Foamix Pharmaceuticals Ltd
Annual Report 2017

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-K(MarkOne) ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2017 or ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from toCommission File Number 001-33299Foamix Pharmaceuticals Ltd.(Exact name of registrant as specified in its charter)Israel(State or other jurisdiction ofincorporation or organization) Not Applicable(I.R.S. EmployerIdentification Number)2 Holzman Street, Weizmann Science ParkRehovot 7670402, Israel(Address of principal executive offices, including zip code)+972-8-9316233(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act:Title of Each Class: Name of Each Exchange on Which Registered:Ordinary shares, par value NIS 0.16 per share NASDAQ Global MarketSecurities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes☐ No ☒Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. 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 1934during 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 filingrequirements for the past 90 days. Yes ☒ No ☐Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files). Yes ☒ No ☐ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to thebest of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to thisForm 10-K. ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer ☐Accelerated filer ☒ Non-accelerated filer ☐ (Do not check if a smaller reporting company)Smaller reporting company ☐ Emerging growth company ☒If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any newor revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐ No ☒The aggregate market value of the registrant’s ordinary shares, par value NIS 0.16 per share, held by non-affiliates of the registrant on June 30, 2017, thelast business day of the registrant’s most recently completed second fiscal quarter, was approximately $121 million (based on the closing sales price of theregistrant’s ordinary shares on that date). Ordinary shares held by each director and executive officer of the registrant, as well as shares held by each holder ofmore than 10% of the ordinary shares known to the registrant, have been excluded in that such persons may be deemed to be affiliates. This determination ofaffiliate status is not necessarily a conclusive determination for other purposes.The total number of shares outstanding of the registrant’s ordinary shares, par value NIS 0.16 per share, as of February 26, 2018, was 37,551,199. DOCUMENTS INCORPORATED BY REFERENCE None ii FOAMIX PHARMACEUTICALS LTD.FORM 10-KTABLE OF CONTENTS Page No. PART I2ITEM 1.Business2ITEM 1A.Risk Factors20ITEM 1B.Unresolved Staff Comments47ITEM 2.Properties47ITEM 3.Legal Proceedings47ITEM 4.Mine Safety Disclosures47 PART II47ITEM 5.Market For Registrant’s Ordinary Shares, Related Shareholder Matters and Issuer Purchases of Equity Securities47ITEM 6.Selected Financial Data49ITEM 7.Management's Discussion and Analysis of Financial Condition and Results of Operations50ITEM 7A.Quantitative and Qualitative Disclosures About Market Risk59ITEM 8.Financial Statements and Supplementary DataF-1ITEM 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure61ITEM 9A.Controls and Procedures61ITEM 9B.Other Information61 PART III62ITEM 10.Directors, Executive Officers and Corporate Governance62ITEM 11.Executive Compensation68ITEM 12.Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters76ITEM 13.Certain Relationships and Related Transactions, and Director Independence79ITEM 14.Principal Accountant Fees and Services79 PART IV80ITEM 15.Exhibits and Financial Statement Schedules80ITEM 16.Form 10-K Summary80Signatures 82 iii DEFINITIONS Unless otherwise indicated, all references to the “company,” “we,” “us,” “our” and “Foamix” refer to Foamix Pharmaceuticals Ltd. and its subsidiary,Foamix Pharmaceuticals Inc., a Delaware corporation. 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 Global Stock Market; References to “ordinary shares” are to our ordinary shares, par value of NIS 0.16 per share; 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, and references to “NIS” are to New Israeli Shekels. USE OF TRADEMARKS “Foamix”, the Foamix logo and other trademarks or service marks of Foamix appearing in this Annual Report on Form 10-K are the property of Foamix.This Form 10-K also contains trade names, trademarks and service marks of others, which are the property of their respective owners. We do not intend our useor display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these othercompanies. FORWARD-LOOKING STATEMENTS This annual report contains express or implied “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995and other U.S. Federal securities laws. These forward-looking statements include, but are not limited to, statements regarding the following matters: -U.S. Food and Drug Administration, or FDA, approval of, or other regulatory action in the U.S. and elsewhere with respect to, our product candidates; -the commercial launch of current or future product candidates; -our ability to achieve favorable pricing for our product candidates; -our expectations regarding the commercial supply of our product candidates; -third-party payor reimbursement for our product candidates; -our estimates regarding anticipated expenses, capital requirements and needs for additional financing; -the patient market size of any diseases and market adoption of our products by physicians and patients; -the timing, cost or other aspects of the commercialization of our product candidates; -the completion of, and receiving favorable results of, clinical trials for our product candidates; -application for and issuance of patents to us by the United States Patent and Trademark Office, or U.S. PTO, and other governmental patent agencies; -development and approval of the use of our product candidates for additional indications; and -our expectations regarding licensing, business transactions and strategic operations. In some cases, forward-looking statements are identified by terminology such as “may,” “will,” “could,” “should,” “expects,” “plans,” “anticipates,”“believes,” “intends,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these terms or other comparable terminology. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or performance to differ materially fromthose projected. These statements are only current predictions and are subject to known and unknown risks, uncertainties, and other factors that may causeour or our industry’s actual results, levels of activity, performance or achievements to be materially different from those anticipated by the forward-lookingstatements. In addition, historic results of scientific research and clinical and preclinical trials do not guarantee that the conclusions of future research ortrials would not be different, and historic results referred to in this Annual Report on Form 10-K may be interpreted differently in light of additional researchand clinical and preclinical trials results. The forward-looking statements contained in this annual report are subject to risks and uncertainties, includingthose discussed under “Item 1A—Risk Factors” and in our other filings with the Securities and Exchange Commission, or the SEC. Readers are cautioned notto place undue reliance on these forward-looking statements, which speak only as of the date hereof. Although we believe that the expectations reflected inthe forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required bylaw, we are under no duty to (and expressly disclaim any such obligation to) update or revise any of the forward-looking statements, whether as a result ofnew information, future events or otherwise, after the date of this annual report.  STATEMENTS BY RESEARCH OR FORECAST FIRMS 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 responsibilityfor the contents or opinions represented in such statements or reports, nor for the updating of any information contained therein. PART I ITEM 1 — BUSINESS Overview We are a clinical-stage specialty pharmaceutical company focused on developing and commercializing our proprietary minocycline foam for thetreatment of acne, rosacea and other skin conditions. Our lead product candidates, FMX101 for moderate-to-severe acne and FMX103 for treatment ofmoderate-to-severe papulopustular rosacea, are novel topical foam formulations of the antibiotic minocycline. Based on the results demonstrated in ourPhase II and Phase III clinical trials for FMX101 and our Phase II clinical trial for FMX103, we believe these product candidates have the potential to providea fast, effective and well-tolerated treatment for their respective indications, which are currently underserved and commonly treated by oral prescriptionproducts such as oral minocycline, oral doxycycline and various other non-foam topical therapies. We are currently investing the majority of our efforts and resources to advance our third pivotal Phase III clinical trial (Study 22) for FMX101 in the U.S. We announced the first patient enrolled in this trial on August 3, 2017. We expect to have top-line results from this trial in the third quarter of 2018. InMarch of 2017, we announced the results of the double-blind stage of our two initial Phase III clinical trials. Statistical significance was demonstrated in bothco-primary efficacy endpoints in one study (Study 05), however, statistical significance was demonstrated in only one of the co-primary efficacy endpoints inthe second study (Study 04). Statistical significance was also demonstrated for FMX101 compared to vehicle in the pooled analysis of the co-primaryendpoints as well as key secondary endpoints. The third trial was initiated following a Type B meeting conducted with the FDA in June of 2017. During thismeeting, we confirmed that achieving statistically significant results for FMX101 versus vehicle in both co-primary efficacy endpoints in a third independentclinical trial would be sufficient for establishing an efficacy claim. A previous Phase II clinical trial of FMX101 also demonstrated clinically and statisticallysignificant results in all primary and secondary endpoints. In January 2018, we announced the completion of a long-term safety study that was an extensionof our two initial Phase III clinical trials for FMX101. The results from the study showed FMX101 to be well-tolerated and to have an acceptable safetyprofile. We are also investing significant efforts and resources to advance our two pivotal Phase III clinical trials in the U.S. for FMX103, minocycline foam formoderate-to-severe papulopustular rosacea, after our Phase II clinical trial for FMX103 demonstrated clinically and statistically significant results in allprimary and secondary endpoints. We announced the enrollment of the first patient in our Phase III trials on June 12, 2017. We expect to have top-line resultsfrom the blinded stage of both trials by the end of the third quarter or in the beginning of the fourth quarter of 2018, and to complete the trials, including along-term safety extension study, in 2019. In addition, we successfully completed a Phase II clinical trial with FDX104, our proprietary doxycycline foam for the management of moderate-to-severerash associated with epidermal growth factor receptor inhibitor (EGFRI) anticancer treatments, and we are currently assessing our various options with regardto this product candidate, including seeking out licensing opportunities for it. We have also successfully completed a Phase II clinical trial of FMX102, ourminocycline foam for the treatment of impetigo, including impetigo caused by methicillin-resistant staphylococcus aureus, or MRSA. However, as describedin previous reports, we have been contemplating the commercial viability of this product candidate for some time, given its limited market dominated bygeneric products, and following additional analysis of its potential we have recently decided to discontinue its further development in light of our currentpriorities and our other ongoing research and development efforts. We developed FMX101, FMX102, FMX103 and FDX104 using our proprietary technology, which includes our foam-based platforms. This technologyenables us to formulate and stabilize a wide variety of drugs and deliver them directly to their target site. We have independently developed a series ofproprietary foam platforms, each having unique pharmacological features and characteristics. Our foam platforms may offer significant advantages overalternative delivery options and are suitable for multiple application sites. We believe our proprietary foam-based platform may serve as a foundation indeveloping a potential pipeline of products across a range of conditions. Beside our in-house development projects, we have entered into development and license agreements relating to our technology with variouspharmaceutical companies such as Bayer HealthCare AG, Mylan N.V. and Actavis Laboratories. Our total revenues from such agreements from our inceptionthrough December 31, 2017 were approximately $28.1 million. 2 In the third quarter of 2015, Bayer began selling Finacea® Foam (azelaic acid) 15%, or Finacea, for the treatment of rosacea in the U.S. Finacea is aprescription foam product which was developed as part of a research and development collaboration between Foamix and Bayer, utilizing one of Foamix’sproprietary foam technology platforms. According to our license agreement with Bayer, we are entitled to royalties and certain contingent payments uponthe commercialization of Finacea based on Bayer’s net sales of Finacea. In 2017 we were entitled to receive royalty payments from Bayer in a total amount of$3.5 million for sales of Finacea. In January 2018, we filed a Complaint along with Bayer AG and Bayer HealthCare Pharmaceuticals Inc., alleging patentinfringement under the patent laws of the United States arising out of the submission by defendant Teva Pharmaceuticals USA, Inc. of an Abbreviated NewDrug Application, or ANDA, to the FDA, seeking approval to manufacture and sell a generic version of Bayer’s Finacea. In February 2018, Bayer and Foamixfiled a Complaint alleging patent infringement under the patent laws of the United States arising out of the submission by defendant Perrigo UK FINCOLimited Partnership, or Perrigo, of an ANDA to the FDA, seeking approval to manufacture and sell a generic version of Bayer’s Finacea. See also “Item 1A—Risk Factors—Risks Related to Our Intellectual Property—We have received notice letters of ANDAs submitted for drug products that are generic versions ofFinacea and we are involved in lawsuits to protect or enforce our patents, which could be expensive, time consuming and unsuccessful.” Product Candidates and Pipeline The following chart provides a summary of the developmental pipeline for our lead product candidates: Product CandidatePreclinicalPhase IIPhase IIIPlanned MilestonesFMX101 (4%) forModerate-Severe Acne Study 04 / 05 top-line results announcedLong-term safety study completed3rd Phase III initiated August 2017Top-line results – Q3 / Q4 2018NDA filing – H2 2018FMX103 (1.5%) forModerate-SevereRosacea Phase II completedPhase III initiated June 2017Top-line results – end of Q3 or beginning of Q42018NDA filing – 2019FMX101 for moderate-to-severe acne Our lead product candidate, FMX101, minocycline foam 4%, is a novel topical foam formulation of minocycline for the treatment of moderate-to-severeacne. Market opportunity Acne is characterized by areas of scaly red skin, non-inflammatory blackheads and whiteheads, inflammatory lesions, papules and pustules andoccasionally boils and scarring. It affects approximately 40 to 50 million people in the U.S. alone, of whom approximately 10 million suffer from moderate-to-severe acne. For most people, acne diminishes over time and tends to disappear or decrease, by age 25. However, some individuals continue to suffer fromacne well into their 30s, 40s and later. The current U.S. market size for acne is considerable and estimated at approximately $3 billion, presenting significant unmet needs of patients andhealthcare providers to be addressed. We believe that our FMX101 product candidate for this indication, if approved, may provide a new treatmentalternative for patients and healthcare providers who are unsatisfied with their current therapies. Limitations of oral minocycline for acne Oral minocycline, such as Solodyn, has been widely prescribed for the treatment of moderate-to-severe acne. According to the product label of Solodyn,inflammatory lesions were reduced by 44% at week 12, and a positive effect on the reduction of non-inflammatory acne lesions versus vehicle was notdemonstrated. According to its product label, the most common adverse systemic side effects of Solodyn include diarrhea, dizziness, drowsiness, indigestion,lightheadedness, loss of appetite, nausea, sore mouth, throat or tongue and vomiting. In 2009, the FDA added oral minocycline to its Adverse Event Reporting System, a list of medications under investigation by the FDA, due to its severeside effects. In 2011, we conducted a blind survey of 40 U.S. dermatologists. The results of the survey revealed that 90% of the dermatologists surveyed whoprescribed oral minocycline were concerned about its side effects, and 76% of these dermatologists stated they would prefer prescribing a topicalminocycline product over an existing oral medication, assuming the topical treatment was safe, effective and approved by the FDA. 3 FMX101 clinical trials FMX101 Phase II clinical trial We conducted a randomized, double-blind, dose-ranging, controlled Phase II clinical trial in Israel over 12 weeks with 150 patients between 12 and 25years old with a mean age of approximately 16.5 years, each presenting with a minimum of 20 inflammatory and 25 non-inflammatory facial acne lesions.The patients were randomly divided into three groups of 50 patients each, with one group receiving a 1% concentration of our minocycline foam, a secondgroup receiving a 4% concentration and a third control group receiving our foam vehicle without minocycline, which we refer to as the vehicle. Each patientreceived one application daily before bedtime. The primary efficacy endpoints of the trial were: ·the reduction in inflammatory and non-inflammatory lesions (as well as the total counts of facial lesions) over the course of the 12-week treatmentperiod; ·improvement in the investigator’s global assessment, or IGA, based on the uniform graded scale adopted for the trial, ranging from “clear” skin with noinflammatory or non-inflammatory lesions to “severe acne”, as well as safety and tolerability. The trial was completed in 2013 and showed a dose-dependent effect that was statistically significant for both primary endpoints of the trial. Notably, theeffect on inflammatory lesions became statistically significant in the 4% dosage group versus the vehicle-only treatment group after just three weeks oftherapy, and there was an approximate 72% reduction in inflammatory lesions reached in the 4% dosage group after 12 weeks of treatment. Additionally, forthe patients in the 4% dosage group, the effect on non-inflammatory lesions also became statistically significant versus the vehicle-only group after twelveweeks of therapy, with approximately a 73% reduction in non-inflammatory lesions. The percent of patients with IGA improvement of at least two grades and a grading of clear or almost clear (score of 0 or1) at the completion of the trialwas 20% in the 4% dosage group, compared with 4% in the 1% dosage group and 2% in the vehicle-only treatment. The safety and tolerability profile of the drug was also favorable, with no serious adverse events and no reported drug-related systemic side effects. Thecases of skin reaction in the trial were few, mild and transient, with all reactions subsiding by week 12 of treatment, and there was similar incidence of skinreaction in all three groups. The following charts show the reduction of inflammatory lesion count from baseline and over the trial period for the 4% dosage, 1% dosage and vehicletreatment groups and the percentage of patients who met the IGA success criterion: While we did not file a formal application for an IND with the FDA in connection with the FMX101 Phase II clinical trial, the trial was conducted incompliance with the International Conference of Harmonization, or ICH, good clinical practice, or GCP, guidelines and applicable Israel Ministry of Healthregulations. The trial protocol complied with the procedures, criteria and endpoints specified by the FDA’s 2005 draft industry guidance for acne trials.Because minocycline, the active ingredient in FMX101, is a well-known drug with an established safety profile, the ethical committee for our Phase IIclinical trial and the Israeli Ministry of Health allowed us to conduct the Phase II clinical trial of FMX101 without having first conducted a Phase I clinicaltrial. 4 We completed a Phase I maximum use pharmacokinetics study of FMX101, intended to characterize the systemic absorption of minocycline after repeatedmaximum-dose applications in patients with moderate-to-severe acne, and to assess the relative bioavailability of topically-applied FMX101 compared toorally-administered Solodyn (minocycline HCl). The study enrolled 30 patients with moderate-to-severe acne on their face and on two or more other regions(neck, upper chest, upper back or arms) in a single-center, nonrandomized, open-label, active-controlled, two-period and two-treatment evaluation. Each ofthe patients received a single dose of Solodyn, 1 mg/kg in accordance with its approved instructions for use, and one week later received 4 grams of FMX101applied topically once daily for 21 days. The study showed that the bioavailability, or systemic exposure, of minocycline following topical FMX101administration was approximately 700 times lower than that of Solodyn, and that FMX101 was well-tolerated with no serious adverse events being reported. In addition, we completed a single-center, non-randomized, open-label study to evaluate multiple dose topical administration of FMX101 4%minocycline foam in 20 subjects with ages ranging from 9 years to 16 years 11 months years of age with moderate to severe acne vulgaris. The objectiveswere to characterize minocycline pharmacokinetics after administration of FMX101 4% once daily for 7 days under maximal use conditions and to evaluatethe safety and tolerability. The levels of minocycline were relatively constant over the entire sampling interval on day 7. The overall average plasma concentration of minocycline,across all age ranges, was comparable with the equivalent adult study. Concentrations tended to be slightly higher in the subjects aged 9 to 11 years(approximately 3.5 ng/mL) and subjects aged 12 to 14 years (approximately 2.5 ng/mL) than the subjects aged 15 years to 16 years 11 months(approximately 1.7 ng/mL). Similar to the study in adult patients, FMX101 was well-tolerated with no serious adverse events being reported. A series of Phase I human dermal safety studies, were completed in 2016. Results of these trials were as expected and no safety signals were detected. As part of our overall development plan for FMX101, we have conducted a series of animal safety studies, which revealed no signs of toxicity. Wecompleted a long-term, 39-week dermal toxicity study in mini pigs, which included concentrations of our minocycline foam up to 16%. Results from thisstudy also reflect no toxicity associated with our drug product. We also held an End of Phase II meeting with the FDA to review the clinical development plan for FMX101, and implemented the comments we receivedfrom the FDA regarding overall study design, primary efficacy endpoints, and safety assessments in the FMX101 Phase III program. FMX101 initial two Phase III clinical trials Based on the results of the Phase II clinical trial, as described above, and guidance from the FDA in a pre-IND meeting, we conducted two multi-centerpivotal Phase III clinical trials in the U.S. for FMX101 (minocycline foam 4%) in moderate-to severe acne, known as Studies 04 and 05. In November 2016 we completed patient enrollment resulting in an intent-to-treat population of 961 patients with moderate-to-severe acne enrolledbetween the two trials. Patients were randomized on a 2:1 basis (active compound versus vehicle-only), initially into a 12-week double-blind phase wherethey were treated topically once daily with either FMX101 (minocycline foam 4%) or the respective foam vehicle. The two co-primary efficacy endpoints ofboth trials were: (1) the absolute change from baseline in inflammatory lesion counts in each treatment group at week 12; and (2) the proportion of patientsachieving success at week 12 as defined by an IGA score of 0 “clear” or 1 “almost clear” and at least a two-grade improvement from baseline at week 12.Safety evaluation includes reported adverse events, assessments of tolerability, clinical laboratory tests and vital signs. Patients who completed the 12-weekdouble-blind portion of the trials had the option to continue in a long-term open-label safety extension, aimed at evaluating the safety of intermittent use ofFMX101 for up to nine additional months. On March 27, 2017 we announced top-line data from our two Phase III clinical trials for FMX101. In the intent-to-treat analysis, FMX101 demonstratedstatistical significance compared to vehicle on both co-primary endpoints in Study 05 (specifically the absolute reduction in inflammatory lesions at week12, and investigator global assessment treatment success (IGA0/1) at week 12 compared to baseline). In Study 04, statistical significance was demonstratedfor FMX101 compared to vehicle in the co-primary endpoint of absolute reduction in inflammatory lesions. However, statistical significance was notachieved in the co-primary endpoint of IGA0/1. On May 3, 2017 we provided new data from our two Phase III clinical trials for FMX101, including a pooled analysis of our co-primary endpoints andcertain secondary clinical endpoints (absolute reduction of non-inflammatory lesions at week 12; and percent change in inflammatory lesions at weeks 3, 6, 9and 12). Statistical significance was demonstrated for FMX101 compared to vehicle in the pooled analysis of the co-primary endpoints as well as thesecondary endpoints presented. 5 The following charts show the reduction of inflammatory lesion count from baseline for FMX101 4% and vehicle treatment groups in each of Studies 04and 05 and on a pooled basis at week 12: The following charts show the percentage of patients who met the IGA treatment success criterion at week 12 (defined as at least a 2 grade point reductionfrom baseline IGA score and a final score of “clear” (0) or “almost clear” (1)) for FMX101 4% and vehicle treatment groups in each of Studies 04 and 05 andon a pooled basis at week 12: FMX101 third Phase III clinical trial On June 21, 2017, following the top-line data from Studies 04 and 05, we held a Type B Meeting with the FDA, during which we confirmed thatstatistically significant findings from a third study would constitute replication of the Study 05 results and would be sufficient for establishing an efficacyclaim. This confirmation reaffirmed our plans for conducting a third Phase III trial for FMX101. On August 3, 2017 we announced the dosing of the first patient in our third Phase III acne clinical trial, known as Study 22, which is designed as a double-blind, vehicle-controlled, multi-center trial conducted at approximately 80 sites throughout the U.S. that will enroll a target number of 1,500 patients withmoderate-to-severe acne. Patients are randomized 1:1 to either FMX101 4% dosage or vehicle, with once daily treatment for 12 weeks. The primary endpointsare identical to the primary endpoints in Studies 04 and 05. We selected Premier Research International LLC, or Premier Research, as our designated clinical research organization (CRO) for the execution of ourthird Phase III trial in acne. Premier Research has significant experience in the execution of global clinical trial programs and is a recognized leader inclinical trial management within the field of dermatology. We expect to have top-line results from the trial in the third quarter of 2018 and to complete thetrial by the end of 2018. 6 FMX101 open-label safety extension study On January 4, 2018, we announced positive safety data for our Phase III open-label safety extension study, evaluating FMX101 in moderate-to-severeacne for a treatment period of up to one year. The open-label safety extension enrolled a total of 657 patients, all of whom had completed 12 weeks ofFMX101 or vehicle treatment in the preceding double-blind phase of Studies 04 and 05. Patients continued open-label treatment with FMX101 for up to anadditional 40 weeks. 291 patients completed a total of 52 weeks on FMX101 therapy, which exceeds the subject sample size requirements specified in theregulatory guidance for this type of safety evaluation (ICH E1A, 1995). No serious drug-related adverse events were reported in this comprehensive safetyevaluation, which validated earlier data demonstrating that FMX101 appears to be well-tolerated and has an acceptable safety profile. More specifically, thestudy found that: ·non-dermal adverse events were comparable in type and frequency with those reported during the double-blinded portion of Studies 04 and 05, withthe most frequently reported treatment-emergent adverse event being nasopharyngitis, or common cold. Three patients discontinued the study for non-dermal adverse events, two of them for abdominal pain and one for back pain; ·application-site adverse events occurred in less than 2% of patients during the additional 40 weeks of open-label treatment. Four patients discontinuedthe study for an application-site adverse event – two patients for worsening of acne, one for contact dermatitis and one for localized facial edema. Inthe assessment of facial dermal tolerability at week 52, more than 95% of patients had “none” or “mild” signs and symptoms such as erythema,dryness, hyperpigmentation, peeling, and itching, and no severe local tolerability scores were recorded; ·subject satisfaction with FMX101 treatment remained high when re-assessed at week 52, which was consistent with scores obtained at the end of thedouble-blind phase of Studies 04 and 05 at week 12. Efficacy was also measured as a secondary endpoint in the open-label study for FMX101, and was based on summary statistics from observed cases.During the study, patients were allowed to discontinue therapy with FMX101 if they believed their acne was under control. Patients could re-start therapy asneeded and were also allowed to use other acne medications concomitantly. As a result, no claim of statistical difference was made between any of thetreatment arms, however notable findings were observed: ·At week 52, 37.7% of patients from Study 04 had an Investigator’s Global Assessment (IGA) score of 0 (clear) or 1 (almost clear) and 50.3% of subjectsfrom Study 05 had an IGA score of 0 or 1. ·At week 52, patients from Study 04 had a 64.3% reduction in inflammatory lesions and patients from Study 05 had a 78% reduction in inflammatorylesions. ·At week 52, patients from Study 04 had a 52.5% reduction in non-inflammatory lesions and patients from Study 05 had a 59.6% reduction in non-inflammatory lesions. Next steps We expect to develop FMX101 through the FDA’s 505(b)(2) regulatory pathway, which permits the filing of a new drug application where at least some ofthe information required for approval comes from studies that were not conducted by or for the applicant, and for which the applicant has not received a rightof reference. This approach could expedite the development program for FMX101 by potentially decreasing the amount of clinical data that we would needto generate in order to obtain FDA approval. For additional information see “Item 1A—Risk Factors—Risks Related to Our Business and Industry—If theFDA does not conclude that FMX101 or FMX103 satisfy the requirements under Section 505(b)(2) of the Federal Food Drug and Cosmetics Act, or Section505(b)(2), or if the requirements for this product candidate under Section 505(b)(2) are not as we expect, the approval pathway for this product candidate willlikely take significantly longer, cost significantly more and entail significantly greater complications and risks than anticipated, and in either case may notbe successful.” FMX103 for moderate-to-severe papulopustular rosacea Our product candidate, FMX103, minocycline foam 1.5%, is a novel topical foam formulation of minocycline for the treatment of moderate-to-severepapulopustular rosacea. Market opportunity Papulopustular rosacea is a chronic skin disease causing inflammatory lesions (papules and pustules) on the face. It can create psychosocial burdens, suchas embarrassment, anxiety and low self-esteem that adversely affect quality of life. Rosacea is most frequently seen in adults between 30 and 50 years of ageand affects more than 16 million people in the U.S. alone. There is no known cure for rosacea and the exact root cause of the disease remains unknown aswell, though both genetic and environmental factors are thought to have an impact on its outbreak. Mild papulopustular rosacea is currently treated bytopical antimicrobials (such as metronidazole, clindamycin and ivermectin) or azelaic acid, while the mainstay for the treatment of moderate-to-severerosacea are systemic antibiotics such as minocycline and doxycycline. The current U.S. market size for rosacea is estimated to be approximately $1.0 billion, and we believe that our FMX103 product candidate for thisindication, if approved, can offer advantages over other currently available products. FMX103 clinical trials FMX103 Phase II clinical trials In the third quarter of 2016 we announced positive top-line results from our Phase II trial evaluating FMX103. The double-blind, randomized, vehicle-controlled Phase II trial was conducted in 18 sites in Germany and included 233 patients with moderate-to-severe rosacea. Patients were randomized toreceive either one of two doses of FMX103 minocycline foam (3% or 1.5%) or vehicle foam once daily over 12 weeks, followed up by a four-week post-treatment evaluation. The efficacy endpoints were (a) the absolute change in the number of inflammatory lesions – papules and pustules (primary endpoint),and (b) improvement of the IGA (first secondary endpoint). Safety and tolerability were also evaluated. The mean baseline lesion count for all groups rangedfrom 30.6 to 34.5 and the IGA scores were all moderate (score 3) or severe (score 4) with approximately 50-60% of the subjects having a severe rating. 7 At week 12, statistically significant results were demonstrated in the reduction of inflammatory lesions (papules and pustules) versus vehicle in both the1.5% and 3% doses of FMX103. The mean reduction in lesion count of each treatment group versus its baseline was 21.1 for the 1.5% dose, 19.9 for the 3%dose and 7.8 for vehicle. The corresponding percent reductions were 61.4% and 55.5% for the FMX103 1.5% and 3% groups, respectively, and 29.7% for thevehicle. The trial further showed a significant improvement in IGA scores. Both the 1.5% and 3% doses of FMX103 were significantly better compared tovehicle alone in reducing the IGA score by two grades and in reaching a “clear” (score=0) or “almost clear” (score=1) rating at week 12 (p<0.01 and p<0.05,respectively). The percentage of subjects achieving IGA success, defined as at least a two-grade point reduction and a rating of clear or almost clear (score of0 or 1), was 25.3 for the 1.5% dose, 17.3 for the 3% dose, and 7.7 for vehicle. Both the 1.5% and 3% doses were efficacious and there was no statisticallysignificant difference between these two doses. The following charts show the percent reduction of inflammatory lesions (papules & pustules) and the percentage of patients who met the IGA successcriterion: FMX103 also appeared to be generally safe and well-tolerated. During the Phase II trial, there were no serious adverse events and no drug related systemicadverse events were reported. A few patients overall exhibited treatment-related dermal adverse events (four in the 3% group, five in the vehicle group andnone in the 1.5% group). Four patients discontinued the trial due to an adverse event – three in the 3% group and one in the vehicle group. FMX103 Phase III clinical trials In December 2016, we conducted a pre-IND meeting with the FDA to confirm that our clinical and non-clinical programs outlined were sufficient tosubmit an IND and to begin our Phase III clinical trials, utilizing the results of toxicology, pharmacology and human safety studies that were completed forFMX101. On June 12, 2017 we announced that the first patient had been dosed in our Phase III program to evaluate the efficacy and safety of our topicalminocycline foam 1.5% FMX103 for the treatment of moderate-to-severe rosacea. The Phase III program consists of two multi-center trials, (referred to asStudies 11 and 12) conducted at approximately 80 sites throughout the U.S., implementing protocols and endpoints in accordance with the FDA’s guidanceas provided in the pre-IND meeting. Each trial is expected to enroll approximately 750 patients with moderate-to-severe papulopustular rosacea into a 12-week double-blind, vehicle-controlled phase. Patients are randomized on a 2:1 basis (1.5% minocycline foam versus vehicle) and treated once daily for 12weeks in the initial double-blind portions of the trials. The primary efficacy endpoints are (a) the dichotomized IGA score where treatment success is definedas at least a 2-step improvement resulting in a 0 (clear) or 1 (almost clear) score at week 12 compared to day 0 / baseline, and (b) the absolute change in theinflammatory lesion count at week 12 compared to day 0 / baseline. Safety evaluation will include reported adverse events, assessments of tolerability,clinical laboratory tests and vital signs. The two double-blinded efficacy trials will be followed by an open-label safety extension study (Study 13) toevaluate the safety of FMX103 for up to an additional 40 weeks. 8 As in our third Phase III trial in acne, we selected Premier Research as our designated CRO for the execution of our two Phase III trials in rosacea as well asthe open-level safety extension study. We expect to have top-line results from the blinded stage of the trials by the end of the third quarter or in thebeginning of the fourth quarter of 2018 and to complete these trials in 2019. FDX104 for chemotherapy-induced rash FDX104 is a topical foam formulation of the antibiotic doxycycline for the treatment of severe acne-like rashes induced by chemotherapy. EGFRI induced-rash and lack of designated treatment Between 45% and 95% of cancer patients taking epidermal growth-factor receptor inhibitors (EGRFI), such as cetuximab (Erbitux®, Eli Lilly),panitumumab (Vectibix®, Amgen) and erlotinib (Tarceva®, Genentech) are affected by these severe acne-like rashes, which typically occur in cosmeticallysensitive areas such as the face and upper trunk. These symptoms can lead to patients modifying their dosage of EGFRI drugs and potentially stop treatmentaltogether. While there are no approved drugs for the treatment of these rashes, oral doxycycline and minocycline are often used to treat these conditions, butthey have significant shortcomings, including systemic side effects such as diarrhea, nausea and skin redness. FDX104 Phase II clinical trial In the fourth quarter of 2015, we completed a Phase II clinical trial for FDX104 on patients with metastatic colon cancer who were treated with cetuximabor panitumumab, to prevent the serious rash-like dermal side effects that can be induced by these chemotherapeutic agents. The results showed a statisticallysignificant effect of FDX104 in reducing the severity of these dermal effects, although our assessment of the limited commercial potential of the product incombination with our current priorities has caused us to re-assess our near term efforts with regard to the product. Twenty-four patients were enrolled and received trial drug in a multicenter, randomized, double-blind, placebo-controlled trial, to evaluate the safety andefficacy of FDX104. Each patient acted as his or her own control by treating one side of the face with FDX104 and the other side with the matching foamvehicle in a blinded and randomized manner. Photographs of the face were taken at each trial visit and were used for the grading of rash severity in a blindedmanner by an independent dermatologist at the end of the trial (general rash severity score, or GSS). Rash severity was also performed at each visit by theinvestigator (modified MASCC EGFR inhibitor papulopustular eruption grading scale, or MESTT). The GSS ratings of rash severity were: none = 0, mild = 1,moderate = 2 and severe = 3. The key findings were: ·The severity of rash on the FDX104 treatment side of the face was overall better than in the vehicle-treated side when analyzed in the ITT population(N=24 patients); ·the mean maximal rash severity in the ITT population was 1.33 and 1.71 in the FDX104-treated and placebo-treated sides respectively; and ·9 of the 24 patients in the trial (37.5%) developed severe (grade 3) rash during the study on the vehicle-treated side, while only 4 of the 24 patients inthe study (16.7%) developed severe rash on the FDX104-treated side. Comparison of the two treatments (FDX104 and vehicle) on the prevention of rash based on clinical importance reached statistical significance (p<0.05,Wilcoxon Signed-Rank test). MESTT-based analyses had similar but non-statistically significant results. FDX104 was well-tolerated during the study. Nodrug-related systemic adverse events were recorded. Local reactions were noted in 5 patients, all were mild and 4 were resolved before the end of the study. While the results of the FDX104 Phase II clinical trial were generally positive, we are assessing our various options with regard to FDX104 in light of ourcurrent focus and priorities. This includes seeking out licensing opportunities for the product and discontinuing its further in-house clinical development inthe near term so as to better focus on additional research and development efforts. FMX102 for impetigo FMX102 is a formulation of our minocycline foam currently being developed for the treatment of impetigo. Impetigo and limitations of current standard of care Impetigo is a highly contagious bacterial skin infection that primarily afflicts preschool-aged children, and is typically caused by staphylococcus aureus,including methicillin-resistant staphylococcus aureus, or MRSA. It usually results in red sores and lesions on the face, neck, arms and legs. The topicalantibiotic Bactroban and other mupirocin-based topical products are the current standard of care for the treatment of impetigo. According to its product label,Bactroban achieves a clinical efficacy rate of between 71% and 96% for impetigo after eight to 12 days of three-times daily treatment. According to theproduct label for Altabax, the most recently approved topical treatment for impetigo, it achieves a success rate of 89% for impetigo after five days of twice-daily treatment. 9 FMX102 Phase II clinical trial We conducted a randomized, double-blind Phase II clinical trial in Israel over seven days with 32 pediatric patients ages two to 15 with at least twoimpetigo lesions. Of these patients, 32% were diagnosed with MRSA infection. The patients were randomly divided into two groups of 16 patients each, withone group receiving a 1% concentration of our minocycline foam and the other group receiving a 4% concentration of our minocycline foam, applied to eachpatient twice a day. No vehicle-only control was used, as ethical guidelines for pediatric trials in Israel do not permit the use of control groups. The primary efficacy endpoints of the trial were (a) clinical success, defined as a total absence of treated lesions or certain specific improvements in thelesions during the trial and the continuous absence of the treated lesions or certain specific improvements in the lesions at follow-up; (b) bacteriologicalsuccess, measured by elimination of the bacteria in the lesion as shown by a bacterial culture at end of treatment or follow-up or by the lack of any material toculture as a result of the lesion healing; and (c) safety and tolerability. The trial was completed in 2012 and showed that approximately 80% of the patients in both groups met the clinical success criteria after three days oftreatment. Clinical response at the end of the treatment (on day 7) was 92% for the 1% dosage and 100% for the 4% dosage, and all patients (100%) showedsuccess by the fourteenth day of the trial. In a post-hoc analysis of the clinical trial results, eleven of the patients in this trial were also diagnosed withmethicillin-resistant staphylococcus aureus (MRSA). Bacteriological success was reached in all 11 patients by the end of the trial and no presence of MRSAwas detected. The safety and tolerability profile of the drug was favorable, and no drug-related side effects were reported during the trial. In October 2015 we held a Pre-IND meeting with the FDA to seek guidance with regards to the preclinical and clinical activities that are required toadvance the development program of FMX102. The FDA requested that we conduct a photo-safety study prior to further evaluation of our clinicaldevelopment plan. We began this photo-safety study in 2016. In 2017, further work on FMX102 was de-prioritized as we focused on our clinicaldevelopment work for FMX101 and FMX103. Following our further evaluation of the clinical development plan this year and the potential market forFMX102 in the U.S., and considering the treatment currently available for impetigo, we concluded that the business opportunity presented by this product isinsufficient to justify further investment of our resources in its advancement at this time, and have discontinued its development. Development and License Agreements Parallel to the development of our product candidates, we have entered into development and license agreements with various pharmaceutical companies,including Bayer HealthCare AG, Mylan N.V. and Actavis Laboratories, combining our foam technology with drugs selected by the licensee to create newproduct offerings for patients. Each license agreement entitles us to service payments, contingent payments and royalties from sales of any new products thatare commercialized. Each agreement is exclusive only to the specific drug that is licensed, leaving us the rights to commercialize and develop products withother drugs for the same indications using our proprietary foam technology while also allowing the licensee to apply the new products to any indication withits specific drug. In September 2015, Bayer began selling Finacea® Foam (azelaic acid) 15%, or Finacea, in the U.S. Finacea is a prescription topical drug which wasdeveloped through a collaboration between Bayer and Foamix. It is the first prescription product developed using our proprietary technology that has beenapproved by the FDA for sale in the U.S. Bayer listed in the Orange Book several patents that were licensed from Foamix in connection with the developmentof Finacea Foam. According to our license agreement with Bayer, we are entitled to receive royalties and certain contingent payments upon thecommercialization of Finacea. In 2017 we were entitled to a total of $3.5 million from Bayer in royalties from sales of Finacea. In January 2018 Bayer andFoamix filed a complaint alleging patent infringement under the patent laws of the United States that arises out of the submission by defendant Teva of anANDA to the FDA seeking approval to manufacture and sell a generic version of Bayer’s Finacea Foam. In February 2018 Bayer and Foamix filed a complaintalleging patent infringement under U.S. patent law arising from Perrigo’s submission of an ANDA to the FDA seeking approval to manufacture and sell ageneric version of Bayer’s Finacea. See also “Item1A—Risk Factors—Risks Related to Our Intellectual Property—We have received notice letters of ANDAssubmitted for drug products that are generic versions of Finacea Foam and we are involved in lawsuits to protect or enforce our patents, which could beexpensive, time consuming and unsuccessful”. Our total revenues from all development and license agreements from our inception to December 31, 2017 were approximately $28.1 million. Additional Research and Development In addition to FMX101 for the treatment of moderate-to-severe acne, FMX103 for the treatment of moderate-to-severe rosacea and licensed productsresulting from our development and license agreements with various pharmaceutical companies, we are developing a series of product candidates for variousindications to which we own worldwide rights, and which are all based on formulations and adaptations of our patented, versatile foam platforms or otherdosage forms. 10 We intend to selectively proceed into clinical trials with these formulations under the FDA’s 505(b)(2) regulatory pathway wherever possible, andaccording to our identification of unmet needs and potential market opportunities. Our research and development expenses totaled $57.8 million, $25.9 million and $10.7 million in 2017, 2016 and 2015, respectively. In the ordinarycourse of business we enter into agreements with third parties such as contract research organizations, or CROs, medical institutions, clinical investigatorsand contract laboratories, to conduct our clinical trials and aspects of our research and preclinical testing. These CROs and other third parties provide us withproject management, monitoring, regulatory consulting and investigative services, and their fees are part of our research and development expenses. Intellectual Property Our intellectual property and proprietary technology are essential to the development, manufacture, and sale of FMX101 and FMX103 and our futurepipeline products. We seek to protect our intellectual property, core technologies and other know-how, through a combination of patents, trademarks, tradesecrets, non-disclosure and confidentiality agreements, licenses, assignments of invention and other contractual arrangements with our employees,consultants, partners, suppliers, customers and others. Additionally, we rely on our research and development program, clinical trials, know-how andmarketing and distribution programs to advance our products. We submit applications directly or under the Patent Cooperation Treaty, or PCT, which is an international patent law treaty that provides a unifiedprocedure for filing a single initial patent application to seek patent protection for an invention simultaneously in any one of the designated member states. Although a PCT application does not issue as a patent, it allows the applicant to seek protection in any of the member states through national-phaseapplications. We also submit applications for a single European patent application covering member states. If granted, the European patent must be validated in eachnational member state in which the patent is to continue and becomes a bundle of individual national patents. Our most important patents are several U.S. patents relating to our lead product candidates, FMX101 and FMX103 which are expected to remain in effectuntil 2030. These patents relate to a composition of matter comprising a claim to a formulation of a tetracycline antibiotic, which can include minocycline ordoxycycline and therefore may be less protective than patents that claim a new drug. We also have patent applications claiming compositions of matter,which relate to FMX101 and FMX103 pending in each of the following international markets: Canada, the European Union, India and Mexico. Our other patents granted in the U.S. have claims relating to certain formulations of our foam platforms and other technology, including emulsion foams,hydrophobic foams, hydroalcoholic and aqueous foams. As of December 31, 2017 we had a patent portfolio of 165 granted patents in certain countries worldwide, including 62 granted patents in the U.S.Additionally, as of December 31, 2017 we had over 40 pending patent applications worldwide, of which over 30 are pending in the U.S., describing andclaiming our various foam based platforms and other technology. Our other pending applications relate to various foam platforms such as emulsion foam,hydrophobic foam, hydro-alcoholic foam and water-free foams, as well as specialty foams (such as potent solvent foams). Competition The medical and pharmaceutical industries in which we operate are intensely competitive and subject to significant technological change and changes inpractice. While we believe that our innovative technology, knowledge, experience and resources provide us with competitive advantages, we may facecompetition from many different sources with respect to FMX101, FMX103 and our other pipeline products or any product candidates that we may seek todevelop or commercialize in the future. Possible competitors may include pharmaceutical companies, academic and medical institutions, governmentalagencies and public and private research institutions. These prospective competitors have the ability to effectively discover, develop, test and obtainregulatory approvals for products that compete with ours, as well as the ability to effectively commercialize, market and promote approved products,including communicating the effectiveness, safety and value of products to actual and prospective customers and medical staff. At the end of 2014 we became aware that a privately-held active pharmaceutical ingredient and drug product intermediate manufacturer, Hovione, hadsubmitted an IND for Phase I and II clinical trials of a new topical gel suspension containing minocycline non-hydrochloride for the treatment ofinflammatory skin disease, including acne and rosacea. On December 4 2017, Hovione announced the commencement of a Phase II clinical trial for thetreatment of moderate to severe papulopustular rosacea. In 2015 we became aware that another company, BioPharmX Corporation (NYSE MKT: BPMX), wasdeveloping a topical hydrophilic gel containing minocycline hydrochloride for the treatment of acne, known as BPX-01. BioPharmX announced the resultsof its Phase IIa and Phase IIb clinical trials for BPX-01 in April 2016 and May 2017, respectively, and in November 2017 it announced that it had gainedconcurrence with FDA on the design of a planned Phase III clinical trial for BPX-01 for treatment of acne. Earlier that year, in September 2017, BioPharmXannounced interim results of a feasibility study with BPX-01 for treatment of rosacea, later renamed BPX-04. If ultimately approved and launched in the U.S.,these products would become direct competitors to FMX101 and FMX103. 11 Further, we are developing certain topical products with various licensees combining our proprietary technology with a drug selected by the licensee.While the licenses we grant are exclusive with respect to the specific drug which is licensed, our agreements with these licensees allow them to commercializethe licensed developed products for any topical dermatological application, not just for the specific indication for which each product was originallyintended. If any such licensed product proves to be effective for moderate-to severe acne, impetigo, rosacea, chemotherapy-induced rash, or any otherindication that we are pursuing with FMX101, FMX103 or our other product candidates, we may face competition from these licensees, as they are not boundby non-compete restrictions. Although we believe that FMX101, FMX103 and our other product candidates can outperform the licensed products in thespecific indications our product candidates are targeting, such licensed products may nevertheless pose a competitive challenge, as they will have the benefitof our foam technology coupled with the licensees’ greater resources, experience and brand recognition, extensive marketing channels and other capabilities,and possibly the advantage of entering the market before us. In addition to products that are currently available, other products may be introduced to treat acne, rosacea, impetigo and other skin disorders during thetime that we engage in necessary development. Accordingly, if one of our pipeline products is approved, our main challenge in the market would be toconvince dermatologists, pediatricians or other physicians seeking alternatives to oral or other existing treatments to use our product instead. While we arestill in the preliminary stages, based on our studies, we believe that our pipeline products could be more effective than the current non-topical alternativesand exhibit significantly less adverse side effects. Government Regulation Our business is subject to extensive government regulation. Regulation by governmental authorities in the U.S. and other jurisdictions is a significantfactor in the development, manufacture and marketing of our foam delivered treatments and in our ongoing research and development activities. Product approval process in the U.S. Review and approval of drugs In the U.S., the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act and implementing regulations and other laws, including the PublicHealth Service Act. Drugs require the submission of an NDA, and approval by the FDA prior to being marketed in the U.S. The process of obtainingregulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure ofsubstantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process,approval process or after approval may subject an applicant to a variety of administrative or judicial sanctions and enforcement actions brought by the FDA,the Department of Justice or other governmental entities. Possible sanctions may include the FDA’s refusal to approve pending NDAs, withdrawal of anapproval, imposition of a clinical hold, issuance of warning letters, product recalls, product seizures, total or partial suspension of production or distribution,injunctions, fines, refusals of government contracts, restitution, disgorgement and civil or criminal penalties. The process required by the FDA prior to marketing and distributing a drug in the U.S. generally involves the following: ·completion of laboratory tests, animal studies and formulation studies in compliance with the FDA’s good laboratory practice, or GLP, or otherapplicable regulations; ·submission to the FDA of an application for an investigational new drug, or IND designation, which must become effective before human clinical trialsmay begin; ·approval by an independent institutional review board, or IRB, at each clinical site before each trial may be initiated; ·performance of adequate and well-controlled human clinical trials in accordance with good clinical practice, or GCP, to establish the safety andefficacy of the proposed drug for its intended use; ·preparation and submission to the FDA of an NDA or supplemental NDA; ·satisfactory completion of an FDA advisory committee review, if applicable; ·satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the product or components thereof areproduced, to assess compliance with current good manufacturing processes, or cGMP, and to assure that the facilities, methods and controls areadequate to preserve the drug’s identity, strength, quality and purity; and ·payment of user fees and FDA review and approval of the NDA. Preclinical studies Preclinical studies include laboratory evaluation, as well as animal studies to assess the potential safety and efficacy of the product candidate. Preclinicalsafety tests must be conducted in compliance with the FDA’s GLP regulations. The results of the preclinical tests, together with manufacturing informationand analytical data, are submitted to the FDA as part of an IND which must become effective before clinical trials may be commenced. 12 Clinical trials in support of an NDA Clinical trials involve the administration of an investigational product to human subjects under the supervision of qualified investigators in accordancewith GCP requirements, which include, among other things, the requirement that all research subjects provide their informed consent in writing before theirparticipation in any clinical trial. Clinical trials are conducted under written trial protocols detailing, among other things, the objectives of the trial, theparameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocolamendments must be submitted to the FDA as part of the IND. An IND becomes effective 30 days after receipt by the FDA, unless before that time the FDAraises concerns or questions related to a proposed clinical trial and places the trial on clinical hold. In such a case, the IND sponsor and the FDA must resolveany outstanding concerns before the clinical trial can begin. In addition, an IRB representing each institution participating in the clinical trial must review and approve the plan for any clinical trial before itcommences at that institution, and the IRB must conduct continuing review and reapprove the trial at least annually. The IRB must review and approve,among other things, the trial protocol and informed consent information to be provided to trial subjects. An IRB must operate in compliance with FDAregulations. Information about certain clinical trials must be submitted within specific timeframes to the National Institutes of Health for publicdissemination on their ClinicalTrials.gov website. Clinical trials are typically conducted in three sequential phases, which may overlap or be combined: ·Phase I: The drug is initially introduced into healthy human subjects or patients with the target disease or condition and tested for safety, dosagetolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early indication of its effectiveness and to determine optimaldosage. ·Phase II: The drug is administered to a limited patient population to identify possible short-term adverse effects and safety risks, to preliminarilyevaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage. ·Phase III: The drug is administered to an expanded patient population, generally at geographically dispersed clinical trial sites, in well-controlledclinical trials to generate enough data to statistically evaluate the efficacy and safety of the product for approval, to establish the overall risk-benefitprofile of the product, and to provide adequate information for the labeling of the product. Submission of an NDA to the FDA The results of the preclinical studies and clinical trials, together with other detailed information, including information on the manufacture, control andcomposition of the product, are submitted to the FDA as part of an NDA requesting approval to market the product candidate for a proposed indication. Underthe Prescription Drug User Fee Act, as amended, applicants are required to pay fees to the FDA for reviewing an NDA. These user fees, as well as the annualfees required for commercial manufacturing establishments and for approved products, can be substantial. The NDA review fee alone exceeded $2,038,000for fiscal year 2017, subject to certain limited deferrals, waivers and reductions that may be available. The manufacturer or sponsor under an approved NDAare also subject to annual product and establishment user fees, currently exceeding $97,000 per product and $512,000 per establishment for fiscal year 2017.Although these fees were reduced from fiscal year 2016, they are typically increased annually. Each NDA submitted to the FDA for approval is typicallyreviewed for administrative completeness and reviewability within 45 to 60 days following submission of the application. If found complete, the FDA will“file” the NDA, thus triggering a full review of the application. The FDA may refuse to file any NDA that it deems incomplete or not properly reviewable atthe time of submission. Before approving an NDA, the FDA may inspect the facilities at which the product is manufactured or facilities that are significantly involved in theproduct development and distribution process, and will not approve the product unless cGMP compliance is satisfactory. The FDA may deny approval of anNDA if applicable statutory or regulatory criteria are not satisfied, or may require additional testing or information, which can delay the approval process.FDA approval of any application may include many delays or may never be granted. If a product is approved, the approval will impose limitations on theindicated uses for which the product may be marketed, may require that warning statements be included in the product labeling, may require that additionalstudies or trials be conducted following approval as a condition of the approval, may impose restrictions and conditions on product distribution, prescribingor dispensing in the form of a risk management plan, or impose other limitations. Once a product is approved, marketing the product for other indicated uses or making certain manufacturing or other changes requires FDA review andapproval of a supplement NDA or a new NDA, which may require additional clinical data and review fees. In addition, further post-marketing testing andsurveillance to monitor the safety or efficacy of a product may be required. Also, product approvals may be withdrawn if compliance with regulatorystandards is not maintained or if safety or manufacturing problems occur following initial marketing. In addition, new government requirements may beestablished that could delay or prevent regulatory approval of our product candidate under development. 13 505(b)(2) NDAs As an alternative path to FDA approval for modifications to formulations or uses of products previously approved by the FDA, an applicant may submit anNDA under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, or FDCA. Section 505(b)(2) was enacted as part of the Hatch-WaxmanAmendments and permits the filing of an NDA where at least some of the information required for approval comes from studies or trials not conducted by orfor the applicant. If the 505(b)(2) applicant can establish that reliance on FDA’s previous findings of safety and effectiveness is scientifically appropriate, itmay eliminate the need to conduct certain preclinical studies or clinical trials of the new product. The FDA may also require companies to perform additionalstudies or measurements, including clinical trials, to support the change from the approved reference, or “listed” drug. The FDA may then approve the newproduct candidate for all, or some, of the label indications for which the reference drug has been approved, as well as for any new indication sought by the505(b)(2) applicant. To the extent that a Section 505(b)(2) NDA relies on clinical trials conducted for a previously approved drug product or the FDA’s prior findings of safetyand effectiveness for a previously approved drug product, the Section 505(b)(2) applicant must submit patent certifications in its Section 505(b)(2)application with respect to any patents for the previously approved product on which the applicant’s application relies that are listed in the FDA’sPublication of Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the ‘Orange Book’. Specifically, the applicant mustcertify for each listed patent that, in relevant part, (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patenthas not expired, but will expire on a particular date and approval is not sought until after patent expiration; or (iv) the listed patent is invalid, unenforceableor will not be infringed by the proposed new product. A certification that the new product will not infringe the previously approved product’s listed patent or that such patent is invalid or unenforceable isknown as a Paragraph IV certification. If the applicant does not challenge one or more listed patents through a Paragraph IV certification, the FDA will notapprove the Section 505(b)(2) NDA application until all the listed patents claiming the referenced product have expired. Further, the FDA will also notapprove, as applicable, a Section 505(b)(2) NDA application until any non-patent exclusivity, such as, for example, five-year exclusivity for obtainingapproval of a new chemical entity, three-year exclusivity for an approval based on new clinical trials, or pediatric exclusivity, listed in the Orange Book forthe referenced product, has expired. If the Section 505(b)(2) NDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IVcertification to the owner of the referenced NDA for the previously approved product and relevant patent holders within 20 days after the Section 505(b)(2)NDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement suit against the Section 505(b)(2)applicant. Under the FDCA, the filing of a patent infringement lawsuit within 45 days of receipt of the notification regarding a Paragraph IV certificationautomatically prevents the FDA from approving the Section 505(b)(2) NDA until the earliest to occur of 30 months beginning on the date the patent holderreceives notice, expiration of the patent, settlement of the lawsuit, or until a court deems the patent unenforceable, invalid or not infringed. Even if a patentinfringement claim is not brought within the 45-day period, a patent infringement claim may be brought under traditional patent law, but it does not invokethe 30-month stay. Moreover, in cases where a Section 505(b)(2) application containing a Paragraph IV certification is submitted after the fourth year of a previouslyapproved drug’s five-year exclusivity period and the patent holder brings suit within 45 days of notice of certification, the 30-month period is automaticallyextended to prevent approval of the Section 505(b)(2) application until the date that is seven and one-half years after approval of the previously approvedreference product. The court also has the ability to shorten or lengthen either the 30 month or the seven and one-half year period if either party is found not tobe reasonably cooperating in expediting the litigation. In addition to patent protections applicable to a listed drug, a Section 505(b)(2) application may be subject to periods of statutory market exclusivityafforded to an approved new drug. Statutory market exclusivity provides the holder of an approved NDA limited protection from new competition in themarketplace for the innovation represented by its approved drug product, and precludes approval of certain 505(b)(2) applications for prescribed periods oftime. Exclusivity is available for new chemical entities, as well as for significant changes in already approved drug products, such as a new use. FDA mayrefuse to approve a Section 505(b)(2) application to the extent it is subject to the market exclusivity. Notwithstanding the approval of many products by the FDA pursuant to Section 505(b)(2), over the last few years, some pharmaceutical companies andothers have objected to the FDA’s interpretation of Section 505(b)(2). If the FDA changes its interpretation of Section 505(b)(2), or if the FDA’s interpretationis successfully challenged in court, this could delay or even prevent the FDA from approving any Section 505(b)(2) NDA that we submit. The FDA regulations and other applicable regulations and policies provide incentives to manufacturers to create modified, non-infringing versions of adrug to facilitate the approval of an ANDA or other application for generic substitutes. 14 Post-approval requirements Any drug products for which we receive FDA approval will be subject to continuing regulation by the FDA. Certain requirements include, among otherthings, record-keeping requirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacy information onan annual basis or more frequently for specific events, product sampling and distribution requirements, complying with certain electronic records andsignature requirements and complying with FDA promotion and advertising requirements. These promotion and advertising requirements include, amongothers, standards for direct-to-consumer advertising, prohibitions against promoting drugs for uses or patient populations that are not described in the drug’sapproved labeling, known as “off-label use,” and other promotional activities, such as those considered to be false or misleading. Failure to comply with FDArequirements can have negative consequences, including the immediate discontinuation of noncomplying materials, adverse publicity, enforcement lettersfrom the FDA, mandated corrective advertising or communications with doctors, and civil or criminal penalties. Such enforcement may also lead to scrutinyand enforcement by other government and regulatory bodies. Although physicians may prescribe legally available drugs for off-label uses, manufacturers may not encourage, market or promote such off-label uses. Asa result, “off-label promotion” has formed the basis for litigation under the Federal False Claims Act, violations of which are subject to significant civil finesand penalties. In addition, manufacturers of prescription products are required to disclose annually to the Center for Medicaid and Medicare any paymentsmade to physicians and teaching hospitals in the U.S. under the federal Physician Payment Sunshine Act. Reportable payments may be direct or indirect, incash or kind, for any reason, and are required to be disclosed even if the payments are not related to the approved product. Failure to fully disclose or not intime reporting could lead to penalties up to $1.15 million per year. The manufacturing of any of our products will be required to comply with applicable FDA manufacturing requirements contained in the FDA’s cGMPregulations. The FDA’s cGMP regulations require, among other things, quality control and quality assurance, as well as the corresponding maintenance ofcomprehensive records and documentation. Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are alsorequired to register their establishments and list any products they make with the FDA and to comply with related requirements in certain states. Theseentities are further subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws.Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance. Discovery of problems with a product after approval may result in serious and extensive restrictions on a product, manufacturer or holder of an approvedNDA, as well as lead to potential market disruptions. These restrictions may include recalls, suspension of a product until the FDA is assured that qualitystandards can be met, and continuing oversight of manufacturing by the FDA under a “consent decree,” which frequently includes the imposition of costs andcontinuing inspections over a period of many years, as well as possible withdrawal of the product from the market. In addition, changes to the manufacturingprocess generally require prior FDA approval before being implemented. Other types of changes to the approved product, such as adding new indications andadditional labeling claims, are also subject to further FDA review and approval. The FDA also may require post-marketing testing, or Phase IV testing, as well as risk minimization action plans and surveillance to monitor the effects ofan approved product or place conditions on an approval that could otherwise restrict the distribution or use of our products. Pediatric trials and exclusivity Even when not pursuing a pediatric indication, under the Pediatric Research Equity Act of 2003, an NDA or supplement thereto must contain data that areadequate to assess the safety and effectiveness of the drug product for the claimed indications in all relevant pediatric subpopulations, and to support dosingand administration for each pediatric subpopulation for which the product is safe and effective. With enactment of the Food and Drug Administration Safetyand Innovation Act, or the FDASIA, in 2012, sponsors must also submit pediatric trial plans prior to the assessment data. Those plans must contain an outlineof the proposed pediatric trials the applicant plans to conduct, including trial objectives and design, any deferral or waiver requests, and other informationrequired by regulation. The applicant, the FDA, and the FDA’s internal review committee must then review the information submitted, consult with eachother, and agree upon a final plan. The FDA or the applicant may request an amendment to the plan at any time. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of theproduct for use in adults, or full or partial waivers from the pediatric data requirements. Additional requirements and procedures relating to deferral requestsand requests for extension of deferrals are contained in the FDASIA. Separately, in the event the FDA makes a written request for pediatric data relating to a drug product, an NDA sponsor who submits such data may beentitled to pediatric exclusivity. Pediatric exclusivity is another type of non-patent marketing exclusivity in the U.S. and, if granted, provides for theattachment of an additional 6 months of marketing protection to the term of any existing regulatory exclusivity, including the non-patent and orphanexclusivity. 15 Patent term restoration and extension A patent claiming a new drug product may be eligible for a limited patent term extension under the Drug Price Competition and Patent Term RestorationAct of 1984, commonly referred to as the “Hatch-Waxman Act,” which permits a patent restoration of up to five years for patent term lost during productdevelopment and the FDA regulatory review. The restoration period granted is typically one-half the time between the effective date of an IND and thesubmission date of an NDA, plus the time between the submission date of a NDA and the ultimate approval date. Patent term restoration cannot be used toextend the remaining term of a patent past a total of 14 years from the product’s approval date. Only one patent applicable to an approved drug product iseligible for the extension, and the application for the extension must be submitted prior to the expiration of the patent in question. A patent that coversmultiple drugs for which approval is sought can only be extended in connection with one of the approvals. The U.S. Patent and Trademark Office reviews andapproves the application for any patent term extension or restoration in consultation with the FDA. Since the active pharmaceutical ingredients of FMX101,FMX102, FMX103 and FDX104 are already known and marketed in tablet form, these products may not be eligible for the said patent term extension, ifapplicable. Orphan drug designation Orphan drug designation in the U.S. is designed to encourage sponsors to develop drugs intended for rare diseases or conditions. In the U.S., a rare diseaseor condition is statutorily defined as a condition that affects fewer than 200,000 individuals in the U.S. or that affects more than 200,000 individuals in theU.S. 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 recoveredfrom sales of the drug in the U.S. Orphan drug designation qualifies a company for tax credits and market exclusivity for seven years following the date of the drug’s marketing approval, ifgranted by the FDA. An application for designation as an orphan product can be made any time prior to the filing of an application for approval to market theproduct. A drug becomes an orphan when it receives orphan drug designation from the Office of Orphan Products Development, or OOPD, at the FDA basedon acceptable confidential requests made under the regulatory provisions. The drug must then go through the new drug approval process like any other drug.Orphan drug designations are decided solely by the OOPD staff, but the OOPD occasionally will request opinions from the Center for Drug Evaluation andResearch, especially when dealing with issues such as the appropriateness of the requested indication or the scientific rationale described by the sponsor. A sponsor may request orphan drug designation of a previously unapproved drug or new orphan indication for an already marketed drug. In addition, asponsor of a drug that is otherwise the same drug as an already approved orphan drug may seek and obtain orphan drug designation for the subsequent drugfor the same rare disease or condition if it can present a plausible hypothesis that its drug may be clinically superior to the first drug. More than one sponsormay receive orphan drug designation for the same drug for the same rare disease or condition, but each sponsor seeking orphan drug designation must file acomplete request for designation. 