Intec Pharma
Annual Report 2015

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 20-F ¨REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934OrxANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2015Or¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934Or¨SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 001-37521 INTEC PHARMA LTD.(Exact name of Registrant as specified in its charter) N/A(Translation of Registrant’s name into English) State of Israel(Jurisdiction of incorporation or organization) 12 Hartom Street, Har Hotzvim, Jerusalem 9777512, Israel(Address of principal executive offices) Zeev WeissChief Executive Officer12 Hartom Street, Har HotzvimJerusalem 9777512, IsraelTel: (+972) (2) 586-4657(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person) Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredOrdinary shares, no par value Nasdaq Capital Market Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by theannual report. 11,448,191 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes ¨ ¨ No xx If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d)of the Securities Exchange Act of 1934. Yes ¨¨ No xx 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 of1934 during the preceding 12 months (or for such a shorter period that the registrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes x x No ¨¨ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for suchshorter period that the registrant was required to submit and post such files). Yes ¨ ¨ No xx Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ¨¨ Accelerated filer ¨ ¨ Non-accelerated filer xx Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:U.S. GAAP ¨¨International Financial Reporting Standardsas issued by the International Accounting Standards Board xxOther ¨¨ If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the Registrant has electedto follow: Item 17 ¨¨ Item 18 ¨¨ If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨¨No xx (APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS) Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the SecuritiesExchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ¨ ¨ No ¨¨  TABLE OF CONTENTS PART I4ITEM 1. Identity of Directors, Senior Management and Advisers4ITEM 2. Offer Statistics and Expected Timetable4ITEM 3. Key Information5ITEM 4. Information on the Company44ITEM 4A. Unresolved Staff Comments78ITEM 5. Operating and Financial Review and Prospects79ITEM 6. Directors, Senior Management and Employees88ITEM 7. Major Shareholders and Related Party Transactions111ITEM 8. Financial Information112ITEM 9. The Offer and Listing113ITEM 10. Additional Information114ITEM 11. Quantitative and Qualitative Disclosures About Market Risk133ITEM 12. Description of Securities Other Than Equity Securities134 PART II134ITEM 13. Defaults, Dividend Arrearages and Delinquencies134ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds134ITEM 15. Controls and Procedures135ITEM 16. [RESERVED]136ITEM 16A. Audit Committee Financial Expert136ITEM 16B. Code of Ethics136ITEM 16C. Principal Accountant Fees and Services136ITEM 16D. Exemptions from the Listing Standards for Audit Committees137ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers137ITEM 16F. Change in Registrant’s Certifying Accountant137ITEM 16G. Corporate Governance137ITEM 16H. Mine Safety Disclosure139 PART III139ITEM 17. Financial Statements139ITEM 18. Financial Statements139ITEM 19. Exhibits141 2  ABOUT THIS ANNUAL REPORT All references to “we,” “us,” “our,” “Intec”, “the Company” and “our Company”, in this Annual Report on Form 20-F, or our annual report, are to IntecPharma Ltd., unless the context otherwise requires. All references to “ordinary shares” and “share capital” refer to ordinary shares and share capital of Intec.All references to “Israel” are to the State of Israel. Our financial statements are prepared and presented in accordance with International Financial ReportingStandards, or IFRS, as issued by the International Accounting Standards Board, or IASB. Our historical results do not necessarily indicate our expected resultsfor any future periods. Any discrepancies in any table between totals and sums of the amounts listed are due to rounding. Unless otherwise indicated, or thecontext otherwise requires, references in this annual report to financial and operational data for a particular year refer to the fiscal year of our company endedDecember 31 of that year. Our functional and reporting currency for the years ended December 31, 2014 and 2015 was the New Israeli Shekel. Effective January 1, 2016, ourreporting and functional currency is the U.S. dollar as a result of the significant increase in our expenses denominated in U.S. dollars, primarily due toexpenses associated with our Phase III clinical trial. In this annual report, “NIS” means New Israeli Shekel, and “$,” “US$” and “U.S. dollars” mean UnitedStates dollars. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Annual Report on Form 20-F contains forward-looking statements about our expectations, beliefs or intentions regarding, among other things, ourproduct development efforts, business, financial condition, results of operations, strategies, plans and prospects. In addition, from time to time, we or ourrepresentatives have made or may make forward-looking statements, orally or in writing. Forward-looking statements can be identified by the use of forward-looking words such as “believe,” “expect,” “intend,” “plan,” “may,” “should,” “anticipate,” “could,” “might,” “seek,” “target,” “will,” “project,” “forecast,”“continue” or their negatives or variations of these words or other comparable words or by the fact that these statements do not relate strictly to historicalmatters. These forward-looking statements may be included in, among other things, various filings made by us with the Securities and ExchangeCommission, or the SEC, press releases or oral statements made by or with the approval of one of our authorized executive officers. Forward-lookingstatements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate tomatters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materiallyfrom any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materiallyfrom the activities and results anticipated in forward-looking statements, including, but not limited to, the factors summarized below: ·We are a clinical stage biopharmaceutical company with a history of operating losses, are not currently profitable, do not expect to becomeprofitable in the near future and may never become profitable. ·Because of our limited operating history, we may not be able to successfully operate our business or execute our business plan. ·We face continuous technological change, and developments by competitors may render our products or technologies obsolete or non-competitive. If our new or existing product candidates are rendered obsolete or non-competitive, our marketing and sales will suffer and wemay never be profitable. ·We license our core technology on an exclusive basis from Yissum (Hebrew University), and we could lose our rights to this license if adispute with Yissum arises or if we fail to comply with the financial and other terms of the license. ·If we fail to adequately protect, enforce or secure rights to the patents which were licensed to us or any patents we may own in the future, thevalue of our intellectual property rights would diminish and our business and competitive position would suffer. 3  ·Our product candidates are at various stages of preclinical and clinical development and may never be commercialized. ·We cannot be certain that the results of our potential Phase III clinical trials, even if all endpoints are met, will support regulatory approvalof any of our product candidates for any indication. ·Our product candidates are subject to extensive regulation and are at various stages of regulatory development and may never obtainregulatory approval. ·We are subject to anti-kickback laws and regulations. Our failure to comply with these laws and regulations could have adverseconsequences to us. ·Potential political, economic and military instability in the State of Israel, where our senior management, our head executive office,research and development, and manufacturing facilities are located, may adversely affect our results of operations. ·If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if theyadversely change their recommendations or publish negative reports regarding our business or our shares, our share price and tradingvolume could be negatively impacted. We believe these forward-looking statements are reasonable; however, these statements are only current predictions and are subject to known andunknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to bematerially different from those anticipated by the forward-looking statements. We discuss many of these risks in this annual report in greater detail under theheading “Risk Factors” and elsewhere in this annual report. Given these uncertainties, you should not rely upon forward-looking statements as predictions offuture events. All forward-looking statements attributable to us or persons acting on our behalf speak only as of the date hereof and are expressly qualified in theirentirety by the cautionary statements included in this annual report. We undertake no obligations to update or revise forward-looking statements to reflectevents or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. In evaluating forward-looking statements, youshould consider these risks and uncertainties. EXPLANATORY NOTE Market data and certain industry data and forecasts used throughout this annual report were obtained from market research databases, consultant surveyscommissioned by us, publicly available information, reports of governmental agencies and industry publications and surveys. Industry surveys, publications,consultant surveys commissioned by us and forecasts generally state that the information contained therein has been obtained from sources believed to bereliable. We have relied on certain data from third-party sources, including internal surveys, industry forecasts and market research, which we believe to bereliable based on our management’s knowledge of the industry. Statements as to our market position are based on the most currently available data. While weare not aware of any misstatements regarding the industry data presented in this annual report, our estimates involve risks and uncertainties and are subject tochange based on various factors, including those discussed under the heading “Risk Factors” in this annual report. Notwithstanding the foregoing, we remainresponsible for the accuracy and completeness of the historical information presented in this annual report, as of the date on the front cover of this annualreport. PART I ITEM 1. Identity of Directors, Senior Management and Advisers. Not applicable. ITEM 2. Offer Statistics and Expected Timetable. Not applicable. 4  ITEM 3. Key Information. A.Selected Financial Data. The following tables summarize our financial data. We have derived the selected statements of comprehensive loss data for the years ended December 31,2013, 2014 and 2015 and the statements of financial position as of December 31, 2013, 2014 and 2015 from our audited financial statements includedelsewhere in this annual report. The following selected financial data for our company should be read in conjunction with the financial information, “Item 5.Operating and Financial Review and Prospects” and other information provided elsewhere in this Annual Report on Form 20-F and our financial statementsand related notes. The selected financial data in this section is not intended to replace the financial statements and is qualified in its entirety thereby. Our financial statements included in this annual report were prepared in accordance with IFRS, as issued by the IASB, and reported in NIS. The following selected financial data for the periods and as of the dates indicated are qualified by reference to and should be read in conjunction withour financial statements and related notes and “Operating and Financial Review and Prospects,” both of which are included elsewhere in this annual report. Year ended December 31, 2013 2014 2015 2015 NIS in thousands Conveniencetranslationinto USDin thousands Statements of comprehensive loss data:(1) Research and development expenses 17,410 17,740 29,257 7,498 Less-participation in research and development expenses (8,393) (5,544) (10,556) (2,705)Research and development expenses, net 9,017 12,196 18,701 4,793 General and administrative expenses 9,633 9,332 10,828 2,775 Other gains, net (474) (836) (76) (19)Operating loss 18,176 20,692 29,453 7,549 Financial income (434) (1,136) (2,458) (630)Financial expenses 648 812 889 228 Financial expenses (income), net 214 (324) (1,569) (402)Loss and comprehensive loss 18,390 20,368 27,884 7,147 5  NIS USD Basic and diluted loss per ordinary share 4.25 4.22 3.58 0.92 Number of ordinary shares used in computing loss perordinary share (in thousands) 4,322 4,825 7,791 7,791 December 31, 2013 2014 2015 2015 NIS in thousands Conveniencetranslation intoUSD inthousands Statement of financial position: Cash and cash equivalents 11,763 22,287 92,277 23,649 Short term bank deposits 19,510 5,000 Financial assets at fair value through profit or loss 17,887 7,820 7,897 2,024 Restricted bank deposits 260 292 240 62 Other receivables 2,583 1,120 9,211 2,361 Property and equipment 14,991 17,101 15,906 4,076 Total assets 47,484 48,620 145,041 37,172 Accounts payable and accruals 4,923 7,219 5,125 1,315 Derivative financial instruments 10,298 4,528 1,277 327 Total liabilities 15,221 11,747 6,402 1,642 Total equity 32,263 36,873 138,639 35,530 We prepare our financial statements in NIS. This annual report contains conversions of NIS amounts into U.S. dollars at specific rates solely for theconvenience of the reader. Unless otherwise noted, for the purposes of annual financial data, all conversions from NIS to U.S. dollars and from U.S. dollars toNIS were made at a rate of 3.902 NIS to $1.00 U.S. dollar, the daily representative rate in effect as of December 31, 2015. No representation is made that theNIS amounts referred to in this annual report could have been or could be converted into U.S. dollars at any particular rate or at all. 6  As of December 31, 2015, the daily representative rate of NIS per U.S. dollars was 3.902. The following table sets forth information regarding theexchange rates of NIS per U.S. dollars for the periods indicated. Average rates are calculated by using the daily representative rates as reported by the Bank ofIsrael on the last day of each month during the periods presented. NIS per U.S. $ Year Ended December 31, High Low Average PeriodEnd 2015 4.053 3.761 3.884 3.902 2014 3.994 3.402 3.577 3.889 2013 3.791 3.471 3.609 3.471 NIS per U.S. $ Month Ended High Low Average Period End February 2016 3.964 3.871 3.908 3.910 January 2016 3.983 3.913 3.951 3.951 December 2015 3.905 3.855 3.881 3.902 November 2015 3.921 3.868 3.889 3.877 October 2015 3.923 3.816 3.863 3.867 September 2015 3.949 3.863 3.913 3.923 B. Capitalization and Indebtedness. Not applicable. C. Reasons for the Offer and Use of Proceeds. Not applicable. D. Risk Factors. Risks Related to Our Company and Its Business An investment in our securities involves a high degree of risk. We operate in a dynamic and rapidly changing industry that involves numerous risks anduncertainties. You should carefully consider the factors described below, together with all of the other information contained in this annual report on Form20-F, including the audited financial statements and the related beginning on page F-1, before deciding whether to invest in our ordinary shares. If any ofthe risks discussed below actually occur, our business, financial condition, operating results and cash flows could be materially adversely affected. Therisks described below are not the only risks facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterialalso may impair our business operations. This could cause the trading price of our ordinary shares to decline, and you may lose all or part of yourinvestment. We are a clinical stage biopharmaceutical company with a history of operating losses, are not currently profitable, do not expect to become profitable inthe near future and may never become profitable. We are a clinical stage biopharmaceutical company that was incorporated in 2000. Since our incorporation, we have primarily focused our efforts onresearch and development and clinical trials. Our two most advanced therapeutic candidates are in clinical trials. We are not profitable and have incurredlosses since inception, principally as a result of research and development, clinical trials and general administrative expenses in support of our operations.We have not generated any revenue, expect to incur substantial losses for the foreseeable future and may never become profitable. We also expect to incursignificant operating and capital expenditures and anticipate that our expenses and losses will increase substantially in the foreseeable future as we: 7  •initiate and manage preclinical development and clinical trials for our current and any new product candidates; •prepare NDAs for our product candidates, assuming that the clinical trial data support an NDA; •seek regulatory approvals for our current product candidates, or future product candidates, if any; •implement internal systems and infrastructure; •seek to in-license additional technologies for development, if any; •hire additional management and other personnel; and •move towards commercialization of our product candidates and future product candidates, if any. We may out-license our ability to generate revenue from one or more of our product candidates, depending on a number of factors, including our abilityto: •obtain favorable results from and progress the clinical development of our product candidates; •develop and obtain regulatory approvals in the countries and for the uses we intend to pursue for our product candidates; •subject to successful completion of registration, clinical trials and perhaps additional clinical trials of any product candidate, apply for and obtainmarketing approval in the countries we intend to pursue for such product candidate; and •contract for the manufacture of commercial quantities of our product candidates at acceptable cost levels, subject to the receipt of marketingapproval. For the years ended December 31, 2013, 2014, and 2015, we had net losses of NIS 18.4 million, NIS 20.4 million and NIS 27.9 million, respectively, andwe expect such losses to continue for the foreseeable future. As a result, we will ultimately need to generate significant revenues in order to achieve andmaintain profitability. We may not be able to generate these revenues or achieve profitability in the future. If our product candidates fail in clinical trials ordo not gain regulatory clearance or approval, or if our product candidates do not achieve market acceptance, we may never become profitable. Our failure toachieve or maintain profitability, or substantial delays in achieving profitability, could negatively impact the value of our ordinary shares and our ability toraise additional financing. A substantial decline in the value of our ordinary shares would also affect the price at which we could sell shares to secure futurefunding, which could dilute the ownership interest of current shareholders. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Accordingly, it is difficult to evaluate ourbusiness prospects. Moreover, our prospects must be considered in light of the risks and uncertainties encountered by an early-stage company in highlyregulated and competitive markets, such as the biopharmaceutical market, where regulatory approval and market acceptance of our products are uncertain.There can be no assurance that our efforts will ultimately be successful or result in revenues or profits. 