warrant Shares in the Company’s share register in the name of such
Holder or its assignee, in each case, by the date that is two (2) Trading Days after the final day of the related
Calculation Period (such date the “Warrant Share Delivery Date”). The Warrant Shares shall be deemed to have been
issued, and the Holder, or any other person so designated by the Holder to be named in the share register, shall be
deemed to have become a holder of record of such shares for all purposes as of the final day of the related Calculation
Period; provided that payment to the Company of all taxes required to be paid by the Holder, if any, pursuant to Section
2(d)(vi) have timely been made prior to the issuance of such shares; provided, further that if such final date of the
Calculation Period is a date upon which the Ordinary Share transfer books of the Company are closed, such person
shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next
succeeding day on which the Ordinary Share transfer books of the Company are open. If the Company fails for any
reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date,
the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant
Shares subject to such exercise (based on the VWAP of the Ordinary Shares on the date of the applicable Notice of
Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated
damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are
delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer agent that is a participant in the
FAST program so long as this Warrant remains outstanding and exercisable.
[Reserved.]
Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares
pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such
exercise.
6
iv.
v.
vi.
Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights
available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in
accordance with the provisions of Section 2(d)(i) above on or before the applicable Warrant Share Delivery Date (other
than any such failure that is solely due to any action or inaction by the Holder with respect to such exercise), and if
after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise), or the
Holder’s brokerage firm otherwise purchases, Ordinary Shares to deliver in satisfaction of a sale by the Holder of the
Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A)
pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage
commissions, if any) for the Ordinary Shares so purchased exceeds (y) the amount obtained by multiplying (1) the
number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at
issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the
option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which
such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the
number of Ordinary Shares that would have been issued had the Company timely complied with its exercise and
delivery obligations hereunder. For example, if the Holder purchases Ordinary Shares having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted exercise of Ordinary Shares with an aggregate sale price giving
rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall
be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts
payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss.
Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s
failure to timely deliver Ordinary Shares upon exercise of the Warrant as required pursuant to the terms hereof.
No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the
exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon
such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an
amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.
Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to a Holder for any issue or
transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and
expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such
name or names as may be directed by the Holder; provided, however, that in the event that Warrant Shares are to be
issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied
by the Assignment Form attached hereto as Exhibit B duly executed by the Holder and the Company may require, as a
condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company
shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the
Depository Trust Company (or another established clearing corporation performing similar functions) required for
same-day electronic delivery of the Warrant Shares.
vii.
Closing of Books. The Company will not close its shareholder books or records in any manner which prevents the
timely exercise of this Warrant, pursuant to the terms hereof.
7
e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and the Holder
shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after
giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the
Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates
(such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as
defined below); provided, that this restriction shall not apply with respect to exercises of this Warrant to the extent that
such Holder together with its Affiliates and Attribution Parties beneficially owned in excess of the Beneficial Ownership
Limitation prior to the Initial Exercise Date. For purposes of the foregoing sentence, the number of Ordinary Shares
beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of Ordinary Shares
issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the
number of Ordinary Shares which would be issuable upon (i) exercise of the remaining, nonexercised portion of this
Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of
the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other
Ordinary Share Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein
beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding
sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of
the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the
Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act
and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the
limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to
other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this
Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be
deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by
the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in
each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm
the accuracy of such determination and shall have no liability for exercises of this Warrant that are not in compliance with
the Beneficial Ownership Limitation. In addition, a determination as to any group status as contemplated above shall be
determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.
For purposes of this Section 2(e), in determining the number of outstanding Ordinary Shares, a Holder may rely on the
number of outstanding Ordinary Shares as reflected in (A) the Company’s most recent periodic or annual report filed with
the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent
written notice by the Company or the Transfer Agent setting forth the number of Ordinary Shares outstanding. Upon the
written request of a Holder, the Company shall within two Business Days confirm in writing to the Holder the number of
Ordinary Shares then outstanding. In any case, the number of outstanding Ordinary Shares shall be determined after
giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its
Affiliates or Attribution Parties since the date as of which such number of outstanding Ordinary Shares was reported. The
“Beneficial Ownership Limitation” shall be 4.99% of the number of Ordinary Shares outstanding immediately after
giving effect to the issuance of Ordinary Shares issuable upon exercise of this Warrant. The Holder, upon notice to the
Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the
Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Ordinary Shares outstanding
immediately after giving effect to the issuance of Ordinary Shares upon exercise of this Warrant held by the Holder and
the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not
be effective until the 61st day after such notice is delivered to the Company. The limitations contained in this paragraph
shall apply to a successor holder of this Warrant.
Section 3. Certain Adjustments.
a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a
stock dividend or otherwise makes a distribution or distributions payable in Ordinary Shares on its Ordinary Shares or any
Ordinary Share Equivalents or preferred stock (which, for avoidance of doubt, shall not include any Ordinary Shares
issued by the Company upon exercise of this Warrant or upon exercise of any other warrants to purchase Ordinary Shares
outstanding as of the Initial Exercise Date or any securities issued pursuant to the Offering), (ii) subdivides outstanding
Ordinary Shares into a larger number of shares or (iii) combines (including by way of reverse stock split) outstanding
Ordinary Shares into a smaller number of shares, then the Exercise Price shall be multiplied by a fraction of which the
numerator shall be the number of Ordinary Shares (excluding any treasury shares of the Company) outstanding
immediately before such event and of which the denominator shall be the number of Ordinary Shares outstanding
immediately after such event, and the number of Warrant Shares issuable upon exercise of this Warrant shall be
proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment
made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of
shareholders entitled to receive such dividend or distribution and shall become effective immediately after the effective
date in the case of a subdivision or combination.
8
b) Adjustment Upon Issuance of Ordinary Shares. If within one (1) year after December 11, 2019 (the
“Issuance Date”), the Company issues or sells, or in accordance with this Section 3(b) is deemed to have issued or sold,
any Ordinary Shares and/or Ordinary Share Equivalents (including the issuance or sale of Ordinary Shares owned or held
by or for the account of the Company, but excluding any Exempt Issuance issued or sold or deemed to have been issued
or sold) for a consideration per share (the “New Issuance Price”) less than a price equal to $2.37 (as adjusted in proportion
with any adjustments made from time to time to the Exercise Price pursuant to this Section 3, the “Applicable Price”) (the
foregoing a “Dilutive Issuance”), then immediately upon such Dilutive Issuance, the Exercise Price then in effect shall be
reduced to the New Issuance Price.
For all purposes of the foregoing (including, without limitation, determining the adjusted Exercise Price and the New
Issuance Price under this Section 3(b)), the following shall be applicable:
i.
Issuance of Options. If the Company in any manner grants or sells any rights, warrants or options to subscribe for or
purchase Ordinary Shares or Ordinary Share Equivalents (“Options”) and the weighted average price per share for
which one Ordinary Share is, as of the time of such grant or sale, at any time issuable upon the exercise of the Options
so granted or sold or upon conversion, exercise or exchange of any Ordinary Share Equivalents issuable upon exercise
of such Options or otherwise pursuant to the terms thereof is less than the Applicable Price, then the Ordinary Shares
underlying such Options shall be deemed to have been issued and sold for purposes of the adjustment under this
Section 3(b) at the time of the granting or sale of such Options for such price per share. For purposes of this Section
3(b)(i), the “weighted average price per share for which one Ordinary Share is issuable upon the exercise of any such
Options or upon conversion, exercise or exchange of any Ordinary Share Equivalents issuable upon exercise of any
such Options or otherwise pursuant to the terms thereof” shall be equal to the arithmetic average of the sums of the
amounts of consideration (if any) received or receivable by the Company with respect to each Ordinary Share issuable
upon the granting or sale of the relevant Options, upon exercise of such Options and upon conversion, exercise or
exchange of any Ordinary Share Equivalents issuable upon exercise of such Options or otherwise pursuant to the terms
thereof. Except as contemplated below, no further adjustment of the Exercise Price shall be made upon the actual
issuance of such Ordinary Shares or of such Ordinary Share Equivalents upon the exercise of such Options or otherwise
pursuant to the terms of or upon the actual issuance of such Ordinary Shares upon conversion, exercise or exchange of
such Ordinary Share Equivalents.
9
ii.
iii.