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 drughas been designated. The FDA could approve a second application for the same drug for a different use or a second application for a clinically superiorversion of the drug for the same use. The FDA cannot, however, approve the same drug made by another manufacturer for the same indication during themarket exclusivity period unless it has the consent of the sponsor or the sponsor is unable to provide sufficient quantities. Review and approval of drug products outside the U.S. In addition to regulations in the U.S., we will be subject to a variety of foreign regulations governing manufacturing, clinical trials, commercial sales anddistribution of our future products. Whether or not we obtain FDA approval for a product candidate, we must obtain approval of the product by thecomparable regulatory authorities of foreign countries before commencing clinical trials or marketing in those countries. The approval process varies fromcountry to country, and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials,product licensing, pricing and reimbursement vary greatly from country to country. Under European Union regulatory systems, marketing authorizations may be submitted either under a centralized, decentralized or mutual recognitionprocedure. The centralized procedure provides for the grant of a single marketing authorization that is valid for all European Union member states. Thedecentralized procedure includes selecting one “reference member state,” or RMS, and submitting to more than one member state at the same time. The RMSNational Competent Authority conducts a detailed review and prepares an assessment report, to which concerned member states provide comment. Themutual recognition procedure provides for mutual recognition of national approval decisions. Under this procedure, the holder of a national marketingauthorization may submit an application to the remaining member states post-initial approval. Within 90 days of receiving the applications and assessmentreport, each member state must decide whether to recognize the approval. Pharmaceutical coverage, pricing and reimbursement Significant uncertainty exists as to the coverage and reimbursement status of any product candidates for which we obtain regulatory approval. In the U.S.and other markets, sales of any products for which we receive regulatory approval for commercial sale will depend in part on the availability ofreimbursement from third-party payers. Third-party payers include government health administrative authorities, managed care providers, private healthinsurers and other organizations. The process for determining whether a payer will provide coverage for a drug product may be separate from the process forsetting the price or reimbursement rate that the payer will pay for the drug product. Third-party payers may limit coverage to specific drug products on anapproved list, or formulary, which might not include all of the FDA-approved drug products for a particular indication. 16 Third-party payers are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, inaddition to their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of FMX101 and FMX103, in addition to the costs required to obtain the FDA approvals. Additionally, FMX101 and FMX103 may not beconsidered medically necessary or cost-effective. A payer’s decision to provide coverage for a drug product does not imply that an adequate reimbursementrate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriatereturn on our investment in product development. In March 2010, the President of the U.S. signed one of the most significant healthcare reform measures in decades. The healthcare reform law, also knownas the Affordable Care Act, or ACA, substantially changes the way healthcare will be financed by both governmental and private insurers, and significantlyimpacts the pharmaceutical industry. This comprehensive legislative overhaul was expected to extend coverage to approximately 36 million previouslyuninsured Americans. However, the individual mandate was recently repealed by Congress in the tax reform bill that was signed into law in December 2017.The Joint Committee on Taxation estimates that the repeal will result in over 13 million Americans losing their health insurance coverage over the next tenyears and is likely to lead to increases in insurance premiums. The ACA requires the pharmaceutical industry to share in the costs of reform by increasing Medicaid rebates and expanding Medicaid rebates to coverMedicaid managed care programs, among other things. The ACA also includes funding of pharmaceutical costs for Medicare patients in excess of theprescription drug coverage limit and below the catastrophic coverage threshold. Under the ACA, pharmaceutical companies are obligated to fund 50% of thepatient obligation for branded prescription pharmaceuticals in this gap, or “donut hole.” Additionally, an excise tax was levied against certain brandedpharmaceutical products. The tax is specified by statute to be approximately $3.5 billion in 2017, $4.2 billion in 2018 and $2.8 billion each year thereafter.The tax is to be apportioned to qualifying pharmaceutical companies based on an allocation of their governmental programs as a portion of totalpharmaceutical government programs. The Administration is currently looking at Medicare parts B and D in terms of policy changes in the next session ofCongress. The Centers for Medicare & Medicaid Services (“CMS”) administer the Medicaid drug rebate program, in which pharmaceutical manufacturers payquarterly rebates to each state Medicaid agency. Generally, for branded prescription drugs marketed under NDAs, as our product candidates are expected tobe, manufacturers are required to rebate the greater of 23.1% of the average manufacturer price or the difference between such price and the best price during aspecified period. An additional rebate for products marketed under NDAs is payable if the average manufacturer price increases at a rate higher than inflation,and other methodologies apply to new formulations of existing drugs. In addition, the ACA revised certain definitions used for purposes of calculating therebates, including the definition of “average manufacturer price.” The Comprehensive Addiction and Recovery Act of 2016 contains language intended toexempt certain abuse-deterrent formulations of a drug from the definition of line extension for purposes of the program. Various state Medicaid programshave implemented voluntary supplemental drug rebate programs that may provide states with additional manufacturer rebates in exchange for preferred statuson a state’s formulary or for patient populations that are not included in the traditional Medicaid drug benefit coverage. In the European Union, pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may bemarketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies or trials that compare the cost-effectiveness of a particular drug candidate to currently available therapies. For example, the European Union provides options for its member states torestrict the range of drug products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products forhuman use. European Union member states may approve a specific price for a drug product or it may instead adopt a system of direct or indirect controls onthe profitability of the company placing the drug product on the market. Other member states allow companies to fix their own prices for drug products, butmonitor and control company profits. The downward pressure on health care costs in general, particularly prescription drugs, has become intense. As a result,increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exertcompetitive pressure that may reduce pricing within a country. Any country that has price controls or reimbursement limitations for drug products may notallow favorable reimbursement and pricing arrangements. 17 Healthcare laws and regulations Healthcare providers, physicians and third-party payers play a primary role in the recommendation and prescription of drug products that are grantedmarketing approval. Arrangements with healthcare providers, third-party payers and other customers are subject to broadly applicable fraud and abuse andother healthcare laws and regulations. Such restrictions under applicable federal and state healthcare laws and regulations include the following: ·the federal healthcare Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving orproviding remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order orrecommendation of, any good or service for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare; ·the federal False Claims Act imposes civil penalties, and provides for civil whistleblower or qui tam actions, against individuals or entities forknowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statementto avoid, decrease or conceal an obligation to pay money to the federal government; ·the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for executing a scheme todefraud any healthcare benefit program or making false statements relating to healthcare matters; ·HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, also imposesobligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiablehealth information; ·the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materiallyfalse statement in connection with the delivery of or payment for healthcare benefits, items or services; ·the federal transparency requirements under the Health Care Reform Law require manufacturers of drugs, devices and medical supplies to report to theDepartment of Health and Human Services information related to payments and other transfers of value to physicians and teaching hospitals andphysician ownership and investment interests; and ·analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements andclaims involving healthcare items or services reimbursed by non-governmental third-party payers, including private insurers. Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevantcompliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments tophysicians and other health care providers or marketing expenditures. State and foreign laws also govern the privacy and security of health information insome circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. Manufacturing, Supply and Production We do not own or operate manufacturing facilities for the production of our product candidates, nor do we have plans to develop our own manufacturingoperations in the foreseeable future. We currently rely on third-party contract manufacturers for all of our required raw materials, active ingredients andfinished products for our preclinical research and clinical trials, including the Phase III clinical trials for FMX101, FMX103 and our additional productcandidates, as applicable. We have contractual relationships for the manufacture of clinical supplies of FMX101 and FMX103, and for commercial supplies ifthese products are approved. If FMX101, FMX103 or any of our other product candidates are approved by any regulatory agency, we intend to enter intoadditional agreements with one or more third-party contract manufacturers as secondary manufacturers for the commercial production of these products. We,and our contract manufacturers, are developing the validation processes, methods, tests and or controls suitable for commercial scale manufacturing of ourvarious product candidates and for defining their properties. Changes in manufacturing scale or the manufacturer may require changes to processes, methods,tests and or controls, which may take time to develop, validate and implement. 18 Development stage and commercial quantities of any products that we develop will need to be manufactured in facilities, and by processes, that complywith the requirements of the FDA and the regulatory agencies of other jurisdictions in which we are seeking approval. We currently employ internal andexternal resources to manage our manufacturing contractors. The relevant manufacturers of our drug products for our current preclinical and clinical trialshave advised us that they are compliant with both Good Laboratory Practices, or GLP, and current Good Manufacturing Practices, or cGMP. Our product candidates, if approved, may not be producible in sufficient commercial quantities, in compliance with regulatory requirements or at anacceptable cost. We and our contract manufacturers are, and will be, subject to extensive governmental regulation in connection with the manufacture of anypharmaceutical products or medical devices. We and our contract manufacturers must ensure that all of the processes, methods and equipment are compliantwith cGMP and cGLP for drugs on an ongoing basis, as mandated by the FDA and foreign regulatory authorities, and conduct extensive audits of vendors,contract laboratories and suppliers. We use, and we intend to continue to use, leading providers of manufacturing services to the global pharmaceutical industry, to scale-up and validate arobust manufacturing process to support commercialization and distribution of our products if approved by the FDA. Marketing, Sales and Distribution Given our stage of development, we do not have any internal sales, marketing or distribution infrastructure. Extensive planning and market research hasbeen conducted on our current product portfolio. Additionally, continuous efforts are deployed to identify unmet needs in the dermatology market, assestheir commercial potential and advise on the prioritization of the development of our future product candidates accordingly. We have formed a U.S.subsidiary, Foamix Pharmaceuticals Inc., with key executives to support our clinical development, regulatory affairs, CMC / drug development, quality andcommercialization efforts in the U.S. We are also evaluating the optimal price range for FMX101 and FMX103, that will reflect their benefits relative to alternative treatments while remainingaffordable to potential customers and reimbursable by governments and third-party payers. In the event that we receive regulatory approvals for FMX101 and FMX103 in markets outside of the U.S., we intend, where appropriate, to pursuecommercialization relationships, including strategic alliances and licensing, with pharmaceutical companies and other strategic partners, which are equippedto market or sell our products through their well-developed sales, marketing and distribution organizations in such countries. In addition, we may out-license some or all of our worldwide patent rights to more than one party to achieve the fullest development, marketing anddistribution of any products we develop. Environmental, Health and Safety Matters We are subject to extensive environmental, health and safety laws and regulations in a number of jurisdictions, primarily Israel, governing, among otherthings, (i) the use, storage, registration, handling, emission and disposal of chemicals, waste materials and sewage; and (ii) chemical, air, water and groundcontamination, air emissions and the cleanup of contaminated sites, including any contamination that results from spills due to our failure to properlydispose of chemicals, waste materials and sewage. Our operations at our Rehovot research and development facility use chemicals and produce wastematerials and sewage. Our activities require permits from various governmental authorities including, local municipal authorities, the Ministry ofEnvironmental Protection and the Ministry of Health. The Ministry of Environmental Protection and the Ministry of Health, local authorities and themunicipal water and sewage company conduct periodic inspections in order to review and ensure our compliance with the various regulations. These laws, regulations and permits could potentially require the expenditure by us of significant amounts for compliance or remediation. If we fail tocomply with such laws, regulations or permits, we may be subject to fines and other civil, administrative or criminal sanctions, including the revocation ofpermits and licenses necessary to continue our business activities. In addition, we may be required to pay damages or civil judgments in respect of third-partyclaims, including those relating to personal injury (including exposure to hazardous substances we use, store, handle, transport, manufacture or dispose of),property damage or contribution claims. Some environmental, health and safety laws allow for strict, joint and several liability for remediation costs,regardless of comparative fault. We may be identified as a responsible party under such laws. Such developments could have a material adverse effect on ourbusiness, financial condition and results of operations. 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 lawsor regulations, we could be subject to new compliance measures or to penalties for activities which were previously permitted. For instance, Israeliregulations were promulgated in 2011 relating to the discharge of industrial sewage into the sewer system. These regulations establish new and potentiallysignificant fines for discharging forbidden or irregular sewage into the sewage system. 19 The operations of our subcontractors and suppliers are also subject to various Israeli and foreign laws and regulations relating to environmental, healthand safety matters, and their failure to comply with such laws and regulations could have a material adverse effect on our business and reputation, result in aninterruption or delay in the development or manufacture of our product candidates, or increase the costs for the development or manufacture of our productcandidates. Employees As of February 5, 2018, we had a total of 75 employees, 71 of whom are full-time employees, 49 of whom were primarily engaged in research anddevelopment activities. A total of 11 employees have an M.D. or Ph.D. degree. None of our employees are represented by a labor union, and we consider ouremployee relations to be good. Financial and Segment Information We operate our business as a single segment, as defined by generally accepted accounting principles. Our financial information is included in theconsolidated financial statements and the related notes (see “Item 8—Financial Statements and Supplementary Data”). Legal Proceedings Currently, we are not involved in any legal proceedings other than the complaints filed by Bayer and Foamix in the U.S. in January 2018 against Tevaand in February 2018 against Perrigo, alleging patent infringement arising out of ANDA submissions seeking approval to manufacture and sell a genericversion of Bayer’s Finacea Foam prior to the expiry of patents licensed by Foamix to Bayer (see “Item 1A—Risk Factor—Risks Related to Our IntellectualProperty—We have received notice letters of ANDAs submitted for drug products that are generic versions of Finacea Foam and we are involved in lawsuitsto protect or enforce our patents, which could be expensive, time consuming and unsuccessful”). We consider such actions to be a part of the ordinary courseof our business. We may become parties to additional litigation or other legal proceedings that we consider to be a part of the ordinary course of our business,and may also become involved in material legal proceedings. Organizational Structure and Status Our legal and commercial name is Foamix Pharmaceuticals Ltd. (formerly Foamix Ltd.). We were incorporated as a limited liability company under thelaws of the State of Israel on January 19, 2003. We are registered with the Israeli Registrar of Companies. Our registration number is 51-336881-1. Article 3 ofour articles of association provides that our objectives are to conduct all types of business as are permitted by law. Our corporate structure consists of Foamix Pharmaceuticals Ltd. and Foamix Pharmaceuticals Inc., our wholly-owned U.S. subsidiary, which wasincorporated on May 6, 2014, under the laws of the State of Delaware, and which is intended to serve as our marketing and sales arm in the U.S. Effective January 1, 2018, we ceased to be a “foreign private issuer” as defined in Rule 3b-4 of the Exchange Act, and became subject to the rules andregulations under the Exchange Act applicable to U.S. domestic issuers. As a result, we are filing an Annual Report on Form 10-K beginning with the fiscalyear ended December 31, 2017. Our annual reports for prior years were filed on Form 20-F. We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933 and as modified by the JOBS Act. As such, we are eligibleto, and intend to, take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not “emerginggrowth companies” such as not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002. We willremain 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 $1.0billion; (ii) the last day of our fiscal year following the fifth anniversary of the closing of our initial public offering; (iii) the date on which we have, duringthe previous three-year period, issued more than $1.0 billion in non-convertible debt; or (iv) the date on which we are deemed to be a “large accelerated filer”under the Exchange Act. Our principal executive offices are located at 2 Holzman St., Weizmann Science Park, Rehovot 7670402, Israel, and our telephone number is +972-8-9316233. Our website is www.foamix.com. The information contained on, or that can be accessed through, our website does not constitute a part of this formand is not incorporated by reference herein. Foamix Pharmaceuticals Inc., our wholly-owned subsidiary, was incorporated on May 6, 2014 under the laws ofthe State of Delaware, with the intent to serve as our marketing and sales arm in the U.S. Foamix Pharmaceuticals Inc. has been appointed as our agent in theUnited States and is located at 520 U.S. Highway 22, Suite 305, Bridgewater, New Jersey 08807. ITEM 1A—RISK FACTORS In conducting our business, we face many risks that may interfere with our business objectives. Some of these risks could materially and adversely affectour business, financial condition and results of operations. In particular, we are subject to various risks resulting from changing economic, political, industry,business and financial conditions. The risks and uncertainties described below are not the only ones we face. 20 You should carefully consider the following factors and other information in this annual report. If any of the negative events referred to below occur, ourbusiness, financial condition and results of operations could suffer. In any such case, the trading price of our ordinary shares could decline. Risks Related to Our Business and Industry We are largely dependent on the success of our lead product candidates, FMX101 and FMX103 for the treatment of acne and rosacea. We have invested a majority of our efforts and financial resources in the research and development of FMX101 for the treatment of moderate-to-severeacne and FMX103 for the treatment of moderate-to-severe papulopustular rosacea, which have both completed Phase II clinical trials. We continue todedicate our resources toward (i) announcing top-line results from our third pivotal Phase III clinical trial for FMX101 in the third quarter of 2018 and filing anew drug application, or NDA, with the FDA by the end of the first half of 2019; (ii) announcing top-line results from our two pivotal Phase III clinical trialsfor FMX103 by the end of the third quarter or in the beginning of the fourth quarter of 2018 and completing such trials in 2019; and (iii) advancing our otherpipeline candidates. The success of our business depends largely on our ability to fund, execute and complete the development of, obtain regulatoryapproval for and successfully commercialize FMX101 and FMX103 in a timely manner. If we fail to do so, we may not be able to obtain adequate funding tocontinue to operate our business. We have not finalized our Phase III clinical programs for any of our product candidates, nor have we applied for regulatory approvals to market any ofour product candidates, and we may be delayed in obtaining or fail to obtain such regulatory approvals and to commercialize our product candidates. The process of developing, obtaining regulatory approval for and commercializing our product candidates is long, complex, costly and uncertain, anddelays or failure can occur at any stage, as evident from our recent experience. In March 2017 we suffered a setback in our Phase III clinical program forFMX101 for treatment of moderate-to-severe acne, following the announcement of mixed top-line results from our two pivotal Phase III clinical trials in thisproduct candidate, known as Studies 04 and 05. Although FMX101 demonstrated statistical significance compared to vehicle on the co-primary endpoint ofabsolute reduction in inflammatory lesions in both Studies 04 and 05, and further demonstrated statistical significance in the co-primary endpoint ofinvestigator global assessment (IGA) treatment success compared to baseline in Study 04 and on a pooled analysis basis, FMX101 failed to demonstratestatistical significance in the co-primary endpoint of IGA treatment success on a standalone basis in Study 05. Consequently, we were compelled to launch athird pivotal Phase III clinical trial for FMX101, in which we are seeking to replicate the results of Study 04 in a larger patient population and confirm theefficacy of FMX101, in order to proceed with the filing of an NDA for this lead product candidate. Furthermore, the research, testing, manufacturing, labeling, marketing, sale and distribution of drugs are subject to extensive and rigorous regulation bythe FDA, and foreign regulatory agencies. These regulations are agency-specific and differ by jurisdiction. We are not permitted to market any of our productcandidates in the U.S. until we receive approval of a NDA, from the FDA, or in any foreign countries until we receive the requisite approval from therespective regulatory agencies in such countries. To gain approval of an NDA or other equivalent regulatory approval, we must provide the FDA or relevantforeign regulatory authority with clinical data that demonstrates the continued safety, purity and potency of the product for the intended indication. Before we can submit an NDA to the FDA or similar applications to foreign regulatory authorities, for FMX101 or FMX103, our leading productcandidates, we must complete Phase III clinical trials for them. These clinical trials are substantially broader than our Phase II clinical trials and have required(or will require) us to enlist a considerably larger number of patients in multiple clinics and medical centers. We have not received formal regulatoryclearance to file an NDA with the FDA or comparable applications to foreign regulatory authorities. Our other product candidates are at earlier stages ofdevelopment and therefore subject to similar or even greater uncertainty and risk than FMX101 and FMX103. Phase III clinical trials often produce unsatisfactory results even though prior clinical trials were successful, as we have witnessed in the case of Study 04for FMX101 as described above. Moreover, the results of clinical trials may be unsatisfactory to the FDA or foreign regulatory authorities even if we believethose clinical trials to be successful. The FDA or applicable foreign regulatory agencies may suspend one or all of our clinical trials or require that weconduct additional clinical, nonclinical, manufacturing, validation or drug product quality studies and submit that data before considering or reconsideringany NDA or similar foreign regulatory application we may submit. Depending on the extent of these additional studies, approval of any applications that wesubmit may be significantly delayed, or may require us to expend more resources than we have available. It is also possible that additional studies weconduct may not be considered sufficient by the FDA or applicable foreign regulatory agencies to provide regulatory approval. If any of these outcomes occur, we would not receive approval for FMX101, FMX103 or our other product candidates and may be forced to ceaseoperations. 21 We have conducted only one Phase II clinical trial relating to each of FMX102, FMX103 and FDX104, in each case outside the U.S., the results of whichmay not be predictive of future trial results. Positive results in preclinical testing and early clinical trials do not ensure that later clinical trials will be successful. We suffered a significant setback inour Phase III clinical trials for FMX101 with regard to one of the two co-primary endpoints in one of these two trials, and other pharmaceutical companieshave had similar experiences in their Phase III clinical trials after demonstrating promising results in preclinical testing and early clinical trials. Thesesetbacks have included negative safety and efficacy observations in later clinical trials, including previously unreported adverse events, though we have notencountered such issues to date. To date, we have conducted only one Phase II clinical trial for each of FMX102, FMX103 and FDX104 which met their respective primary efficacy andsecondary endpoints. Our Phase III clinical trials for our lead product candidates may not be successful, and even if they are, the FDA may not approve ourNDA for such product candidates, should we be in position to file one, and may not agree that the benefits of such product candidates outweigh its risks, ormay raise new concerns regarding our clinical trial designs. If the FDA does not conclude that FMX101 or FMX103 satisfy the requirements under Section 505(b)(2) of the Federal Food Drug and Cosmetics Act, orSection 505(b)(2), or if the requirements for this product candidate under Section 505(b)(2) are not as we expect, the approval pathway for this productcandidate will likely take significantly longer, cost significantly more and entail significantly greater complications and risks than anticipated, and ineither case may not be successful. We expect to complete our pivotal Phase III trials for FMX101 and we have commenced pivotal Phase III trials for FMX103 under the FDA’s 505(b)(2)regulatory pathway. The Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act, added Section 505(b)(2) tothe Federal Food, Drug and Cosmetic Act, or FDCA. Section 505(b)(2) permits the filing of an NDA where at least some of the information required forapproval comes from studies that were not conducted by or for the applicant, and for which the applicant has not received a right of reference, which couldexpedite the development program for FMX101 and FMX103 by potentially decreasing the amount of clinical data that we would need to generate in orderto obtain FDA approval. If the FDA does not allow us to pursue the Section 505(b)(2) regulatory pathway, we may need to conduct additional clinical trials,provide additional data and information, and meet additional standards for regulatory approval. If this were to occur, the time and financial resources requiredto obtain FDA approval for these product candidates, and complications and risks associated with these product candidates, would likely increasesignificantly. Moreover, inability to pursue the Section 505(b)(2) regulatory pathway could result in new competitive products reaching the market morequickly than our product candidates, which would likely harm our competitive position and prospects. Even if we are allowed to pursue the Section 505(b)(2)regulatory pathway, our product candidates may not receive the requisite approvals for commercialization. In addition, notwithstanding the approval of certain products by the FDA under Section 505(b)(2) over the last few years, certain competitors and othershave objected to the FDA’s interpretation of Section 505(b)(2). If the FDA’s interpretation of Section 505(b)(2) is successfully challenged, the FDA may berequired to change its 505(b)(2) policies and practices, which could delay or even prevent the FDA from approving any NDA that we submit under Section505(b)(2). In addition, the pharmaceutical industry is highly competitive, and Section 505(b)(2) NDAs are subject to special requirements designed to protectthe patent rights of sponsors of previously approved drugs that are referenced in a Section 505(b)(2) NDA. These requirements may give rise to patentlitigation and mandatory delays in approval of our NDAs for up to 30 months depending on the outcome of any litigation. It is not uncommon for amanufacturer of an approved product to file a citizen petition with the FDA seeking to delay approval of, or impose additional approval requirements for,pending competing products. If successful, such petitions can significantly delay, or even prevent, the approval of the new product. However, even if the FDAultimately denies such a petition, the FDA may substantially delay approval while it considers and responds to the petition. In addition, even if we are able toutilize the Section 505(b)(2) regulatory pathway for FMX101 and FMX103, there is no guarantee this would ultimately lead to faster product development orearlier approval. Moreover, even if these product candidates are approved under Section 505(b)(2), the approval may be subject to limitations on the indicated uses forwhich the product may be marketed or to other conditions of approval, or may contain requirements for costly post-marketing testing and surveillance tomonitor the safety or efficacy of the products. Our Phase III clinical trials for FMX101 and our Phase II clinical trials for the other product candidates were not conducted head-to-head with thecurrent standard of care drugs, the comparison of our results to those of existing drugs, and the conclusions we have drawn from such comparisons, may beinaccurate, and the FDA may require our Phase III trials to be controlled against such drugs. None of our initial two Phase III clinical trials for FMX101 or Phase II clinical trial for FMX103, nor our third Phase III trial for FMX101 or our two PhaseIII trials for FMX103 which are currently under way, were or are being conducted in head-to-head comparison with the drugs considered the current standardof care for the relevant indications, namely Solodyn for moderate-to-severe acne, Bactroban for impetigo, topical antimicrobials (such as such as Metrogel,generic metronidazole and Finacea) for rosacea and oral doxycycline for chemotherapy induced rash. This means that none of the patient groupsparticipating in these trials were or are being treated with the standard of care drugs alongside the groups treated with our product candidates. Instead, wehave compared the results of our clinical trials with historical data from prior clinical trials conducted for the standard of care drugs, as presented in theirrespective product labels. 22 Direct comparison generally provides more reliable information about how two or more drugs compare, and reliance on indirect comparison for evaluatingtheir relative efficacy or other qualities is problematic due to lack of objective or validated methods to assess trial similarity. For example, the various trialswere likely conducted in different countries with different demographic features and in patients with different baseline conditions and different hygienestandards, among other relevant asymmetries. Therefore, the conclusions we have drawn from comparing the results of our trials with those published in theproduct labels for these current standards of care drugs, including conclusions regarding the relative efficacy and expediency of FMX101, FMX102, FMX103and FDX104, may be distorted by the inaccurate methodology of the comparison. The FDA may require the Phase III clinical trials of our product candidates to be controlled against the drugs that are currently considered the standards ofcare for the treatment of the relevant indications, instead of being controlled against a placebo or against a different dosage of our minocycline foam, as wasthe case in our Phase II clinical trials. Furthermore, even if the FDA does not impose such a requirement in connection with our Phase III clinical trials, theFDA generally requires adequate, well-controlled head-to-head clinical trials to support comparative claims regarding marketed products. As a result, we maydecide to conduct comparative studies of FMX101, FMX103 or any of our other product candidates that are commercialized to support comparative claimsused in the marketing of those product candidates. Significant additional time and expense will be required to design and conduct any head-to-head trials.For example, in the case of FMX101 for moderate-to-severe acne, the standard of care is an oral drug, Solodyn, whereas FMX101 is a topical drug. To conducta double blind study comparing the two treatments, all patients would need to receive both modalities, with either the oral or topical treatment consisting of aplacebo, increasing the complexity and cost. If we are unable to conduct head-to-head trials for one or more of our product candidates, even if such productcandidates are approved for marketing in the U.S., we will not be able to make claims comparing such product candidates to the current standards of care orother competitor products which may negatively impact sales of these products. Our ability to finance our operations and generate revenues depends on the clinical and commercial success of FMX101, FMX103 and our other productcandidates and failure to achieve such success will negatively impact our business. Our near-term prospects, including our ability to finance our operations and generate revenues, depend on the successful development, regulatoryapproval and commercialization of FMX101 and FMX103, as well as our other product candidates. The clinical and commercial success of FMX101,FMX103 and our other product candidates depends on a number of factors, many of which are beyond our control, including: ·the FDA’s and foreign regulatory agencies’ acceptance of our parameters for regulatory approval relating to FMX101, FMX103 and our other productcandidates, including our proposed indications, primary endpoint assessments, primary endpoint measurements and regulatory pathways; ·the FDA’s and foreign regulatory agencies’ acceptance of the number, design, size, conduct and implementation of our clinical trials, our trialprotocols and the interpretation of data from preclinical studies or clinical trials; ·the FDA’s and foreign regulatory agencies’ acceptance of the sufficiency of the data we collected from our preclinical studies and early clinical trialsof FMX101 and FMX103 to support the submission of an NDA or similar foreign regulatory application without requiring additional preclinical orclinical trials; ·the FDA’s and foreign regulatory agencies’ willingness to schedule an advisory committee meeting in a timely manner to evaluate and decide on theapproval of our NDA or similar foreign regulatory application; ·the recommendation of the FDA and foreign regulatory agencies’ advisory committee to approve our application without limiting the approvedlabeling, specifications, distribution or use of the products, or imposing other restrictions; ·the FDA’s and foreign regulatory agencies’ willingness to grant separate approvals for adults and children, where we may have successful clinical trialresults for children but not for adults, or vice versa; ·the FDA’s and foreign regulatory agencies’ satisfaction with the safety and efficacy of FMX101 and FMX103 or our other product candidates; ·the prevalence and severity of adverse events associated with FMX101, FMX103 and our other product candidates; ·the timely and satisfactory performance by third party contractors of their obligations in relation to our clinical trials, including any future Phase IIIclinical trials for FMX101 and FMX103; ·our success in educating dermatologists, pediatricians and patients about the benefits, administration and use of FMX101, FMX103 and our otherproduct candidates, if approved; ·our ability to raise additional capital on acceptable terms in order to achieve our goals; 23 ·the availability, perceived advantages, relative cost, safety and efficacy of alternative and competing treatments; ·the effectiveness of our marketing, sales and distribution strategy and operations, as well as that of our current and future licensees; ·our ability to develop, validate and maintain a commercially viable manufacturing process that is compliant with current good manufacturingpractices, or cGMP; ·our ability to obtain, protect and enforce our intellectual property rights with respect to FMX101 or our other product candidates; ·our ability to bring an action timely for patent infringement arising out of the filing of ANDAs by generic companies seeking approval to marketgeneric versions of our products before the expiry of our patents; and ·our ability to avoid third party claims of patent infringement or intellectual property violations. If we fail to achieve these objectives or to overcome the challenges presented above, many of which are beyond our control, in a timely manner, we couldexperience significant delays or an inability to successfully commercialize our product candidates. Accordingly, we may not be able to generate sufficientrevenues through the sale of FMX101 or our other product candidates to enable us to continue our business. We may encounter delays in completing clinical trials for FMX101, FMX103 and our other product candidates and may even be prevented fromcommencing such trials due to factors that are largely beyond our control. We have in the past and may in the future experience delays in completing our ongoing clinical trials and in commencing future clinical trials. We havealready experienced significant delays in our Phase III clinical program for FMX101 for acne, first due to quality control issues with certain active ingredientssupplied to us by a third party and more recently due to insufficient results in one of the co-primary endpoints, namely IGA treatment success, in one of thetwo Phase III trials. We have also experienced a delay in our Phase II clinical trial with FMX102 for impetigo that took place in Israel, due to our difficulty inenrolling a sufficient number of pediatric patients with the necessary severity of the disease to participate in the trial. Such difficulties may arise again infuture trials for other indications and for our other product candidates. We rely on contract research organizations, or CROs, and clinical trial sites to ensure the proper and timely conduct of our clinical trials. While we haveagreements governing the committed activities of our CROs, we have limited influence over their actual performance. A failure of one or more of our clinicaltrials can occur at any time during the clinical trial process. Clinical trials can be delayed or aborted for a variety of other reasons, including delay or failureto: ·obtain regulatory approval to commence a trial; ·reach agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which may be subject to extensive negotiation andvary significantly among different CROs and trial sites; ·obtain institutional review board, or IRB, approval at each site; ·enlist suitable patients to participate in a trial; ·have patients complete a trial or return for post-treatment follow-up; ·ensure clinical sites observe trial protocol or continue to participate in a trial; ·address any patient safety concerns that arise during the course of a trial; ·address any conflicts with new or existing laws or regulations; ·add a sufficient number of clinical trial sites; or ·manufacture sufficient quantities of the product candidate for use in clinical trials. Patient enrollment is also a significant factor in the timing of clinical trials and is affected by many factors, including the size and nature of the patientpopulation, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials andclinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to available alternatives, including any new drugs ortreatments that may be approved for the indications we are investigating. We may also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted,by the trial’s data safety monitoring board, by the FDA or by the applicable foreign regulatory authorities. Such authorities may suspend or terminate one ormore of our clinical trials due to a number of factors, including our failure to conduct the clinical trial in accordance with relevant regulatory requirements orclinical protocols, inspection of the clinical trial operations or trial site by the FDA or foreign regulatory authorities resulting in the imposition of a clinicalhold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations oradministrative actions or lack of adequate funding to continue the clinical trial. If we experience delays in carrying out or completing any clinical trial of our product candidates, the commercial prospects of our product candidates maybe harmed, and our ability to generate product revenues from any of these product candidates will be delayed. In addition, any delays in completing ourclinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence productsales and generate revenues. Any of these occurrences may significantly harm our business and financial condition. In addition, many of the factors thatcause, 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 productcandidates. 24 FMX101, FMX103 and other product candidates may produce undesirable side effects that we may not have detected in our Phase II clinical trials orinitial Phase III trials. This could prevent us from gaining marketing approval or market acceptance for this product candidate, or from maintaining suchapproval and acceptance, and could substantially increase commercialization costs and even force us to cease operations. FMX101 and FMX103 have so far been shown in Phase I and Phase II to have no drug-related systemic side effects and only a few cases of mild andtemporary skin reactions have been reported, most of which disappeared on their own within 12 weeks from the beginning of the treatment. FMX101 hasfurther demonstrated this safety profile in its initial Phase III trials and extended open-label safety study. Nonetheless, in further Phase III clinical trials,which involve large patient populations, and upon commercialization of FMX101, FMX103 or other product candidates, if approved, the clinical exposureof the drugs will be significantly expanded to a wider and more diverse group of patients than those participating in the clinical trials, which may revealundesirable side effects caused by these products that were not previously observed or reported in the current clinical trials. The FDA and foreign regulatory agency regulations require that we report certain information about adverse medical events if our products may havecaused 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 theadverse 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 toappreciate 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 isunexpected 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 couldtake action including criminal prosecution, the imposition of civil monetary penalties or seizure of our products. Additionally, in the event we discover the existence of adverse medical events or side effects caused by one of our product candidates, a number of otherpotentially significant negative consequences could result, including: ·the FDA or foreign regulatory authorities may suspend or withdraw their approval of the product; ·the FDA or foreign regulatory authorities may require the addition of labeling statements, such as warnings or contraindications or distribution and userestrictions; ·the FDA or foreign regulatory authorities may require us to issue specific communications to healthcare professionals, such as letters alerting them tonew safety information about our product, changes in dosage or other important information; ·the FDA or foreign regulatory authorities may issue negative publicity regarding the affected product, including safety communications; ·we may be limited with respect to the safety-related claims that we can make in our marketing or promotional materials; ·we may be required to change the way the product is administered, conduct additional preclinical studies or clinical trials or restrict or cease thedistribution or use of the product; and ·we could be sued and held liable for harm caused to patients. Any of these events could prevent us from achieving or maintaining market acceptance of the affected product candidate and could substantially increasecommercialization costs or even force us to cease operations. Even if FMX101, FMX103 or our other product candidates receive marketing approval, we may continue to face future developmental and regulatorydifficulties. In addition, we are subject to government regulations and we may experience delays in obtaining required regulatory approvals to market ourproposed product candidates. Even if we complete clinical testing and receive approval of any regulatory filing for FMX101, FMX103 or any of our other product candidates, the FDAor applicable foreign regulatory agency may grant approval contingent on the performance of additional costly post-approval clinical trials, risk mitigationrequirements and surveillance requirements to monitor the safety or efficacy of the product, which could negatively impact us by reducing revenues orincreasing expenses, and cause the approved product candidate not to be commercially viable. Absence of long-term safety data may further limit theapproved uses of our products, if any. The FDA or applicable foreign regulatory agency may also approve FMX101, FMX103 or any of our other product candidates for a more limitedindication or a narrower patient population than we originally requested, or may not approve the labeling that we believe is necessary or desirable for thesuccessful commercialization of our product candidates. Furthermore, any such approved product will remain subject to extensive regulatory requirements,including requirements relating to manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion, distribution andrecordkeeping. 25 If we fail to comply with the regulatory requirements of the FDA or other applicable foreign regulatory authorities, or previously unknown problems withany approved commercial products, manufacturers or manufacturing processes are discovered, we could be subject to administrative or judicially imposedsanctions or other setbacks, including the following: ·suspend or impose restrictions on operations, including costly new manufacturing requirements; ·refuse to approve pending applications or supplements to applications; ·suspend any ongoing clinical trials; ·suspend or withdraw marketing approval; ·seek an injunction or impose civil or criminal penalties or monetary fines; ·seize or detain products; ·ban or restrict imports and exports; ·issue warning letters or untitled letters; ·suspend or impose restrictions on operations, including costly new manufacturing requirements; or ·refuse to approve pending applications or supplements to applications. In addition, various aspects of our operations are subject to federal, state or local laws, rules and regulations, any of which may change from time to time.Costs arising out of any regulatory developments could be time-consuming and expensive and could divert management resources and attention and,consequently, could adversely affect our business operations and financial performance. Even if FMX101, FMX103 or our other product candidates receive regulatory approval, they may fail to achieve the broad degree of physician adoptionand use and market acceptance necessary for commercial success. Even if we obtain FDA or foreign regulatory approvals for FMX101, FMX103 or any of our other product candidates, the commercial success of suchproducts will depend significantly on their broad adoption and use by dermatologists, pediatricians and other physicians for approved indications, including,in the case of FMX101 and FMX103, for the treatment of moderate-to-severe acne, moderate-to-sever rosacea and other therapeutic indications that we mayseek to pursue. Moreover, if the treatment of acne with FMX101 or rosacea with FMX103 is deemed to be an elective procedure, the cost of which is borne by the patient,it will not be reimbursable through government or private health insurance. The degree and rate of physician and patient adoption of FMX101, FMX103 and any of our other product candidates, if approved, will depend on anumber of factors, including: ·the clinical indications for which the product is approved; ·the safety and efficacy of our product as compared to existing therapies for those indications; ·the prevalence and severity of adverse side effects; ·patient satisfaction with the results and administration of our product and overall treatment experience, including relative convenience, ease of useand avoidance of, or reduction in, adverse side effects; ·patient demand for the treatment of moderate-to-severe acne and rosacea or other indications; ·overcoming biases of physicians and patients towards topical treatments for moderate-to-severe acne, rosacea or other indications and their willingnessto adopt new therapies for these indications; ·the cost of treatment in relation to alternative treatments, the extent to which these costs are reimbursed by third party payors, and patients’ willingnessto pay for our products; ·proper training and administration of our products by dermatologists, pediatricians and medical staff; ·the revenues and profitability that our products will offer physicians as compared to alternative therapies; and ·the effectiveness of our sales and marketing efforts, especially the success of any targeted marketing efforts directed toward dermatologists,pediatricians, other physicians, clinics and any direct-to-consumer marketing efforts we may initiate. We may decide not to continue developing or commercializing any of our product candidates at any time during development or after approval, whichwould reduce or eliminate our potential return on investment for those product candidates. We may decide to discontinue the development of any of our product candidates in our pipeline or not to continue to commercialize any of our productcandidates for a variety of reasons, such as the appearance of new technologies that make our product less commercially viable, an increase in competitionfrom generic or other competing products, changes in or failure to comply with applicable regulatory requirements, the discovery of unforeseen side effectsduring clinical development or after the approved product has been marketed or the occurrence of adverse events at a rate or severity level that is greater thanexperienced in prior clinical trials. If we discontinue a program in which we have invested significant resources, such as our decision to discontinue furtherin-house development of FMX102 for the treatment of impetigo and FDX104 for the treatment of chemotherapy induced rash, we will not receive any returnon our investment and we will have missed the opportunity to have allocated those resources to other product candidates in our pipeline that may have hadpotentially more productive uses. If FMX101, FMX103 or any of our other product candidates are approved for use but fail to achieve the broad degree of physician adoption and marketacceptance necessary for commercial success, our operating results and financial condition will be adversely affected. Our ability to market FMX101 and FMX103, if approved, may be limited to use for the treatment of moderate-to-severe acne or moderate-to-severerosacea, respectively, in the U.S., and if we want to expand the indications for which we may market FMX101 or the territories in which we may market theseproducts, we will need to obtain additional regulatory approvals, which may not be granted. 26 We plan to seek regulatory approval in the U.S. for FMX101 and FMX103 for the treatment of moderate-to-severe acne and moderate-to-severe rosacea,respectively, in the U.S. If FMX101 is approved, the FDA will likely restrict our ability to market or advertise FMX101 and FMX103 for other indications,which could limit physician and patient adoption. We may seek to promote and commercialize our products, FMX101 and FMX103, in Europe as well, byapplying for marketing approval from the European Medicines Agency, or EMA, or in other jurisdictions, or we may develop new or additional uses orprotocols for FMX101 or FMX103 in the future, but we may not receive the clearances required to do so. If we proceeded to submit for marketing approval inEurope we would likely be required to conduct additional clinical trials or studies to support approvals for such additional jurisdictions or indications, whichwould be time consuming and expensive, and may produce results that do not support regulatory approvals. Approval procedures vary among countries and can involve additional product testing and additional administrative review periods. The time required toobtain approval in other countries might differ from that required to obtain FDA approval. The marketing approval process in other countries may include allof the risks detailed above regarding FDA approval in the U.S. as well as other risks. In particular, in many countries outside the U.S., it is required that aproduct receives pricing and reimbursement approval before the product can be commercialized. This can result in substantial delays in such countries. Inother countries, product approval depends on showing superiority to an approved alternative therapy. This may lead to conducting complex clinical trialsthat require additional significant resources. None of our products are currently approved for sale in any jurisdiction, including the U.S. or any international markets. If we fail to comply withregulatory requirements in the U.S. or any international market we decide to enter, or to obtain and maintain required approvals, or if regulatory approvals inthe U.S. or the relevant international markets are delayed, our target market will be reduced and our ability to realize the full market potential of our productswill be harmed. Marketing approval in one jurisdiction does not ensure marketing approval in another, but a failure or delay in obtaining marketing approval in onejurisdiction may have a negative effect on the regulatory process in others. Failure to obtain a marketing approval in other countries or any delay or setbackin obtaining such approval would impair our ability to develop foreign markets for FMX101 and FMX103. This would reduce our target market and limit thefull commercial potential of FMX101 and FMX103. If we are not successful in developing, acquiring regulatory approval for and commercializing additional product candidates beyond FMX101 orFMX103, our ability to expand our business and achieve our strategic objectives will be impaired. Although we will devote a substantial portion of our resources on the continued clinical testing and potential approval of FMX101 for the treatment ofmoderate-to-severe acne and FMX103 for the treatment of moderate-to-severe rosacea, another key element of our strategy is to discover, develop andcommercialize a portfolio of products based on our proprietary foam platforms to serve additional therapeutic markets. We are seeking to do so through ourinternal research programs, but our resources are limited, and those that we have are geared towards clinical testing and seeking regulatory approval forFMX101 and FMX103. We may also explore strategic collaborations for the development or acquisition of new products, but we may not be successful inentering into such relationships. While we have completed two initial Phase III clinical trials and commenced a third Phase III clinical trial for our leadproduct candidate, FMX101 for the treatment of moderate-to-severe acne, and have commenced two Phase III clinical trials for FMX103 for the treatment ofrosacea, all of our other potential product candidates remain in earlier stages of development. Research programs to identify product candidates requiresubstantial technical, financial and human resources, regardless of whether any product candidates are ultimately identified. Our research programs mayinitially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for many reasons, including: ·the research methodology used may not be successful in identifying potential product candidates; ·competitors may develop alternatives that render our product candidates obsolete or less attractive; ·product candidates we develop may nevertheless be covered by third parties’ patents or other proprietary rights; ·a product candidate may in a subsequent trial be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective orotherwise does not meet applicable regulatory criteria; ·a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; ·a product candidate may not be accepted as safe and effective by patients, the medical community or third party payors, if applicable; ·intellectual property rights, such as patents, which are necessary to protect our interests in a product candidate, may be difficult to obtain orunobtainable; ·intellectual property rights, such as patents, may fail to provide adequate protection, may be challenged and one or more claims may be revoked or thepatent may be held to be invalid; and ·intellectual property rights of third parties may potentially block our entry into certain markets, or make such entry economically impracticable. 27 If we fail to develop and successfully commercialize other product candidates, our business and future prospects may be harmed and our business will bemore vulnerable to any problems that we encounter in developing and commercializing FMX101 and FMX103. Our product candidates, if approved, will face significant competition and our failure to compete effectively may prevent us from achieving significantmarket penetration and expansion. If we receive marketing approval, the expected indication of FMX101 will be moderate-to-severe acne and the expected indication of FMX103 will bemoderate-to-severe rosacea. The facial aesthetic market in general, and the market for acne treatments in particular, is highly competitive and dynamic, and ischaracterized by rapid and substantial technological development and product innovations. FMX101, if approved, may face significant competition fromother acne products, including oral drugs such as Solodyn, Doryx, Dynacin, Acticlate and Minocin, and topical anti-acne drugs such as Acanya, Ziana,Epiduo, Benzaclin, Aczone and Differin. FMX103, if approved, may face significant competition from other rosacea products, including oral drugs such asOracea®, and topical anti-rosacea drugs such as Metrogel, Soolantra and Finacea, all of which have been approved for marketing and are available toconsumers. If approved, FMX101 and FMX103 may also compete with non-prescription anti-acne and rosacea products and unapproved and off-labeltreatments. There are also several potential competing products currently under development. One of such potential competing products is a new topical gelsuspension containing minocycline non-hydrochloride for the treatment of inflammatory skin disease, including acne and rosacea, developed by Hovione, amanufacturer of active pharmaceutical ingredients and drug product intermediates, which product is currently undergoing a Phase II clinical trial for thetreatment of moderate-to-severe papulopustular rosacea. Another such potential competing product is a topical hydrophilic gel containing minocyclinehydrochloride for the treatment of acne, known as BPX-01, developed by BioPharmX Corporation, for which BioPharmX has completed Phase IIa and PhaseIIb clinical trials and has obtained FDA approval for the design of a planned Phase III clinical trial. BioPharmX also announced interim results of a feasibilitystudy with BPX-01 for treatment of rosacea, later renamed BPX-04. If ultimately approved and launched in the U.S., these products would become directcompetitors to FMX101 and FMX103. To compete successfully in the acne and rosacea treatment markets, we will have to demonstrate that FMX101 is safe and effective for the treatment ofmoderate-to-severe acne and FMX103 is safe and effective for the treatment of moderate-to-severe rosacea, and that they do not infringe the intellectualproperty rights of any third parties. Competing in the acne and rosacea markets could result in price-cutting, reduced profit margins and loss of market share,any of which would harm our business, financial condition and results of operations. Due to less stringent regulatory requirements, there are many more acne products and procedures available for use in international markets than areapproved for use in the U.S. There are also fewer limitations on the claims that our competitors in international markets can make about the effectiveness oftheir products and the manner in which they can market them. As a result, we may face more competition in these markets than in the U.S. In addition, even if we are able to commercialize our product candidates, we may not be able to price them competitively with current standard of careproducts or their price may drop considerably due to factors outside our control. If this happens or the price of materials and manufacture increasesdramatically, our ability to continue to operate our business would be materially harmed and we may be unable to commercialize FMX101 or FMX103successfully. Other pharmaceutical companies may develop competing products for acne, rosacea and other indications we are pursuing and enter the market ahead ofus. Other pharmaceutical companies are engaged in developing, patenting, manufacturing and marketing healthcare products that compete with those that weare developing. These potential competitors include large and experienced companies that enjoy significant competitive advantages over us, such as greaterfinancial, research and development, manufacturing, personnel and marketing resources, greater brand recognition and more experience and expertise inobtaining marketing approvals from the FDA and foreign regulatory authorities. Several of these potential competitors are privately-owned companies that are not bound by public disclosure requirements and closely guard theirdevelopment plans, marketing strategies and other trade secrets. Publicly-traded pharmaceutical companies are also able to maintain a certain degree ofconfidentiality over their pipeline developments and other sensitive information. As a result, we do not know whether these potential competitors are alreadydeveloping, or plan to develop, foam-based or other topical treatments for acne, rosacea, impetigo or other indications we are pursuing, and we will likely beunable to ascertain whether such activities are underway in the future. These potential competitors may therefore introduce competing products without ourprior knowledge and without our ability to take preemptive measures in anticipation of their commercial launch. 28 In this regard we became aware at the end of 2014 that an active pharmaceutical ingredient and drug product intermediate manufacturer, Hovione, hassubmitted an IND for Phase I and II clinical trials of a new topical product containing minocycline for the treatment of inflammatory skin disease includingacne and rosacea. Hovione is a privately-held company and we do not know if they have commenced a clinical trial for such new topical minocyclineproduct. Hovione also currently manufactures and supplies Foamix with pharmaceutical-grade minocycline for use in FMX101, FMX103 and other products.Although we have not experienced unique difficulties in procuring minocycline from Hovione, we could experience such difficulties in the future. During2015 we became aware that another company, BioPharmX Corporation (NYSE MKT: BPMX), is developing a topical hydrophilic gel containingminocycline for the treatment of acne, known as BPX-01, for which BioPharmX has announced Phase IIa clinical trial results. If ultimately approved andcommercialized in the U.S., such products would become direct competitors of FMX101, FMX103 and other potential pipeline products. Furthermore, such potential competitors may enter the market before us, and their products may be designed to circumvent our granted patents andpending patent applications. Potential competitors may also challenge, narrow, invalidate or seek to design around our granted patents or our patentapplications, and such patents and patent applications may fail to provide adequate protection for our product candidates. We have agreements with third party licensees to develop new product candidates for them utilizing our foam technology, and our ability to benefit fromsuch product candidates could be impaired or delayed if our licensees’ efforts to develop and commercialize these product candidates are unsuccessful. In parallel to our core business focused on the development of FMX101, FMX103 and other product candidates, we are pursuing development and licenseagreements with various pharmaceutical companies for the development and commercialization of product candidates that combine our proprietarytechnology with the licensees’ drugs for the treatment of various indications. These license agreements generally provide rights to the licensees for a singleactive pharmaceutical ingredient, and grant the licensee exclusivity in the development and commercialization of the specific licensed product candidatesincorporating such active pharmaceutical ingredient. Our entitlement to contingent payments and royalties from such potential product candidates istherefore dependent upon the licensees’ performance of their responsibilities and their continued cooperation in developing and commercializing thepotential product candidates. Our licensees may not cooperate with us or perform their obligations under our agreements with them. Furthermore, the obligations of the licensees undersuch agreements are, for the most part, limited to ‘commercially reasonable efforts,’ and they do not face penalties or other repercussions for failing todevelop or commercialize the relevant product candidates within the designated timetable other than potentially forfeiting their rights to the relevant productcandidate and assigning such rights to us. However, there is no guarantee that we will be able to develop, manufacture or commercialize successfully anysuch product candidate assigned to us. We cannot control the scope or timing of the resources that will be devoted by our licensees to performing theirresponsibilities under our agreements with them. Our licensees may choose to pursue alternative technologies in preference to those being developed with us.Several of these agreements may also be terminated for convenience by the licensee. The development and commercialization of these licensed productcandidates as well as the anticipated contingent payments and royalties we hope to generate from them will be delayed or never obtained if the licensees failto conduct their responsibilities in a timely manner or in accordance with applicable regulatory requirements, or if they breach their agreements with us.Disputes with our licensees could also impair our reputation or result in development delays, decreased revenues and litigation expenses. We have granted several of our licensees the right to commercialize the licensed products for any indication, including acne and rosacea, which may allowthem to compete against us using our own technology. The licenses we granted to several of our licensees, with whom we are developing certain topical products based on our technology and the licensees’proprietary drugs, allow them to commercialize the developed products for any topical application, and not only for the specific indication for which eachproduct was originally intended. If any such licensed products prove to be effective for moderate-to-severe acne, rosacea or any other indication that we arepursuing with FMX101, FMX103 or other product candidates, we may face competition from these licensed products, as the licensees are not bound by anynon-compete restrictions. Healthcare reforms by governmental authorities and related reductions in pharmaceutical pricing, reimbursement and coverage by third-party payors mayadversely affect our business. We expect the healthcare industry to face increased limitations on reimbursement, rebates and other payments as a result of healthcare reform, which couldadversely affect third-party coverage of our products and how much or under what circumstances healthcare providers will prescribe or administer ourproducts, if approved. In both the U.S. and other countries, sales of our products, if approved for marketing, will depend in part upon the availability of reimbursement fromthird-party payors, which include governmental authorities, managed care organizations and other private health insurers. Third-party payors are increasinglychallenging the price and examining the cost effectiveness of medical products and services. Increasing expenditures for healthcare have been the subject of considerable public attention in the U.S. Both private and government entities are seekingways to reduce or contain healthcare costs. Numerous proposals that would effect changes in the U.S. healthcare system have been introduced or proposed inCongress and in some state legislatures, including reducing reimbursement for prescription products and reducing the levels at which consumers andhealthcare providers are reimbursed for purchases of pharmaceutical products. 29 Cost reduction initiatives and changes in coverage implemented through legislation or regulation could decrease utilization of and reimbursement for anyapproved products, which in turn would affect the price we can receive for those products. Any reduction in reimbursement that results from federallegislation or regulation may also result in a similar reduction in payments from private payors, as private payors often follow Medicare coverage policy andpayment limitations in setting their own reimbursement rates. Significant developments that may adversely affect pricing in the U.S. include the enactment of federal healthcare reform laws and regulations, includingthe ACA and the Medicare Prescription Drug Improvement and Modernization Act of 2003. Changes to the healthcare system enacted as part of healthcarereform in the U.S., as well as the increased purchasing power of entities that negotiate on behalf of Medicare, Medicaid, and private sector beneficiaries, mayresult in increased pricing pressure by influencing, for instance, the reimbursement policies of third-party payors. While healthcare reform legislation mayhave increased the number of patients who are expected to have insurance coverage for our product candidates, provisions such as the assessment of abranded pharmaceutical manufacturer fee and an increase in the amount of rebates that manufacturers pay for coverage of their drugs by Medicaid programsmay have an adverse effect on us. It is uncertain how current and future reforms in these areas will influence the future of our business operations andfinancial condition. In 2017, a new administration, which had promised to repeal and replace the ACA, took office in the U.S. Although we cannot predict the form any suchreplacement of the ACA may take or the full effect on our business of the enactment of additional legislation pursuant to healthcare and other legislativereform, we believe that legislation or regulations that would reduce reimbursement for, or restrict coverage of, our products could adversely affect how muchor under what circumstances healthcare providers will prescribe or administer our products. This could materially and adversely affect our business byreducing our ability to generate revenues, raise capital, obtain additional licensees and market our products. In addition, we believe the increasing emphasison managed care in the U.S. has and will continue to put pressure on the price and usage of pharmaceutical products, which may adversely impact productsales. It will be difficult for us to profitably sell FMX101, FMX103 or our other product candidates if reimbursement for these products is limited by governmentauthorities and third-party payor policies. In addition to any healthcare reform measures which may affect reimbursement, market acceptance and sales of FMX101, FMX103 and our other productcandidates, if approved, will depend on the reimbursement policies of government authorities and third-party payors. Government authorities and third-partypayors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and these third-party payors have attempted tocontrol costs by limiting coverage and the amount of reimbursement for particular medications. We cannot be sure that reimbursement will be available forFMX101 or FMX103, or, if reimbursement is available, the level of reimbursement. 30 Reimbursement may impact the demand for, or the price of, any product for which we obtain marketing approval. In addition, third-party payors are likelyto impose strict requirements for reimbursement in order to limit off-label use of a higher priced drug. Reimbursement by a third-party payor may dependupon a number of factors including the third-party payor’s determination that use of a product is: ·a covered benefit under its health plan; ·safe, effective and medically necessary; ·appropriate for the specific patient; ·cost-effective; and ·neither experimental nor investigational. Obtaining coverage and reimbursement approval for a product from a government or other third-party payor is a time-consuming and costly process thatcould 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 providedata sufficient to gain acceptance with respect to coverage and reimbursement. We cannot be sure that coverage or adequate reimbursement will be availablefor our product candidates, if approved. Also, we cannot be sure that reimbursement amounts will not reduce the demand for, or the price of, our futureproducts. If reimbursement is not available, or is available only to limited levels, we may not be able to commercialize our product candidates, profitably orat all, even if approved. Legislative or regulatory healthcare reforms in the U.S. may make it more difficult and costly for us to obtain regulatory clearance or approval of ourproduct candidates and to produce, market, and distribute our products after clearance or approval is obtained. From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulatoryclearance or approval, manufacture, and marketing of regulated products or the reimbursement thereof. In addition, FDA regulations and guidance are oftenrevised or reinterpreted by the FDA in ways that may significantly affect our business and our products. Any new regulations or revisions or reinterpretationsof existing regulations may impose additional costs or lengthen review times of FMX101, FMX103 or any of our other product candidates. We cannotdetermine what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted or adopted may have on our businessin the future. Such changes could, among other things, require: ·changes to manufacturing methods; ·recall, replacement, or discontinuance of one or more of our products; and ·additional recordkeeping. Each of these would likely entail substantial time and cost and could materially harm our business and our financial results. We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or atall, could force us to delay, limit, reduce or terminate our product development, other operations or commercialization efforts. We anticipate that we will continue to expend substantial resources for the foreseeable future for the clinical development and regulatory approval forFMX101, FMX103. We also wish to continue the development of other indications and product candidates. However, we may not have sufficient funds tocarry out and complete all of these plans, and may need to raise additional funds for such purposes. These expenditures will include costs associated with research and development, conducting preclinical studies and clinical trials, and manufacturing andsupply, as well as marketing and selling any products approved for sale. In addition, other unanticipated costs may arise. Because the outcome of any clinicaltrial is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization ofany of our product candidates. We believe that the net proceeds from our initial and follow-on public offerings will allow us to fund our operating expenses and capital expenditurerequirements throughout the Phase III clinical trials for our lead product candidate, FMX101, for which we expect to announce top-line results in the thirdquarter of 2018 and to complete by the end of 2018. Such proceeds should also fund our Phase III clinical program for FMX103, for which we expect toannounce top-line results by the end of the third quarter or in the beginning of the fourth quarter of 2018 and to complete in 2019. However, our operatingplan may change as a result of many factors currently unknown to us, as recently exhibited by our need to commence a third pivotal Phase III clinical trial forFMX101 due to inconclusive results in the co-primary endpoint of IGA treatment success in one of the two initial trials. We may therefore need to seekadditional capital sooner than planned, through public or private equity or debt financings or other sources, such as strategic collaborations or additionallicense arrangements. Such financings may result in dilution to shareholders, imposition of debt covenants and repayment obligations or other restrictionsthat may affect our business. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe wehave sufficient funds for our current or future operating plans. 