8  Because of our limited operating history, we may not be able to successfully operate our business or execute our business plan. We have a limited operating history upon which to evaluate our proposed business and prospects. Our proposed business operations will be subject tonumerous risks, uncertainties, expenses and difficulties associated with early-stage enterprises. Such risks include, but are not limited to, the following: •the absence of a lengthy operating history; •insufficient capital to fully realize our operating plan; •our ability to obtain U.S. Food and Drug Administration, or the FDA, approvals in a timely manner, if ever, or that the approved label indications aresufficiently broad to make sale of the products commercially feasible; •expected continual losses for the foreseeable future; •operating in an environment that is highly regulated by a number of agencies; •operating in multiple currencies; •social and political unrest; •our ability to anticipate and adapt to a developing market(s); •acceptance of the Accordion Pill by the medical community and consumers; •limited marketing experience; •a competitive environment characterized by well-established and well-capitalized competitors; •the ability to identify, attract and retain qualified personnel; and •reliance on key personnel. Because we are subject to these risks, evaluating our business may be difficult, our business strategy may be unsuccessful and we may be unable toaddress such risks in a cost-effective manner, if at all. If we are unable to successfully address these risks our business will be harmed. We have not yet commercialized any products or technologies, and we may never become profitable. We have not yet commercialized any products or technologies, and we may never be able to do so. We do not know when or if we will complete any ofour product development efforts, obtain regulatory approval for any product candidates incorporating our technologies or successfully commercialize anyapproved products. We are currently seeking a potential strategic partner for further clinical development and commercialization of AP–ZP. If we are not ableto enter into a relationship with a strategic partner for further clinical development and commercialization of AP–ZP, we may not be able to obtain sufficientcapital to independently develop and commercialize AP–ZP. Even if we are successful in developing products that are approved for marketing, we will not besuccessful unless these products gain market acceptance for appropriate indications at favorable reimbursement rates. The degree of market acceptance ofthese products will depend on a number of factors, including, but not limited to: •the timing of regulatory approvals in the countries, and for the uses, we intend to pursue with respect to the commercialization of our productcandidates; •the competitive environment; 9  •the establishment and demonstration in, and acceptance by, the medical community of the safety and clinical efficacy of our products and theirpotential advantages over other therapeutic products; •our ability to enter into strategic agreements with pharmaceutical and biotechnology companies with strong marketing and sales capabilities; •the adequacy and success of distribution, sales and marketing efforts; •the establishment of external, and potentially, internal, sales and marketing capabilities to effectively market and sell our product candidates in theUnited States and other countries; and •the pricing and reimbursement policies of government and third-party payors, such as insurance companies, health maintenance organizations andother plan administrators. Physicians, patients, third-party payors or the medical community in general may be unwilling to accept, utilize or recommend, and in the case of third-party payors, cover payment for, any of our current or future products or products incorporating our technologies. As a result, we are unable to predict theextent of future losses or the time required to achieve profitability, if at all. Even if we successfully develop one or more products that incorporate ourtechnologies, we may not become profitable. Our business is currently in the research and development stage, and we have not yet generated revenues from our operations. Our business is currently in the research and development stage, and we have not yet generated revenues from our operations. Our financial statementsinclude a note describing our current operations and the incurrence of future losses from our research and development activities. As of December 31, 2015,we had incurred cumulative losses of approximately NIS 193 million. We have no current source of revenue to sustain our present activities, and we do notexpect to generate revenue until, and unless, the FDA or other regulatory authorities approve one of our product candidates and/or we successfullycommercialize (including out-licensing) such product candidate. Accordingly, our ability to continue as a going concern will require us to obtain additionalfinancing to fund our operations. If we are unsuccessful in raising capital, we may need to curtail or cease operations. If we are unable to establish sales, marketing and distribution capabilities, we may not be successful in commercializing our product candidates if andwhen they are approved. We do not have a sales or marketing infrastructure and have no experience in the sale, marketing or distribution of products. To achieve commercialsuccess for any product for which we have obtained marketing approval, we will need to establish a sales and marketing organization. In the future, we may consider building a focused sales and marketing infrastructure to market AP-CDLD and, potentially, other product candidates in theUnited States, if and when they are approved. There are risks involved with establishing our own sales, marketing and distribution capabilities. For example,recruiting and training a sales force is expensive and time consuming and could delay any product launch. If the commercial launch of a product candidatefor which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely orunnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our salesand marketing personnel. Factors that may inhibit our efforts to commercialize our products on our own include: •our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel; •the inability of sales personnel to obtain access to physicians; •the lack of adequate numbers of physicians to prescribe any future products; 10  •the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies withmore extensive product lines; and •unforeseen costs and expenses associated with creating an independent sales and marketing organization. If we are unable to establish our own sales, marketing and distribution capabilities and enter into arrangements with third parties to perform theseservices, our product revenues and our profitability, if any, are likely to be lower than if we were to market, sell and distribute any products that we developourselves. In addition, we may not be successful in entering into arrangements with third parties to sell, market and distribute our product candidates outside of theUnited States or may be unable to do so on terms that are favorable to us. We likely will have little control over such third parties, and any of them may fail todevote the necessary resources and attention to sell and market our products effectively. If we do not establish sales, marketing and distribution capabilitiessuccessfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates. The members of our management team are important to the efficient and effective operation of our business, and we may need to add and retain additionalleading experts. Failure to retain our management team and add additional leading experts could have a material adverse effect on our business,financial condition or results of operations. Our executive officers and our management team are important to the efficient and effective operation of our business. Our failure to retain ourmanagement personnel that have developed much of the technology we utilize today, or any other key management personnel, could have a material adverseeffect on our future operations. Our success is also dependent on our ability to attract, retain and motivate highly-trained technical and managementpersonnel, among others, to continue the development and commercialization of our current and future products. As such, our future success highly depends on our ability to attract, retain and motivate personnel required for the development, maintenance andexpansion of our activities. There can be no assurance that we will be able to retain our existing personnel or attract additional qualified personnel. The lossof personnel or the inability to hire and retain additional qualified personnel in the future could have a material adverse effect on our business, financialcondition and results of operation. We face significant competition. If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we may never beprofitable. We will compete against fully-integrated pharmaceutical and biotechnology companies and smaller companies that are collaborating withpharmaceutical companies, academic institutions, government agencies and other public and private research organizations. In addition, many of thesecompetitors, either alone or together with their collaborative partners, operate larger research and development programs than we do, and have substantiallygreater financial resources than we do, as well as significantly greater experience in: •developing drugs; •undertaking preclinical testing and human clinical trials; •obtaining FDA approvals and addressing various regulatory matters and obtaining other regulatory approvals of drugs; •formulating and manufacturing drugs; and •launching, marketing and selling drugs. 11  Our competitors currently include companies with marketed products and/or an advanced research and development pipeline. The competitivelandscape of improving Levodopa for the treatment of Parkinson’s disease symptoms includes Novartis AG, Orion Corporation, AbbVie, Impax Laboratories,Inc., XenoPort Inc., Depomed, Inc. and more. The competitive landscape in the insomnia field includes Sanofi S.A., Sepracor Inc. (now known as SunovionPharmaceuticals Inc.), King Pharmaceuticals, Merck, Somnus Therapeutics, Inc., Neurim Pharmaceuticals, Ltd., and more. The competitive landscape in thegastric retention system field includes Depomed, Inc., Merrion Pharmaceuticals, Flamel Technologies S.A., XenoPort Inc., Sun Pharma and more.Management is not aware of any companies that are developing or planning to develop a drug delivery system similar to our Accordion Pill platformtechnology. We may incur substantial liabilities and may be required to limit commercialization of our products in response to product liability lawsuits, which mayresult in substantial losses. Any of our product candidates could cause adverse events, including injury, disease or adverse side effects. These adverse events may not be observed inclinical trials, but may nonetheless occur in the future. If any of these adverse events occur, they may render our product candidates ineffective or harmful insome patients, and our sales would suffer, materially adversely affecting our business, financial condition and results of operations. In addition, potential adverse events caused by our product candidates could lead to product liability lawsuits. If product liability lawsuits aresuccessfully brought against us, we may incur substantial liabilities and may be required to limit the marketing and commercialization of our productcandidates. Our business exposes us to potential product liability risks, which are inherent in the testing, manufacturing, marketing and sale ofpharmaceutical products. We may not be able to avoid product liability claims. Product liability insurance for the pharmaceutical and biotechnologyindustries is generally expensive, if available at all. If, at any time, we are unable to obtain sufficient insurance coverage on reasonable terms or to otherwiseprotect against potential product liability claims, we may be unable to clinically test, market or commercialize our product candidates. A successful productliability claim brought against us in excess of our insurance coverage, if any, may cause us to incur substantial liabilities, and, as a result, our business,liquidity and results of operations would be materially adversely affected. In addition, the existence of a product liability claim could affect the market priceof our ordinary shares. We face continuous technological change, and developments by competitors may render our products or technologies obsolete or non-competitive. If ournew or existing product candidates are rendered obsolete or non-competitive, our marketing and sales will suffer and we may never be profitable. If our competitors develop and commercialize products faster than we do, or develop and commercialize products that are superior to our productcandidates, our commercial opportunities will be reduced or eliminated. The extent to which any of our product candidates achieve market acceptance willdepend on competitive factors, many of which are beyond our control. Competition in the biotechnology and biopharmaceutical industry is intense and hasbeen accentuated by the rapid pace of technology development. Our competitors include large integrated pharmaceutical companies, biotechnologycompanies that currently have drug and target discovery efforts, universities, and public and private research institutions. Almost all of these entities havesubstantially greater research and development capabilities and financial, scientific, manufacturing, marketing and sales resources than we do. Theseorganizations also compete with us to: •attract parties for acquisitions, joint ventures or other collaborations; •license proprietary technology that is competitive with the technology we are developing; •attract funding; and •attract and hire scientific talent and other qualified personnel. Our competitors may succeed in developing and commercializing products earlier and obtaining regulatory approvals from the FDA more rapidly thanwe do. Our competitors may also develop products or technologies that are superior to those we are developing, and render our product candidates ortechnologies obsolete or non-competitive. If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we maynever be profitable. 12  We may encounter difficulties in managing our growth. Failure to manage our growth effectively will have a material adverse effect on our business,results of operations and financial condition. We may not be able to successfully grow and expand. Successful implementation of our business plan will require management of growth, includingpotentially rapid and substantial growth, which will result in an increase in the level of responsibility for management personnel and place a strain on ourhuman and capital resources. To manage growth effectively, we will be required to continue to implement and improve our operating and financial systemsand controls to expand, train and manage our employee base. Our ability to manage our operations and growth effectively requires us to continue to expendfunds to enhance our operational, financial and management controls, reporting systems and procedures and to attract and retain sufficient talentedpersonnel. If we are unable to scale up and implement improvements to our control systems in an efficient or timely manner, or if we encounter deficiencies inexisting systems and controls, then we will not be able to make available the products required to successfully commercialize our technology. Failure toattract and retain sufficient talented personnel will further strain our human resources and could impede our growth or result in ineffective growth. Moreover,the management, systems and controls currently in place or to be implemented may not be adequate for such growth, and the steps taken to hire personneland to improve such systems and controls might not be sufficient. If we are unable to manage our growth effectively, it will have a material adverse effect onour business, results of operations and financial condition. If we are unable to obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss ordamage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience difficulty in obtainingadequate directors’ and officers’ liability insurance. We may not be able to obtain insurance policies on terms affordable to us that would adequately insure our business and property against damage, loss orclaims by third parties. To the extent our business or property suffers any damages, losses or claims by third parties, which are not covered or adequatelycovered by insurance, our financial condition may be materially adversely affected. We may be unable to maintain sufficient insurance as a public company to cover liability claims made against our officers and directors. If we are unableto adequately insure our officers and directors, we may not be able to retain or recruit qualified officers and directors to manage our company. We could incur substantial costs in connection with product liability claims relating to our current or potential product candidates. The nature of our business exposes us to potential liability inherent in the testing and manufacturing of pharmaceutical and therapeutic products. Ourproduct candidates and the clinical trials utilizing our product candidates may expose us to product liability claims and possible adverse publicity. Forexample, any of our product candidates could cause adverse events, including injury, disease or adverse side effects. These adverse events may not beobserved in clinical trials, but may nonetheless occur in the future. If any of these adverse events occur, they may render our product candidates ineffective orharmful in some patients, and our sales would suffer, materially adversely affecting our business, financial condition and results of operations. Furthermore,changes in laws outside the U.S. are expanding our potential liability for injuries that occur during clinical trials. Product liability insurance is expensive, subject to deductibles and coverage limitations, and may not be available in the amounts that we desire for aprice we are willing to pay. We currently do not maintain product liability insurance coverage. In addition, we cannot be sure that we will be able to obtain ormaintain insurance coverage at acceptable costs or in sufficient amounts, or that a product liability claim would not otherwise adversely affect our business,operating results or financial condition. The cost of defending any products liability litigation or other proceeding, even if resolved in our favor, could besubstantial. Uncertainties resulting from the initiation and continuation of products liability litigation or other proceedings could have a material adverseeffect on our ability to compete in the marketplace. Product liability litigation and other related proceedings may also absorb significant management time. 13  Recent disruptions in the financial markets and economic conditions could affect our ability to raise capital and could disrupt or delay the performance ofour third-party contractors and suppliers. In past years, the U.S. and global economies have taken a dramatic downturn as the result of the deterioration in the credit markets and related financialcrisis as well as a variety of other factors including, among other things, extreme volatility in security prices, severely diminished liquidity and creditavailability, ratings downgrades of certain investments and declining valuations of others. The U.S. and certain foreign governments have recently takenunprecedented actions in an attempt to address and rectify these extreme market and economic conditions by providing liquidity and stability to thefinancial markets. If the actions taken by these governments are not successful, the continued economic decline may cause a significant impact on our abilityto raise capital, if needed, on a timely basis and on acceptable terms or at all. In addition, we rely and intend to rely on third parties, including our clinicalresearch organizations, third-party manufacturers and second-source suppliers, and certain other important vendors and consultants. As a result of the currentvolatile and unpredictable global economic situation, there may be a disruption or delay in the performance of our third-party contractors and suppliers. Ifsuch third parties are unable to satisfy their contractual commitments to us, our business could be severely adversely affected. Our current management team only has experience in managing and operating a publicly traded U.S. company since August 7, 2015. Any failure tocomply or adequately comply with federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materiallyadversely affect our business, results of operations and financial condition. Although our Ordinary Shares trade on the NASDAQ Capital Market and the TASE and we previously filed reports in Israel as an Israeli public company,our current management team only has experience managing and operating a publicly-traded U.S. company since August 7, 2015. Failure to comply oradequately comply with any laws, rules or regulations applicable to our business may result in fines or regulatory actions, which may materially adverselyaffect our business, results of operation or financial condition and could result in delays in achieving the development of an active and liquid trading marketfor our ordinary shares. We will incur significant additional increased costs as a result of the listing of our ordinary shares for trading on the NASDAQ Capital Market andthereby being a public company in the United States as well as in Israel, and our management is required to devote substantial additional time to newcompliance initiatives as well as to compliance with ongoing U.S. and Israeli reporting requirements. As a public company in the U.S., we incur additional significant accounting, legal and other expenses that we did not incur before the offering. We alsoanticipate that we will incur costs associated with corporate governance requirements of the Securities and Exchange Commission, or the SEC, and theNASDAQ Capital Market, as well as requirements under Section 404 and other provisions of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. Weexpect these rules and regulations to increase our legal and financial compliance costs, introduce new costs such as investor relations, stock exchange listingfees and shareholder reporting, and to make some activities more time consuming and costly. The implementation and testing of such processes and systemsmay require us to hire outside consultants and incur other significant costs. Any future changes in the laws and regulations affecting public companies in theUnited States, including Section 404 and other provisions of the Sarbanes-Oxley Act, the rules and regulations adopted by the SEC and the NASDAQ CapitalMarket, for so long as they apply to us, will result in increased costs to us as we respond to such changes. These laws, rules and regulations could make itmore difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to acceptreduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these requirements could alsomake it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees, if any, or as executive officers. 14  Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effecton our business, results of operation or financial condition. In addition, current and potential shareholders could lose confidence in our financialreporting, which could have a material adverse effect on the price of our ordinary shares. Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We will be required to document andtest our internal control procedures in order to satisfy the requirements of Section 404, which requires annual management assessments of the effectiveness ofour internal controls over financial reporting. In addition, if we fail to maintain the adequacy of our internal controls, as such standards are modified,supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controlsover financial reporting in accordance with Section 404. Disclosing deficiencies or weaknesses in our internal controls, failing to remediate these deficienciesor weaknesses in a timely fashion or failing to achieve and maintain an effective internal control environment may cause investors to lose confidence in ourreported financial information, which could have a material adverse effect on the price of our ordinary shares. If we cannot provide reliable financial reportsor prevent fraud, our operating results could be harmed. As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. Weare an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1 billion or more,(ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of our ordinary shares pursuant to an effective registrationstatement, (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt or (iv) the date onwhich we are deemed a “large accelerated issuer” as defined in Regulation S-K of the Securities Act. For so long as we remain an emerging growth company,we will not be required to: •have an auditor report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; •comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s reportproviding additional information about the audit and the financial statements (auditor discussion and analysis); •submit certain executive compensation matters to shareholders advisory votes pursuant to the “say on frequency” and “say on pay” provisions(requiring a non-binding shareholder vote to approve compensation of certain executive officers) and the “say on golden parachute” provisions(requiring a non-binding shareholder vote to approve golden parachute arrangements for certain executive officers in connection with mergers andcertain other business combinations) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; and •include detailed compensation discussion and analysis in our filings under the Securities Exchange Act of 1934, as amended, or the Exchange Act,and instead may provide a reduced level of disclosure concerning executive compensation. Although we intend to rely on the exemptions provided in the JOBS Act, the exact implications of the JOBS Act for us are still subject to interpretationsand guidance by the SEC and other regulatory agencies. In addition, as our business grows, we may no longer satisfy the conditions of an emerging growthcompany. We are currently evaluating and monitoring developments with respect to these new rules and we cannot assure you that we will be able to takeadvantage of all of the benefits from the JOBS Act. 15  In addition, as an “emerging growth company,” we may elect under the JOBS Act to delay adoption of new or revised accounting pronouncementsapplicable to public companies until such pronouncements are made applicable to private companies. We are choosing to “opt out” of this provision and, asa result, we will comply with new or revised pronouncements applicable to public companies when they are required to be adopted by public companies.This decision to opt out of the extended transition period under the JOBS Act is irrevocable. We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic reporting companies. We are a foreign private issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the SEC. Under the ExchangeAct, we will be subject to reporting obligations that, in certain respects, are less detailed and less frequent than those of U.S. domestic reporting companies.For example, we will not be required to issue quarterly reports or proxy statements that comply with the requirements applicable to U.S. domestic reportingcompanies. Furthermore, although under a recent amendment to the regulations promulgated under the Israeli Companies Law, 5759-1999, or the CompaniesLaw, as an Israeli public company listed overseas we will be required to disclose the compensation of our five most highly compensated officers on anindividual basis (rather than on an aggregate basis, as was previously permitted for Israeli public companies listed overseas), this disclosure will not be asextensive as that required of U.S. domestic reporting companies. We will also have four months after the end of each fiscal year to file our annual reports withthe SEC and will not be required to file current reports as frequently or promptly as U.S. domestic reporting companies. Furthermore, our officers, directorsand principal shareholders will be exempt from the requirements to report short-swing profit recovery contained in Section 16 of the Exchange Act. Also, as a“foreign private issuer,” we are not subject to the requirements of Regulation FD (Fair Disclosure) promulgated under the Exchange Act. These exemptionsand leniencies will reduce the frequency and scope of information and protections available to you in comparison to those applicable to a U.S. domesticreporting companies. As a “foreign private issuer,” we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicableSEC and NASDAQ Capital Market requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S.issuers. As a “foreign private issuer,” we are permitted to follow certain home country corporate governance practices instead of those otherwise required underthe Listing Rules of the NASDAQ Capital Market for domestic U.S. issuers. For instance, we currently follow home country practice in Israel with regard to,among other things, board independence requirements, director nomination procedures and quorum requirements. In addition, we may follow our homecountry law instead of the Listing Rules of the NASDAQ Capital Market that require that we obtain shareholder approval for certain dilutive events, such asthe establishment or amendment of certain equity based compensation plans, an issuance that will result in a change of control of our company, certaintransactions other than a public offering involving issuances of a 20% or greater interest in our company, and certain acquisitions of the stock or assets ofanother company. We also currently follow our home country practices with respect to our compensation committee, which conducts itself in accordancewith the provisions governing its composition and responsibilities as set forth in the Companies Law, not the Listing Rules of the NASDAQ Capital Market.We may in the future elect to follow home country corporate governance practices in Israel with regard to other matters. Following our home countrycorporate governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on the NASDAQ Capital Market mayprovide less protection to you than what is accorded to investors under the Listing Rules of the NASDAQ Capital Market applicable to domestic U.S. issuers.See “Management — NASDAQ Capital Market Listing Rules and Home Country Practices.” 16  Risks Related to Our Intellectual Property We license our core technology on an exclusive basis from Yissum (Hebrew University), and we could lose our rights to this license if a dispute with Yissumarises or if we fail to comply with the financial and other terms of the license. We license our core intellectual property from Yissum, an affiliate of Hebrew University. We initially entered into an exclusive license agreement withYissum in 2000 and, in 2004 and 2005, we amended the license, which we refer to, as amended, as the License Agreement. According to the LicenseAgreement, we hold an exclusive license for developing, manufacturing and/or world marketing of products that are directly or indirectly based on the patentowned by Yissum and/or other related intellectual property (including any information, research results and related know-how). Yissum is not permitted totransfer such intellectual property to third parties without our prior written consent. Yissum may obtain future financing from other entities for its research,provided that such entities will not be granted rights in its results (including other IP rights) in a way prejudicing the rights granted to us in accordance withthe License Agreement. We are entitled to grant perpetual sublicenses of this intellectual property to third parties, and such third parties will not be requiredto assume any undertaking towards Yissum. We are obligated to research and develop products that are based on the IP and to pay Yissum from the date offirst sale an amount equal to 3% of our net sales of products based on the intellectual property and 15% from all other payments or benefits received from anysuch sublicense. In addition, also in consideration of the exclusive license granted to us pursuant to the License Agreement, we issued 5,618 ordinary sharesto Yissum. As of the date of this annual report, no payments were paid and/or are due under the License Agreement. The License Agreement will be in effectuntil the latest of: (1) the expiration of the last registered patent within the relevant territory in November 2020; and (2) 15 years from the date of the firstcommercial sale. We also contracted with Yissum for laboratory services. In January 2008, we signed an addendum to the License Agreement to conduct anadditional joint development and study regarding a technology, different from the Accordion Pill, for the GR of a drug. This addendum provides that theintellectual property rights produced as a result of the joint development and study will be jointly owned and we are entitled to receive a license for Yissum’sshare in these rights in return for payment of royalties. One patent application has been filed by Yissum and us as a result of the development related to thatjoint project, but this patent application was abandoned. The License Agreement imposes certain payment, reporting, confidentiality and other obligations on us. In the event that we were to breach any of ourobligations under the License Agreement and fail to cure such breach, Yissum would have the right to terminate the License Agreement upon 30 days’ notice.In addition, Yissum has the right to terminate the License Agreement upon our bankruptcy or receivership. If any dispute arises with respect to ourarrangement with Yissum, such dispute may disrupt our operations and would likely have a material and adverse impact on us if resolved in a manner that isunfavorable to us. Most of our current product candidates are partly based on the intellectual property licensed under the License Agreement, and if theLicense Agreement was terminated, it would have a material adverse effect on our business, prospects and results of operations. If we fail to adequately protect, enforce or secure rights to the patents which were licensed to us or any patents we may own in the future, the value of ourintellectual property rights would diminish and our business and competitive position would suffer. Our success, competitive position and future revenues, if any, depend in part on our ability to obtain and successfully leverage intellectual propertycovering our products and product candidates, know-how, methods, processes and other technologies, to protect our trade secrets, to prevent others fromusing our intellectual property and to operate without infringing the intellectual property rights of third parties. The risks and uncertainties that we face with respect to our intellectual property rights include, but are not limited to, the following: •the degree and range of protection any patents will afford us against competitors; •if and when patents will be issued; •whether or not others will obtain patents claiming aspects similar to those covered by our own or licensed patents and patent applications; •we may be subject to interference proceedings; •we may be subject to opposition or post-grant proceedings in foreign countries; •any patents that are issued may not provide meaningful protection; •we may not be able to develop additional proprietary technologies that are patentable; 17  •other companies may challenge patents licensed or issued to us or our customers; •other companies may independently develop similar or alternative technologies, or duplicate our technologies; •other companies may design around technologies we have licensed or developed; •enforcement of patents is complex, uncertain and expensive; and •we may need to initiate litigation or administrative proceedings that may be costly whether we win or lose. If patent rights covering our products and methods are not sufficiently broad, they may not provide us with any protection against competitors withsimilar products and technologies. Furthermore, if the United States Patent and Trademark Office, or the USPTO, or foreign patent offices issue patents to usor our licensors, others may challenge the patents or design around the patents, or the patent office or the courts may invalidate the patents. Thus, any patentswe own or license from or to third parties may not provide any protection against our competitors. We cannot be certain that patents will be issued as a result of any pending applications, and we cannot be certain that any of our issued patents or patentslicensed from Yissum (or any other third party in the future), will give us adequate protection from competing products. For example, issued patents,including the patents licensed by us, may be circumvented or challenged, declared invalid or unenforceable, or narrowed in scope. In addition, since publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain that we werethe first to make our inventions or to file patent applications covering those inventions. It is also possible that others may obtain issued patents that could prevent us from commercializing our products or require us to obtain licensesrequiring the payment of significant fees or royalties in order to enable us to conduct our business. As to those patents that we have licensed, our rightsdepend on maintaining our obligations to the licensor under the applicable license agreement, and we may be unable to do so. In addition to patents and patent applications, we depend upon trade secrets and proprietary know-how to protect our proprietary technology. We requireour employees, consultants, advisors and collaborators to enter into confidentiality agreements that prohibit the disclosure of confidential information to anyother parties. We also require our employees and consultants to disclose and assign to us their ideas, developments, discoveries and inventions. Theseagreements may not, however, provide adequate protection for our trade secrets, know-how or other proprietary information in the event of any unauthorizeduse or disclosure. We may become subject to claims for remuneration or royalties for assigned service invention rights by our employees, which could result in litigation andadversely affect our business. A significant portion of our intellectual property has been developed by our employees in the course of their employment for us. Under the Israeli PatentLaw, 5727-1967, or the Patent Law, inventions conceived by an employee in the course and as a result of or arising from his or her employment with acompany are regarded as “service inventions,” which belong to the employer, absent a specific agreement between the employee and employer giving theemployee service invention rights. The Patent Law also provides that if there is no such agreement between an employer and an employee, the IsraeliCompensation and Royalties Committee, or the Committee, a body constituted under the Patent Law, shall determine whether the employee is entitled toremuneration for his inventions. Recent decisions by the Committee (which have been upheld by the Israeli Supreme Court on appeal) have createduncertainty in this area, as it held that employees may be entitled to remuneration for their service inventions despite having specifically waived any suchrights. However, a recent decision by the Committee held that such right can be waived by the employee. The Committee further held that an explicitreference to the waived right is not necessary in every circumstance in order for the employee’s waiver of such right to be valid. Such waiver can beformalized in writing or orally or be implied by the actions of the parties in accordance with the rules of interpretation of Israeli contract law. We generallyenter into assignment-of-invention agreements with our employees pursuant to which such individuals assign to us all rights to any inventions created in thescope of their employment or engagement with us. Although our employees have agreed to assign to us service invention rights, we may face claimsdemanding remuneration in consideration for assigned inventions. 18  Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and otherrequirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with theserequirements. Periodic maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of thepatent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and othersimilar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means inaccordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application,resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patentor patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure toproperly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverseeffect on our business. Costly litigation may be necessary to protect our intellectual property rights, and we may be subject to claims alleging the breach of license or otheragreements that we have entered into with third parties or the violation of the intellectual property rights of others. We may face significant expense and liability as a result of litigation or other proceedings relating to patents and other intellectual property rights ofothers. In the event that another party has also filed a patent application or been issued a patent relating to an invention or technology claimed by us inpending applications, we may be required to participate in an interference proceeding declared by the USPTO to determine priority of invention, which couldresult in substantial uncertainties and costs for us, even if the eventual outcome were favorable to us. We, or our licensors, also could be required toparticipate in interference proceedings involving issued patents and pending applications of another entity. An adverse outcome in an interferenceproceeding could require us to cease using the technology or to license rights from prevailing third parties. The cost to us of any patent litigation or other proceeding relating to our licensed patents or patent applications, even if resolved in our favor, could besubstantial and could divert management’s resources and attention. Our ability to enforce our patent protection could be limited by our financial resources,and may be subject to lengthy delays. A third party may claim that we are using inventions claimed by their patents and may go to court to stop us fromengaging in our normal operations and activities, such as research, development and the sale of any future products. Such lawsuits are expensive and wouldconsume time and other resources. There is a risk that the court will decide that we are infringing the third party’s patents and will order us to stop theactivities claimed by the patents, redesign our products or processes to avoid infringement or obtain licenses (which may not be available on commerciallyreasonable terms or at all). In addition, there is a risk that a court will order us to pay the other party damages for having infringed their patents. Moreover, there is no guarantee that any prevailing patent owner would offer us a license so that we could continue to engage in activities claimed bythe patent, or that such a license, if made available to us, could be acquired on commercially acceptable terms. In addition, third parties may, in the future,assert other intellectual property infringement claims against us with respect to our product candidates, technologies or other matters. Any claims ofinfringement asserted against us, whether or not successful, may have a material adverse effect on us. 19  We entered into a feasibility and option agreement with a pharmaceutical company and engaged in a feasibility study over a period of several monthsduring the early stage of formulation of the Accordion Pill for Carbidopa/Levodopa. The agreement included a right of first offer, under certaincircumstances. In 2012, the pharmaceutical company asserted that it has a right of first refusal in the event that we seek to grant a license to certainintellectual property contained in AP-CDLD to any third party. We believe that the pharmaceutical company does not have such right and that the right offirst offer included in the agreement terminated in 2008. In addition, we believe that such right of first offer only applied to licenses for use in the UnitedStates. If we seek to grant a license to certain intellectual property contained in AP-CDLD to any third party, we can, in our discretion, either first offer themain terms of such license to the other pharmaceutical company pursuant to the alleged right of first offer, which we believe terminated in 2008, or seek togrant such license to a third party without first offering the main terms of such license to the other pharmaceutical company, in which case the otherpharmaceutical company may seek to challenge such third-party license or claim damages. Although we would intend to vigorously defend against any suchchallenge or claim, there can be no guarantee that we would be successful in such defense. Any such challenge or claim for damages made by the otherpharmaceutical company, if we choose not to make a first offer, could adversely affect our ability to develop, or the timing of our development of, AP-CDLD.Further, the allegation that any such right exists, even though we believe that any such right has terminated, could discourage other potential licensees fromworking with us. Either of these events could have a material adverse effect on our business, prospects and results of operations. We rely on confidentiality agreements that could be breached and may be difficult to enforce, which could result in third parties using our intellectualproperty to compete against us. Although we believe that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the non-disclosure ofconfidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas,developments, discoveries and inventions of our employees and consultants while we employ them, the agreements can be difficult and costly to enforce.Although we seek to obtain these types of agreements from our contractors, consultants, advisors and research collaborators, to the extent that employees andconsultants utilize or independently develop intellectual property in connection with any of our projects, disputes may arise as to the intellectual propertyrights associated with our products. If a dispute arises, a court may determine that the right belongs to a third party. In addition, enforcement of our rights canbe costly and unpredictable. We also rely on trade secrets and proprietary know-how that we seek to protect in part by confidentiality agreements with ouremployees, contractors, consultants, advisors or others. Despite the protective measures we employ, we still face the risk that: •these agreements may be breached; •these agreements may not provide adequate remedies for the applicable