Issuance of Ordinary Share Equivalents. If the Company in any manner issues or sells any Ordinary Share Equivalents
and the weighted average price per share for which one Ordinary Share is, as of the time of such issuance or sale, at any
time issuable upon the conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof is less than
the Applicable Price, then the Ordinary Shares underlying such Ordinary Share Equivalents shall be deemed to have
been issued and sold for purposes of the adjustment under this Section 3(b) at the time of the issuance or sale of such
Ordinary Share Equivalents for such price per share. For the purposes of this Section 3(b)(ii), the “weighted average
price per share for which one Ordinary Share is issuable upon the conversion, exercise or exchange thereof or otherwise
pursuant to the terms thereof” shall be equal to (1) the arithmetic average of the sums of the amounts of consideration
(if any) received or receivable by the Company with respect to each Ordinary Share underlying the relevant Ordinary
Share Equivalents upon the issuance or sale of such Ordinary Share Equivalents and upon conversion, exercise or
exchange of such Ordinary Share Equivalents or otherwise pursuant to the terms thereof minus (2) the arithmetic
average of the sums (determined on a per share basis with respect to the Ordinary Shares underlying each such
Ordinary Share Equivalent) of (I) all amounts paid or payable to the holder(s) of each such Ordinary Share Equivalent
(or any other Person) upon the issuance or sale of each such Ordinary Share Equivalent plus (II) the value of any other
consideration received or receivable by, or benefit conferred on, the holder(s) of each such Ordinary Share Equivalent
(or any other Person). Except as contemplated below, no further adjustment of the Exercise Price shall be made upon
the actual issuance of such Ordinary Shares upon conversion, exercise or exchange of such Ordinary Share Equivalents
or otherwise pursuant to the terms thereof, and if any such issuance or sale of such Ordinary Share Equivalents is made
upon exercise of any Options for which adjustment of the Warrant has been or is to be made pursuant to other
provisions of this Section 3(b), except as contemplated below, no further adjustment of the Exercise Price shall be made
by reason of such issuance or sale.
Change in Option Price or Rate of Conversion. If the purchase or exercise price provided for in any Options, the
additional consideration, if any, payable upon the issue, conversion, exercise or exchange of any Ordinary Share
Equivalents, or the rate at which any Ordinary Share Equivalents are convertible into or exercisable or exchangeable
for Ordinary Shares increases or decreases at any time (other than proportional changes in conversion or exercise
prices, as applicable, in connection with an event referred to in Section 3(a)), the Exercise Price in effect at the time of
such increase or decrease shall be adjusted as provided in this Section 3(b) as if such Options or Ordinary Share
Equivalents were a new issuance and sale as of the time of such increase or decrease. For purposes of this Section 3(b)
(iii), if the terms of any Option or Ordinary Share Equivalent that was outstanding as of the Issuance Date are increased
or decreased in the manner described in the immediately preceding sentence, then such Option or Ordinary Share
Equivalents and the Ordinary Shares deemed issuable upon exercise, conversion or exchange thereof shall be deemed
to have been issued as of the date of such increase or decrease. No adjustment pursuant to this Section 3(b) shall be
made if such adjustment would result in an increase of the Exercise Price then in effect.
10
iv.
Calculation of Consideration Received. If any Option and/or Ordinary Share Equivalent and/or Adjustment Right
(each, a “Component Security”) is issued in connection with the issuance or sale or deemed issuance or sale of any
other securities of the Company (“Units”), together comprising one integrated transaction, the Exercise Price in effect
at the time of such issuance or sale or deemed issuance or sale shall be adjusted in accordance with the formula in the
first paragraph of this Section 3(b) based on clauses (b)(i) and (b)(ii) above, as applicable, based on the Company’s
allocation of the purchase price among the different Component Securities included in the Units issued or sold or
deemed to be issued or sold in such transaction. If any Ordinary Shares, Options or Ordinary Share Equivalents are
issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be
the net amount of consideration received by the Company therefor. If any Ordinary Shares, Options or Ordinary Share
Equivalents are issued or sold for a consideration other than cash, the amount of such consideration received by the
Company will be the fair value of such consideration, except where such consideration consists of publicly traded
securities, in which case the amount of consideration received by the Company for such securities will be the arithmetic
average of the VWAPs of such security for each of the five (5) Trading Days immediately preceding the date of
receipt. If any Ordinary Shares, Options or Ordinary Share Equivalents are issued to the owners of the non-surviving
entity in connection with any merger in which the Company is the surviving entity, the amount of consideration
therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as
is attributable to such Ordinary Shares, Options or Ordinary Share Equivalents (as the case may be). The fair value of
any consideration other than cash or publicly traded securities will be determined jointly by the Company and the
Holder. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring
valuation (the “Valuation Event”), the fair value of such consideration will be determined within five (5) Trading Days
after the tenth (10th) day following such Valuation Event by an independent, reputable appraiser jointly selected by the
Company and the Holder. The determination of such appraiser shall be final and binding upon all parties absent
manifest error and the reasonable fees and expenses of such appraiser shall be borne by the Company.
v.
Record Date. If the Company takes a record of the holders of Ordinary Shares for the purpose of entitling them (A) to
receive a dividend or other distribution payable in Ordinary Shares, Options or in Ordinary Share Equivalents or (B) to
subscribe for or purchase Ordinary Shares, Options or Ordinary Share Equivalents, then such record date will be
deemed to be the date of the issuance or sale of the Ordinary Shares deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the date of the granting of such right of
subscription or purchase (as the case may be).
11
c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time
during which this Warrant is outstanding the Company grants, issues or sells any Ordinary Share Equivalents or rights to
purchase stock, warrants, securities or other property pro rata to the record holders of any class of Ordinary Shares (the
“Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of Ordinary Shares
acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without
limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Ordinary
Shares are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the
Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership
Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial
ownership of such Ordinary Shares as a result of such Purchase Right to such extent) and such Purchase Right to such
extent shall be held in abeyance for the Holder until the earlier of (i) such time, if ever, as the delivery to such Holder of
such Purchase Right to such extent would not result in the Holder exceeding the Beneficial Ownership Limitation and (ii)
such time as the Holder has exercised this Warrant).
d) Pro Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or
make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of Ordinary Shares, by way
of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property
or options by way of a dividend, spin-off, corporate rearrangement, scheme of arrangement or other similar transaction,
other than (x) a reclassification as to which Section 3(e) applies or (y) any issuance, deemed issuance or automatic
conversion of securities in the Offering or the 2018 Plan) (a “Distribution”), at any time after the issuance of this Warrant,
then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder
would have participated therein if the Holder had held the number of Ordinary Shares acquirable upon complete exercise
of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial
Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record
is taken, the date as of which the record holders of Ordinary Shares are to be determined for the participation in such
Distribution; provided, however, to the extent that the Holder’s right to participate in any such Distribution would result
in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such
Distribution to such extent (or in the beneficial ownership of any Ordinary Shares as a result of such Distribution to such
extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until the earlier of
(i) such time, if ever, as the delivery to such Holder of such portion would not result in the Holder exceeding the
Beneficial Ownership Limitation and (ii) such time as the Holder has exercised this Warrant.
12
e) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or
indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another
Person, (ii) the Company, directly or indirectly, effects any sale, lease, assignment, transfer, conveyance or other
disposition of all or substantially all of its assets in one or a series of related transactions (other than, for the avoidance of
doubt, pursuant to a licensing arrangement so long as, after giving effect to such arrangement, the Ordinary Shares are
listed or quoted on a Trading Market), (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether
by the Company or another Person) is completed pursuant to which holders of Ordinary Shares are permitted to sell,
tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more
of the outstanding Ordinary Shares, (iv) the Company, directly or indirectly, in one or more related transactions effects
any reclassification, reorganization or recapitalization of the Ordinary Shares or any compulsory share exchange pursuant
to which the Ordinary Shares are effectively converted into or exchanged for other securities, cash or property, or (v) the
Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or
other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the
outstanding Ordinary Shares (not including any Ordinary Shares held by the other Person or other Persons making or
party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or
other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the
Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise
immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any
limitation in Section 2(e) on the exercise of this Warrant), the number of shares of capital stock of the successor or
acquiring corporation or Ordinary Shares of the Company, if it is the surviving corporation, and any additional
consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the
number of Ordinary Shares for which this Warrant is exercisable immediately prior to such Fundamental Transaction
(without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the
determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one Ordinary Share in such Fundamental Transaction, and the
Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the Alternate Consideration. If holders of Ordinary Shares are given any
choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given
the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such
Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the
Company or any Successor Entity (as defined below) shall, at the Holder’s option, exercisable at any time concurrently
with, or within 30 days after, the consummation of the Fundamental Transaction (or, if later, the date of the public
announcement of the applicable Fundamental Transaction) (other than (x) a Fundamental Transaction that is not within
the Company’s control, including not approved by the Company’s Board of Directors, or (y) a Specified Fundamental
Transaction, in each case, as to which this right shall not apply), purchase this Warrant from the Holder by paying to the
Holder an amount of cash equal to the Black Scholes Value of the remaining unexercised portion of this Warrant on the
date of the consummation of such Fundamental Transaction; provided, however, that, if the Fundamental Transaction is
not within the Company’s control, including not approved by the Company’s Board of Directors, the Holder shall be
entitled to receive from the Company or any Successor Entity, upon exercise at any time concurrently with, or within 30
days after, the date of consummation of such Fundamental Transaction, the same type or form of consideration (and in the
same proportion), at the Black Scholes Value (as defined below) of the unexercised portion of this Warrant, that is being
offered and paid to the holders of Ordinary Shares in connection with the Fundamental Transaction, whether that
consideration be in the form of cash, stock or any combination thereof, or whether the holders of Ordinary Shares are
given the choice to receive from among alternative forms of consideration in connection with the Fundamental
Transaction. “Black Scholes Value” means the value of this Warrant based on the Black and Scholes Option Pricing
Model obtained from the “OV” function on Bloomberg determined as of the day of consummation of the applicable
Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S.
Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental
Transaction and the Termination Date, (B) an expected volatility equal to the 100 day volatility obtained from the HVT
function on Bloomberg as of the Trading Day immediately following the public announcement of the applicable
Fundamental Transaction, (C) an underlying price per share equal to the sum of the price per share being offered in cash,
if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and (D) a
remaining option time equal to the time between the date of the public announcement of the applicable Fundamental
Transaction and the Termination Date. The payment of any Black Scholes Value payable in cash pursuant to the second
immediately preceding sentence will be made by wire transfer of immediately available funds within five Business Days
of the Holder’s election (or, if later, on the effective date of the Fundamental Transaction). The Company shall cause any
successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to
assume in writing all of the obligations of the Company under this Warrant in accordance with the provisions of this
Section 3(e) pursuant to written agreements prior to such Fundamental Transaction and shall, at the option of the Holder,
deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument
substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of
capital stock of such Successor Entity (or its parent entity) equivalent to the Ordinary Shares acquirable and receivable
upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such
Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital
stock (but taking into account the relative value of the Ordinary Shares pursuant to such Fundamental Transaction and the
value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose
of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental
Transaction). Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant referring
to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of, the Company
and shall assume all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity
had been named as the Company herein.
13
f) Calculations. The Company shall make all calculations under this Section 3 to the nearest cent or the
nearest 1/100th of a share, as the case may be. For purposes of this Section 3, except as otherwise expressly set forth
herein, the number of Ordinary Shares deemed to be issued and outstanding as of a given date shall be the sum of the
number of Ordinary Shares (excluding treasury shares, if any) issued and outstanding.
g) Notice to Holder.
i.
ii.
Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the
Company shall promptly deliver to the Holder by facsimile or e-mail a notice setting forth the Exercise Price after such
adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts
requiring such adjustment.
Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever
form) on the Ordinary Shares, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption
of the Ordinary Shares, (C) the Company shall authorize the granting to all holders of the Ordinary Shares rights or
warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any
shareholders of the Company shall be required in connection with any reclassification of the Ordinary Shares, any
consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of
the Company, or any compulsory share exchange whereby the Ordinary Shares are converted into other securities, cash
or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of
the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or e-mail to the
Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at
least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date
on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a
record is not to be taken, the date as of which the holders of record of the Ordinary Shares to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of record of the Ordinary Shares shall be entitled to exchange their Ordinary
Shares for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer
or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall
not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice
required by this Warrant constitutes, or contains, material, non-public information regarding the Company, the
Company shall simultaneously file such notice with the Commission pursuant to a Report on Form 6-K. The Holder
shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective
date of the event triggering such notice except as may otherwise be expressly set forth herein.
14
h) Early Termination upon Satisfaction of Sale Price Condition. The Company may accelerate the
Termination Date of this Warrant upon written notice to the Holder at any time if the Last Reported Sale Price exceeds
$4.74 (as adjusted in proportion with any adjustments made from time to time to the Exercise Price pursuant to Section 3)
for a ten (10) consecutive Trading Day period. In the 30 calendar days following the date the acceleration notice is given
in accordance with this Section 3(h) (the “Early Termination Exercise Period”), Holders may exercise this Warrant or a
portion of the Warrant in accordance with Section 2(a) and Section 2(c). Any Warrants not exercised by 5:00 p.m., New
York City Time, on the last day of the Early Termination Exercise Period shall terminate and expire worthless.
Section 4. Transfer of Warrant.
a) Transferability. Subject to the Holder’s compliance with the transfer restrictions set forth in Section 6 of
the Warrant Agency Agreement, a Holder’s interest in this Warrant and all rights hereunder (including, without limitation,
any registration rights) are transferable, in whole or in part, delivery to the Warrant Agent of a written assignment of this
Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient
to pay any transfer taxes payable upon the making of such transfer. Upon such delivery and, if required, such payment,
the Warrant Agent shall record such interest in this Warrant in the Warrant Register in the name of the assignee or
assignees, as applicable.
b) [Reserved.]
c) Warrant Register. The Warrant Agent shall register this Warrant, upon records to be maintained by the
Warrant Agent for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The
Company and the Warrant Agent may deem and treat the registered Holder of this Warrant as the absolute owner hereof
for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to
the contrary.
15
Section 5. Miscellaneous.
a) No Rights as Shareholder Until Exercise. This Warrant does not entitle the Holder to any voting rights,
dividends or other rights as a shareholder of the Company until the exercise hereof as set forth in Section 2(d)(i), except
as expressly set forth in Section 3.
b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock
certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and
cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock
certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.
c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the
expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right
may be exercised on the next succeeding Business Day.
d) Authorized Shares.
The Company covenants that, during the period the Warrant is outstanding, it will reserve from its
authorized and unissued Ordinary Shares a sufficient number of shares to provide for the issuance of the Warrant
Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its
issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the
necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all
such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein
without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which
the Ordinary Shares may be listed. The Company covenants that all Warrant Shares which may be issued upon the
exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented
by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued,
fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the
issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).
Except and to the extent as waived or consented to by the Holder, the Company shall not by any action,
including, without limitation, amending its articles of association or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the
rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing,
the Company will (i) not increase the nominal value of any Warrant Shares above the amount payable therefor
upon such exercise immediately prior to such increase in nominal value, (ii) take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be,
necessary to enable the Company to perform its obligations under this Warrant.
16
Before taking any action which would result in an adjustment in the number of Warrant Shares for which
this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having
jurisdiction thereof.
e) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of
this Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning
the interpretations, enforcement and defense of the transactions contemplated by this Warrant (whether brought against a
party hereto or their respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall
be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan
for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that
it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an
inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents
to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If either party
shall commence an action, suit or proceeding to enforce any provisions of this Warrant, the prevailing party in such
action, suit or proceeding shall be reimbursed by the other party for their reasonable attorneys’ fees and other costs and
expenses incurred with the investigation, preparation and prosecution of such action or proceeding. EACH PARTY
HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A
JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH
OR ARISING OUT OF THIS WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY.
For the avoidance of doubt, matters involving the rights of shareholders, issuance of Ordinary Shares and the
validity of Ordinary Shares shall be governed by the laws of Israel.
f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant
will have restrictions upon resale imposed by state and federal securities laws.
g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on
the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies.
Without limiting any other provision of this Warrant, if the Company willfully and knowingly fails to comply with any
provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such
amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees,
including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in
otherwise enforcing any of its rights, powers or remedies hereunder.
17
h) Notices. Any notices, consents, waivers or other document or communications required or permitted to be
given or delivered under the terms of this Warrant must be in writing and will be deemed to have been delivered: (i) upon
receipt, if delivered personally; (ii) when sent, if sent by facsimile (provided confirmation of transmission is mechanically
or electronically generated and kept on file by the sending party); (iii) when sent, if sent by e-mail (provided that such
sent e-mail is kept on file (whether electronically or otherwise) by the sending party and the sending party does not
receive an automatically generated message from the recipient’s e-mail server that such e-mail could not be delivered to
such recipient) and (iv) if sent by overnight courier service, one (1) Business Day after deposit with an overnight courier
service with next day delivery specified, in each case, properly addressed to the party to receive the same. If notice is
given by facsimile or email, a copy of such notice shall be dispatched no later than the next business day by first class
mail, postage prepaid. The addresses, facsimile numbers and e-mail addresses for such communications shall be:
If to the Company:
Entera Bio Ltd.