31 Our future capital requirements depend on many factors, including: ·the results of the clinical trials of our products candidates; ·the timing of, and the costs involved in, obtaining regulatory approvals for our product candidates; ·the number and characteristics of any additional product candidates we develop or acquire; ·the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical and clinical trials; ·the cost of commercialization activities if any of our product candidates are approved for sale, including marketing, sales and distribution costs; ·the cost of manufacturing our product candidates and any products we successfully commercialize and maintaining our related facilities; ·our ability to establish and maintain strategic collaborations, licensing or other arrangements and the terms of and timing of such arrangements; ·the degree and rate of market acceptance of any future approved products; ·the emergence, approval, availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing products ortreatments; ·any product liability or other lawsuits related to our products; ·the expenses needed to attract and retain skilled personnel; ·the costs associated with being a public company; ·the costs associated with evaluation of our product candidates; ·the costs associated with evaluation of third party intellectual property; ·the costs associated with obtaining and maintaining licenses; ·the costs associated with obtaining, protecting and enforcing intellectual property, such as costs involved in preparing, filing, prosecuting,maintaining, defending and enforcing patent claims, litigation costs including the costs of litigation for patent infringement arising out of ANDAsubmissions by generic companies to manufacture and sell generic products and the outcome of such litigation; and ·the timing, receipt and amount of sales of, or royalties on, future approved products, if any. Additional capital may not be available when we need it, on terms that are acceptable to us or at all. If adequate funds are not available to us on a timelybasis, we may be required to: ·delay, limit, reduce or terminate preclinical studies, clinical trials or other development activities for FMX101, FMX103 or any of our other productcandidates; ·delay, limit, reduce or terminate our research and development activities; or ·delay, limit, reduce or terminate our establishment of manufacturing, sales and marketing or distribution capabilities or other activities that may benecessary to commercialize FMX101, FMX103 or any of our other product candidates. If we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements withthird parties, we may have to relinquish certain valuable rights to our product candidates, technologies, future revenue streams or research programs or grantlicenses on terms that may not be favorable to us. If we raise additional capital through public or private equity offerings, the ownership interest of ourexisting shareholders will be diluted and the terms of any new equity securities may have a preference over our ordinary shares. If we raise additional capitalthrough debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt or makingcapital expenditures or specified financial ratios, any of which could restrict our ability to commercialize our product candidates or operate as a business. We have a limited operating history and have incurred significant losses since our inception and we anticipate that we will continue to incur losses for theforeseeable future. We have only four product candidates that have completed any clinical trials and have no sales, which, together with our limitedoperating history, make it difficult to assess our future commercial viability. We are a small clinical-stage specialty pharmaceutical company with a limited operating history. Pharmaceutical product development is a highlyspeculative undertaking and involves a substantial degree of risk. We are not profitable and have incurred losses in each year since we commencedoperations in 2003. We have only a limited operating history upon which you can evaluate our business and prospects. In addition, we have limitedexperience and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies innew and rapidly evolving fields, particularly in the pharmaceutical industry. 32 To date, we have not obtained any regulatory approvals for any of our product candidates or generated any revenues from product sales relating toFMX101, FMX103 or any of our other product candidates. We have generated revenues only from service payments, and contingent payments paid towardsor in the course of projects carried out under several of our development and license agreements with various pharmaceutical companies. We have alsoreceived (and continue to receive) royalty payments with respect to Finacea®, a prescription foam product that we developed in collaboration with Bayer. We continue to incur significant research and development and other expenses related to our ongoing clinical trials and operations. We have recorded anet loss of $65.7 million, $29.3 million and $16.5 million for the twelve months ended December 31, 2017, 2016 and 2015, respectively. As of December 31,2017 we had an accumulated deficit of $141.3 million and had a working capital surplus of $59.3 million. We expect to continue to incur losses for theforeseeable future, and we anticipate these losses will increase substantially as we continue our development of, and seek regulatory approvals for, FMX101,FMX103 and our other product candidates, and begin to commercialize such product candidates. Our ability to achieve revenues and profitability is dependent on our ability to complete the development of our product candidates, obtain necessaryregulatory approvals and successfully manufacture, market and commercialize our products. Even if we achieve profitability in the future, we may not beable to sustain profitability in subsequent periods. Our prior losses, combined with expected future losses, may adversely affect the market price of ourordinary shares and our ability to raise capital and continue operations. We currently contract with third party subcontractors and suppliers for certain compounds and components necessary to produce FMX101 and FMX103for clinical trials and expect to continue to do so to support commercial scale production if one or more of such product candidates is approved. Thisincreases the risk that we will not have sufficient quantities of FMX101 and FMX103 or such quantities at an acceptable cost, which could delay, prevent orimpair our development or commercialization efforts. We currently rely on third party subcontractors and suppliers for certain compounds and components necessary to produce FMX101and FMX103 for ourclinical trials, including minocycline and other active ingredients, excipients used in the formulation of the foam, delivery apparatus comprising canisters,valves and propellants. We expect to continue to rely on these or other subcontractors and suppliers to support our commercial requirements if FMX101 andFMX103 or any of our other product candidates is approved for marketing by the FDA or foreign regulatory authorities. Reliance on third party subcontractors and suppliers entails a number of risks, including reliance on the third party for regulatory compliance and qualityassurance, the possible breach of the manufacturing or supply agreement by the third party, the possibility that the supply is inadequate or delayed , the riskthat the third party may enter the field and seek to compete and may no longer be willing to continue supplying, and the possible termination or nonrenewalof the agreement by the third party at a time that is costly or inconvenient for us. In addition, third party subcontractors and suppliers may not be able tocomply with cGMP or quality system regulation, or QSR, or similar regulatory requirements outside the U.S. If any of these risks transpire, we may be unableto timely retain alternate subcontractors or suppliers on acceptable terms and with sufficient quality standards and production capacity, which may disruptand delay our clinical trials or the manufacture and commercial sale of our product candidates, if approved. Our failure or the failure of our third party subcontractors and suppliers to comply with applicable regulations could result in sanctions being imposed onus, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products, operatingrestrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our product candidates that we may develop. Although we have not experienced unique difficulties in procuring compounds and components for FMX101, FMX103 or any other product candidates,and while we are acting to secure additional suppliers for such compounds and components, we could experience such difficulties in the future. We will rely on third parties and consultants to assist us in conducting our trials and studies. If these third parties or consultants will not successfully carryout their contractual duties or meet expected deadlines, we may be unable to obtain regulatory approval for or commercialize our product candidates. We do not have the ability to independently perform all aspects of our preclinical studies and clinical trials. We will rely on medical institutions, clinicalinvestigators, contract laboratories, collaborative partners and other third parties, such as CROs, to assist us in conducting our Phase III clinical trials forFMX101, FMX103 and studies and clinical trials for our other product candidates. The third parties with whom we contract for execution of our clinical trialsplay a significant role in the conduct of these trials and the subsequent collection and analysis of data. However, these third parties are not our employees,and except for contractual duties and obligations, we will have limited ability to control the amount or timing of resources that they devote to our programs. 33 Although we rely on these third parties to conduct certain aspects of our Phase III clinical trials and other studies and clinical trials, we remain responsiblefor ensuring that each of our clinical trials and preclinical studies is conducted in accordance with its investigational plan and protocol. Moreover, the FDAand foreign regulatory authorities require us to comply with regulations and standards, commonly referred to as current good clinical practices, or GCPs, forconducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate, andthat the trial subjects are adequately informed of the potential risks of participating in clinical trials. We also rely on our consultants to assist us in theexecution, including data collection and analysis of our clinical trials. In addition, the execution of clinical trials and preclinical studies, and the subsequent compilation and analysis of the data produced, will requirecoordination among these various third parties. In order for these functions to be carried out effectively and efficiently, it will be imperative that these partiescommunicate and coordinate with one another, which may prove difficult to achieve. Moreover, these third parties may also have relationships with othercommercial entities, some of which may compete with us. Our agreement with these third parties may inevitably enable them to terminate such agreementsupon reasonable prior written notice under certain circumstances. If the third parties or consultants that assist us in conducting our clinical trials do not perform their contractual duties or obligations, experience workstoppages, 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 theyobtain 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 clinicaltrials 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, successfullycommercialize these product candidates. We have no experience manufacturing our product candidates at full commercial scale. If our product candidates are approved, we intend to outsourceour manufacturing to third parties, and will face certain risks associated with such outsourcing. We have a small-scale integrated research, development and testing facility located at our corporate headquarters in Rehovot, Israel. However, we havenot equipped our facility with manufacturing capabilities other than small scale manufacture, and do not currently plan to do so. We do not have experiencein manufacturing our product candidates at commercial scale, and if our product candidates are approved, we will outsource all or a significant portion of themanufacturing of our products to third parties, including our drug substances and finished dose forms. Reliance on third parties to manufacture our productsentails various risks, including the possibility of increased costs associated with the large- scale production of our products. These risks are similar to thoseinvolved in our current use of subcontractors and suppliers for certain compounds and components necessary to produce FMX101, FMX103 and any other ofour other product candidates, as explained above. If we are unsuccessful in outsourcing our manufacturing to third parties who are compliant with regulatory requirements, we may encounter delays oradditional costs in achieving our commercialization objectives, which could materially damage our business and financial position. We currently have limited marketing capabilities and no sales organization. If we are unable to establish sales and marketing capabilities on our own orthrough third parties, we will be unable to successfully commercialize FMX101, FMX103 or any other of our other product candidates, if approved, orgenerate product revenues. We currently have limited marketing capabilities and no sales organization. To commercialize FMX101, FMX103 or any other of our other productcandidates, if approved, in the U.S. and other jurisdictions we may seek to enter, we must build our marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so. If FMX101 or FMX103receive regulatory approval, we expect to market them in the U.S. through a specialized internal sales force or a combination of our internal sales force anddistributors, which will be expensive and time-consuming. There are significant risks involved in building and managing a sales organization, including our ability to hire, retain and incentivize qualifiedindividuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel and effectively manage a geographically dispersedsales and marketing team. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact thecommercialization of our product candidates. We may choose to collaborate with third parties that have direct sales forces and established distribution systems, either to augment our own sales forceand distribution systems or in lieu of our own sales force and distribution systems. If we are unable to enter into such arrangements on acceptable terms or atall, we may not be able to successfully commercialize FMX101, FMX103 or any of our other product candidates. 34 If we are not successful in commercializing FMX101, FMX103 or any of our other product candidates, either on our own or through collaborations withone or more third parties, our revenues will suffer and we will incur significant additional losses. To establish our sales and marketing infrastructure and manufacturing capabilities, we will need to increase the size of our organization, and we mayexperience difficulties in managing this expansion. As of February 1, 2018 we had 75 employees. We will need to continue to expand our managerial, operational, finance and other resources to manage ouroperations and clinical trials, continue our development activities and commercialize FMX101, FMX103 and any other product candidates, if approved. Ourmanagement, personnel, systems and facilities currently in place may not be adequate to support this future growth. Our need to effectively execute ourexpansion strategy requires that we: ·manage our clinical trials effectively; ·identify, recruit, retain, incentivize and integrate additional employees; ·manage our internal development efforts effectively while carrying out our contractual obligations to third parties; and ·continue to improve our operational, financial and management controls, reporting systems and procedures. Due to our limited financial resources and our limited experience in managing a company with such anticipated expansion, we may not be able toeffectively manage the expansion of our operations or recruit and train additional qualified personnel. The physical expansion of our operations may lead tosignificant costs and may divert our management and business development resources. Any inability to manage expansion could delay the execution of ourdevelopment and strategic objectives, or disrupt our operations. We currently develop our clinical drug products exclusively in one research and development facility and may utilize this facility in the future to supportcommercial production if our product candidates are approved. If this or any future facility or our equipment were to be damaged or destroyed, or if weexperience a significant disruption in our operations for any other reason, our ability to continue to operate our business would be materially harmed. We currently research and develop our product candidates primarily in our laboratory located in Rehovot, Israel. If this or any future facility were to be damaged, destroyed or otherwise unable to operate, whether due to war, acts of hostility, earthquakes, fire, floods,hurricanes, storms, tornadoes, other natural disasters, employee malfeasance, terrorist acts, power outages or otherwise, or if performance of our research anddevelopment facility is disrupted for any other reason, such an event could delay our clinical trials or, if our product candidates are approved and we chooseto manufacture all or any part of them internally, jeopardize our ability to manufacture our products as promptly as our prospective customers will likelyexpect, or possibly at all. If we experience delays in achieving our development objectives, or if we are unable to manufacture an approved product within atimeframe that meets our prospective customers’ expectations, our business, prospects, financial results and reputation could be materially harmed. Currently, we maintain insurance coverage totaling $1.33 million against damage to our property and equipment and $5.8 million in workerscompensation coverage, subject to deductibles and other limitations. If we have underestimated our insurance needs with respect to an interruption, or if aninterruption is not subject to coverage under our insurance policies, we may not be able to cover our losses. If product liability lawsuits are brought against us, we may incur substantial liabilities that may not be fully covered by our insurance policies and we maybe required to limit commercialization of any of our other products we develop. We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if wecommercialize any products. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable duringproduct testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, afailure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under state consumerprotection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limitcommercialization of our products. Even a successful defense would require significant financial and management resources. Regardless of the merits oreventual outcome, liability claims may result in: ·decreased demand for FMX101, FMX103 or any of our other product candidates or products we develop; ·injury to our reputation and significant negative media attention; ·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. 35 Our inability to obtain and maintain sufficient product liability insurance at an acceptable cost and scope of coverage to protect against potential productliability claims could prevent or inhibit the commercialization of FMX101, FMX103 or any other product we may develop. We currently carry general thirdparty liability insurance up to an amount of $10 million per annum. Although we maintain such insurance, any claim that may be brought against us couldresult in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurancecoverage. Our insurance policies also have various exclusions and deductibles, and we may be subject to a product liability claim for which we have nocoverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered byour insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Moreover, in the future, we may not be able to maintaininsurance coverage at a reasonable cost or in sufficient amounts to protect us against losses. If and when we obtain approval for marketing of one or more ofFMX101, FMX103 or any other product we may develop, we intend to expand our insurance coverage to include their sale; however, we may be unable toobtain this liability insurance on commercially reasonable terms. If we fail to attract and keep senior management and key scientific personnel, we may be unable to successfully develop FMX101, FMX103 or any of ourother product candidates, conduct our clinical trials and commercialize FMX101, FMX103 or any of our other products we develop. Our success depends in part on our continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel. Webelieve that our future success is highly dependent upon the contributions of our senior management, particularly our Chief Executive Officer, as well as oursenior technologists and scientists. The loss of services of any of these individuals could delay or prevent the successful development of our productpipeline, completion of our planned clinical trials or the commercialization of FMX101, FMX103 or any of our other product candidates. Although we have not historically experienced unique difficulties in attracting and retaining qualified employees, we could experience such problems inthe future. For example, competition for qualified personnel in the pharmaceutical field is intense due to the limited number of individuals who possess theskills and experience required by our industry. We will need to hire additional personnel as we expand our clinical development and commercial activities.We may not be able to attract and retain quality personnel on acceptable terms, or at all. In addition, to the extent we hire personnel from competitors, we maybe subject to allegations that they have been improperly solicited or that they have divulged proprietary or other confidential information, or that theirformer employers own their research output. We have incurred, and will continue to incur significant increased costs as a result of operating as a public company in the U.S., and our management willbe required to devote substantial time to new compliance initiatives. As a public company in the U.S., we are subject to an extensive regulatory regime, requiring us to maintain various internal controls and to prepare andfile periodic and current reports and statements, including reports on the effectiveness of our internal control over financial reporting pursuant to Section 404of the Sarbanes-Oxley Act of 2002, or Section 404. Complying with these requirements is costly and time consuming. In the event that we are unable todemonstrate compliance with our obligations as a public company in the U.S. in a timely manner, or are unable to produce timely or accurate financialstatements, we may be subject to sanctions or investigations by regulatory authorities, such as the U.S. Securities and Exchange Commission, or the NASDAQGlobal Market, and investors may lose confidence in our operating results and the price of our ordinary shares could decline. Our independent registered public accounting firm was not engaged to perform an audit of our internal control over financial reporting, and as long as weremain an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, we are exempt from the requirementto have an independent registered public accounting firm perform such audit. Accordingly, no such opinion was expressed. Once we cease to qualify as an“emerging growth company,” our independent registered public accounting firm will need to attest to our management’s annual assessment of theeffectiveness of our internal controls over financial reporting, which will entail additional costs and expenses. Our business involves the use of hazardous materials and we and our third party manufacturers and suppliers must comply with environmental laws andregulations, which can be expensive and restrict how we do business. Our research and development activities and our third party subcontractors’ and suppliers’ activities involve the controlled storage, use and disposal ofhazardous materials owned by us, including minocycline and doxycycline, key components of our product candidates, and other hazardous compounds. Weand our manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardousmaterials. We are licensed by the Israeli Ministry of Health to manufacture small batches of product in topical dose form for our Phase I, II and III clinicaltrials. In some cases, these hazardous materials are stored at our and our subcontractors’ facilities pending their use and disposal. 36 Despite our efforts, we cannot eliminate the risk of contamination. This could cause an interruption of our commercialization efforts and businessoperations, environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling anddisposal of these materials and specified waste products. Although we believe that the safety procedures utilized by us and our subcontractors and suppliersfor handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this isthe case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damagesand such liability could exceed our resources and state or federal or other applicable authorities may curtail our use of certain materials and interrupt ourbusiness operations. Furthermore, environmental laws and regulations are complex, change frequently and have tended to become more stringent. We cannot predict theimpact of such changes and cannot be certain of our future compliance. We may in the future be subject to various U.S. federal and state laws pertaining to health care fraud and abuse, including anti-kickback, self-referral,false claims and fraud laws, and any violations by us of such laws could result in fines or other penalties. While we do not expect that FMX101, FMX103 or any other of our other product candidates, if approved, will subject us to the various U.S. federal andstate laws intended to prevent health care fraud and abuse, we may in the future become subject to such laws. The federal anti-kickback statute prohibits theoffer, receipt, or payment of remuneration in exchange for or to induce the referral of patients or the use of products or services that would be paid for inwhole or part by Medicare or other federal health care programs. Remuneration has been broadly defined to include anything of value, including cash,improper discounts, and free or reduced price items and services. Many states have similar laws that apply to their state health care programs as well as privatepayors. Violations of the anti-kickback laws can result in exclusion from federal and state health care programs and substantial civil and criminal penalties. The federal False Claims Act, or FCA, imposes liability on persons who, among other things, present or cause to be presented false or fraudulent claims forpayment by a federal health care program. The FCA has been used to prosecute persons submitting claims for payment that are inaccurate or fraudulent, thatare for services not provided as claimed, or for services that are not medically necessary. The FCA includes a whistleblower provision that allows individualsto bring actions on behalf of the federal government and share a portion of the recovery of successful claims. If our marketing or other arrangements weredetermined to violate anti-kickback or related laws, including the FCA, then our revenues could be adversely affected, which would likely harm our business,financial condition, and results of operations. State and federal authorities have aggressively targeted medical technology companies for alleged violations of these anti-fraud statutes, based onimproper research or consulting contracts with doctors, certain marketing arrangements that rely on volume-based pricing, off-label marketing schemes, andother improper promotional practices. Companies targeted in such prosecutions have paid substantial fines in the hundreds of millions of dollars or more,have been forced to implement extensive corrective action plans, and have often become subject to consent decrees severely restricting the manner in whichthey conduct their business. If we become the target of such an investigation or prosecution based on our contractual relationships with providers orinstitutions, or our marketing and promotional practices, we could face similar sanctions, which would materially harm our business. Also, the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from makingimproper payments to government officials for the purpose of obtaining or retaining business. Our internal control policies and procedures may not protect usfrom reckless or negligent acts committed by our employees, future distributors, licensees or agents. Violations of these laws, or allegations of suchviolations, could result in fines, penalties or prosecution and have a negative impact on our business, results of operations and reputation. Unfavorable global economic conditions could adversely affect our business, financial condition or results of operations. Although we believe the market for acne and rosacea therapies is less vulnerable to unfavorable economic conditions due to the significant discomfortand distress that these conditions inflict, our results of operations could be adversely affected by general conditions in the global economy and in the globalfinancial markets. We currently have very limited visibility regarding the prospects of FMX101, FMX103 or our other product candidates becoming eligiblefor reimbursement by any government or third party payor and the possible scope of such reimbursement, and we must assume that demand for these productcandidates may be tied to discretionary spending levels of our targeted patient population. A severe or prolonged economic downturn could result in a variety of risks to our business, including weakened demand for FMX101, FMX103 or any ofour other product candidates, if approved, and our ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economycould also strain our suppliers, possibly resulting in supply disruption, or cause our customers to delay making payments for our services. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial marketconditions could adversely impact our business. 37 Exchange rate fluctuations between the U.S. dollar and the Israeli shekel may negatively affect our earnings. The dollar is our functional and reporting currency. However, a significant portion of our operating expenses are incurred in Israeli shekels. As a result, weare exposed to the risks that the shekel may appreciate relative to the dollar, or, if the shekel instead devalues relative to the dollar, that the inflation rate inIsrael may exceed such rate of devaluation of the shekel, or that the timing of such devaluation may lag behind inflation in Israel. In any such event, thedollar cost of our operations in Israel would increase and our dollar-denominated results of operations would be adversely affected. We cannot predict anyfuture trends in the rate of inflation or deflation in Israel or the rate of devaluation or appreciation of the shekel against the dollar. For example, the rate ofappreciation of the shekel against the dollar was 11.6% and 1.5% in 2017 and 2016, respectively, which was offset by inflation in Israel at a rate of 0.4% in2017 and compounded by deflation at a rate of -0.2% in 2016. If the dollar cost of our operations in Israel increases, our dollar-measured results of operationswill be adversely affected. Our operations also could be adversely affected if we are unable to effectively hedge against currency fluctuations in the future. Risks Related to Our Intellectual Property If our efforts to obtain, protect or enforce our patents and other intellectual property rights related to FMX101, FMX103 or any of our other productcandidates are not adequate, we may not be able to compete effectively and we otherwise may be harmed. Our commercial success depends in part on our ability to obtain and maintain patent protection and other intellectual property rights and to utilize tradesecret protection for our intellectual property and proprietary technologies, our products and their uses, as well as our ability to operate without infringingupon the proprietary rights of others. We rely upon a combination of patents, trade secret protection and confidentiality agreements, assignment of inventionagreements and other contractual arrangements to protect the intellectual property related to FMX101, FMX103 and our other development programs.Limitations on the scope of our intellectual property rights may limit our ability to prevent third parties from designing around such rights and competingagainst us. For example, our patents do not claim a new compound. Rather, the active pharmaceutical ingredients of our products are existing compounds andour granted patents and pending patent applications are directed to, among other things, novel formulations of these existing compounds that are dispensedas a foam. Accordingly, other parties may compete with us, for example, by independently developing or obtaining competing topical formulations thatdesign around our patent claims, but which may contain the same active ingredients, or by seeking to invalidate our patents. Moreover any disclosure to ormisappropriation by third parties of our confidential proprietary information, unless we have sufficient patent and/or trade secret protection and we are ableto enforce such rights successfully, could enable competitors to quickly duplicate or surpass our technological achievements, eroding our competitiveposition in our market. We currently have several granted patents related to FMX101 and FMX103 in the U.S., which are expected to remain in effect until 2030. These patentsrelate to a composition of matter comprising a claim to a formulation of a tetracycline antibiotic which can include minocycline or doxycycline, andtherefore may be less protective than patents that claim a new drug. We also have patents granted claiming compositions of matter relating to FMX101 andFMX103 in Australia, Canada, and Israel, and we have patent applications claiming compositions of matter relating to FMX101 and FMX103 pending inCanada, the European Union, India and Mexico. As of December 31, 2017 we had 165 granted patents and over 40 patent applications pending worldwide covering our various foam-based platforms andother technology. However, the patent applications that we own or license may fail to result in granted patents in the U.S. or foreign jurisdictions, or ifgranted the patent claims may fail to prevent a potential infringer from marketing its product or be deemed invalid and unenforceable by a court. Competitorsin the field of topically-administered therapies comprising an active ingredient in foam presentation have created a substantial amount of scientificpublications, patents and patent applications and other materials relating to their technologies. Our ability to obtain and maintain valid and enforceablepatents depends on various factors, including interpretation of our technology and the prior art and whether the differences between them allow ourtechnology to be patentable. Patent applications and patents granted from them are complex, lengthy and highly technical documents that are often preparedunder very limited time constraints and may not be free from errors that make their interpretation uncertain. The existence of errors in a patent may have amaterially adverse effect on the patent, its scope and its enforceability. Our pending patent applications may not issue, and the scope of the claims of patentapplications that do issue may be too narrow or inadequate to protect our competitive advantage. Also, our granted patents may be subject to challenges orconstrued in a way that may not provide adequate protection. Even if these patents do successfully issue, third parties may challenge the validity, enforceability or scope of such granted patents or any other grantedpatents we own or license, which may result in such patents being narrowed, invalidated or held unenforceable. For example, patents granted by the EuropeanPatent Office may be opposed by any person within 9 months from the publication of their grant. Also, patents granted by the U.S. Patent and TrademarkOffice, or USPTO, may be subject to review, reexamination and other challenges. Changes to the patent laws of the U.S. in 2012 provide additionalprocedures for third parties to challenge the validity of patents issuing from patent applications including post-grant review, which generally applies topatents first filed after March 15, 2013. A post-grant review petition must be filed on or prior to the date which is 9 months after the patent is granted. Theprocedures also expand and reform the proceedings for challenging issued patents on grounds of prior art and publications, also known as inter partes reviewor IPR. For patents filed after March 15, 2013, a petition for IPR may be filed the later of 9 months after grant of the patent or after a post-grant reviewproceeding on the patent has terminated. For patents filed prior to March 15, 2013, the rules regarding IPR filing remain unchanged and an IPR petition maybe filed any time following issuance of the patent. 38 Furthermore, efforts to enforce our patents could give rise to challenges to their validity or unenforceability in court proceedings. If the patents and patentapplications we hold or pursue with respect to FMX101, FMX103 or any of our other product candidates are challenged, it could put one or more patents atrisk of being invalidated, or interpreted narrowly and threaten our competitive advantage for FMX101, FMX103 or any of our other product candidates. Furthermore, even if they are not challenged, our patents and patent applications may not adequately protect our intellectual property or prevent others fromdesigning around our claims. To meet such challenges, which are part of the risks and uncertainties of developing and marketing product candidates, we mayneed to evaluate third party intellectual property rights and, if appropriate, to seek licenses for such third party intellectual property or to challenge such thirdparty intellectual property, which may be costly and may or may not be successful, which could also have a material adverse effect on the commercialpotential for FMX101, FMX103 and any of our other product candidates. Further, if we encounter delays in our clinical trials, the period of time during which we could market FMX101, FMX103 or any of our other productcandidates under patent protection could be reduced. Since patent applications in the U.S. and most other countries are confidential for a period of time after filing, we cannot be certain that we were the firstto (i) file any patent application related to FMX101, FMX103 or any of our other product candidates or (ii) conceive and invent any of the inventionsclaimed in our patents or patent applications. Furthermore, for applications filed before March 16, 2013, or patents issuing from such applications, an interference proceeding can be invoked by a thirdparty, or instituted by the USPTO, to determine who was the first to invent any of the subject matter covered by the patent claims of our applications andpatents. As of March 16, 2013, the U.S. transitioned to a “first-to-file” system for deciding which party should be granted a patent when two or more patentapplications are filed by different parties claiming the same invention. A third party that files a patent application in the USPTO under the new first-to-filesystem before we did could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by the thirdparty. The change to “first-to-file” from “first-to-invent” is one of the changes to the patent laws of the U.S. resulting from the Leahy-Smith America Invents Actsigned into law on September 16, 2011. Among some of the other changes to the patent laws are changes that limit where a patentee may file a patentinfringement suit and providing opportunities for third parties to challenge any issued patent in the USPTO. Because of a lower evidentiary standard incertain USPTO proceedings compared to the evidentiary standard in U.S. federal court necessary to invalidate a patent claim, a third party could potentiallyprovide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence may be insufficient to invalidatethe claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims thatwould not have been invalidated if first challenged by the third party as a defendant in a district court action. USPTO statistics indicate that a high rate ofchallenged claims are being invalidated in these USPTO procedures. Even where patent, trade secret and other intellectual property laws provide protection, costly and time-consuming litigation could be necessary toenforce and determine the scope of our proprietary rights, and the outcome of such litigation would be uncertain. Moreover, any actions we may bring toenforce our intellectual property against our competitors could provoke them to bring counterclaims against us, and our competitors have intellectualproperty portfolios of their own, some of which are substantial. An unfavorable outcome could have a material adverse effect on our business and could resultin the challenged patent or one or more of its claims being interpreted narrowly or invalidated, or one or more of our patent applications may be not begranted. We also rely on trade secret protection and confidentiality agreements to protect our know-how, data and information prior to filing patent applicationsand during the period before they are published. We further rely on trade secret protection and confidentiality agreements to protect proprietary know-howthat may not be patentable, processes for which patents may be difficult to obtain or enforce and other elements of our product development processes thatinvolve proprietary know-how, information or technology that is not covered by patents. In an effort to protect our trade secrets and other confidential information, we incorporate confidentiality provisions in all our employees’ agreements andrequire our consultants, contractors and licensees to which we disclose such information to execute confidentiality agreements upon the commencement oftheir relationships with us. These agreements require that confidential information, as defined in the agreement and disclosed to the individual by us duringthe course of the individual’s relationship with us, be kept confidential and not disclosed to third parties for an agreed term. These agreements, however, maynot provide us with adequate protection against improper use or disclosure of confidential information, and these agreements may be breached. Adequateremedies may not exist in the event of unauthorized use or disclosure of our confidential information. A breach of confidentiality could significantly affectour competitive position and we could lose our trade secrets or they could become otherwise known or be independently discovered by our competitors.Also, to the extent that our employees, consultants or contractors use any intellectual property owned by others in their work for us, disputes may arise as tothe rights in any related or resulting know-how and inventions. Additionally, others may independently develop the same or substantially equivalentproprietary information and techniques or otherwise gain access to our trade secrets and other confidential information. Any of the foregoing coulddeteriorate our competitive advantages, undermine the trade secret and contractual protections afforded to our confidential information and have materialadverse effects on our business. 39 Changes in U.S. or foreign patent law could diminish the value of patents in general, thereby impairing our ability to protect our products. As is the case with other companies in the markets in which we participate, our success is heavily dependent on intellectual property, particularly patents.The strength of patents in the pharmaceutical field involves complex legal and scientific questions and in the U.S. and many foreign jurisdictions patentpolicy and case law also continues to evolve and change and the issuance, scope, validity, enforceability and commercial value of our patent rights arehighly uncertain. This uncertainty includes changes to the patent laws through either legislative action to change statutory patent law or court action thatmay reinterpret or expand on existing law in ways affecting the scope or validity of granted patents, or both. Particularly in recent years in the U.S., there havebeen several major legislative developments and court decisions that have affected patent laws in significant ways and there may be more developments inthe future that may weaken or undermine our ability to obtain patents or to enforce our existing and future patents. We have agreed to share ownership in certain patents that may result from our development and license agreements with certain major pharmaceuticalcompanies, which may detract from our rights to such patents. We have agreed with several of the pharmaceutical companies with whom we are developing certain topical products, based on our foam technology andthe licensees’ active ingredients, to jointly own and have an undivided interest in patents that arise from the relevant projects, where the licensee made itsown material contributions to the invention. In certain agreements, we have further agreed that inventions achieved exclusively or primarily by the licenseesin the course of the development without significant contribution by us will be owned solely by them, and they will be allowed to file patent applicationscovering such inventions without our participation. We have granted certain licensees the right to provide input during the prosecution of licensed patent applications. We have further granted certainlicensees the primary right to enforce several of our existing patents, which we have licensed to these licensees to allow them to commercialize our jointly-developed product, in the event that any infringement of the licensed patents adversely affects the licensees’ ability to utilize the licenses for the purposethey were granted. Such rights may detract from our rights and title to such patents. In addition, any negative proceedings against our technology couldimpact any or all of our licensees, and we may be contractually responsible for the payment of certain claims and losses as a result of such impact. If we infringe or are alleged to infringe or otherwise violate intellectual property rights of third parties, our business could be harmed. Our research, development and commercialization activities may infringe or otherwise violate or be claimed to infringe or otherwise violate patentsowned or controlled by other parties. Competitors in the field of topical and oral drugs for the treatment of acne, impetigo, rosacea, chemotherapy-inducedrash and other indications have developed large portfolios of patents and patent applications relating to our business. In particular, there are patents held bythird parties that relate to the treatment with minocycline-based and doxycycline-based products for indications we are pursuing with our product candidates,namely FMX101, FMX103 and any other of our other product candidates. There may be granted patents that could be asserted against us in relation to suchproduct candidates. There may also be granted patents held by third parties that may be infringed or otherwise violated by our other product candidates andactivities, and we do not know whether or to what extent we are infringing or otherwise violating third party patents. There may also be third party patentapplications that if approved and granted as patents may be asserted against us in relation to FMX101, FMX103 or any of our other product candidates oractivities. These third parties could bring claims against us that would cause us to incur substantial expenses and, if successful against us, could cause us topay substantial damages and legal fees. Further, if a patent infringement suit were brought against us, we could be temporarily or permanently enjoined orotherwise forced to stop or delay research, development, manufacturing or sales of the product candidate that is the subject of the suit. As a result of patent infringement claims, or to avoid potential claims, we may choose or be required to seek licenses from third parties. These licenses maynot be available on acceptable terms, or at all. Even if we are able to obtain a license, the license would likely obligate us to pay license fees or royalties orboth, and the rights granted to us might be nonexclusive, which could result in our competitors gaining access to the same intellectual property, or suchrights might be restrictive and limit our present and future activities. Ultimately, we or a licensee could be prevented from commercializing a product, or beforced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses onacceptable terms. There has been and there currently is substantial litigation and other proceedings regarding patent and other intellectual property rights in thepharmaceutical industry. In addition to possible infringement claims against us, we may become a party to other patent litigation and other proceedings,including interference, derivation, review, re-examination or other post-grant proceedings declared or granted by the USPTO and similar proceedings inforeign countries, regarding intellectual property rights with respect to our current or any future products. The cost to us of any patent litigation or otherproceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation or proceedingsmore effectively than we can because of their substantially greater financial resources. Patent litigation and other proceedings may also absorb significantmanagement time. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings and their outcome could impair ourability to compete in the marketplace and impose a substantial financial burden on us. The occurrence of any of the foregoing could have a material adverseeffect on our business, financial condition or results of operations. 40 Furthermore, several of our employees were previously employed at universities or other pharmaceutical companies, including potential competitors.While we take steps to prevent our employees from using the proprietary information or know-how of others that is not in the public domain or that has notalready been independently developed by us earlier, we may be subject to claims that we or these employees have inadvertently or otherwise used ordisclosed intellectual property, trade secrets or other proprietary information of any such employee’s former employer. Litigation may be necessary to defendagainst 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 donot succeed with respect to any such claims, in addition to paying monetary damages and possible ongoing royalties, we may lose valuable intellectualproperty rights or personnel. If we are unable to protect our trademarks from infringement, our business prospects may be harmed. We own trademarks that identify “Foamix”, and have registered these trademarks in the U.S. and Israel. Although we take steps to monitor the possibleinfringement or misuse of our trademarks, it is possible that third parties may infringe, dilute or otherwise violate our trademark rights. Any unauthorized useof our trademarks could harm our reputation or commercial interests. In addition, our enforcement against third-party infringers or violators may be undulyexpensive and time-consuming, and the outcome may be an inadequate remedy. We may become involved in lawsuits to protect or enforce our patents or other intellectual property or the patents of our licensors, which could beexpensive and time-consuming. Competitors may infringe our intellectual property, including our patents or the patents of our licensors. As a result, we may be required to fileinfringement claims to stop third party infringement or unauthorized use. This can be expensive and burdensome, particularly for a company of our size, andtime-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable, or may refuse to stop theother party from using the technology at issue on the grounds that our patent claims do not cover its technology or that the factors necessary to grant aninjunction against an infringer are not satisfied. We have received notice letters of ANDAs submitted for drug products that are generic versions of Finacea Foam and we are involved in lawsuits toprotect or enforce our patents, which could be expensive, time consuming and unsuccessful. Competitors may infringe our patents. To counter infringement or unauthorized use, we may be required to file infringement claims, which can beexpensive and time consuming. Litigation proceedings may also fail, and even if successful, they may result in substantial costs and distraction of ourmanagement and other employees. For example, we and Bayer have received Paragraph IV Certification Notice Letters from each of Teva and Perrigo, dated November 20, 2017 and January4, 2018, respectively, in connection with Bayer’s Finacea Foam. A Paragraph IV Certification Notice Letter notifies the FDA that one or more patents listedin the FDA’s Orange Book is allegedly invalid, unenforceable or will not be infringed by an ANDA product. In the case at hand, both letters were directedagainst several of our U.S. patents and stated that each of Teva and Perrigo had submitted to the FDA an ANDA for an azelaic acid foam composition which isa generic version of Finacea Foam. We and Bayer responded by jointly filing complaints against each of Teva and Perrigo with the U.S. District Court for theDistrict of Delaware, filed January 4, 2018 and February 15, 2018, respectively, asserting, among other things, that each of Teva and Perrigo had infringed ourpatents, as listed in their Paragraph IV Notice Letters, by seeking FDA approval to manufacture and sell a generic version of Bayer’s Finacea Foam prior toexpiration of these patents. Since the complaints were filed within the 45-day period required under the Hatch Waxman Act, we were granted a 30-month staywhich precludes a generic from receiving final FDA approval of a generic version of Finacea Foam prior to May 2020. Pursuant to our licensing agreement with Bayer, this litigation is in the sole control of Bayer, and we are currently unable to predict its outcome. Potentially, substitution of Finacea Foam in favor of generic versions is likely to have a negative impact on future commercialization of Finacea Foam and toresult in a loss of license revenue. Furthermore, in any infringement proceeding, including the foregoing, a court may decide that a patent of ours, or one ormore claims of such patent, is not valid or is unenforceable, or may refuse to stop the other party from using the supposedly infringing technology on thegrounds that our patents, or one or more claims of such patents, do not cover such technology. An adverse result in any litigation or defense proceedingscould put one or more of our patents at risk of being invalidated or interpreted narrowly and could also put one or more of our pending patent applications atrisk of not issuing. There can be no assurance that our product candidates will not be subject to the same risks. 41 An adverse determination of any litigation or other proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowlyand could put our patent applications at risk of not issuing. Interference, derivation review, or other proceedings brought at the USPTO may be necessary to determine the priority or patentability of inventions withrespect to our patent applications or those of our licensors or licensees. Litigation or USPTO proceedings brought by us may fail or may be invoked againstus by third parties. Even if we are successful, domestic or foreign litigation or USPTO or foreign patent office proceedings may result in substantial costs anddistraction to our management. We may not be able, alone or with our licensors or licensees, to prevent misappropriation of our proprietary rights,particularly in countries where the laws may not protect such rights as fully as in the U.S. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or other proceedings, there is arisk that some of our confidential information could be compromised by disclosure during this type of litigation or proceedings. In addition, during thecourse of this kind of litigation or proceedings, there could be public announcements of the results of hearings, motions or other interim proceedings ordevelopments or public access to related documents. If investors perceive these results to be negative, the market price for our ordinary shares could besignificantly harmed. We may not obtain intellectual property rights or otherwise be able to protect our intellectual property rights throughout the world. Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive. We primarilyfile patent applications in the U.S., and may file in some other selected jurisdictions on a case-by-case basis. As a result, our intellectual property rights incountries outside the U.S. are generally less extensive than those in the U.S. In addition, the laws of some foreign countries and jurisdictions, particularly ofcertain developing countries and jurisdictions, do not protect intellectual property rights to the same extent as federal and state laws in the U.S., and thesecountries and jurisdictions may limit the scope of what can be claimed, and in some cases may even force us to grant a compulsory license to competitors orother third parties. Consequently, we may not be able to prevent third parties from practicing our inventions outside the U.S., or from selling or importingproducts made using our inventions in and into the U.S. or other jurisdictions. Competitors may use our technologies in jurisdictions where we have notsought or obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patentprotection, but protection and enforcement is not as strong as that in the U.S. These products may compete with our products and our patents or otherintellectual property rights may not be effective or sufficient to prevent them from competing. Moreover, competitors or others may raise legal challenges toour intellectual property rights or may infringe upon our intellectual property rights, including through means that may be difficult to prevent or detect. Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legalsystems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection,especially those relating to pharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing productsin violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert ourefforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applicationsat risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or otherremedies awarded, if any, may not be commercially meaningful. Further, third parties may prevail in their claims against us, which could potentially result inthe award of injunctions or substantial damages against us. Accordingly, our efforts to enforce our intellectual property rights around the world may beinadequate to obtain a significant commercial advantage from the intellectual property that we develop or license. In addition, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in domestic and foreignintellectual property laws and practice. We have received notices of opposition to our European patent no. 1556009 Two oppositions were filed against the grant of our European patent EP1556009 entitled “Cosmetic and Pharmaceutical Foam”, which relates to analcohol-free foamable pharmaceutical or cosmetic carrier and its use. The oppositions were filed by Guderma GmbH and Henkel AG & Co. KGaA. Wedefended the patent at oral proceedings on January 23, 2017 before the Opposition Division of the European Patent Office, or EPO, and the outcome was afavorable interlocutory decision to maintain the patent in amended form. Both of the unsuccessful opponents filed an appeal against this decision, and inresponse we have restated our position in support of the patent. We await the next communication from the EPO, which is likely to be a summons to oralproceedings at which the outcome of the appeal will be decided. The opposition and appeal documents are available at the online EPO file for the patent. Although the patent involved is believed by Foamix to be of no material interest to our lead product candidates, it may be of interest in relation to one ormore of our licensed products. We are unable to predict the outcome of the appeal, which might result in the patent being revoked, but note that it maypotentially have a negative impact on the future commercialization of one or more licensed products. 42 Under applicable employment laws, we may not be able to enforce covenants not to compete. We generally enter into non-competition agreements as part of our employment agreements with our employees. These agreements generally prohibit ouremployees, if they cease working for us, from competing directly with us or working for our competitors or clients for a limited period. We may be unable toenforce these agreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors frombenefitting from the expertise our former employees or consultants developed while working for us. For example, Israeli labor courts place emphasis on freedom of employment and have required employers seeking to enforce non-compete undertakings ofa former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of theemployer which have been recognized by the courts, such as the protection of a company’s trade secrets or other intellectual property. Risks Related to Our Ordinary Shares We do not know whether a market for our ordinary shares will be sustained and as a result it may be difficult for holders of our ordinary shares to sell theirshares. Although our ordinary shares are quoted on the NASDAQ Global Market, an active trading market for our shares may not be sustained. The lack of anactive market may impair holders of our ordinary shares ability to sell their shares 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 fair market value of our shares, and may cause the trading price of our ordinary shares to be more volatile.An inactive market may also impair our ability to raise capital by selling shares and may impair our ability to acquire other companies by using our shares asconsideration. The market price of our ordinary shares may be subject to fluctuation and holders of our ordinary shares could lose all or part of their investment. The stock market in general and the market price of our ordinary shares in particular has been, and will likely continue to be, subject to fluctuation,whether due to, or irrespective of, our operating results and financial condition. For example, the price of our shares plummeted by more than 40% in a singletrading day on March 27, 2017, following the announcement of somewhat mixed top-line results from our two pivotal Phase III clinical trials for our leadproduct candidate FMX101 for treatment of moderate-to-severe acne. The market price of our ordinary shares on the NASDAQ Global Market may fluctuateas a result of a number of factors, some of which are beyond our control, including, but not limited to: ·actual or anticipated variations in our and our competitors’ results of operations and financial condition; ·market acceptance of our products; ·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 contingentpayments and royalties; ·changes in earnings estimates or recommendations by securities analysts, if our ordinary shares are covered by analysts; ·development of technological innovations or new competitive products by others; ·announcements of technological innovations or new products by us; ·publication of the results of preclinical or clinical trials for FMX101, FMX103 or our other product candidates; ·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; ·The filing of ANDAs by generic companies seeking approval to market generic versions of our products and of our licensee’s products; ·developments concerning intellectual property rights, including our involvement in litigation brought by or against us, including patent infringementproceedings before national and state courts, and patent opposition and review proceedings before national patent offices; ·regulatory developments and the decisions of regulatory authorities as to the approval or rejection of new or modified products; ·changes in the amounts that we spend to develop, acquire or license new products, technologies or businesses; ·changes in our expenditures to promote our products; ·our sale or proposed sale, or the sale by our significant shareholders, of our ordinary shares or other securities in the future; ·changes in key personnel; 43 ·success or failure of our research and development projects or those of our competitors; ·the trading volume of our ordinary shares; and ·general economic and market conditions and other factors, including factors unrelated to our operating performance. These factors and any corresponding price fluctuations may materially and adversely affect the market price of our ordinary shares and result insubstantial losses being incurred by our investors. In the past, following periods of market volatility, public company shareholders have often institutedsecurities class action litigation. If we were involved in securities litigation, it could impose a substantial cost upon us and divert the resources and attentionof our management from our business. If equity research analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our ordinaryshares, the price of our ordinary shares could decline. The trading market for our ordinary shares relies in part on the research and reports that equity research analysts publish about us and our business, if atall. We do not have control over these analysts and we do not have commitments from them to write research reports about us. The price of our ordinaryshares could decline if no research reports are published about us or our business, or if one or more equity research analysts downgrades our ordinary shares orif those analysts issue other unfavorable commentary or cease publishing reports about us or our business. Future sales of our ordinary shares could reduce the market price of our ordinary shares. If our shareholders, particularly our directors and their affiliates or our executive officers, sell a substantial number of our ordinary shares in the publicmarket, the market price of our ordinary shares could decrease significantly. The perception in the public market that our shareholders might sell our ordinaryshares could also depress the market price of our ordinary shares and could impair our future ability to obtain capital, especially through an offering of equitysecurities. In addition, our sale of additional ordinary shares or similar securities in order to raise capital might have a similar negative impact on the shareprice of our ordinary shares. A decline in the price of our ordinary shares might impede our ability to raise capital through the issuance of additional ordinaryshares or other equity securities, and may cause holders of our ordinary shares to lose part or all of their investment. The significant share ownership position of affiliates of our co-founders, Dr. Dov Tamarkin and Meir Eini, may limit your ability to influence corporatematters. Tamarkin Medical Innovations Ltd., a company beneficially owned by Dr. Dov Tamarkin, or Tamarkin, our co-founder, beneficially owns or controls,directly or indirectly, 7.0% of our outstanding ordinary shares, and Meir Eini Holdings Ltd., a company beneficially owned by Meir Eini, or Eini, our otherco-founder, beneficially owns or controls, directly or indirectly, 7.7% of our outstanding ordinary shares, as of December 31, 2017. Accordingly, Tamarkinand Eini are able to significantly influence, though not independently determine, the outcome of matters required to be submitted to our shareholders forapproval, including decisions relating to the election of our board of directors and the outcome of any proposed merger or consolidation of our company.Tamarkin’s and Eini’s interests may not be consistent with those of our other shareholders. In addition, Tamarkin’s and Eini’s significant interest in us maydiscourage third parties from seeking to acquire control of us, which may adversely affect the market price of our ordinary shares. We have never paid cash dividends on our share capital, and we do not anticipate paying any cash dividends in the foreseeable future. We have never declared or paid cash dividends on our share capital, nor do we anticipate paying any cash dividends on our share capital in theforeseeable future. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business. 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 limits our ability todeclare and pay dividends, and may subject our dividends to Israeli withholding taxes. As of January 1, 2018 we are required to report as a U.S. domestic issuer and the benefits of a “foreign private issuer” are no longer available to us, whichwill likely result in additional costs and expenses for us. As of January 1, 2018 we have lost our status as a “foreign private issuer” and are required to adjust our disclosure and reporting to comply with therequirements for domestic U.S. companies, given that more than 50% of our outstanding voting securities were owned by residents of the U.S. and more than50% of our executive officers were U.S. citizens or residents as of June 30, 2017. As a result: ·we are required to report on forms that are applicable to U.S. companies, such as Forms 10-K, 10-Q and 8-K, rather than the forms formerly used us, suchas Forms 20-F and 6-K; ·we are required to include substantially more information in proxy statements than previously provided; ·we can no longer make use of the shelf registration statement on Form F-3 that was declared effective on March 14, 2017, and will need to file a newregistration statement on the relevant form applicable to domestic issuers should we wish to engage in capital raising activities; 44 ·if we engage in capital raising activities, there is a higher likelihood that investors may require us to file resale registration statements with the SEC asa condition to any such financing; and ·we may be required to modify certain of our policies to comply with accepted governance practices associated with U.S. domestic issuers. We expect that complying with these additional requirements would increase our legal and audit fees which in turn, could have a material adverse effecton our business, financial condition and results of operations. In addition, as a result of being considered a “domestic issuer” for reporting and disclosurerequirements: ·we are no longer exempt from certain of the provisions of U.S. securities laws such as (i) Regulation FD, which restricts the selective disclosure ofmaterial information, (ii) exemptions for filing beneficial ownership reports under Section 16(a) of the Exchange Act for executive officers, directorsand 10% shareholders (Forms 3, 4, and 5), and (iii) the Section 16(b) short swing profit rules; ·we are no longer permitted to disclose compensation information for our executive officers on an aggregate rather than an individual basis, althoughsuch exemption may still be available to us as long as we remain an “emerging growth company”; and ·we have lost the ability to rely upon exemptions from NASDAQ corporate governance requirements that are available to foreign private issuers. As a foreign private issuer, we are permitted to follow, and had followed through December 31, 2017, certain home country corporate governancepractices instead of those otherwise required under the NASDAQ Stock Market for domestic U.S. issuers. For instance, we followed home country practice inIsrael with regard to (a) the quorum requirement for shareholder meetings, (b) the lack of need for independent director oversight of director nominations andfor a nominating and governance committee; (c) the lack of need for separate executive sessions of independent directors and non-management directors; and(d) the lack of need to obtain shareholder approval for certain dilutive events such as (i) the establishment or amendment of certain equity-basedcompensation plans and (ii) certain transactions other than a public offering involving issuances of a 20% or more interest in the company. We are an “emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies may make our ordinary sharesless attractive to investors. We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various requirements that areapplicable to other public companies that are not “emerging growth companies.” Most of such requirements relate to disclosures that we would otherwise berequired to make, having ceased to be a foreign private issuer. For example, as an emerging growth company, and despite no longer being a foreign privateissuer, we will not be required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act for up to five fiscal years after thedate of our initial public offering. 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 atleast $1.0 billion; (ii) the last day of our fiscal year following the fifth anniversary of the closing of our initial public offering; (iii) the date on which we have,during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (iv) the date on which we are deemed to be a “largeaccelerated filer” under the Exchange Act. 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 discussed above.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 findour 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 U.S. shareholders may suffer adverse tax consequences if we are characterized as a passive foreign investment company. Generally, if, for any taxable year, 75% or more of our gross income is passive income, or at least 50% of the average quarterly value of our assets (whichmay be determined in part by the market value of our ordinary shares, which is subject to change) are held for the production of, or produce, passive income,we would be characterized as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. Based on certain estimates of our gross income and gross assets, our use of proceeds of our initial public offering, and the nature of our business, webelieve that we were not classified as a PFIC for the taxable year ended December 31, 2017, and do not anticipate being classified as a PFIC for the taxableyear ending December 31, 2018. Because we currently hold, and expect to continue to hold, a substantial amount of cash and cash equivalents and otherpassive assets used in our business, and because the value of our gross assets is likely to be determined in large part by reference to our market capitalization,a decline in the value of our ordinary shares may result in our becoming a PFIC. Accordingly, we may be considered a PFIC for any taxable year. If we are characterized as a PFIC, our U.S. shareholders may suffer adverse tax consequences, including having gains realized on the sale of our ordinaryshares treated as ordinary income, rather than as capital gain, the loss of the preferential rate applicable to dividends received on our ordinary shares byindividuals who are U.S. Holders (as defined in “Item 10.E. Taxation—U.S. Federal Income Tax Consequences” in our annual report on Form 20-F for theyear 2016, filed with the SEC on February 21, 2017), and having interest charges apply to distributions by us and the proceeds of share sales. Certainelections exist that may alleviate some of the adverse consequences of PFIC status and would result in an alternative treatment (such as mark-to-markettreatment) of our ordinary shares; however, we do not intend to provide the information necessary for U.S. holders to make qualified electing fund elections ifwe are classified as a PFIC. See also “Item 10.E. Taxation—U.S. Federal Income Tax Consequences—Passive Foreign Investment Company Considerations”in our annual report on Form 20-F for the year 2016, filed with the SEC on February 21, 2017. 45 Risks Related to Our Operations in Israel Our headquarters, research and development and other significant operations are located in Israel and, therefore, our results may be adversely affected bypolitical, economic and military instability in Israel. Our headquarters and research and development facilities are located in Rehovot, Israel. In addition, a significant number of our key employees, officersand directors are residents of Israel. Accordingly, political, economic and military conditions in Israel may directly affect our business. Since theestablishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel, its neighboring countries and other organizations.Any hostilities involving Israel or the interruption or curtailment of trade or transport between Israel and its trading partners could adversely affect ouroperations and results of operations. Further, our operations could be disrupted by the obligations of personnel to perform military reserve service. Provisions of Israeli law and our amended and restated articles of association may delay, prevent or otherwise impede a merger with, or an acquisition of,us, even when the terms of such a transaction are favorable to us and our shareholders. Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals fortransactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to such types of transactions. Forexample, a tender offer for all of a company’s issued and outstanding shares can only be completed if the acquirer receives positive responses from theholders 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 apersonal interest in the tender offer unless, following consummation of the tender offer, the acquirer would hold at least 98% of the company’s outstandingshares. Furthermore, the shareholders, including those who indicated their acceptance of the tender offer, may, at any time within six months following thecompletion of the tender offer, petition an Israeli court to alter the consideration for the acquisition, unless the acquirer stipulated in its tender offer that ashareholder that accepts the offer may not seek such appraisal rights. Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to our shareholders whose country of residence does nothave 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 sameextent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on thefulfillment of a number of conditions, including, in some cases, a holding period of two years from the date of the transaction during which sales anddispositions of shares of the participating companies are subject to certain restrictions. Moreover, with respect to certain share swap transactions, the taxdeferral is limited in time, and when such time expires, the tax becomes payable even if no disposition of the shares has occurred. It may be difficult to enforce a judgment of a U.S. court against us, our officers and directors in Israel or the U.S., to assert U.S. securities laws claims inIsrael or to serve process on our officers and directors. We are incorporated in Israel. A significant number of our executive officers and directors listed in this annual report reside outside of the U.S., and mostof our assets and most of the assets of these persons are located outside of the U.S. Therefore, a judgment obtained against us, or any of these persons,including a judgment based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the U.S. and may not be enforced byan Israeli court. It also may be difficult for you to effect service of process on these persons in the U.S. or to assert U.S. securities law claims in original actionsinstituted 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 mostappropriate forum in which 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. lawis applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proven as a fact by expert witnesses, which can be atime consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel that addresses the matters described above. As a result of the difficulty associated with enforcing a judgmentagainst 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. 46 The rights and responsibilities of our shareholders are governed by Israeli law, which differs in some material respects from the rights and responsibilitiesof shareholders of U.S. companies. The rights and responsibilities of the holders of our ordinary shares are governed by our amended articles of association and by Israeli law. These rightsand responsibilities differ in some material respects from the rights and responsibilities of shareholders in U.S.