type of breach; •our trade secrets or proprietary know-how will otherwise become known; or •our competitors will independently develop similar technology or proprietary information. International patent protection is particularly uncertain, and if we are involved in opposition proceedings in foreign countries, we may have to expendsubstantial sums and management resources. Patent law outside the United States may be different than in the United States. Further, the laws of some foreign countries may not protect ourintellectual property rights to the same extent as the laws of the United States, if at all. A failure to obtain sufficient intellectual property protection in anyforeign country could materially and adversely affect our business, results of operations and future prospects. Moreover, we may participate in oppositionproceedings to determine the validity of our foreign patents or our competitors’ foreign patents, which could result in substantial costs and divertmanagement’s resources and attention. Additionally, due to uncertainty in patent protection law, we have not filed applications in many countries wheresignificant markets exist. Risks Related to the Regulation of our Company and Its Business Our product candidates are at various stages of preclinical and clinical development and may never be commercialized. The progress and results of any future preclinical testing or future clinical trials are uncertain, and the failure of our product candidates and additionalproduct candidates which we may license, acquire or develop in the future to receive regulatory approvals will have a material adverse effect on our business,operating results and financial condition to the extent we are unable to commercialize any such products. None of our product candidates has receivedregulatory approval for commercial sale. In addition, we face the risks of failure inherent in developing therapeutic products. Our product candidates are notexpected to be commercially available for several years, if at all. 20  Our product candidates are subject to extensive regulation and are at various stages of regulatory development and may never obtain regulatory approval. Our product candidates must satisfy rigorous standards of safety and efficacy for a specific indication before they can be approved for commercial use bythe FDA or foreign regulatory authorities. The FDA and foreign regulatory authorities have full discretion over this approval process. We will need toconduct significant additional research, including testing in animals and in humans, before we can file applications for product approval. Typically, in thepharmaceutical industry, there is a high rate of attrition for product candidates in preclinical testing and clinical trials. Also, even though we believe thatsome of our product candidates may be eligible for FDA review under Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, or FDCA, the FDA maynot agree with that assessment, and may require us to submit the application under Section 505(b)(1) which usually requires more comprehensive clinicaldata than applications submitted under Section 505(b)(2). Even under Section 505(b)(2), satisfying FDA’s requirements typically takes many years, isdependent upon the type, complexity and novelty of the product and requires the expenditure of substantial resources. Success in preclinical testing andearly clinical trials does not ensure that later clinical trials will be successful. For example, a number of companies in the pharmaceutical industry, includingbiotechnology companies, have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. In addition, delays orrejections may be encountered based upon additional government regulation, including any changes in legislation or FDA policy, during the process ofproduct development, clinical trials and regulatory reviews. After clinical trials are completed, the FDA has substantial discretion in the drug approvalprocess and may require us to conduct additional preclinical and clinical testing or to perform post-marketing studies. In order to receive FDA approval or approval from foreign regulatory authorities to market a product candidate or to distribute our products, we mustdemonstrate through preclinical testing and through human clinical trials that the product candidate is safe and effective for its intended uses (e.g., treatmentof a specific condition in a specific way subject to contradictions and other limitations). We anticipate that some foreign regulatory agencies will havedifferent testing and approval requirements from those of the FDA. Even if we comply with all FDA requests, the FDA may ultimately reject or decline toapprove one or more of our new drug applications, or it may grant approval for a narrowly intended use that is not commercially feasible. We might notobtain regulatory approval for our product candidates in a timely manner, if at all. Failure to obtain FDA approval of any of our product candidates in atimely manner or at all will severely undermine our business by delaying or halting commercialization of our products, imposing costly procedures,diminishing competitive advantages and reducing the number of salable products and, therefore, corresponding product revenues. We have collected limited clinical data about the safety and efficacy of AP-CDLD in an open-label Phase II clinical trial that was not conducted under anFDA issued IND and we may be unable to replicate these results in large-scale and double-blind controlled clinical trials. Although the clinical trials performed to date using AP-CDLD have shown promising results, these results were generated from open-label studies notperformed under an FDA issued IND and were conducted at a limited number of clinical sites on a limited number of patients. An “open-label” trial is onewhere both the patient and investigator know whether the patient is receiving the test article or either an existing approved drug or placebo. Open-label trialsare subject to various limitations that may exaggerate any therapeutic effect as patients in open-label studies are aware that they are receiving treatment.Open-label trials may be subject to a “patient bias” where patients perceive their symptoms to have improved merely due to their awareness of receiving anexperimental treatment. Patients selected for early clinical studies often include the most severe sufferers and their symptoms may have been bound toimprove notwithstanding the new treatment. In addition, open-label trials may be subject to an “investigator bias” where those assessing and reviewing thephysiological outcomes of the clinical trials are aware of which patients have received treatment and may interpret the information of the treated group morefavorably given this knowledge. 21  Given that these were open label studies, not conducted under an FDA issued IND, the FDA may decide not to consider the data that we collected fromthese open-label studies, even though we are obligated to submit these data to the FDA. Our Phase II clinical trial for AP-CDLD was conducted at several medical centers in Israel. Patients in Israel are genetically similar to European and NorthAmerican patients, but there may be unidentified genetic differences that may result in variable therapeutic response in patients in other countries.Furthermore, although our initial safety profile has been favorable, safety could be dependent on operator skills. It is possible that we may experience ahigher rate of adverse events in the future with wider application of our Accordion Pill technology in real-world practice outside of clinical trials. If the FDA does not conclude that a given product candidate using our Accordion Pill technology satisfies the requirements for approval under the Section505(b)(2) regulatory approval pathway, or if the requirements for approval of our product candidates under Section 505(b)(2) are not as we expect, theapproval pathway will likely take significantly longer, cost significantly more and entail significantly greater complications and risks than anticipated,and in any case may not be successful. We intend to seek FDA approval for our product candidates implementing our Accordion Pill technology through the Section 505(b)(2) regulatorypathway. Pursuant to Section 505(b)(2) of the FDCA, a new drug application, or NDA, under Section 505(b)(2) is permitted to reference safety andeffectiveness data submitted by the original manufacturer of the underlying approved drug as part of its NDA, or rely on FDA’s prior conclusions regardingthe safety and effectiveness of that previously approved drug, or rely on in part on data in the public domain. Reliance on data collected by others mayexpedite the development program for our product candidates 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 as anticipated, we may need to conduct additionalclinical trials, provide additional data and information, and meet additional standards for product approval. If this were to occur, the time and financialresources required to obtain FDA approval, and complications and risks associated with regulatory approval of our product candidates, would likelysubstantially increase. Moreover, inability to pursue the Section 505(b)(2) regulatory pathway may result in new competitive products reaching the marketmore quickly than our product, which would likely materially adversely impact our competitive position and prospects. Even if we are able to utilize theSection 505(b)(2) regulatory pathway, there is no guarantee this will ultimately lead to accelerated product development or earlier approval. In addition, the pharmaceutical industry is highly competitive, and Section 505(b)(2) NDAs are subject to special requirements designed to protect thepatent rights of sponsors of previously approved drugs that may be referenced in a Section 505(b)(2) NDA. These requirements may give rise to patentlitigation and mandatory delays in approval of our NDA for up to 30 months or longer depending on the outcome of any litigation. Further, it is notuncommon for a manufacturer of an approved product to file a citizen petition with the FDA seeking to delay approval of, or impose additional approvalrequirements for, pending competing products. If successful, such petitions can significantly delay, or even prevent, the approval of a new product. Even ifthe FDA ultimately denies such a petition, the FDA may substantially delay approval while it considers and responds to the petition. Amendments to theFDCA attempt to limit the delay that can be caused by a citizen petition to 150 days, although court action by a dissatisfied petitioner is a possibility andthis could, in theory, adversely affect the approval process. Moreover, even if product candidates implementing our Accordion Pill technology are approved under Section 505(b)(2), the approval may be subject tolimitations on the indicated uses for which the products may be marketed or to other conditions of approval, or may contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the products. We will seek approval in the European Union, or the EU, on a product-by-product basis, either by ourselves or with a third-party licensee. 22  A fast track designation by the FDA may not actually lead to a faster development or regulatory review or approval process. We may seek fast track designation for some of our product candidates and may seek such designation for future product candidates. The FDA has broaddiscretion whether to grant this designation, and even if we believe a particular product candidate is eligible for this designation, we cannot assure you thatthe FDA would decide to grant it. Even if we apply for and receive fast track designation for one or more of our product candidates or future productcandidates, we may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may withdraw fasttrack designation if it believes that the designation is no longer supported by data from our clinical development program. We might be unable to develop any of our product candidates to achieve commercial success in a timely and cost-effective manner, or ever. Even if regulatory authorities approve any of our product candidates, they may not be commercially successful. Our product candidates may not becommercially successful because government agencies or other third-party payors may not provide reimbursement for the costs of the product or thereimbursement may be too low to be commercially successful. In addition, physicians and others may not use or recommend our products candidates, evenfollowing regulatory approval. A product approval, even if issued, may limit the uses for which such product may be distributed, which could adversely affectthe commercial viability of the product. Moreover, third parties may develop superior products or have proprietary rights that preclude us from marketing ourproducts. We also expect that our product candidates, if approved, will generally be more expensive than the non-Accordion Pill version of the samemedication available to patients. Physician and patient acceptance of, and demand for, any product candidates for which we obtain regulatory approval orlicense will depend largely on many factors, including, but not limited to, the extent, if any, of reimbursement of costs by government agencies and otherthird-party payors, pricing, competition, the effectiveness of our marketing and distribution efforts, the safety and effectiveness of alternative products, andthe prevalence and severity of side effects associated with such products. If physicians, government agencies and other third-party payors do not accept theuse or efficacy of our products, we will not be able to generate significant revenue, if any. We cannot be certain that the results of our potential Phase III clinical trials, even if all endpoints are met, will support regulatory approval of any of ourproduct candidates for any indication. Endpoints for most Phase III clinical trials may vary from drug candidate to drug candidate and from indication to indication; therefore, there are nouniversally accepted endpoints for Phase III clinical trials. Accordingly, the development pathway for AP-CDLD, which is being developed for the indicationof treatment of Parkinson’s disease symptoms in advanced Parkinson’s disease patients, and our other product candidates, is not completely clear yet. It is possible that even if the results of a potential Phase III clinical trial meet the primary endpoints, the FDA will require other data of our productcandidates prior to granting marketing approval. Our product candidates and future product candidates will remain subject to ongoing regulatory requirements even if they receive marketing approval,and if we fail to comply with these requirements, we may not obtain such approvals or could lose those approvals that have been obtained, and the sales ofany approved commercial products could be suspended. Even if we receive regulatory approval to market a particular product candidate, any such product will remain subject to extensive regulatoryrequirements, including requirements relating to manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion, distributionand record keeping. Even if regulatory approval of a product is granted, the approval may be subject to limitations on the uses for which the product may bemarketed or the conditions of approval, or may contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of theproduct, which could negatively impact us or our collaboration partners by reducing revenues or increasing expenses, and cause the approved productcandidate not to be commercially viable. In addition, as clinical experience with a drug expands after approval, typically because it is used by a greaternumber and more diverse group of patients after approval than during clinical trials, side effects and other problems may be observed over time after approvalthat were not seen or anticipated during pre-approval clinical trials or other studies. Any adverse effects observed after the approval and marketing of aproduct candidate could result in limitations on the use of, withdrawal of FDA approval or withdrawal of any approved products from the marketplace.Absence of long-term safety data may also limit the approved uses of our products, if any. If we fail to comply with the regulatory requirements of the FDAand other applicable U.S. and foreign regulatory authorities, or previously unknown problems with any approved commercial products, manufacturers ormanufacturing processes are discovered, we could be subject to administrative or judicially imposed sanctions or other setbacks, including, withoutlimitation, the following: 23  •suspension or imposition of restrictions on the products, manufacturers or manufacturing processes, including costly new manufacturingrequirements; •warning letters; •civil or criminal penalties, fines and/or injunctions; •product seizures or detentions; •import or export bans or restrictions; •voluntary or mandatory product recalls and related publicity requirements; •suspension or withdrawal of regulatory approvals; •total or partial suspension of production; and •refusal to approve pending applications for marketing approval of new products or supplements to approved applications. If we or our collaborators are slow to adapt, or are unable to adapt, to changes in existing regulatory requirements or adoption of new regulatoryrequirements or policies, marketing approval for our product candidates may be lost or cease to be achievable, resulting in decreased revenue frommilestones, product sales or royalties, which would have a material adverse effect on our business, financial condition or results of operations. Clinical trials are very expensive, time-consuming and difficult to design and implement, and, as a result, we may suffer delays or suspensions in futuretrials which would have a material adverse effect on our ability to generate revenues. Human clinical trials are very expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements.Regulatory authorities, such as the FDA, may preclude clinical trials from proceeding. Additionally, the clinical trial process is time-consuming, failure canoccur at any stage of the trials and we may encounter problems that cause us to abandon or repeat clinical trials. The commencement and completion ofclinical trials may be delayed by several factors, including, but not limited to: •unforeseen safety issues; •clinical holds or suspension of a clinical trial by the FDA, us, the institutional review board, or IRB, or the data safety monitoring board, or DSMB,determination of proper dosing; •lack of effectiveness or efficacy during clinical trials; •failure of our contract manufacturers to manufacture our product candidates in accordance with current Good Manufacturing Practices, or cGMP; •failure of third party suppliers to perform final manufacturing steps for the drug substance; 24  •slower than expected rates of patient recruitment and enrollment; •lack of healthy volunteers and patients to conduct trials; •inability to monitor patients adequately during or after treatment; •failure of third party contract research organizations to properly implement or monitor the clinical trial protocols; •failure of IRBs to approve or renew approvals of our clinical trial protocols; •inability or unwillingness of medical investigators to follow our clinical trial protocols; and •lack of sufficient funding to finance the clinical trials. As noted above, we, regulatory authorities, IRBs or DSMBs may suspend our clinical trials at any time if it appears that we are exposing participants tounacceptable health risks or if the regulatory authorities find deficiencies in our regulatory submissions or the conduct of these trials. For example, a DSMBhas been selected for the Phase III clinical trial of AP-CDLD and will periodically review the safety data of the trial, specifically focusing on the safety of AP-CDLD in the upper GI tract because the Accordion Pill is retained in the stomach for a prolonged period of time, to measure whether AP-CDLD causesdamage such as erosions or ulcers. Any suspension of clinical trials will delay possible regulatory approval, if any, and adversely impact our ability todevelop products and generate revenue. We may be forced to abandon development of certain products altogether, which will significantly impair our ability to generate product revenues. Upon the completion of any clinical trial, if at all, the results of these trials might not support the claims sought by us. Further, success in preclinicaltesting and early clinical trials does not ensure that later clinical trials will be successful, and the results of later clinical trials may not replicate the results ofprior clinical trials and preclinical testing. The clinical trial process may fail to demonstrate that our product candidates are safe for humans and effective forindicated uses. Any such failure may cause us to abandon a product candidate and may delay development of other product candidates. Any delay in, ortermination or suspension of, our clinical trials will delay the requisite filings with the FDA and, ultimately, our ability to commercialize our productcandidates and generate product revenues. If the clinical trials do not support our drug product claims, the completion of development of such productcandidates may be significantly delayed or abandon, which would significantly impair our ability to generate product revenues and would materiallyadversely affect our business, financial condition or results of operations. Positive results in the previous clinical trials of one or more of our product candidates may not be replicated in future clinical trials of such productcandidate, which could result in development delays or a failure to obtain marketing approval. Positive results in the previous clinical trials of one or more of our product candidates may not be predictive of similar results in future clinical trials forsuch product candidate. Also, interim results during a clinical trial do not necessarily predict final results. A number of companies in the pharmaceutical andbiotechnology industries have suffered significant setbacks in late-stage clinical trials even after achieving promising results in early-stage development.Accordingly, the results from the completed preclinical studies and clinical trials for our product candidates may not be predictive of the results we mayobtain in later stage trials of such product candidates. Our clinical trials may produce negative or inconclusive results, and we may decide, or regulators mayrequire us, to conduct additional clinical trials. Clinical trial results may be inconclusive, or contradicted by other clinical trials, particularly larger clinicaltrials. Moreover, clinical data are often susceptible to varying interpretations and analyses, and many companies that believed their product candidatesperformed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain FDA or European Medicines Agency, or other applicableregulatory agency, approval for their products. 