37 Walnut Street, Suite 300
Wellesley Hills, MA 02481
Attention: Adam Gridley, CEO
Email: adam@enterabio.com
With a copy to:
Email: Notice@enterabio.com
And with a copy (for informational purposes only) to:
Gil Savir, Esq.
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017
Email: gil.savir@davispolk.com
and
Yair Geva, Adv.
Ron Ben Menachem, Adv.
Tomer Farkash, Adv.
Herzog Fox & Neeman
4 Weizmann Street
Tel Aviv 6423904, Israel
+972 (3) 692-2020
If to the Warrant Agent, to its address, facsimile number or e-mail address set forth in Exhibit A.
If to a Holder, to its address, facsimile number or e-mail address set forth herein or on the books and records of the
Company.
Or, in each of the above instances, to such other address, facsimile number or e-mail address and/or to the attention of
such other Person as the recipient party has specified by written notice given to each other party at least five (5) days prior
to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine
containing the time, date and recipient facsimile number or (C) provided by an overnight courier service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight courier service in accordance
with clause (i), (ii) or (iv) above, respectively. A copy of the e-mail transmission containing the time, date and recipient
e- mail address shall be rebuttable evidence of receipt by e-mail in accordance with clause (iii) above.
i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to
exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder,
shall give rise to any liability of the Holder for the purchase price of any Ordinary Shares or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of the Company.
18
j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that
monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions
of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a
remedy at law would be adequate.
k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations
evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company
and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of
any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.
l) Amendment. With the consent of Holders of the Warrants entitled, upon exercise hereof, to receive not
less than a majority of the Ordinary Shares issuable under this Warrant Certificate, the Company and the Warrant Agent
may modify this Warrant Certificate for the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Warrant Certificate or modifying in any manner the rights of the Holders of the Warrants;
provided, however, that no material modifications, including (i) modification of the terms of Section 2(a), Section 2(b),
Section 2(c) or to the adjustments described in Section 3 hereunder or (ii) modifications reducing the percentage required
for consent to modification of this Warrant Certificate, in each case, may be made without the consent of the Holder of
each relevant outstanding Warrant affected thereby. The determination of whether any modification is material shall be
made in good faith by the Company.
m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to
be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the
remainder of such provisions or the remaining provisions of this Warrant.
n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for
any purpose, be deemed a part of this Warrant.
o) Warrant Agency Agreement. This Warrant is issued subject to the Warrant Agency Agreement. To the
extent any provision of this Warrant conflicts with the express provisions of the Warrant Agency Agreement, the
provisions of this Warrant shall govern and be controlling.
*******************
(Signature Page Follows)
19
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly
authorized as of the date first above indicated.
ENTERA BIO LTD.
By:
Name
Title
20
SCHEDULE OF EXCHANGES OR EXERCISES OF WARRANTS
ENTERA BIO LTD.
Investors Warrants
SCHEDULE 1
The initial number of Warrant Shares issuable upon exercise of this Warrant is [_______]. The following increases or
decreases in such number of Warrant Shares have been made:
Date of
exchange
Amount of decrease in number
of Warrant Shares
Amount of increase in number
of Warrant Shares
Number of Warrant Shares
following such decrease or
increase
Signature of authorized
signatory of Warrant
Agent
21
TO:
ENTERA BIO LTD.
NOTICE OF EXERCISE
(1) The undersigned hereby elects to exercise this Warrant with respect to _______ underlying Warrant Shares
pursuant to the terms of the attached Warrant and tenders herewith payment of any applicable transfer taxes.
(2) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
EXHIBIT A
The Warrant Shares shall be delivered to the following DWAC Account Number:
[SIGNATURE OF HOLDER]
Name of Investing Entity:
Signature of Authorized Signatory of
Investing Entity:
Name of Authorized Signatory:
Title of Authorized Signatory:
Date:
22
ASSIGNMENT FORM
EXHIBIT B
(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to
Name:
Address:
Phone Number:
Email Address:
Dated: _______________ __, ______
Holder’s Signature:__________________
Holder’s Address: ___________________
(Please Print)
(Please Print)
23
REGISTRATION RIGHTS AGREEMENT
Exhibit 4.28
This Registration Rights Agreement (this “Agreement”) is made and entered into effective as of December 10, 2019, among
Entera Bio Ltd., an Israeli corporation (the “Company”), each of the persons who have executed omnibus or counterpart
signature page(s) hereto (each, a “Subscriber” and, collectively, the “Subscribers”), and GP Nurmenkari Inc. (the “Broker”).
RECITALS:
WHEREAS, the Company has offered and sold in compliance with Section 4(a)(2) and/or Rule 506 of Regulation D, if
applicable, promulgated under the Securities Act to accredited investors in a private placement offering (the “Offering”) of
Ordinary Shares, and three-year series Investor Warrants to purchase additional Ordinary Shares at an exercise price as set forth
in the Offering (the “Investor Warrants”) pursuant to Subscription Agreements entered into by and between the Company and
each of the accepted subscribers for Ordinary Shares and Investor Warrants in the Offering (the “Subscription Agreements”);
and
WHEREAS, to induce the Subscribers to execute and deliver the Subscription Agreement, the Company has agreed to
certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar
successor statute (collectively, the “Securities Act”), and applicable state securities laws;
WHEREAS, the Company has agreed to certain registration rights under the Securities Act and applicable state securities
laws with each of the Broker who hold Placement Agent Warrants;
NOW, THEREFORE, in consideration of the mutual promises, representations, warranties, covenants, and conditions set
forth herein, the parties mutually agree as follows:
1. Certain Definitions. Capitalized terms used herein without definition have the meanings ascribed to them in the
Subscription Agreement. As used in this Agreement, the following terms shall have the following respective meanings:
“Blackout Period” means, with respect to a registration, a period during which the Company, in the good faith judgment
of its board of directors or its counsel, determines (including because of the existence of, or in anticipation of, any acquisition,
financing activity, or other transaction involving the Company, or the unavailability for reasons beyond the Company’s
reasonable control of any required financial statements, disclosure of information which is in its best interest not to publicly
disclose, or any other event or condition of similar significance to the Company) that the registration and distribution of the
Registrable Securities to be covered by such registration statement, if any, or the filing of an amendment to such registration
statement in the circumstances described in Section 4(f), would be seriously detrimental to the Company, in each case
commencing on the day the Company notifies the Holders that they are required, because of the determination described above,
to suspend offers and sales of Registrable Securities and ending on the earlier of (1) the date upon which the material non-public
information resulting in the Blackout Period is disclosed to the public or ceases to be material and (2) such time as the Company
notifies the selling Holders that sales pursuant to such Registration Statement or a new or amended Registration Statement may
resume; provided, however, that the Company shall use its reasonable best efforts to limit the duration of any Blackout Period.
“Business Day” means any day of the year, other than a Saturday, Sunday, or other day on which banks in the State of
New York are required or authorized to close.
“Commission” means the U. S. Securities and Exchange Commission or any other federal agency at the time
administering the Securities Act.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the
Commission promulgated thereunder.
“Family Member” means (a) with respect to any individual, such individual’s spouse, any descendants (whether natural or
adopted), any trust all of the beneficial interests of which are owned by any of such individuals or by any of such individuals
together with any organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, the estate of
any such individual, and any corporation, association, partnership or limited liability company all of the equity interests of which
are owned by those above described individuals, trusts or organizations and (b) with respect to any trust, the owners of the
beneficial interests of such trust.
“Holder” means (i) each Subscriber or any of such Subscriber’s respective successors and Permitted Assignee who
acquire rights in accordance with this Agreement with respect to any Registrable Securities directly or indirectly from a
Subscriber or from any Permitted Assignee, and (ii) each Broker or any of such Broker’s respective successors and Permitted
Assignee who acquire rights in accordance with this Agreement with respect to any Registrable Securities directly or indirectly
from a Broker or from any Permitted Assignee, and (iii) all other holders of Registerable Securities (the “Other Holders”).
“Ordinary Shares” means the Ordinary Shares, par value NIS $0.0000769 of the Company.