-based companies. In particular, a shareholderof 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 companyand other shareholders, and to refrain from abusing its power in the company, including, among other things, in voting at a general meeting of shareholderson matters such as amendments to a company’s articles of association, increases in a company’s authorized share capital, mergers and acquisitions and relatedparty transactions requiring shareholder approval. In addition, a shareholder who is aware that it possesses the power to determine the outcome of a vote at ameeting of the shareholders or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness toward thecompany with regard to such vote or appointment. There is limited case law available to assist us in understanding the nature of this duty or the implicationsof these provisions. These provisions may be interpreted to impose additional obligations and liabilities on holders of our ordinary shares that are nottypically imposed on shareholders of U.S. companies. ITEM 1B — UNRESOLVED STAFF COMMENTS None. ITEM 2 — PROPERTIES Our facilities in Israel, which house our headquarters and our research and developments laboratories, are located at two sites in the Weizmann SciencePark in Rehovot, Israel. Under a Lease Agreement with Gav Yam Lands Ltd., we are leasing approximately 2,199 square meters until December 31, 2020. Our executive offices in the U.S. are located in Bridgewater, New Jersey. The lease agreement was signed in October 2017, expires in March 2019 andconsists of approximately 929 square meters of space. We believe that our current office space in Israel and the U.S. is sufficient to meet our anticipated needs for the foreseeable future and is suitable for theconduct of our business. ITEM 3 — 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. Otherthan the complaints filed against Teva and against Perrigo in the United States (see above “Item 1A—Risk Factor—Risks Related to Our Intellectual Property—We have received notice letters of ANDAs submitted for drug products that are generic versions of Finacea Foam and we are involved in lawsuits to protector enforce our patents, which could be expensive, time consuming and unsuccessful”) we are not currently involved in any legal proceedings. We maybecome involved in material legal proceedings in the future. ITEM 4 — MINE SAFETY DISCLOSURES Not applicable. PART II ITEM 5 — MARKET FOR REGISTRANT’S ORDINARY SHARES, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIES Market Information Our ordinary shares have been listed on the NASDAQ Global Market under the symbol “FOMX” since September 17, 2014. Prior to that date, there was nopublic trading market for our ordinary shares. Our initial public offering was priced at $6.00 per share. The following table sets forth for the periods indicated the high and low sales prices per ordinary share as reported on the NASDAQ Global Market: 2017 High Low First quarter 11.27 4.40 Second quarter 5.11 4.03 Third quarter 5.99 4.34 Fourth quarter 7.00 5.17 2016 High Low First quarter 8.45 5.48 Second quarter 7.67 5.70 Third quarter 10.40 6.16 Fourth quarter 11.26 7.12 As of February 26, 2018, the closing price per share of our ordinary shares on the NASDAQ Global Market was $6.24. 47 Holders As of February 26, 2018, we had approximately 6 holders of record of our ordinary shares. This number does not include the number of persons whoseshares are in nominee or in “street name” accounts through brokers. 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 toreinvest any earnings in developing and expanding our business. Any future determination relating to our dividend policy will be at the discretion of ourboard 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 maydeem relevant. Pursuant to the Israeli Companies Law, if we do distribute dividends, the distribution amount will be limited to the greater of retained earnings or earningsgenerated over the previous two years, according to our then last reviewed or audited financial statements, provided that the end of the period to which thefinancial statements relate is not more than six months prior to the date of the distribution. If we do not meet such criteria, then we may distribute dividendsonly with court approval. In each case, we are only permitted to distribute a dividend if our board of directors and the court, if applicable, determines thatthere is no reasonable concern that payment of the dividend will prevent us from satisfying our existing and foreseeable obligations as they become due. In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportionto their shareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to theholders of a class of shares with preferential rights that may be authorized in the future. Payment of dividends may be subject to Israeli withholding taxes. For additional information see “Item 10.E.—Taxation—Taxation of our Shareholders—Taxation of non-Israeli shareholders on receipt of dividends” in our annual report on Form 20-F for the year 2016, filed with the SEC on February 21, 2017. Securities Authorized for Issuance under Equity Compensation Plans Set forth below is a table that summarizes compensation plans (including individual compensation arrangements) under which the company’s equitysecurities are authorized for issuance as of February 27, 2018. Plan category Number ofsecurities to beissued uponexercise ofwarrants andrights Weighted-average exerciseprice ofoutstandingwarrants andrights Number ofsecuritiesremainingavailable forfuture issuanceunder equitycompensationplans(1) Equity compensation plans approved by security holders - - - Equity compensation plans not approved by security holders 4,230,101 $5.65(2) 2,076,088 Total 4,230,101 $5.65 2,076,088 __________________________________________________(1)Excluding securities reflected in column titled “Number of securities to be issued upon exercise of warrants and rights”.(2)including restricted share units with an exercise price of $0.Our equity compensation plan information required by this item is incorporated by reference to the information in Part III, Item 12 of this report. Share Performance The table below compares the three-year cumulative total shareholder return on our ordinary shares with the cumulative total return on the NASDAQComposite Index and the NASDAQ Biotechnology Index. The period shown commences on December 31, 2014 (the end of the first fiscal year following ourinitial public offering) and ends on December 31, 2017, the end date of our last fiscal year. The table assumes an investment of $100 on December 31, 2014,and the reinvestment of any dividends. No cash dividends have been declared or paid on our ordinary shares during such period. Shareholder returns over theindicated periods should not be considered indicative of future share prices or shareholder returns. 48 December 31,2014* December 31,2015 December 31,2016 December 31,2017 Foamix Pharmaceuticals Ltd. 100.00 115.69 158.35 85.73 NASDAQ Composite Index 100.00 105.73 113.66 145.76 NASDAQ Biotechnology Index 100.00 111.42 87.26 105.64 __________________________________* $100 invested on December 31, 2014 in shares or index-including reinvestment of dividends. Below is a graphical depiction of the comparison of the cumulative total return over the years 2015-2017 among Foamix Pharmaceuticals Ltd., NASDAQComposite Index and NASDAQ Biotechnology Index: This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act orotherwise subject to the liabilities under that Section, and shall not be deemed incorporated by reference into any filing of Foamix Pharmaceuticals Ltd.under the Securities Act of 1933. Recent Sales of Unregistered Securities None. Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. ITEM 6 — SELECTED FINANCIAL DATA Our historical consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States and arepresented in U.S. dollars. The selected historical consolidated financial information as of December 31, 2017 and 2016 and for the years ended December 31,2017, 2016 and 2015 have been derived from, and should be read in conjunction with, the consolidated financial statements of Foamix Pharmaceuticals Ltd.and notes thereto appearing elsewhere in this annual report. The selected financial data as of December 31, 2015, 2014 and 2013 and for the years endedDecember 31, 2014 and 2013 have been derived from audited consolidated financial statements of the company not included in this annual report. The information presented below is qualified by the more detailed historical consolidated financial statements set forth in this annual report, and shouldbe read in conjunction with those consolidated financial statements, the notes thereto and the discussion under “Item 7 — Management’s Discussion andAnalysis of Financial Condition and Results of Operations” included elsewhere in this annual report. 49 Consolidated Statement of Operations Data Year ended December 31, 2017 2016 2015 2014 2013 (in thousands of U.S. dollars, except loss per share) Statements of operations data: Revenues $3,669 $5,527 $849 $5,414 $1,404 Cost of revenues(1) 13 59 70 527 453 Gross profit 3,656 5,468 779 4,887 951 Operating expenses: Research and development(1) 57,779 25,897 10,680 3,557 1,086 Selling, general and administrative(1) 11,491 9,221 7,029 2,964 1,221 Total operating expenses 69,270 35,118 17,709 6,521 2,307 Operating loss 65,614 29,650 16,930 1,634 1,356 Net Loss $65,715 $29,336 $16,517 $11,484 $2,431 Loss per share basic and diluted 1.76 0.91 0.58 0.79 0.22 _________________________________________________(1) Includes share-based compensation expenses as follows: Year ended December 31, 2017 2016 2015 2014 2013 (in thousands of U.S. dollars) Cost of revenues $2 $3 $2 $15 $16 Research and development 1,711 1,135 588 80 59 Selling, general and administrative 2,453 1,774 1,187 102 430 Total share-based compensation $4,166 $2,912 $1,777 $197 $505 Consolidated Balance Sheet Data As of December 31, 2017 2016 2015 2014 2013 (in thousands of U.S. dollars, other than number of shares) Balance sheet data: Cash and investments(1) $76,412 $130,988 $103,779 $49,966 $2,308 Working capital(2) 59,276 111,730 53,091 48,757 1,144 Total assets 80,254 135,635 105,245 51,277 3,086 Total long-term liabilities 1,425 379 385 381 4,917 Total shareholders’ equity (capital deficiency) 68,601 129,985 100,802 48,762 (3,582)Capital shares $1,576 $1,561 $1,284 $954 $471 Number of ordinary shares 37,498,128 37,167,791 30,639,134 22,443,934 11,408,490 _________________________________________________ (1)Cash and investments includes cash and cash-equivalents, restricted cash, bank deposits, marketable securities and restricted marketable securities.(2) Working capital is defined as total current assets minus total current liabilities. ITEM 7 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the financial statementsand the notes thereto included elsewhere in this report. The following discussion contains forward-looking statements that reflect our plans, estimates andbeliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to thesedifferences include those discussed below and elsewhere in this report, particularly in the section entitled “Item 1A—Risk Factors”. Company Overview We are a clinical-stage specialty pharmaceutical company focused on developing and commercializing our proprietary minocycline foam for thetreatment of acne, rosacea and other skin conditions. Our lead product candidates, FMX101 for moderate-to-severe acne and FMX103 for treatment ofmoderate-to-severe papulopustular rosacea, are novel topical foam formulations of the antibiotic minocycline. Based on the results demonstrated in ourPhase II and Phase III clinical trials for FMX101 and our Phase II clinical trial for FMX103, we believe these product candidates have the potential ofproviding a fast, effective and well-tolerated treatment for their respective indications, which are currently underserved and commonly treated by prescriptionproducts such as oral minocycline, oral doxycycline and various topical therapies. 50 We are currently investing the majority of our efforts and resources to advance our third pivotal Phase III clinical trial (Study 22) for FMX101 in the U.S.We announced the first patient enrolled in this trial on August 3, 2017. We expect to have top-line results from this trial in the third quarter of 2018. InMarch of 2017, we announced the results of the double-blind stage of our two initial Phase III clinical trials. Statistical significance was demonstrated inboth co-primary efficacy endpoints in one study (Study 05), however, statistical significance was demonstrated in only one of the co-primary efficacyendpoints in the second study (Study 04). Statistical significance was also demonstrated for FMX101 compared to vehicle in the pooled analysis of the co-primary endpoints as well as key secondary endpoints. The third trial was initiated following a Type B meeting conducted with the FDA in June of 2017.During this meeting, the FDA confirmed that achieving statistically significant results for FMX101 versus vehicle in both co-primary efficacy endpoints in athird independent clinical trial would be sufficient for establishing an efficacy claim. A previous Phase II clinical trial of FMX101 also demonstratedclinically and statistically significant results in all primary and secondary endpoints. In January 2018, we announced the completion of a long-term safetystudy that was an extension of our two initial Phase III clinical trials for FMX101. The results from the study showed FMX101 to be well-tolerated and tohave an acceptable safety profile. We are also investing significant efforts and resources to advance our two pivotal Phase III clinical trials in the U.S. for FMX103, minocycline foam formoderate-to-severe papulopustular rosacea, after our Phase II clinical trial for FMX103 demonstrated clinically and statistically significant results in allprimary and secondary endpoints. We announced the enrollment of the first patient in our Phase III trials on June 12, 2017. We expect to have top-line resultsfrom the blinded stage of both trials by the end of the third quarter or in the beginning of the fourth quarter of 2018 and to complete the trials, including along-term safety extension study, in 2019. In addition, we successfully completed a Phase II clinical trial with FDX104, our proprietary doxycycline foam for the management of moderate-to-severerash associated with epidermal growth factor receptor inhibitor (EGFRI) anticancer treatments, and we are currently assessing our various options with regardto this product candidate, including seeking out licensing opportunities for it. We have also successfully completed a Phase II clinical trial of FMX102, ourminocycline foam for the treatment of impetigo, including impetigo caused by methicillin-resistant staphylococcus aureus, or MRSA. However, as describedin previous reports, we have been contemplating the commercial viability of this product candidate for some time, given its limited market dominated bygeneric products, and following additional analysis of its potential we have recently decided to discontinue its further development in light of our currentpriorities and our other ongoing research and development efforts. We developed FMX101, FMX102, FMX103 and FDX104 using our proprietary technology, which includes our foam-based platforms. This technologyenables us to formulate and stabilize a wide variety of drugs and deliver them directly to their target site. We have independently developed a series ofproprietary foam platforms, each having unique pharmacological features and characteristics. Our foam platforms may offer significant advantages overalternative delivery options and are suitable for multiple application sites. We believe our proprietary foam-based platform may serve as a foundation indeveloping a potential pipeline of products across a range of conditions. Beside our in-house developments, we have also entered into development and license agreements relating to our technology with variouspharmaceutical companies, most notably Bayer HealthCare AG (formerly, Intendis), or Bayer, which in the third quarter of 2015 began selling in the U.S. aprescription foam product for the treatment of rosacea known as Finacea® Foam (azelaic acid) 15%, or Finacea, after developing such product incollaboration with Foamix and utilizing Foamix’s proprietary foam technology platform. According to our license agreement with Bayer, we are entitled toroyalties and certain contingent payments upon commercialization of Finacea, based on Bayer’s net sales of Finacea. In 2017 we were entitled to receiveroyalty payments from Bayer in a total amount of $3.5 million on account of its sales of Finacea. Our total revenues from such agreements from our inceptionthrough December 31, 2017 were approximately $28.1 million. To date, we have not yet submitted any product candidates for approval by regulatory authorities and we do not currently have rights to any products thathave been approved for marketing in any territory. We have financed our operations primarily through private and public placements of our ordinary sharesand from development and licensing collaborations. We have incurred significant losses since our inception in 2003. Our accumulated deficit at December31, 2017 was $141.3 million and our net loss for the year ended December 31, 2017 was $65.7 million. A substantial amount of our net losses resulted fromcosts incurred in connection with our research and development programs and clinical trials and from general and administrative costs associated with ouroperations. The net losses and negative operating cash flows incurred to date, together with expected future losses, have had, and likely will continue tohave, an adverse effect on our shareholders’ equity and working capital. The amount of future net losses will depend, in part, on the rate of future growth ofour expenses and our ability to generate offsetting revenue, if any. We expect to continue to incur significant expenses and operating losses for theforeseeable future. We do not expect to generate revenue from product sales unless and until we successfully complete clinical trials and obtain marketing approval from theFDA for one or more of our lead product candidates, FMX101 or FMX103. Accordingly, we anticipate that we will need to raise additional capital in order tocomplete the development and commercialization of FMX101 and FMX103 and to advance the development of our other product candidates. Until we cangenerate a sufficient amount of product revenue to finance our cash requirements, we expect to finance our future cash needs primarily through a combinationof public and private equity offerings, debt or other structured financings, and strategic collaborations. We may be unable to raise capital when needed or onattractive terms, which would force us to delay, limit, reduce or terminate our development programs or commercialization efforts. We will need to generatesignificant revenue to achieve and sustain profitability, and we may never be able to do so. 51 Revenues To date, we have not generated any revenues from sales of FMX101 or any of our other product candidates. We do not expect to commercially launchFMX101 or other product candidates or generate any revenues from sales of any of our product candidates before 2019, after completing their developmentand clinical testing and obtaining approvals for their marketing in the U.S. Our ability to generate revenues from sales will depend on the successfulcommercialization of FMX101 and our other product candidates. As of December 31, 2017, we had generated cumulative revenues of approximately $28.1 million under development and license agreements, of whichapproximately $18.3 million were development service payments, approximately $3.1 million were contingent payments and $6.7 million were royaltypayments. Our total revenues for the years ended December 31, 2017, 2016 and 2015 were $3.7 million, $5.5 million and $849,000, respectively. We maybecome entitled to additional contingent payments, subject to achievement of the applicable clinical results by our licensees. In light of the current phase ofdevelopment under these agreements, we do not expect to receive significant payments in the near term, if at all. We are also entitled to additional royaltiesfrom net sales or net profits generated by other products to be developed under these agreements, if they are successfully commercialized. In thosedevelopment and license agreements in which royalties are based on net sales, their rate ranges from 3% to 8.5%, and in the agreement in which royalties arebased on net profits, their rate is 6%. Pursuant to a collaboration agreement with Bayer HealthCare AG, we are entitled to receive royalty payments with respect to Finacea®, a prescriptionfoam product that we developed in collaboration with Bayer. In the year ended December 31, 2017, we were entitled to receive royalty payments in anamount of $3.5 million. Cost of Revenues Cost of revenues includes costs and expenses we incur in supplying services to our licensees under our development and license agreements with them.These services include design and development of product prototypes, performance of in-vitro studies and other lab tests, compiling project reports andrecommendations and carrying out other tasks related to such efforts. Our services to licensees do not include development work beyond the prototype stage,clinical trials or pursuit of regulatory approval, which are the responsibility and at the expense of each licensee. Accordingly, our cost of revenues includes payroll and other payments on behalf of the employees and consultants assigned to these projects; laboratoryservices related to the studies we perform on behalf of the licensees; rent and office maintenance costs related to the use of our facilities and infrastructure,utilities and other overhead services in connection with the projects performed for the licensees. Our total cost of revenues for the twelve months ended December 31, 2017, 2016 and 2015 were $13,000, $59,000 and $70,000, respectively. We do notexpect substantial changes in cost of revenue unless and until we obtain regulatory approval for our lead product candidates and begin serial production ofsuch products, whether internally or through third party manufacturers, at which point we expect our cost of revenues to grow along with the growth of oursales and inventory needs. Cost of revenues as a percentage of revenues for the twelve months ended December 31, 2017, 2016 and 2015 were 0.4%, 1.1%, and 8.2%, respectively.The decrease in cost of revenues is primarily due to the decrease in new development projects and the increase in royalty payments which do not bear relatedcost of revenue. Operating Expenses Research and development expenses Research and development activities are, and will continue to be, central to our business. Product candidates in later stages of clinical developmentgenerally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stageclinical trials. We expect research and development costs to increase significantly for the foreseeable future as our pipeline products progress into clinicaltrials. However, we do not believe that it is possible at this time to accurately project total program-specific expenses to reach commercialization. There arenumerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatoryrequirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial andregulatory factors beyond our control will affect our clinical development programs and plans. Our research and development expenses relate primarily to the development of FMX101. From 2007 until December 31, 2017, we cumulatively spentapproximately $104.9 million on research and development of FMX101 and our other product candidates. Our total research and development expenses forthe years ended December 31, 2017, 2016 and 2015 were approximately $57.8, $25.9 and $10.7 million, respectively. We charge all research anddevelopment expenses to operations as they are incurred. We expect research and development expenses to increase in the near term due to the ongoingPhase III clinical trials for FMX101 and FMX103. 52 The successful development of FMX101, FMX103 and additional product candidates is highly uncertain. As such, at this time, we cannot reasonablyestimate or know the nature, timing and costs of the efforts that will be necessary to complete the remainder of the development of our technology foradditional indications. This uncertainty is due to numerous risks and variables associated with developing products, including the uncertainty of: ·the scope, rate of progress and expense of our research and development activities; ·preclinical results; ·clinical trial results; ·the terms and timing of regulatory approvals; ·our ability to file, prosecute, obtain, maintain, defend and enforce patents and other intellectual property rights and the expense of filing, prosecuting,obtaining, maintaining, defending and enforcing patents and other intellectual property rights; ·the ability to market, commercialize and achieve market acceptance for FMX101 or any other product candidate that we may develop in the future;and ·our ability to identify, evaluate, acquire or in-license intellectual property, if needed, to facilitate the commercialization of our products andtechnologies. A change in the outcome of any of these variables with respect to the development of FMX101, FMX103 or our other product candidates could result in asignificant change in the costs and timing associated with their development. For example, if the FDA or foreign regulatory authority were to require us toconduct preclinical studies and clinical trials beyond those which we currently anticipate for the completion of clinical development of our productcandidates, or if we experience significant delays in enrollment in any clinical trials, we could be required to expend significant additional financialresources and time on the completion of the clinical development. Research and development expenses consist primarily of: ·employee-related expenses, including salaries, benefits and related expenses, including share based compensation expenses; ·expenses incurred under agreements with third parties, including subcontractors, suppliers and consultants that conduct regulatory activities, clinicaltrials and preclinical studies; ·expenses incurred to acquire, develop and manufacture clinical trial materials; ·facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, and otheroperating costs; and ·costs associated with preclinical and clinical activities and regulatory operations. We have managed to finance our research and development operations and expenses without the aid of government grants, other than a loan in theamount of approximately $450,000 received from the Israel-U.S. Bi-national Industrial Research and Development Foundation, or BIRD, in 2008, fullyrepaid in 2016. Accordingly, we are not subject to the provisions of the Law for Encouragement of Research and Development in Industry, 5744-1984, nor toany directives issued by the Israel Innovation Authority, previously known as the Office of the Chief Scientist. Selling, general and administrative expenses Our selling, general and administrative expenses consist principally of: ·employee-related expenses, including salaries, benefits and related expenses, including share based compensation expenses; ·costs associated with market research and business development activities in preparation for future marketing and sales, including activities intendedto select the most promising product candidates for further development and commercialization; ·legal and professional fees for auditors and other consulting expenses not related to research and development activities or to market research orbusiness development activities; ·cost of offices, communication and office expenses; ·information technology expenses; ·depreciation of tangible fixed assets related to our general and administrative activities or to our market research and business development activities;and ·costs associated with filing, prosecuting, obtaining and maintaining patents and other intellectual property. As part of our growth strategy, we have begun building up our dedicated U.S. marketing and business development team and infrastructure, and we intendto further increase such U.S. infrastructure, as well as expand our marketing effort to new markets. We therefore expect selling and marketing expenses toincrease in absolute terms as a percentage of our revenues. Our total selling, general and administrative expenses for the years ended December 31, 2017,2016 and 2015 were approximately $11.5, $9.2 and $7.0 million, respectively. Financial Income Financial income consists primarily of gains from interest earned from our bank deposits and financial income on our marketable securities. 53 Taxes on Income During 2016 the standard corporate tax rate in Israel was 25%, and during 2017 it was 24%. We have yet to generate taxable income in Israel, as we have historically incurred operating losses resulting in carry forward tax losses totalingapproximately $88.6 million as of December 31, 2017. We anticipate that we will be able to carry forward these tax losses to future tax years. Accordingly, wedo not expect to pay taxes in Israel until we have taxable income after the full utilization of our carry forward tax losses. We provided a full valuationallowance with respect to the deferred tax assets related to these carry forward losses. During 2017, 2016 and 2015 we incurred tax expenses of $1.2 million, $387,000 and $39,000, respectively, in our U.S. subsidiary, FoamixPharmaceuticals Inc. Comparison of the Year ended December 31, 2017 to the Year Ended December 31, 2016 Revenues Our total revenues decreased by $1.8 million, or 32.7%, from $5.5 million in the year ended December 31, 2016 to $3.7 million in the year endedDecember 31, 2017. The decrease is mainly due to a decrease of $2.5 million in contingent payments from Buyer, that were payable for 2016 due to Bayer’sachievement of certain sale targets during that year, offset by an increase in royalty payments in the amount of $565,000 from Bayer for the sales of Finacea®Foam. Cost of revenues Our cost of revenues for the years ended December 31, 2017 and 2016 were $13,000 and $59,000, respectively. The $46,000 decrease in cost of revenuesresulted primarily from a decrease in the development projects. Cost of revenues as a percentage of revenues for the years ended December 31, 2017 and 2016was 0.4% and 1.1%, respectively. The decrease in the cost of revenues as a percentage of revenues was primarily due to the decrease in new developmentprojects and the increase in royalty payments which do not bear related cost of revenue. Research and development expenses Our research and development expenses for the year ended December 31, 2017 were $57.8 million, representing an increase of $31.9 million, or 123%,compared to $25.9 million for the year ended December 31, 2016. The increase in research and development expenses resulted primarily from an increase of$28.0 million in costs relating predominantly to FMX101 and FMX103 clinical trials and an increase of $3.0 million in payroll and payroll related expensesprimarily due to an increase in headcount. Selling, general and administrative expenses Our general and administrative expenses for the year ended December 31, 2017 were $11.5 million, representing an increase of $2.3 million, or 25%,compared to $9.2 million for the year ended December 31, 2016. The increase in selling, general and administrative expenses resulted primarily from anincrease of $1.9 million in payroll and other payroll-related expenses mostly due to an increase in headcount and salary raises. Operating loss As a result of the foregoing, our operating loss for the year ended December 31, 2017, was $65.6 million, compared to an operating loss of $29.6 millionfor the year ended December 31, 2016, an increase of $36.0 million, or 122%. Finance income In the years ended December 31, 2017 and 2016, our financial income included mostly gains from marketable securities and interest earned on our bankdeposits. In the year ended December 31, 2016 those gains were partially offset by expenses on the loan from the BIRD foundation fully repaid during thesecond quarter of 2016. The finance expenses (income) by cash and non-cash components are as follows: Year ended December 31, 2017 2016 (in thousands of U.S. dollars) Interest on bank deposits $(532) $(536)Gain from marketable securities, net (602) (401)Non-cash foreign exchange profit, net - (24)Total income (1,134) (961)Less: Other expenses 14 17 Finance expenses on BIRD loan - 243 Non-cash foreign exchange loss, net 57 - Total expenses 71 260 Finance income, net $(1,063) $(701) 54 Taxes on income During 2017 and 2016, we have not generated taxable income in Israel. However, we had incurred tax expenses in our U.S. subsidiary, FoamixPharmaceuticals, Inc., in the amount of $1.2 million and $387,000 for the years 2017 and 2016 respectively. The increase in tax expenses resulted from anincrease in our provision for uncertain tax positions. Net Loss As a result of the foregoing our loss for the year ended December 31, 2017 was $65.7 million, compared to $29.3 million for the year ended December 31,2016, an increase of $36.4 million, or 124%. Comparison of the Year ended December 31, 2016 to the Year Ended December 31, 2015 Revenues Our total revenues increased by $4.7 million, or 553%, from $849,000 in the year ended December 31, 2015 to $5.5 million in the year ended December31, 2016. The increase is mainly due to the increase of $2.7 million in royalty payments from Bayer HealthCare AG for the sales of Finacea® Foam, andadditional contingent payments totaling $2.5 million, due to Bayer’s achievement of certain sale targets during 2016. Cost of revenues Our cost of revenues for the years ended December 31, 2016 and 2015 were $59,000 and $70,000, respectively. The $11,000 decrease in cost of revenuesresulted primarily from a decrease in the development projects. Cost of revenues as a percentage of revenues for the years ended December 31, 2016 and 2015was 1.1% and 8.2%, respectively. The decrease in the cost of revenues as a percentage of revenues was primarily due to the increase in royalty and contingentpayments, to which no cost of revenue is related. Research and development expenses Our research and development expenses for the year ended December 31, 2016 were $25.9 million, representing an increase of $15.2 million, or 142%,compared to $10.7 million for the year ended December 31, 2015. The increase in research and development expenses resulted primarily from an increase of$12.8 million in costs relating to the FMX101 and FMX103 clinical trials and an increase of $2.2 million in payroll and payroll related expenses due to anincrease in the number of R&D employees. Selling, general and administrative expenses Our general and administrative expenses for the year ended December 31, 2016 were $9.2 million, representing an increase of $2.2 million, or 31%,compared to $7.0 million for the year ended December 31, 2015. The increase in selling, general and administrative expenses resulted primarily from anincrease of $1.3 million in payroll and other payroll-related expenses mainly due to an increase in headcount; an increase of $417,000 in market researchexpenses; an increase of $225,000 in travel expenses; and an increase of $201,000 in expenses related to the company’s board of directors. Operating loss As a result of the foregoing, our operating loss for the year ended December 31, 2016, was $29.6 million, compared to an operating loss of $16.9 millionfor the year ended December 31, 2015, an increase of $12.7 million, or 75%. Finance income In the year ended December 31, 2016, our financial income included mostly gains from marketable securities and interest earned on our bank deposits,partially offset by expenses on the loan from the BIRD foundation fully repaid during the second quarter of 2016. In the year ended December 31, 2015 ourfinancial income included mostly gains from marketable securities and interest earned on our bank deposits. The finance expenses (income) by cash and non-cash components are as follows: Year ended December 31, 2016 2015 (in thousands of U.S. dollars) Other expenses $17 $23 Finance expenses on BIRD loan 243 * Total expenses 260 23 Less: Interest on bank deposits (536) (289)Gain from marketable securities, net (401) (180)Non-cash foreign exchange profit, net (24) (6)Total income (961) (475)Finance income, net $(701) $(452)________________________* Less than $1,000 55Taxes on income During 2015 and 2016, we have not generated taxable income in Israel. However, we had incurred tax expenses in our U.S. subsidiary, FoamixPharmaceuticals, Inc., in the amount of $39,000 and $387,000 for the years 2015 and 2016 respectively. Net Loss As a result of the foregoing our loss for the year ended December 31, 2016 was $29.3 million, compared to $16.5 million for the year ended December 31,2015, an increase of $12.8 million, or 78%. Liquidity Since our inception, we have incurred losses from operations and negative cash flows from our operations. For the twelve months ended December 31,2017, we incurred a net loss of $65.7 million, which included $53.2 million used for operating activity. For the twelve months ended December 31, 2016, weincurred a net loss of $29.3 million, which included $27.4 million used for operating activity. As of December 31, 2017 and December 31, 2016, we had a working capital surplus of $59.3 million and $111.7 million, respectively, and anaccumulated deficit of $141.3 million and $75.6 million, respectively. Our principal source of liquidity as of December 31, 2017 consisted of cash, cashequivalents, restricted cash, bank deposits and marketable securities of $76.4 million. In the second quarter of 2014, we completed a private placement of preferred A shares and warrants with a group of new investors and several of ourexisting shareholders in two phases, on May 13, 2014 and June 3, 2014, raising a total of $8.2 million, net of issuance costs, in consideration of 1,036,431preferred shares and 1,061,469 warrants to purchase preferred shares. In September 2014, we completed our initial public offering in which we sold 6,700,000 ordinary shares for $6.00 per share raising total net proceeds,after expenses, of approximately $35.7 million. In October 2014 the underwriters exercised their option to purchase an additional 968,200 ordinary shares ata price of $6.00 per share. The proceeds from the exercise of the option, net of underwriters’ commission, were approximately $5.4 million, bringing the totalnet proceeds from the initial public offering, after expenses, to approximately $41.1 million. In April 2015, we completed a follow-on offering in which we sold 7,419,353 ordinary shares, including the exercise of underwrites option, for $9.30 pershare, raising total net proceeds, after expenses, of approximately $64.2 million. On October 21, 2015, we filed with the Securities and Exchange Commission (the SEC) a “shelf” registration statement on a Form F-3 for the registrationof our ordinary shares that we may, from time to time, offer and sell in one or more offerings with an aggregate offering price of up to $150 million. OnSeptember 12, 2016 we filed with the SEC an amendment to the shelf registration statement on a Form F-3/A, which became effective on September 23, 2016. On September 30, 2016, we completed another follow-on offering under our amended shelf registration statement, in which we sold 5,700,000 ordinaryshares for $9.50 per share, raising net proceeds, after expenses and underwriter commissions, of approximately $50.4 million. An additional 300,000 ordinaryshares were sold by certain selling shareholders. In October 2016 the underwriters partially exercised the option granted to them in the underwritingagreement and purchased an additional 411,959 ordinary shares at a price of $9.50 per share. The proceeds from the exercise of the option, net of expensesand underwriter commissions, were approximately $3.7 million, bringing the total net proceeds from the offering to approximately $54.1 million. On February 24, 2017, we filed with the SEC a “shelf” registration statement on a Form F-3 for the registration of our ordinary shares that we may, fromtime to time, offer and sell in one or more offerings with an aggregate offering price of up to $291,936,389, which became effective on March 14, 2017. However, following our transition from foreign private issuer to domestic issuer status beginning January 1, 2018 and the filing of this Annual Report onForm 10-K, we will no longer be able to make use of such shelf registration statement on Form F-3 and will need to file a new registration statement on a formapplicable to domestic issuers, such as Form S-3, should we wish to engage in further public offerings of our shares or other instruments. We anticipate that we will be able to fund our operating expenses and capital expenditure requirements for the third Phase III clinical trial for FMX101,which we expect to complete by the end of 2018, and for the two Phase III clinical trials for FMX103, which we expect to complete by the end of the thirdquarter of 2019, and throughout the NDA filing for FMX101, which we expect to complete by the end of 2019. Foamix Pharmaceuticals Inc., our wholly-owned subsidiary, was incorporated on May 6, 2014 under the laws of the State of Delaware, with the intent toserve as our marketing and sales arm in the U.S. As a result, we do not expect our subsidiary to distribute any dividends, or extend any loans or advances to usin the foreseeable future. 56 Capital Resources Overview To date, we have financed our operations through private and public placements of our ordinary shares, convertible loans and through fees, costreimbursements and royalties received from our licensees. From inception through December 31, 2017, we have received net cash proceeds of approximately $187.7 million from the issuance of ordinary shares,preferred shares, exercise of options and warrants and from convertible loans. Cash flows The following table summarizes our statement of cash flows for the years ended December 31, 2017, December 31, 2016 and December 31, 2015: Year ended December 31, 2017 2016 2015 (in thousands of U.S. dollars) Net cash (used in) / provided by: Operating activities $(53,177) $(27,370) $(12,498)Investing activities 37,755 (15,018) (78,516)Financing activities $140 $55,031 $66,801 Net cash used in operating activities The use of cash in all periods resulted primarily from our net losses adjusted for non-cash charges and measurements and changes in components ofworking capital. Adjustments to net income for non-cash items mainly include depreciation and amortization and share-based compensation. Net cash used in operating activities was $53.2 million in the twelve months ended December 31, 2017, compared to $27.4 million in the twelve monthsended December 31, 2016 and compared to $12.5 of net cash used in operating activities in the twelve months ended December 31, 2015. The increase wasattributable primarily to the increase in company activity mostly related to clinical trials and payroll expenses. Net cash used in investing activities The use of cash in investing activities has been primarily related to purchase of marketable securities and investment in bank deposits. Net cash providedby investing activities was $37.8 million in the twelve months ended December 31, 2017, compared to net cash used in investing activities of $15.0 millionin the twelve months ended December 31, 2016 and compared to $78.5 million in the twelve months ended December 31, 2015. The change in investingactivities between 2017, 2016 and 2015 was attributable primarily to increase in proceeds from sale and maturity of marketable securities and bank deposits,and the decrease in cash invested. Net cash provided by financing activities Net cash provided by financing activities was $140,000 in the twelve months ended December 31, 2017, a decrease of $54.9 million from $55.0 million inthe twelve months ended December 31, 2016. The decrease was attributable primarily to the capital raised in our 2016 follow-on public offering. Net cash provided by financing activities was $55.0 million in the twelve months ended December 31, 2016, a decrease of $11.8 million from $66.8million in the twelve months ended December 31, 2015. The decrease was attributable primarily to a larger amount of capital raised in the 2015 financinground compared to the 2016 financing round. Cash and funding sources The table below summarizes our main sources of financing for the years ended December 31, 2017, 2016 and 2015: Proceeds fromour publicofferings(1) Proceeds fromissuance ofordinary shares Payments fromlicensees Total (in thousands of U.S. dollars) Year ended December 31, 2017 $- $161 $5,978 $6,139 Year ended December 31, 2016 $54,132 $1,407 $2,575 $58,114 Year ended December 31, 2015 $64,202 $2,629 $1,063 $67,894 ___________________________(1) Net of issuance costs.Our sources of financing in the year ended December 31, 2017 totaled $6.1 million and consisted primarily of payments from licensees. 57 Our sources of financing in the year ended December 31, 2016 totaled $58.1 million and consisted primarily of $54.1 million of net proceeds from our2016 follow-on public offering. We have no ongoing material financial commitments (such as lines of credit) that may affect our liquidity over the next five years. Funding requirements We believe, based on our current business plan, that our existing cash and investments will enable us to fund our operating expenses and capitalexpenditure requirements throughout the completion of our third pivotal Phase III clinical trial for our lead product candidate FMX101 and our two pivotalPhase III clinical trials for FMX103, the first of which we expect to complete by the end of 2018 and the other two by the end of the third quarter of 2019, andthe full development and NDA submission for FMX101. The full development and NDA submission for FMX103, as well as any future pipeline products, willrequire us to raise additional funds. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources soonerthan we currently expect. Our present and future funding requirements will depend on many factors, including, among other things: ·the progress, timing and completion of preclinical testing and clinical trials for FMX101, FMX103 or any future pipeline product; ·selling, marketing and patent-related activities undertaken in connection with the anticipated commercialization of FMX101 and any other productcandidates and costs involved in the development of an effective sales and marketing organization; ·the time and costs involved in obtaining regulatory approval for FMX101 and our other pipeline products and any delays we may encounter as a resultof evolving regulatory requirements or adverse results with respect to any of these products; ·the number of potential new products we identify and decide to develop; ·the costs involved in filing and prosecuting patent applications and obtaining, maintaining and enforcing patents or defending against claims orinfringements raised by third parties, and license royalties or other amounts we may be required to pay to obtain rights to third party intellectualproperty rights; and ·the amount of revenues, if any, we may derive either directly or in the form of royalty payments from future sales of FMX101 and any other pipelineproduct that is commercialized. For more information as to the risks associated with our future funding needs, see “Item 1A—Risk Factors—Risks Related to Our Business and Industry—We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all,could force us to delay, limit, reduce or terminate our product development, other operations or commercialization efforts.” Our capital expenditures for 2017, 2016 and 2015 amounted to $1.5 million, $424,000 and $500,000, respectively. During 2017, these expenditures wereprimarily related to leasehold improvements and purchase of laboratory equipment. Off-Balance Sheet Arrangements As of December 31, 2017, we did not have any off-balance sheet arrangements. Contractual Obligations Our significant non-cancelable contractual obligations as of December 31, 2017 are summarized in the following table: Payments due by period Total Less than 1year 1-3 years 3-5 years More than 5years Other (in thousands of U.S. dollars) Operating lease obligations(1) $2,322 $865 $1,457 - - Liability for employee severance benefits(2) $437 - - - - $437 Total $2,759 $865 $1,457 - - $437 _________________________________________ (1)Operating lease obligations consist of lease of our facilities and lease of vehicles. (2)The liability is considered long term, however we cannot estimate the exact period in which they will be paid. Critical Accounting Policies and Significant Judgments and Estimates We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the U.S. The preparation ofconsolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expensesand related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under thecircumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between ourestimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. 58 While our significant accounting policies are more fully described in Note 2, Summary of Significant Accounting Policies, to the consolidated financialstatements included in “Item 8—Financial Statements and Supplementary Data” of this Annual Report on Form 10-K, we believe that the followingaccounting policies are the most critical to assist shareholders and investors reading the consolidated financial statements in fully understanding andevaluating our financial condition and results of operations. These policies relate to the more significant areas involving management’s judgments andestimates and they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of the mattersthat are inherently uncertain. Clinical trial accruals Clinical trial costs are charged to research and development expense as incurred. We accrue for expenses resulting from obligations under contracts withclinical research organizations, or CROs. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and mayresult in payment flows that do not match the periods over which materials or services are provided. Our objective is to reflect the appropriate trial expense inthe consolidated financial statements by matching the appropriate expenses with the period in which services and efforts are expended. In the event advancepayments are made to a CRO, the payments will be recorded as other assets, which will be recognized as expenses as services are rendered. The CRO contractsgenerally include pass-through fees including, but not limited to, regulatory expenses, investigator fees, travel costs and other miscellaneous costs. Weestimate our clinical accruals based on reports from and discussion with clinical personnel and the CRO as to the progress or state of completion of the trials.We estimate accrued expenses as of each balance sheet date in the consolidated financial statements based on the facts and circumstances known at that time.Our clinical trial accrual is dependent, in part, upon the receipt of timely and accurate reporting from the CROs. Equity-based compensation The fair value of equity-based payment transactions is recognized as an expense over the requisite service period and computed using the Black-Scholesmodel. We recognize compensation costs for awards that are conditioned only on continued service and which have a graded vesting schedule using thestraight-line method based on the multiple-option award approach. When options and restricted share units, or RSUs, are granted as consideration for servicesprovided by consultants and other non-employees, the grant is accounted for based on the fair value of the consideration received or the fair value of theawards issued, whichever is more reliably measurable. The fair value of the awards granted is measured on a final basis at the end of the related service periodand is recognized over the related service period using the straight-line method. Recently Issued Accounting Pronouncements Certain recently issued accounting pronouncements are discussed in Note 2, Summary of Significant Accounting Policies, to the consolidated financialstatements included in “Item 8—Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. ITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is the risk of loss related to changes in market prices, including interest rates, foreign exchange rates and prices of financial instruments, thatmay adversely impact our financial position, results of operations or cash flows. As of December 31, 2017 we did not have any financial instrumentssensitive to market risk. We therefore have little exposure to market risks in the ordinary course of our operations, and such risks are primarily related tochanges in foreign currency exchange rates and in interest rates. Foreign Currency Exchange Risk The U.S. dollar is our functional and reporting currency. Although a substantial portion of our expenses (mainly salaries and related costs) aredenominated in Israeli shekels, accounting for 11%, 21%, and 32% of our expenses in the years ended December 31, 2017, 2016 and 2015, respectively,almost all our revenues were generated under agreements denominated in U.S. dollars and our proceeds from our public offerings, share issuance andconvertible loan agreements, which are the main source of our financing, are denominated in U.S. dollars. Furthermore, while we anticipate that a portion ofour expenses, principally salaries and related personnel expenses in Israel, will continue to be denominated in shekels, we expect to incur an increasingamount of expenses in U.S. dollars as we expand our operations in the U.S. We also have expenses, although to a much lesser extent, in other non-dollarcurrencies, in particular the Euro. Moreover, for the next few years we expect that the substantial majority of our revenues, if any, will be denominated in U.S.dollars from the sale of FMX101 and potentially other product candidates in the U.S. Having the substantial majority of our revenues denominated in U.S.dollars while having a substantial portion of our expenses denominated in Israeli shekels and other non-U.S. currencies exposes us to risk, associated withexchange rate fluctuations vis-à-vis the U.S. dollar. See “Item 1A—Risk Factors—Risks Related to Our Business and Industry—Exchange rate fluctuationsbetween the U.S. dollar and the Israeli shekel may negatively affect our earnings.” 59 A devaluation of the shekel 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 inshekels, unless those expenses or payables are linked to the U.S. dollar. Conversely, any appreciation of the shekel in relation to the U.S. dollar has the effectof increasing the U.S. dollar value of our unlinked shekel expenses, which would have a negative impact on our profit margins. In 2017, the value of theshekel appreciated in relation to the U.S. dollar by 11.6%, the effect of which was partially offset by inflation in Israel at a rate of approximately 0.4%. In2016, the value of the shekel appreciated in relation to the U.S. dollar by approximately 1.5%, the effect of which was compounded by deflation in Israel atthe rate of approximately -0.2%. Because exchange rates between the U.S. dollar and the shekel (as well as between the U.S. dollar and other currencies) fluctuate continuously, suchfluctuations have an impact on our results and period-to-period comparisons of our results. The effects of foreign currency re-measurements are reported inour statements of operations. The following table presents information about the changes in the exchange rates of the shekel against the U.S. dollar: Shekel against the U.S. dollar20161.5%201711.6%We will continue to monitor exposure to currency fluctuations. Since February 2015 we engage in currency hedging activities in order to reduce ourexposure to currency fluctuations. Instruments that are used to hedge future risks may include foreign currency forward, swap contracts and options. Theseinstruments may be used to selectively manage risks, but we may not be fully protected against material foreign currency fluctuations. Inflation-Related Risks We do not believe that the rate of inflation in Israel has had a material impact on our business to date, however, our costs in Israel will increase if inflationin Israel exceeds the devaluation of the shekel against the U.S. dollar or if the timing of such devaluation lags behind inflation in Israel. 60ITEM 8 — FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial Statements INDEX OF FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting FirmF-2 Consolidated Balance SheetsF-3 Consolidated Statements of OperationsF-5 Consolidated Statements of Comprehensive LossF-6 Statements of Changes in Shareholders’ EquityF-7 Consolidated Statements of Cash FlowsF-8 Notes to Consolidated Financial StatementsF-10 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the shareholders ofFOAMIX PHARMACEUTICALS LTD.Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Foamix Pharmaceuticals Ltd. and its subsidiary as of December 31, 2017 and 2016, andthe related consolidated statements of operations, comprehensive loss, changes in shareholders' equity and cash flows for each of the three years in the periodended December 31, 2017, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidatedfinancial statements present fairly, in all material respects, the financial position of the Company and its subsidiary as of December 31, 2017 and 2016, andthe results of their operations and their cash flows for each of the three years in the period ended December 31, 2017 in conformity with accounting principlesgenerally accepted in the United States of America.Basis for OpinionThese consolidated financial statements are the responsibility of the Company’s management and Board of Directors. Our responsibility is to express anopinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public CompanyAccounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federalsecurities 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 planand perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due toerror 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 ouraudits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on theeffectiveness 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 disclosuresin 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. Tel-Aviv, Israel/s/ Kesselman & KesselmanFebruary 27, 2018Certified Public Accountants (Isr.) A member firm of PricewaterhouseCoopers International LimitedWe have served as the Company's auditor since 2006.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/ilF - 2FOAMIX PHARMACEUTICALS LTD.CONSOLIDATED BALANCE SHEETS(U.S. dollars in thousands) December 31 2017 2016 A s s e t s CURRENT ASSETS: Cash and cash equivalents $15,956 $31,190 Restricted cash 250 250 Short term bank deposits 19,443 38,351 Investment in marketable securities (Note 4) 31,797 43,275 Restricted investment in marketable securities (Note 4) 290 261 Accounts receivable: Trade 996 3,236 Other (Note 11a) 772 438 TOTAL CURRENT ASSETS 69,504 117,001 NON-CURRENT ASSETS: Investment in marketable securities (Note 4) 8,533 17,532 Restricted investment in marketable securities (Note 4) 143 129 Property and equipment, net (Note 5) 2,042 938 Other 32 35 TOTAL NON-CURRENT ASSETS 10,750 18,634 TOTAL ASSETS $80,254 $135,635 The accompanying notes are an integral part of these consolidated financial statements.F - 3FOAMIX PHARMACEUTICALS LTD.CONSOLIDATED BALANCE SHEETS(U.S. dollars in thousands) December 31 2017 2016 Liabilities and shareholders’ equity CURRENT LIABILITIES: Current maturities of bank borrowing (Note 8b) $- $20 Accounts payable and accruals: Trade 6,436 2,267 Deferred revenues 62 - Other (Note 11b) 3,730 2,984 TOTAL CURRENT LIABILITIES 10,228 5,271 LONG-TERM LIABILITIES: Liability for employee severance benefits (Note 6) 437 379 Other liabilities 988 - TOTAL LONG-TERM LIABILITIES 1,425 379 TOTAL LIABILITIES 11,653 5,650 COMMITMENTS (Note 7) SHAREHOLDERS' EQUITY: Ordinary Shares, NIS 0.16 par value - authorized:90,000,000 and 50,000,000 Ordinary Shares as ofDecember 31, 2017 and December 31, 2016,respectively; issued and outstanding: 37,498,128and 37,167,791 Ordinary Shares as of December31, 2017 and December 31, 2016, respectively 1,576 1,561 Additional paid-in capital 208,364 204,052 Accumulated deficit (141,281) (75,566)Accumulated other comprehensive loss (58) (62)TOTAL SHAREHOLDERS' EQUITY 68,601 129,985 TOTAL LIABILITIES AND SHAREHOLDERS’EQUITY $80,254 $135,635 The accompanying notes are an integral part of these consolidated financial statements. F - 4FOAMIX PHARMACEUTICALS LTD.CONSOLIDATED STATEMENTS OF OPERATIONS (U.S. dollars in thousands, except per share data) Year ended December 31 2017 2016 2015 REVENUES (Note 11c) $3,669 $5,527 $849 COST OF REVENUES 13 59 70 GROSS PROFIT 3,656 5,468 779 OPERATING EXPENSES: Research and development 57,779 25,897 10,680 Selling, general and administrative 11,491 9,221 7,029 TOTAL OPERATING EXPENSES 69,270 35,118 17,709 OPERATING LOSS 65,614 29,650 16,930 FINANCE INCOME, net (Note 11d) (1,063) (701) (452)LOSS BEFORE INCOME TAX 64,551 28,949 16,478 INCOME TAX (Note 10) 1,164 387 39 NET LOSS FOR THE YEAR $65,715 $29,336 $16,517 LOSS PER SHARE BASIC AND DILUTED $1.76 $0.91 $0.58 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING USED IN COMPUTATIONOF BASIC AND DILUTED LOSS PER SHARE IN THOUSANDS 37,376 32,263 28,229 The accompanying notes are an integral part of these consolidated financial statements.F - 5FOAMIX PHARMACEUTICALS LTD.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (U.S. dollars in thousands) Year ended December 31 2017 2016 2015 NET LOSS OTHER COMPREHENSIVE LOSS (INCOME): $65,715 $29,336 $16,517 Net unrealized losses (gains) from marketable securities 5 (65) 103 Gains (losses) on marketable securities reclassified into net loss - 4 (57)Net unrealized losses (gains) on derivative financial instruments (146) (20) 5 Gains on derivative financial instruments reclassified into net loss 137 13 - TOTAL OTHER COMPREHENSIVE LOSS (INCOME) (4) (68) 51 TOTAL COMPREHENSIVE LOSS $65,711 $29,268 $16,568 The accompanying notes are an integral part of these consolidated financial statements F - 6FOAMIX PHARMACEUTICALS LTD.CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY(U.S. dollars in thousands, except share data) Ordinaryshares Additionalpaid-in capital Accumulateddeficit Accumulatedothercomprehensiveloss Total Number ofshares Amounts Amounts BALANCE AT JANUARY 1, 2015 22,443,934 954 77,600 (29,713) (79) 48,762 CHANGES DURING 2015: Comprehensive loss - - - (16,517) (51) (16,568)Issuance of Ordinary Shares througha public offering, net of $4.8million issuance costs (Note 9b) 7,419,353 298 63,904 - - 64,202 Exercise of warrants (Note 9c) 546,322 23 2,262 - - 2,285 Exercise of options and restrictedshare units (Note 9d) 229,525 9 335 - - 344 Share-based compensation (Note9d) - - 1,777 - - 1,777 BALANCE AT DECEMBER 31, 2015 30,639,134 1,284 145,878 (46,230) (130) 100,802 CHANGES DURING 2016: Comprehensive income (loss) - - - (29,336) 68 (29,268)Issuance of Ordinary Shares througha public offering, net of $3.9million issuance costs (Note 9b) 6,111,959 260 53,872 - - 54,132 Exercise of warrants (Note 9c) 257,137 10 1,285 - - 1,295 Exercise of options and restrictedshare units (Note 9d) 159,561 7 105 - - 112 Share-based compensation (Note9d) - - 2,912 2,912 BALANCE AT DECEMBER 31, 2016 37,167,791 1,561 204,052 (75,566) (62) 129,985 CHANGES DURING 2017: Comprehensive income (loss) - - - (65,715) 4 (65,711)Exercise of warrants (Note 9c) 191,793 8 (8) - - - Exercise of options and restrictedshare units (Note 9d) 138,544 7 154 - - 161 Share-based compensation (Note9d) - - 4,166 - - 4,166 BALANCE AT DECEMBER 31, 2017 37,498,128 $1,576 $208,364 $(141,281) $(58) $68,601 The accompanying notes are an integral part of these consolidated financial statements F - 7FOAMIX PHARMACEUTICALS LTD.CONSOLIDATED STATEMENTS OF CASH FLOWS(U.S. dollars in thousands) Year ended December 31 2017 2016 2015 CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $(65,715) $(29,336) $(16,517)Adjustments required to reconcile net loss to net cash used inoperating activities: Depreciation and amortization 221 143 87 Loss from sale and disposal of fixed assets 134 16 15 Changes in marketable securities and bank deposits, net 97 91 57 Changes in accrued liability for employee severance benefits,net of retirement fund profit 57 14 35 Share-based compensation 4,166 2,912 1,777 Non-cash finance income, net (47) (1) (8)Changes in operating asset and liabilities: Decrease (increase) in trade and other receivable 1,915 (2,889) 140 Decrease (increase) in other non-current assets 4 - (1)Increase in accounts payable and accruals 5,003 1,680 1,917 Increase in other liabilities 988 Net cash used in operating activities (53,177) (27,370) (12,498) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets (1,518) (424) (500)Proceeds from sale of fixed assets 33 - - Investment in bank deposits (17,000) (23,000) (28,000)Investment in marketable securities (22,839) (31,700) (72,518)Proceeds from sale and maturity of marketable securities andbank deposits 79,079 40,106 22,502 Net cash provided by (used in) investing activities 37,755 (15,018) (78,516) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of ordinary shares through public offerings, net of issuance costs - 54,132 64,202 Proceeds from exercise of warrants - 1,295 2,285 Proceeds from exercise of options 161 112 344 Payments in respect of BIRD loan - (476) - Payments in respect of bank borrowings (21) (32) (30)Net cash provided by financing activities 140 55,031 66,801 INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH (15,282) 12,643 (24,213)EFFECT OF EXCHANGE RATE ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH 48 2 *- CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF THE YEAR 31,440 18,795 43,008 CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF THE YEAR $16,206 $31,440 $18,795 Cash and cash equivalents $15,956 $31,190 $18,795 Restricted cash 250 250 - TOTAL CASH, CASH EQUIVALENTS AND RESTRICTED CASH SHOWN INSTATEMENT OF CASH FLOWS $16,206 $31,440 $18,795 F - 8FOAMIX PHARMACEUTICALS LTD.CONSOLIDATED STATEMENTS OF CASH FLOWS(U.S. dollars in thousands) Year ended December 31 2017 2016 2015 SUPPLEMENTARY INFORMATION ON INVESTING ANDFINANCING ACTIVITIES NOT INVOLVING CASH FLOWS: Cashless exercise of warrants 8 - 4 Exercise of restricted share units 3 4 - Property and equipment purchases included in accounts payable and accruals 1 27 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for taxes 478 163 16 Interest received 1,209 1,015 921 Interest paid *- 239 *- * Represents an amount less than $1. The accompanying notes are an integral part of these consolidated financial statements. F - 9FOAMIX PHARMACEUTICALS LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share amounts) NOTE 1 - NATURE OF OPERATIONSFoamix Pharmaceuticals Ltd. (hereinafter “Foamix”) is an Israeli company incorporated in 2003. Foamix’s shares are publicly traded on theNASDAQ under the symbol “FOMX”, since its initial public offering (“IPO”) in September, 2014. Foamix is a clinical-stage specialty pharmaceutical company operating in one segment - the development and commercialization of foam-basedformulations, using its proprietary technology, which includes its foam platforms. Foamix develops its own product candidates, mainly for thetreatment of moderate-to-severe acne, the treatment of moderate-to-severe papulo-pustular rosacea and other skin conditions. It also licenses itstechnology under development and licensing agreements to various pharmaceutical companies for development of certain products combiningFoamix's foam technology with the licensee’s proprietary drugs. In May 2014, Foamix incorporated a wholly-owned subsidiary in the United States of America - Foamix Pharmaceuticals Inc. ("the subsidiary").The subsidiary was incorporated to assist Foamix with regard to marketing, regulatory affairs and business development relating its products andtechnology. Since incorporation through December 31, 2017, Foamix and its subsidiary (hereinafter “the Company”) has incurred losses and negative cashflows from operations mainly attributable to its development efforts and has an accumulated deficit of $141,281. The Company has financed itsoperations mainly through private and public financing rounds, convertible loans, royalties and payments received under development andlicensing agreements. The Company's cash, cash equivalents, deposits and marketable securities as of the issuance date of these financialstatements, will allow the Company to fund its operating plan through at least the next 12 months. However, the Company expects to continue toincur significant research and development and other expenses related to its ongoing operations and in order to continue its future operations,the Company will need to obtain additional funding until becoming profitable. If the Company is unable to obtain such funding it will need tocurtail or cease operations.NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES:a.Basis of presentationThe Company’s financial statements have been prepared in accordance with generally accepted accounting principles in the United Statesof America (“U.S. GAAP”). b.Use of estimates in the preparation of financial statementsThe preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. As applicableto these financial statements, the most significant estimates and assumptions relate to the fair value of share-based compensation andclinical trials accruals. F - 10FOAMIX PHARMACEUTICALS LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)(U.S. dollars in thousands, except share and per share amounts) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):c.Functional currencyThe U.S. dollar (“dollar”) is the currency of the primary economic environment in which the operations of Foamix and the subsidiary areconducted. Almost all Company revenues and operational expenses are in dollars and the Company’s financing has been provided indollars. Accordingly, the functional currency of the Company is the dollar. Transactions and balances originally denominated in dollars are presented at their original amounts. Balances in non-dollar currencies aretranslated into dollars using historical and current exchange rates for non-monetary and monetary balances, respectively. For non-dollartransactions and other items in the statements of operations (indicated below), the following exchange rates are used: (i) for transactions -exchange rates at transaction dates or average rates; and (ii) for other items (derived from non-monetary balance sheet items such asdepreciation and amortization, etc.) - historical exchange rates. Currency transaction gains and losses are presented in financial income orexpenses, as appropriate. d.Principles of consolidationThe consolidated financial statements include the accounts of Foamix and its subsidiary. Intercompany balances and transactions havebeen eliminated upon consolidation. e.Cash and cash equivalentsThe Company considers as cash equivalents all short-term, highly liquid investments, which include short-term bank deposits withoriginal maturities of three months or less from the date of purchase that are not restricted as to withdrawal or use and are readilyconvertible to known amounts of cash. f.Bank deposits Bank deposits with original maturity dates of more than three months but at balance sheet date are less than one year are included in short-term deposits. Bank deposits with maturity of more than one year are considered long-term. The interest rates on the Company’s depositsrange between 1.0%-1.9%. The fair value of bank deposits approximates the carrying value since they bear interest at rates close to theprevailing market rates. g.Marketable securitiesThe Company invests in debt and mutual funds securities classified as available for sale in accordance with ASC 320, Investments - Debtand Equity Securities. Management determines the appropriate classification of its investments in securities at the time of purchase and reevaluates suchdeterminations at each balance sheet date. Classifications of debt securities in the balance sheet are determined based on the maturity dateof the securities. Unrealized gains of available for sale securities, net of taxes, are reflected in other comprehensive income (loss). Unrealized lossesconsidered to be temporary are reflected in other comprehensive income (loss); unrealized losses that are considered to be other-than-temporary are charged to income as an impairment charge. Realized gains and losses for both debt and equity securities are included infinancial income, net.F - 11 FOAMIX PHARMACEUTICALS LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)(U.S. dollars in thousands, except share and per share amounts) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):For equity securities, the Company considers available evidence in evaluating potential impairments of its investments, including theduration and extent to which fair value is less than cost. For debt securities, an other-than-temporary impairment has occurred if theCompany does not expect to recover the entire amortized cost basis of the debt security. If the Company does not intend to sell theimpaired debt security, and it is not more likely than not it will be required to sell the debt security before the recovery of its amortizedcost basis, the amount of the other-than-temporary impairment recognized in earnings, recorded in financial expense, net, is limited to theportion attributed to credit loss. The remaining portion of the other-than-temporary impairment related to other factors is recognized inother comprehensive income or loss. h.DerivativesThe Company purchases foreign exchange derivative financial instruments (written and purchased currency options). The transactions aredesigned to hedge the Company’s currency exposure. The Company recognizes all derivatives as either assets or liabilities in the consolidated balance sheet at their fair value. Changes in thefair value of derivatives that are highly effective and designated as cash flow hedges are reported as a component of other comprehensiveincome or loss and reclassified into earnings in the same line-item associated with the forecasted transaction and in the same periodsduring which the hedged transaction impacts earnings. For derivatives that qualify for hedge accounting, the cash flows associated with these derivatives are reported in the consolidatedstatements of cash flows consistently with the classification of cash flows from the underlying hedged items that these derivatives arehedging. i.Property and equipment:1)Property and equipment are stated at cost, net of accumulated depreciation and amortization. 2)The Company’s property and equipment are depreciated by the straight-line method on the basis of their estimated useful life.Annual rates of depreciation are as follows: %Computers20-33Laboratory equipment7-15Office furniture and equipment7-20Vehicles15Leasehold improvements are amortized by the straight-line method over the expected lease term, which is shorter than the estimated usefullife of the improvements. F - 12FOAMIX PHARMACEUTICALS LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share amounts) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):j.Impairment of long-lived assetsThe Company tests long-lived assets for impairment whenever events or circumstances present an indication of impairment. If the sum ofexpected future cash flows (undiscounted and without interest charges) of the assets is less than the carrying amount of such assets, animpairment loss would be recognized. The assets would be written down to their estimated fair values, calculated based on the presentvalue of expected future cash flows (discounted cash flows), or some other fair value measure. For the three years ended December 31, 2017, the Company did not recognize an impairment loss for its long-lived assets. k.Allowance for doubtful accountsThe Company performs ongoing credit evaluations to estimate the need for maintaining reserves for potential credit losses. An allowancefor doubtful accounts is recognized on a specific basis with respect to those amounts that the Company has determined to be doubtful ofcollection. No allowance for doubtful accounts was recorded in the three years ended December 31, 2017. l.ContingenciesCertain conditions may exist as of the date of the financial statements, which may result in a loss to the Company but which will only beresolved when one or more future events occur or fail to occur. The Company’s management assesses such contingent liabilities and suchassessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pendingagainst the Company or unasserted claims that may result in such proceedings, the Company’s management evaluates the perceived meritsof any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought. Management applies the guidance in ASC 450-20-25 when assessing losses resulting from contingencies. If the assessment of acontingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then theestimated liability is recorded as accrued expenses in the Company’s financial statements. If the assessment indicates that a potentialmaterial loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of thecontingent liability, together with an estimate of the range of possible loss if determinable and material are disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case theguarantees are disclosed. m.Share-based compensationThe Company accounts for employees’ and directors’ share-based payment awards classified as equity awards using the grant-date fairvalue method. The fair value of share-based payment transactions is recognized as an expense over the requisite service period. As ofJanuary 1, 2017, forfeitures are recognized as they occur. The Company elected to recognize compensation costs for awards conditioned only on continued service that have a graded vestingschedule using the straight-line method based on the multiple-option award approach. F - 13FOAMIX PHARMACEUTICALS LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share amounts) NOTE 2−SIGNIFICANT ACCOUNTING POLICIES (continued):When options and restricted share units (hereinafter “RSUs”) are granted as consideration for services provided by consultants and othernon-employees, the grant is accounted for based on the fair value of the consideration received or the fair value of the awards issued,whichever is more reliably measurable. The fair value of the awards granted is measured on a final basis at the end of the related serviceperiod and is recognized over the related service period using the straight-line method. n.Revenue recognitionThe Company's revenues are derived from development and license agreements for development of products combining the Company'sfoam technology with a drug selected by the licensee. The significant deliverables in the agreements between the Company and its licensees are the obligation of the Company to providedevelopment services and the grant of an exclusive license to the specific product developed. These deliverables are combined into one single unit of accounting for revenue recognition purposes since: ·Each element does not have value on a stand-alone basis. ·In order to develop the combined formulation in the licensed product, the use of the Company’s propriety technology is required.Therefore, the Company is the only party capable of performing the level and type of development services required under theagreement. The Company’s development and license agreements entitle the Company to: ·Development payments, including upfront payments, cost reimbursements and payments contingent only upon passage of time(together - “Development Service Payments”). ·Payments contingent solely upon performance or achievement of clinical results by the Company’s licensees (“ContingentPayments”). ·Royalties, calculated as a percentage of sales of the developed products made by the Company's licensees.Revenues from Development Service Payments under development and license agreements are recognized as the services are provided.When the Company receives a portion of the Development Service Payment before performance of such services, these advances arerecorded as deferred revenues and recognized as revenues as services are performed. Contingent Payments are recognized when the licensee’s performance or achievement event occurs. Royalties are recognized when subsequent sales are made by the licensees. o.Research and development costsResearch and development expenses include costs directly attributable to the conduct of research and development programs, includingthe cost of clinical trials, clinical trial supplies, salaries, share-based compensation expenses, payroll taxes and other employee benefits,lab expenses, consumable equipment and consulting fees. All costs associated with research and developments are expensed as incurred. F - 14 Year ended December 31 2017 2016 2015 Outstanding share options and RSUs 4,230,101 2,698,875 2,124,951 Warrants 1,394,558 1,807,800 2,064,937 FOAMIX PHARMACEUTICALS LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share amounts) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):p.Clinical trial accrualsClinical trial expenses are charged to research and development expense as incurred. The Company accrue for expenses resulting fromobligations under contracts with clinical research organizations (CROs). The financial terms of these contracts are subject to negotiations,which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services areprovided. The Company’s objective is to reflect the appropriate trial expense in the consolidated financial statements by matching theappropriate expenses with the period in which services and efforts are expended. In the event advance payments are made to a CRO, thepayments are recorded as other assets, which will be recognized as expenses as services are rendered. q.Income taxes: 1)Deferred taxesIncome taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets andliabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and aremeasured using the currently enacted tax rates and laws. A valuation allowance is recognized to the extent that it is more likely thannot that the deferred taxes will not be realized in the foreseeable future. Given the Company’s losses, the Company has provided a fullvaluation allowance with respect to its deferred tax assets.2)Uncertainty in income tax The Company follows a two-step approach in recognizing and measuring uncertain tax positions. The first step is to evaluate the taxposition for recognition by determining if the available evidence indicates that it is more likely than not that the position will besustained based on technical merits. If this threshold is met, the second step is to measure the tax position as the largest amount thathas more than a 50% likelihood of being realized upon ultimate settlement. r.Loss per shareNet loss per share, basic and diluted, is computed on the basis of the net loss for the year divided by the weighted average number ofcommon shares outstanding during the year. Diluted net loss per share is based upon the weighted average number of common shares andof common shares equivalents outstanding when dilutive. Common share equivalents include outstanding stock options and warrantswhich are included under the treasury share method when dilutive. The following share options, RSUs and warrants were excluded from the calculation of diluted net loss per ordinary share because theireffect would have been anti-dilutive for the years presented (share data): F - 15FOAMIX PHARMACEUTICALS LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share amounts)NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued): s.Fair value measurement Fair value is based on the price that would be received from the sale of an asset or that would be paid to transfer a liability in an orderlytransaction between market participants at the measurement date. In order to increase consistency and comparability in fair valuemeasurements, the guidance establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fairvalue into three broad levels, which are described as follows: Level 1:Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair valuehierarchy gives the highest priority to Level 1 inputs. Level 2:Observable prices that are based on inputs not quoted on active markets, but corroborated by market data or active marketdata of similar or identical assets or liabilities. Level 3:Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority toLevel 3 inputs. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use ofunobservable inputs to the extent possible and considers counterparty credit risk in its assessment of fair value. t.Concentration of credit risks Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and cashequivalents, restricted cash, bank deposits, marketable securities and certain receivables. The Company deposits cash and cashequivalents with highly rated financial institutions and, as a matter of policy, limits the amounts of credit exposure to any single financialinstitution. In addition, all marketable securities carry a high rating or are government insured. The Company has not experienced anymaterial credit losses in these accounts and does not believe it is exposed to significant credit risk on these instruments. u.Comprehensive lossComprehensive loss includes, in addition to net loss, unrealized holding gains and losses on available-for-sale securities and derivativeinstruments designated as cash flow hedge (net of related taxes where applicable). Reclassification adjustments for gain or loss of available for sales securities are included in finance expenses net in the statement ofoperations. v.Newly issued and recently adopted accounting pronouncements:Accounting pronouncements adopted in 2017: 1)In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718). ASU No. 2016-09 identifiesareas for simplification involving several aspects of accounting for share-based payment transactions, including the income taxconsequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense withactual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The Company adopted thisstandard as of January 1, 2017, and elected the option to recognize gross stock compensation expense with actual forfeituresrecognized as they occur.2)In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows Topic 230: Classification of Certain Cash Receipts andCash Payments. ASU No. 2016-15 issued guidance to clarify how certain cash receipts and cash payments should be presented in thestatement of cash flows. This standard, adopted as of January 1, 2017, had no material impact on the Company’s consolidatedfinancial statements.F - 16FOAMIX PHARMACEUTICALS LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share amounts)NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):Accounting pronouncements that are not yet effective and have not been early adopted by the Company:3)In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which will supersede existingrevenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is that a company should recognize revenuewhen it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expectsto be entitled in exchange for those goods or services. ASU 2014-09 defines a five-step process that requires companies to exercisemore judgment and make more estimates than under the current guidance. These may include identifying performance obligations inthe contract, estimating the amount of variable consideration to include in the transaction price, and allocating the transaction priceto each separate performance obligation. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017,including interim periods within those periods.The Company intends to adopt the guidance using the modified retrospective approach, with the cumulative effect of initiallyapplying the guidance recognized at the date of initial application, with effect from January 1, 2018. The Company generates revenue primarily from its development and licensing agreements. The consideration the Company iseligible to receive under its agreements typically include upfront payments, reimbursement for research and development costs,contingent payments, royalties and other contingent payments for the achievement of certain sales targets.As the current revenue of the Company is driven primarily from royalties and contingent payments as mentioned above, the Companyanticipates that the adoption of the new standard will not have a material effect on its consolidated financial statements.4)In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10), which addresses certainaspects of recognition, measurement, presentation, and disclosure of financial instruments. This guidance is effective for interim andannual periods beginning after December 15, 2017. The amended guidance requires changes in the fair value of equity investments tobe recognized through net income, rather than other comprehensive income. Adoption of the standard will be applied through acumulative one-time adjustment to retained earnings. For the Company’s equity investments without readily determinable fair values,the Company expects to elect the measurement alternative to record those investments at cost, less impairment, and adjusted byobservable price changes on a prospective basis. The impact of the standard on the consolidated statements of operations will dependon the relative changes in market price of the equity investments, although the impact is currently expected to be immaterial.5)In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes the existing guidance for leaseaccounting, Leases (Topic 840). ASU 2016-02 requires lessees to recognize leases on their balance sheets, and leaves lessoraccounting largely unchanged. The amendments in this ASU are effective for interim and annual periods beginning after December15, 2018. Early application is permitted for all entities. ASU 2016-02 requires a modified retrospective approach for all leases existingat, or entered into after, the date of initial application, with an option to elect to use certain transition relief. The Company is currentlyevaluating the impact of this new standard on its consolidated financial statements, although the impact is currently expected to beimmaterial.F - 17FOAMIX PHARMACEUTICALS LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share amounts) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):6)In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. This ASU significantlychanges how entities will measure credit losses for most financial assets and certain other instruments that aren’t measured at fairvalue through net income. The standard will replace today’s “incurred loss” approach with an “expected loss” model. The new model,referred to as the current expected credit loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measuredat amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturitysecurities, loan commitments, and financial guarantees. The CECL model does not apply to available-for-sale (“AFS”) debt securities.For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, exceptthat the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. As a result, entities willrecognize improvements to estimated credit losses immediately in earnings rather than as interest income over time, as they do today.The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 also expands thedisclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and leaselosses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator,disaggregated by the year of origination. ASU No. 2016-13 is effective for interim and annual reporting periods beginning afterDecember 15, 2019; early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. Entitieswill apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reportingperiod in which the guidance is effective (i.e., modified retrospective approach). The Company is currently evaluating the impact ofthe adoption of this guidance on its consolidated financial statements.7)In March 2017, the FASB issued ASU No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): PremiumAmortization on Purchased Callable Debt Securities. This new standard amends the amortization period for certain purchased callabledebt securities held at a premium by shortening the amortization period for the premium to the earliest call date. The new standardwill be effective for interim and annual reporting periods beginning after December 15, 2018. The Company anticipates that theadoption of the new standard will not have a material effect on its consolidated financial statements.8)In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of ModificationAccounting. ASU 2017-09 was issued to provide clarity and reduce both 1) diversity in practice and 2) cost and complexity whenapplying the guidance in Topic 718 to a change in the terms or conditions of a share-based payment award. ASU 2017-09 providesguidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modificationaccounting under Topic 718. The amendments in ASU 2017-09 are effective for fiscal years, and interim periods within those years,beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period. The amendments in ASU2017-09 should be applied prospectively to an award modified on or after the adoption date. 9)In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging - Targeted Improvements to Accounting for HedgingActivities. This new standard aims to better align a company’s financial reporting for hedging activities with the economic objectivesof those activities. The updated standard will be effective for interim and annual reporting periods beginning after December 15, 2018and must be applied using a modified retrospective approach; however, early adoption of the ASU is permitted. The Company iscurrently evaluating the impact of the adoption of this guidance on its consolidated financial statements.F - 18 December 31, 2017 Level 1 Level 2 Total Marketable securities $987 $39,776 $40,763 Currency options designated as hedging instruments (current asset) - $11 $11 December 31, 2016 Level 1 Level 2 Total Marketable securities $957 $60,240 $61,197 Currency options designated as hedging instruments (current asset) - $2 $2 December 31 2017 2016 Israeli mutual funds $987 $957 Certificates of deposit 17,206 33,350 Government and agency bonds 22,570 26,890 Total $40,763 $61,197 FOAMIX PHARMACEUTICALS LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share amounts) NOTE 3 - FAIR VALUE MEASUREMENTS The Company’s assets and liabilities that are measured at fair value as of December 31, 2017, and December 31, 2016, are classified in the tablesbelow in one of the three categories described in note 2s above: The Company’s corporate debt securities are traded in markets that are not considered to be active, but are valued based on quoted market prices,broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. Accordingly, these assets are categorizedas Level 2. Foreign exchange risk managementThe Company purchases and writes non-functional currency options in order to hedge the currency exposure on the Company’s cash flow. Thecurrency hedged items are denominated in New Israeli Shekel (NIS). The purchasing and writing of options is part of a comprehensive currencyhedging strategy with respect to salary and rent expenses denominated in NIS. These transactions are at zero cost for periods of up to one year.The counterparties to the derivatives are major banks in Israel. As of December 31, 2017, the total hedged amount was NIS 5.3 million.The derivative asset, in the amount of $11 as of December 31, 2017, qualifies as hedge accounting.As of December 31, 2017, the Company has a lien in the amount of $290 on the Company’s marketable securities and a lien in the amount $250on the Company’s checking account, in respect of bank guarantees granted in order to secure the hedging transactions.NOTE 4 - MARKETABLE SECURITIESMarketable securities as of December 31, 2017, and December 31, 2016, consist mainly of debt and mutual funds securities. These securities areclassified as available-for-sale and are recorded at fair value. Changes in fair value, net of taxes (if applicable), are reflected in othercomprehensive loss. Realized gains and losses on sales of the securities, as well as premium or discount amortization, are included in theconsolidated statement of operations as finance income or expenses.The following table sets forth the Company’s marketable securities: F - 19 December 31, 2016 Fairvalue Cost orAmortizedcost Grossunrealizedholding loss Grossunrealizedholding gains Israeli mutual funds $957 $952 $- $5 Certificates of deposit 33,350 33,408 68 10 Government and agency bonds 26,890 26,901 13 2 Total $61,197 $61,261 $81 $17 December 31, 2017 Fairvalue Cost orAmortizedcost Grossunrealizedholding loss Grossunrealizedholding gains Israeli mutual funds $987 $952 $- $35 Certificates of deposit 17,206 17,243 38 1 Government and agency bonds 22,570 22,638 68 - Total $40,763 $40,833 $106 $36 Market value December 31 2017 2016 Due within one year $31,244 $42,708 1 to 2 years 8,380 14,513 2 to 3 years 152 3,019 Total $39,776 $60,240 December 31 2017 2016 Cost: Leasehold improvements $902 $229 Computers and software 299 187 Laboratory equipment 1,257 896 Furniture 288 96 Vehicles 106 198 2,852 1,606 Less: Accumulated depreciation and amortization 810 668 Property and Equipment, net $2,042 $938 FOAMIX PHARMACEUTICALS LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share amounts) NOTE 4 - MARKETABLE SECURITIES (continued):At December 31, 2017 and 2016, the fair value, cost and gross unrealized holding gains of the securities owned by the Company were asfollows: As of December 31, 2017, the unrealized losses attributed to the Company’s marketable securities were primarily due to credit spreads andinterest rate movements. The Company has considered factors regarding other than temporary impaired securities and determined that there areno securities with impairment that is other than temporary as of December 31, 2017, and December 31, 2016. During the year ended December 31, 2017 and December 31, 2016 the Company received proceeds of $43,079 and $27,106 upon sale andmaturity of marketable securities. As of December 31, 2017, and December 31, 2016, the Company’s debt securities had the following maturity dates: $433 and $390 of the Company’s marketable securities were restricted as of December 31, 2017, and December 31, 2016, respectively, due to alien in respect of bank guarantees granted to secure hedging transaction and the Company’s rent agreement. Refer to note 7 and note 3.NOTE 5 - PROPERTY AND EQUIPMENT F - 20FOAMIX PHARMACEUTICALS LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share amounts) NOTE 5 - PROPERTY AND EQUIPMENT (continued): Depreciation and amortization expense totaled $221, $143 and $87 for the years ended December 31, 2017, December 31 2016, andDecember 31, 2015, respectively. During the years ended December 31, 2017 and December 31, 2016, the Company disposed of fixed assets in the net amount of $104 and $16respectively. Loss from Sales of fixed assets for the year ended December 31, 2017 was $30.NOTE 6 - EMPLOYEE SEVERANCE BENEFITSThe Company's liability for severance pay for its Israeli employees is calculated pursuant to Israeli severance pay law based on the most recentsalary of the employee multiplied by the number of years of employment, as of the balance sheet date, less amounts funded in each employee’sseverance fund. Such liability is recorded on the Company’s balance sheet under “Liability for employee severance benefits” as if it were payableat each balance sheet date on an undiscounted basis. The Company partially secures this liability by purchasing insurance policies orestablishing dedicated severance accounts within the relevant employees’ pension funds, and making monthly deposits under such policies orinto such accounts. The value of these policies is recorded as an asset in the Company's balance sheet.During 2014, all of the Israeli employees agreed to the terms of Section 14 of the Israeli Severance Pay Law, 1963, according to which alldeposits in the pension fund and/or with the insurance company, thereafter, exempt the Company from any additional obligation. These depositsare accounted as defined contribution payments and therefore not recorded on the Company’s balance sheet. Once the employees agreed to theterms of Section 14, all amounts funded on behalf of the employees were released to their full ownership. The liability for employee severancebenefits as of December 31, 2017, represents the Company's obligation that has not been secured by deposits to employee severance funds.The amount of severance payment expenses were $374, $244 and $193 for the years ended December 31, 2017, December 31, 2016 andDecember 31, 2015, respectively.During 2018, the Company expects to deposit approximately $739 with respect to employee’s severance benefits. Beginning September 2017, the Company has retirement savings plans available to all employees of the Subsidiary, which are intended toqualify as deferred compensation plans under Section 401(k) of the Internal Revenue Code (the “401k Plans”). The Company madecontributions to these plans during the year ended December 31, 2017 of approximately $35. F - 21 Year Ended December 31 2017 2016 2015 Rental expenses $645 $358 $352 Vehicles lease expenses $22 $- $- FOAMIX PHARMACEUTICALS LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share amounts) NOTE 7 - COMMITMENTSLease agreementThe Company leases office space for its headquarters and research and development facilities in Israel and the United States of America underseveral lease agreements. The lease agreements for the facilities in Israel are linked to the Israeli CPI and expire in December 2020. The leaseagreement in the United States is due to expire during March 2019.In July 2017, the Company has entered into operating lease agreement in connection with a number of vehicles. The lease periods are generallyfor three years and the payments are linked to the Israeli CPI. To secure the terms of the lease agreements, the Company has made certainprepayments to the leasing company, representing approximately three months of lease payments. These amounts have been recorded as othernon-current assets.Operating lease expenses for the years ended December 31, 2017, December 31, 2016 and December 31, 2015, are as follows: Future minimum lease commitments under non-cancelable operating lease agreements are as follows: 2018 $865 2019 756 2020 and thereafter 701 Total $2,322 The Company has a lien in the amount of $143 on the Company’s marketable securities in respect of bank guarantees granted in order to securethe lease agreements.NOTE 8 - LOANS:a.Loan from the BIRD foundationDuring the second quarter of 2016, the Company repaid the loan received from the Israel United States Binational Industrial Research andDevelopment Foundation (the "BIRD foundation") upon the completion of a certain clinical development. The loan, received ininstalments between 2008 and 2011, was denominated in US dollars and linked to the US Consumer Price Index. b.Bank BorrowingsDuring 2014 the Company entered into several finance agreements with a bank in order to finance the purchase of vehicles (hereinafter“the loans”). The loans are denominated in NIS and bear interest at a rate per annum equal to Prime minus 0.5%. The loans were fullyrepaid during 2017. NOTE 9 - SHARE CAPITAL:a.Rights of the Company’s ordinary sharesEach ordinary share is entitled to one vote. The holders of ordinary shares are also entitled to receive dividends whenever funds are legallyavailable, when and if declared by the Board of Directors. Since its inception, the Company has not declared any dividends. F - 22FOAMIX PHARMACEUTICALS LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share amounts)NOTE 9 - SHARE CAPITAL (continued):b.Public offeringsIn September 2014, the Company completed an IPO, pursuant to which the Company issued 7,668,200 ordinary shares (includingunderwriters ‘green shoe’), NIS 0.16 par value (“Ordinary Shares”) at $6.00 per share raising a total of approximately $41,100, net ofunderwriting discounts, commissions and other offering expenses. On April 20, 2015, the Company completed a follow-on public offering. A total of 7,419,353 ordinary shares were sold at a price of $9.30per share. Prior to closing, the underwriters fully exercised their option to purchase 967,741 additional ordinary shares. The net proceedsfrom the sale of shares, after deducting underwriting discounts, commissions and other offering expenses, were approximately $64,202. On September 30, 2016, the Company completed an additional offering in which 5,700,000 ordinary shares were sold at a price of $9.50per share. On October 28, 2016, the underwriters partially exercised their ‘green shoe’ option and purchased 411,959 additional ordinaryshares. The net proceeds, including the underwriters' option, were approximately $54,132, after deducting underwriter’s discounts,commissions and other offering expenses. c.WarrantsAs of December 31, 2017, and December 31, 2016, the Company’s outstanding warrants were 1,394,558 and 1,807,800, respectively. Eachwarrant can be exercised for one ordinary share at an exercise price of $5.04 per share or through a cashless exercise. The warrants areexercisable until May 13, 2018 (“Expiration date”). On the occasion where the warrants are not exercised by the Expiration date, and thefair value of share price on such day is higher than the warrant exercise price, the warrants shall be deemed automatically exercised by thewarrant holder on a net issuance basis. During the years ended December 31, 2017 and December 31, 2016, 413,242 and 257,137 warrants were exercised into 191,793 and257,137 ordinary shares, respectively. d.Share-based compensationIn June 2009, the Company’s Board of Directors approved a share option plan and reserved a pool of 1,635,694 ordinary shares for grantto Company employees, consultants, directors and other service providers. In May 2015, the Company's board of directors approved a new option plan (the "Plan") replacing the previous plan approved in 2009.The Plan includes a pool of 2,690,694 ordinary shares for grant to Company employees, consultants, directors and other service providers.During the years ended December 31, 2016 and December 31, 2017, a total increase of 2,900,000 ordinary shares was approved by theboard of directors and registered with the Securities and Exchange Commission. As of December 31, 2017, 2,076,088 shares remain available for grant under the Plan. The Plan is designed to enable the Company to grant options to purchase Ordinary Shares and RSUs under various and different taxregimes including, without limitation: (i) pursuant and subject to Section 102 of the Israeli Tax Ordinance or any provision which mayamend or replace it and any regulations, rules, orders or procedures promulgated thereunder and to designate them as either grants madethrough a trustee or not through a trustee; and (ii) pursuant and subject to Section 3(i) of the Israeli Tax Ordinance. F - 23 Year ended December 31, 2017 Awardamount Exerciseprice range Vestingperiod Expiration Employees: Options 1,162,558 $5.22-$10.31 4 years 10 years RSU 350,694 - 4 years - Directors: Options 189,709 $4.69-$4.76 4 years 10 years RSU 19,397 - 4 years - Year ended December 31, 2016 Awardamount Exerciseprice range Vestingperiod Expiration Employees: Options 715,310 $6.04-$8.54 4 years 10 years RSU 25,000 - 4 years - Directors: Options 24,000 $7.09 3 years 10 years Consultants: Options 4,800 $6.34 4 years 10 years Year ended December 31, 2015 Awardamount Exerciseprice range Vestingperiod Expiration Employees: Options 852,501 $6.77-$10.88 4 years 10 years RSU 216,050 - 4 years - Directors: Options 27,000 $10.80-$11.87 3 years 10 years Consultants: Options 4,000 $10.88 4 years 10 years RSU 83,800 - 4 years - FOAMIX PHARMACEUTICALS LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share amounts) NOTE 9 - SHARE CAPITAL (continued):The fair value of each option granted is estimated using the Black-Scholes option pricing method. The volatility is based on acombination of the Company’s historical volatility, historical volatilities of companies in comparable stages as well as companies in theindustry, by statistical analysis of daily share pricing model. The risk-free interest rate assumption is based on observed interest ratesappropriate for the expected term of the options granted in dollar terms. The Company’s management uses the contractual term or itsexpectations, as applicable, of each option as its expected life. The expected term of the options granted is derived from the output of theoption pricing model and represents the period of time that granted options are expected to remain outstanding.In the three years ended December 31, 2017, the Company granted options to employees and non-employees as follows: F - 24 Year ended December 31 2017 2016 2015 Value of ordinary share $4.44-$10.12 $5.9-$8.35 $6.96-$11.3 Dividend yield 0% 0% 0%Expected volatility 58.41%-61.7% 60.3%-63.2% 60.1%-64.9%Risk-free interest rate 1.97%-2.16% 1.25%-1.86% 1.38%-1.98%Expected term 6 years 6 years 6 years FOAMIX PHARMACEUTICALS LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share amounts)NOTE 9 - SHARE CAPITAL (continued): The fair value of options and RSUs granted to employees and directors during 2017, 2016 and 2015 was $8,510, $2,816 and $6,592respectively. The fair value of options and RSUs granted to consultants during the years ended 2016 and 2015 was $42 and $686,respectively. The fair value of RSUs granted to employees and directors is based on the share price on grant date. The fair value of options granted to employees and directors on the date of grant was computed using the Black-Scholes model. Theunderlying data used for computing the fair value of the options are as follows: The total unrecognized compensation cost of employee and directors options and RSUs at December 31, 2017 is $9,340 which isexpected to be recognized over a weighted average period of 2 years. The fair value of options granted during 2016 and 2015 to consultants, was computed using the Black-Scholes model. The underlyingdata used for computing the fair value of the options are as follows: December 31 2016 2015 Value of ordinary share $11.1 $8.11 Dividend yield 0% 0%Expected volatility 64.8% 69.4%Risk-free interest rate 2.38% 2.27%Expected term 9 years 10 years F - 25 Employees and directors Consultants and serviceproviders Number ofoptions USD(1) Number ofoptions USD(1) Outstanding at January 1, 2015 904,250 $3.28 266,875 $2.10 Granted 879,501 7.72 4,000 10.88 Exercised (29,525) 1.92 (150,000) 1.92 Re-designated(2) (27,000) 5.88 27,000 5.88 Outstanding at December 31, 2015 1,727,226 $5.41 147,875 $3.24 Granted 739,310 6.55 4,800 6.34 Forfeited (20,000) 6.66 (15,625) 7.98 Exercised (69,444) 1.64 - - Outstanding at December 31, 2016 2,377,092 $5.87 137,050 $2.81 Granted 1,352,267 7.47 - - Forfeited (39,213) 7.93 (8,800) 8.40 Exercised (61,881) 2.63 - - Re-designated(3) (252,210) 7.71 252,210 7.71 Outstanding at December 31, 2017 3,376,055 $6.41 380,460 $5.93 FOAMIX PHARMACEUTICALS LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share amounts)NOTE 9 - SHARE CAPITAL (continued):In June, 2017, the Company entered into new agreements with Dr. Dov Tamarkin and Mr. Meir Eini to serve as consultants, pursuant totheir resignation from their roles as Chief Executive Officer and Chief Innovation Officer of the Company (see also Note 13), pursuant towhich all options and RSUs previously awarded to Dr. Dov Tamarkin and Mr. Meir Eini will remain outstanding and continue to vest asthough they remained employed by the Company through each applicable vesting date. In addition to the new agreements with Dr. Dov Tamarkin and Mr. Meir Eini, the Company entered into a similar agreement with anotheremployee who has become a consultant to the Company. Pursuant to the agreement all options and RSUs previously awarded to theemployee will remain outstanding and continue to vest as though he remained employed by the Company through each applicablevesting date, as long as he remains a consultant to the Company. The retention of the options and RSUs was considered a Type III modification for share-based compensation, and, as a result, the Companyreversed all expense previously recorded for these retained awards in the amount of $2,037 and recorded the new compensation expense inthe amount of $1,058 over the new requisite service period. The following table summarizes the number of options outstanding for the years ended December 31, 2017, December 31, 2016 andDecember 31, 2015, and related information: (1)Weighted average price per share(2)Pursuant to change in status of grantee from ‘director’ to ‘consultant’ during the reporting period.(3)Pursuant to change in status of grantees from ‘employee’ and ‘Director’ to ‘consultant’ during the reporting period.F - 26 Employeesand directors Consultantsand serviceproviders Number of RSUs Outstanding at January 1, 2016 186,800 63,050 Awarded 25,000 - Vested (69,117) (21,000)Outstanding at December 31, 2016 142,683 42,050 Awarded 370,091 - Forfeited (4,025) (550)Vested (43,038) (33,625)Re-designated(1) (78,120) 78,120 Outstanding at December 31, 2017 387,591 85,995 December 31, 2017 Options outstanding Options exercisable Number of Weighted Number of Weighted options average options Average Exercise outstanding remaining exercisable Remaining prices per at end of contractual at end of contractual share (USD) year life year Life 0.048-1.312 268,125 1.90 268,125 1.90 1.92 258,587 4.08 252,650 4.03 4.687-4.761 189,709 9.53 - - 5.216-5.879 810,175 8.75 253,600 6.98 6.04-6.77 766,010 8.02 364,154 7.83 7.093-8.545 757,126 7.82 365,032 7.66 10.217-11.868 706,783 8.85 80,719 7.59 3,756,515 1,584,280 Year ended December 31 2017 2016 2015 Cost of revenues $2 $3 $2 Research and development expenses 1,711 1,135 588 Selling, general and administrative 2,453 1,774 1,187 $4,166 $2,912 $1,777 FOAMIX PHARMACEUTICALS LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share amounts) NOTE 9 - SHARE CAPITAL (continued): The following table summarizes the number of RSUs outstanding for the years ended December 31, 2017 and December 31, 2016: (1)Pursuant to change in status of grantees from ‘employee’ and ‘Director’ to ‘consultant’ during the reporting period. The following tables summarizes information concerning outstanding and exercisable options as of December 31, 2017:The aggregate intrinsic value of the total outstanding and exercisable options as of December 31, 2017, is $3,083 and $2,555respectively.The following table illustrates the effect of share-based compensation on the statements of operations: F - 27FOAMIX PHARMACEUTICALS LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share amounts)NOTE 10 - INCOME TAX: The Company is taxed under Israel and the United States of America tax laws:a.Tax rates:1)Income from Israel was taxed at the corporate tax rate of 26.5% in 2015, 25% in 2016, and 24% in 2017. Capital gains are subjectto capital gain tax, which equals to 25%.In December 2016, the Economic Efficiency Law (Legislative Amendments for Implementing the Economic Policy for the 2017and 2018 Budget Year), 2016 was published, introducing a gradual reduction in corporate tax rate from 25% to 23%. However, thelaw also included a temporary provision setting the corporate tax rate in 2017 at 24%. As a result, the corporate tax rate in 2017was 24% and in 2018 and thereafter reduced to 23%.2)Income of the subsidiary is taxed according to the federal tax laws in the US and the relevant state laws. The relevant U.S. statutorytax rates for 2017, 2016 and 2015 were 35%, 35% and 30%, respectively. The relevant state tax rate for 2017, 2016 and 2015 was9%.The U.S. Tax Cuts and Jobs Act (Tax Act) was enacted on December 22, 2017 and introduces significant changes to U.S. incometax law. Effective in 2018, the Tax Act reduces the U.S. statutory tax rate from 35% to 21% and creates new taxes on certainforeign-sourced earnings and certain related-party payments, which are referred to as the global intangible low-taxed income taxand the base erosion tax, respectively.b.Tax assessmentsFoamix has tax assessments that are considered to be final through tax year 2012. c.Tax benefits under the Law for Encouragement of Industry (Taxation), 1969Foamix believes that it currently qualifies as an "Industrial Company" under the above law. As such it is entitled to certain tax benefits,mainly the right to deduct share issuance costs over three years for tax purposes in the event of a public offering. Foamix utilizes this tax benefit. d.Losses for tax purposes carried forward to future yearsAs of December 31, 2017, Foamix had approximately $88.6 million of net carry forward tax losses in Israel, which are available to reducefuture taxable income with no limited period of use. F - 28 December 31, 2017 2016 In respect of: Net operating loss carry forward $20,385 $11,512 Research and development 9,856 4,147 Other 608 332 Less - valuation allowance (30,849) (15,991)Net deferred tax assets $- $- Year ended December 31 2017 2016 2015 Loss before income taxes $64,551 $28,949 $16,478 Theoretical tax benefit on the above amount (15,492) (7,237) (4,367)Decrease (increase) in tax refund resulting from: Reduction and different corporate tax rates 711 1,965 - Non-deductible expenses and other permanent differences, mainly share basedcompensation expenses and issuance costs 80 (491) (585)Uncertain tax position 988 - - Net change in valuation allowance 14,858 5,777 3,973 Other 19 373 1,018 Actual tax expense $1,164 $387 $39 FOAMIX PHARMACEUTICALS LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share amounts) NOTE 10 - INCOME TAX (continued):e.Subsidiary tax liabilityDuring 2017, 2016 and 2015, the US subsidiary incurred a tax expense in the amount of $1,164, $387 and $39, respectively. f.Deferred income taxes: Realization of deferred tax assets is contingent upon sufficient future taxable income during the period that deductible temporarydifferences and carry forward losses are expected to be available to reduce taxable income. As the achievement of required future taxableincome is not likely, the Company recorded a full valuation allowance. Deferred tax has not been provided on taxes that would apply in the event of disposal of the investments in the subsidiary, as it is theCompany’s intention to hold this investment and not to realize it. Foamix may incur an additional tax liability in the event of an inter-company dividend distribution from its subsidiary; no additionaldeferred taxes have been provided, since it is the Company’s policy not to distribute in the foreseeable future, dividends which wouldresult in additional tax liability. Following is a reconciliation of the theoretical tax benefit, assuming all income is taxed at the statutory corporate tax rate applicable toIsraeli corporations, and the actual tax expense: g.ASC No. 740, Income Taxes, requires significant judgment in determining what constitutes an individual tax position as well as assessingthe outcome of each tax position. Changes in judgment as to recognition or measurement of tax positions can materially affect theestimate of the effective tax rate and consequently, affect the operating results of the Company. F - 29 December 31 2017 2016 Institutions $91 $174 Prepaid expenses 588 246 Other 93 18 $772 $438 Accrued expenses $1,622 $709 Payroll and related institutions 872 581 Bonus accrual 1,166 1,661 Other 70 33 $3,730 $2,984 FOAMIX PHARMACEUTICALS LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share amounts) NOTE 10 - INCOME TAX (continued):The following table summarizes the activity of the Company unrecognized tax benefits: Year endedDecember31, 2017 Balance at January 1, 2017 $- Increase in uncertain tax positions for the current year 988 Balance at December 31, 2017 $988 The Company does not expect unrecognized tax expenses to change significantly over the next 12 months. h.Roll forward of valuation allowance:Balance at January 1, 2015 $6,241 Additions 3,973 Balance at December 31, 2015 $10,214 Additions 5,777 Balance at December 31, 2016 $15,991 Additions 14,858 Balance at December 31, 2017 $30,849 NOTE 11 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION: Balance sheets: a.Account receivable - other: b.Accounts payable and accruals - other: Statements of operations: c.RevenuesIn the year ended December 31, 2017 and 2016, the Company’s revenues were driven virtually all from one main customer. Based on theagreement with this customer the Company is entitled to royalty payments with respect to sales of a product developed by the customer incollaboration with the Company. F - 30 Year ended December 31 2017 2016 2015 Development Service Payments $140 $63 $596 Contingent Payments - 2,500 - Royalties 3,529 2,964 253 Total revenues $3,669 $5,527 $849 Year ended December 31 2017 2016 2015 Finance expenses: Finance expenses on BIRD loan - 243 * Foreign exchange losses, net 57 - - Other expenses 14 17 23 Total finance expenses 71 260 23 Finance income: Gains from securities, net (602) (401) (180)Interest on bank deposits (532) (536) (289)Foreign exchange gains, net - (24) (6)Total finance income (1,134) (961) (475) $(1,063) $(701) $(452) Year ended December 31 2017 2016 2015 Germany $3,529 $5,464 $253 United States 140 14 587 France - 49 9 Total revenues $3,669 $5,527 $849 Year ended December 31 2017 2016 2015 Customer A $- $- $86 Customer B $- $14 $366 Customer C $3,529 $5,464 $253 Customer D $- $- $135 FOAMIX PHARMACEUTICALS LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)(U.S. dollars in thousands, except share and per share amounts) NOTE 11 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued): The following table provides a breakdown of the Company’s net revenues: d.Finance income, net: * Represents an amount less than $1. NOTE 12 - ENTITY-WIDE DISCLOSURE:a.Net revenues by geographic area were as follows:b.Revenues from principal customers - revenues from single customers that exceed 10% of total revenues in the relevant year:F - 31FOAMIX PHARMACEUTICALS LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share amounts)NOTE 13 - RELATED PARTY TRANSACTIONSIn June 2017, the Company entered into new agreements with Dr. Dov Tamarkin and Mr. Meir Eini pursuant to their resignation from their rolesas Chief Executive Officer and Chief Innovation Officer of the Company, respectively, effective as of June 29, 2017. As part of the agreements, asof July 1, 2017, Dr. Tamarkin and Mr. Eini began to serve as consultants to the Company. In addition, Dr. Tamarkin and Mr. Eini will retain alloutstanding stock options and RSUs, as long as they serve as consultants of the Company and are entitled to cash severance payments in the totalamount of $1,800, out of which approximately $600 was paid as of December 31, 2017.In January 2018, subsequent to balance sheet date, Dr. Tamarkin has reached an agreement with the Company pursuant to which he willdiscontinue his services as Chief Scientific Advisor to the Company, in addition to his resignation from the board of directors.F - 32 2017 2016 FirstQuarter SecondQuarter ThirdQuarter FourthQuarter FirstQuarter SecondQuarter ThirdQuarter FourthQuarter (in thousands of U.S. dollars, other than loss per share) Revenues $927 $798 $901 $1,043 $745 $752 $2,544 $1,486 Cost of revenues - - 11 2 31 12 8 8 Gross profit 927 798 890 1,041 714 740 2,536 1,478 Operating loss 14,570 16,593 17,828 16,623 4,562 8,122 5,946 11,020 Loss per share basic anddiluted $0.39 $0.44 $0.47 $0.46 $0.15 $0.27 $0.19 $0.29 Supplemental Financial Information Unaudited selected quarterly financial results for the years ended December 31, 2017 and 2016 were as follows: F- 33 ITEM 9 — CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A — CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures As required by SEC Rule 13a-15(b), our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated theeffectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(b) and 15d-15(e) under the Exchange Act and regulationspromulgated thereunder) as of December 31, 2017, or the Evaluation Date. Based on such evaluation, those officers have concluded that, as of theEvaluation Date, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, informationrequired to be included in periodic filings under the Exchange Act and that such information is accumulated and communicated to management, includingour principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure. Changes in Internal Control Over Financial Reporting There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2017 that have materiallyaffected, or are reasonably likely to materially affect, our internal control over financial reporting. Management’s Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financialreporting is defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, the company’s executiveand financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statements for external purposes and includes those policies and procedures that (a) pertainto the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (b) providereasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management anddirectors of the company; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition ofthe company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate. Our management assessed the effectiveness of our internal control over financial reporting, as of December 31, 2017. In making this assessment, ourmanagement used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-IntegratedFramework (2013). Based on our assessment, management believes that as of December 31, 2017, our internal control over financial reporting is effectivebased on these criteria. As an emerging growth company, our auditors were not required to attest to, or report on, our management’s assessment of the effectiveness of our internalcontrol over financial reporting, and therefore such attestation is not included in this an annual report on Form 10-K, in accordance with section 103 of theJOBS Act which amended section 404(b) of the Sarbanes-Oxley Act with regard to emerging growth companies. ITEM 9B — OTHER INFORMATION None. 61 PART III ITEM 10 — DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The following table sets forth information relating to our executive officers and directors as of December 31, 2017. Unless otherwise stated, the address forour directors and executive officers is c/o Foamix Pharmaceuticals Ltd., 2 Holzman St., Weizmann Science Park, Rehovot 7670402, Israel. Name Age PositionExecutive Officers David Domzalski 51 Chief Executive OfficerIlan Hadar, M.B.A. 48 Chief Financial Officer, Country Manager (Israel)Iain A. Stuart, Ph.D. 44 Senior Vice President, Research and DevelopmentYohan Hazot 34 Vice President, Pharmaceutical DevelopmentDavid Schuz 63 Vice President, Intellectual PropertyMitchell Shirvan, Ph.D., M.B.A. 64 Vice President, Innovation & DiscoveryAlvin Howard 63 Vice President, Regulatory AffairsRussell Elliott, D.Phil. 51 Vice President Drug DevelopmentBonnie Pappacena 57 Vice President, QualityNon-Executive Directors Stanley Hirsch, D.Phil. 60 Director, Chairman of the Board of DirectorsRex Bright 77 Director, Chairman of the Compensation CommitteeDarrell Rigel, M.D. 67 DirectorStanley Stern 60 Director, Chairman of the Audit CommitteeAnna Kazanchyan, Ph.D. 49 DirectorAharon Schwartz, Ph.D. 75 DirectorDalia Megiddo, Ph.D., M.B.A. 66 DirectorDov Tamarkin, Ph.D 62 DirectorOur Executive Officers David Domzalski has served as our Chief Executive Officer since July 2017. Mr. Domzalski has been with Foamix since April 2014, and previously servedas the President of Foamix Pharmaceuticals Inc. (U.S. subsidiary). On January 1, 2018, Mr. Domzalski was also appointed as a director to our board, replacingDr. Dov Tamarkin. He has 25 years of industry experience, previously holding positions as Vice President Sales and Marketing at LEO Pharma Inc. from2009 to 2013, Senior Vice President and General Manager at Azur Pharma from 2008 to 2009, and Vice President Sales and Marketing at Warner Chilcottfrom 2003 to 2008. Mr. Domzalski holds a B.A. in economics and political science from Muhlenberg College, Allentown, Pennsylvania. Ilan Hadar has served as our Chief Financial Officer since February 2014 and as the Israel Country Manager since July 2017. Mr. Hadar has over 20 yearsof experience in executive financial positions, previously holding positions as Finance Director of the Israeli subsidiary of Pfizer from 2011 to 2013, asFinance Manager, Accounting and Reporting at the Israeli subsidiary of HP from 2007 to 2011, and prior to that as Finance Director of the Israeli subsidiaryof BAE Systems. Mr. Hadar holds a B.A. in business administration and economics and an MBA from The Hebrew University of Jerusalem. Iain Stuart, Ph.D. has served as our Senior Vice President of Research & Development since August 2017, and previously served as our Vice President ofClinical Development since October 2016. Dr. Stuart has over 18 years of clinical development scientific affairs experience in multiple therapeutic classeswith the last 8 years being focused exclusively in dermatology. Prior to joining Foamix, Dr. Stuart served as Vice President of Medical Strategy and ScientificAffairs at LEO Pharma. Prior to this, Dr. Stuart served as Director, Clinical Operations – The Americas, also at LEO Pharma. Dr. Stuart holds a Ph.D. fromGlasgow Caledonian University in Scotland. Yohan Hazot has served as our Vice President of Pharmaceutical Development since August 2017. Mr. Hazot has been with Foamix since April 2007, andpreviously served as the Chief Technology Officer from 2014. Prior to this role, he has held various positions of increasing responsibility in productdevelopment and intellectual property, including Director of Pharmaceutical Development. Mr. Hazot holds an MSc in Biochemistry & Biotechnology fromthe National Institute of Applied Sciences, Lyon, France and is the inventor of several patents in the field of pharmaceutical chemistry. David Schuz David Schuz has served as our Vice President of Intellectual Property since August 2017. Mr. Schuz has led the Intellectual Property functionat Foamix since July 2006. Mr. Schuz has over 20 years of industry experience in the field of pharmaceuticals and biotechnology intellectual property,previously holding positions at Biotechnology General Israel Ltd. and Savient Pharmaceuticals, Inc. between 1996 and 2006, including Vice President from2003. Mr. Schuz holds an LL.M. from the London School Economics; a Certificate in Patent Law, Queen Mary London University; an M. Phil.(Biochemistry), and a Diploma of Pharmacology, both from Cambridge University; and a B.Sc. Hons. (Chemistry) from Manchester University. 62 Mitchell Shirvan, Ph.D. has served as our Vice President of Innovation and Discovery since August 2017. Dr. Shirvan has been with Foamix since March2014, where he has held various leadership positions in innovation and research & development. He has over 20 years of industry experience, previouslyholding positions as Chief Executive Officer at Macrocure Ltd. from 2008 to 2012. From 1992 until 2008, Dr. Shirvan held various positions of increasingresponsibility at Teva Pharmaceutical Industries, including Senior Director, Strategic Business Planning and Senior Manager, Research & Development. Dr.Shirvan holds a Ph.D. in microbiology from The Hebrew University of Jerusalem, and an MBA from the University of Bradford. Alvin Howard has served as our Vice President of Regulatory Affairs since April 2014. Mr. Howard has over 30 years of industry experience, previouslyholding positions as Senior Vice President of Regulatory Affairs in Warner Chilcott from 2005 to 2013, Vice President of Regulatory Affairs at RobertsPharmaceuticals from 1998 to 2000 and various positions at Solvay Pharmaceuticals from 1990 to 1998. Mr. Howard holds a B.Sc. in chemistry from StillmanCollege, Tuscaloosa, Alabama. Russell Elliott, D.Phil. has served as our Vice President of Drug Development since May 2016. Dr. Elliott has over 25 years of experience in thepharmaceutical industry, previously holding the position of Vice President Product Development at Stiefel. Prior to this, Dr. Elliott served as Vice Presidentand Head of Center of Excellence for topical formulations at GSK. Dr. Elliott holds a D. Phil from the Oxford University in the U.K. Bonnie Pappacena has served as our Vice President of Quality since September 2017. Ms. Pappacena has over 30 years of quality and complianceexpertise spanning across good clinical practices (GCP), good laboratory practices (GLP) and good manufacturing practices (GMP) for clinical supplies andcommercial product and good pharmacovigilance practices (GVP) regulations. Ms. Pappacena has worked primarily in the pharmaceutical industry and herexperience includes drug product as well as combination product development. Prior to this, Ms. Pappacena served as Vice President, Quality at G&WLaboratories, Vice President, Quality at Turing Pharmaceuticals and at Acorda Therapeutics. Mrs. Pappacena also held positions of increasing qualityresponsibility at Schering Plough Research Institute and Lederle (Wyeth). Ms. Pappacena has a B.S./B.A in Psychology/Philosophy from the University ofScranton and an M.S. in Experimental Psychology from Villanova University. Our Directors Stanley Hirsch, D.Phil. has served as our director since February 2005 and as chairman of the board since May 2016. Dr. Hirsch has 30 years of experiencein executive positions, including director of business development for a privately held group of healthcare companies. He has also served as general managerof two diagnostics development companies. Dr. Hirsch has been CEO at FuturaGene Ltd., and its predecessor company CBD Technologies Ltd., since 1989,and has also held the position of General Manager of Portman Pharmaceutical Industries. Since the acquisition of FuturaGene Plc by Suzano Pulp and Paper,a major Brazilian industrial public corporation in July 2010, he also holds the equivalent position of a vice president at Suzano, reporting to the CEO atSuzano. Dr. Hirsch currently serves as a director of OWC Pharmaceutical Research Crop (OTC: OWCP) since July 2017. Dr. Hirsch holds a D. Phil in CellBiology and Immunology from Oxford University, England. Rex Bright has served as our director since our initial public offering that was completed in September 2014. Mr. Bright has held CEO positions in thehealth care industry for the past 21 years. Mr. Bright was the co-founder and CEO of SkinMedica, a specialty pharmaceutical business that was later acquiredby Allergan. Mr. Bright has worked in executive positions for Johnson & Johnson and GlaxoSmithKline. Mr. Bright has served as a director of RestorGenexCorporation until 2016 when the company was acquired. Mr. Bright holds a B.A. in Business Administration and Marketing from Drury University,Springfield, Missouri. Aharon Schwartz, Ph.D. has served as our director since November 2014. Dr. Schwartz retired from Teva Pharmaceutical Industries Ltd. in 2011, where heserved in a number of positions from 1975, the most recent being Vice President, Head of Teva Innovative Ventures from 2008. Dr. Schwartz is currentlychairman of the board of directors of BiolineRx Ltd. (Nasdaq: BLRX) and a director of Barcode Ltd., a private company. From January 2013 throughNovember 2017 he served as a director of Alcobra Ltd. (Nasdaq: ADHD). Dr. Schwartz received his Ph.D. in organic chemistry in 1978 from the WeizmannInstitute of Science, his M.Sc. in organic chemistry from the Technion and his B.Sc. in chemistry and physics from the Hebrew University of Jerusalem. Dr.Schwartz received a second Ph.D. in 2014 from the Hebrew University of Jerusalem in history and philosophy of science. Anna Kazanchyan, M.D. has served as our director since December 2014. Dr. Kazanchyan founded Saghmos Therapeutics in September 2016 and servesas its CEO and Chairwoman. She is also the founder and Managing Partner since 2004 of Primary i-Research, LLC. In addition, Dr. Kazanchyan has been anadvisor to CEOs of biopharmaceutical companies (start-ups to global companies). Previously, Dr. Kazanchyan was Senior Biotechnology Analyst atWachovia Securities, and was a member of the biotechnology equity research teams at Goldman Sachs and Citigroup. She received an M.D. from HarvardMedical School and a B.A. in biology, summa cum laude, from Clark University. 63 Darrell Rigel, M.D. has served as our director since our initial public offering that was completed in September 2014. Dr. Rigel is a Clinical Professor ofDermatology at the New York University Medical School, an Adjunct Clinical Professor of Dermatology at the Mount Sinai School of Medicine, as well asbeing an Attending at the Tisch and Bellevue Hospitals in New York. Dr. Rigel also served as a director of Sensus Healthcare, Inc. (Nasdaq: SRTS) until April2017. Dr. Rigel holds an SB in Management Information Sciences and an SM in Management Information Science from the Massachusetts Institute ofTechnology and an M.D. from the George Washington University School of Medicine. Stanley Stern has served as our director since our initial public offering that was completed in September 2014. Mr. Stern has 32 years of experience as aninvestment banker, working primarily for Oppenheimer & Co, in a number of positions including head of investment banking. He also worked for STIVentures, Salomon Brothers and C.E. Unterberg. In 2013, Mr. Stern founded Alnitak Capital Partners. He currently serves as a director of Audiocodes(Nasdaq: AUDC) since December 2012, Sodastream (Nasdaq: SODA) since November 2015, Ormat Technologies, Inc. (NYSE: ORA) since February 2016 andEkso Bionics Holdings, Inc. (OTCQB: Ekso). Mr. Stern holds a B.A. in Economics and Accounting from City University of New York, Queens College, andan M.B.A. from Harvard University. Dalia Megiddo, M.D. has served as our director since May 2016. Dr. Megiddo co-founded a number of pharma companies, including Alcobra Ltd.(Nasdaq: ADHD), Bioblast-Pharma Ltd. (Nasdaq: ORPN) and Chiasma Ltd. (Nasdaq: CHMA). She currently serves as Managing Partner of Expedio Ventures,and previously ran other life science investment funds, including Jerusalem Global Ventures and 7-Health. Dr. Megiddo serves as a director of Bioblast-Pharma Ltd. and formerly served as a director of Alcobra Ltd. from 2013 to 2014. Dr. Megiddo holds an M.D. in Medicine from Hebrew University, Jerusalem,and is a licensed specialist in family medicine. She also holds an M.B.A. degree from the Kellogg Recanati International School of Business (Tel AvivUniversity and North Western University). Dov Tamarkin, Ph.D. served as our director from January 2003 until his resignation on January 1, 2018. Dr Tamarkin is one of the founders of theCompany and had served as our Chief Executive Officer until June 2017. Prior to that, Dr. Tamarkin served as Vice President of R&D at PortmanPharmaceuticals, Inc., a biotech research and development company and as Senior R&D Manager at Teva Pharmaceutical Industries Ltd., a public Israelipharmaceutical company. Dr. Tamarkin holds a Ph.D. in chemistry from The Hebrew University of Jerusalem. Observers to the Board of Directors Chaim Chizic, who served as our director until May 7, 2015, served as a non-voting observer from that time until his resignation from such position onJanuary 24, 2018. Meir Eini, who served as a director of the company until May 16, 2016, served as a non-voting observer to our board of director from thattime until his resignation on January 28, 2018. In such capacity, Messrs. Chizic and Eini were entitled to attend meetings of the board and to receive allnotices and other correspondence and communications sent by us to members of our board of directors. In addition, and until their resignation, they eachreceived compensation equal to the compensation we paid our directors. Identification of Certain Significant Employees None. Family Relationships There are no family relationships among our executive officers and directors. Code of Ethics We have adopted a Code of Business Conduct and Ethics applicable to all of our directors and employees, including our Chief Executive Officer, ChiefFinancial Officer, controller or principal accounting officer, or other persons performing similar functions, which is a “code of ethics” as defined in Item 406of Regulation S-K. The full text of the Code of Business Conduct and Ethics will be on our website at www.foamix.com. Information contained on, or thatcan 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 theCode 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 natureof such amendment or waiver on our website to the extent required by the rules and regulations of the SEC. Under Item 10 of Form 10-K, if a waiver oramendment of the Code of Business Conduct and Ethics applies to our principal executive officer, principal financial officer, principal accounting officer,controller, or persons performing similar functions and that relates to any element of the code of ethics definition enumerated in Item 406 of Regulation S-K,we are required to disclose such waiver or amendment on our website. 64 Corporate Governance Nominating directors Since we ceased to be a foreign private issuer as of January 1, 2018 and in accordance with NASDAQ Stock Market rules, we were required to eitherappoint a nominating and corporate governance committee for the nomination of our directors or have director nominees recommended for appointment by amajority of the board’s independent directors in a vote in which only independent directors participate. Our board has opted for the first alternative and hasestablished a nominating and governance committee of the board. Our nominating and corporate governance committee consists of Stanley Hirsch, who also serves as chairman of the committee, along with Stanley Sternand Rex Bright. Each of the members of our nominating and corporate governance committee is independent under the NASDAQ Stock Market rules. Thecommittee is responsible for identifying and making recommendations to the board of directors regarding candidates for directorships. In addition, thecommittee is responsible for developing our corporate governance policies, as appropriate, overseeing our corporate governance guidelines and reportingand making recommendations to the board concerning governance matters. The committee shall exercise such other powers and authority as are set forth inits charter, which is available at www.foamix.com website, as well as such other powers and authority as shall from time to time be assigned thereto byresolution of the board, to the extent permitted by law. When considering candidates, the nominating and corporate governance committee will generally consider all of the relevant qualifications of thecandidates, including such factors as the candidate’s relevant expertise upon which to be able to offer advice and guidance to management, having sufficienttime to devote to the affairs of the company, demonstrated excellence in his or her field, having relevant financial or accounting expertise, having the abilityto exercise sound business judgment, having the commitment to rigorously represent the long-term interests of our shareholders and whether the boardcandidates will be independent for purposes of the NASDAQ listing standards, as well as the current needs of the board and the company. In addition, while the nominating and corporate governance committee does not have a formal policy on director diversity, our independent directors willtake into account a broad range of diversity considerations when assessing director candidates, including individual backgrounds and skill sets, professionalexperiences and other factors that contribute to the board having an appropriate range of expertise, talents, experiences and viewpoints. Our nominating and corporate governance committee will consider diversity criteria in view of the needs of the board as a whole when making decisionson director nominations. In the case of incumbent directors who have stepped down or whose terms of office are set to expire, the committee will also review,prior to nominating such directors for another term, such directors’ overall service to the company during their term. The committee will conduct anyappropriate and necessary inquiries into the backgrounds and qualifications of possible candidates after considering the function and needs of the board ofdirectors. We may, from time to time, engage an executive search firm to assist our nominating and corporate governance committee in identifying andrecruiting potential candidates for membership on the board of directors. External directors Under the Israeli Companies Law, Israeli public companies are generally required to appoint at least two external directors, who need to meet certaincriteria and be appointed according to a specific procedure. However, under the Israeli Companies Regulations (Concessions for Companies Whose Sharesare Listed for Trading on a Stock Exchange Abroad), 5760-2000, or the Concession Regulations, as amended on April 17, 2016, Israeli public companieswhose shares are traded exclusively on a non-Israeli stock exchange, such as ourselves, may opt out from such requirement. Accordingly, in August 2016,our board of directors resolved to opt out from the requirement to appoint external directors. In the same resolution, our board also opted out from certainrestrictions on the engagement of former external directors and their relatives and affiliates following the end of their tenure. Consequently, and inaccordance with the Concession Regulations, our directors who were previously classified as external directors prior to the date on which our board decidedto opt out of the requirement to maintain such function may continue to hold their office until the earlier of the expiry of their original three-year term or thesecond annual shareholder meeting held after such decision was taken, and following such expiry will not be subject to any of the reappointment limitationsimposed on external directors by the Israeli Companies Law. Under the Concession Regulations, these concessions will continue to be available to the company so long as (i) its shares are traded on a U.S. stockexchange, including the NASDAQ Global Market; (ii) it does not have a “controlling shareholder” (as such term is defined under the Companies Law), and(iii) it complies with the majority board independence requirements and audit committee and compensation committee requirements under U.S. lawsapplicable to U.S. domestic issuers. Audit committee 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 andreviewing their reports regarding our accounting practices. Our audit committee also oversees the audit efforts of our independent accountants and takesthose actions that it deems necessary to satisfy itself that the accountants are independent of management. 65 Our board of directors has adopted an audit committee charter that sets forth the responsibilities of the audit committee consistent with the rules andregulations of the SEC and the NASDAQ Stock Market rules, as well as the requirements for such committee under the Israeli Companies Law, including (a)oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of ourindependent registered public accounting firm to the board of directors in accordance with Israeli law; (b) recommending the engagement or termination ourinternal auditor; and (c) recommending the terms of audit and non-audit services provided by the independent registered public accounting firm for pre-approval by our board of directors. Under the Israeli Companies Law, our audit committee is responsible for (a) determining whether there are deficiencies in the business managementpractices of our company, including in consultation with our internal auditor or the independent auditor, and making recommendations to the board ofdirectors to improve such practices; (b) determining whether to approve certain related party transactions, including transactions in which an office holderhas a personal interest and whether such transaction is extraordinary or material under the Israeli Companies Law – see our Registration Statement on Form F-1 as filed under the Securities Act with the SEC on September 3, 2014, under “Management—Approval of Related Party Transactions under Israeli Law—Fiduciary Duties of Directors and Executive Officers”); (c) establishing the approval process for certain transactions with a controlling shareholder or inwhich the controlling shareholder has a personal interest; (d) where the board of directors approves the working plan of the internal auditor, examining suchworking plan before its submission to the board of directors and proposing amendments thereto; (e) examining our internal audit controls and internalauditor’s performance, including whether the internal auditor has sufficient resources and tools to fulfill his responsibilities; (f) examining the scope of ourauditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders, depending on which ofthem is considering the appointment of our auditor; and (g) establishing procedures for the handling of employees’ complaints as to the management of ourbusiness and the protection to be provided to such employees. Composition and quorum Following the decision of our board of directors to opt out of the various restrictions concerning the composition and quorum of the audit committeeunder the Israeli Companies Law, the composition and quorum of our audit committee and the nomination of members to such committee are now governedby the regulations of the U.S. Securities Exchange Commission, or SEC, and the NASDAQ Stock Market rules, as set out below. Under the NASDAQ Stock Market rules and SEC regulations, we are required to maintain an audit committee consisting of at least three independentdirectors, each of whom is financially literate and one of whom has accounting or related financial management expertise. In order for a director to be designated as “independent” under the NASDAQ Stock Market rules and SEC regulations, he or she must not have a materialrelationship with the company that would impair his or her independence, such as a commercial, consulting, legal, accounting or familial relationships,among others. However, ownership of a significant amount of shares or affiliation with a major shareholder should not, in and of itself, preclude the boardfrom determining that a director is independent, nor is the board precluded from appointing its chairman as a member of the audit committee or as chairmanof the committee. In order for a director to be designated as “financially literate” under the NASDAQ Stock Market rules and SEC regulations, he or she are required to havesufficient understanding of the language of accounting and corporate finance to act as effective overseers of the integrity of a company’s financial reportingprocess 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 chieffinancial officer, chief accounting officer, controller, public accountant or auditor, or experience in one or more positions that involve the performance ofsimilar functions or in actively supervising such positions. If no audit committee member qualifies, the company must state why its audit committee lacks afinancial expert. Our audit committee consists of Stanley Stern (chairman), Rex Bright and Darrell Rigel. Each of the members of our audit committee is eligible to beclassed as an independent director in accordance with SEC regulations and satisfies the independent director requirements under the NASDAQ Stock Marketrules. All designated members of our audit committee meet the requirements for financial literacy under the applicable rules of the NASDAQ Stock Marketand SEC regulations. However, we do not currently have an audit committee financial expert as such term is defined by the SEC. Nevertheless, our board ofdirectors has determined in its business judgment that our existing committee members have the ability to oversee our financial statements based on theirextensive business backgrounds and that Stanley Stern has “financial sophistication” under the NASDAQ Stock Market rules. 66 Compensation committee Roles, responsibilities and procedures Our board of directors has established a compensation committee and adopted a charter setting forth its roles and responsibilities, which include (a)recommending a compensation policy regarding the terms of engagement of office holders, to which we refer as a compensation policy, to the board ofdirectors for its approval and the subsequent approval by the shareholders, in accordance with the Israeli Companies Law, (b) recommending to the board ofdirectors periodic updates to the compensation policy and whether the compensation policy should continue in effect every three years; (c) assessing theimplementation of the compensation policy; (d) reviewing and approving the granting of options and other incentive awards to the extent such authority isdelegated by the board of directors; (e) reviewing, evaluating and making recommendations regarding the compensation and benefits for non-executivedirectors, and (f) determining whether the compensation terms of the chief executive officer of the company need not be brought to approval of theshareholders. Under the Israeli Companies Law, the compensation policy must be adopted by the board of directors after considering the recommendations of thecompensation committee and needs to be further brought before the company’s shareholders for approval, referred to herein as the Special Majority Approvalfor Compensation. A Special Majority Approval for Compensation requires shareholder approval by a majority vote of the shares present and voting at ameeting of shareholders called for such purpose, provided that either: (a) such majority includes at least a majority of the shares held by all shareholders whoare not controlling shareholders and do not have a personal interest in such compensation arrangement; or (b) the total number of shares of non-controllingshareholders and shareholders who do not have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed2% of the company’s aggregate voting rights. The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, includingexculpation, insurance, indemnification and any monetary payment and obligation of payment in respect of employment or engagement. The compensationpolicy must relate to certain factors, including advancement of the company’s objectives, the company’s business plan and its long-term strategy, andcreation of appropriate incentives for office holders. It must also consider, among other things, the company’s risk management, size and the nature of itsoperations. The compensation policy must furthermore consider additional factors, as follows: (a) the knowledge, skills, expertise and accomplishments of therelevant office holder; (b) the office holder’s roles and responsibilities and prior compensation agreements with him or her; (c) the relationship between theterms offered and the average compensation of the other employees of the company, including those employed through manpower companies; (d) the impactof disparities in salary upon work relationships in the company; (e) the possibility of reducing variable compensation at the discretion of the board ofdirectors; (f) 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 ofservice, the person’s contribution towards the company’s achievement of its goals and the maximization of its profits, and the circumstances under which theperson is leaving the company. The compensation policy must also include the following principles: (a) the link between variable compensation and long-term performance andmeasurable criteria; (b) the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation; (c) the conditionsunder 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 compensationwas 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 compensation. Under the Israeli Companies Law, every three years we are required to re-obtain the approval of our compensation committee, board of directors andshareholders for either the continuation of our existing compensation policy or adoption of a new compensation policy. Our compensation policy was lastapproved by our shareholders on June 22, 2015, after having been recommended by our compensation committee and approved by our board of directors,and will therefore need to be either re-approved or replaced by a new policy this year. Our compensation committee may conduct or authorize investigations into, or studies of, matters within its scope of responsibilities, and may retain orobtain the advice of a compensation consultant, legal counsel or other advisor in its sole discretion. The compensation committee is directly responsible forthe appointment, compensation and oversight of the work of any compensation consultant, legal counsel or other advisor that it retains, at the expense of theCompany. The compensation committee may select, or receive advice from, a compensation consultant, legal counsel or other advisor to the compensationcommittee, other than in-house legal counsel, only after conducting an assessment of, and determining, the advisor’s independence, including whether theadvisor’s work has raised any questions of independence or conflicts of interest, taking into consideration the Exchange Act, the factors set forth in the rulesof the NASDAQ and any other factors that the committee deems relevant. In determining the compensation of the company’s chief executive officer and otherexecutive officers, as well as its directors and chairman of the board for 2017, including bonus amounts and performance criteria, the compensationcommittee retained the services of a U.S.-based, compensation consultant, Frederic W. Cook & Co., Inc., to conduct a comparative survey of thecompensation of such office holders. The survey examined the publicly-reported cash and equity compensation of chief executive officers and otherexecutive officers, board members and chairmen of the board of 21 comparable U.S. and Israeli pharmaceutical and biotechnology companies. Based on thissurvey, the compensation committee set the cash compensation and cash bonuses of our chief executive officer and each of our other executive officers, andthe cash compensation of our directors and chairman of the board, within the range of compensation of similarly-situated officer holders, with the specificcompensation for each office holder varying across such range in accordance with the committee’s evaluation of his or her individual performance. FredericW. Cook & Co., Inc. did not perform any services for the Company other than services for the compensation committee. After review and consultation withFrederic W. Cook & Co., Inc., the compensation committee determined that there was no conflict of interest resulting from retaining the consultant in fiscalyear 2017. 67 Composition and quorum Following the Concession Regulations and the decision of our board of directors to avail itself of the right to opt out of the requirements concerning theappointment of a compensation committee under the Israeli Companies Law, the company is only required to comply with the requirements regarding suchappointment under the NASDAQ Stock Market rules. Accordingly, the composition and quorum of our compensation committee and the nomination ofmembers to such committee are now governed by the regulations of the SEC and the NASDAQ Stock Market rules. Under NASDAQ Stock Market rules, we have established and continue to maintain a compensation committee, the members of which are currently RexBright (Chairman), Darrel Rigel, Stanley Stern and Anna Kazanchyan. Each member of our compensation committee is independent under the NASDAQStock Market rules. ITEM 11 — EXECUTIVE COMPENSATION As an emerging growth company, or EGC, and as permitted by Title I of the Jumpstart Our Business Startups Act of 2012, or JOBS Act, we have scaleddown our disclosure on executive compensation to omit compensation discussion and analysis and certain tables and items that would otherwise be requiredin an annual report on Form 10-K of a non-EGC issuer. Such omitted tables and items include, but are not limited to, the table displaying grants of plan-based awards, the table displaying option exercises and vesting, disclosure on CEO pay ratio and disclosure of compensation policies as related to riskmanagement. Furthermore, our disclosure on compensation focuses only on an individual serving as our principal executive officer or acting in a similarcapacity during the last completed fiscal year and the next two most-highly compensated executive officers (and up to two additional individuals no longerserving as executive officers at year-end) (our “named executive officers”). In addition, for as long as we remain an EGC, we are not subject to certaingovernance requirements relating to executive compensation such as holding a “say-on-pay” and “say-on-golden-parachute” advisory votes. Our named executive officers for 2017 consisted of Messrs. David Domzalski, CEO, Ilan Hadar, CFO, Yohan Hazot, Vice President, PharmaceuticalDevelopment, Dov Tamarkin, our former CEO, and Meir Eini, former Chief Information Officer. Summary Compensation Table The following table sets forth all of the compensation awarded to, earned by or paid to our named executive officers during 2016 and 2017: Name and PrincipalPosition Year Salary ($) Bonus ($) Option Awards($)(3) Non-equityIncentive PlanCompensation($) All OtherCompen-sation($) Total ($)(4) David Domzalski, CEO 2017 416,980 - 2,204,155 165,000 10,800(5) 2,796,935 2016 370,125 66,420 211,579 166,888 - 815,012 Ilan Hadar, CFO 2017 342,253 - 1,212,809 119,978 121,815(6) 1,796,854 2016 239,546 71,064 207,709 103,365 81,458(6) 703,143 Yohan Hazot, VicePresident, PharmaceuticalDevelopment(5) 2017 217,797 - 496,304 57,687 72,453(7) 844,241 2016 164,558 - 192,959 82,185 16,854(7) 456,556 Dov Tamarkin, formerCEO(1) 2017 210,600 - - 86,625 1,092,084(8) 1,389,309 2016 385,000 184,515 321,599 209,597 206,873(8) 1,307,584 Meir Eini, former ChiefInnovation Officer(2) 2017 181,500 - 335,874 61,875 918,008(9) 1,497,257 2016 300,000 51,823 339,918 142,801 158,133(9) 992,676 ___________________________________ (1)Dr. Dov Tamarkin ceased being our CEO on July 1, 2017 and ceased being our employee, at which point he became our chief scientific advisor andcontinued to serve as our director, until his resignation on January 1, 2018. (2)Mr. Meir Eini ceased being our chief innovation officer on June 29, 2017, following which date he continued to serve as an advisor to the company andan observer to the board until January 28, 2018. 