25  Reimbursement may not be available for our products, which could make it difficult for us to sell our products profitably. Market acceptance and sales of our products will depend on coverage and reimbursement policies and may be affected by healthcare reform measures.Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which products they will pay forand establish reimbursement levels. We cannot be sure that coverage and reimbursement will be available for our products. We also cannot be sure that theamount of reimbursement available, if any, will not reduce the demand for, or the price of, our products. If reimbursement is not available or is available onlyat limited levels, we may not be able to successfully compete through sales of our proposed products. Specifically, in both the United States and some foreign jurisdictions, there have been a number of legislative and regulatory proposals to change thehealthcare system in ways that could affect our ability to sell our products profitably. In the United States, the Medicare Prescription Drug, Improvement, andModernization Act of 2003, also called the Medicare Modernization Act, or MMA, changed the way Medicare covers and pays for pharmaceutical products.The legislation expanded Medicare coverage for drug purchases by the elderly and certain others. Prior to MMA, Medicare did not cover most outpatientprescription drugs. MMA created a new voluntary Part D, which covers outpatient drugs for Medicare beneficiaries and is administered by private insuranceplans that operate partially at-risk under contract with the Centers for Medicare & Medicaid Services, or CMS. These private Part D plans have incentives tokeep costs down. MMA also introduced a new reimbursement methodology based on average sales prices for physician-administered drugs. In addition, thislegislation provided authority for limiting the number of certain outpatient drugs that will be covered in any therapeutic class. As a result of this legislationand the expansion of federal coverage of drug products, we expect that there will be additional pressure to contain and reduce costs. These and future cost-reduction initiatives could decrease the coverage and price that we receive for our products, if approved, and could seriously harm our business. While theMMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policies and payment limitations in settingtheir own reimbursement rates, and any reduction in reimbursement under Medicare may result in a similar reduction in payments from private payors. In March 2010, the Patient Protection and Affordable Care Act, as amended, or the Affordable Care Act, which was amended by the Health Care andEducation Affordability Reconciliation Act, or collectively, PPACA, became law in the United States. The goal of PPACA is to reduce the cost of healthcareand substantially change the way healthcare is financed by both governmental and private insurers. Among other measures, PPACA imposes increasedrebates on manufacturers for certain covered drug products reimbursed by state Medicaid programs. While we cannot predict the full effect PPACA will haveon federal reimbursement policies in general or on our business specifically, the PPACA may result in downward pressure on drug reimbursement, whichcould negatively affect market acceptance of our products. In addition, we cannot predict whether new proposals will be made or adopted, when they may beadopted or what impact they may have on us if they are adopted. We expect to experience pricing pressures in connection with the sale of our products generally due to the trend toward managed healthcare, theincreasing influence of health maintenance organizations, and additional legislative proposals. If we fail to successfully secure and maintain adequatecoverage and reimbursement for our future products or are significantly delayed in doing so, we will have difficulty achieving market acceptance of ourproducts and our business will be harmed. We are subject to extensive and costly government regulation. The products we are developing and planning to develop in the future are subject to extensive and rigorous domestic government regulation, includingregulation by the FDA, the CMS, other divisions of the U.S. Department of Health and Human Services, including its Office of Inspector General, the Office ofCivil Rights, which administers the privacy provisions of the Health Insurance Portability and Accountability Act of 1996, or HIPAA, the U.S. Department ofJustice, the Departments of Defense and Veterans Affairs, to the extent our products are paid for directly or indirectly by those departments, state and localgovernments, and their respective foreign equivalents. The FDA regulates the research, development, preclinical and clinical testing, manufacture, safety,effectiveness, record keeping, reporting, labeling, storage, approval, advertising, promotion, sale, distribution, import and export of pharmaceutical productsunder various regulatory provisions. If any drug products we develop are tested or marketed abroad, they will also be subject to extensive regulation byforeign governments, whether or not we have obtained FDA approval for a given product and its uses. Such foreign regulation may be equally or moredemanding than corresponding U.S. regulation. 26  Government regulation substantially increases the cost and risk of researching, developing, manufacturing, and selling products. Our failure to complywith these regulations could result in, by way of example, significant fines, criminal and civil liability, product seizures, recalls, withdrawals, withdrawals ofapprovals, and exclusion and debarment from government programs. Any of these actions, including the inability of our proposed products to obtain andmaintain regulatory approval, would have a materially adverse effect on our business, financial condition, results of operations and prospects. In addition to government regulation, rules and policies of professional and other quasi and non-governmental bodies and organizations may impact theprescription of products, as well as the manner of their promotion, marketing, and education. Examples of such bodies are the American Medical Association,the Accreditation Council of Continuing Medical Education, American College of Physicians and the American Academy of Family Physicians. We are subject to additional federal and state laws and regulations relating to our business, and our failure to comply with those laws could have amaterial adverse effect on our results of operations and financial conditions. In the event that we were to market products in the United States, we would be subject to additional healthcare regulation and enforcement by the federalgovernment and the states in which we conduct or will conduct our business. The laws that may affect our ability to operate include, but are not limited to,the following: •the federal healthcare program Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting,receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase,order or recommendation of, any good or service for which payment may be made under government healthcare programs such as the Medicare andMedicaid programs; •the Anti-Inducement Law, which prohibits persons from offering or paying remuneration to Medicare and Medicaid beneficiaries to induce them touse items or services paid for in whole or in part by the Medicare or Medicaid programs; •the Ethics in Patient Referrals Act of 1989, commonly referred to as the Stark Law, prohibits physicians from referring Medicare or Medicaid patientsfor certain designated items or services where that physician or family member has a financial interest in the entity provided the designated item orservice; •federal false claims laws that prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims forpayment from Medicare, Medicaid or other government healthcare programs that are false or fraudulent; •federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcarematters; and •state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursedby any third-party payer, including commercial insurers. Further, the recently enacted PPACA, among other things, amends the intent requirement of the federal anti-kickback and criminal healthcare fraudstatutes. A person or entity can now be found guilty of fraud or false claims under PPACA without actual knowledge of the statute or specific intent to violateit. In addition, PPACA provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statue constitutes a false or fraudulent claim for purposes of the false claims statutes. Possible sanctions for violation of these anti-kickback lawsinclude monetary fines, civil and criminal penalties, exclusion from Medicare, Medicaid and other government programs and forfeiture of amounts collectedin violation of such prohibitions. Any violations of these laws, or any action against us for violation of these laws, even if we successfully defend against it,could result in a material adverse effect on our reputation, business, results of operations and financial condition. 27  PPACA also imposes new reporting requirements on device and pharmaceutical manufacturers to make annual public disclosures of payments tophysicians and teaching hospitals and ownership of their stock by physicians. Failure to submit required information may result in civil monetary penaltiesof up to an aggregate of $150,000 per year (or up to an aggregate of $1 million per year for “knowing failures”), for all payments, transfers of value orownership or investment interests that are not reported. Manufacturers were required to begin data collection on August 1, 2013 and report such data to CMSby March 31, 2014, but that has been delayed and final reconciliation of data was supposed to have occurred on October 31, 2014. In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians for marketing. Some states, such asCalifornia, Massachusetts and Vermont, mandate implementation of corporate compliance programs, along with the tracking and reporting of gifts,compensation and other remuneration to physicians, and some states limit or prohibit such gifts. Various trade associations, such as AdvaMed for devices andthe Pharmaceutical Research and Manufacturers of America for drugs, have adopted voluntary standards of ethical behavior that limit the amount of andcircumstances under which payments made be made to physicians. The scope and enforcement of these laws is uncertain and subject to change in the current environment of healthcare reform, especially in light of thelack of applicable precedent and regulations. We cannot predict the impact on our business of any changes in these laws. Federal or state regulatoryauthorities may challenge our current or future activities under these laws. Any such challenge could have a material adverse effect on our reputation,business, results of operations, and financial condition. Any state or federal regulatory review of us, regardless of the outcome, would be costly and time-consuming. Changes in regulatory requirements and guidance or unanticipated events during our clinical trials may occur, which may result in necessary changes toclinical trial protocols, which could result in increased costs to us, delay our development timeline or reduce the likelihood of successful completion of ourclinical trials. Changes in regulatory requirements and guidance or unanticipated events during our clinical trials may occur, as a result of which we may need toamend clinical trial protocols. Amendments may require us to resubmit our clinical trial protocols to IRBs for review and approval, which may adverselyaffect the cost, timing and successful completion of a clinical trial. If we experience delays in the completion of, or if we terminate, any of our clinical trials,the commercial prospects for our affected product candidates would be harmed and our ability to generate product revenue would be delayed, possiblymaterially. Our product candidates are manufactured through a compounding, film casting and assembly process, and if we or one of our materials suppliersencounters problems manufacturing our products or raw materials, our business could suffer. We and our contract manufacturers, if any, are, and will be, subject to extensive governmental regulation in connection with the manufacture of anypharmaceutical products. The FDA and foreign regulators require manufacturers to register manufacturing facilities. The FDA and foreign regulators alsoinspect these facilities to confirm compliance with cGMP or similar requirements that the FDA or foreign regulators establish. We and our contractmanufacturers must ensure that all of the processes, methods and equipment are compliant with cGMP for drugs on an ongoing basis, as mandated by the FDAand other regulatory authorities, and conduct extensive audits of vendors, contract laboratories and suppliers. The FDA will likely condition granting anymarketing approval, if any, on a satisfactory on-site inspection of our manufacturing facilities. 28  We currently manufacture our product candidates used in clinical testing. We have not currently determined whether we will engage in the manufactureof our products for commercial purposes. We order certain materials from single-source suppliers. If the supply of any of these single-sourced materials isdelayed or ceases, we may not be able to produce the related product in a timely manner or in sufficient quantities, if at all, causing us to be unable to furtherdevelop our product candidates or bring them to market or continue to develop our technology, which could materially and adversely affect our business. Inaddition, a single-source supplier of a key component of one or more of our product candidates could potentially exert significant bargaining power overprice, quality, warranty claims or other terms relating to the single-sourced materials. Our materials suppliers may face manufacturing or quality controlproblems causing product production and shipment delays or a situation where the supplier may not be able to maintain compliance with the FDA’s cGMPrequirements, or those of foreign regulators, necessary to continue manufacturing our drug substance or raw materials. Drug manufacturers are subject toongoing periodic unannounced inspections by the FDA, the United States Drug Enforcement Agency, or DEA, and corresponding foreign regulatory agenciesto ensure strict compliance with cGMP requirements and other governmental regulations and corresponding foreign standards. Any failure by us or oursuppliers to comply with DEA requirements or FDA or foreign regulatory requirements could adversely affect our clinical research activities and our ability tomarket and develop our products. We intend to manufacture our own product candidates for Phase III clinical trials and may, to some extent, manufacture our product candidates forcommercialization or rely on third parties to implement our manufacturing strategies. Manufacturing our product candidates is subject to extensivegovernmental regulation. Our failure or the failure of these third parties in any respect (including noncompliance with governmental regulations) couldhave a material adverse effect on our business, results of operations and financial condition. Completion of any potential future Phase III clinical trials and commercialization of our product candidates will require access to, or development of,facilities to manufacture a sufficient supply of our product candidates. There can be no assurance that our product candidates, if approved, can bemanufactured in sufficient commercial quantities, in compliance with regulatory requirements and at an acceptable cost. Although we believe our facilitiesare sufficient to manufacture our product candidate needs for Phase III clinical trials, we may be incorrect and we may not have the resources or facilities tomanufacture our product candidates for Phase III clinical trials or commercial purposes on our own, and we may not develop or acquire facilities for themanufacture of product candidates for such purposes in the foreseeable future. We may rely on contract manufacturers to produce sufficient quantities of ourproduct candidates necessary for any Phase III clinical testing we undertake in the future and for commercialization of our products. Such contractmanufacturers may be the sole source of production, and they may have limited experience at manufacturing, formulating, analyzing, filling and finishingour types of product candidates. Establishing a manufacturing facility to produce commercial quantities of our products will require a substantial investmentby any party intending to manufacture our products. If our current and future manufacturing and supply strategies are unsuccessful, we may be unable toconduct and complete any future Phase III clinical trials or commercialize our product candidates in a timely manner, if at all. Manufacturing our product candidates is subject to extensive governmental regulation. See “Business — Government Regulation.” Future FDA, stateand foreign inspections may identify compliance issues at our facilities or at the facilities of our contract manufacturers, if any, that may disrupt production ordistribution, or require substantial resources to correct. In addition, discovery of previously unknown problems with a product or the failure to comply withapplicable requirements may result in restrictions on a product, manufacturer or holder of an approved NDA, including withdrawal or recall of the productfrom the market or other voluntary, FDA-initiated or judicial action that could delay or prohibit further marketing. Newly discovered or developed safety oreffectiveness data may require changes to a product’s approved labeling, including the addition of new warnings and contraindications, and also may requirethe implementation of other risk management measures. Also, new government requirements, including those resulting from new legislation, may beestablished, or the FDA’s policies may change, which could delay or prevent regulatory approval of our products under development. The FDA will likelycondition granting any marketing approval on a satisfactory on-site inspection of our manufacturing facilities. 29  We have limited experience manufacturing our product candidates at a commercial scale. We may not be able to manufacture our product candidates inquantities sufficient for commercial launch of our product candidates, if our product candidates are approved, or for any future commercial demand forour product candidates. Although we have manufactured clinical quantities of AP-CDLD and other products and product candidates in our manufacturing facility, we have onlylimited experience in manufacturing commercial quantities of our product candidates. If AP-CDLD or AP–ZP is approved for commercialization andmarketing, we may be required to manufacture the product in large quantities to meet demand. Producing products in commercial quantities requiresdeveloping and adhering to complex manufacturing processes that are different from the manufacture of products in smaller quantities for clinical trials,including adherence to regulatory standards. Although we believe that we have developed processes and protocols that will enable us to manufacturecommercial-scale quantities of products at acceptable costs, we cannot provide assurance that such processes and protocols will enable us to manufacture AP-CDLD or AP–ZP in quantities that may be required for commercialization of the applicable product with yields and at costs that will be commerciallyattractive. If we are unable to establish or maintain commercial manufacture of the product or are unable to do so at costs that we currently anticipate, ourbusiness will be adversely affected. If we are unable to use our manufacturing facility for any reason, the manufacture of clinical supplies of our candidates would be delayed, which wouldharm our business. We currently manufacture all clinical supply of AP-CDLD and AP–ZP at our own manufacturing facility. If we were to lose the use of our facility orequipment, our manufacturing facility and manufacturing equipment would be difficult to replace and could require substantial replacement lead time andsubstantial additional funds. Our facility may be affected by natural disasters, such as floods or fire, or we may lose the use of our facility due tomanufacturing issues that arise at our facility, such as contamination or regulatory concerns following a regulatory inspection of our facility. We do notcurrently have back-up capacity. In the event of a loss of the use of all or a portion of our facility or equipment for the reasons stated above or any otherreason, we would be unable to manufacture any of our product candidates until such time as our facility could be repaired, rebuilt or we are able to addressother manufacturing issues at our facility. Although we currently maintain property insurance with personal property limits of up to NIS 38.0 million,business interruption insurance coverage of up to NIS 17.0 million for damage to our property and the disruption of our business from fire and othercasualties, and up to NIS 35.0 million for expenses related to our Phase III clinical trial for AP-CDLD, such insurance may not cover all occurrences ofmanufacturing disruption or be sufficient to cover all of our potential losses in the event of occurrences that are covered and may not continue to be availableto us on acceptable terms, or at all. We may rely on third-party manufacturers to manufacture commercial quantities of our product candidates, if our products are approved, and any failureby a third-party manufacturer or supplier may delay or impair our ability to commercialize our product candidates. We have manufactured our product candidates for our preclinical studies, Phase I clinical trials and Phase II clinical trials of our product candidates inour own manufacturing facility and have started, and expect to continue, to do so for our pivotal Phase III clinical trial of AP-CDLD. We have relied, and weexpect to continue to rely, on third-party manufacturers for certain raw materials (excipients, solvents and APIs). Our reliance on third parties for themanufacture of these items increases the risk that we will not have sufficient quantities of these items or will not be able to obtain such quantities at anacceptable cost or quality, which could delay, prevent or impair our development or commercialization efforts. We have recently ordered enough of theseitems to complete our pivotal Phase III clinical trial for AP-CDLD. If the third-party manufacturers on whom we rely fail to supply these items and we need toenter into alternative arrangements with a different supplier, it could delay our product development activities, as we would have to requalify the casting andassembly processes pursuant to FDA requirements. If this failure of supply were to occur after we received approval for and commenced commercialization ofAP-CDLD, we might be unable to meet the demand for this product and our business could be adversely affected. In addition, because we do not have anycontrol over the process or timing of the supply of the APIs used in AP-CDLD, there is greater risk that we will not have sufficient quantities of these APIs atan acceptable cost or quality, which could delay, prevent or impair our development or commercialization efforts. 