“Permitted Assignee” means (a) with respect to a partnership, its partners or former partners in accordance with their
partnership interests, (b) with respect to a corporation, its stockholders in accordance with their interest in the corporation, (c)
with respect to a limited liability company, its members or former members in accordance with their interest in the limited
liability company, (d) with respect to an individual party, any Family Member of such party, (e) an entity that is controlled by,
controls, or is under common control with a transferor, or (f) a party to this Agreement.
2
“Placement Agent Warrants” shall mean the Series Broker Warrants-A and Broker Warrants-B issued to the Placement
Agents pursuant to Section 3 of the Subscription Agreement.
The terms “register,” “registered,” and “registration” refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration
statement.
“Registrable Securities” means (i) Ordinary Shares issued or issuable to Subscribers and Broker in connection with the
Offering, including Ordinary Shares underlying the Investor Warrants and Placement Agent Warrants, and Ordinary Shares
issuable upon any stock split, dividend or distribution, recapitalization or similar event with respect to the foregoing, exclusive of
Ordinary Shares (a) that have been publicly (including, without limitation, distribution to the public under Rule 144) sold by
Subscribers prior to the earlier of the Registration Filing Date or the date or which the Registration Statement is initially filed, or
(b) that have been privately sold after the date on which such Ordinary Shares were eligible to be sold under Rule 144, without
restriction (the items discussed in this section (i), (i)(a) and (i)(b) hereof after referred to as the “New Registrable Securities”),
(ii) any Ordinary Shares (including Ordinary Shares underlying warrants of the Company) not purchased in the Offering held by
Subscribers prior to the date hereof; (iii) any holders of Ordinary Shares (including Ordinary Shares underlying warrants of the
Company held by such holders) eligible for registration rights with respect to such Ordinary Shares pursuant to any agreement
between the Company and such holders of such Ordinary Shares entered into prior to the date of this Agreement in an amount to
be determined in the sole discretion of the Company (the New Registrable Securities together with the section discussed in
section (ii) and this (iii) and hereof after referred to as the "Participating Subscribers Registrable Securities”; and (iv)
Ordinary Shares (including the Ordinary Shares underlying the warrants of which the Company issued from time to time) owned,
from time to time, by certain holders of the Company’s securities in an amount to be determined in the sole discretion of the
Company (the section discussed in this (iv) and hereof after referred to as the “Non-Subscribers Securities”).
“Registration Default Period” means the period during which any Registration Event occurs and is continuing.
“Registration Event” means the circumstance where the Company fails to file with the Commission the Registration
Statement on or before the Registration Filing Date.
“Registration Filing Date” means the date that is seven (7) months after the final closing date of the Offering.
“Registration Statement” means the registration statement that the Company is required to file pursuant to Section 3(a) of
this Agreement to register the New Registrable Securities.
3
“Rule 144” means Rule 144 promulgated by the Commission under the Securities Act, as such rule may be amended or
supplemented from time to time, or any similar successor rule that may be promulgated by the Commission.
“Rule 145” means Rule 145 promulgated by the Commission under the Securities Act, as such rule may be amended or
supplemented from time to time, or any similar successor rule that may be promulgated by the Commission.
“Rule 415” means Rule 415 promulgated by the Commission under the Securities Act, as such rule may be amended or
supplemented from time to time, or any similar successor rule that may be promulgated by the Commission.
“SEC Effective Date” means the date the Registration Statement is first declared effective by the Commission.
“Trading Day” means any day on which such national securities exchange, which at the time constitutes the principal
securities market for the Ordinary Shares, is open for general trading of securities.
2. Term. This Agreement shall terminate with respect to each Holder on the earlier of: (i) the 2 year anniversary of
the SEC Effective Date, (ii) the date as of which the Holders may sell all of the Registrable Securities covered by such
Registration Statement pursuant to Rule 144 (or any successor thereto) promulgated under the Securities Act, or (iii) the date on
which the Holders shall have sold all of the Registrable Securities covered by such Registration Statement.
3. Registration.
(a) Registration on Form F-3. To the extent the Company is able to file with the Commission a Registration
Statement on Form F-3 (or S-3, if applicable) and which form shall be available for the resale by the Holders of all of their
Registrable Securities, and the Company shall (i) use its commercially reasonable efforts to make the initial filing of the
Registration Statement no later than the Registration Filing Date, (ii) use its commercially reasonable efforts to cause such
Registration Statement to be declared effective as soon as practicable after it is filed and (iii) use its commercially reasonable
efforts to keep such Registration Statement effective until the earlier of: (i) for a period of 2 years commencing on the SEC
Effective Date or (ii) the date on which the Holders shall have sold all of the Registrable Securities covered by such Registration
Statement (the “Effectiveness Period”); provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section, or keep such registration effective pursuant to the terms
hereunder, in any particular jurisdiction in which the Company would be required to qualify to do business as a foreign
corporation or as a dealer in securities under the securities laws of such jurisdiction or to execute a general consent to service of
process in effecting such registration, qualification or compliance, in each case where it has not already done so. Notwithstanding
the foregoing, in the event that the staff of the Commission (the “Staff”) should limit the number of Registrable Securities that
may be sold pursuant to the Registration Statement, the Company may remove from the Registration Statement such number of
Registrable Securities as specified by the Staff on behalf of all of the Holders, first on a pro rata basis among Holders of Non-
Subscribers Securities, based on the number of Non-Subscribers Securities held by each Holder of such Non-Subscribes
Securities at the time the Registration Statement covering such initial number of Non-Subscribers Securities or increase thereof is
declared effective by the SEC. In such event, the Company shall give such applicable Holders, a notice of the number of
Registrable Securities excluded therefrom. Without limiting Section 3(b), no liquidated damages shall accrue or be payable to any
Holder pursuant to Section 3(b) with respect to any Registrable Securities that are excluded by reason of the Staff limiting the
number of Registrable Securities that may be sold pursuant to a registration statement; second on a pro rata basis among Holders
of the Registrable Securities issued or issuable upon exercise of the Placement Agent Warrants, based on the number of such
Registrable Securities held by each Holder at the time the Registration Statement covering such initial number of Securities
issued or issuable upon exercise of the Placement Agent Warrants or increase thereof is declared effective by the SEC; and third
on a pro rata basis among Holders of the Participating Subscribers Registrable Securities (excluding any Ordinary Shares held by
such Holders underlying the Placement Agent Warrants) based on the number of Participating Subscribers Registrable Securities
(excluding any Ordinary Shares held by such Holders underlying the Placement Agent Warrants) held by each Holder, as
applicable, at the time the Registration Statement covering such initial number of Participating Subscribers Registrable Securities
(excluding any Ordinary Shares held by such Holders underlying the Placement Agent Warrants) or increase thereof is declared
effective by the SEC. No Ordinary Shares or other securities of the Company other than Registrable Securities will be included in
the Registration Statement.
4
(b) Liquidated Damages. If a Registration Event occurs, each Holder of New Registrable Securities
(without taking into account any Placement Agent Warrant and Ordinary Shares underlying the Placement Agent Warrants held
by such Holder) identified in section (i) of the Holder definition, herein will be entitled to liquidated damages, by reason of the
Registration Event, a cash sum calculated at a rate of one percent (1%) per month the aggregate purchase price paid in cash by
such Holder, if any, for the New Registrable Securities (excluding Placement Agent Warrant and Ordinary Shares underlying the
Placement Agent Warrants) solely pursuant to the Subscription Agreement, provided, however, that such payment shall be paid
only with respect to New Registrable Securities (excluding Placement Agent Warrant and Ordinary Shares underlying the
Placement Agent Warrants) still held by such Holder at the time of the Registration Event and only for the period during which
such Registration Event continues. For the avoidance of doubt, no liquidated damages shall be made with respect to any
Placement Agent Warrant and Ordinary Shares underlying the Placement Agent Warrants or to Broker. Notwithstanding the
foregoing, the maximum amount of liquidated damages that must be paid by the Company pursuant to this Section 3(b) shall not
exceed an amount equal to eight percent (8%) of the applicable foregoing amounts; Each payment of liquidated damages
pursuant to this Section 3(b) shall be due and payable in arrears within five (5) days after the end of each full 30-day period of the
Registration Default Period until the termination of theRegistration Default Period and within five (5) days after such
termination. The Registration Default Period shall terminate upon the earlier of such time as the New Registrable Securities
(excluding Placement Agent Warrant and Ordinary Shares underlying the Placement Agent Warrants) that are affected by the
Registration Event cease to be New Registrable Securities (excluding Placement Agent Warrant and Ordinary Shares underlying
the Placement Agent Warrants) or the filing of the Registration Statement. The amounts payable as liquidated damages pursuant
to this Section 3(b) shall be payable in lawful money of the United States. Notwithstanding the foregoing, the Company will not
be liable for the payment of liquidated damages described in this Section 3(b), with respect to a Holder, if such Holder fails to
timely provide to the Company information concerning the Holder and manner of distribution of the Holder’s New Registrable
Securities that is required by the Securities Act, Nasdaq rules or SEC Rules to be disclosed in a registration statement utilized in
connection with the registration of the New Registrable Securities. Notwithstanding anything to the contrary in this Agreement,
the Company may, if required under applicable law and subject thereto, withhold, deduct or set-off any amounts as required by
the applicable law from any payments payable, if any, by the Company according to this Section 3(b).