68 (3)The value in this column represents the aggregate grant date fair value of our stock option awards computed in accordance with FASB ASC Topic 718.For a discussion of valuation assumptions used in the calculation of these amounts, see Note 9 to our audited financial statements, included in Item 8—Financial Statements and Supplemental Financial Information.” (4)Salary and other compensation of Israeli executive officers for the years 2017 and 2016 are based on average US$/NIS representative exchange rates ofNIS 3.60 and NIS 3.84 per dollar for 2017 and 2016, respectively. Bonuses for the years 2017 and 2016 are based on US$/NIS representative exchangerates of NIS 3.47 and NIS 3.85 per dollar as of December 31, 2017 and 2016, respectively. (5)Solely includes employer contribution to Mr. Domzalski’s 401K plan. (6)In 2017, the bulk of Mr. Hadar’s other compensation consisted of $23,979 of automobile expenses, $50,976 deposits to severance funds, $10,153 ofgross-up of related tax, $10,027 of social security payments and deposits of $25,669 to an education fund. In 2016, the bulk of such compensationconsisted of $16,476 of automobile expenses, $35,342 of deposits to severance funds, $9,414 of social security payments, and deposits of $17,698 to aneducation fund. (7)In 2017, the bulk of Mr. Hazot’s other compensation consisted of $12,668 of automobile expenses, $32,299 of deposits to severance funds, $10,027 ofsocial security payments and deposits of $16,335 to an education fund. In 2016, the bulk of such compensation consisted of $11,873 of automobileexpenses, $24,181 of deposits to severance funds, $9,463 of social security payments, and deposits of $12,238 to an education fund. (8)In 2017, the bulk of Dr. Tamarkin’s other compensation consisted of $973,177 of retirement compensation, $17,835 of automobile expenses, $33,862 ofdeposits to severance funds, $17,835 of gross-up of related tax and deposits of $16,043 to an education fund. In 2016, the bulk of such compensationconsisted of $33,432 of automobile expenses, $63,475 of deposits to severance funds, $9,398 of social security payments, $33,432 of gross-up of relatedtax, and deposits of $30,073 to an education fund. (9)In 2017, the bulk of Mr. Eini’s other compensation consisted of $820,315 of retirement compensation, $12,668 of automobile expenses, $29,024 ofdeposits to severance funds, $12,668 of gross-up of related tax and deposits of $13,751 to an education fund. In 2016, the bulk of such compensationconsisted of $23,746 of automobile expenses, $54,407 of deposits to severance funds, $9,398 of social security payments, $23,746 of gross-up of relatedtax, and deposits of $25,777 to an education fund. Outstanding Equity Awards at Fiscal Year-End Table The table below sets forth information regarding outstanding equity awards held by each of our named executive officers as of December 31, 2017: Option Awards Stock Awards Name Grant Date Number ofShares Under-lying Unexer-cised Op-tions(#) Exercisa-ble Number ofSharesUnderlyingUnexer-cisedOptions (#) Un-exercisable OptionExercise Price($) Option ExpirationDate Number ofShares or Unitsof Shares ThatHave NotVested (#) Market Valueof Shares orUnits of SharesThat Have NotVested ($) David Domzalski 06/09/14(1) 14,063 4,688 7.98 06/09/24 - - 05/26/15(2) - - - - 12,500 75,125 11/10/15(3) 118,405 118,405 7.14 11/10/25 - - 03/01/16(4) 26,250 33,750 6.04 03/01/26 1,406 8,452 01/01/17(5) - 71,369 10.22 01/01/27 23,790 142,978 08/08/17(6) - 327,720 5.76 08/08/27 81,930 492,399 Ilan Hadar 03/31/14(7) 4,375 1,094 1.92 03/31/24 - - 11/19/14(8) 19,300 4,825 5.46 11/19/24 - - 01/15/15(9) 12,375 5,625 6.77 01/12/25 - - 06/28/15(10) - - - - 2,813 16,903 11/10/15(11) 101,002 101,002 7.13 11/10/25 - - 03/01/16(12) 26,250 33,750 6.34 03/01/26 1,406 8,452 01/01/17(13) - 60,389 10.31 01/01/27 20,130 120,981 08/08/17(14) - 196,205 5.22 08/08/27 49,051 294,797 Yohan Hazot 02/02/10(15) 6,125 - 1.92 02/01/20 - - 03/31/14(16) 5,938 313 1.92 03/31/24 - 01/15/15(17) 12,375 5,625 6.77 01/12/25 - - 06/28/15(18) - - - - 2,813 16,903 11/10/15(19) 21,397 21,397 7.13 11/10/25 - - 03/01/16(20) 26,250 33,750 6.34 03/01/26 - - 01/01/17(21) - 54,899 10.31 01/01/27 18,300 109,983 Dov Tamarkin 12/29/14(22) 24,000 - 5.88 12/29/24 - - 01/15/15(23) 33,750 11,250 6.77 12/28/24 - - 06/28/15(24) - - - - 5,625 33,806 03/01/16(25) 43,750 56,250 6.34 03/01/26 - - Meir Eini 12/29/14(26) 48,000 - 5.88 12/29/24 - - 01/15/15(27) 27,000 9,000 6.77 12/28/24 - - 06/28/15(28) - - - - 5,625 33,806 11/15/16(29) - - - - 20,000 120,200 08/09/16(30) 10,938 24,063 7.09 08/09/26 - - 01/01/17(31) - 60,389 10.31 01/01/27 20,130 120,981 ________________________(1)The options vest over a period of four years from June 9, 2014, 25% on each anniversary of such date, ending June 9, 2018; 69 (2)The RSUs vest on November 19, 2018; (3)The options vest over a period of four years from November 10, 2015, 25% on the first anniversary of such date and 6.25% every three monthsthereafter, ending November 10, 2019; (4)The options vest over a period of four years from March 1, 2016, 25% on the first anniversary of such date and 6.25% every three months thereafter,ending March 1, 2020. The RSUs vest in equal installments every three months over the vesting period beginning December 1, 2017 and endingMarch 1, 2020; (5)The options vest over a period of four years from January 1, 2017, 25% on the first anniversary of such date and 6.25% every three months thereafter,ending January 1, 2021; (6)The options and RSUs vest over a period of four years from August 8, 2017, 25% on the first anniversary of such date and 6.25% every three monthsthereafter, ending August 8, 2021; (7)The options vest over a period of four years from March 31, 2014, 20% on such date and 5% every three months thereafter, ending March 31, 2018; (8)The options vest over a period of four years from November 19, 2014, 20% on such date and 5% every three months thereafter, ending November 19,2018; (9)The options vest over a period of four years from January 15, 2015, 25% on the first anniversary of such date and 6.25% every three monthsthereafter, ending January 15, 2019; (10)The RSUs vest in equal installments every three months over the vesting period beginning October 15, 2017 and ending January 15, 2019; (11)The options vest over a period of four years from November 10, 2015, 25% on the first anniversary of such date and 6.25% every three monthsthereafter, ending November 10, 2019; (12)The options vest over a period of four years from March 1, 2016, 25% on the first anniversary of such date and 6.25% every three months thereafter,ending March 1, 2020. The RSUs vest in equal installments every three months over the vesting period beginning December 1, 2017 and endingMarch 1, 2020; (13)The options and RSUs vest over a period of four years from January 1, 2017, 25% on the first anniversary of such date and 6.25% every three monthsthereafter, ending January 1, 2021; (14)The options and RSUs vest over a period of four years from August 8, 2017, 25% on the first anniversary of such date and 6.25% every three monthsthereafter, ending August 8, 2021; (15)The options vested over a period of four years from February 2, 2010, 20% on such date and 5% every three months thereafter, ending February 2,2014; (16)The options vest over a period of four years from March 31, 2014, 20% on such date and 5% every three months thereafter, and ending March 31,2018; (17)The options vest over a period of four years from January 15, 2015, 25% on the first anniversary of such date and 6.25% every three monthsthereafter, ending January 15, 2019; (18)The RSUs vest in equal installments every three months over the vesting period beginning October 15, 2017 ending January 15, 2019; (19)The options vest over a period of four years from November 10, 2015, 25% on the first anniversary of such date and 6.25% every three monthsthereafter, ending November 10, 2019; (20)The options vest over a period of four years from March 1, 2016, 25% on the first anniversary of such date and 6.25% every three months thereafter,ending March 1, 2020; (21)The options and RSUs vest over a period of four years from January 1, 2017, 25% on the first anniversary of such date and 6.25% every threemonths thereafter, ending January 1, 2021; (22)The options vested over a period of three years from December 29, 2014, 33.3% on each anniversary of such date, ending December 29, 2017; (23)The options vest over a period of four years from December 29, 2014, 25% on the first anniversary of such date and 6.25% every three monthsthereafter, and ending December 29, 2018; (24)the RSUs vest in equal installments every three months over the vesting period beginning October 15, 2017 and ending January 15, 2019; (25)The options vest over a period of four years from March 1, 2016, 25% on the first anniversary of such date and 6.25% every three months thereafter,ending March 1, 2020; (26)The options vested over a period of three years from December 29, 2014, 33.3% on each anniversary of such date, ending December 29, 2017; (27)The options vest over a period of four years from December 29, 2014, 25% on the first anniversary of such date and 6.25% every three monthsthereafter, ending December 29, 2018; (28)The RSUs vest in equal installments every three months over the vesting period beginning January 15, 2018 and ending January 15, 2019; (29)The RSUs vest on November 15, 2018; (30)The options vest over a period of four years from August 9, 2016, 25% on the first anniversary of such date and 6.25% every three monthsthereafter, and ending August 9, 2020; (31)The options and RSUs vest over a period of four years from January 1, 2017, 25% on the first anniversary of such date and 6.25% every threemonths thereafter, ending January 1, 2021; 70 Employment Arrangements with Our Named Executive Officers David Domzalski. Under his employment agreement, effective as of July 1, 2017, Mr. Domzalski’s annual base salary is currently $440,000 and he iseligible to receive an annual bonus of up to 60% of his annual base salary. His eligibility for such annual bonus and the amount of such bonus will be subjectto the achievement of personal and company performance criteria, as determined by the company, and further subject to the terms of the company’scompensation policy, as approved by the company’s shareholders. For the year 2017, Mr. Domzalski’s eligibility to the bonus is subject to the followingcriteria: (a) 30% of the bonus is based on the company’s achievement of its annual goals, operating plan, long-range plan and financial and investor relationmeasures, (b) 50% of the bonus is based on performance measures directly related to Mr. Domzalski’s individual responsibilities, according to the followingbreakdown: (i) clinical trial results – 15%, (ii) meeting clinical trials timelines – 15%, (iii) commercial development – 10%; (iv) financial key performanceindicators – 10%, and (c) 20% of the bonus is based on an evaluation of Mr. Domzalski’s overall performance by the compensation committee and the boardof directors, based on quantitative and qualitative criteria such as establishing and implementing the company’s strategy, leadership, entrepreneurship andteam collaboration. Furthermore, Mr. Domzalski is eligible to receive an additional special annual bonus of up to 60% of his annual base salary in the eventof exceptional performance, as determined by our board of directors. The amount and payment of both the regular bonus and the special bonus shall be setby the board of directors in its sole and absolute discretion. Following his appointment as CEO, Mr. Domzalski was further granted 327,720 options and81,930 RSUs under the terms of the 2015 Plan and its 2015 US Addendum. Upon termination of his employment without cause, following a 60 days’advance notice (subject to the company’s right, at its election, to reduce such notice period and pay for the remainder of the period in lieu of notice), Mr.Domzalski will receive any earned but unpaid base salary, any incurred but unreimbursed business expenses and any accrued but unused vacation and sickdays as of the date of termination of his employment. Additionally, the company shall (1) continue to pay him his base salary for 12 months followingtermination (the “Mr. Domzalski’s severance period”); (2) continue to make employer contributions towards our healthcare plan on his behalf for the durationof the Mr. Domzalski’s severance period, and (3) cause unvested options and restricted share units (RSUs) held by Mr. Domzalski to become fully vested andexercisable, with the options remaining exercisable for 90 days following the date of termination. Upon termination of his employment without cause inconnection with certain change of control events (i.e., merger, acquisition, reorganization, or sale of substantially all assets of the company), Mr. Domzalski’sseverance period shall be extended to 18 months and, in lieu of his entitlement to the regular annual bonus, he shall receive a lump-sum amount equal to60% of his continued base salary, multiplied by 1.5, to be paid within 60 days following termination. Ilan Hadar. Under his employment agreement, effective as of July 1, 2017, Mr. Hadar’s annual base salary is currently $380,733, based on the US$/NISrepresentative exchange rate of the Bank of Israel as of December 31, 2017, and he is eligible to receive an annual bonus of up to 50% of his annual basesalary. His eligibility for such annual bonus and the amount of such annual bonus will be subject to his personal achievements and performance criteria, asdetermined by the company and subject to the terms of the company’s compensation policy, as approved by the company’s shareholders. Furthermore, Mr.Hadar is eligible to receive an additional special annual bonus of up to 50% of his annual base salary in the event of exceptional performance, subject to thesole discretion of our board of directors. The amount and payment of both the regular and special bonuses shall be determined by our board of directors at itssole and absolute discretion. Upon termination of his employment without cause and subject to the approval of the board of directors, Mr. Hadar willcontinue to receive his base salary and welfare benefits for a period of 6 months following the termination date (the “Mr. Hadar’s severance period”). Furthermore, the board of directors may (but is not obliged to) cause unvested options held by Mr. Hadar to become fully vested and exercisable, with suchoptions remaining exercisable for 90 days following the date of termination. Upon termination of his employment without cause in connection with certainchange of control events (i.e., merger, acquisition, reorganization, or sale of substantially all assets of the parent company), Mr. Hadar’s severance period willbe extended to 12 months and during such period he shall remain entitled to his regular annual bonus. Yohan Hazot. Under his employment agreement, effective as of January 1, 2017, Mr. Hazot’s annual base salary is currently $226,131, based on theUS$/NIS representative exchange rate of the Bank of Israel as of December 31, 2017, and he was eligible by the board in February 22, 2017 to a one-timeannual bonus equal to 40% of his annual base salary. Upon termination, any vested and unvested options held by Mr. Hazot shall be treated in accordancewith the company’s 2015 Plan, depending on the circumstances of the termination.71 Dov Tamarkin. Under his termination agreement, effective as of July 1, 2017, Dr. Tamarkin received the salary and benefit continuation (as he wasentitled under his employment agreement dated August 22, 2014) for a period of 6 months following his termination, which coincided with his contractualnotice period. Following his termination, the company also paid Dr. Tamarkin an amount equal to 12 months’ salary and permitted him to retain hiscompany cellphone, laptop and similar equipment for a period of 18 months following the date of his termination. The termination agreement furtherprovided that all equity-based compensation previously granted to Dr. Tamarkin under the 2015 Plan and the company’s 2009 Plan will continue to vest,without being conditioned on continued employment or service. Additionally, and subject to shareholder approval, Dr. Tamarkin will be granted 137,428options and 45,750 RSUs under the 2015 Plan, which shall vest over four years, 25% on the first anniversary of the grant date and the remainder in equalinstallments on a quarterly basis over the following three years, in consideration for his performance during the year 2016 and without being furtherconditioned on continued employment or service. Following his termination, Dr. Tamarkin became the company’s chief scientific advisor, which furtherentitled him, until his resignation from such role on January 1, 2018, to certain additional benefits such as secretarial services and reimbursement of histravel, insurance, registration and participation fees and other reasonable expenses with regard to his participation in up to six conferences per year, within acertain budget approved by the chairman of the board. Except for such benefits and expense reimbursements, Dr. Tamarkin was not entitled to any additionalcompensation for his role as chief scientific advisor. Meir Eini. Under his termination agreement, effective as of July 1, 2017, Mr. Eini continued to receive his salary and benefit (as he was entitled under hisemployment agreement dated August 22, 2014) for a period of 6 months following his termination, which coincided with his contractual notice period. Following his termination, Mr. Eini continued to serve as an observer on our board of directors until his resignation on January 28, 2018. During suchperiod, he was entitled to board participation and standard board-member compensation (please see below for the description and quantification of suchcompensation). Following the termination of his employment, the company paid Mr. Eini a lump-sum cash payment equal to 12 months’ of his base salaryand allowed Mr. Eini to retain his company cellphone, laptop and similar equipment for a period of 18 months following the termination date. Thetermination agreement further provided that for 18 months following the date of termination of his employment, Mr. Eini shall provide innovation advisoryservices to the company, and that during the period in which he provides such services, the equity-based compensation previously granted to him shallcontinue to vest, but he shall not be entitled to receive any additional compensation. General Policies regarding Cash Bonuses, Equity Awards and Other Benefits to Named Executive Officers As approved at our 2015 annual general meeting of shareholders, and as required by the Israeli Companies Law, we have adopted a compensation policyregarding the terms of office and employment of our “office holders” (as defined under the Israeli Companies Law, which includes directors, the CEO, otherexecutive officers and any other managers directly subordinate to the CEO), including cash compensation, equity-based awards, releases from liability,indemnification and insurance, severance and other benefits. Each of our named executive officers is (or was, while employed by us) an “office holder” withinthe meaning of the Israeli Companies Law. The compensation policy is reviewed from time to time by our compensation committee and board of directors toensure its appropriateness, and is required to be brought at least once every three years to our shareholders for reassessment and approval. According to the compensation policy, our short-to-medium term incentive scheme is based on a monetary bonus paid annually or at the end of suchlonger periods for which targets may be set as part of a multi-year plan, and is designed to reward officers based on the performance of the company and ontheir individually-defined results. During the last calendar quarter of each calendar year, the compensation committee and the board of directors determinefor each officer the maximum bonus amount and the objectives for receiving such bonus, as well as the formula for calculating the bonus payment uponachievement of such objectives (including minimum thresholds below which no part of the bonus will be payable), which are examined at the end of thefollowing calendar year or the relevant target period. The maximum bonus payable upon achievement or overachievement of the objectives is 65% of the base salary for the CEO, 50% of the base salary forthe chief innovation officer, 45% of the base salary for senior vice presidents, executive vice president, chief financial officer, chief technology officer otherchief officers, and 40% for other vice presidents. The objectives for receiving the bonus are intended to be measurable and quantified and may include (butare not limited to) financials objectives such as revenue, EBITDA, cash balance, net profit, market cap and share price; business development objectives suchas engaging with new partners or licensees, receiving product marketing approvals or approval of reimbursement schemes, and intellectual propertyobjectives such as submission or grant of new patents. The compensation policy allows for (a) a discretionary bonus of up to 20% of the officer’s regular performance bonus, based on the evaluation of suchofficer’s performance by the CEO, while the CEO’s performance shall be evaluated by the compensation committee and the board of directors; and (b) aspecial bonus in recognition of an officer’s (including the CEO’s) exceptional contribution to key transactions or events such as mergers, acquisitions, publicofferings, major research and development breakthroughs or regulatory approvals, as determined by the compensation committee and the board of directors.The maximum special bonus is 60% of the base salary for the CEO, 50% of the base salary for the chief innovation officer, 40% of the base salary for seniorvice presidents, executive vice president, chief financial officer, chief technology officer other chief officers, and 30% for other vice presidents. 72 Our compensation policy also includes an equity incentive component designed to retain officers, align officers and shareholders’ interests andincentivize achievement of medium-to-long term goals, under which the company may grant officers share options, restricted shares units or any other equity-based compensation (collectively referred to as “equity awards”). The equity awards are determined individually and awarded from time to time according toeach officer’s performance, skills, qualifications, experience, roles and personal responsibilities. However, the policy caps the annual value of the equityawards to be granted to each officer at 0.5% of the company’s issued and outstanding share capital on a fully-diluted basis, at the grant date, per each year ofthe vesting period, on a linear basis. The equity awards usually vest over a period of 3 to 4 years, in equal installments, beginning from the first yearanniversary of the grant, and expire after 10 years from the grant date. The exercise price of equity awards shall be determined in accordance with local taxlaws in the territory in which the employee is employed. In Israel, for example, it is the average closing price of our shares during the 30-day period precedingthe grant date, while in the U.S. it is the last known closing share price at the grant date. In special cases, to be set by the compensation committee and boardof directors (and where required by Israeli law – by our shareholders), such as major transactions or events, the Company may grant to its officers specialequity bonuses. Under the compensation policy, our executive officers are further entitled to certain fringe benefits that we believe are commonly provided to similarlysituated executives in the market in which we compete for talent and therefore are important to our ability to attract and retain top-level executivemanagement. For Israeli officers these benefits include disbursements to a pension fund, provident fund or managers’ insurance policy in accordance withapplicable law; maintenance of disability insurance on behalf of the officer, disbursement to an education fund of up to 7.5% of the officer’s monthly salary;convalescence pay according to applicable law; up to 30 days of annual vacation per annum; paid sick leave in accordance with law, as well as additionalbenefits such as, but not limited to, a company car and cell phone (including gross-up of related tax), complementary health insurance and meals. Non-Israeliofficers may receive similar, comparable or customary benefits as applicable in the jurisdiction in which they are employed. The amounts paid to our namedexecutive officers in 2016 and 2017 in respect of these benefits are reflected above in the “Summary Compensation Table” section under the “All OtherCompensation” heading. Pursuant to the Israeli Companies Law, our arrangements with our officers must generally be consistent with the compensation policy, as described above.However, under certain circumstances, we may approve an arrangement that is not consistent with the compensation policy, if the arrangement is approved bya majority of our shareholders, provided that (a) the majority includes a majority of the votes cast by shareholders who are present and voting (disregardingabstentions) who (i) are not controlling shareholders and (ii) do not have a personal interest in the matter, or (b) the votes cast against the arrangement byshareholders who are not controlling shareholders and who do not have a personal interest in the matter who were present and voted constitute 2% or less ofthe voting power of the Company (a “special majority”). In addition, pursuant to the Israeli Companies Law, the terms of employment of directors further require the approval of the shareholders by a simplemajority, and the terms of employment with respect to our CEO require the approval of the shareholders by the special majority referenced above. Pursuant toregulations promulgated under the Israeli Companies Law, shareholder approval is not required with respect to terms of employment granted to a director orthe CEO for the period following his or her appointment until the next annual general meeting of shareholders, provided these terms are (a) approved by thecompensation committee and the board of directors, (b) consistent with the compensation policy and (c) on similar or less favorable terms than those of theperson’s predecessor. In addition, under certain circumstances, shareholder approval is not required with respect to the terms of employment of a candidate forCEO if the compensation committee determines that the engagement will be frustrated if the approval is pursued, provided that the terms are consistent withthe compensation policy. Under certain circumstances, if the terms of employment of the CEO are not approved by the shareholders, where such approval is required, thecompensation committee and the board of directors may nonetheless approve such terms. In addition, non-material amendments of the terms of employmentof officers who are not directors may be approved by the compensation committee only, and non-material amendments of the terms of employment of officerswho are not directors may be approved by the CEO only, provided such amendments are consistent with the compensation policy. Director Compensation Our non-executive directors, comprising all our directors other than Messrs. Stanley Hirsch and Dov Tamarkin, received the following compensation forthe year ended December 31, 2017: ·a fixed annual payment of $33,000; ·a per-meeting payment of $1,000 for each board or committee meeting attended in person by the director, a $600 per-meeting payment for meetingsheld by teleconference or other means of communication, and $500 per each written resolution; ·reimbursement of business expenses and travel and accommodation expenses incurred in the performance of duties as a member of the board inaccordance with the company’s travel and expense policy; and ·a grant of a combination of options and RSUs having an aggregate grant date value of $75,000, granted under the 2015 Plan, as defined below. Asrequired by the 2015 Plan, the options were granted at an exercise price equal to the average market price of our ordinary shares during the 30 dayspreceding the grant date, and both options and RSUs were subjected to a 4-year vesting period with 25% of the options and RSUs vesting upon thefirst anniversary of the grant date and 6.25% vesting every 3 months thereafter, in each case provided that the respective director is still serving as adirector of the company at such time. Mr. Stanley Hirsch was paid an annual compensation of $150,000 for his services as the chairman of the board, with retroactive effect from May 1, 2016,and was further awarded (i) 50,000 options under the 2015 Plan, vesting in the same manner as regular option grants to directors described above, and (ii)$37,500 worth of RSUs (equal to 6,466 RSUs) and $112,500 worth of additional options (equal to 32,153 options), in each case subject to all terms of the2015 Plan. Dr. Dov Tamarkin received compensation in his capacity as CEO until June 30, 2017, and thereafter as a board member and a consultant to the companyin accordance with the terms of his termination agreement, as described above under “Item 11—Executive Compensation—Potential Payments to NamedExecutive Officers upon Termination or Change of Control”, and otherwise did not receive additional remuneration for his service as a director. Mr. David Domzalski, who was appointed as a director effective January 1, 2018, instead of Mr. Tamarkin, does not receive remuneration for his service inthat capacity beyond his regular compensation as the company’s CEO. Messrs. Chaim Chizik and Meir Eini, who served as observers to the board of director throughout the year 2017 and until their resignation on January 24,2018 and January 28, 2018, respectively, were entitled to the same compensation as our non-executive directors. The compensation paid to Mr. Eini for hisservice as an observer was in addition to the payments to which he was entitled under his termination agreement, as described above. 73 Director Compensation Table The following table shows the compensation paid to our directors and observes for their board of directors service during the fiscal year ended December31, 2017: Name Fees Earned orPaid in Cash ($) Share Awards($)(4) Option Awards($)(4) Total ($) Stanley Hirsch 150,000 37,503 287,448 474,951 Rex Bright 44,700 - 75,002 119,702 Darrell Rigel 44,700 - 75,002 119,702 Stanley Stern 44,700 - 75,002 119,702 Anna Kazanchyan 41,500 75,000 - 116,500 Aharon Schwartz 39,100 - 75,000 114,100 Dalia Megiddo 39,700 - 75,000 114,700 Dov Tamarkin(1) 18,100 - - 18,100 Meir Eini(2) 16,500 - - 16,500 Chaim Chizic(3) 34,000 - - 34,000 _______________________(1)Dov Tamarkin served as a director throughout the year 2017 and resigned from the board on January 1, 2018, at which time he was replaced by DovDomzalski, the incumbent CEO. The amounts listed in this table refer only to Dr. Tamarkin’s compensation as a director. Compensation paid to Dr.Tamarkin as an executive officer is included in the executive compensation table above. (2)Meir Eini served as an observer throughout the year 2017 and until his resignation on January 28, 2018. The amounts listed in this table refer only toMr. Eini’s compensation as an observer. Compensation paid to Mr. Eini as an executive officer or advisor is included in the executive compensationtable above. (3)Chaim Chizic served as an observer throughout the year 2017 and until his resignation on January 24, 2018. (4)The value in this column represents the aggregate grant date fair value of our stock option awards computed in accordance with FASB ASC Topic718. For a discussion of valuation assumptions used in the calculation of these amounts, see Note 9 to our audited financial statements, included inItem 8—Financial Statements and Supplemental Financial Information.”2009 Israeli Share Option Plan In July 2009, we adopted our 2009 Israeli Share Option Plan, or the 2009 Plan. The 2009 Plan provides for the grant of options to our and our subsidiaries’directors, employees, officers, consultants and service providers. The 2009 Plan is administered by our board of directors or a committee designated by our board of directors, which determines, subject to Israeli law, thegrantees of options, the terms of the options, including exercise or purchase prices, vesting schedules, acceleration of vesting, the type of option and the othermatters necessary or desirable for, or incidental to the administration of the 2009 Plan. The 2009 Plan provides for the issuance of options under various taxregimes including, without limitation, pursuant to Sections 102 and 3(i) of the Israeli Income Tax Ordinance (New Version) 1961, or the Ordinance. Anyoptions that expire or are canceled for any reason prior to their exercise or relinquishment in full may once again be granted. If our outstanding shares arechanged or exchanged at any time by declaration of a share dividend, share split, combination or exchange of shares, recapitalization or any similar event,then the number, class and kind of shares subject to the 2009 Plan, the options granted under the 2009 Plan and the applicable exercise prices will beproportionally adjusted. Section 102 of the Ordinance allows employees, directors and officers, who are not controlling shareholders and who are Israeli residents, to receivefavorable tax treatment for compensation in the form of shares or options. Section 102 of the Ordinance includes two alternatives for tax treatment involvingthe issuance of options or shares to a trustee for the benefit of the grantees and also includes an additional alternative for the issuance of options or sharesdirectly to the grantee. Section 102(b)(2) of the Ordinance, which provides the most favorable tax treatment for grantees, permits the issuance to a trustee under the “capital gainstrack.” In order to comply with the terms of the capital gains track, all options granted under a specific plan and subject to the provisions of Section 102 ofthe Ordinance, as well as the shares issued upon exercise of such options and other shares received following any realization of rights with respect to suchoptions, such as share dividends and share splits, must be registered in the name of a trustee selected by the board of directors and held in trust for the benefitof the relevant employee, director or officer. Such tax benefits are granted subject to the trustee not releasing these options or shares to the relevant granteebefore the second anniversary of the issuance and deposit of the options with the trustee. However, under this track, we are not allowed to deduct an expensewith respect to the issuance of the options or shares. The 2009 Plan provides that options granted to our employees, directors and officers who are not controlling shareholders and who are considered Israeliresidents may qualify for special tax treatment under the “capital gains track” provisions of Section 102(b)(2) of the Ordinance. Our Israeli non-employeeservice providers and controlling shareholders may only be granted options under Section 3(i) of the Ordinance, which does not provide for similar taxbenefits. Options granted under the 2009 Plan are subject to vesting and vest over a four-year period commencing on the date of grant, such that 20% of thegranted options are fully vested as of the date of the grant and thereafter 5% of the granted options vest every three months. Options generally expire 10 yearsfrom their date of grant. Under the 2009 Plan, in the event of termination of employment or services for reasons of disability or death, the grantee, or in thecase of death, his or her legal successor, may exercise options that have vested prior to termination within a period of 12 months after the date of termination.If a grantee’s employment or service is terminated for cause, as defined in the 2009 Plan, all of the grantee’s vested and unvested options expire or forfeitedon the date of termination. If a grantee’s employment or service is terminated without cause, the grantee may exercise his or her vested options within 90 daysafter the date of termination. Any expired or forfeited options prior to their exercise are returned to the option share pool and may be reissued. 74 The 2009 Plan provides that in the event of a merger or consolidation of our company, or a sale of all, or substantially all, of our assets, the unexercisedoptions outstanding may be assumed, or substituted for an appropriate number of shares of each class of shares or other securities as were distributed to ourshareholders in connection with such transaction and the exercise price will be appropriately adjusted. If not so assumed or substituted, all unvested optionsand all vested but unexercised options will expire upon the closing of the transaction. Our board of directors or its designated committee, as applicable, mayprovide in the option agreement that if the acquirer does not agree to assume or substitute the options, vesting of the options shall be accelerated so that anyunvested option or any portion thereof will vest 10 days prior to the closing of the transaction. In the event that the consideration received in suchtransaction is not solely in the form of ordinary shares of another company, the board of directors or the designated committee, as applicable, may, with theapproval of the acquirer, provide that in lieu of the assumption or substitution of the options, the options will be substituted by another type of asset orproperty, including cash. If the board of directors does not authorize the acceleration of any unvested options, such options shall expire upon closing of thetransaction. If we are voluntarily liquidated or dissolved, option holders will have 10 days to exercise any then-vested options upon receiving notificationfrom us of the liquidation or dissolution. The board may amend, alter, suspend or terminate the 2009 Plan at any time. However no amendment, alteration, suspension or termination may impairthe rights of any option holder under the 2009 Plan unless agreed upon in writing by us and the affected option holder. Since the adoption of the 2015 Plan (see below), the company stopped granting options under the 2009 Plan. 2015 Israeli Share Incentive Plan In May 2015, we adopted our 2015 Israeli Share Incentive Plan, or the 2015 Plan. The 2015 Plan provides for the grant of options and RSUs to our and oursubsidiaries’ directors, employees, officers, consultants and service providers, among others. As of the adoption of the 2015 Plan, all new grants of optionsand RSUs are made pursuant to the 2015 Plan. The 2015 Plan is administered by our board of directors or a committee designated by our board of directors, which determines, subject to Israeli or U.S.law (as applicable), the grantees of options or RSUs (collectively –“Awards”), the terms of the Awards including exercise prices (with regard to options),vesting schedules, acceleration of vesting, the type of Award and the other matters necessary or desirable for, or incidental to the administration of the 2015Plan. The 2015 Plan also authorizes our board of directors or a committee designated by our board of directors to allow net exercise of options. The 2015Plan provides for the issuance of Awards under various tax regimes including, without limitation, pursuant to Sections 102 and 3(i) of the Ordinance. Sharesunderlying any Awards that expire or are canceled for any reason may once again be granted under the 2015 Plan in a form of a new Award. If our outstandingshares are changed or exchanged at any time by declaration of a share dividend, share split, combination or exchange of shares, recapitalization or any similarevent, then the number, class and kind of shares subject to the 2015 Plan, the Awards granted under the 2015 Plan and the applicable exercise prices will beproportionally adjusted. The 2015 Plan provides that Awards granted to our employees, directors and officers who are not controlling shareholders and who are considered Israeliresidents may qualify for special tax treatment under the “capital gains track” provisions of Section 102(b)(2) of the Ordinance. Our Israeli non-employeeservice providers and controlling shareholders (if any) may only be granted options under Section 3(i) of the Ordinance, which does not provide for similartax benefits. Awards granted under the 2015 Plan are subject to vesting schedules and option Awards generally expire 10 years from their date of grant. Under the 2015Plan, in the event of termination of employment or services for reasons of disability or death, the grantee, or in the case of death, his or her legal successor,may exercise options that have vested prior to termination within a period of 12 months after the date of termination. If a grantee’s employment or service isterminated for cause, as defined in the 2015 Plan, all of the grantee’s vested and unvested Awards expire on the date of termination. If a grantee’s employmentor service is terminated without cause, the grantee may exercise his or her vested Awards within 90 days after the date of termination. The 2015 Plan provides that in the event of a merger or consolidation of our company, or a sale of all, or substantially all, of our assets, the outstandingAwards may be assumed, or substituted for an appropriate number of Awards denominated in shares of each class of shares or other securities as weredistributed to our shareholders in connection with such transaction and the exercise price, if any, will be appropriately adjusted. If not so assumed orsubstituted, all Awards, including RSUs, will expire upon the closing of the transaction. Our board of directors or its designated committee, as applicable,may provide in the Award agreement that if the acquirer does not agree to assume or substitute the options or RSUs, vesting of any or all of such options andRSUs shall be accelerated so that any unvested option or RSU, or any portion thereof, will vest 10 days prior to the closing of the transaction. In the eventthat such consideration received in the transaction is not solely in the form of ordinary shares of another company, the board of directors or the designatedcommittee, as applicable, may, with the approval of the acquirer, provide that in lieu of the assumption or substitution of the Awards, including RSUs, theAwards will be substituted by another type of asset or property, including cash. If we are voluntarily liquidated or dissolved, Award holders will have 10 daysto exercise any then-vested Awards, including vested RSUs, upon receiving notification from us of the liquidation or dissolution. 75 The board may amend, alter, suspend or terminate the 2015 Plan at any time. However no amendment, alteration, suspension or termination may impairthe rights with respect to any outstanding Awards unless agreed upon in writing by us and the affected holder of such Awards. In November 2016 and December 2017 the board of directors approved an increase of 900,000 and 2,000,000 ordinary shares, respectively, in the sharereverse under the 2015 Plan. As of December 31, 2017, 2,076,088 shares remain available for grant under the 2015 Plan. As of December 31, 2017, there were a total of 473,586 RSUs and 3,756,515 options outstanding under the 2009 and 2015 Plans, collectively. Theweighted-average exercise price of outstanding options was $6.36. Out of Awards granted, 216,780 RSUs have vested and 310,850 options have beenexercised. ITEM 12 — SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS The following table summarizes, as of December 31, 2017, (i) the number of shares of our ordinary shares that are issuable under our equity compensationplans upon the exercise of outstanding options, warrants and other rights, (ii) the weighted-average exercise price of such options, warrants and rights, and(iii) the number of securities remaining available for future issuance under our equity compensation plans: Plan Category Number ofShares to beIssued UponExercise ofOutstandingOptions,Warrants andRights Weighted-AverageExercise Price ofOutstandingOptions,Warrants andRights Number ofSharesRemainingAvailable ForFuture IssuanceUnder EquityCompensationPlans(1) Equity compensation plans approved by shareholders - - - Equity compensation plans not approved by shareholders 4,230,101 $5.65(2) 2,076,088 Total 4,230,101 $5.65 2,076,088 ___________________________(1)excluding the shares reflected in the column titled “Number of Shares to be Issued Upon Exercise of Outstanding Options, Warrants and Rights”. (2)including restricted share units with an exercise price of $0.Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information with respect to the beneficial ownership of our ordinary shares as of February 1, 2018, for (i) each of ournamed executive officers, (ii) each of our directors, (iii) all of our directors and executive officers as a group, and (iv) each person, or group of affiliatedpersons, known by us to beneficially own more than 5% of our ordinary shares. According to our transfer agent, as of February 1, 2018, there were 6 record holders of our ordinary shares, among whom only Cede & Co. is U.S. holderswho beneficially own in the aggregate 34,180,791 of our ordinary shares. None of our shareholders has different voting rights from other shareholders. We are not owned or controlled, directly or indirectly, by another corporation or by any foreign government. We are not aware of any arrangement thatmay, at a subsequent date, result in a change of control of our company. Except as indicated in footnotes to this table, we believe that the shareholders named in this table have sole voting and investment power with respect toall shares shown to be beneficially owned by them, based on information provided to us by such shareholders. Unless otherwise noted below, each beneficialowner’s address is: c/o 2 Holzman St., Weizmann Science Park, Rehovot 7670402, Israel. 76 Name of Beneficial Owner Number ofSharesBeneficiallyOwned Percentage ofSharesBeneficiallyOwned 5% Shareholders (Other than Directors and Executive Officers): Great Point Partners, LLC(1) 4,781,708 12.8%Baker Bros. Advisors (GP) LLC(2) 2,466,702 6.6%Directors and Executive Officers: Dov Tamarkin(3) 2,647,941 7.0%Meir Eini(4) 2,861,510 7.7%Stanley Hirsch(5) 222,172 * Rex Bright(6) 27,000 * Darrell Rigel(7) 27,000 * Stanley Stern(8) 27,000 * Anna Kazanchyan(9) 10,000 * Aharon Schwartz(10) 16,000 * Dalia Megiddo(11) 8,000 * Chaim Chizic(12) 1,215,309 3.2%David Domzalski(13) 222,010 * Ilan Hadar(14) 211,232 * Yohan Hazot(15) 104,996 * David Schuz(16) 118,278 * Mitchell Shirvan(17) 84,893 * Alvin Howard(18) 76,679 * Russell Elliott(19) 18,060 * Iain A. Stuart(20) 10,000 * Bonnie Pappacena - - All Directors and Executive Officers as a Group (19 Persons): 7,908,080 20.2%____________________________________________________________________* Less than 1% (1)Based on information contained in Schedule 13G filed with the SEC on February 14, 2018, jointly by Great Point Partners LLC, a limited liabilitycompany organized under the laws of the State of Delaware (“Great Point”), Dr. Jeffery R. Jay, M.D., a U.S. citizen (“Dr. Jay”), and Mr. David Kroin, aU.S. citizen (“Mr. Kroin”, and collectively with Dr. Jay and Great Point, in this footnote, the “Reporting Persons”). Pursuant to that Schedule 13G (i)Biomedical Value Fund, L.P. (“BVF”) is the record owner of 1,317,181 ordinary shares (the “BVF Shares”). Great Point is the investment manager ofBVF. Each of Dr. Jay, as senior managing member of Great Point, and Mr. Kroin, as special managing member of Great Point, has voting and investmentpower with respect to the BVF Shares, (ii) Biomedical Offshore Value Fund, Ltd. (“BOVF”) is the record owner of 1,883,662 ordinary shares (the “BOVFShares”). Great Point is the investment manager of BOVF, and each of Dr. Jay, as senior managing member of Great Point, and Mr. Kroin, as specialmanaging member of Great Point, has voting and investment power with respect to the BOVF Shares, (iii) GEF-SMA, LP (“GEF-SMA”) is the recordowner of 1,404,687 ordinary shares (the “GEF-SMA Shares”). Great Point is the investment manager of GEF-SMA and each of Dr. Jay, as seniormanaging member of Great Point, and Mr. Kroin, as special managing member of Great Point, has voting and investment power with respect to the GEF-SMA Shares, and (iv) Class D Series of GEF-PS, L.P. (“GEF-PS”) is the record owner of 176,178 ordinary shares (the “GEF-PS Shares”). Great Point is theinvestment manager of GEF-PS and each of Dr. Jay, as senior managing member of Great Point, and Mr. Kroin, as special managing member of GreatPoint, has voting and investment power with respect to the GEF-PS Shares. Notwithstanding the above, Great Point, Dr. Jay and Mr. Kroin disclaimbeneficial ownership of the BVF Shares, the BOVF Shares, the GEF-SMA Shares and the GEF-PS Shares, except to the extent of their respectivepecuniary interests. The business address of each of the Reporting Persons is 165 Mason Street, 3rd Floor, Greenwich, CT 06830. (2)Based on information contained in Schedule 13G filed with the SEC on February 14, 2017 jointly by Baker Bros. Advisors LP, a limited partnershiporganized under the laws of the State of Delaware (the “Adviser”), Baker Bros Advisors (GP) LLC, a limited liability company organized under the lawsof the State of Delaware (the “Adviser GP”), Felix J. Baker, a U.S. citizen and Julian C. Baker, a U.S. citizen (in this footnote, collectively with theAdviser and the Adviser GP, the “Reporting Persons”). Pursuant to that Schedule 13G, 206,624 ordinary shares are held directly by 667 L.P. and2,260,078 ordinary shares are held by Baker Brothers Life Sciences, L.P. (collectively, the “Funds”). Pursuant to an amended and restated managementagreements among the Adviser, the Funds and their respective general partners, the Funds’ respective general partners relinquished to the Adviser alldiscretion and authority with respect to the investment and voting power of the securities held by the Funds, and the Adviser has complete andunlimited discretion and authority with respect to the Funds' investments and voting power over investments. The business address of each of theReporting Persons is c/o Baker Bros. Advisors LP, 667 Madison Avenue, 21st Floor, New York, NY 10065. (3)Tamarkin Medical Innovation Ltd., an Israeli company controlled by Dr. Dov Tamarkin, our co-founder, former Chief Executive Officer and formerdirector. Consists of (i) 2,523,489 ordinary shares; (ii) 11,795 ordinary shares, held directly by Dr. Tamarkin (iii) 2,094 ordinary shares issuable uponexercise of outstanding warrants at a price of $5.04 per share (iv) 24,000 ordinary shares, held directly by Dr. Tamarkin, issuable upon exercise ofoutstanding options at a price of $5.88 per share; (v) 36,563 ordinary shares, held directly by Dr. Tamarkin, issuable upon exercise of outstandingoptions at a price of $6.77 per share and (vi) 50,000 ordinary shares, held directly by Dr. Tamarkin, issuable upon exercise of outstanding options at aprice of $6.34 per share. The address of Tamarkin Medical Innovation Ltd. is 537 Har Hila St., Modiin-Maccabim-Reut 7179901, Israel. 77 (4)Meir Eini Holdings Ltd., an Israeli company controlled by Meir Eini, our co-founder, former Chief Innovation Officer and former observer to the board.Consists of (i) 2,717,781 ordinary shares; (ii) 17,396 ordinary shares, held directly by Mr. Eini (iii) 20,860 ordinary shares issuable upon exercise ofoutstanding warrants at a price of $5.04 per share (iv) 48,000 ordinary shares, held directly by Mr. Eini, issuable upon exercise of outstanding options ata price of $5.88 per share; (v) 29,250 ordinary shares, held directly by Mr. Eini, issuable upon exercise of outstanding options at a price of $6.77 pershare; (vi) 13,125 ordinary shares, held directly by Mr. Eini, issuable upon exercise of outstanding options at a price of $7.09 per share, and (vii) 15,098ordinary shares, held directly by Mr. Eini, issuable upon exercise of outstanding options at a price of $10.31 per share. The address of Meir EiniHoldings Ltd. is 2 Hashaked St., Ness-Ziona 7408711, Israel. (5)Consists of (i) 6,448 ordinary shares; (ii) 6,224 ordinary shares issuable upon exercise of outstanding warrants at a price of $5.04 per share; (iii) 182,500ordinary shares issuable to ZEAS Technology and Science Management Ltd., a company beneficially owned by Stanley Hirsch, upon exercise ofoutstanding options at a price of $0.62 per share, and (iv) 27,000 ordinary shares issuable upon vesting of outstanding options at a price of $5.88 pershare. (6)Consists of 27,000 ordinary shares issuable upon exercise of outstanding options at a price of $5.88 per share. (7)Consists of 27,000 ordinary shares issuable upon exercise of outstanding options at a price of $5.88 per share. (8)Consists of 27,000 ordinary shares issuable upon exercise of outstanding options at a price of $5.88 per share. (9)Consists of (i) 8,000 ordinary shares issuable upon exercise of outstanding options at a price of $5.88 per share, and (ii) 2,000 ordinary shares issuableupon exercise of outstanding options at a price of $10.80 per share. (10)Consists of 16,000 ordinary shares issuable upon exercise of outstanding options at a price of $11.87 per share. (11)Consists of 8,000 ordinary shares issuable upon exercise of outstanding options at a price of $7.09 per share. (12)Consists of (i) 558,459 ordinary shares; (ii) 266,412 ordinary shares issuable upon exercise of outstanding warrants at a price of $5.04 per share; (iii)300,938 ordinary shares held by Rosa Alba Commerce & Investments Ltd., a company beneficially owned by Mr. Chizic; (iv) 62,500 ordinary sharesissuable upon vesting of outstanding options at a price of $1.92 per share, and (v) 27,000 ordinary shares issuable upon vesting of outstanding optionsat a price of $5.88 per share. The company’s disclosure is based on the latest information available to it, as Mr. Chizic did not respond to the company’srecent queries in the matter. To the company’s knowledge, the shares and options listed in sub-clauses (i) and (ii) above are held by Mr. Chizic and hiswife in equal parts. (13)Consists of (i) 26,743 ordinary shares; (ii) 14,062 ordinary shares issuable upon exercise of outstanding options at a price of $7.98 per share; (iii) 17,842ordinary shares issuable upon exercise of outstanding options at a price of $10.22 per share; (iv) 30,000 ordinary shares issuable upon exercise ofoutstanding options at a price of $6.04 per share; (v) 133,206 ordinary shares issuable upon exercise of outstanding options at a price of $7.14 per share,and (vi) 157 ordinary shares issuable upon vesting of outstanding RSUs. (14)Consists of (i) 12,871 ordinary shares; (ii) 5,469 ordinary shares issuable upon exercise of outstanding options at a price of $1.92 per share; (iii) 20,506ordinary shares issuable upon exercise of outstanding options at a price of $5.46 per share; (iv) 13,500 ordinary shares issuable upon exercise ofoutstanding options at a price of $6.77 per share; (v) 15,097 ordinary shares issuable upon exercise of outstanding options at a price of $10.31 per share;(vi) 30,000 ordinary shares issuable upon exercise of outstanding options at a price of $6.34 per share; (vii) 113,627 ordinary shares issuable uponexercise of outstanding options at a price of $7.13 per share, and (viii) 162 ordinary shares issuable upon vesting of outstanding RSUs. (15)Consists of (i) 11,321 ordinary shares (ii) 12,375 ordinary shares issuable upon exercise of outstanding options at a price of $1.92 per share; (iii) 30,000ordinary shares issuable upon exercise of outstanding options at a price of $6.34 per share; (iv) 13,500 ordinary shares issuable upon exercise ofoutstanding options at a price of $6.77 per share; (v) 24,071 ordinary shares issuable upon exercise of outstanding options at a price of $7.13 per share,and (vi) 13,725 ordinary shares issuable upon exercise of outstanding options at a price of $10.31 per share, and (vi) 4 ordinary shares issuable uponvesting of outstanding RSUs. (16)Consists of (i) 9,491 ordinary shares; (ii) 65,750 ordinary shares issuable upon exercise of outstanding options at a price of $1.92 per share; (iii) 15,000ordinary shares issuable upon exercise of outstanding options at a price of $6.34 per share; (iv) 13,500 ordinary shares issuable upon exercise ofoutstanding options at a price of $6.77 per share; (v) 6,298 ordinary shares issuable upon exercise of outstanding options at a price of $7.13 per share,and (vi) 8,235 ordinary shares issuable upon exercise of outstanding options at a price of $10.31 per share, and (vi) 4 ordinary shares issuable uponvesting of outstanding RSUs. (17)Consists of (i) 9,495 ordinary shares; (ii) 7,656 ordinary shares issuable upon exercise of outstanding options at a price of $1.92 per share; (iii) 20,506ordinary shares issuable upon exercise of outstanding options at a price of $5.46 per share; (iv) 15,000 ordinary shares issuable upon exercise ofoutstanding options at a price of $6.34 per share; (v) 13,500 ordinary shares issuable upon exercise of outstanding options at a price of $6.77 per share;(vi) 10,500 ordinary shares issuable upon exercise of outstanding options at a price of $7.13 per share, and (vii) 8,235 ordinary shares issuable uponexercise of outstanding options at a price of $10.31 per share. (18)Consists of (i) 19,754 ordinary shares; (ii) 15,000 ordinary shares issuable upon exercise of outstanding options at a price of $6.04 per share; (iii) 25,688ordinary shares issuable upon exercise of outstanding options at a price of $7.14 per share; (iv) 9,375 ordinary shares issuable upon exercise ofoutstanding options at a price of $7.98 per share, and (v) 6,862 ordinary shares issuable upon exercise of outstanding options at a price of $10.22 pershare. (19)Consists of (i) 817 ordinary shares; (ii) 13,125 ordinary shares issuable upon exercise of outstanding options at a price of $6.46 per share, and (iii) 4,118ordinary shares issuable upon exercise of outstanding options at a price of $10.22 per share. (20)Consists of 10,000 ordinary shares issuable upon exercise of outstanding options at a price of $8.54 per share. Section 16(a) Beneficial Ownership Reporting Compliance We were a “foreign private issuer” until January 1, 2018. Therefore, our officers and directors, and persons who owned more than 10% of our shares, wereexempt from filing reports of ownership and changes in ownership with the SEC under Section 16(a) of the Exchange Act during the year ended December31, 2017, in accordance with Rule 3a12-3 under the Exchange Act. As of January 1, 2018, our officers, directors and greater than 10% shareholders arerequired by SEC regulations to file forms pursuant to Section 16(a). In connection with this transition, we filed initial beneficial ownership forms on behalfof our executive officers and directors, and changes to beneficial ownership forms on Form 4 for certain executive officers whose restricted share units vestedshortly after January 1, 2018. All of our executive officers’ and directors’ Form 3s were filed 9 days late, on January 11, 2018. Form 4s were filed late onJanuary 24, 2018, for the following executive officers: Mr. David Domzalski, Mr. Mitchell Shirvan, Mr. Russell Elliott, Mr. Alvin Howard, Mr. Yohan Hazot,and Mr. David Schuz. In addition, Mr. Meir Eini, who was an observer to our board of directors, filed a late Form 3 and late Form 4, each dated January 18,2018; Mr. Chaim Chizic, another observer to our board of directors, did not file a Form 3 or Form 4. Such non-compliance may result in the imposition ofmonetary penalties by the SEC on such delinquent insiders, depending on the degree of untimeliness and severity and recurrence of their infractions. 78 ITEM 13 — CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Transactions with Related Persons On January 1, 2018, the board appointed our CEO, David Domzalski, as a director, to fill the vacancy created by the resignation of Dov Tamarkin andsubject to further approval by our shareholders in the upcoming annual general meeting. The main terms of employment of Mr. Domzalski, in his capacity asour CEO, are set out in “Item 11—Executive Compensation—Potential Payments to Named Executive Officers upon Termination or Change of Control”. Review, Approval or Ratification of Transactions with Related Persons Under the Israeli Companies Law, our audit committee is responsible for, inter alia, determining whether to approve certain related party transactions,including transactions in which an office holder has a personal interest and whether such transaction is extraordinary or material under the Israeli CompaniesLaw. See our Registration Statement on Form F-1 as filed under the Securities Act with the SEC on September 3, 2014, under “Management—Approval ofRelated Party Transactions under Israeli Law—Fiduciary Duties of Directors and Executive Officers”; Under the Israeli Companies Law, shareholder approval is required for, among other things: (a) transactions with directors concerning the terms of theirservice or indemnification, exemption and insurance for their service (or for any other position that they may hold at a company), for which approvals of thecompensation committee, board of directors and shareholders are all required, (b) extraordinary transactions with controlling shareholders of publicly heldcompanies, which require the special approval described in the Registration Statement on Form F-1 as filed under the Securities Act with the SEC onSeptember 3, 2014, under “Management—Approval of Related Party Transactions Under Israeli Law—Disclosure of Personal Interests of a ControllingShareholder and Approval of Certain Transactions,” and (c) terms of employment or other engagement of the controlling shareholder of the company or suchcontrolling shareholder’s relative, which require the special approval described Registration Statement on Form F-1 as filed under the Securities Act with theSEC on September 3, 2014, under “Management—Approval of Related Party Transactions Under Israeli Law— Disclosure of personal interests of acontrolling shareholder and approval of transactions.” In addition, under the Israeli Companies Law, a merger requires approval of the shareholders of each ofthe merging companies. Director Independence Our board of directors has determined that, following the resignation of Dr. Dov Tamarkin from the board of directors effective January 1, 2018 and hisreplacement by Dov Domzalski, the incumbent CEO, all of our directors except for Mr. Domzalski are independent under the NASDAQ Stock Market rules. ITEM 14 — PRINCIPAL ACCOUNTANT FEES AND SERVICES Kesselman & Kesselman (a member firm of Pricewaterhouse Coopers International Limited, or PwC), has served as our principal independent registeredpublic accounting firm for each of the two years ended December 31, 2016 and 2017. The following table provides information regarding fees paid by us to PwC for all services, for the years ended December 31, 2016 and 2017: Fiscal year ended (in thousands of U.S. dollars) 2016 2017 Audit Fees(1) 182 136 Audit-related Fees - - Tax Fees - - All Other Fees - - Total Fees 182 136 ______________________________(1)Includes professional services rendered in connection with the audit of our annual financial statements, the review of our interim financialstatements, fees for the 2016 follow-on offerings and shelf registration statements.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 in following the formation of our audit committee was pre-approved by the auditcommittee. 79PART IV ITEM 15 — EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Documents Filed as Part of This Report 1. Financial statements. See Index to Financial Statements under Item 8 of Part II of this Annual Report on Form 10-K, which listing is incorporated herein by reference. 2. Financial statement schedules. No schedules are applicable or required, or the information is included in the Consolidated Financial Statements or Notes thereto. 3. Exhibits. See Item 15(b) below. Each management contract or compensatory plan or arrangement required to be filed has been identified. (b) Exhibits See the Exhibit Index immediately preceding the signature page of this Annual Report on Form 10-K. ITEM 16 — FORM 10-K SUMMARY Not applicable. 80INDEX TO EXHIBITS Incorporation by Reference ExhibitNumber Description Of Document Form SEC File No. Exhibit Filing Date FiledHerewith3.1Amended and Restated Articles of Associationof the Company S-8 333-222155 4.1 December 19,2017 10.12009 Israeli Share Option Plan* F-1/A 333-198123 10.1 September 3,2014 10.22015 Israeli Share Incentive Plan* F-3 333-207546 10.2 October 21,2015 10.3Summary of Lease Agreement, dated as of May7, 2008, as amended on April 18, 2016, by andbetween the Registrant and Gav Yam Real EstateLtd F-3/A 333-207546 10.3 September 12,2016 10.4Form of indemnification agreement by andbetween the Registrant and each of its directorsand executive officers F-1/A 333-198123 10.3 September 3,2014 10.5Foamix Pharmaceuticals Ltd. CompensationPolicy for Officers and Directors 6-K/A 001-36621 99.1 May 20, 2015 10.6Termination Agreement of Dr. Dov Tamarkin,effective as of July 1, 2017 X10.7Termination Agreement of Mr. Meir Eini,effective as of July 1, 2017 X10.8Lease Agreement, dated as of October 25, 2017,between Foamix Pharmaceuticals Inc. and S/K520 Associates X23.1Consent of Kesselman & Kesselman,independent registered public accounting firm X31.1Certification of the Chief Executive Officerpursuant to Section 302 of the Sarbanes-OxleyAct of 2002 X31.2 Certification of the Chief Financial Officerpursuant to Section 302 of the Sarbanes-OxleyAct of 2002 X32.1 Certification of the Chief Executive Officerpursuant to Section 906 of the Sarbanes-OxleyAct of 2002 X32.2 Certification of the Chief Financial Officerpursuant to Section 906 of the Sarbanes-OxleyAct of 2002 X* This exhibit is a management contract or a compensatory plan or arrangement. 81 SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Foamix Pharmaceuticals Ltd. has duly caused this report to besigned on its behalf by the undersigned, thereunto duly authorized on February 27, 2018. FOAMIX PHARMACEUTICALS LTD. By: /s/ David Domzalski David DomzalskiChief Executive OfficerKNOW ALL MEN AND WOMEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David Domzalski andStanley Hirsch, and each of them, his or her attorney-in-fact and agent, each with the power of substitution, for him or her in any and all capacities, to signany and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, withthe U.S. Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact, or his or her or their substitute or substitutes,may do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized. Signature and NameTitleDate /s/ David DomzalskiChief Executive Officer (principal executive officer)February 27, 2018David Domzalski /s/ Ilan HadarChief Financial Officer (principal financial accounting and officer)February 27, 2018Ilan Hadar /s/ Stanley HirschChairman of the Board of DirectorsFebruary 27, 2018Stanley Hirsch /s/ Dalia MegiddoDirectorFebruary 27, 2018Dalia Megiddo /s/ Rex BrightDirectorFebruary 27, 2018Rex Bright /s/ Darrell RigelDirectorFebruary 27, 2018Darrell Rigel /s/ Stanley SternDirectorFebruary 27, 2018Stanley Stern /s/ Anna KazanchyanDirectorFebruary 27, 2018Anna Kazanchyan /s/ Aharon SchwartzDirectorFebruary 27, 2018Aharon Schwartz 82  Exhibit 10.6 Termination Agreement This Termination Agreement ("Agreement") is entered into as of July 1, 2017 (the "Effective Date") by and between Foamix Pharmaceuticals Ltd., acompany organized under the laws of the State of Israel, whose principal place of business is located at 2 Chaim Holzman St., Rehovot, Israel, (the"Company") and Dr. Dov Tamarkin (“Executive”). WHEREASThe Executive has been an employee of the Company since its incorporation in 2003; and WHEREASThe Company and the Executive have executed an employment agreement on January 2, 2003 (the "Original Agreement"), whichagreement was superseded by an employment agreement dated August 22, 2014 (the "Employment Agreement"); and WHEREASThe Executive and the Company have agreed to terminate the Executive's employment with the Company, in accordance with the terms ofthe Employment Agreement and with the provisions of the Company's compensation policy, as approved by the Company's shareholders onJune 22, 2015 (the "Compensation Policy"); and WHEREASThe Executive and the Company wish to set forth herein all terms and conditions applicable to the termination of the Executive'semployment in the Company, according to the Employment Agreement and the Compensation Policy. NOW THEREFORE, in consideration of the mutual promises, covenants and other agreements contained herein, and intending to be legally bound, theparties hereto hereby declare and agree as follows: 1.Termination of Employment 1.1.The Executive's employment with the Company will terminate and the Employment Agreement shall stand terminated (except asspecified in Section 1.2.3 below and except for Exhibit B of the Employment Agreement - Company’s Proprietary Information,Confidentiality and Non-Competition Agreement (the "PI&C Agreement"), which shall remain in effect indefinitely) as of theEffective Date. 1.2.Following the Effective Date: 1.2.1.The Executive shall neither be required to perform his duties as the Chief Executive Officer (CEO) of the Company, norpresent itself and/or act as an executive officer of the Company. 1.2.2.However, the Executive shall cooperate with the Company and use his best efforts to assist the transition of his officeto the person or persons who will assume his responsibilities, as shall be coordinated from time to time between theChairman of the Company's Board of Directors (the "Board") and the Executive. 1.2.3.Notwithstanding the provisions of Section 1.1 above (and in accordance with the provisions of the EmploymentAgreement and the Compensation Policy), the Executive shall be entitled to all payments and benefits due to himunder the provisions of Sections 5 (Salary), 6 (Insurance and Social Benefits), and 7 (Additional Benefits) of theEmployment Agreement for the six-month period commencing as of the Effective Date (the "Notice Period"). Suchpayments and benefits shall be paid to the Executive, unless agreed otherwise between the Executive and theCompany, within 5 days from the Effective Date.  1.2.4.The Company shall provide to the Executive any documentation which is customarily provided upon termination ofemployment (e.g. termination letter, release letters to the Executive's pension funds/managers' insurance schemes, etc.). 1.2.5.Subject to all legally-required approvals (including, without limitation the approvals of the Compensation Committee,the Board and the shareholders' meeting, as applicable) the Company shall pay to the Executive a bonus for hisperformance in the year 2017, based on the guidelines and principles of the Compensation Policy and on therecommendations of the Compensation Committee and the Board. 1.2.6.Commencing on the Effective Date, and as long as the Executive shall serve as a director or as an observer in theBoard, the Executive shall be entitled to the Board participation, meeting fees and long term incentives payable by theCompany to Non-Executive Directors. 2.The Severance Period 2.1.Within 10 days of the commencement of the twelve-month period commencing upon the lapse of the Notice Period (hereinafter:the "Severance Period"), the Company shall pay the Executive an amount equal to 12 (twelve) times the Salary (as such term isdefined in the Employment Agreement). Executive may retain Company's cellphone, and PC, etc. during the Severance Period. 2.2.For the avoidance of doubt, and without derogating from the provisions of Sections 1.3 and 2.2 above, it is hereby agreed that theExecutive shall not be entitled to any other rights and/or benefits under the Employment Agreement during and/or in connectionwith the Severance Period. 3.Consulting Services 3.1.Throughout the Notice Period and the Severance Period the Executive shall act as the Company's Chief Scientific Advisor andshall provide to the Board (and/or to a sub-committee of the Board as may be resolved by the Board from time to time) scientificadvisory services, as shall be requested by the Company Board from time to time (the "Services"). Such Services may include,among other things, consulting with regard to research and development, collaboration with third parties, partnering with academicinstitutes etc. The scope, duration and timing of the Services shall be coordinated between the Board and the Executive (it beingacknowledged that the Executive is not expected to provide the Services on a full-time and/or daily basis). 23.2.In order to facilitate the provision of the Services, the Company shall provide the Executive, throughout the Notice Period and theSeverance Period, an office and secretarial services (on an as-needed basis and as shall be coordinated between the Company's CEOand/or Israel country head and the Executive), and shall set a budget, including travel, insurance, registration and participation feesand other reasonable expense, with regard to the Executive's participation in up to 6 (six) conferences per annum, as shall beapproved by the Chairman of the Board from time to time. The Chairman of the Board may also approve the retention ofconsultants and/or other service providers who shall assist the Executive in the performance of the Services. 3.3.The Executive shall provide the Services as an independent contractor and shall neither be deemed, nor present himself, as anemployee, executive officer and/or agent of the Company. 3.4.The Executive shall refer to the Chairman of the Board and/or to the CEO of the Company any business and/or developmentopportunity related to the Company's business (as currently conducted and as shall be conducted throughout the Notice Period andthe Severance Period) and/or any query and/or contact made by any actual or potential shareholder of the Company and/or byanalysts, investments bankers, etc., which shall come to his knowledge. 3.5.The Executive shall not be entitled to any additional compensation in connection with the provision of the Services. 3.6.The Board may review the provision of the Services from time to time, and may, upon discussion with the Executive and in view ofissues such as conflicts of interest, performance, etc. limit and/or adjust the scope of the Services, as required. 4.Equity-Based Compensation 4.1Any and all equity-based compensation (i.e. options to purchase the Company's ordinary shares of NIS 0.16 par value each andRestricted Share Units granted under the Company's 2015 Israeli Share Incentive Plan and the Company's 2009 Israeli ShareOption Plan) previously granted to the Executive shall continue to vest (according to the respective terms of each grant) during theNotice Period and afterwards, as long as the Executive provides the Services to the Company. 4.2Subject to the approval of the shareholders' meeting, and in furtherance of the Board decision of February 21, 2017, the Companyshall: 4.2.1Award the Executive 137,428 options under the Company’s 2015 Israeli Share Incentive Plan; and4.2.2Award the Executive 45,750 Restricted Share Units under the Company’s 2015 Israeli Share Incentive Plan 3The options granted to the Executive as aforesaid will be granted at an exercise price equal to the average market price of theCompany's ordinary shares of NIS 0.16 par value each during the 30 trading days prior to the grant date and shall vest over 4 yearsin equal parts, so that 25% of the options shall vest upon the first anniversary of the grant date and thereafter 6.25% shall vestevery three months (all provided that the Executive still provides the Services to the Company at such time). The Restricted Share Units will also vest over 4 years in equal parts, so that 25% of the Restricted Share Units shall vest upon thefirst anniversary of the grant date and thereafter 6.25% shall vest every three months (all provided that the Executive still providesthe Services to the Company at such time). 5.Freedom of Occupation Commencing as of the Effective Date and until the lapse of the Severance Period, Executive may, subject to the provisions of the PI&CAgreement and to his undertakings under Sections 1.2.2 and 1.3.1 above, engage in any occupation and/or any business and/or other activity ashe shall see fit, provided however that he shall not put himself in any position that may in any way raise a conflict of interest betweenExecutive or any member of Executive's family and the Company. 6.Waiver and Release Subject to the full and timely performance of all of the Company's undertakings under Sections 1.2.3, 2.1, 1.3.3 and 4 above, Executive herebyirrevocably waives any and all rights, claims and/or remedies that he has or may have against the Company and/or its directors, officers and/oremployees. 7.Miscellaneous 7.1.The preamble to this Agreement constitutes an integral part hereof. Headings are included for reference purposes only and are notto be used in interpreting this Agreement. 7.2.The laws of the State of Israel shall apply to this Agreement and the sole and exclusive jurisdiction in any matter arising out of or inconnection with this Agreement shall be the Tel-Aviv Regional Labor Court. 7.3.The provisions of this Agreement are in lieu of the provisions of any collective bargaining agreement, and therefore, no collectivebargaining agreement shall apply with respect to the relationships between the parties hereto (subject to applicable mandatoryprovisions of law). 7.4.The Company shall withhold, or charge Executive with all taxes and other compulsory payments as required under all applicablelaws with respect to all payments, benefits and other compensation payable to Executive in connection with this Agreement. 7.5.The Company shall be entitled to offset from any payments to which Executive shall be entitled hereunder, any amounts which theCompany shall be entitled to receive from Executive at such time. 47.6.No failure, delay of forbearance of either party in exercising any power or right hereunder shall in any way restrict or diminish suchparty's rights and powers under this Agreement, or operate as a waiver of any breach or nonperformance by either party of any termsof conditions hereof. 7.7.In the event it shall be determined under any applicable law that a certain provision set forth in this Agreement is invalid orunenforceable, such determination shall not affect the remaining provisions of this Agreement unless the business purpose of thisAgreement is substantially frustrated thereby. 7.8.This Agreement constitutes the entire understanding and agreement between the parties hereto, supersedes any and all priordiscussions, agreements (including without limitation, the Original Agreement and the Employment Agreement) andcorrespondence with regard to all subject matters hereof, and may not be amended, modified or supplemented in any respect,except by a subsequent writing executed by both parties hereto. 7.9.This Agreement does not affect Executive's rights and obligations as a shareholder and/or director of the Company. 7.10.Executive acknowledges and confirms that, subject to any applicable disclosure duties (whether under any applicable law and/orNASDAQ rules and/or otherwise) all terms of this Agreement are personal and confidential, and undertakes to keep such terms inconfidence and refrain from disclosing such terms to any third party. [The Remainder of the Page intentionally left blank] IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. The Company: FoamixPharmaceuticals Ltd. By: /s/ David Domzalski David Domzalski CEO /s/ Ilan Hadar Ilan Hadar Country ManagerThe Executive: Dov Tamarkin /s/ Dov TamarkinSignature 5 Exhibit 10.7 Termination Agreement This Termination Agreement ("Agreement") is entered into as of July 1, 2017 (the "Effective Date") by and between Foamix Pharmaceuticals Ltd., acompany organized under the laws of the State of Israel, whose principal place of business is located at 2 Chaim Holzman St., Rehovot, Israel, (the"Company") and Mr. Meir Eini (“Executive”). WHEREASThe Executive has been an employee of the Company since its incorporation in 2003; and WHEREASThe Company and the Executive have executed an employment agreement on January 2, 2003 (the "Original Agreement"), whichagreement was superseded by an employment agreement dated August 22, 2014 (the "Employment Agreement"); and WHEREASThe Executive and the Company have agreed to terminate the Executive's employment with the Company, in accordance with the terms ofthe Employment Agreement and with the provisions of the Company's compensation policy, as approved by the Company's shareholders onJune 22, 2015 (the "Compensation Policy"); and WHEREASThe Executive and the Company wish to set forth herein all terms and conditions applicable to the termination of the Executive'semployment in the Company, according to the Employment Agreement and the Compensation Policy. NOW THEREFORE, in consideration of the mutual promises, covenants and other agreements contained herein, and intending to be legally bound, theparties hereto hereby declare and agree as follows: 1.Termination of Employment 1.1.The Executive's employment with the Company will terminate and the Employment Agreement shall stand terminated (except asspecified in Section 1.2.3 below and except for Exhibit B of the Employment Agreement - Company’s Proprietary Information,Confidentiality and Non-Competition Agreement (the "PI&C Agreement"), which shall remain in effect indefinitely) as of theEffective Date. 1.2.Following the Effective Date: 1.2.1.The Executive shall neither be required to perform his duties as the Chief Innovation Officer (CIO) of the Company,nor present itself and/or act as an executive officer of the Company. 