30  Our third-party manufacturers and suppliers may be subject to FDA inspection from time to time. Failure by our third-party manufacturers to pass suchinspections and otherwise satisfactorily complete the FDA approval regimen with respect to our product candidates may result in regulatory actions such asthe issuance of Form FDA 483 notices of observations, warning letters or injunctions or the loss of operating licenses. Based on the severity of the regulatoryaction, our clinical or commercial supply of the items manufactured by third-party manufacturers could be interrupted or limited, which could have a materialadverse effect on our business. If we acquire or license additional technologies or product candidates, we may incur a number of additional costs, have integration difficulties and/orexperience other risks that could harm our business and results of operations. We may acquire and in-license additional product candidates and technologies. Any product candidate or technologies we in-license or acquire willlikely require additional development efforts prior to commercial sale, including extensive preclinical or clinical testing, or both, and approval by the FDAand applicable foreign regulatory authorities, if any. All product candidates are prone to risks of failure inherent in pharmaceutical product development,including the possibility that the product candidate or product developed based on in-licensed technology will not be shown to be sufficiently safe andeffective for approval by regulatory authorities. In addition, we cannot assure you that any product candidate that we develop based on acquired or licensedtechnology that is granted regulatory approval will be manufactured or produced economically, successfully commercialized or widely accepted orcompetitive in the marketplace. Moreover, integrating any newly acquired or in-licensed product candidates could be expensive and time-consuming. If wecannot effectively manage these aspects of our business strategy, our business may not succeed. We may be subject to extensive environmental, health and safety, and other laws and regulations in multiple jurisdictions. Our business involves the controlled use, directly or indirectly through our service providers, of hazardous materials, various biological compounds andchemicals; therefore, we, our agents and our service providers may be subject to various environmental, health and safety laws and regulations, includingthose governing air emissions, water and wastewater discharges, noise emissions, the use, management and disposal of hazardous, radioactive and biologicalmaterials and wastes and the cleanup of contaminated sites. The risk of accidental contamination or injury from these materials cannot be eliminated. If anaccident, spill or release of any regulated chemicals or substances occurs, we could be held liable for resulting damages, including for investigation,remediation and monitoring of the contamination, including natural resource damages, the costs of which could be substantial. We are also subject tonumerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-bornepathogens and the handling of biohazardous materials and chemicals. Although we maintain workers’ compensation insurance to cover the costs andexpenses that may be incurred because of injuries to our employees resulting from the use of these materials, this insurance may not provide adequatecoverage against potential liabilities. Additional or more stringent federal, state, local or foreign laws and regulations affecting our operations may beadopted in the future. We may incur substantial capital costs and operating expenses and may be required to obtain consents to comply with any of these orcertain other laws or regulations and the terms and conditions of any permits or licenses required pursuant to such laws and regulations, including costs toinstall new or updated pollution control equipment, modify our operations or perform other corrective actions at our respective facilities or the facilities ofour service providers. For instance, we have undergone inspections and obtained approvals from various governmental agencies. We hold a business licensewith respect to testing, developing, storing and manufacturing pharmaceutical products at our current location from the municipality of Jerusalem, which isaccompanied by additional terms and conditions approved by the Israeli Ministry of Environmental Protection, or the Ministry of Environmental Protection.We also hold a toxic substances permit from the Ministry of Environmental Protection (the Hazardous Material Division) and a Certificate of GMPCompliance of a Manufacturer from the Israeli Ministry of Health – Pharmaceutical Administration. In addition, fines and penalties may be imposed fornoncompliance with environmental, health and safety and other laws and regulations or for the failure to have, or comply with the terms and conditions ofour business license or, required environmental or other permits or consents. 31  We are subject to government regulations and we may experience delays or may be unsuccessful in obtaining required regulatory approvals within oroutside of the United States to market our proposed product candidates, and even if we obtain approval, the approved indications may impair our abilityto successfully market the product or make commercial distribution not feasible. 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. Costsarising 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. Delays in regulatory approval, limitations in regulatory approval and withdrawals of regulatory approval may have a material adverse effect on us. If weexperience significant delays in testing or receiving approvals or sign-offs to conduct clinical trials, our product development costs, or our ability to licenseproduct candidates, will increase. If the FDA or other foreign regulatory entities grant regulatory approval to market a product, this approval will be limited tothose diseases and conditions for which the product has demonstrated, through clinical trials, to be safe and effective. Any product approvals that we receivein the future could also include significant restrictions on the use or marketing of our products. Product approvals, if granted, can be withdrawn for failure tocomply with regulatory requirements or upon the occurrence of adverse events following commercial introduction of the products. Failure to comply withapplicable FDA or other applicable regulatory requirements may result in criminal prosecution, civil penalties, recall or seizure of products, total or partialsuspension of production or injunction, as well as other regulatory action against our product candidates or us. If approval is withdrawn for a product, or if aproduct were seized or recalled, we would be unable to sell or license that product and our revenues would suffer. In addition, outside the United States, ourability to market any of our potential products is contingent upon receiving market application authorizations from the appropriate regulatory authorities.These foreign regulatory approval processes may include all of the risks associated with the FDA approval process described above, if not more. We expect the healthcare industry to face increased limitations on reimbursement, rebates and other payments as a result of healthcare reform, whichcould adversely affect third-party coverage of our products and how much or under what circumstances healthcare providers will prescribe or administerour products. In both the United States and other countries, sales of our products will depend in part upon the availability of reimbursement from third-party payors,which include governmental authorities, managed care organizations and other private health insurers. Third-party payors are increasingly challenging theprice and examining the cost effectiveness of medical products and services. Increasing expenditures for healthcare have been the subject of considerable public attention in the United States. Both private and government entitiesare seeking ways to reduce or contain healthcare costs. Numerous proposals that would effect changes in the U.S. healthcare system have been introduced orproposed in Congress and in some state legislatures, including reducing reimbursement for prescription products and reducing the levels at which consumersand healthcare providers are reimbursed for purchases of pharmaceutical products. In the United States, the Medicare Modernization Act changed the way Medicare covers and pays for pharmaceutical products. The legislation expandedMedicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sales prices for physician-administered drugs. In recent years, Congress has considered further reductions in Medicare reimbursement for drugs administered by physicians. CMS hasissued and will continue to issue regulations to implement the law which will affect Medicare, Medicaid and other third-party payors. Medicare, which is thesingle largest third-party payment program and which is administered by CMS, covers prescription drugs in one of two ways. Medicare part B coversoutpatient prescription drugs that are administered by physicians and Medicare part D covers other outpatient prescription drugs, but through privateinsurers. Medicaid, a health insurance program for the poor, is funded jointly by CMS and the states, but is administered by the states; states are authorized tocover outpatient prescription drugs, but that coverage is subject to caps and to substantial rebates. CMS also has the authority to revise reimbursement ratesand to implement coverage restrictions for some drugs. Cost reduction initiatives and changes in coverage implemented through legislation or regulationcould decrease utilization of and reimbursement for any approved products, which in turn would affect the price we can receive for those products. While theMedicare Modernization Act and implementing regulations apply primarily to drug benefits for Medicare beneficiaries, private payors often follow Medicarecoverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from federallegislation or regulation may result in a similar reduction in payments from private payors. 32  In March 2010, President Obama signed into law the Affordable Care Act, a sweeping law intended to broaden access to health insurance, reduce orconstrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare and healthinsurance industries, impose new taxes and fees on pharmaceutical and medical device manufacturers and impose additional health policy reforms. Asamended, the PPACA expanded manufacturers’ rebate liability to include covered drugs dispensed to individuals who are enrolled in Medicaid managed careorganizations, increased the minimum rebate due for innovator drugs (both single source drugs and innovator multiple source drugs) from 15.1% of averagemanufacturer price, or AMP, to 23.1% of AMP or the difference between the AMP and best price, whichever is greater. The total rebate amount for innovatordrugs is capped at 100.0% of AMP. The PPACA and subsequent legislation also narrowed the definition of AMP. Furthermore, the PPACA imposes asignificant annual, nondeductible fee on companies that manufacture or import certain branded prescription drug products. Substantial new provisionsaffecting compliance have also been enacted, which may affect our business practices with healthcare practitioners, and a significant number of provisionsare not yet, or have only recently become, effective. Although it is too early to determine the effect of the PPACA, it appears likely to continue to put pressureon pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs. In addition, other legislative changes have been proposed and adopted since the PPACA was enacted. More recently, in August 2011, the PresidentObama signed into law the Budget Control Act of 2011, which, among other things, creates the Joint Select Committee on Deficit Reduction to recommendto Congress proposals in spending reductions. The Joint Select Committee did not achieve a targeted deficit reduction of an amount greater than $1.2 trillionfor the years 2013 through 2021, triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions toMedicare payments to healthcare providers of up to 2.0% per fiscal year, starting in 2013. In January 2013, President Obama signed into law the AmericanTaxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several categories of healthcare providers and increased the statuteof limitations period for the government to recover overpayments to providers from three to five years. The Bipartisan Budget Act of 2015, signed into law onNovember 2, 2015, increased the rebates that generic drug manufacturers are obligated to pay under the Medicaid program by applying a inflation-basedrebate formula to generic that previously only applied to brand name drugs. If we ever obtain regulatory approval and commercialization of any of ourproduct candidates, these new laws may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effecton our customers and accordingly, our financial operations. Legislative and regulatory proposals have been made to expand post-approval requirements andrestrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whetherthe FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidatesmay be. Although we cannot predict the full effect on our business of the implementation of existing legislation, including the PPACA or the enactment ofadditional legislation pursuant to healthcare and other legislative reform, we believe that legislation or regulations that would reduce reimbursement for orrestrict coverage of our products could adversely affect how much or under what circumstances healthcare providers will prescribe or administer our products.This could materially and adversely affect our business by reducing our ability to generate revenue, raise capital, obtain additional collaborators and marketour products. In addition, we believe the increasing emphasis on managed care in the United States has and will continue to put pressure on the price andusage of pharmaceutical products, which may adversely impact product sales. 33  Risks Related to Our Industry Governments outside the United States tend to impose strict price controls, which may adversely affect our revenues, if any. In some countries, particularly the countries comprising the EU the pricing of pharmaceuticals and certain other therapeutics is subject to governmentalcontrol. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for aproduct. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness ofour product candidate to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set atunsatisfactory levels, our business could be harmed, possibly materially. We are subject to anti-kickback laws and regulations. Our failure to comply with these laws and regulations could have adverse consequences to us. There are extensive U.S. federal and state laws and regulations prohibiting fraud and abuse in the healthcare industry that can result in significantcriminal and civil penalties. These federal laws include: the anti-kickback statute, which prohibits certain business practices and relationships, including thepayment or receipt of compensation for the referral of patients whose care will be paid by Medicare or other federal healthcare programs; the physician self-referral prohibition, commonly referred to as the Stark Law; the anti-inducement law, which prohibits providers from offering anything to a Medicare orMedicaid beneficiary to induce that beneficiary to use items or services covered by either program; the civil False Claims Act in 1986, or the False ClaimsAct, which prohibits any person from knowingly presenting or causing to be presented false or fraudulent claims for payment by the federal government,including the Medicare and Medicaid programs; and the Civil Monetary Penalties Law, which authorizes the U.S. Department of Health and Human Servicesto impose civil penalties administratively for fraudulent or abusive acts. In addition, the PPACA requires drug manufacturers to report to the government anypayments to physicians for consulting services and the like. Sanctions for violating these federal laws include criminal and civil penalties that range from punitive sanctions, damage assessments, monetarypenalties, imprisonment, denial of Medicare and Medicaid payments or exclusion from the Medicare and Medicaid programs, or both, and debarment. Asfederal and state budget pressures continue, federal and state administrative agencies may also continue to escalate investigation and enforcement efforts toreduce or eliminate waste and to control fraud and abuse in governmental healthcare programs. Private enforcement of healthcare fraud has also increased,due in large part to amendments to the False Claims Act that were designed to encourage private persons to sue on behalf of the government. The FraudEnforcement and Recovery Act of 2009 may further encourage whistleblowers to file suit under the qui tam provisions of the False Claims Act. A violation ofany of these federal and state fraud and abuse laws and regulations could have a material adverse effect on our liquidity and financial condition. Aninvestigation into the use by physicians of any of our products, if ever commercialized, may dissuade physicians from either purchasing or using them, andcould have a material adverse effect on our ability to commercialize those products. In addition, we are subject to analogous foreign laws and regulations, which may apply to sales or marketing arrangements and claims involvinghealthcare items or services reimbursed by non-governmental third-party payors, including private insurers; foreign laws that require pharmaceuticalcompanies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federalgovernment or otherwise restrict payments that may be made to healthcare providers; foreign laws that require drug manufacturers to report informationrelated to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and foreign laws governing theprivacy and security of health information in certain circumstances. Many of these laws differ from each other in significant ways and often are not preemptedby HIPAA, thus complicating compliance efforts. 34  Risks Related to Our Operations in Israel Potential political, economic and military instability in the State of Israel, where our senior management, our head executive office, research anddevelopment, and manufacturing facilities are located, may adversely affect our results of operations. Our head executive office, our research and development facilities, our current manufacturing facility, as well as some of our clinical sites are located inIsrael. Our officers and all of our directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding regionmay directly affect our business and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place betweenIsrael and its neighboring countries, as well as terrorist acts committed within Israel by hostile elements. Any hostilities involving Israel or the interruption orcurtailment of trade between Israel and its trading partners could adversely affect our operations and results of operations. During November 2012 and asrecently as July through August 2014, Israel was engaged in an armed conflict with a militia group and political party who controls the Gaza Strip, andduring the summer of 2006, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia group and political party. In December2008 and January 2009 there was an escalation in violence among Israel, Hamas, the Palestinian Authority and other groups, as well as extensive hostilitiesalong Israel’s border with the Gaza Strip, which resulted in missiles being fired from the Gaza Strip into Southern Israel. Similar hostilities accompanied bymissiles being fired from the Gaza Strip into Southern Israel, as well at areas more centrally located near Tel Aviv and at areas surrounding Jerusalem,occurred during November 2012 and July through August 2014. These conflicts involved missile strikes against civilian targets in various parts of Israel,including areas in which our employees and some of our consultants are located, and negatively affected business conditions in Israel. Since February 2011, Egypt has experienced political turbulence and an increase in terrorist activity in the Sinai Peninsula following the resignation ofHosni Mubarak as president. This included protests throughout Egypt, and the appointment of a military regime in his stead, followed by the elections toparliament which brought groups affiliated with the Muslim Brotherhood (which had been previously outlawed by Egypt), and the subsequent overthrow ofthis elected government by a military regime instead. Such political turbulence and violence may damage peaceful and diplomatic relations between Israeland Egypt, and could affect the region as a whole. Similar civil unrest and political turbulence has occurred in other countries in the region, including Syriawhich shares a common border with Israel, and is affecting the political stability of those countries. Since April 2011, internal conflict in Syria has escalated,and evidence indicates that chemical weapons have been used in the region. Intervention may be contemplated by outside parties in order to prevent furtherchemical weapon use. This instability and any intervention may lead to deterioration of the political and economic relationships that exist between the Stateof Israel and some of these countries, and may have the potential for additional conflicts in the region. In addition, Iran has threatened to attack Israel andmay be developing nuclear weapons. Iran is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollahin Lebanon, and various rebel militia groups in Syria. These situations may potentially escalate in the future to more violent events which may affect Israeland us. Any armed conflicts, terrorist activities or political instability in the region could adversely affect business conditions and could harm our results ofoperations and could make it more difficult for us to raise capital. Parties with whom we do business have sometimes declined to travel to Israel duringperiods of heightened unrest or tension, forcing us to make alternative arrangements when necessary in order to meet our business partners face to face. Inaddition, the political and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that theyare not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements. Our commercial insurance does not cover losses that may occur as a result of events associated with the security situation in the Middle East. Althoughthe Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you thatthis government coverage will be maintained or that it will sufficiently cover our potential damages. Any losses or damages incurred by us could have amaterial adverse effect on our business. Any armed conflicts or political instability in the region would likely negatively affect business conditions and couldharm our results of operations. 