(c) Other Limitations. Notwithstanding the provisions of Section 3(b) above and without limiting Section
3(a) above, if the Commission allows the Registration Statement to be declared effective, subject to the withdrawal of certain
Registrable Securities from the Registration Statement, and the reason is the Commission’s determination that (x) the offering of
any of the Registrable Securities constitutes a primary offering of securities by the Company, (y) Rule 415 may not be relied
upon for the registration of the resale of any or all of the Registrable Securities, and/or (z) a Holder of any Registrable Securities
must be named as an underwriter, such Holder, as applicable, understands and agrees that under such circumstances the Company
may (notwithstanding anything to the contrary contained herein) reduce, on a pro rata basis, in the manner provided above, the
total number of Registrable Securities to be registered on behalf of each such Holder, as applicable, and in such instance such
Holder, as applicable, shall not be entitled to liquidated damages, or otherwise, with respect to the Registrable Securities so
reduced on a pro rata basis as set forth above. Each Holder agrees that such liquidated damages will be its sole and exclusive
remedy if a Registration Event occurs.
5
4. Registration Procedures. The Company will keep each Holder reasonably advised as to the filing and
effectiveness of the Registration Statement. At its expense with respect to the Registration Statement, the Company will:
(a) prepare and file with the Commission with respect to the Registrable Securities, a Registration Statement
in accordance with Section 3(a) hereof, and use its commercially reasonable efforts to cause such Registration Statement to
become effective and to remain effective for the Effectiveness Period;
(b) not name any Holder in the Registration Statement as an underwriter without that Holder’s prior written
consent (unless the Staff requires such Holder to be so named in order to include the Holder in the Registration Statement);
(c) if the Registration Statement is subject to review by the Commission, use its commercially reasonable
efforts to timely respond to all comments and diligently pursue resolution of any comments to the satisfaction of the Commission;
(d) use its commercially reasonable efforts to prepare and file with the Commission such amendments and
supplements to such Registration Statement as may be necessary to keep such Registration Statement effective during the
Effectiveness Period;
(e) use its commercially reasonable efforts to furnish, without charge, to each Holder of Registrable
Securities covered by such Registration Statement (i) a reasonable number of copies of such Registration Statement (including
any exhibits thereto other than exhibits incorporated by reference), each amendment and supplement thereto as such Holder may
reasonably request, (ii) such number of copies of the prospectus included in such Registration Statement (including each
preliminary prospectus and any other prospectus filed under Rule 424 of the Securities Act) as such Holders may reasonably
request, in conformity with the requirements of the Securities Act, and (iii) such other documents as such Holder may reasonably
require to consummate the disposition of the Registrable Securities owned by such Holder, but only during the Effectiveness
Period; provided that the Company shall have no obligation to furnish any document pursuant to this clause that is available on
the Commission’s EDGAR system;
(f) as promptly as practicable after becoming aware of such event, notify each Holder of Registrable
Securities, the disposition of which requires delivery of a prospectus relating thereto under the Securities Act, of the happening of
any event, which comes to the Company’s attention, that will after the occurrence of such event cause the prospectus included in
such Registration Statement, if not amended or supplemented, to contain to the knowledge of the Company an untrue statement
of a material fact or an omission to state a material fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading and the Company shall timely thereafter prepare
and furnish to such Holder a supplement or amendment to such prospectus (or prepare and file appropriate reports under the
Exchange Act, and if such filing was done the Company shall not be obligated to furnish to such Holder a supplement or
amendment prospectus) so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not
contain to the knowledge of the Company an untrue statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not
misleading, unless suspension of the use of such prospectus otherwise is authorized herein or in the event of a Blackout Period, in
which case no supplement or amendment need be furnished (or Exchange Act filing to be made) until the termination of such
suspension or Blackout Period;
6
provided that any and all information provided to such Holder pursuant to such notification shall remain confidential by such
Holder until such information otherwise becomes public, unless disclosure by a Holder is required by law;
(g) use its commercially reasonable efforts to comply, and continue to comply during the Effectiveness
Period, in all material respects with the Securities Act and the Exchange Act and with all applicable rules and regulations of the
Commission with respect to the disposition of all securities covered by such Registration Statement;
(h) after becoming aware of any stop order or other suspension of effectiveness of the Registration
Statement, notify each Holder of Registrable Securities being offered or sold pursuant to the Registration Statement of the
issuance by the Commission of;
(i) use its commercially reasonable efforts to cause all the Registrable Securities covered by the Registration
Statement to be listed on the NASDAQ Capital Market or such other principal securities market on which securities of the same
class issued by the Company are then listed or traded, if the listing of such Registrable Securities is then permitted under the rules
of Nasdaq.
(j) provide a transfer agent and registrar for the Ordinary Shares at all times;
(k) during the Effectiveness Period, refrain from bidding for or purchasing any Ordinary Shares or any right
to purchase Ordinary Shares or attempting to induce any person to purchase any such security or right if such bid, purchase or
attempt would in any way limit the right of the Holders to sell Registrable Securities by reason of the limitations set forth in
Regulation M of the Exchange Act; and
(l) take all other commercially reasonable actions necessary to expedite and facilitate the disposition by the
Holders of the Registrable Securities pursuant to the Registration Statement during the term of this Agreement; provided,
however, the Company is not obligated under this clause (l) to expend any of the Company's funds, other than the costs and
expenses specifically required under Section 6 of this Agreement.
5. Obligations of the Holders.
(a) Each Holder agrees that, upon receipt of any notice from the Company of the happening of any event of
the kind described in Section 4(f) hereof or of the commencement of a Blackout Period, such Holder shall discontinue the
disposition of Registrable Securities included in the Registration Statement until such Holder’s receipt of the copies of the
supplemented or amended prospectus contemplated by Section 4(f) hereof or notice of the end of the Blackout Period, and, if so
directed by the Company, such Holder shall deliver to the Company (at the Company’s expense) all copies (including, without
limitation, any and all drafts), other than permanent file copies, then in such Holder’s possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
7
(b) No later than three (3) Business Days following a request of the Company, the Holders of the Registrable
Securities shall provide such information as may reasonably be requested by the Company, or the managing underwriter, if any,
in connection with the preparation of any registration statement, including amendments and supplements thereto, in order to
effect the registration of any Registrable Securities under the Securities Act pursuant to Section 3 of this Agreement and in
connection with the Company’s obligation to comply with Federal laws, Nasdaq rules, Exchange Act and Securities Act
(including any applicable state securities laws), including, among others, a completed questionnaire in the form attached to this
Agreement as Annex A (a “Selling Securityholder Notice and Questionnaire”) or any update thereto that the Company may
provide from time to time.
(c) Each Holder, by its acceptance of the Registrable Securities, agrees to cooperate with the Company as
reasonably requested by the Company in connection with the preparation and filing of any Registration Statement hereunder,
unless such Holder has notified the Company in writing of its election to exclude all of its Registrable Securities from such
Registration Statement.
6. Registration Expenses. The Company shall pay all reasonable expenses in connection with any registration
obligation provided herein, including, without limitation, all registration, filing, stock exchange fees, printing expenses, all fees
and expenses of complying with applicable securities laws, and the fees and disbursements of counsel for the Company (but not
for the Holders) and of the Company’s independent accountants; provided, that, in any underwritten registration, the Company
shall have no obligation to pay any underwriting discounts, selling commissions or transfer taxes attributable to the Registrable
Securities being sold by the Holders thereof, which underwriting discounts, selling commissions and transfer taxes shall be borne
by such Holders. In addition, the Company shall not be liable and have no obligation to the Holders for the fees and
disbursements of legal counsel or other advisor employed by a Holder, or otherwise, in connection with registration, filing or
qualification pursuant to Section 3 of this Agreement. Except as provided in this Section 6 and Section 8 of this Agreement, the
Company shall not be responsible for the expenses of any attorney or other advisor employed by a Holder.