1.2.2.However, the Executive shall cooperate with the Company and use his best efforts to assist the transition of his officeto the person or persons who will assume his responsibilities, as shall be coordinated from time to time between theChairman of the Company's Board of Directors (the "Board") and the Executive. 1.2.3.Notwithstanding the provisions of Section 1.1 above (and in accordance with the provisions of the EmploymentAgreement and the Compensation Policy), the Executive shall be entitled to all payments and benefits due to himunder the provisions of Sections 5 (Salary), 6 (Insurance and Social Benefits), and 7 (Additional Benefits) of theEmployment Agreement for the six-month period commencing as of the Effective Date (the "Notice Period"). Suchpayments and benefits shall be paid to the Executive, unless agreed otherwise between the Executive and theCompany, within 5 days from the Effective Date. 1.2.4.The Company shall provide to the Executive any documentation which is customarily provided upon termination ofemployment (e.g. termination letter, release letters to the Executive's pension funds/managers' insurance schemes, etc.). 1.2.5.Subject to all legally-required approvals (including, without limitation the approvals of the Compensation Committeeand the Board) the Company shall pay to the Executive a bonus for his performance in the year 2017, based on theguidelines and principles of the Compensation Policy and on the recommendations of the Compensation Committeeand the Board. 1.2.6.Commencing as of the Effective Date, the Executive shall be invited to all meetings of the Company's Board ofDirectors (the "Board") as an observer and shall be entitled to the Board participation and meeting fees payable by theCompany to Non-Executive Directors. The Board shall also grant to the Executive long term incentives equivalent tothose granted to Non-Executive directors during such period. Unless agreed otherwise, Executive's observer positionshall be maintained at least as long as the majority of the Board members as of the Effective Date remain in office insuch capacity (and may be terminated, following such change in the composition of the Board, by a Board resolution). 2.The Severance Period 2.1.Within 10 days of the commencement of the twelve-month period commencing upon the lapse of the Notice Period (hereinafter:the "Severance Period"), the Company shall pay the Executive an amount equal to 12 (twelve) times the Salary (as such term isdefined in the Employment Agreement). Executive may retain Company's cellphone, and PC, etc. during the Severance Period. 2.2.For the avoidance of doubt, and without derogating from the provisions of Sections 1.3 and 2.2 above, it is hereby agreed that theExecutive shall not be entitled to any other rights and/or benefits under the Employment Agreement during and/or in connectionwith the Severance Period. 3.Consulting Services 3.1.Throughout the Notice Period and the Severance Period the Executive shall provide to the Company's Head of Innovation (and/orto any other officer designated by the Board and/or by the Chairman of the Board ) innovation advisory services, as shall berequested by the Company from time to time (the "Services"). Such Services may include, among other things, consulting withregard to the identification and evaluation of new projects, assistance in negotiations with academic institutes and investigators,operational aspects of research and development activities, etc. The scope, duration and timing of the Services shall be coordinatedbetween the Company and the Executive (it being acknowledged that the Executive is not expected to provide the Services on afull-time and/or daily basis). 23.2.In order to facilitate the provision of the Services, the Company shall provide the Executive, throughout the Notice Period and theSeverance Period, an office and secretarial services (on an as-needed basis and as shall be coordinated between the Company's CEOand/or Israel country head and the Executive), and shall set a budget, including travel, insurance, registration and participation feesand other reasonable expense, with regard to the Executive's participation in up to 6 (six) conferences per annum, as shall beapproved by the Chairman of the Board from time to time. The Chairman of the Board may also approve the retention ofconsultants and/or other service providers who shall assist the Executive in the performance of the Services. 3.3.The Executive shall provide the Services as an independent contractor and shall neither be deemed, nor present himself, as anemployee, executive officer and/or agent of the Company. 3.4.The Executive shall refer to the Chairman of the Board and/or to the CEO and/or to the Head of Innovation any business and/ordevelopment opportunity related to the Company's business (as currently conducted and as shall be conducted throughout theNotice Period and the Severance Period) and/or any query and/or contact made by any actual or potential shareholder of theCompany and/or by analysts, investments bankers, etc., which shall come to his knowledge. 3.5.The Executive shall not be entitled to any additional compensation in connection with the provision of the Services. 3.6.The Board may review the provision of the Services from time to time, and may, upon discussion with the Executive and in view ofissues such as conflicts of interest, performance, etc. limit and/or adjust the scope of the Services, as required. 4.Equity-Based Compensation 4.1Any and all equity-based compensation (i.e. options to purchase the Company's ordinary shares of NIS 0.16 par value each andRestricted Share Units granted under the Company's 2015 Israeli Share Incentive Plan and the Company's 2009 Israeli ShareOption Plan) previously granted to the Executive shall continue to vest (according to the respective terms of each grant) during theNotice Period and afterwards, as long as the Executive provides the Services to the Company. 35.Freedom of Occupation Commencing as of the Effective Date and until the lapse of the Severance Period, Executive may, subject to the provisions of the PI&CAgreement and to his undertakings under Sections 1.2.2 and 1.3.1 above, engage in any occupation and/or any business and/or other activity ashe shall see fit, provided however that he shall not put himself in any position that may in any way raise a conflict of interest betweenExecutive or any member of Executive's family and the Company. 6.Waiver and Release Subject to the full and timely performance of all of the Company's undertakings under Sections 1.2.3, 2.1, 1.3.3 and 4 above, Executive herebyirrevocably waives any and all rights, claims and/or remedies that he has or may have against the Company and/or its directors, officers and/oremployees. 7.Miscellaneous 7.1.The preamble to this Agreement constitutes an integral part hereof. Headings are included for reference purposes only and are notto be used in interpreting this Agreement. 7.2.The laws of the State of Israel shall apply to this Agreement and the sole and exclusive jurisdiction in any matter arising out of or inconnection with this Agreement shall be the Tel-Aviv Regional Labor Court. 7.3.The provisions of this Agreement are in lieu of the provisions of any collective bargaining agreement, and therefore, no collectivebargaining agreement shall apply with respect to the relationships between the parties hereto (subject to applicable mandatoryprovisions of law). 7.4.The Company shall withhold, or charge Executive with all taxes and other compulsory payments as required under all applicablelaws with respect to all payments, benefits and other compensation payable to Executive in connection with this Agreement. 7.5.The Company shall be entitled to offset from any payments to which Executive shall be entitled hereunder, any amounts which theCompany shall be entitled to receive from Executive at such time. 7.6.No failure, delay of forbearance of either party in exercising any power or right hereunder shall in any way restrict or diminish suchparty's rights and powers under this Agreement, or operate as a waiver of any breach or nonperformance by either party of any termsof conditions hereof. 7.7.In the event it shall be determined under any applicable law that a certain provision set forth in this Agreement is invalid orunenforceable, such determination shall not affect the remaining provisions of this Agreement unless the business purpose of thisAgreement is substantially frustrated thereby. 7.8.This Agreement constitutes the entire understanding and agreement between the parties hereto, supersedes any and all priordiscussions, agreements (including without limitation, the Original Agreement and the Employment Agreement) andcorrespondence with regard to all subject matters hereof, and may not be amended, modified or supplemented in any respect,except by a subsequent writing executed by both parties hereto. 47.9.This Agreement does not affect Executive's rights and obligations as a shareholder and/or director of the Company. 7.10.Executive acknowledges and confirms that, subject to any applicable disclosure duties (whether under any applicable law and/orNASDAQ rules and/or otherwise) all terms of this Agreement are personal and confidential, and undertakes to keep such terms inconfidence and refrain from disclosing such terms to any third party. [The Remainder of the Page intentionally left blank] IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. The Company: FoamixPharmaceuticals Ltd. By: /s/ David Domzalski David Domzalski CEO /s/ Ilan Hadar Ilan Hadar Country ManagerThe Executive: Meir Eini /s/ Meir EiniSignature 5  Exhibit 10.8 LEASE AND LEASE AGREEMENT Between S/K 520 ASSOCIATES The Landlord And FOAMIX PHARMACEUTICALS INC. The Tenant For Leased Premises In 520 Route 22, Bridgewater, New Jersey October 25th, 2017 Prepared by:Gary O. Turndorf520 Route 22P.O. Box 6872Bridgewater, NJ 08807(908) 725-8100 TABLE OF CONTENTS Page 1.DEFINITIONS.12.LEASE OF THE LEASED PREMISES.13.RENT.14.TERM.25.PREPARATION OF THE LEASED PREMISES.26.OPTIONS.27.USE AND OCCUPANCY.38.UTILITIES, SERVICES, MAINTENANCE AND REPAIRS.59.ALLOCATION OF THE EXPENSE OF UTILITIES, SERVICES, MAINTENANCE, REPAIRS AND TAXES.610.COMPUTATION AND PAYMENT OF ALLOCATED EXPENSES OF UTILITIES, SERVICES, MAINTENANCE, REPAIRS, TAXESAND CAPITAL EXPENDITURES.611.LEASEHOLD IMPROVEMENTS, FIXTURES AND TRADE FIXTURES.1212.ALTERATIONS, IMPROVEMENTS AND OTHER MODIFICATIONS BY THE TENANT.1213.LANDLORD’S RIGHTS OF ENTRY AND ACCESS.1414.LIABILITIES AND INSURANCE OBLIGATIONS.1515.CASUALTY DAMAGE TO BUILDING OR LEASED PREMISES.1716.CONDEMNATION.1817.ASSIGNMENT OR SUBLETTING BY TENANT.1818.SIGNS, DISPLAYS AND ADVERTISING.2019.QUIET ENJOYMENT.2120.RELOCATION.2121.SURRENDER.2122.EVENTS OF DEFAULT.2223.RIGHTS AND REMEDIES.2324.TERMINATION OF THE TERM.2625.MORTGAGE AND UNDERLYING LEASE PRIORITY.2726.TRANSFER BY LANDLORD.2727.INDEMNIFICATION.2828.PARTIES’ LIABILITY.2929.SECURITY DEPOSIT.3030.REPRESENTATIONS.3131.RESERVATION IN FAVOR OF TENANT.31  32.TENANT’S CERTIFICATES AND MORTGAGEE NOTICE REQUIREMENTS.3233.WAIVER OF JURY TRIAL AND ARBITRATION.3434.SEVERABILITY.3435.NOTICES.3436.CAPTIONS.3437.COUNTERPARTS.3438.APPLICABLE LAW.3539.EXCLUSIVE BENEFIT.3540.SUCCESSORS.3541.AMENDMENTS.3542.WAIVER.3543.COURSE OF PERFORMANCE.35 EXHIBIT A - LEASED PREMISES FLOOR SPACE DIAGRAM37EXHIBIT B - PROPERTY DESCRIPTION38EXHIBIT C - WORK LETTER39EXHIBIT D - BUILDING RULES AND REGULATIONS40EXHIBIT E - DEFINITIONS AND INDEX OF DEFINITIONS43  LEASE AND LEASE AGREEMENT, dated as of October 25th, 2017, between S/K 520 ASSOCIATES, a New Jersey partnership, with offices at 520 Route 22,P.O. Box 6872, Bridgewater, NJ 08807 (the “Landlord”), and FOAMIX PHARMACEUTICALS INC., a Delaware corporation, with an office at 520 Route 22,Bridgewater, NJ 08807 (the “Tenant”). Subject to all the terms and conditions set forth below, the Landlord and the Tenant hereby agree as follows: 1. Definitions. Certain terms and phrases used in this Agreement (generally those whose first letters are capitalized) are defined in Exhibit E attached hereto and, as used inthis Agreement, they shall have the respective meanings assigned or referred to in that exhibit. 2. Lease of the Leased Premises. 2.1. The Landlord shall, and hereby does, lease to the Tenant, and the Tenant shall, and hereby does, accept and lease from the Landlord, the LeasedPremises during the Term. The Leased Premises consist of 10,000 square feet of gross rentable floor space on the second floor of 520 Route 22, Bridgewater,New Jersey as more fully described in the definition of Leased Premises set forth in Exhibit E attached hereto. 2.2. The Landlord shall, and hereby does, grant to the Tenant, and the Tenant shall, and hereby does, accept from the Landlord, the non-exclusive rightto use the Common Facilities during the Term for itself, its employees, other agents and Guests in common with the Landlord, any tenants of Other LeasedPremises, any of their respective employees, other agents and guests and such other persons as the Landlord may, in the Landlord’s sole discretion, determinefrom time to time. 3. Rent. 3.1. The Tenant shall punctually pay the Rent for the Leased Premises for the Term to the Landlord in the amounts and at the times set forth below,without bill or other demand and without any offset, deduction or abatement whatsoever, except as may be otherwise specifically set forth in this Agreement. 3.2. The Basic Rent for the Leased Premises during the Initial Term shall be at the rate per year set forth below. MonthsAnnual RateMonthly Installments1 thru 16$128,100.00$10,675.00The annual rate of Basic Rent for the Leased Premises during any Renewal Term shall be calculated as set forth in subsection 6.1.4 of this Agreementfor the respective Renewal Term. 3.3. The Tenant shall punctually pay the applicable Basic Rent in equal monthly installments in advance on the first day of each month during theTerm, with the exception of Basic Rent for the first full calendar month of the Initial Term and for any period of less than a full calendar month at thebeginning of the Term. The Tenant shall pay the Basic Rent for the first full calendar month of the Initial Term upon execution and delivery of thisAgreement. The Tenant shall punctually pay the Basic Rent for a period of less than a full calendar month at the beginning of the Term on theCommencement Date. 3.4. The Basic Rent and the Additional Rent for any period of less than a full calendar month shall be prorated. In the event that any installment of BasicRent cannot be calculated by the time payment is due, such portion as is then known or calculable shall be then due and payable; and the balance shall bedue upon the Landlord’s giving notice to the Tenant of the amount of the balance due. 1 3.5. The Additional Rent for the Leased Premises during the Term shall be promptly paid by the Tenant in the respective amounts and at the respectivetimes set forth in this Agreement. 3.6. That portion of any amount of Rent or other amount due under this Agreement which is not paid on the day it is first due shall incur a late chargeequal to the sum of: (i) five percent of that portion of any amount of Rent or other amount due under this Agreement which is not paid on the day it is firstdue and (ii) interest on that portion of any amount of Rent or other amount due under this Agreement which is not paid on the day it is first due at the BaseRate(s) in effect from time to time plus two additional percentage points from the day such portion is first due through the day of receipt thereof by theLandlord. Any such late charge due from the Tenant shall be due immediately. Anything hereinabove contained to the contrary notwithstanding, it isexpressly understood and agreed that no late charge shall be imposed if Rent is not paid by the fifth day of the month provided that if Rent is not paid by thefifth day of the month more than twice in any twelve month period then, thereafter, the late charge shall be imposed if Rent is not paid by the first day of themonth. 4. Term. 4.1. The Initial Term shall commence on the Commencement Date and shall continue for sixteen (16) months from the beginning of the Initial Year,unless sooner terminated in accordance with section 24 of this Agreement. The Term shall commence on the Commencement Date and shall continue untilthe later of the conclusion of the Initial Term or the conclusion of any Renewal Term, unless sooner terminated in accordance with section 24 of thisAgreement. 4.2. The Commencement Date shall be December 1, 2017. 5. Preparation of the Leased Premises. 5.1 Tenant shall be permitted to use all the existing furniture and possessions in the Leased Premises without charge. The use is without any warrantyincluding, without limitation, any warranty of fitness for use or quality. 5.2 The Landlord shall deliver actual and exclusive possession of the Leased Premises to the Tenant in an AS-IS condition, free of rubbish and debris. 6. Options. 6.1 If, prior to the respective date of exercise thereof, (a)(i) no Event of Default shall have occurred or (ii) if an Event of Default shall have occurred, theTenant shall have previously cured it in full and the Landlord shall have waived it and (b) there shall not have been a History of Recurring Events of Default,Tenant is hereby granted one option to renew this Lease (the “Option to Renew”) upon the following terms and conditions: 6.1.1At the time of the exercise of the Option to Renew and at the time of said renewal, the Tenant shall not be in default in accordance with theterms and provisions of this Agreement, and shall occupy and be in operation at the entire Leased Premises pursuant to this Agreement. 6.1.2Notice of the exercise of the Option to Renew shall be sent to the Landlord in writing at least six (6) months before the expiration of theInitial Term. 2 6.1.3The Renewal Term shall be for a period of three (3) years to commence at the expiration of the Initial Term, and all of the terms andconditions of this Agreement, other than the annual amount of Basic Rent, shall apply during the Renewal Term. 6.1.4Subject to the last sentence of this paragraph, the amount of annual Basic Rent to be paid during the Renewal Term shall equal the MarketRental Rate of the Leased Premises if the same were available for lease to the public. If the parties are unable to agree on the Market RentalRate of the Leased Premises, the parties shall each appoint one appraiser who shall in turn appoint a third independent appraiser and thedetermination of said three appraisers shall be binding on the parties. In no event, however, shall the annual Basic Rent payable by Tenantduring the Renewal Term be less than the annual Basic Rent paid by Tenant during the immediately preceding twelve months. 6.2. In the event the Tenant assigns this Agreement or sublets, or licenses the use or occupancy of, the Leased Premises or any portions thereof inaccordance with section 17 of this Agreement or otherwise, or attempts to do so: 6.2.1.any Option to Renew which the Tenant has theretofore properly exercised with respect to a Renewal Term that has not yet actuallycommenced shall be rescinded, if the Landlord so elects by notice to the Tenant, to the same extent as if it had not been exercised at all; and 6.2.2.any Option to Renew or any other type of option or optional right exercisable by the Tenant not theretofore timely and otherwise properlyexercised by the Tenant shall thereupon expire. 7. Use and Occupancy. 7.1. The Tenant shall continuously occupy and use the Leased Premises during the Term exclusively for general office purposes. 7.2. In connection with the Tenant’s use and occupancy of the Leased Premises and use of the Common Facilities, the Tenant shall observe, and theTenant shall cause the Tenant’s employees, other agents and Guests to observe, each of the following: 7.2.1.the Tenant shall not do, or permit or suffer the doing of, anything which might have the effect of creating an increased risk of, or damagefrom, fire, explosion or other casualty; 7.2.2.the Tenant shall not do, or permit or suffer the doing of, anything which would have the effect of (a) increasing any premium for anyliability, property, casualty or excess coverage insurance policy otherwise payable by the Landlord or any tenant of Other Leased Premisesor (b) making any such types or amounts of insurance coverage unavailable or less available to the Landlord or any tenant of Other LeasedPremises; 7.2.3.to the extent they are not inconsistent with this Agreement, the Tenant and the Tenant’s employees, other agents and Guests shall complywith the Building Rules and Regulations attached hereto as Exhibit D, and with any changes made therein by the Landlord if, with respectto any such changes, the Landlord shall have given notice of the particular changes to the Tenant and such changes shall not materiallyadversely affect the conduct of the Tenant’s business in the Leased Premises; 7.2.4.the Tenant and the Tenant’s employees, other agents and Guests shall not create, permit or continue any Nuisance in or around the LeasedPremises, the Other Leased Premises, the Building, the Common Facilities and the Property; 3 7.2.5.The Tenant and the Tenant’s employees, other agents and Guests shall not permit the Leased Premises to be regularly occupied by morethan one individual per 200 square feet of usable floor space of the Leased Premises; 7.2.6.the Tenant and the Tenant’s employees, other agents and Guests shall comply with all Federal, state and local statutes, ordinances, rules,regulations and orders as they pertain to the Tenant’s use and occupancy of the Leased Premises, to the conduct of the Tenant’s businessand to the use of the Common Facilities, except that this subsection shall not require the Tenant to make any structural changes that may berequired thereby that are generally applicable to the Building as a whole; 7.2.7.the Tenant and the Tenant’s employees, other agents and Guests shall comply with the requirements of the Board of Fire Underwriters (orsuccessor organization) and of any insurance carriers providing liability, property, casualty or excess insurance coverage regarding theProperty, the Building, the Common Facilities or any portions thereof, and any other improvements on the Property, except that thissubsection shall not require the Tenant to make any structural changes that may be required thereby that are generally applicable to theBuilding as a whole; 7.2.8.the Tenant and the Tenant’s employees, other agents and Guests shall not bring or discharge any material or substance (solid, liquid orgaseous) which is a Hazardous Substance, or conduct any activity, in or on the Property, the Building, the Common Facilities or the LeasedPremises that shall have been identified: (i)by the scientific community, or (ii)by any Federal, state or local statute (including, without limiting the generality of the foregoing, the Spill Compensation andControl Act (58 N.J.S.A. §10-23.11 et seq.); the Industrial Site Recovery Act (“ISRA”)(13 N.J.S.A. §1 K-6 et seq.); the ResourceConservation and Recovery Act of 1976 (42 U.S.C. §6901 et seq.) as amended; the Comprehensive Environmental ResponseCompensation and Liability Act of 1980 (42 U.S.C. §9601 et seq.); the Federal Water Pollution Control Act/Clean Water Act (33U.S.C. §1251 et seq.); the Clean Water Act (33 U.S.C. §1251 et seq.); the Clean Air Act (42 U.S.C. §7401 et seq.); the ToxicSubstances Control Act (15 U.S.C. §2601 et seq.); the Hazardous Materials Transportation Act (49 U.S.C. §5101 et seq.) the SafeDrinking Water Act (42 U.S.C. §300f through §300j) as amended; the Global Warming Response Act, 26 N.J.S.A. §2C-37 et seq.;the Regional Greenhouse Gas Initiative Act, 26 N.J.S.A. §2C-45 et seq., and the regulations adopted and publications promulgatedpursuant to said laws; and in any revisions or successor codes as toxic or hazardous to health or to the environment(“Environmental Laws”) As used herein, “Hazardous Substance” means any material or substance which is toxic, ignitable,reactive, or corrosive; or which is defined as “hazardous waste”, “extremely hazardous waste”, “extraordinary hazardoussubstance” or a “hazardous substance” by Environmental Laws; or which is an asbestos, polychlorinated biphenyl or a petroleumproduct; or which is regulated by Environmental Laws; 7.2.9.the Tenant and the Tenant’s employees, other agents and Guests shall not draw electricity in the Leased Premises in excess of the ratedcapacity of the electrical conductors and safety devices including, without limiting the generality of the foregoing, circuit breakers andfuses, by which electricity is distributed to and throughout the Leased Premises and, without the prior written consent of the Landlord ineach instance, shall not connect any fixtures, appliances or equipment to the electrical distribution system serving the Building and theLeased Premises other than typical professional office equipment such as minicomputers, microcomputers, typewriters, copiers, telephonesystems, coffee machines and table top microwave ovens, none of which, considered individually and in the aggregate, overall and perfused or circuit breaker protected circuit, shall exceed the above limits; 4 7.2.10.on a timely basis the Tenant shall pay directly and promptly to the respective taxing authorities any taxes (other than Taxes) charged,assessed or levied exclusively on the Leased Premises or arising exclusively from the Tenant’s use and occupancy of the Leased Premises;and 7.2.11.the Tenant shall not initiate any appeal or contest of any assessment or collection of Taxes for any period without, in each instance, theprior written consent of the Landlord which, without being deemed unreasonable, the Landlord may withhold if the Building was not 90%occupied by paying tenants throughout that period or if the Tenant is not joined by tenants of Other Leased Premises that leasedthroughout that period, and that are then leasing, at least 80% of all Other Leased Premises, determined by their gross rentable floor space. 8. Utilities, Services, Maintenance and Repairs. 8.1. The Landlord shall provide or arrange for the provision of: 8.1.1.such maintenance and repair of the Building (except the Leased Premises and Other Leased Premises); the Common Facilities; and theheating, ventilation and air conditioning systems (but not including supplemental cooling, whether supplemental cooling units are foundin the Leased Premises or not), any plumbing systems and the electrical systems in the Building, the Common Facilities, the LeasedPremises and Other Leased Premises as is customarily provided for first class office buildings in the immediate area; 8.1.2.maintenance and repair of the Leased Premises, except for refinishing walls and wall treatments, base, ceilings, floor treatments and doors ingeneral from time to time or for gouges, spots, marks, damage or defacement caused by anyone other than the Landlord, its employees andother agents, and except for the Tenant’s furniture, furnishings, equipment and other property; 8.1.3.such garbage removal from the Building and the Common Facilities and such janitorial services for the Building, the Leased Premises andOther Leased Premises as is customarily provided for first class office buildings in the immediate area; 8.1.4.the electricity required for the operation of the Building, the Property and the Common Facilities during Regular Business Hours and, on areduced service basis, during other than Regular Business Hours, and, at all times, the electricity required for the Leased Premises; 8.1.5.such heat, ventilation and air conditioning (but not including supplemental cooling, whether supplemental cooling units are found in theLeased Premises or not) for the Building, the Leased Premises and Other Leased Premises as is customarily provided for first class officebuildings in the immediate area for the comfortable use of the Building during Regular Business Hours. (Customary cooling shall bedetermined without reference to the existence of such supplemental cooling units.); 8.1.6.water (including heated water) to the Building and, if the appropriate plumbing has been installed therein, to the Leased Premises; 5 8.1.7.sewage disposal for the Building; 8.1.8.passenger elevator service for the Building; 8.1.9.snow clearance from, and sweeping of, Parking Facilities and private access roads which are part of the Property or the Common Facilities;and 8.1.10.the maintenance of landscaping which is part of the Property or the Common Facilities. 8.2. Except as specifically set forth in subsection 8.1 of this Agreement, the Tenant shall maintain and repair the Leased Premises and keep the LeasedPremises in as good condition and repair, reasonable wear and use excepted, as the Leased Premises are upon the completion of any improvementscontemplated by section 5 of this Agreement. 9. Allocation of the Expense of Utilities, Services, Maintenance, Repairs and Taxes. 9.1. All Tenant Electric Charges shall be borne by the Tenant. It is agreed that the Tenant Electric Charges are $1.75 per square foot per year, subject tothe provisions of subsection 10.10 of this Agreement. Landlord may elect, at its expense, to install a separate electric meter or submeter to measure theelectric consumption in the Leased Premises for purposes other than heating, ventilation and air conditioning provided pursuant to subsection 8.1.5 of thisAgreement. In such event, all Tenant Electric Charges shall be borne by the Tenant based upon the meter readings. 9.2. Between the Commencement Date and the end of the No Pass Through Period, the Tenant’s Share of all Operational Expenses and Taxes incurredduring such period shall be borne by the Landlord. 9.3. Between the day after the end of the No Pass Through Period and the end of the Term, the Tenant’s Share of Operational Expenses and Taxesincurred during each annual or shorter period ending on (a) December 31 of each year and (b) the end of the Term shall be borne as follows: 9.3.1.the Tenant’s Share of: Operational Expenses and Taxes incurred during each such period of 12 months (or shorter period), up to theamounts of Base Year Operational Expenses and Base Year Taxes, respectively (or proportional amount thereof for periods shorter than 12months), shall be borne by the Landlord; and 9.3.2.the Tenant’s Share of: the amounts by which Operational Expenses and Taxes incurred during each such period of 12 months (or shorterperiod) exceed Base Year Operational Expenses and Base Year Taxes, respectively (or proportional amount thereof for periods shorter than12 months) shall be allocated to, and borne by, the Tenant as more specifically set forth in section 10 of this Agreement. 10.Computation and Payment of Allocated Expenses of Utilities, Services, Maintenance, Repairs, Taxes and Capital Expenditures. 10.1. The Tenant shall promptly pay the following additional amounts to the Landlord at the respective times set forth below: 10.1.1.commencing with the first day after the end of the No Pass Through Period, and on the first day of each month thereafter during the Term,one-twelfth of the Tenant’s Share of the amount by which Taxes for the then current calendar year exceeds Base Year Taxes, computed inaccordance with subsection 10.5 of this Agreement. When Landlord knows of facts which cause a revision of the estimate, it may serve arevised estimate and, for the balance of the current calendar year, the estimated payments shall be made accordingly; 6 10.1.2.within 20 days of the Landlord’s giving notice to the Tenant after the close of each calendar year closing during the Term, commencingwith the first calendar year closing after the close of the No Pass Through Period, and after the end of the Term, the Tenant’s Share of thedifference between the Landlord’s previously projected amount of Taxes for such period and the actual amount of Taxes for such period, ineither case in excess of Base Year Taxes, computed in accordance with subsection 10.6 of this Agreement (unless such difference is anegative amount, in which case the Landlord shall credit such difference against any amounts next due from the Tenant under subsections10.1.1 and 10.5 of this Agreement); 10.1.3.commencing with the first day after the end of the No Pass Through Period, and on the first day of each month thereafter during the Term,one-twelfth of the Tenant’s Share of the amount by which Operational Expenses for the then current calendar year exceed Base YearOperational Expenses, computed in accordance with subsection 10.7 of this Agreement. When Landlord knows of facts which cause arevision of the estimate, it may serve a revised estimate and, for the balance of the current calendar year, the estimated payments shall bemade accordingly; 10.1.4.within 20 days of the Landlord’s giving notice to the Tenant after the close of each calendar year closing during the Term, commencingwith the first calendar year closing after the close of the No Pass Through Period, and after the end of the Term, the Tenant’s Share of thedifference between the Landlord’s previously projected amount of Operational Expenses for such period and the actual amount ofOperational Expenses for such period, in either case in excess of Base Year Operational Expenses, computed in accordance with subsection10.8 of this Agreement (unless such difference is a negative amount, in which case the Landlord shall credit such difference against anyamounts next due from the Tenant under subsections 10.1.3 and 10.7 of this Agreement); 10.1.5.commencing with the first day of the first month after the Landlord gives any notice contemplated by subsection 10.9 of this Agreement tothe Tenant and continuing on the first day of each month thereafter until the earlier of (a) the end of the Term or (b) the last month of theuseful life set forth in the respective notice, one-twelfth of the Tenant’s Share of any Annual Amortized Capital Expenditure, computed inaccordance with subsection 10.9 of this Agreement; 10.1.6.on the first day of each month during the Term, the monthly Tenant Electric Charges, set forth in section 9.1 of this Agreement as the samemay be revised in accordance with subsection 10.10 of this Agreement; and 10.1.7.promptly as and when billed therefore by the Landlord, the amount of any expense which would otherwise fall within the definition ofOperational Expenses, but which is specifically paid or incurred by the Landlord for operation and maintenance of the Building, theCommon Facilities or the Property outside Regular Business Hours at the specific request of the Tenant or the amount of any expenditureincurred for maintenance or repair of damage to the Building, the Common Facilities, the Property, the Leased Premises or the Other LeasedPremises caused directly or indirectly, in whole or in part, by the active or passive negligence or intentional act of the Tenant or any of itsemployees, other agents or Guests. 7 10.2. “Operational Expenses” means all expenses paid or incurred by the Landlord in connection with the Property, the Building, the Common Facilitiesand any other improvements on the Property and their operation and maintenance (other than Taxes (which are separately allocated to the Tenant inaccordance with subsections 10.1.1 and 10.1.2 of this Agreement), Capital Expenditures (which are separately allocated to the Tenant in accordance withsubsection 10.1.5 of this Agreement) and those expenses contemplated by subsections 10.1.6 and 10.1.7 of this Agreement)) including, without limiting thegenerality of the foregoing: 10.2.1.Utilities Expenses; 10.2.2.the expense of providing the services, maintenance and repairs contemplated by subsection 8.1 of this Agreement, whether furnished bythe Landlord’s employees or by independent contractors or other agents; 10.2.3.wages, salaries, fees and other compensation and payments and payroll taxes and contributions to any social security, unemploymentinsurance, welfare, pension or similar fund and payments for other fringe benefits required by law or union agreement (or, if theemployees or any of them are not represented by a union, then payments for benefits comparable to those generally required by unionagreement in first class office buildings in the immediate area which are unionized) made to or on behalf of any employees of Landlordperforming services rendered in connection with the operation and maintenance of the Building, the Common Facilities and theProperty, including, without limiting the generality of the foregoing, elevator operators, elevator starters, window cleaners, porters,janitors, maids, miscellaneous handymen, watchmen, persons engaged in patrolling and protecting the Building, the Common Facilitiesand the Property, carpenters, engineers, firemen, mechanics, electricians, plumbers, other tradesmen, other persons engaged in theoperation and maintenance of the Building, Common Facilities and Property, Building superintendent and assistants, Buildingmanager, and clerical and administrative personnel; 10.2.4.the uniforms of all employees and the cleaning, pressing and repair thereof; 10.2.5.premiums and other charges incurred by Landlord with respect to all insurance relating to the Building, the Common Facilities and theProperty and the operation and maintenance thereof, including, without limitation: property and casualty, fire and extended coverageinsurance, including windstorm, flood, hail, explosion, other casualty, riot, rioting attending a strike, civil commotion, aircraft, vehicleand smoke insurance; public liability insurance; elevator, boiler and machinery insurance; excess liability coverage insurance; use andoccupancy insurance; workers’ compensation and health, accident, disability and group life insurance for all employees; casualty rentinsurance and such other insurance with such limits as may, from time to time, be customary for office buildings or which Landlord maybe required to secure by mortgage lenders; 10.2.6.sales and excise taxes and the like upon any Operational Expenses and Capital Expenditures; 10.2.7.management fees of any independent managing agent for the Property, the Building or the Common Facilities; and if there shall be noindependent managing agent, or if the managing agent shall be a person affiliated with the Landlord, the management fees that wouldcustomarily be charged for the management of the Property, the Building and the Common Facilities by an independent, first classmanaging agent in the immediate area; 10.2.8.the cost of replacements for tools, supplies and equipment used in the operation, service, maintenance, improvement, inspection, repairand alteration of the Building, the Common Facilities and the Property; 8 10.2.9.the cost of repainting or otherwise redecorating any part of the Building or the Common Facilities; 10.2.10.decorations for the lobbies and other Common Facilities in the Building; 10.2.11.the cost of licenses, permits and similar fees and charges related to operation, repair and maintenance of the Building, the Property andthe Common Facilities; and 10.2.12.any and all other expenditures of the Landlord in connection with the operation, alteration, repair or maintenance of the Property, theCommon Facilities or the Building as a first-class office building and facilities in the immediate area which are properly treated as anexpense fully deductible as incurred in accordance with generally applied real estate accounting practice. In determining Base YearOperational Expenses, Landlord may adjust any line item which, when compared to the same line item for the year prior to the BaseYear, has increased at a rate which is more than double the increase in the Index at the end of the year prior to the Base Year compared tothe Index at the end of the Base Year. In such event, the actual expense incurred for the line item in the Base Year shall be adjusted toequal the amount incurred for the same line item for the year prior to the Base Year multiplied by the sum of one plus the percentageincrease in the Index for the one year period. 10.3. “Capital Expenditures” means the following expenditures incurred or paid by the Landlord in connection with the Property, the Building, theCommon Facilities and any other improvements on the Property: 10.3.1.all costs and expenses incurred by the Landlord in connection with retro-fitting the entire Building or the Common Facilities, or anyportion thereof, to comply with any change in Federal, state or local statute, rule, regulation, order or requirement which change takes effectafter the original completion of the Building; 10.3.2.all costs and expenses incurred by the Landlord to replace and improve the Property, the Building or the Common Facilities or portionsthereof for the purpose of continued operation of the Property, the Building and the Common Facilities as a first class office complex in theimmediate area; and 10.3.3.all costs and expenses incurred by the Landlord in connection with the installation of any energy, labor or other cost saving device orsystem on the Property or in the Building or the Common Facilities. 10.4. Neither “Operational Expenses” nor “Capital Expenditures” shall include any of the following: 10.4.1.principal or interest on any mortgage indebtedness on the Property, the Building or any portion thereof; 10.4.2.any capital expenditure, or amortized portion thereof, other than those included in the definition of Capital Expenditures set forth insubsection 10.3 above; 10.4.3.expenditures for any leasehold improvement which is made in connection with the preparation of any portion of the Building foroccupancy by a new tenant or which is not made generally to or for the benefit of the Leased Premises and all Other Leased Premises orgenerally to the Building or the Common Facilities; 9 10.4.4.to the extent the Landlord actually receives proceeds of property and casualty insurance policies on the Building, other improvements onthe Property or the Common Facilities, expenditures for repairs or replacements occasioned by fire or other casualty to the Building or theCommon Facilities; 10.4.5.expenditures for repairs, replacements or rebuilding occasioned by any of the events contemplated by section 16 of this Agreement; 10.4.6.expenditures for costs, including advertising and leasing commissions, incurred in connection with efforts to lease portions of the Buildingand to procure new tenants for the Building; 10.4.7.expenditures for the salaries and benefits of the executive officers, if any, of the Landlord; and 10.4.8.depreciation (as that term is used in the accounting sense in the context of generally applied real estate accounting practice) of theBuilding, the Common Facilities and any other improvement on the Property. 10.5. As soon as practicable after the close of the No Pass Through Period and December 31 of each year thereafter, any portion of which is during theTerm, the Landlord shall furnish the Tenant with a notice setting forth: 10.5.1.Taxes billed, or if a bill has not then been received for the entire period, the Landlord’s projection of Taxes to be billed, for the then currentcalendar year; 10.5.2.the amount of Base Year Taxes; 10.5.3.the amount, if any, by which item 10.5.1 above exceeds item 10.5.2 above; and 10.5.4.the Tenant’s Share of item 10.5.3 above. 10.6. As soon as practicable after December 31 of each year during the Term and after the end of the Term, the Landlord shall furnish the Tenant with anotice setting forth: 10.6.1.the actual amount of Taxes for the preceding calendar year in excess of Base Year Taxes (or proportional amount thereof for shorter periodsduring the Term); 10.6.2.the Landlord’s previously projected amount of Taxes for the preceding calendar year in excess of Base Year Taxes (or proportional amountthereof for shorter periods during the Term); 10.6.3.the difference obtained by subtracting item 10.6.2 above from item 10.6.1 above; and 10.6.4.the Tenant’s Share of item 10.6.3 above. 10 10.7. As soon as practicable after the close of the No Pass Through Period and December 31 of each year thereafter, any portion of which is during theTerm, the Landlord shall furnish the Tenant with a notice setting forth: 10.7.1.the Landlord’s projection of annual Operational Expenses for the current period (if any portion thereof is during the Term); 10.7.2.the amount of the Base Year Operational Expenses; 10.7.3.the amount, if any, by which item 10.7.1 above exceeds item 10.7.2 above; and 10.7.4.the Tenant’s Share of item 10.7.3 above. 10.8. As soon as practicable after December 31 of each year during the Term and after the end of the Term, the Landlord shall furnish the Tenant with anotice setting forth: 10.8.1.the actual amount of Operational Expenses for the preceding calendar year in excess of Base Year Operational Expenses (or proportionalamount thereof for shorter periods during the Term); 10.8.2.the Landlord’s previously projected amount of Operational Expenses for the preceding calendar year in excess of Base Year OperationalExpenses (or proportional amount thereof for shorter periods during the Term); 10.8.3.the difference obtained by subtracting item 10.8.2 above from item 10.8.1 above; and 10.8.4.the Tenant’s Share of item 10.8.3 above. 10.9. As soon as practicable after incurring any Capital Expenditure, the Landlord shall furnish the Tenant with a notice setting forth: 10.9.1.a description of the Capital Expenditure and the subject thereof; 10.9.2.the date the subject of the respective Capital Expenditure was first placed into service and the period of useful life selected by the Landlordin connection with the determination of the Annual Amortized Capital Expenditure; 10.9.3.the amount of the Annual Amortized Capital Expenditure; and 10.9.4.the Tenant’s Share of item 10.9.3 above. 10.10. From time to time after the Commencement Date, the Landlord may furnish the Tenant with a notice setting forth its estimate of Tenant ElectricCharges per month. Unless the Tenant desires to question the Landlord’s then most recent estimate of Tenant Electric Charges exclusively in the manner setforth below, the Landlord’s then most recent estimate shall be binding and shall continue in effect until any question raised by the Tenant is otherwiseresolved in accordance with this subsection 10.10 of the Agreement. If the Tenant desires to question the Landlord’s estimate of Tenant Electric Charges, theTenant shall give notice to the Landlord of its desire. Upon receipt of the Tenant’s notice, the Landlord shall obtain, at the Tenant’s expense, a reputable,independent electrical engineer’s formal written estimate and computation of the Tenant Electric Charges. The engineer’s estimate and computation ofTenant Electric Charges shall thereupon control for a 12 month period commencing with the date as of which it is given effect as to Tenant Electric Charges,and until the Landlord furnishes the Tenant with a subsequent notice setting forth its estimate of Tenant Electric Charges per month, except to the extent thatthe Landlord may increase them in proportion to increases in Utilities Expenses during the same period. 11 10.11. Within 30 days after the Landlord gives any notice enumerated in subsections 10.5 through 10.10 of this Agreement, the Tenant or the Tenant’sauthorized agent, upon one week’s prior notice to the Landlord, may inspect the Landlord’s books and records, as they pertain to the particular expense inquestion, at the Landlord’s office regarding the subject of any such notice to verify the amount(s) and calculation(s) thereof. After payment of the Tenant’sShare in accordance with the provisions of section 10 of this Agreement, no further audit shall be conducted with respect to Operational Expenses, Taxes,Capital Expenditures, Base Year Operational Expenses or Base Year Taxes except with respect to items which may have been questioned within the 30 dayperiod. Tenant agrees that no audit will be conducted by an auditor engaged, in whole or in part, on a contingent fee basis. If an audit is conducted, theLandlord shall have the right to verify that the provisions of this prohibition have been satisfied. 10.12. The mere enumeration of an item within the definitions of Operational Expenses and Capital Expenditures in subsections 10.2 and 10.3 of thisAgreement, respectively, shall not be deemed to create an obligation on the part of the Landlord to provide such item unless the Landlord is affirmativelyrequired to provide such item elsewhere in this Agreement. Landlord, at Tenant’s expense, shall maintain any supplementary facilities which are agreed to beinstalled by Landlord for Tenant including, without limitation, supplementary heating, cooling or ventilation; electronic locking devices; and kitchenfacilities such as faucets, drains, pumps and insta-hot lines. 11. Leasehold Improvements, Fixtures and Trade Fixtures. All leasehold improvements to the Leased Premises, fixtures installed in the Leased Premises and the blinds and floor treatments or coverings shall be theproperty of the Landlord, regardless of when, by which party or at which party’s cost the item is installed. Movable furniture, furnishings, trade fixtures andequipment of the Tenant which are in the Leased Premises shall be the property of the Tenant, except as may otherwise be set forth in section 23 of thisAgreement. 12. Alterations, Improvements and Other Modifications by the Tenant. 12.1. The Tenant shall not make any alterations, improvements or other modifications to the Leased Premises which effect structural changes in theBuilding or any portion thereof, change the functional utility or rental value of the Leased Premises or, except as may be contemplated by section 5 of thisAgreement prior to the Commencement Date, affect the mechanical, electrical, plumbing or other systems installed in the Building or the Leased Premises. Itis specifically agreed that no plumbing work of any nature is to be performed by the Tenant or it’s contractor(s) including that referred to as an add-on teeinstalled in the vicinity of the lunch room sink or the building water supply system or drainage. Specifically, and without limiting the foregoing, noconnection is to be made for water coolers or water supply, coffee makers, water filters, portable air conditioners, condensate drains or lines. 12.2. The Tenant shall not make any other alterations, improvements or modifications to the Leased Premises, the Building or the Property or make anyboring in the ceiling, walls or floor of the Leased Premises or the Building unless the Tenant shall have first: 12.2.1.furnished to the Landlord detailed, New Jersey architect-certified construction drawings, construction specifications and, if they pertain inany way to the heating, ventilation and air conditioning, electric, sprinkler, horn/strobes or other systems of the Building, relatedengineering design work and specifications regarding, the proposed alterations, improvements or other modifications; 12.2.2.not received a notice from the Landlord objecting thereto in any respect within 30 days of the furnishing thereof (which shall not bedeemed the Landlord’s affirmative consent for any purpose); 12 12.2.3.obtained any necessary or appropriate building permits or other approvals from the Municipality and, if such permits or other approvals areconditional, satisfied all conditions to the satisfaction of the Municipality; and 12.2.4.met, and continued to meet, all the following conditions with regard to any contractors selected by the Tenant and any subcontractors,including materialmen, in turn selected by any of them: 12.2.4.1.the Tenant shall have sole responsibility for payment of, and shall pay, such contractors; 12.2.4.2.the Tenant shall have sole responsibility for coordinating, and shall coordinate, the work to be supplied or performed by suchcontractors, both among themselves and with any contractors selected by the Landlord; 12.2.4.3.the Tenant shall not permit or suffer the filing of any notice of construction lien claim or other lien or prospective lien by anysuch contractor or subcontractor with respect to the Property, the Common Facilities, the Building or any other improvements onthe Property; and if any of the foregoing should be filed by any such contractor or subcontractor, the Tenant shall forthwithobtain and file the complete discharge and release thereof or provide such payment bond(s) from a reputable, financially soundinstitutional surety as will, in the opinions of the Landlord, the holders of any mortgage indebtedness on, or other interest in, theProperty, the Building, the Common Facilities or any other improvements on the Property, or any portions thereof, and theirrespective title insurers, be adequate to assure the complete discharge and release thereof; 12.2.4.4.prior to any such contractor’s entering upon the Property, the Building or the Leased Premises or commencing work the Tenantshall have delivered to the Landlord (a) all the Tenant’s certificates of insurance set forth in section 14 of this Agreement,conforming in all respects to the requirements of section 14 of this Agreement, except that the effective dates of all suchinsurance policies shall be prior to any such contractor’s entering upon the Property, the Building or the Leased Premises orcommencing work (if any work is scheduled to begin before the Commencement Date) and (b) similar certificates of insurancefrom each of the Tenant’s contractors providing for coverage in equivalent amounts, together with their respective certificates ofworkers’ compensation insurance, employer’s liability insurance and products-completed operations insurance, the latterproviding coverage in at least the amount required for the Tenant’s comprehensive general public liability and excess insurance; 12.2.4.5.each such contractor shall be a party to collective bargaining agreements with those unions that are certified as the collectivebargaining agents of all bargaining units of such contractor, of which all such contractor’s workpersons shall be members ingood standing; 12.2.4.6.each such contractor shall perform its work in a good and workpersonlike manner and shall not interfere with or hinder (i) theLandlord or any other contractor in any manner, (ii) any building operations or systems, or (iii) any tenant of Other LeasedPremises; 13 12.2.4.7.there shall be no labor dispute of any nature whatsoever involving any such contractor or any workpersons of such contractor orthe unions of which they are members with anyone; and if such a labor dispute exists or comes into existence the Tenant shallforthwith, at the Tenant’s sole cost and expense, remove all such contractors and their workpersons from the Building, theCommon Facilities and the Property; 12.2.4.8.in each case, the electrical contractor, the HVAC contractor, the plumbing contractor and the security contractor engaged by theTenant must be the same contractor which is engaged by the Landlord to perform work in the Building; and 12.2.4.9.the Tenant shall have the sole responsibility for the security, cleanliness and safety of the Leased Premises and all contractors’materials, equipment and work, regardless of whether their work is in progress or completed. 12.2.4.10.Landlord’s approval of any or all of the construction drawings and specifications shall not constitute an opinion or agreementby Landlord as to the sufficiency or accuracy of such construction drawings and specifications or that such constructiondrawings and specifications comply with Law; nor shall such approval impose any present or future liability on Landlord orwaive any of Landlord’s rights under this Agreement. 12.3. After the Commencement Date, the Tenant shall not apply any wall covering (except latex based flat paint) or other treatment to the walls of theLeased Premises without the prior written consent of the Landlord. 13. Landlord’s Rights of Entry and Access. The Landlord and its authorized agents shall have the following rights of entry and access to the Leased Premises: 13.1. In case of any emergency or threatened emergency, at any time for any purpose which the Landlord reasonably believes under such circumstanceswill serve to prevent, eliminate or reduce the emergency, or the threat thereof, or damage or threatened damage to persons and property. 13.2. Upon at least one day’s prior verbal advice to the Tenant, at any time for the purpose of erecting or constructing improvements, modifications,alterations and other changes to the Building or any portion thereof, including, without limiting the generality of the foregoing, the Leased Premises, theCommon Facilities or the Property or for the purpose of repairing, maintaining or cleaning them, whether for the benefit of the Landlord, the Building, alltenants of Other Leased Premises in the Building, or one or more tenants of Other Leased Premises, or others. In connection with any such improvements,modifications, alterations, other changes, repairs, maintenance or cleaning, the Landlord may close off such portions of the Property, the Building and theCommon Facilities and interrupt such services as may be necessary to accomplish such work, without liability to the Tenant therefore and without suchclosing or interruption being deemed an eviction or constructive eviction or requiring an abatement of Rent. However, in accomplishing any such work, theLandlord shall endeavor not to materially interfere with the Tenant’s use and enjoyment of the Leased Premises or the conduct of the Tenant’s business andto minimize interference, inconvenience and annoyance to the Tenant. 14 13.3. At all reasonable hours for the purpose of operating, inspecting or examining the Building, including the Leased Premises, or the Property. 13.4. At any time after the Tenant has vacated the Leased Premises, for the purpose of preparing the Leased Premises for another tenant or prospectivetenant. 13.5. If practicable by appointment with the Tenant, at all reasonable hours for the purpose of showing the Building to prospective purchasers,mortgagees and prospective mortgagees and prospective ground lessees and lessors. 13.6. If practicable by appointment with the Tenant, at all reasonable hours during the last nine months of the Term for the purpose of showing theLeased Premises to prospective tenants thereof. 13.7. The mere enumeration of any right of the Landlord within this section 13 of the Agreement shall not be deemed to create an obligation on the partof the Landlord to exercise any such right unless the Landlord is affirmatively required to exercise such right elsewhere in this Agreement. 14. Liabilities and Insurance Obligations. 14.1. The Tenant shall, at the Tenant’s own expense, purchase before the Commencement Date, and maintain in full force and effect throughout the Termand any other period during which the Tenant may have possession of the Leased Premises, the following types of insurance coverage from financially soundand reputable insurers, licensed by the State of New Jersey to provide such insurance and acceptable to the Landlord, in the minimum amounts set forthbelow, each of which insurance policies shall be for the benefit of, and shall name the Landlord, the Landlord’s managing agent and mortgagees and groundlessors known to the Tenant, if any, of the Building, the Common Facilities, the Property or any interest therein, their successors and assigns as additionalpersons insured, and none of which insurance policies shall contain a “co-insurance” clause: 14.1.1.commercial general liability insurance (including “broad form and contractual liability” coverage) and excess (“umbrella”) insurancewhich, without limiting the generality of the foregoing, considered together shall insure against such risks as bodily injury, death andproperty damage, with a combined single limit of not less than $3,000,000.00 for each occurrence; and 14.1.2.“all-risks” property insurance covering the Leased Premises in an amount sufficient, as determined by the Landlord from time to time, tocover the replacement costs for all Tenant’s alterations, improvements, fixtures and personal property located in or on the Leased Premises. 14.2. With respect to risks: 14.2.1.as to which this Agreement requires either party to maintain insurance, or 14.2.2.as to which either party is effectively insured and for which risks the other party may be liable, 14.2.3.the party required to maintain such insurance and the party effectively insured shall use its best efforts to obtain a clause, if available fromthe respective insurer, in each such insurance policy expressly waiving any right of recovery, by reason of subrogation to such party’s rightsor otherwise, the respective insurer might otherwise have or obtain against the other party, so long as such a clause can be obtained in therespective insurance policy without additional premium cost. If such a clause can be obtained in the respective insurance policy, but onlyat additional premium cost, such party shall, by notice to the other party, promptly advise the other party of such fact and the amount of theadditional premium cost. If the other party desires the inclusion of such a clause in the notifying party’s respective insurance policy, theother party shall, within 10 days of receipt of the notifying party’s notice, by notice advise the notifying party of its desire and enclosetherewith its check in the full amount of the additional premium cost; otherwise the notifying party need not obtain such a clause in therespective insurance. 15 14.3. Each party hereby waives any right of recovery against the other party for any and all damages for property losses and property damages which areactually insured by either party, but only to the extent: 14.3.1.that the waiver set forth in this subsection 14.3 does not cause or result in any cancellation of, or diminution in, the insurance coverageotherwise available under any applicable insurance policy; 14.3.2.of the proceeds of any applicable insurance policy (without adjustment for any deductible amount set forth therein) actually received bysuch party for such respective loss or damages; and 14.3.3.the substance of the clause contemplated by subsection 14.2 of this Agreement is actually and effectively set forth in the respectiveinsurance policy. The waiver set forth in this subsection 14.3 of the Agreement shall not apply with respect to liability insurance policies (as opposed to property and casualtyinsurance policies). 14.4. The Tenant hereby waives any right of recovery it might otherwise have against the Landlord for losses and damages caused actively or passively,in whole or in part, by any of the risks the Tenant is required to insure against in accordance with subsections 14.1.1 or 14.1.2 of this Agreement, unless suchwaiver would cause or result in a cancellation of, or diminution in, the coverage of the Tenant’s policies of insurance against such risks. 14.5. The Landlord shall have no liability whatsoever to the Tenant or the Tenant’s employees, other agents or Guests or anyone else for any death,bodily injury, property loss or other damages suffered by any of them or any of their property which is not caused directly, exclusively and entirely by theactive gross negligence or intentional misconduct of the Landlord without the intervention or contribution of any other cause or contributing factorwhatsoever. 14.6. Each policy of insurance required under subsection 14.1 of this Agreement shall include provisions to the effect that: 14.6.1.no act or omission of the Tenant, its employees, other agents or Guests shall result in a loss of insurance coverage otherwise available undersuch policy to any person required to be named as an additional insured in accordance with subsection 14.1 of this Agreement; and 14.6.2.the insurance coverage afforded by such policy shall not be diminished, cancelled, permitted to expire or otherwise terminated for anyreason except upon 30 days’ prior written notice from the insurer to every person required to be named as an additional insured inaccordance with subsection 14.1 of this Agreement. 14.7. With respect to each type of insurance coverage referred to in subsection 14.1 of this Agreement, prior to the Commencement Date the Tenant shallcause its insurer(s) to deliver to the Landlord the certificate(s) of the insurer(s) setting forth the name and address of the insurer, the name and address of eachadditional insured, the type of coverage provided, the limits of the coverage, any deductible amounts, the effective dates of coverage and that each policyunder which coverage is provided affirmatively includes provisions to the effect set forth in subsection 14.6 of this Agreement. In the event any of suchcertificates indicates a coverage termination date earlier than the end of the Term or the end of any other period during which the Tenant may havepossession of the Leased Premises, no later than 10 days before any such coverage termination date, the Tenant shall deliver to the Landlord respective,equivalent, new certificate(s) of the insurer(s). 16 15. Casualty Damage to Building or Leased Premises. 15.1. In the event of any damage to the Building or any portion thereof by fire or other casualty, with the result that the Leased Premises are renderedunusable, in whole or in part, then, unless the Building is destroyed or so damaged that the Landlord does not intend to rebuild the same, the Landlord shall,within 30 business days of the casualty, determine the period of time required to restore the Building and the Leased Premises (but not including theimprovements constructed or installed prior to the Term or during the Term in excess of the original allowance for the same). 15.1.1.If, in Landlord’s opinion, the restoration described above will take more than 180 days then Landlord may elect to cancel this Agreementeffective as of the date of casualty. Notice of the Landlord’s election shall be served upon the Tenant within the 30 business day perioddescribed above. 15.1.2.If, in Landlord’s opinion, the restoration described above will take 180 days or less, then Landlord shall not cancel this Agreement andmust restore the Building and the Leased Premises as aforesaid. In either of such events, the Landlord shall cause restoration to proceeddiligently and expediently to the extent the Landlord has received proceeds of any property, casualty or liability insurance on the damagedportions (or would have received such proceeds had it obtained such coverage). 15.2. Rent shall abate from the date of the casualty until: 15.2.1.such time as the Leased Premises are again fully usable and be reduced during such period by the amount which bears the same proportionto the Rent otherwise payable during such period as the gross rentable floor space of the Leased Premises which are rendered unusable bearsto the gross rentable floor space of the Leased Premises. The restoration of the improvements constructed or installed prior to the Term orduring the Term in excess of the original allowance for the same shall be the Tenant’s responsibility. Tenant shall make reasonable, goodfaith efforts to integrate the restoration which is its responsibility with the work which is being performed by Landlord. To the extent that isnot feasible, Tenant shall be allowed an additional, reasonable interval to complete its work, not to exceed sixty days and Rent shall abateduring the interval required for such restoration. The Landlord shall cooperate with Tenant to integrate the restoration of suchimprovements during the reconstruction period; or 15.2.2.this Agreement is canceled pursuant to the provisions of subsections 15.1. 15.3. If, in the Landlord’s opinion, the restoration described above will take more than 180 days and the Landlord makes the election to cancel set forthin subsection 15.1 above then Landlord, in such event, may proceed with restoration (or non-restoration) in any manner it chooses, without any liability toTenant. 15.4. The Tenant shall promptly advise the Landlord by the quickest means of communication of the occurrence of any casualty damage to the Buildingor the Leased Premises of which the Tenant becomes aware. 17 16. Condemnation. If the Leased Premises, or any portion thereof, or the Building or the Common Facilities, or any substantial portion of any of the foregoing, shall be acquiredfor any public or quasi-public use or purpose by statute, right of eminent domain or private sale in lieu thereof, with the result the Tenant cannot use andoccupy the Leased Premises for the purpose set forth in subsection 7.1 of this Agreement, this Agreement shall terminate and the Tenant hereby waives anyclaim against the Landlord, the condemning authority or other person acquiring same for anything of value, tangible or intangible, including, withoutlimiting the generality of the foregoing, the putative value of any leasehold interest or loss of the use of same, except for any right the Tenant might have tomake a claim, independent of, and without reference to or having any effect on, any award or claim of the Landlord, against the condemning authority orother acquiring party regarding the value of the Tenant’s installed trade fixtures and other installed equipment which are not removable from the LeasedPremises or for ordinary and necessary moving expenses occasioned thereby. 17. Assignment or Subletting by Tenant. 17.1. Except as may be specifically set forth in this section 17 of the Agreement, the Tenant shall not: 17.1.1.assign, or purport to assign, this Agreement or any of the Tenant’s rights hereunder; 17.1.2.sublet, or purport to sublet, the Leased Premises or any portion thereof; 17.1.3.license, or purport to license, the use or occupancy of the Leased Premises or any portion thereof; 17.1.4.otherwise transfer, or attempt to transfer any interest including, without limiting the generality of the foregoing, a mortgage, pledge orsecurity interest, in this Agreement, the Leased Premises or the right to the use and occupancy of the Leased Premises; or 17.1.5.indirectly accomplish, or permit or suffer the accomplishment of, any of the foregoing by merger or consolidation with another entity, byacquisition or disposition of assets or liabilities outside the ordinary course of the Tenant’s business or by acquisition or disposition, by theTenant’s equity owners or subordinated creditors, of any of their respective interests in the Tenant. 17.2. The Tenant shall not assign this Agreement or any of the Tenant’s rights hereunder or sublet the Leased Premises or any portion thereof without firstgiving three months’ prior notice to the Landlord of its desire to assign or sublet and requesting the Landlord’s consent and without first receiving theLandlord’s prior written consent. The notice shall be accompanied by an agreement by Tenant to reimburse Landlord for the reasonable expenses incurred inconnection with the review of the proposed assignment or sublease and the documentation related thereto. The Tenant’s notice to the Landlord also shallinclude: 17.2.1.the full name, address and telephone number of the proposed assignee or sublessee; 17.2.2.a description of the type(s) of business in which the proposed assignee or sublessee is engaged and proposes to engage; 17.2.3.a description of the precise use to which the proposed assignee or sublessee intends to put the Leased Premises or portion thereof; 17.2.4.the proposed assignee’s or subtenant’s most recent quarterly and annual financial statements prepared in accordance with generallyaccepted accounting principles and any other evidence of financial position and responsibility that the Tenant or proposed assignee orsublessee may desire to submit; 18 17.2.5.by diagram and measurement of the actual square feet of floor space, the precise portion of the Leased Premises proposed to be subject tothe assignment of this Agreement or to be sublet; 17.2.6.a complete, accurate and detailed description of the terms of the proposed assignment or sublease including, without limiting the generalityof the foregoing, all consideration paid or given, or proposed to be paid or to be given, by the proposed assignee, sublessee or other personto the Tenant and the respective times of payment or delivery; and 17.2.7.any other information reasonably requested by the Landlord. 17.3. By the expiration of the notice period contemplated by subsection 17.2 of this Agreement, the Landlord, in its sole discretion, shall take one of thefollowing actions by notice to the Tenant: 17.3.1.grant consent on the terms and conditions set forth in subsection 17.4 of this Agreement and such other reasonable terms and conditions setforth in the Landlord’s notice; 17.3.2.refuse to grant consent for any of the reasons set forth in subsection 17.5 of this Agreement or for any other reasonable reason set forth in theLandlord’s notice; or 17.3.3.elect to terminate the Term as of (a) the end of the third full month after the Tenant has given notice of the Tenant’s desire to assign orsublet or (b) the proposed effective date of the proposed assignment or sublease. 17.4. The Landlord’s consent to the Tenant’s proposed assignment or sublease, if granted under subsection 17.3.1 of this Agreement, shall be subject toall the following terms and conditions (and to any other terms and conditions permitted by that subsection): 17.4.1.any proposed assignee or sublessee shall, by document executed and delivered forthwith to the Landlord, agree to be bound by all theobligations of the Tenant set forth in this Agreement; 17.4.2.the Tenant shall remain liable under this Agreement, jointly and severally with any proposed assignee or sublessee, for the timelyperformance of all obligations of the Tenant set forth in this Agreement; 17.4.3.the Tenant shall forthwith deliver to the Landlord manually executed copies of all documents regarding the proposed assignment orsublease and a written, accurate and complete description, manually executed both by the Tenant and the proposed assignee or sublessee,of any other agreement, arrangement or understanding between them regarding the same; 17.4.4.with respect to any consideration or other thing of value received or to be received by the Tenant in connection with any such assignmentor sublease (other than those payable in equal monthly installments each month during the proposed term of any such assignment orsublease), the Tenant shall pay to the Landlord one-half of any such amount and one-half of the fair market value of any other thing ofvalue within 10 days of receipt of same; 19 17.4.5.with respect to any amount payable to the Tenant in equal monthly installments each month during the proposed term of any suchassignment or sublease in connection with such assignment or sublease, which amount is in excess of the amount which bears the same ratioto the monthly installment of Rent due from the Tenant as the usable floor space of the Leased Premises subject to the assignment orsublease bears to the usable floor space of the entire Leased Premises, the Tenant shall pay one-half of such excess to the Landlord togetherwith the Tenant’s monthly installment of Rent; 17.4.6.the proposed use of the Leased Premises is the same as that permitted under subsection 7.1 of this Agreement; and 17.4.7.Tenant shall reimburse Landlord for the reasonable expenses incurred in connection with the review of the proposed assignment or subleaseand the documentation related thereto. 17.5. The Landlord’s refusal to grant consent under subsection 17.3.2 of this Agreement shall not be deemed an unreasonable withholding of consent ifbased upon any of the following reasons (or any other reason permitted by that subsection): 17.5.1.the Landlord desires to take one of the other actions enumerated in subsection 17.3 of this Agreement; 17.5.2.there is already another assignee, sublessee or licensee of all or a portion of the Leased Premises; 17.5.3.the proposed sublessee or assignee, or any of their affiliates, is an existing tenant in the Building; or 17.5.4.the proposed sublease is for a term of less than one year; 17.5.5.the proposed sublease is for a term which would expire after the Term; 17.5.6.less than one year remains in the Term as of the proposed effective date of the proposed assignment or sublease; 17.5.7.the general reputation, financial position or ability or type of business of, or the anticipated use of the Leased Premises by, the proposedassignee or proposed sublessee is unsatisfactory to the Landlord or is inconsistent with those of tenants of Other Leased Premises orinconsistent with any commitment made by the Landlord to any such other tenant; 17.5.8.the proposed consideration to be paid to the Tenant during any period of 12 months is less than the amount of the Market Rental Ratedivided by the gross rentable floor space of the Leased Premises and multiplied by that portion of the gross rentable floor space of theLeased Premises proposed to be subject to the proposed assignment or sublease; 17.5.9.the gross rentable floor space of the portion of the Leased Premises proposed to be sublet is less than one-third of the gross rentable floorspace of the Leased Premises; or 17.5.10.Tenant has advertised or listed the space for subleasing or assignment at a rate which is less than the rate being quoted by Landlord forother available space in the Building. 18. Signs, Displays and Advertising. 18.1. The Tenant shall have one sign identifying the Landlord’s assigned number for the Leased Premises at the principal entrance to the LeasedPremises. The Tenant may identify itself in or on each of: the signs at the principal entrance to the Leased Premises, the Building directory and the directory,if any, on the floor of the Building on which the Leased Premises is located. All such signs, and the method and materials used in mounting and dismountingthem, shall be in accordance with the Landlord’s specifications. All such signs shall be provided and mounted by the Landlord at the Landlord’s expense,except that the Tenant shall bear any expense of identifying itself on the sign at the principal entrance to the Leased Premises. 20 18.2. No other sign, advertisement, fixture or display shall be used by the Tenant on the Property or in the Building or the Common Facilities. Any signsother than those specifically permitted under subsection 18.1 of this Agreement shall be removed promptly by the Tenant or by the Landlord at the Tenant’sexpense. 19. Quiet Enjoyment. The Landlord is the owner of the Building, the Property and the Common Facilities located on the Property. The Landlord has the right and authority to enterinto and execute and deliver this Agreement with the Tenant. So long as an Event of Default shall not have occurred, the Tenant shall and may peaceably andquietly have, hold and enjoy the Leased Premises during the Term in accordance with this Agreement. 20. Relocation. At any time and from time to time during the Term, on at least 30 days’ prior notice to the Tenant, the Landlord shall have the right to move the Tenant out ofthe Leased Premises and into premises having comparable size to the Leased Premises located in the Building or in any other comparable building located inthe immediate area for the duration of the Term. Comparable size shall mean premises which have floor space which is not more than 100 square feet smallerthan the Leased Premises, or larger. In the event the Landlord exercises this right of relocation, the Landlord shall decorate the new premises similarly to theLeased Premises and remove, relocate and reinstall the Tenant’s furniture, trade fixtures, furnishings and equipment, all at the sole cost and expense of theLandlord. When the substitute new premises are ready, the Tenant shall surrender the Leased Premises. Following any such relocation, this Agreement shallcontinue in full force and effect except for the description of the Leased Premises, the Building and the Property which, upon completion of such relocation,shall be deemed amended to describe the substitute new premises, building and property, respectively, to which the Tenant shall have been relocated inaccordance with this section 20 of the Agreement. 21. Surrender. 21.1. Upon expiration or other termination of the Term, or at any other time at which the Landlord, by virtue of any provision of this Agreement orotherwise has the right to re-enter and re-take possession of the Leased Premises, the Tenant shall surrender possession of the Leased Premises; remove fromthe Leased Premises all property owned by the Tenant or anyone else other than the Landlord; remove from the Leased Premises any alterations,improvements or other modifications to the Leased Premises that the Landlord may request by notice; make any repairs required by such removal; clean theLeased Premises; leave the Leased Premises in as good order and condition as it was upon the completion of any improvements contemplated by section 5 ofthis Agreement, ordinary wear and use excepted; return all copies of all keys and passes to the Leased Premises, the Common Facilities and the Building tothe Landlord (or Tenant shall bear the cost of securing replacements); and receive the Landlord’s written acceptance of the Tenant’s surrender. The Landlordshall not be deemed to have accepted the Tenant’s surrender of the Leased Premises unless and until the Landlord shall have executed and delivered theLandlord’s written acceptance of surrender to the Tenant, which shall not be unreasonably withheld or delayed. 