35  Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict business with theState of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition or theexpansion of our business. A campaign of boycotts, divestment and sanctions has been undertaken against Israel, which could also adversely impact ourbusiness. Our operations may be disrupted as a result of the obligation of Israeli citizens to perform military service. Many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of40 (or older, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. Inresponse to increases in terrorist activity, there have been periods of significant call-ups of military reservists. It is possible that there will be military reserveduty call-ups in the future. Our operations could be disrupted by such call-ups, which may include the call-up of members of our management. Suchdisruption could materially adversely affect our business, financial condition and results of operations. Investors may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities lawsagainst us, or our executive officers and directors or asserting U.S. securities laws claims in Israel. None of our directors or officers are residents of the United States and most of their and our assets are located outside the United States. Service of processupon us or our non-U.S. resident directors and officers and enforcement of judgments obtained in the United States against us or our non-U.S. our directorsand executive officers may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that it may be difficult toassert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federalsecurities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our officers and directors because Israel maynot be the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and notU.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing thematters described above. Israeli courts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments renderedagainst us or our officers and directors. Moreover, among other reasons, including but not limited to, fraud or absence of due process, or the existence of a judgment which is at variance withanother judgment that was given in the same matter if a suit in the same matter between the same parties was pending before a court or tribunal in Israel, anIsraeli court will not enforce a foreign judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subjectto exceptional cases) or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel. Under current Israeli law, we may not be able to enforce employees’ covenants not to compete and therefore may be unable to prevent our competitorsfrom benefiting from the expertise of some of our former employees. We generally enter into non-competition agreements with our key employees, in most cases within the framework of their employment agreements.These agreements prohibit our key employees, if they cease working for us, from competing directly with us or working for our competitors for a limitedperiod. Under applicable Israeli law, we may be unable to enforce these agreements or any part thereof. If we cannot enforce our non-competition agreementswith our employees, then we may be unable to prevent our competitors from benefiting from the expertise of our former employees, which could materiallyadversely affect our business, results of operations and ability to capitalize on our proprietary information. 36  Your rights and responsibilities as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities ofshareholders of U.S. corporations. We are incorporated under Israeli law. The rights and responsibilities of holders of our ordinary shares are governed by our articles of association and theCompanies Law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders in typical U.S. corporations. Inparticular, pursuant to the Companies Law each shareholder of an Israeli company has to act in good faith in exercising his or her rights and fulfilling his orher obligations toward the company and other shareholders and to refrain from abusing his power in the company, including, among other things, in voting atthe general meeting of shareholders and class meetings, on amendments to a company’s articles of association, increases in a company’s authorized sharecapital, mergers, and transactions requiring shareholders’ approval under the Companies Law. In addition, a controlling shareholder of an Israeli company ora shareholder who knows that it possesses the power to determine the outcome of a shareholder vote or who has the power to appoint or prevent theappointment of a director or officer in the company, or has other powers toward the company has a duty of fairness toward the company. However, Israeli lawdoes not define the substance of this duty of fairness. Because Israeli corporate law has undergone extensive revision in recent years, there is little case lawavailable to assist in understanding the implications of these provisions that govern shareholder behavior. Provisions of Israeli law and our articles of association may delay, prevent or make undesirable an acquisition of all or a significant portion of our sharesor assets. Certain provisions of Israeli law and our articles of association could have the effect of delaying or preventing a change in control and may make it moredifficult for a third party to acquire us or for our shareholders to elect different individuals to our board of directors, even if doing so would be beneficial toour shareholders, and may limit the price that investors may be willing to pay in the future for our ordinary shares. For example, Israeli corporate law regulatesmergers and requires that a tender offer be effected when more than a specified percentage of shares in a company are purchased. Further, Israeli taxconsiderations may make potential transactions undesirable to us or to some of our shareholders whose country of residence does not have a tax treaty withIsrael granting tax relief to such shareholders from Israeli tax. With respect to certain mergers, Israeli tax law may impose certain restrictions on futuretransactions, including with respect to dispositions of shares received as consideration, for a period of two years from the date of the merger. See “AdditionalInformation — Memorandum and Articles of Association — Acquisitions under Israeli Law.” Furthermore, under the Encouragement of Industrial, Research and Development Law, 5744-1984, or the Research Law, to which we are subject due toour receipt of grants from the Office of the Chief Scientist of the Israeli Ministry of Economy, or OCS, a recipient of OCS grants such as us must report to theapplicable authority of the OCS regarding any change of control or any change in the holding of the means of control of our Company which transforms anynon-Israeli citizen or resident into an “interested party”, as defined in the Research Law, in our Company, and in the latter event, the non-Israeli citizen orresident shall execute an undertaking in favor of the OCS, in a form provided under the OCS guidelines. Because a certain portion of our expenses is incurred in currencies other than the U.S. Dollar, our results of operations may be harmed by currencyfluctuations and inflation. Beginning in 2016, our reporting and functional currency is the U.S. dollar, but some portion of our expenses is in the NIS and Euro. As a result, we areexposed to some currency fluctuation risks. We may, in the future, decide to enter into currency hedging transactions to decrease the risk of financialexposure from fluctuations in the exchange rate of the currencies mentioned above in relation to the U.S. dollar. These measures, however, may notadequately protect us from adverse effects. 37  We have received Israeli government grants for certain of our research and development activities. The terms of these grants may require us to satisfyspecified conditions in order to manufacture products and transfer technologies outside of Israel. We may be required to pay penalties in addition to therepayment of the grants. Such grants may be terminated or reduced in the future, which would increase our costs. Under the Research Law, research and development programs which meet specified criteria and are approved by a committee of the OCS are eligible forgrants. The grants awarded are typically up to 50% of the project’s expenditures, as determined by the research committee. The grantee is required to payroyalties to the OCS on income generated from the sale of products (and related services associated with such products), whether received by the grantee orany affiliated entity, as defined in the Encouragement of Industrial Research and Development Regulations (Royalty Rates and Rules for Payment), 5756-1996, or the Royalty Regulations, developed, in whole or in part, within the framework of an OCS-funded project or deriving therefrom. In accordance withthe provisions of the Royalty Regulations, royalties are paid beginning from the date of the sale of the first product developed according to an OCS-fundedproject at rates between 3% to 6% (though typically not greater than 4.5%) of sales of the product, depending on the situation and applicable criteria, and arepayable until the repayment of the full amount of the total OCS funding linked to the U.S. Dollar and accrued interest (LIBOR), or in certain cases, payableup to the increased royalty cap. The terms of the OCS participation also require that products developed using government grants be manufactured in Israeland that the technology developed thereunder may not be transferred outside of Israel, unless approval is received from the OCS (such approval is notrequired for the transfer of a portion of the manufacturing capacity which does not exceed, in the aggregate, 10% of the portion declared to be manufacturedabroad in the applications for funding, in which case only notification is required) and additional payments are made to the OCS. However, this does notrestrict the export of products that incorporate the funded technology. Following the full payment of such royalties and interest, there is generally no furtherliability for payment. Nonetheless, the restrictions under the Research Law (as generally specified herein) will continue to apply even after we have repaid thefull amount of royalty payable pursuant to the grants. Ordinarily, as a condition to obtaining approval to manufacture outside Israel, we would be required to pay increased royalties, as set forth in theResearch Law. The total amount to be repaid to the OCS would also be adjusted to between 120% and 300% of the grants, depending on the manufacturingvolume that is performed outside Israel. A company also has the option of declaring in its OCS grant application its intention to exercise a portion of themanufacturing capacity abroad, thus avoiding the need to obtain additional approval after approval of such application by the OCS. The Research Law restricts the ability to transfer know-how funded by the OCS outside of Israel. Transfer of OCS-funded know-how outside of Israelrequires prior OCS approval and is subject to certain payments to the OCS calculated according to formulae provided under the Research Law. A transfer forthe purpose of the Research Law means an actual sale of the OCS-funded know-how, any license to develop the OCS-funded know-how or the productsresulting from the OCS-funded know-how or any other transaction, which, in essence, constitutes a transfer of the OCS-funded know-how. A mere licensesolely to market products resulting from the OCS-funded know-how would not be deemed a transfer for the purpose of the Research Law. It should be notedthat the OCS is in the process of promulgating regulations that deal with granting of licenses to use know-how developed as a result of research financed bythe OCS. Such regulations may have an effect on our company, in respect of the amount of payments to the OCS for the grant of sub-licenses to third parties.As of the date of this annual report, we are unable to assess the effect, if any, of the promulgation of such regulations on our company. 38  If we wish to transfer OCS-funded know-how, the terms for approval shall be determined according to the character of the transaction and theconsideration paid to us for such transfer. The OCS approval to transfer know-how created, in whole or in part, in connection with an OCS-funded project tothird party outside Israel where the transferring company remains an operating Israeli entity is subject to payment of a redemption fee to the OCS calculatedaccording to a formula provided under the Research Law that is based, in general, on the ratio between the aggregate OCS grants received by the companyand the company’s aggregate investments in the project that was funded by these OCS grants, multiplied by the transaction consideration. The transfer ofsuch know-how to a party outside Israel where the transferring company ceases to exist as an Israeli entity is subject to a redemption fee formula that is based,in general, on the ratio between aggregate OCS grants received by the company and the company’s aggregate research expenses, multiplied by thetransaction consideration. The Regulations for the Encouragement of Research and Development in the Industry (the Maximum Payment for the Transfer ofKnow-How in Accordance with Section 19B(b)(1) and (2), 5777-2012), or the Cap Regulations, establish a maximum payment of the redemption fee paid tothe OCS under the above mentioned formulas and differentiates between two situations: (i) in the event that the company sells its OCS-funded know-how, inwhole or in part, or is sold as part of certain merger and acquisition transactions, and subsequently ceases to conduct business in Israel, the maximumredemption fee under the above mentioned formulas shall be no more than six times the amount received (plus annual interest) for the applicable know-howbeing transferred, or the entire amount received, as applicable; (ii) in the event that following the transactions described above (i.e., asset sale of OCS-fundedknow-how or transfer as part of certain merger and acquisition transactions), the company continues to conduct its research activity in Israel (for at least threeyears following such transfer and keeps on staff at least 75% of the number of research employees it had for the six months before the know-how wastransferred), then the company is eligible for a reduced cap of the redemption fee of no more than three times the amounts received (plus annual interest) forthe applicable know-how being transferred, or the entire amount received, as applicable. On July 29, 2015, the Research Law was amended, or Amendment Number 7. Pursuant to Amendment Number 7, the National Authority forTechnological Innovation, or NATI, a statutory corporation, will be established and will replace the OCS. Pursuant to Amendment Number 7, the currentrestrictions under the R&D Law will be replaced by a new set of arrangements in connection with ownership obligations of know-how (including with respectto restrictions on transfer of know-how and manufacturing activities outside of Israel), as well as royalties obligations associated with approved programs,which will be promulgated by NATI. The commencement date of Amendment Number 7 was January 1, 2016, however, until new arrangements are adoptedby NATI, the R&D Law as it existed prior to Amendment Number 7 continues to be in force and effect. Pursuant to Amendment Number 7, NATI should beconstituted no later than July 28, 2018, and the new arrangements should be adopted no later than one year thereafter. As of the date of this annual report, weare unable to assess the effect, if any, of the promulgation of such arrangements on our company. Subject to prior consent of the OCS, the company may transfer the OCS-funded know-how to another Israeli company. If the OCS-funded know-how istransferred to another Israeli entity, the transfer would still require OCS approval but will not be subject to the payment of the redemption fee (although therewill be an obligation to pay royalties to the OCS from the income of such sale transaction as part of the royalty payment obligation). In such case, theacquiring company would have to assume all of the selling company’s responsibilities towards the OCS as a condition to OCS approval. Our research and development efforts have been financed, partially, through grants that we have received from the OCS. We therefore must comply withthe requirements of the Research Law and related regulations. As of December 31, 2015, we have received approximately NIS 32.6 million. Therefore, thediscretionary approval of an OCS committee will be required for any transfer to third parties outside of Israel of rights related to our Accordion Pill, which hasbeen developed with OCS funding. The restrictions under the Research Law may impair our ability to enter into agreements for OCS funded products ortechnologies without the approval of the OCS. We cannot be certain that any approval of the OCS will be obtained on terms that are acceptable to us, or atall. We may not receive the required approvals should we wish to transfer this technology, manufacturing and/or development outside of Israel in the future.Furthermore, in the event that we undertake a transaction involving the transfer to a non-Israeli entity of technology developed with OCS funding pursuant toa merger or similar transaction, the consideration available to our shareholders may be reduced by the amounts we are required to pay to the OCS. Anyapproval, if given, will generally be subject to additional financial obligations. Failure to comply with the requirements under the Research Law may subjectus to mandatory repayment of grants received by us (together with interest and penalties), as well as may expose us to criminal proceedings. In addition, theGovernment of Israel may from time to time audit sales of products which it claims incorporate technology funded via OCS programs and this may lead toadditional royalties being payable on additional products. Such grants may be terminated or reduced in the future, which would increase our costs. OCSapproval is not required for the export of any products resulting from the OCS-funded research or development in the ordinary course of business. 