7. Assignment or Transfer of Rights. No Holder may assign or transfer its rights under this Agreement to any party
without the prior written consent of the Company; provided, however, that any Holder may assign its rights under this Agreement
without such consent (i) to the purchaser, in the case of a private sale of Registrable Securities by a Holder made within six (6)
months of the date such Holder acquired the Registrable Securities in the Offering; and (ii) to a Permitted Assignee; provided,
however, that no transfer or assignment of rights under this Agreement shall be allowed, unless (a) such transfer or assignment is
effected in accordance with applicable securities laws; (b) such transferee or assignee agrees in writing to become bound by and
subject to the terms of this Agreement and enters into an agreement to be bound by the terms of this Agreement in the form of the
Joinder Agreement attached hereto as Exhibit A, and by delivering an executed Joinder Agreement, such transferee shall be
deemed to be a party thereto and such Joinder Agreement shall be a part of this Agreement.; and (c) such Holder notifies the
Company in writing of such transfer or assignment, stating the name and address of the purchaser, transferee or assignee and
identifying the Registrable Securities with respect to which such rights are being transferred or assigned. The Company may
assign this Agreement or any rights or obligations hereunder without the prior written consent of any other party hereto.
8
8. Indemnification.
(a) In the event of the offer and sale of Registrable Securities under the Securities Act, the Company shall,
and hereby does, indemnify and hold harmless, to the fullest extent permitted by law, each Holder, its directors, officers, partners,
and each other person, if any, who controls or is under common control with such Holder within the meaning of Section 15 of the
Securities Act, against any losses, claims, damages or liabilities, joint or several, and expenses to which the Holder or any such
director, officer, partner or controlling person may become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions or proceedings, whether commenced or threatened, in respect thereof) arise
out of or are based upon any untrue statement of any material fact contained in any registration statement prepared and filed by
the Company under which Registrable Securities were registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission to state therein a
material fact required to be stated or necessary to make the statements therein, in light of the circumstances in which they were
made, not misleading, and the Company shall reimburse the Holder, and each such director, officer, partner and controlling
person for any legal or any other expenses reasonably incurred by them in connection with investigating, defending or settling
any such loss, claim, damage, liability, action or proceeding; provided, however, that the indemnity obligation of the Company
under this Section 8(a) to any Holder shall in no event exceed the net proceeds from the Offering received by the Company from
such Holder (or Holder's predecessor-in-interest) reduced by any liquidated damages paid pursuant to Section 3(b) of this
Agreement; and provided further, that the Company shall not be liable in any such case (i) to the extent that any such loss, claim,
damage, or liability (or action or proceeding in respect thereof) or expense arises out of or is based upon (x) an untrue statement
in or omission from such registration statement, any such preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement in reliance upon and in conformity with written information furnished by a Holder or its representative
to the Company for use in the preparation thereof or (y) the failure of a Holder to comply with the covenants and agreements
contained in Section 5 hereof respecting the sale of Registrable Securities; or (ii) if the person asserting any such loss, claim,
damage or liability (or action or proceeding in respect thereof) who purchased the Registrable Securities that are the subject
thereof did not receive a copy of an amended preliminary or final prospectus or the final prospectus (or the final prospectus as
amended or supplemented) at or prior to the written confirmation of the sale of such Registrable Securities to such person
because of the failure of such Holder to so provide such amended preliminary or final prospectus and the untrue statement or
omission of a material fact made in such preliminary or final prospectus was corrected in the amended preliminary or final
prospectus (or the final prospectus as amended or supplemented). Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of the Holders, or any such director, officer, partner or controlling person and shall
survive the transfer of such shares by the Holder.
9
(b) As a condition to including Registrable Securities in any registration statement filed pursuant to this
Agreement, each Holder agrees to be bound by the terms of this Section 8 and to indemnify and hold harmless, to the fullest
extent permitted by law, the Company, each of its directors, officers, partners, legal counsel and accountants and each
underwriter, if any, and each other person, if any, who controls the Company within the meaning of Section 15 of the Securities
Act, against any losses, claims, damages or liabilities, joint or several, to which the Company or any such director or officer or
controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any
untrue statement of a material fact or any omission of a material fact required to be stated in any registration statement, any
preliminary prospectus, final prospectus, summary prospectus, amendment or supplement thereto or necessary to make the
statements therein, in light of the circumstances in which they were made, not misleading, to the extent that such untrue statement
or omission is included or omitted in reliance upon and in conformity with information furnished by the Holder or its
representative to the Company for use in the preparation thereof, and such Holder shall reimburse the Company, and such
Holders, directors, officers, partners, legal counsel and accountants, persons, underwriters, or control persons, each such director,
officer, and controlling person for any legal or other expenses reasonably incurred by them in connection with investigating,
defending, or settling any such loss, claim, damage, liability, action, or proceeding; provided, however, that the indemnity
obligation of a Holder under this Section 8(b) shall in no event exceed the amount of the net proceeds received by such Holder as
a result of the sale of such Holder’s Registrable Securities pursuant to such registration statement, except in the case of fraud or
willful misconduct. Such indemnity shall remain in full force and effect, regardless of any investigation made by or on behalf of
the Company or any such director, officer or controlling person and shall survive the transfer by any Holder of such shares.
(c) Promptly after receipt by an indemnified party of notice of the commencement of any action or
proceeding involving a claim referred to in this Section 8 (including any governmental action), such indemnified party shall, if a
claim in respect thereof is to be made against an indemnifying party, give written notice within ten (10) business days to the
indemnifying party of the commencement of such action; provided, that the failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party of its obligations under this Section, except to the extent that the
indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an indemnified
party, unless in the reasonable judgment of counsel to such indemnified party a conflict of interest between such indemnified and
indemnifying parties may exist or the indemnified party may have defenses not available to the indemnifying party in respect of
such claim, the indemnifying party shall be entitled to participate in and to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party and, after notice from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses
subsequently incurred by the latter in connection with the defense thereof, unless in such indemnified party’s reasonable
judgment a conflict of interest between such indemnified and indemnifying parties arises in respect of such claim after the
assumption of the defenses thereof or the indemnifying party fails to defend such claim in a diligent manner, other than
reasonable costs of investigation. Neither an indemnified nor an indemnifying party shall be liable for any settlement of any
action or proceeding effected without its consent, which consent shall not unreasonably withheld. No indemnifying party shall,
without the consent, which consent shall not unreasonably withheld, of the indemnified party, consent to entry of any judgment or
enter into any settlement, which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or litigation. Notwithstanding anything to the contrary set
forth herein, and without limiting any of the rights set forth above, in any event any party shall have the right to retain, at its own
expense, counsel with respect to the defense of a claim. Each indemnified party shall furnish such information regarding itself or
the claim in question as an indemnifying party may reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting therefrom.
10
(d) If an indemnifying party does not or is not permitted to assume the defense of an action pursuant to
Section 8(c) or in the case of the expense reimbursement obligation set forth in Sections 8(a) and 8(b), the indemnification
required by Sections 8(a) and 8(b) shall be made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or expenses, losses, damages, or liabilities are incurred.
(e) If the indemnification provided for in Section 8(a) or 8(b) is held by a court of competent jurisdiction to
be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to herein, the
indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage or expense (i) in such proportion as is appropriate to
reflect the proportionate relative fault of the indemnifying party on the one hand and the indemnified party on the other
(determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission
relates to information supplied by the indemnifying party or the indemnified party and the parties’ relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue statement or omission), or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law or provides a lesser sum to the indemnified party than the amount herein
provided, then in such proportion as is appropriate to reflect not only the proportionate relative fault of the indemnifying party
and the indemnified party, but also the relative benefits received by the indemnifying party on the one hand and the indemnified
party on the other, as well as any other relevant equitable considerations. No indemnified party guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any
indemnifying party who was not guilty of such fraudulent misrepresentation.
(f) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution
contained in the underwriting agreement entered into in connection with an underwritten public offering are in conflict with the
foregoing provisions, the provisions in the underwriting agreement shall control.
(g) Other Indemnification. Indemnification similar to that specified in this Section (with appropriate
modifications) shall be given by the Company and each Holder of Registrable Securities with respect to any required registration
or other qualification of securities under any federal or state law or regulation or governmental authority other than the Securities
Act.