21 21.2. Within five (5) business days after the expiration or sooner termination of the Term, Landlord may elect (“Election Right”) by written notice toTenant to: 21.2.1Retain any or all wiring, cables and similar installations appurtenant thereto installed by Tenant in the risers, ceilings, plenums andelectrical closets of the Building (the “Wiring”); 21.2.2Remove any or all such Wiring and restore the Leased Premises and the Building to the condition existing prior to the installation of theWiring (“Wire Restoration Work”). Landlord shall perform such Wire Restoration Work at Tenant’s sole cost and expense; or 21.2.3Require Tenant to perform the Wire Restoration Work at Tenant’s sole cost and expense. In such event, Tenant shall submit the contract forthe Wire Restoration Work to Landlord for Landlord’s prior approval. 21.3. The provisions of this Clause shall survive the expiration or sooner termination of this Agreement. 21.4. In the event Landlord elects to retain the Wiring pursuant to subsection 21.2.1 of this Agreement, Tenant covenants that: 21.4.1.Tenant shall be the sole owner of such Wiring, that Tenant shall have good right to surrender such Wiring, and that such Wiring shall befree of all liens and encumbrances; and 21.4.2All Wiring shall be left in good condition, working order, properly labeled and terminated at each end and in eachtelecommunications/electrical closet and junction box, and in safe condition. 21.5. Notwithstanding anything to the contrary in section 29, Landlord may retain Tenant’s Security Deposit after the expiration or sooner termination ofthis Agreement until the earliest of the following events: 21.5.1.Landlord elects to retain the Wiring pursuant to subsection 21.2.1 of this Agreement; 21.5.2.Landlord elects to perform the Wiring Restoration Work pursuant to subsection 21.2.2 of this Agreement and the Wiring Restoration Workis complete and Tenant has fully reimbursed Landlord for all costs related thereto; or 21.5.2.Landlord elects to require the Tenant to perform the Wiring Restoration Work pursuant to subsection 21.2.3 of this Agreement and theWiring Restoration Work is complete and Tenant has paid for all costs related thereto; 21.5.3.In the event Tenant fails or refuses to pay all costs of the Wiring Restoration Work within ten (10) business days of Tenant’s receipt ofLandlord’s notice requesting Tenant’s reimbursement for or payment of such costs, Landlord may apply all or any portion of Tenant’sSecurity Deposit toward the payment of such unpaid costs relative to the Wiring Restoration Work. 21.5.4.The retention or application of such Security Deposit by Landlord pursuant to this section 21 does not constitute a limitation on or waiverof Landlord’s right to pursue any other or further remedies at law or in equity. 22. Events of Default. The occurrence of any of the following events shall constitute an Event of Default under this Agreement: 22.1. the Tenant’s failure to pay any installment of Basic Rent or any amount of Additional Rent within five (5) days of the date when it is first dueprovided that if such payment is not paid when it is first due more than twice in any twelve month period then, thereafter, Tenant’s failure to pay Rent when itis first due; 22 22.2. the Tenant’s failure to perform any of its obligations under this Agreement if such failure has caused, or may cause, loss or damage that cannotpromptly be cured by subsequent act of the Tenant; 22.3. the Tenant’s failure to complete performance of any of the Tenant’s obligations under this Agreement (other than those contemplated by subsections22.1 and 22.2 of this Agreement) within 10 days after the Landlord shall have given notice to the Tenant specifying which of the Tenant’s obligations hasnot been performed and in what respects, unless completion of performance within such period of 10 days is not possible using diligence and expedience,then within a reasonable time of the Landlord’s notice so long as the Tenant shall have commenced substantial performance within the first three days of suchperiod of 10 days and shall have continued to provide substantial performance, diligently and expediently, through to completion of performance; 22.4. the discovery that any representation made by the Tenant in this Agreement shall have been inaccurate or incomplete in any material respect eitheron the date it was made or the date as of which it was made; 22.5. the sale, transfer or other disposition of any interest of the Tenant in the Leased Premises by way of execution or other legal process; 22.6. with the exception of those of the following events to which section 365 of the Bankruptcy Code shall apply in the context of an office lease (inwhich case subsection 22.7 of this Agreement shall apply): 22.6.1.the Tenant’s becoming a “debtor,” as that term is defined in section 101 of the Bankruptcy Code; 22.6.2.any time when either the value of the Tenant’s liabilities exceed the value of the Tenant’s assets or the Tenant is unable to pay itsobligations as and when they respectively become due in the ordinary course of business; 22.6.3.the appointment of a receiver or trustee of the Tenant’s property or affairs; or 22.6.4.the Tenant’s making an assignment for the benefit of, or an arrangement with or among, creditors or filing a petition in insolvency or forreorganization or for the appointment of a receiver; 22.7. in the event of the occurrence of any of the events enumerated in subsection 22.6 of this Agreement to which section 365 of the Bankruptcy Codeshall apply in the context of an office lease, the earlier of the bankruptcy trustee’s rejection or deemed rejection (as those terms are used in section 365 of theBankruptcy Code) of this Agreement; or 22.8. the Tenant’s abandoning the Leased Premises before expiration of the Term without the prior written consent of the Landlord. 23. Rights and Remedies. 23.1 Upon the occurrence of an Event of Default the Landlord shall have all the following rights and remedies: 23.1.1.to elect to terminate the Term by giving notice of such election, and the effective date thereof, to the Tenant and to receive TerminationDamages; 23 23.1.2.to elect to re-enter and re-take possession of the Leased Premises, without thereby terminating the Term, by giving notice of such election,and the effective date thereof, to the Tenant and to receive Re-Leasing Damages; 23.1.3.if the Tenant remains in possession of the Leased Premises after the Tenant’s obligation to surrender the Leased Premises shall have arisen,to remove the Tenant and the Tenant’s and any others’ possessions from the Leased Premises by any of the following means without anyliability to the Tenant therefore, any such liability to the Tenant therefore which might otherwise arise being hereby waived by the Tenant:legal proceedings (summary or otherwise), writ of dispossession and any other means and to receive Holdover Damages and, except in thecircumstances contemplated by section 20 of this Agreement, to receive all expenses incurred in removing the Tenant and the Tenant’s andany others’ possessions from the Leased Premises, and of storing such possessions if the Landlord so elects; 23.1.4.to be awarded specific performance, temporary restraints and preliminary and permanent injunctive relief regarding Events of Default wherethe Landlord’s rights and remedies at law may be inadequate, without the necessity of proving actual damages or the inadequacy of therights and remedies at law; 23.1.5.to receive all expenses incurred in securing, preserving, maintaining and operating the Leased Premises during any period of vacancy, inmaking repairs to the Leased Premises, in preparing the Leased Premises for re-leasing and in re-leasing the Leased Premises including,without limiting the generality of the foregoing, any brokerage commissions; 23.1.6.to receive all legal expenses, including without limiting the generality of the foregoing, attorneys’ fees incurred in connection withpursuing any of the Landlord’s rights and remedies, including indemnification rights and remedies; 23.1.7.if the Landlord, in its sole discretion, elects to perform any obligation of the Tenant under this Agreement (other than the obligation to payRent) which the Tenant has not timely performed, to receive all expenses incurred in so doing; 23.1.8.to elect to pursue any legal or equitable right and remedy available to the Landlord under this Agreement or otherwise; and 23.1.9.to elect any combination, or any sequential combination of any of the rights and remedies set forth in subsection 23.1 of this Agreement. 23.2. In the event the Landlord elects the right and remedy set forth in subsection 23.1.1 of this Agreement, Termination Damages shall be equal to theamount which, at the time of actual payment thereof to the Landlord, is the sum of: 23.2.1.all accrued but unpaid Rent; 23.2.2.the present value (calculated using the most recently available (at the time of calculation) published weekly average yield on United StatesTreasury securities having maturities comparable to the balance of the then remaining Term) of the sum of all payments of Rent remainingdue (at the time of calculation) until the date the Term would have expired (had there been no election to terminate it earlier) and it shall beassumed for purposes of such calculations that (i) the amount of future Additional Rent due per year under this Agreement will be equal tothe average Additional Rent per month due during the 12 full calendar months immediately preceding the date of any such calculation,increasing annually at a rate of eight percent compounded, (ii) if any calculation is made before the first anniversary of the end of the NoPass Through Period, the average Additional Rent due for any month after the end of the No Pass Through Period will be equal to ninepercent of the sum of the Base Year Operational Expenses, Base Year Taxes and Tenant Electric Charges (considered on an annual basis),(iii) if any calculation is made before the beginning of the Base Year, the sum of Base Year Taxes and Base Year Operational Expenses shallbe assumed to be $7.50 per gross rentable square foot and (iv) if any calculation is made before the end of the Base Year, Base Year Taxesand Base Year Operational Expenses may be extrapolated based on the year to date experience of the Landlord); 24 23.2.3.the Landlord’s reasonably estimated cost of demolishing any leasehold improvements to the Leased Premises; 23.2.4.the total amount of free rent waived in connection with the making of this Agreement; and 23.2.5.that amount, which as of the occurrence of the Event of Default, bears the same ratio to the costs, if any, incurred by the Landlord (and notpaid by the Tenant) in building out the Leased Premises in accordance with section 5 of this Agreement as the number of months remainingin the Term (immediately before the occurrence of the Event of Default) bears to the number of months in the entire Term (immediatelybefore the occurrence of the Event of Default). 23.3. In the event the Landlord elects the right and remedy set forth in subsection 23.1.2 of this Agreement, Re-Leasing Damages shall be equal to theRent less any rent actually and timely received by the Landlord from any lessee of the Leased Premises or any portion thereof, payable at the respective timesthat Rent is payable under the Agreement plus the cost, if any, to the Landlord of building out or otherwise preparing the Leased Premises for, and leasing theLeased Premises to, any such lessee. 23.4. In the event the Landlord elects the right and remedy set forth in subsection 23.1.3 of this Agreement, Holdover Damages shall mean damages at therate per month or part thereof equal to the greater of: (a) one and one-half times one-twelfth of the then Market Rental Rate plus all Additional Rent as setforth in this Agreement or (b) double the average amount of all payments of Rent due under this Agreement during each of the last 12 full calendar monthsprior to the Landlord’s so electing or, in the event the Term shall have terminated by expiration under subsection 24.1.1 of this Agreement, the last full 12calendar months of the Term, in either case payable in full on the first day of each holdover month or part thereof. 23.5. In connection with any summary proceeding to dispossess and remove the Tenant from the Leased Premises under subsection 23.1.3 of thisAgreement, the Tenant hereby waives: 23.5.1.any notices for delivery of possession thereof, of termination, of demand for removal therefrom, of the cause therefore, to cease, to quit andall other notices that might otherwise be required pursuant to 2A N.J.S.A. 18-53 et seq.; 23.5.2.any right the Tenant might otherwise have to cause a termination of the action or proceeding by paying to the Landlord or into court orotherwise any Rent in arrears; 23.5.3.any right the Tenant might otherwise have to a period of waiting between issuance of any warrant in execution of any judgment forpossession obtained by the Landlord and the execution thereof; 23.5.4.any right the Tenant might otherwise have to transfer or remove such proceeding from the court (or the particular division or part of thecourt) or other forum in which it shall have been instituted by the Landlord to another court, division or part; 25 23.5.5.any right the Tenant might otherwise have to redeem the Tenant’s former leasehold interest between the entry of any judgment and theexecution of any warrant issued in connection therewith by paying to the Landlord or into Court or otherwise any Rent in arrears; and 23.5.6.any right the Tenant might otherwise have to appeal any judgment awarding possession of the Leased Premises to the Landlord. 23.6. The enumeration of rights and remedies in this section 23 of the Agreement is not intended to be exhaustive or exclusive of any rights and remedieswhich might otherwise be available to the Landlord, or to force an election of one or more rights and remedies to the exclusion of others, concurrently,consecutively or sequentially. On the contrary, each right and remedy enumerated in this section 23 of the Agreement is intended to be cumulative with eachother right and remedy enumerated in this section 23 of the Agreement and with each other right and remedy that might otherwise be available to theLandlord; and the selection of one or more of such rights and remedies at any time shall not be deemed to prevent resort to one or more others of such rightsand remedies at the same time or a subsequent time, even with regard to the same occurrence sought to be remedied. 23.7. In view of the relatively free right to sublet and assign, and for other reasons, it is expressly understood and agreed that the Landlord shall have noduty to mitigate damages. In the event the Landlord elects the right and remedy set forth in subsection 23.1.2 of this Agreement, Re-Leasing Damages shallbe equal to the Rent less any rent actually and timely received by the Landlord from any lessee of the Leased Premises or any portion thereof, payable at therespective times that Rent is payable under the Agreement plus the cost, if any, to the Landlord of building out or otherwise preparing the Leased Premisesfor, and leasing the Leased Premises to, any such lessee. The Landlord may relet some or all of the Leased Premises but shall have no duty to do so. TheTenant shall retain its rights to sublet or assign the Leased Premises, or portions thereof, pursuant to section 17 of this Lease except to the extent that theLandlord shall have already relet the same which shall abrogate the Tenant’s rights, pro tanto. 23.8. If (i) an Event of Default has occurred and the Tenant moves out, whether Landlord has terminated or otherwise, or (ii) if Tenant is dispossessed, and,in either of such events, fails to remove any property, machinery, equipment and fixtures or other property prior to such default, dispossess or removal, thenand in that event, the said property, machinery, equipment and fixtures or other property shall be deemed, at the option of the Landlord, to be abandoned; orin lieu thereof, at the Landlord’s option, the Landlord may remove such property and charge the reasonable cost and expense of removal, storage and disposalto the Tenant, together with an additional twenty one (21%) percent of such costs for Landlord’s overhead and profit, which total costs shall be deemed to beadditional rent hereunder. The Tenant shall be liable for any damage which it causes in the removal of said property from the Leased Premises. No notice isrequired that Landlord has deemed the property abandoned if the property remains in the Leased Premises after Tenant moves out. This provision shallsurvive the termination or expiration of the Lease. 24. Termination of the Term. 24.1. The Term shall terminate upon the earliest of the following events to occur: 24.1.1.expiration of the Term; 24.1.2.in connection with a transaction contemplated by section 16 of this Agreement, the later of (a) the vesting of the acquiring party’s right topossession or (b) the Tenant’s vacating the Leased Premises; 26 24.1.3.under the circumstances contemplated by subsection 15.1 of this Agreement, upon the Tenant’s giving prompt notice of the failure of theLandlord to give, on a timely basis, the notice contemplated by subsection 15.1.2 of this Agreement and that the Tenant desires terminationof the Term (which termination shall be effective as of the date of the subject casualty with respect to those portions of the Leased Premisesrendered untenantable and as of the date of the Tenant’s giving notice with respect to those portions of the Leased Premises which were notrendered untenantable); 24.1.4.under the circumstances contemplated by subsection 15.1 of this Agreement, upon the expiration of 45 additional days (without theLandlord’s completion of restoration in the interim) after the Tenant shall have given prompt notice that the Landlord has not restored theLeased Premises on a timely basis and that the Tenant desires termination of the Term (which termination shall be effective as of the date ofthe subject casualty with respect to those portions of the Leased Premises rendered untenantable and as of the date of the Tenant’s givingnotice with respect to those portions of the Leased Premises which were not rendered untenantable); 24.1.5.the effective date of any election by the Landlord under subsection 17.3.3 of this Agreement in response to the Tenant’s notice of theTenant’s desire to assign this Agreement or to sublet all or a portion of the Leased Premises; or 24.1.6.the effective date of any election by the Landlord to terminate the Term under subsection 23.1.1 of this Agreement. 24.2. No termination of the Term shall have the effect of releasing the Tenant from any obligation or liability theretofore or thereby incurred and, untilthe Tenant shall have surrendered the Leased Premises in accordance with section 21 of this Agreement, from any obligation or liability thereafter incurred. 25. Mortgage and Underlying Lease Priority. This Agreement and the estate, interest and rights hereby created for the benefit of the Tenant are, and shall always be, subordinate to any mortgage (otherthan a mortgage created by the Tenant or a sale, transfer or other disposition by the Tenant in the nature of a security interest in violation of subsections17.1.4 and 22.5, respectively, of this Agreement) already or afterwards placed on the Property, the Common Facilities, the Building or any estate or interesttherein including, without limiting the generality of the foregoing, any new mortgage or any mortgage extension, renewal, modification, consolidation,replacement, supplement or substitution. This Agreement and the estate, interest and rights hereby created for the benefit of the Tenant are, and shall alwaysbe, subordinate to any ground lease already or afterwards made with regard to the Property, the Common Facilities, the Building or any estate or interesttherein including, without limiting the generality of the foregoing, any new ground lease or any ground lease extension, renewal, modification,consolidation, replacement, supplement or substitution. The provisions of this section 25 of the Agreement shall be self-effecting; and no further instrumentshall be necessary to effect any such subordination. Nevertheless, the Tenant hereby consents that any mortgagee or mortgagee’s successor in interest may, atany time and from time to time, by notice to the Tenant, subordinate its mortgage to the estate and interest created by this Agreement; and upon the giving ofsuch notice, the subject mortgage shall be deemed subordinate to the estate and interest created by this Agreement regardless of the respective times ofexecution or delivery of either or of recording the subject mortgage. 26. Transfer by Landlord. 26.1. The Landlord shall have the right at any time and from time to time to sell, transfer, lease or otherwise dispose of the Property, the CommonFacilities or the Building or any of the Landlord’s interests therein, or to assign this Agreement or any of the Landlord’s rights thereunder. 27 26.2. Upon giving notice of the occurrence of any transaction contemplated by subsection 26.1 of this Agreement, the Landlord shall thereby be relievedof any obligation that might otherwise exist under this Agreement with respect to periods subsequent to the effective date of any such transaction. If, inconnection with any transaction contemplated by subsection 26.1 of this Agreement the Landlord transfers, or makes allowance for, any Security Deposit ofthe Tenant and gives notice of that fact to the Tenant, the Landlord shall thereby be relieved of any further obligation to the Tenant with regard to any suchSecurity Deposit; and the Tenant shall look solely to the transferee with respect to any such Security Deposit. 26.3. In the event of the occurrence of any transaction contemplated by subsection 26.1 of this Agreement the Tenant, upon written request therefore fromthe transferee, shall attorn to and become the tenant of such transferee upon the terms and conditions set forth in this Agreement. 26.4 Notwithstanding anything to the contrary that may be set forth in subsections 26.1, 26.2 and 26.3 of this Agreement, in the event any mortgagecontemplated by section 25 of this Agreement is enforced by the respective mortgagee pursuant to remedies provided in the mortgage or otherwise providedby law or equity and any person succeeds to the interest of the Landlord as a result of, or in connection with, any such enforcement, the Tenant shall, uponthe request of such successor in interest, automatically attorn to and become the Tenant of such successor in interest without any change in the terms orprovisions of this Agreement, except that such successor in interest shall not be bound by: (a) any payment of Basic Rent or Additional Rent (exclusive ofprepayments in the nature of a Security Deposit) for more than one month in advance or (b) any amendment or other modification of this Agreement whichwas made without the consent of such mortgagee or such successor in interest; and, upon the request of such successor in interest, the Tenant shall execute,acknowledge and deliver any instrument(s) confirming such attornment. 26.5. If this Agreement and the estate, interest and rights hereby created for the benefit of the Tenant are ever subject and subordinate to any ground leasecontemplated by section 25 of this Agreement: 26.5.1.upon the expiration or earlier termination of the term of any such ground lease before the termination of the Term under this Agreement, theTenant shall attorn to, and become the Tenant of, the lessor under any such ground lease and recognize such lessor as the Landlord underthis Agreement for the balance of the Term; and 26.5.2.such expiration or earlier termination of the term of any such ground lease shall have no effect on the Term under this Agreement. 27. Indemnification. 27.1. The Tenant shall, and hereby does, indemnify the Landlord against any and all liabilities, obligations, damages, penalties, claims, costs, chargesand expenses including, without limiting the generality of the foregoing, expenses of investigation, defense and enforcement thereof or of the obligation setforth in this section 27 of the Agreement including, without limiting the generality of the foregoing, attorneys’ fees, imposed on or incurred by the Landlordin connection with any of the following matters which occurs during the Term: 27.1.1.any matter, cause or thing arising out of the use, occupancy, control or management of the Leased Premises or any portion thereof which isnot caused directly, exclusively and entirely by the Landlord’s active gross negligence or intentional act without the intervention of anyother cause or contributing factor whatsoever; 27.1.2.any negligence or intentional act on the part of the Tenant or any of its employees, other agents or Guests; 28 27.1.3.any accident, injury or damage to any person or property occurring in or about the Leased Premises which is not caused directly,exclusively and entirely by the Landlord’s active gross negligence or intentional act without the intervention of any other cause orcontributing factor whatsoever; 27.1.4.any representation made by the Tenant in this Agreement shall have been inaccurate or incomplete in any material respect either on thedate it was made or the date as of which it was made; 27.1.5.the imposition of any mechanic’s, materialman’s or other lien on the Property, the Common Facilities, the Building, the Leased Premises orany portion of any of the foregoing, or the filing of any notice of intention to obtain any such lien, in connection with any alteration,improvement or other modification of the Leased Premises made or authorized by the Tenant (which indemnification obligation shall bedeemed to include the Tenant’s obligations set forth in subsection 12.2.4.3 of this Agreement); or 27.1.6.any failure on the part of the Tenant to perform or comply with any obligation of the Tenant set forth in this Agreement. 27.2. Payment of indemnification claims by the Tenant to the Landlord shall be due upon the Landlord’s giving notice thereof to the Tenant. 27.3. The Landlord shall promptly give notice of any claim asserted, or action or proceeding commenced, against it as to which it intends to claimindemnification from the Tenant and, upon notice from the Tenant so requesting, shall forward to the Tenant copies of all claim or litigation documentsreceived by it. Upon receipt of such notice the Tenant may, by notice to the Landlord, participate therein and, to the extent it may desire, assume the defensethereof through independent counsel selected by the Tenant and reasonably satisfactory to the Landlord. The Landlord shall not be bound by anycompromise or settlement of any such claim, action or proceeding without its prior written consent. 28. Parties’ Liability. 28.1. None of the following occurrences shall constitute a breach of this Agreement by the Landlord, a termination of the Term, an active or constructiveeviction or an occurrence requiring an abatement of Rent: 28.1.1.the inability of the Landlord to provide any utility or service to be provided by the Landlord, as described in section 8 of this Agreementwhich is due to causes beyond the Landlord’s control, or to necessary or advisable improvements, maintenance, repairs or emergency, solong as the Landlord uses reasonable efforts and diligence under the circumstances to restore the interrupted service or utility; 28.1.2.any improvement, modification, alteration or other change made to the Property, the Building or the Common Facilities by the Landlordconsistently with the Landlord’s obligations set forth in subsection 13.2 of this Agreement; and 28.1.3.any change in any Federal, state or local law or ordinance. 28.2. Except for the commencement, duration or termination of the Term (other than under the circumstances contemplated by subsection 15.1 of thisAgreement), the Tenant’s obligation to make timely payments of Rent, the Tenant’s obligation to maintain certain insurance coverage in effect, the Tenant’sfailure to perform any of its other obligations under this Agreement if such failure has caused loss or damage that cannot promptly be cured by subsequent actof the Tenant and the period within which any Option to Renew or any other type of option or optional right exercisable by the Tenant must be exercised,any period of time during which the Landlord or the Tenant is prevented from performing any of its respective obligations under this Agreement because offire, any other casualty or catastrophe, strikes, lockouts, civil commotion, acts of God or the public enemy, governmental prohibitions or preemptions,embargoes or inability to obtain labor or material due to shortage, governmental regulation or prohibition, shall be added to the time when such performanceis otherwise required under this Agreement. 29 28.3. Landlord shall not be liable for any loss suffered or incurred by Tenant, or any interruption of or injury to its business or property by reason of theuse of the Grand Master Key or electronic card key access by Landlord or its representatives. In the event the Landlord is an individual, an entity, partnership,joint venture, association or a participant in a joint tenancy or tenancy in common, neither the Landlord, nor any of its officers, directors, shareholders,partners, venturers, members and joint owners shall have any personal liability or obligation under or in connection with this Agreement or the Tenant’s useand occupancy of the Leased Premises; but recourse shall be limited exclusively to the Landlord’s interest in the Building. 28.4. If Landlord shall be unable to give possession of the Leased Premises on the Target Date for any reason whatsoever, Landlord shall not be subject toany liability for such failure. Under such circumstances, the rent reserved and covenanted to be paid herein shall not commence until the possession of theLeased Premises is given. 28.5. If, at any time during the Term, the payment or collection of any Rent otherwise due under this Agreement shall be limited, frozen or otherwisesubjected to a moratorium by applicable law, and such limitation, freeze or other moratorium shall subsequently be lifted, whether before or after thetermination of the Term, such aggregate amount of Rent as shall not have been paid or collected during the Term on account of any such limitation, freeze orother moratorium, shall thereupon be due and payable at once. There shall be added to the maximum period of any otherwise applicable statute of limitationthe entire period during which any such limitation, freeze or other moratorium shall have been in effect. 28.6. If this Agreement is executed by more than one person as Tenant, their liability under this Agreement and in connection with the use and occupancyof the Leased Premises shall be joint and several. 28.7 In the event any rate of interest, or other charge in the nature of interest, calculated as set forth in this Agreement would lead to the imposition of arate of interest in excess of the maximum rate permitted by applicable usury law, only the maximum rate permitted shall be charged and collected. 28.8. The rule of construction that any ambiguities that may be contained in any contract shall be construed against the party drafting the contract shallbe inapplicable in construing this Agreement. 29. Security Deposit. 29.1. The Tenant shall pay to the Landlord upon execution and delivery of this Agreement the sum of $20,816.25 as a security deposit to be held by theLandlord as security for the Tenant’s performance of all the Tenant’s obligations under this Agreement (the “Security Deposit”). The Landlord maycommingle the Security Deposit with its general funds. Any interest earned on the Security Deposit shall belong to the Landlord. The Tenant shall notencumber the Security Deposit. The Landlord, in its sole discretion, may apply the Security Deposit to cure any Event of Default under this Agreement. If anysuch application is made, upon notice by the Landlord to the Tenant, the Tenant shall promptly replace the amount so applied. If there has been no Event ofDefault, within 30 days after termination of the Term the Landlord shall return the entire balance of the Security Deposit to the Tenant, subject to theprovisions of subsection 21.5 of this Agreement. The Tenant will not look to any foreclosing mortgagee of the Property, the Building, the Common Facilitiesor any interest therein for such return of the balance of the Security Deposit, unless the mortgagee has expressly assumed the Landlord’s obligations underthis Agreement or has actually received the balance of the Security Deposit. 30 29.2. If Tenant requests Landlord to execute a lien waiver in favor of any lender, Landlord shall only do so if (i) the lender is an institutional lender; (ii)the form of the lien waiver is satisfactory to Landlord; (iii) Tenant agrees to reimburse Landlord for the reasonable expenses incurred in connection with thereview of the proposed lien waiver and the documentation related thereto; and (iv) Tenant increases the security deposit by an amount which is sufficient tomitigate the negative economic impact of the granting of such lien waiver. 30. Representations. The Tenant hereby represents and warrants that: 30.1. its North American Industrial Classification (NAICS) code is 424210 and it will promptly give notice of any change therein during the Term to theLandlord; 30.2. no broker or other agent has shown the Leased Premises or the Building to the Tenant, or brought either to the Tenant’s attention, except (the“Broker”), whose entire commission therefore is set forth in a separate document and which commission the Tenant understands will be paid by the Landlorddirectly to the person named; 30.3. the execution and delivery of, the consummation of the transactions contemplated by and the performance of all its obligations under, thisAgreement by the Tenant have been duly and validly authorized by its general partners, to the extent required by their partnership agreement and applicablelaw, if the Tenant is a partnership; or, if the Tenant is a limited liability company, by its members, to the extent required by their operating agreement andapplicable law; or, if the Tenant is a corporation, by its board of directors and, if necessary, by its stockholders at meetings duly called and held on propernotice for that purpose at which there were respective quorums present and voting throughout; and no other approval, partnership, corporate, governmental orotherwise, is required to authorize any of the foregoing or to give effect to the Tenant’s execution and delivery of this Agreement; 30.4. the execution and delivery of, the consummation of the transactions contemplated by and the performance of all its obligations under, thisAgreement by the Tenant will not result in a breach or violation of, or constitute a default under, the provisions of any statute, charter, certificate ofincorporation or bylaws, partnership agreement or operating agreement of the Tenant or any affiliate of the Tenant, as presently in effect, or any indenture,mortgage, lease, deed of trust, other agreement, instrument, franchise, permit, license, decree, order, notice, judgment, rule or order to or of which the Tenantor any affiliate of the Tenant is a party, a subject or a recipient or by which the Tenant, any affiliate of the Tenant or any of their respective properties andother assets is bound; and 30.5. it is not a Specially Designated National or a Blocked Person as those terms are defined in the rules of the Office of Foreign Assets Control nor aperson or entity that is listed in the Annex to, or is otherwise subject to the provisions of, Executive Order No. 13224 on Terrorist Financing, effectiveSeptember 24, 2001, as the same has been, or shall hereafter be, renewed, extended, amended or replaced. 31. Reservation in Favor of Tenant. Neither the Landlord’s forwarding a copy of this document to any prospective tenant nor any other act on the part of the Landlord prior to execution anddelivery of this Agreement by the Landlord shall give rise to any implication that any prospective tenant has a reservation, an option to lease or anoutstanding offer to lease any premises. 31 32. Tenant’s Certificates and Mortgagee Notice Requirements. 32.1. Promptly upon request of the Landlord at any time or from time to time, but in no event more than five days after the Landlord’s respective request,the Tenant shall execute, acknowledge and deliver to the Landlord or its designee an estoppel or other certificate, satisfactory in form and substance to theLandlord and any of its mortgagees, ground lessors or lessees or transferees or prospective mortgagees, ground lessors or lessees or transferees, with respect toany of or all the following matters: 32.1.1.whether this Agreement is then in full force and effect; 32.1.2.whether this Agreement has not been amended, modified, superseded, canceled, repudiated or revoked; 32.1.3.whether the Landlord has satisfactorily completed all construction work, if any, required of the Landlord or contractors selected andretained by the Landlord in connection with readying the Leased Premises for occupancy by the Tenant in accordance with section 5 ofthis Agreement; 32.1.4.whether the Tenant is then in actual possession of the Leased Premises; 32.1.5.whether the Tenant then has no defenses or counterclaims under this Agreement or otherwise against the Landlord or with respect to theLeased Premises; 32.1.6.whether Landlord is not then in breach of this Agreement in any respect; 32.1.7.whether the Tenant then has knowledge of any assignment of this Agreement, the pledging or granting of any security interest in thisAgreement or in Rent due and to become due under this Agreement; 32.1.8.whether Rent is not then accruing under this Agreement in accordance with its terms; 32.1.9.whether any Rent is not then in arrears; 32.1.10.whether Rent due or to become due under this Agreement has not been prepaid by more than one month; 32.1.11.if the response to any of the foregoing matters is in the negative, a specification of all the precise reasons that necessitated the negativeresponse in each instance; and 32.1.12.any other matter reasonably requested by the Landlord or any of its mortgagees, ground lessors or lessees or transferees or prospectivemortgagees, ground lessors or lessees or transferees, including, without limiting the generality of the foregoing, such information as theLandlord may request for purposes of assuring compliance with ISRA, as it may be amended, and any other applicable Federal, state orlocal statute, ordinance, rule, regulation or order concerned with environmental matters. 32 32.2. If, in connection with the Landlord’s or a prospective transferee’s obtaining financing or refinancing of the Property, the Building, the CommonFacilities, any portion thereof or any interest therein, the Landlord or a prospective lender shall so request, the Tenant shall furnish to the requesting partywithin 15 days of the request: 32.2.1.its written consent to any requested modifications of this Agreement provided that, in each such instance, the requested modification doesnot increase the Rent otherwise due or, in the reasonable judgment of the Tenant, otherwise materially increase the obligations of theTenant under this Agreement or materially adversely affect the Tenant’s leasehold interest created hereby or the Tenant’s use andenjoyment of the Leased Premises (except in the circumstances contemplated by section 16 of this Agreement); and 32.2.2.summary financial information regarding its financial position as of the close of its most recently completed fiscal year and its mostrecently completed interim fiscal period and regarding its results of operations for the periods then ended and comparable year earlierperiods, certified by Tenant’s chief financial officer to be a complete, accurate and fair presentation of the summary financial informationpurporting to be set forth therein. 32.3. If the Landlord or any of its mortgagees gives notice to the Tenant of any of their respective names and addresses from time to time, the Tenant shallgive notice to each such mortgagee of any notice of breach or default previously or afterwards given by the Tenant to the Landlord under this Agreement andprovide in such notice that if the Landlord has not cured such breach or default within any permissible cure period then such mortgagee shall have the greaterof (a) an additional period of 30 days or (b) if such default cannot practically be cured within such period, such additional period as is reasonable under thecircumstances, within which to cure such default. Upon request of the Landlord at any time or from time to time, the Tenant shall execute, acknowledge anddeliver to the Landlord or its designee an acknowledgment of receipt of any such notice, an acknowledgment of receipt of any notice of assignment of thisAgreement or rights hereunder by the Landlord to any of its mortgagees and the Tenant’s agreement to the foregoing effect on the respective forms, if any,furnished by the Landlord or the respective mortgagees. 32.4. At least (i) 90 days prior to the termination of the Term and (ii) 30 days prior to any relocation of the Tenant from the Leased Premises (asconstituted on the Commencement Date), the Tenant shall obtain from the New Jersey Department of Environmental Protection (“NJDEP”), and deliver to theLandlord, (a) the Department’s approval of the Tenant’s negative declaration or clean-up plan, or (b) a final remediation document (an “FRD”) as defined inthe Site Remediation Reform Act (58 N.J.S.A. §10C-1 et seq.)(the “SRR Act”), containing a covenant not to sue (whether express or by operation of law),together with copies of all documents furnished to NJDEP in connection with obtaining such certificate or approval. In no event shall compliance bepermitted to be achieved by Tenant by the use of engineering or institutional controls. The requirements of this subsection 32.4 shall not apply if during theterm no occupant’s NAICS code was in a covered classification and no use was made of the Leased Premises which requires compliance with the requirementsof ISRA. 32.5. In the event compliance with ISRA is required and evidence of compliance with ISRA is not delivered to the Landlord prior to expiration or earliertermination of the Term, Tenant shall be liable for all costs and expenses incurred by Landlord in enforcing Tenant’s obligations hereunder until such time asevidence of compliance with ISRA has been delivered to the Landlord, and together with any costs and expenses, including legal and environmentalconsultant fees incurred by Landlord in enforcing Tenant's obligations under subsection 7.2.8 and subsection 32.4 of this Agreement. After the Term, Tenantshall nevertheless be obligated to comply with its obligations hereunder. Evidence of compliance, as used herein, shall mean securing an approved “negativedeclaration” issued by the NJDEP or the filing of an “FRD”. Evidence of compliance shall be delivered to the Landlord, together with copies of allsubmissions made to, and received from, the NJDEP, including all environmental reports, test results and other supporting documentation. In addition, if arelease is caused or permitted by Tenant’s representatives during the Term then, after end of the Term, and because of the difficulty which the Landlord mayexperience in re-letting the Leased Premises, the Tenant shall remain liable for the payment of the annual rent in effect in the last month of the Term, proratedon a monthly basis (the “Post-Term Rent”). The Post-Term Rent shall no longer be due when and if (a) the only remaining requirement is purelyadministrative action on the part of the NJDEP, or (b) an FRD is filed with the NJDEP by a Licensed Site Remediation Professional (an “LSRP”), as defined inthe SRR Act, or from and after the commencement date of a lease of the Leased Premises to a third party. Additionally, if Tenant fails to commence theprocess required by subsection 32.4 of this Agreement at least 90 days prior to the expiration of the Term then the Post-Term Rent shall be equal to 150% ofthe annual rent in effect in the last month of the Term, prorated on a monthly basis. Such Post-Term Rent shall no longer be due when (a) the only remainingrequirement is purely administrative action on the part of the NJDEP, or (b) an FRD is filed with the NJDEP by an LSRP, or (c) from and after thecommencement date of a lease of the Leased Premises to a third party. 33 33. Waiver of Jury Trial and Arbitration. The parties hereby waive any right they might otherwise have to a trial by jury in connection with any dispute arising out of or in connection with thisAgreement or the use and occupancy of the Leased Premises; and they hereby consent to arbitration of any such dispute in Somerset County, New Jersey, inaccordance with the rules for commercial arbitration of the American Arbitration Association or successor organization, except that the Landlord, in its solediscretion, may, with respect to any dispute involving either (i) the Landlord’s right to re-enter and re-take possession of the Leased Premises or (ii) thedetermination of money damages following the occurrence of an Event of Default under this Agreement, elect to pursue any of or all its rights in any court ofcompetent jurisdiction. Judgment upon any arbitration award may be entered in any court of competent jurisdiction. 34. Severability. In the event that any provision of this Agreement, or the application of any provision in any instance, shall be conclusively determined by a court ofcompetent jurisdiction to be illegal, invalid or otherwise unenforceable, such determination shall not affect the validity or enforceability of the balance ofthis Agreement. 35. Notices. All notices contemplated by, permitted or required by this Agreement shall be in writing. All notices required by this Agreement shall be personally deliveredor forwarded by recognized overnight carrier or by certified mail-return receipt requested, addressed to the intended party at its address first set forth above or,in the case of notices to the Tenant during the Term or any other period during which the Tenant shall be in possession of the Leased Premises, at the LeasedPremises. All notices required under this Agreement shall be deemed given (i) upon delivery by overnight carrier; (ii) upon deposit, properly addressed andpostage prepaid, in a postal depository if delivery is by certified mail; or (iii) upon personal delivery to the intended party, regardless of whether deliveryshall be refused. Either party, by a notice served in accordance with the foregoing provisions, may change the address to which notices shall be sent. Noticesgiven by an attorney for a party shall be deemed to be notices given by the party. 36. Captions. Captions have been inserted at the beginning of each section of this Agreement for convenience of reference only and such captions shall not affect theconstruction or interpretation of any such section of this Agreement. 37. Counterparts. This Agreement may be executed in more than one counterpart, each of which shall constitute an original of this Agreement but all of which, taken together,shall constitute one and the same Agreement. Any signature page to any counterpart may be detached from the original counterpart to which it was attached,and then attached to another counterpart that is identical to the original counterpart, without impairing the legal effect of the signatures thereon. 34 38. Applicable Law. This Agreement and the obligations of the parties hereunder shall be governed by and construed in accordance with the laws of the State of New Jersey. 39. Exclusive Benefit. Except as may be otherwise specifically set forth in this Agreement, this Agreement is made exclusively for the benefit of the parties hereto and theirpermitted assignees and no one else shall be entitled to any right, remedy or claim by reason of any provision of this Agreement. 40. Successors. This Agreement shall be binding upon the parties hereto and their respective successors and assigns. 41. Amendments. This Agreement contains the entire agreement of the parties hereto, subsumes all prior discussions and negotiations and, except as may otherwise bespecifically set forth in this Agreement, this Agreement may not be amended or otherwise modified except by a writing signed by all the parties to thisAgreement. 42. Waiver. Except as may otherwise be specifically set forth in this Agreement, the failure of any party at any time or times to require performance of any provision ofthis Agreement shall in no manner affect the right at a later time to enforce the same. No waiver by any party of any condition, or of the breach of any term,covenant, representation or warranty set forth in this Agreement, whether by conduct or otherwise, in any one or more instances shall be deemed to be orconstrued as a further or continuing waiver of any such condition or breach, or as a waiver of any other condition or of the breach of any other term, covenant,representation or warranty set forth in this Agreement. The Landlord’s acceptance of, or endorsement on, any partial payment of Rent or any late payment ofRent from the Tenant shall not operate as a waiver of the Landlord’s right to the balance of the Rent due on a timely basis regardless of any writing to thecontrary on, or accompanying, the Tenant’s partial payment or the Landlord’s putative acquiescence therein. 43. Course of Performance. No course of dealing or performance by the parties, or any of them, shall be admissible for the purpose of obtaining an interpretation or construction of thisAgreement at variance with the express language of the Agreement itself. (The signatures are set forth on the following page.) 35 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. LANDLORD:S/K 520 ASSOCIATESBy: S/K 520 Corp. By: /s/ Jonathan KushnerJonathan Kushner, Vice PresidentTENANT:FOAMIX PHARMACEUTICALS INC. By: /s/ David DamzalskiDavid Damzalski, Chief Executive Officer 36 EXHIBIT A - LEASED PREMISES FLOOR SPACE DIAGRAM 37 EXHIBIT B - PROPERTY DESCRIPTION BEGINNING at a point on the southerly sideline of U.S. Highway 22 (being a 260.00 foot wide right-of-way), and said point being also the northeasterlyproperty corner now or formerly of St. Bernard’s Church; thence (1)along said southerly sideline of U.S. Highway 22 South 60 degrees 05’ 00” E 350.00 feet; thence (2)making a new property line through lands of George Halama S 04 degrees 07’ 37” W 777.68 feet; thence (3)making another new property line through lands of said George Halama, and along properties now or formerly of David A. and Eunice Jenkins,Joseph and Victoria Datchko, Mary and Thomas M. Richards, and Alfred and Mamie Mancini S 88 degrees 15’ 28” E 1034.99 feet to a point on thewesterly sideline of Country Club Road; thence (4)along said westerly sideline S 08 degrees 19’ 58” E 25.39 feet; thence (5)along the property lines now or formerly of the Raritan Valley Country Club and of the St. Bernard’s Cemetery N 88 degrees 15’ 28” W 1223.40feet; thence (6)along the property line of said St. Bernard’s Church N 03 degrees 42’ 11” W 971.65 feet to the said southerly sideline of U.S. Highway 22, and thepoint and place of BEGINNING. 38 EXHIBIT C - WORK LETTER The work to be performed by Landlord, if any, is set forth in Section 5 of this Agreement. 39 EXHIBIT D - BUILDING RULES AND REGULATIONS The following are the Building Rules and Regulations adopted in accordance with subsection 7.2.3 of the Agreement of which this exhibit is a part; and theTenant and the Tenant’s employees, other agents and Guests shall comply with these Building Rules and Regulations: 1. The sidewalks, driveways, entrances, passages, courts, lobby, esplanade areas, plazas, elevators, vestibules, stairways, corridors, halls and otherCommon Facilities shall not be obstructed or encumbered or used for any purpose other than ingress and egress to and from the Leased Premises. Landlord, inits discretion, may tow any vehicle left in the Common Facilities overnight. The Tenant shall not permit or suffer any of its employees, other agents or Gueststo congregate in any of the said areas. No door mat of any kind whatsoever shall be placed or left in any public hall or outside any entry door of the LeasedPremises. 2. No awnings or other projections shall be attached to the outside walls of the Building. No curtains, drapes, blinds, shades or screens shall be attachedto, hung in or used in connection with any window or door of the Leased Premises without the prior written consent of Landlord. If such consent is given,such curtains, drapes, blinds, shades or screens shall be of a quality, type, design and color, and attached in the manner, approved by Landlord. 3. Except as otherwise specifically provided in subsection 18.1 of the Agreement, no sign, insignia, advertisement, object, notice or other lettering shallbe exhibited, inscribed, painted or affixed so as to be visible from outside the Leased Premises or the Building. In the event of the violation of the foregoingby the Tenant, the Landlord may remove same without any liability and may charge the expense incurred in such removal to the Tenant. 4. The sashes, doors, skylights, windows, and doors that reflect or admit light and air into the halls, passageways or other public places in the Buildingshall not be covered or obstructed and no bottles, parcels or other articles shall be placed on the window sills. 5. No showcase or other articles shall be placed in front of or affixed to any part of the Building or the Common Facilities. 6. The lavatories, water and wash closets and other plumbing fixtures shall not be used for any purposes other than those for which they were designedand constructed, and no sweepings, rubbish, rags, acids or other substances shall be thrown or deposited therein. All damages resulting from any misusethereof shall be repaired at the expense of the Tenant that permitted or suffered the violation hereof by the Tenant, the Tenant’s employees, other agents orGuests. 7. The Tenant shall not mark, paint, drill into or in any way deface any part of the Leased Premises, the Building, the Common Facilities or the Property.No boring, cutting or stringing of wires shall be permitted, except with the prior written consent of the Landlord, and as the Landlord may direct. Linoleumand other resilient floor coverings shall be laid so that the same shall not come in direct contact with the floor of the Leased Premises; and if linoleum or otherresilient floor coverings are desired, an interlining of builder’s deadening felt shall be first affixed to the floor by a paste or other material that is, and willremain, soluble in water. The use of cement or other adhesive material that either is not, or will not remain, soluble in water is prohibited. 8. Tenant shall not park more than one car per two hundred fifty square feet of gross rentable space in the Leased Premises. Parking is providedexclusively for the Tenant, its servants, agents, employees, licensees and Guests during Regular Business Hours. Overnight, over weekend and over holidayperiod parking is not permitted under any circumstances. In addition the parking lot is for the non-commercial, non-business use of the tenants of theBuilding and their servants, agents, employees, licensees and Guests, and any other activity such as cleaning, washing, maintenance or repair of any vehicleat any time is prohibited. The Tenant agrees that parking, where not reserved, is on a first-come first served basis and that the Landlord accepts no respon-sibility for any damages to any vehicles parked on the Property however caused, including damages caused by third parties. No bicycles, vehicles, animals,reptiles, fish or birds of any kind shall be brought into or kept in or about the Leased Premises. 40 9. No noise including, without limiting the generality of the foregoing, music or the playing of musical instruments, recordings, radio or televisionwhich, in the reasonable judgment of Landlord, might disturb tenants of Other Leased Premises shall be made or permitted by the Tenant. Nothing shall bedone or permitted in the Leased Premises by the Tenant which would impair or interfere with the use or enjoyment of Other Leased Premises by any tenantthereof. Nothing shall be thrown out of the doors, windows or skylights or down the passageways of the Building. 10. The Tenant shall not manufacture any commodity, or prepare or dispense any foods or beverages, tobacco, flowers or other commodities or articleswithout the prior written consent of the Landlord. 11. The Building has a Grand Master Key which enables the Landlord and its agents, employees and contractors to enter the Leased Premises. Tenantentry locks and additional locks and bolts of any kind which are not be operable by the Grand Master Key for the Building shall not be installed in any of thedoors or windows, nor shall any changes be made in any locks or the mechanisms thereof which shall make such locks inoperable by the Grand Master Key. IfTenant fails to comply with these restrictions, any cost incurred by Landlord in changing locks, securing new or additional keys, passes or duplicates or forother services of a locksmith shall be borne by Tenant. Duplicates of keys and passes distributed to the Tenant by the Landlord shall not be made. Additionalkeys for the Leased Premises and any lavatories (where applicable) shall be procured only from Landlord who may make a reasonable charge therefore. Where so equipped, the Building also may have electronic card key access which consists of an electronically readable key and a reader at or nearthe entry and/or rear doors. Tenant will be issued two (2) card keys and may purchase additional keys from the Landlord at a cost of $17.50 per key. Only theLandlord may supply keys to the electronic card readers. The Tenant shall maintain an updated, current list of authorized key holders and provide a copy ofthe list to Landlord. Tenant shall co-operate with Landlord when inquiry is made as to the current list of authorized key holders. Any requests for changes,alterations, deletions or substitutions of existing keys shall be done in writing, by fax or by e-mail to the Landlord. Landlord will edit its master list andremove access rights for any key holders whose authorization is terminated or whose keys are unaccounted for within ten (10) business days of receipt ofnotification. Tenant shall promptly notify Landlord of the theft, loss or disappearance of any key or the termination of authorization for any key holder. If thekey is not returned to Landlord, Tenant shall bear the current cost for the replacement thereof. Where applicable, a mailbox and two (2) mail box keys are supplied to the mail boxes outside the Building. Although the boxes and keys are theproperty of the Landlord, the Landlord is not responsible for the arrangement of delivery of mail or the contents of the box once the keys have been deliveredto the Tenant. The Tenant is advised that the local postmaster retains a master key for the box. Tenant may purchase additional keys from the Landlord at acost of $17.50 per key. 12. All deliveries and removals, and the carrying in or out of any safes, freight, furniture, packages, boxes, crates or any other object or matter of anydescription shall take place during such hours, in such manner and in such elevators and passageways as the Landlord may determine from time to time. TheLandlord reserves the right to inspect all objects and matter being brought into the Building or the Common Facilities and to exclude from the Building andthe Common Facilities all objects and matter that violates any of these Building Rules and Regulations or that are contraband. The Landlord may (but shallnot be obligated to) require any person leaving the Building or the Common Facilities with any package or object or matter from the Leased Premises toestablish his authority from the Tenant to do so. The establishment and enforcement of such a requirement shall not impose any responsibility on theLandlord for the protection of the Tenant against the removal of property from the Leased Premises. The Landlord shall not be liable to the Tenant fordamages or loss arising from the admission, exclusion or ejection of any person to or from the Leased Premises or the Building or the Common Facilitiesunder this rule. 41 13. The Tenant shall not place any object in any portion of the Building that is in excess of the safe carrying or designed load capacity of the structure. 14. The Landlord shall have the right to prohibit any advertising or display of any identifying sign by the Tenant which in the Landlord’s judgmenttends to impair the reputation of the Building or its desirability; and, on written notice from the Landlord, the Tenant shall refrain from or discontinue suchadvertising or display of such identifying sign. 15. The Landlord reserves the right to exclude from the Building and the Common Facilities during hours other than Regular Business Hours all personswho do not present a pass thereto signed by both the Landlord and the Tenant. All persons entering or leaving the Building or the Common Facilities duringhours other than Regular Business may be required to sign a register. The Landlord will furnish passes to persons for whom the Tenant requests same inwriting. The establishment and enforcement of such a requirement shall not impose any responsibility on the Landlord for the protection of the Tenantagainst unauthorized entry of persons. 16. The Tenant, before closing and leaving the Leased Premises at any time shall see that all lights and appliances generating heat (other than theheating system) are turned off. All entrance doors to the Leased Premises shall be left locked by the Tenant when the Leased Premises are not in use. At anytime when the Building or the Common Facilities are locked during hours other than Regular Business Hours, the Building and the Common Facilities locksshall not be defeated by any means, such as by leaving a door ajar. 17. No person shall go upon the roof of the Building without the prior written consent of the Landlord. 18. Any requirements of the Tenant may be attended to only upon application at the office of the Building. The Landlord and its agents shall notperform any work or do any work or do anything outside of the Landlord’s obligations under the Agreement except upon special instructions from theLandlord on terms acceptable to the Landlord and the Tenant. 19. Canvassing, soliciting and peddling in the Building and the Common Facilities are prohibited and the Tenant shall cooperate to prevent same. 20. There shall not be used in any space, or in the public halls or other Common Facilities of the Building, in connection with the moving or delivery orreceipt of safes, freight, furniture, packages, boxes, crates, paper, office material, or any other matter or thing, any hand trucks or dollies except thoseequipped with rubber tires, side guards and such other safeguards as the Landlord shall require. No hand trucks shall be used in passenger elevators, and nopassenger elevators shall be used for the moving, delivery or receipt of the aforementioned articles. In connection with moving in or out any furniture,furnishings, equipment, heavy articles and heavy packages, the Tenant shall take such precautions as may be necessary to prevent excessive wear and tear inthe Building’s Common Facilities and the Leased Premises including, without limiting the generality of the foregoing, floor and wall treatments. 21. The Tenant shall not cause or permit any odors of cooking or other processes or any unusual or objectionable odors to emanate from the LeasedPremises which might constitute a Nuisance. No cooking shall be done in the Leased Premises other than as specifically permitted in the Agreement. 22. The Landlord reserves the right not to enforce any Building Rule or Regulation against any tenants of Other Leased Premises. The Landlord reservesthe right to rescind, amend or waive any Building Rule and Regulation when, in the Landlord’s reasonable judgment, it appears necessary or desirable for thereputation, safety, care or appearance of the Building or the preservation of good order therein or the operation of the Building or the comfort of tenants orothers in the Building. No rescission, amendment or waiver of any Building Rule and Regulation in favor of one tenant shall operate as a rescission,amendment or waiver in favor of any other tenant. 42 EXHIBIT E - DEFINITIONS AND INDEX OF DEFINITIONS In accordance with section 1 of the Agreement of which this exhibit is a part, throughout the Agreement the following terms and phrases shall have themeanings set forth or referred to below: 1.“Additional Rent” means all amounts, other than Basic Rent and any Security Deposit, required to be paid by the Tenant to the Landlord in accordancewith this Agreement. 2.“Agreement” means this Lease and Lease Agreement (including exhibits), as it may have been amended. 3.“Annual Amortized Capital Expenditure” means the payment amount determined as an annuity in arrears using the cost incurred by the Landlord for anyCapital Expenditure as the present value, a number of periods equal to the number of years of its useful life (not exceeding 10 years) selected by theLandlord in accordance with generally applied real estate accounting practice and the Base Rate in effect when the respective improvement is firstplaced into service plus two additional percentage points as the annual rate of interest. 4.“Base Rate” means the prime commercial lending rate per year as announced from time to time by Bank of America at its principal office. 5.“Base Year” means the full calendar year 2017 with respect to Operational Expenses and Taxes. 6.“Base Year Operational Expenses” means Operational Expenses incurred by the Landlord during the Base Year as defined in subsection 10.2 of thisAgreement. 7.“Base Year Taxes” means the product of the final assessed value, as the same may subsequently be adjusted in any appeal of the tax assessor’s valuation,of the Property, the Building and any other improvements on the Property in the Base Year and the Municipality’s lowest tax rate for office buildingsand the property on which they stand in effect during the Base Year. 8.“Basic Rent” is defined in subsection 3.2 of this Agreement. 9.“Broker” is defined in subsection 30.2 of this Agreement. 10.“Building” means the office building erected on the Property which is commonly known as 520 Route 22, Bridgewater, New Jersey, as it may, in theLandlord’s sole discretion, be increased, decreased, modified, altered or otherwise changed from time to time before, during or after the Term. As theBuilding is presently constructed it is agreed to contain 60,797 gross rentable square feet of floor space. 11.“Capital Expenditure” is defined in subsection 10.3 of this Agreement. 12.“Commencement Date” is defined in section 4 of this Agreement. 13.“Common Facilities” means the areas, facilities and improvements provided by the Landlord in the Building (except the Leased Premises and the OtherLeased Premises) and on or about the Property, including, without limiting the generality of the foregoing, the Parking Facilities and access roadsthereto, for non-exclusive use by the Tenant in accordance with subsection 2.2 of this Agreement, as they may, in the Landlord’s sole discretion, beincreased, decreased, modified, altered or otherwise changed from time to time before, during or after the Term, and subject to rights which may begranted to the major tenant to utilize the lobby as a common reception area. 43 14.“Common Walls” means those walls which separate the Leased Premises from Other Leased Premises. 15.“Election Right” is defined in subsection 21.2 of this Agreement. 16.“Electric Charges” means all the supplying utility’s charges for, or in connection with, furnishing electricity including charges determined by actualusage, any seasonal adjustments, demand charges, energy charges, energy adjustment charges and any other charges, howsoever denominated, of thesupplying utility, including sales and excise taxes and the like. 17.“Environmental Laws” is defined in subsection 7.2.8 (ii) of this Agreement. 18.“Event of Default” is defined in section 22 of this Agreement. 19.“Expiring Term” means, when used in the context of any Option to Renew, the Term as it is then scheduled to expire (immediately prior to exercise ofthe next available Option to Renew). 20.“FRD” is defined in subsection 32.4 of this Agreement. 21.The Tenant’s “Guests” shall mean the Tenant’s licensees, invitees and all others in, on or about the Leased Premises, the Building, the CommonFacilities or the Property, either at the Tenant’s express or implied request or invitation or for the purpose of soliciting or visiting the Tenant. 22.“Hazardous Substance” is defined in subsection 7.2.8 (ii) of this Agreement. 23.A “History of Recurring Events of Default” means the occurrence of two or more Events of Default (whether or not cured by the Tenant) in any period of12 months. 24.“Holdover Damages” is defined in subsection 23.4 of this Agreement. 25.“Index” means the “all items” index figure for the New York Northeastern New Jersey average of the Consumer Price Index for all urban wage earners andclerical workers which uses a base period of 1982-84=100, published by the United States Department of Labor, so long as it continues to be published.If the Index is not published for a period of three consecutive months, or if its base period is changed, the term “Index” shall mean that index, as nearlyequivalent in purpose, function and coverage as practicable to the original Index, which the Landlord shall have designated by notice to the Tenant. 26.“Initial Term” means the period so designated in subsection 4.1 of this Agreement. 27.“Initial Year” means the first 12 full calendar months of the Initial Term. 28.“ISRA” is defined in subsection 7.2.8(ii) of this Agreement. 29.“Landlord” means the person so designated at the beginning of this Agreement and those successors to the Landlord’s interest in the Property and/or theLandlord’s rights and obligations under this Agreement contemplated by section 26 of this Agreement. 30.“Leased Premises” means that portion of the interior of the Building (as viewed from the interior of the Leased Premises) bounded by the interior sides ofthe unfinished floor and the finished ceiling on the floor (as the floors have been designated by the Landlord) of the Building, the centers of all CommonWalls and the exterior sides of all walls other than Common Walls, the outline of which floor space is designated on the diagram set forth in Exhibit Aattached hereto, which portion contains 10,000 square feet of gross rentable floor space. 44 31.“Legal Holidays” means New Year’s Day, Presidents’ Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. 32.“LSRP” is defined in subsection 32.5 of this Agreement. 33.“Market Rental Rate” means, at the time of reference, the gross rentable floor space of the Leased Premises multiplied by the greater of: (a) that annualrate of Basic Rent per square foot of gross rentable floor space which is then being quoted by the Landlord for comparable Other Leased Premises (orwould then be quoted if comparable Other Leased Premises were then available) or (b) that annual rate of Basic Rent per square foot of gross rentablefloor space in effect during the Expiring Term. 34.“Municipality” means Bridgewater, New Jersey, or any successor municipality with jurisdiction over the Property. 35.“NJDEP” is defined in subsection 32.4 of this Agreement. 36.“No Pass Through Period” means, in the context of Operational Expenses and Taxes, the period beginning on the Commencement Date and ending onthe day prior to the first anniversary of the Commencement Date. 37.“Nuisance” means any condition or occurrence which unreasonably or materially interferes with the authorized use and enjoyment of the Other LeasedPremises and the Common Facilities by any tenant of Other Leased Premises or by any person authorized to use any Other Leased Premises or CommonFacilities. 38.“Operational Expenses” is defined in subsection 10.2 of this Agreement. 39.“Option to Renew” is defined in subsection 6.1 of this Agreement. 40.“Other Leased Premises” means all premises within the Building, with the exception of the Leased Premises, that are, or are available to be, leased totenants or prospective tenants, respectively. 41.“Parking Facilities” means the parking area adjacent to the Building, which parking area is provided as Common Facilities. 42.“Person” includes an individual, a corporation, a partnership, a trust, an estate, an unincorporated group of persons and any group of persons. 43.“Post-Term Rent” is defined in subsection 32.5 of this Agreement. 44.“Property” means the parcel of land, as it may, in the Landlord’s sole discretion, be increased, decreased, modified, altered or otherwise changed fromtime to time before, during or after the Term, on which the Building is erected. As the Property is presently constituted, it is more particularly describedin Exhibit B attached hereto. 45.“Regular Business Hours” means 8:00 A.M. to 6:00 P.M., Monday through Friday, except on Legal Holidays. 45 46.“Re-Leasing Damages” is defined in subsection 23.3 of this Agreement or in subsection 23.7 of this Agreement, as the case may be. 47.“Renewal Term” means, at the time of reference, any portion of the Term, other than the Initial Term, as to which the Tenant has properly exercised anOption to Renew which Option to Renew has not been rescinded in accordance with subsection 6.2 of this Agreement. 48.“Rent” means Basic Rent and Additional Rent. 49.“Security Deposit” is designated in section 29 of this Agreement. 50.“SRR Act” is defined in subsection 32.4 of this Agreement. 51.“Taxes” means, in any calendar year, the aggregate amount of real property taxes, assessments and sewer rents, rates and charges, state and local taxes,transit taxes and every other governmental charge, whether general or special, ordinary or extraordinary (except corporate franchise taxes and taxesimposed on, or computed as a function of, net income or net profits from all sources and except taxes charged, assessed or levied exclusively on theLeased Premises or arising exclusively from the Tenant’s occupancy of the Leased Premises) charged, assessed or levied by any taxing authority withrespect to the Property, the Building, the Common Facilities and any other improvements on the Property, less any refunds or rebates (net of expensesincurred in obtaining any such refunds or rebates) of Taxes actually received by the Landlord during such calendar year with respect to any periodduring the Term for the benefit of the Tenant, tenants of Other Leased Premises and the Landlord. If during the Term there shall be a change in the meansor methods of taxing real property generally in effect at the beginning of the Term and another type of tax or method of taxation should be substituted inwhole or in part for, or in lieu of, Taxes, the amounts calculated under such other types of tax or by such other methods of taxation shall also be deemedto be Taxes. Until such time as the actual amount of Taxes for any calendar year becomes known, the amount thereof shall be the Landlord’s estimate ofTaxes for that calendar year. 52.“Tenant” means the person so designated at the beginning of this Agreement. 53.“Tenant Electric Charges” means (a) during Regular Business Hours, Electric Charges attributable to the Tenant’s use of electricity in the LeasedPremises for purposes other than heating, ventilation and air conditioning provided to the Leased Premises by the Landlord in accordance withsubsection 8.1.5 of this Agreement and (b) during other than Regular Business Hours, a charge at the rate of $75.00 per hour or partial hour of use plusElectric Charges attributable to the Tenant’s use of electricity in the Leased Premises for all purposes including, without limiting the generality of theforegoing, heating, ventilation and air conditioning. The hourly charge shall be subject to adjustment in accordance with the provisions of subsection10.10 of this Agreement. 54.“Tenant’s Share” of any amount means 16.5%. 55.“Term” means the Initial Term plus, at the time of reference, any Renewal Term. 56.“Termination Damages” is defined in subsection 23.2 of this Agreement. 57.“Utilities Expenses” means Electric Charges (other than Tenant Electric Charges) and all charges for any other fuel that may be used in providing heatand in providing electricity and services powered by electricity that the Landlord provides in accordance with section 8 of this Agreement to theBuilding, the Leased Premises, Other Leased Premises, the Common Facilities and the Property, including sales and excise taxes and the like. 46 58.“Wire Restoration Work” is defined in subsection 21.2.2 of this Agreement. 59.“Wiring” is defined in subsection 21.2.1 of this Agreement. 60.“Work Letter” means Exhibit C attached hereto which generally describes those improvements the Landlord will provide or install in the LeasedPremises without installation charge to the Tenant in connection with the preparation of the Leased Premises contemplated by section 5 of thisAgreement. 47  Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-222155) of Foamix Pharmaceuticals Ltd. of ourreport dated February 27, 2018 relating to the financial statements, which appears in this Form 10‑K. Tel-Aviv, Israel/s/ Kesselman & KesselmanFebruary 27, 2018Certified Public Accountants (Isr.) A member firm of PricewaterhouseCoopers International Limited 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 Exhibit 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER I, David Domzalski, certify that: 1. I have reviewed this report on Form 10-K of Foamix Pharmaceuticals Ltd.; 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 thestatements 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 financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct 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 registrantand have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness 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 registrant's internal control over financial reporting that occurred during the registrant's most recentfiscal year that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant'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 reasonablylikely to adversely affect the registrant'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 registrant's internal controlover financial reporting. Date: February 27, 2018By:/s/ David Domzalski David DomzalskiChief ExecutiveOfficer Exhibit 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER I, Ilan Hadar, certify that: 1. I have reviewed this report on Form 10-K of Foamix Pharmaceuticals Ltd.; 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 thestatements 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 financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct 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 registrantand have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness 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 registrant's internal control over financial reporting that occurred during the registrant's most recentfiscal year that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant'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 reasonablylikely to adversely affect the registrant'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 registrant's internal controlover financial reporting. Date: February 27, 2018By:/s/ Ilan Hadar Ilan HadarChief Financial OfficerandCountry Manager Exhibit 32.1 CERTIFICATION OF CEO PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K of Foamix Pharmaceuticals Ltd. (the "Company") for the year ended December 31, 2017 as filed with theSecurities and Exchange Commission on the date hereof (the "Report"), David Domzalski, as Chief Executive Officer of the Company, hereby certifies,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 his knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: February 27, 2018By:/s/ David Domzalski David DomzalskiChief ExecutiveOfficer This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by theSarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.  Exhibit 32.2 CERTIFICATION OF CFO PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K of Foamix Pharmaceuticals Ltd. (the "Company") for the year ended December 31, 2017 as filed with theSecurities and Exchange Commission on the date hereof (the "Report"), Ilan Hadar, as Chief Financial Officer of the Company, hereby certifies, pursuant to18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: February 27, 2018By:/s/ Ilan Hadar Ilan HadarChief Financial OfficerandCountry Manager This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by theSarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. 

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