9. Rule 144. Until the earlier of the termination of this Agreement, or the date on which all Subscribers shall have
sold all of their Ordinary Shares and Ordinary Shares underlying the Investor Warrants and the Broker shall have sold all of the
Ordinary Shares underlying their Placement Agent Warrants, the Company shall file in a timely manner all reports required to be
filed with the SEC pursuant to the Exchange Act, and the regulations of the SEC thereunder, and the Company shall not terminate
its status as an issuer required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations
thereunder would otherwise permit such termination (the “Company Reporting Obligations”); provided, however, that twelve
(12) months after the final closing date of the Offering the Company shall only use commercially reasonable efforts with respect
to the Company Reporting Obligations.
10. Independent Nature of Each Holder’s Obligations and Rights. The obligations of each Holder under this
Agreement are several and not joint with the obligations of any other Holder, and each Holder shall not be responsible in any way
for the performance of the obligations of any other Holder under this Agreement. Nothing contained herein and no action taken
by any Holder pursuant hereto, shall be deemed to constitute such Holders as a partnership, an association, a joint venture, or any
other kind of entity, or create a presumption that the Holders are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by this Agreement. Each Holder shall be entitled to independently protect and
enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other
Holder to be joined as an additional party in any proceeding for such purpose.
11
11. Miscellaneous.
Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would
cause the application of the laws of any jurisdictions other than the State of New York. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York,
Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such
notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. If any provision of this Agreement shall be invalid or unenforceable in
any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder
of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any
other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.
(a) Remedies. In the event of a breach by the Company or by a Holder of any of their respective obligations
under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted
by law and under this Agreement, including recovery of damages, shall be entitled to specific performance of its rights under this
Agreement.
(b) Successors and Assigns. Except as otherwise provided herein, the provisions hereof shall inure to the
benefit of, and be binding upon, the successors, Permitted Assignees, executors and administrators of the parties hereto.
(c) No Inconsistent Agreements. The Company has not entered, as of the date hereof, and shall not enter, on
or after the date of this Agreement, into any agreement that conflicts with the provisions hereof. Notwithstanding anything to the
contrary contained herewith, except as specifically provided in this Agreement, any action by the Company which could have the
effect of diminishing the value of any Registrable Securities, including, without limitation, the issuance of additional stock or
other securities, the granting of registration rights to others, and actions in connection with the operation of the business of the
Company, shall not by itself, absent bad faith, be deemed an impairment of the rights granted to the Holders in this Agreement.
12
(d) Entire Agreement. This Agreement and the documents, instruments and other agreements specifically
referred to herein or delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with
regard to the subjects hereof.
(e) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or
otherwise affect the meaning hereof.
(f) Notices, etc. All notices, consents, waivers, and other communications which are required or permitted
under this Agreement shall be in writing will be deemed given to a party (a) on the date of delivery, if delivered to the appropriate
address by hand or by nationally recognized overnight courier service (costs prepaid); (b) the date of transmission if sent by
facsimile or e-mail with confirmation of transmission by the transmitting equipment if such notice or communication is delivered
prior to 5:00 P.M., New York City time, on a Business Day, or the next Business Day after the date of transmission, if such notice
or communication is delivered on a day that is not a Business Day or later than 5:00 P.M., New York City time, on any Business
Day; (c) the date received or rejected by the addressee, if sent by certified mail, return receipt requested; or (d) seven days after
the placement of the notice into the mails (first class postage prepaid), to the party at the address, facsimile number, or e-mail
address furnished by the such party,
if to the Company, to:
Entera Bio Ltd.
37 Walnut Street, Suite 300
Wellesley Hills, MA 02481
Attention: Adam Gridley, CEO
Email: adam@enterabio.com
with copy to:
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017
Attention: Gil Savir, Esq.
Email: gil.savir@davispolk.com
if to a Subscriber, to:
the subscriber physical or email address set forth on Exhibit B attached hereto; or
if to a Broker, to:
such Broker at the address set forth on the Broker’s signature page hereto;
or at such other address as any party shall have furnished to the other parties in writing in accordance with this
Section 11(f).
13
(g) Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any
Holder, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy of such
Holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of any similar breach
or default thereunder occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any
Holder of any breach or default under this Agreement, or any waiver on the part of any Holder of any provisions or conditions of
this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies,
either under this Agreement, or by law or otherwise afforded to any holder, shall be cumulative and not alternative.
(h) Counterparts. This Agreement may be executed in any number of counterparts, and with respect to any
Subscriber, by execution of an Omnibus Signature Page to this Agreement and the Subscription Agreement, each of which shall
be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument.
In the event that any signature is delivered by facsimile transmission or by an e- mail, which contains a portable document format
(.pdf) file of an executed signature page, such signature shall create a valid and binding obligation of the party executing (or on
whose behalf such signature is executed) with the same force and effect as if such facsimile or e-mail of a .pdf signature page
were an original thereof.
(i) Filing of the Agreement. The Company in order to comply with applicable laws (including the Securities
Act or Exchange Act, SEC rules or Nasdaq rules) may make this agreement public, including, without limitation, filing of the
Agreement and any other related documents with the Commission using the EDGAR system
(j) Severability. In the case any provision of this Agreement shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
(k) Amendments. Except as otherwise provided herein, the provisions of this Agreement may be amended at
any time and from time to time, and particular provisions of this Agreement may be waived, with and only with an agreement or
consent in writing signed by the Company and majority of the Holders.
[Company Signature Page Follows]
14
This Registration Rights Agreement is hereby executed as of the date first above written.
THE COMPANY:
Entera Bio Ltd.
By: /s/ Adam Gridley
Name: Title:
Adam Gridley
Chief Executive Officer
BROKER (ENTITY):
GP Nurmenkari, Inc
Print Name of Entity
By: /s/ Albert William Pezone
Name: Albert William Pezone
Title: CEO
SUBSCRIBERS
See Omnibus Signature Pages to the Subscription Agreement
BROKER (INDIVIDUAL):
Print Name
Signature
Broker: Address
[Signature Page to Registration Rights Agreement]
15
The following is a list of subsidiaries of Entera Bio Ltd. as of December 31, 2019:
Entera Bio Ltd.
SUBSIDIARY
Entera Bio Inc.
STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION
Delaware
Exhibit 8.1
Form of 302 Certification
CERTIFICATIONS*
I, Jonathan Lieber, certify that:
1. I have reviewed this annual report on Form 20-F of Entera Bio Ltd.;
Exhibit 12.1
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by
the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial
reporting; and
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal
control over financial reporting.
Date: March 26, 2020
/s/ Jonathan Lieber
Name: Jonathan Lieber
Title: Chief Financial Officer
Form of 302 Certification
CERTIFICATIONS*
I, Jonathan Lieber, certify that:
1. I have reviewed this annual report on Form 20-F of Entera Bio Ltd.;
Exhibit 12.2
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by
the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial
reporting; and
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal
control over financial reporting.
Date: March 26, 2020
/s/ Jonathan Lieber
Name: Jonathan Lieber
Title: Chief Financial Officer
Exhibit 13.1
CERTIFICATION BY THE PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18
U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
The certification set forth below is being submitted in connection with the Annual Report on Form 20-F of Entera Bio Ltd.
(the “Company”) for the fiscal year ended December 31, 2019 (the “Report”), I, Adam Gridley, certify pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
1.
2.
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 26, 2020
By:
/s/ Adam Gridley
Name: Adam Gridley
Title: Chief Executive Officer
Exhibit 13.2
CERTIFICATION BY THE PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18
U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
The certification set forth below is being submitted in connection with the Annual Report on Form 20-F of Entera Bio Ltd.
(the “Company”) for the fiscal year ended December 31, 2019 (the “Report”), I, Jonathan Lieber, certify pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
1.
2.
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 26, 2020
By:
/s/ Jonathan Lieber
Name: Jonathan Lieber
Title: Chief Financial Officer
Exhibit 15.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-227488) of Entera Bio
Ltd. of our report dated March 26, 2020, relating to the financial statements, which appears in this Form 20‑F.
/s/ Kesselman & Kesselman
Kesselman & Kesselman
Certified Public Accountants (lsr.)
A member firm of PricewaterhouseCoopers International Limited
Tel-Aviv, Israel
March 26, 2020
Kesselman & Kesselman, Trade Tower, 25 Hamered Street, Tel-Aviv 6812508, Israel,
P.O Box 50005 Tel-Aviv 6150001 Telephone: +972 -3- 7954555, Fax:+972 -3- 7954556, www.pwc.com/il