39  Risks Related to Ownership of Our Ordinary Shares If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely changetheir recommendations or publish negative reports regarding our business or our shares, our share price and trading volume could be negatively impacted. The trading market for our ordinary shares will be influenced by the research and reports that industry or securities analysts may publish about us, ourbusiness, our market or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts will cover us orprovide favorable coverage. If any of the analysts who may cover us adversely change their recommendation regarding our shares, or provide more favorablerelative recommendations about our competitors, our share price would likely decline. If any analyst who may cover us were to cease coverage of ourcompany or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could negatively impact our share price ortrading volume. We have not paid, and do not intend to pay, dividends on our ordinary shares and, therefore, unless our ordinary shares appreciate in value, our investorsmay not benefit from holding our ordinary shares. We have not paid any cash dividends on our ordinary shares since inception. We do not anticipate paying any cash dividends our ordinary shares in theforeseeable future. Moreover, the Companies Law imposes certain restrictions on our ability to declare and pay dividends. See “Additional Information—Memorandum and Articles of Association—Dividends” for additional information. As a result, investors in our ordinary shares will not be able to benefitfrom owning our ordinary shares unless the market price of our ordinary shares becomes greater than the price paid for the shares by such investors and theyare able to sell such shares. We cannot assure you that you will ever be able to resell our ordinary shares at a price in excess of the price paid for the shares. The public trading market for our ordinary shares is volatile and may result in higher spreads in share prices, which may limit the ability of our investorsto sell their ordinary shares at a profit, if at all. Our ordinary shares currently trade on the NASDAQ Capital Market and the TASE. Our results of operations and the value of our investments are affectedby volatility in the securities markets. These difficulties and the volatility of the securities markets in general, and specifically during economic slowdowns,have affected and may continue to affect our ability to realize our investments or to raise financing, which in turn may result in us having to recordimpairment charges. Our ordinary shares are traded on more than one market and this may result in price variations. Our ordinary shares have been traded on the NASDAQ Capital Market since August 2015 and the TASE since 2010. Trading in our ordinary shares onthese markets will take place in different currencies (U.S. dollars on the NASDAQ Capital Market and NIS on the TASE), and at different times (resulting fromdifferent time zones, trading days and public holidays in the United States and Israel). The trading prices of our ordinary shares on these two markets maydiffer due to these and other factors. Any decrease in the price of our ordinary shares on the TASE could cause a decrease in the trading price of our ordinaryshares in the United States. We do not know whether a market in the United States for our ordinary shares will be sustained or what the market price of our ordinary shares will be andas a result it may be difficult for you to sell your ordinary shares at or above the purchase therefor or at all. Although our ordinary shares now trade on the NASDAQ Capital Market and on the TASE, an active trading market for our shares may not be sustained.The market price of our ordinary shares is highly volatile and could be subject to wide fluctuations in price as a result of various factors, some of which arebeyond our control. It may be difficult for you to sell your ordinary shares without depressing the market price for the ordinary shares or at all. As a result ofthese and other factors, you may not be able to sell your ordinary shares at current market price or at all. Further, an inactive market may also impair ourability to raise capital by selling our ordinary shares and may impair our ability to enter into strategic partnerships or acquire companies or products by usingour ordinary shares as consideration. 40  The market price of our ordinary shares may fluctuate significantly, which could result in substantial losses by our investors. The market price of our ordinary shares may fluctuate significantly in response to numerous factors, some of which are beyond our control, such as: •inability to obtain the approvals necessary to commence further clinical trials; •results of clinical and preclinical studies; •announcements of regulatory approval or the failure to obtain it, or specific label indications or patient populations for its use, or changes or delaysin the regulatory review process; •announcements of technological innovations, new products or product enhancements by us or others; •adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities; •changes or developments in laws, regulations or decisions applicable to our product candidates or patents; •any adverse changes to our relationship with manufacturers or suppliers; •announcements concerning our competitors or the pharmaceutical or biotechnology industries in general; •achievement of expected product sales and profitability or our failure to meet expectations; •our commencement of or results of, or involvement in, litigation, including, but not limited to, any product liability actions or intellectual propertyinfringement actions; •any major changes in our board of directors, management or other key personnel; •legislation in the United States, Europe and other foreign countries relating to the sale or pricing of pharmaceuticals; •announcements by us of significant strategic partnerships, out-licensing, in-licensing, joint ventures, acquisitions or capital commitments; •expiration or terminations of licenses, research contracts or other collaboration agreements; •public concern as to the safety of therapeutics we, our licensees or others develop; •success of research and development projects; •developments concerning intellectual property rights or regulatory approvals; •variations in our and our competitors’ results of operations; •changes in earnings estimates or recommendations by securities analysts, if our ordinary shares are covered by analysts; •future issuances of ordinary shares or other securities; •general market conditions, including the volatility of market prices for shares of biotechnology companies generally, and other factors, includingfactors unrelated to our operating performance; and 41  •the other factors described in this “Risk Factors” section. These factors and any corresponding price fluctuations may materially and adversely affect the market price of our ordinary shares, which would result insubstantial losses by our investors. Further, the stock market in general, the NASDAQ Capital Market and the market for biotechnology companies in particular, have experienced extremeprice and volume fluctuations that have often been unrelated or disproportionate to the operating performance of small companies like ours. Broad marketand industry factors may negatively affect the market price of our ordinary shares regardless of our actual operating performance. In addition, a systemicdecline in the financial markets and related factors beyond our control may cause our share price to decline rapidly and unexpectedly. Price volatility of ourordinary shares might be worse if the trading volume of our ordinary shares is low. In the past, following periods of market volatility, shareholders have ofteninstituted securities class action litigation. If we were involved in securities litigation, it could have a substantial cost and divert resources and attention ofmanagement from our business, even if we are successful. Future sales of our ordinary shares could also reduce the market price of such shares. Moreover, the liquidity of our ordinary shares will be limited, not only in terms of the number of ordinary shares that can be bought and sold at a givenprice, but by potential delays in the timing of executing transactions in our ordinary shares and a reduction in security analyst and media’s coverage of ourCompany, if any. These factors may result in lower prices for our ordinary shares than might otherwise be obtained and could also result in a larger spreadbetween the bid and ask prices for our ordinary shares. In addition, without a large float, our ordinary shares will be less liquid than the stock of companieswith broader public ownership and, as a result, the trading prices of our ordinary shares may be more volatile. In the absence of an active public tradingmarket, an investor may be unable to liquidate its investment in our ordinary shares. Trading of a relatively small volume of our ordinary shares may have agreater impact on the trading price of our shares than would be the case if our public float were larger. We cannot predict the prices at which our ordinaryshares will trade in the future. The tax benefits that are available to us require us to continue to meet various conditions and may be terminated or reduced in the future, which couldincrease our costs and taxes. We have obtained a tax ruling from the Israeli Tax Authority according to which our activity has been qualified as an “industrial activity,” as defined inthe Law for the Encouragement of Capital Investments, 1959, generally referred to as the Investment Law, and is eligible for tax benefits as a “BenefitedEnterprise,” which will apply to the turnover attributed to such enterprise, for a period of up to ten years from the first year in which we generated taxableincome. The tax benefits under the Benefited Enterprise status are scheduled to expire at the end of 2023. In order to remain eligible for the tax benefits of a Benefited Enterprise, we must continue to meet certain conditions stipulated in the Investment Lawand its regulations, as amended. In addition, in order to remain eligible for the tax benefits available to the Benefited Enterprise, we must also comply withthe conditions set forth in the tax ruling. These conditions include, among other things, that the production, directly or through subcontractors, of all ourproducts should be performed within certain regions of Israel. If we do not meet these requirements, the tax benefits would be reduced or canceled. There is no assurance that our future taxable income will qualify as Benefited Enterprise income or that the benefits described above will be available tous in the future. We expect to be characterized as a passive foreign investment company for the taxable year ending December 31, 2016, and, as such, our U.S. shareholdersmay suffer adverse tax consequences. Generally, if for any taxable year 75% or more of our gross income is passive income, or at least 50% of our assets are held for the production of, orproduce, passive income, we would be characterized as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. Thecharacterization of our Company as a PFIC for 2016 has not yet been determined. Because PFIC status is determined annually and is based on our income,assets and activities for the entire taxable year, there can be no assurance that we will not be classified as a PFIC in any future year. If we were to becharacterized as a PFIC for U.S. federal income tax purposes in any taxable year during which a U.S. Investor, as defined in “Taxation — U.S. Federal IncomeTax Consequences”, owns ordinary shares, such U.S. Investor could face adverse U.S. federal income tax consequences, including having gains realized onthe sale of our ordinary shares classified as ordinary income, rather than as capital gain, the loss of the preferential rate applicable to dividends received onour ordinary shares by individuals who are U.S. Investors, and having interest charges apply to distributions by us and the proceeds of share sales. Certainelections exist that may alleviate some adverse consequences of PFIC status and would result in an alternative treatment (such as mark-to-market treatment)of our ordinary shares; however, we do not intend to provide the information necessary for U.S. Investors to make “qualified electing fund elections” if we areclassified as a PFIC. See “Taxation — U.S. Federal Income Tax Consequences.” 42  Your percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence over matters on whichshareholders vote. Our board of directors has the authority, in most cases without action or vote of our shareholders, to issue all or any part of our authorized but unissuedshares, including ordinary shares issuable upon the exercise of outstanding warrants and options. Issuances of additional shares would reduce your influenceover matters on which our shareholders vote. The sale of a substantial number of our ordinary shares may cause the market price of our ordinary shares to decline. Sales of a substantial number of ordinary shares in the public market, or the perception that these sales could occur, could cause the market price of ourordinary shares to decline. We had 11,448,191 ordinary shares outstanding as of December 31, 2015. Of those shares, 11,273,625 were freely tradable,without restriction, in the public markets in the United States and Israel. Such shares represented approximately 98.47% of our outstanding ordinary shares asof that date. Any sales of those shares or any perception in the market that such sales may occur could cause the trading price of our ordinary shares todecline. The remaining 174,566 shares are currently restricted as a result of securities laws, but will become eligible to be sold at various times after the dateof this annual report. In addition, in connection with our August 2013 financing round, we agreed to file a registration statement in the U.S., registering forresale by the purchasers, subject to certain conditions, up to 976,225 ordinary shares, consisting of (a) 697,247 ordinary shares, including 376,584 ordinaryshares issued as a result of Downside Protection events, (b) 198,812 ordinary shares underlying warrants issued as part of the August 2013 financial round and(c) an additional 80,166 ordinary shares underlying warrants that were issued as part of the August 2013 financing round because we did not complete certainobligations by September 30, 2014, as described below. On July 8, 2015, we entered into a registration rights agreement with respect to these shares to betterdefine these registration rights. In addition, we issued to these investors an additional 80,166 warrants exercisable into ordinary shares because we did notcomplete (i) a public offering raising at least $12.0 million on the NASDAQ Stock Market or (ii) a merger with a company traded on the NASDAQ StockMarket which holds at least $12.0 million of unencumbered cash prior to September 30, 2014. We agreed to file a registration statement registering for resalethe ordinary shares underlying these warrants as well. In addition, up to 1,516,098 ordinary shares that are subject to outstanding options under the 2005 Share Option Plan, or the 2005 Plan, and reserved forfuture issuance under our 2015 Incentive Compensation Plan, or the 2015 Plan, will be eligible for sale in the public market. We filed a registration statementon Form S-8 under the Securities Act on February 25, 2016, to register such ordinary shares. If these additional ordinary shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our ordinary shares coulddecline. 43  Because our ordinary shares may be, or become, a “penny stock,” it may be more difficult for investors to sell their ordinary shares, and the market price ofour ordinary shares may be adversely affected. Our ordinary shares may be, or become, a “penny stock” if, among other things, the share price is below $5.00 per share, they are not listed on a nationalsecurities exchange or they have not met certain net tangible asset or average revenue requirements. Broker-dealers who sell penny stocks must providepurchasers of these stocks with a standardized risk-disclosure document prepared by the SEC. This document provides information about penny stocks andthe nature and level of risks involved in investing in the penny-stock market. A broker must also give a purchaser, orally or in writing, bid and offerquotations and information regarding broker and salesperson compensation, make a written determination that the penny stock is a suitable investment forthe purchaser, and obtain the purchaser’s written agreement to the purchase. Broker-dealers must also provide customers that hold penny stock in theiraccounts with such broker-dealer a monthly statement containing price and market information relating to the penny stock. If a penny stock is sold to aninvestor in violation of the penny stock rules, the investor may be able to cancel its purchase and get its money back. If applicable, the penny stock rules may make it difficult for investors to sell their ordinary shares. Because of the rules and restrictions applicable to apenny stock, there is less trading in penny stocks and the market price of our ordinary shares may be adversely affected. Also, many brokers choose not toparticipate in penny stock transactions. Accordingly, investors may not always be able to resell their ordinary shares publicly at times and prices that theyfeel are appropriate and the market price of our ordinary shares may be adversely affected. We must meet the NASDAQ Capital Market’s continued listing requirements and comply with the other NASDAQ rules, or we may risk delisting. Delistingcould negatively affect the price of our ordinary shares, which could make it more difficult for us to sell securities in a financing and for you to sell yourordinary shares. We are required to meet the continued listing requirements of the NASDAQ Capital Market and comply with the other NASDAQ rules, including thoseregarding director independence and independent committee requirements, minimum shareholders’ equity, minimum share price and certain other corporategovernance requirements. In particular, we are required to maintain a minimum bid price for our listed ordinary shares of $1.00 per share. If we do not meetthese continued listing requirements, our ordinary shares could be delisted. Delisting of our ordinary shares from the NASDAQ Capital Market would causeus to pursue eligibility for trading on other markets or exchanges, or on the pink sheets. In such case, our shareholders’ ability to trade, or obtain quotationsof the market value of, our ordinary shares would be severely limited because of lower trading volumes and transaction delays. These factors could contributeto lower prices and larger spreads in the bid and ask prices for our securities. There can be no assurance that our ordinary shares, if delisted from the NASDAQCapital Market in the future, would be listed on a national securities exchange or quoted on a national quotation service, the OTCBB or the pink sheets.Delisting from the NASDAQ Capital Market, or even the issuance of a notice of potential delisting, would also result in negative publicity, make it moredifficult for us to raise additional capital, adversely affect the market liquidity of our ordinary shares, reduce security analysts’ coverage of us and diminishinvestor, supplier and employee confidence. In addition, as a consequence of any such delisting, our share price could be negatively affected and ourshareholders would likely find it more difficult to sell, or to obtain accurate quotations as to the prices of, our ordinary shares. ITEM 4. Information on the Company. Historical Background and Corporate Structure Intec Pharma Ltd. was established and incorporated in Israel on October 23, 2000 as a private Israeli company under the name Orly Guy Ltd. In February2001, our name was changed to Intec Pharmaceuticals (2000) Ltd. Our research and development activities began originally through a private partnership,Intec Pharmaceutical Partnership I.P.P, a general Israeli partnership, formed on September 21, 2000. Its operations were transferred in full to us at thebeginning of 2002 in return for the allocation of shares in our company to the partners in the partnership, pro rata with their ownership in the partnership. InMarch 2004, we changed our corporate name to Intec Pharma Ltd. On February 14, 2010, we successfully completed an initial public offering in Israel on theTASE. We do not have any subsidiaries and do not hold any investments in other entities. We completed our initial public offering of securities in Israel on February 10, 2010. In connection with the offering, we raised approximately NIS 35.3million before issuance costs and issued 783,969 ordinary shares and registered warrants (Series 1) to purchase 313,588 of our ordinary shares. As of the dateof this annual report, all warrants issued in our initial public offering in Israel have expired. 44  We completed our initial public offering of securities in the United States on August 7, 2015. In connection with the offering, we raised gross proceeds ofapproximately $34.0 million before deducting underwriting discounts and commissions and other offering expenses. Overview We are a clinical stage biopharmaceutical company focused on developing drugs based on our proprietary Accordion Pill platform technology, which werefer to as the Accordion Pill. Our Accordion Pill is an oral drug delivery system that is designed to improve the efficacy and safety of existing drugs anddrugs in development by utilizing an efficient gastric retention, or GR, and specific release mechanism. Our product pipeline currently includes three productcandidates in clinical trial stages. Our leading product candidate, Accordion Pill Carbidopa/Levodopa, or AP-CDLD, is being developed for the indication oftreatment of Parkinson’s disease symptoms in advanced Parkinson’s disease patients. We have successfully completed a Phase II clinical trial for AP-CDLDfor the treatment of Parkinson’s disease symptoms in advanced Parkinson’s disease patients and have agreed with the U.S. Food and Drug Administration, orthe FDA, on the remaining clinical development program for AP-CDLD for the treatment of Parkinson’s disease symptoms in advanced Parkinson’s diseasepatients, including the main principles of the single required pivotal Phase III clinical trial in advanced Parkinson’s disease patients. See “— CurrentRegulatory Status of AP-CDLD.” In December 2015, we received a United States centralized institutional review board, or IRB, approval to initiate a Phase IIIclinical trial for AP-CDLD. See “— Current Regulatory Status of AP-CDLD.” Our second product candidate, Accordion Pill Zaleplon, or AP–ZP, is beingdeveloped for the indication of treatment of insomnia, including sleep induction and the improvement of sleep maintenance. We have successfullycompleted a Phase II clinical trial for AP–ZP for the treatment of insomnia under an Investigational New Drug, or IND, application that we submitted to theFDA on August 4, 2009 for AP–ZP as a treatment for the induction and maintenance of sleep in patients suffering from insomnia. In our correspondence withthe FDA, the FDA previously agreed that an acceptable regulatory pathway for AP-CDLD and AP–ZP would be to file a new drug application, or NDA,pursuant to Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, or FDCA, which is a streamlined approval pathway that may accelerate the time tocommercialize and decrease the costs of AP–CDLD and AP–ZP, as compared to those typically associated with a NCE. See “— Government Regulation —505(b)(2) Applications.” The FDA has indicated in written correspondence to us that we may be able to design the development program for AP-ZP in amanner that would allow us to obtain sufficient data for the NDA submission for AP-ZP in one pivotal Phase III clinical trial. However, at this point in thedevelopment process of AP-ZP, the details of such a trial have not been determined or confirmed with the FDA. In March 2016, we completed a Phase Iclinical trial for our third pipeline product candidate which is being developed for the prevention and treatment of gastroduodenal and small bowelNonsteroidal Anti-Inflammatory Drug, or NSAID, induced ulcers. The pharmacokinetics, or PK, results demonstrated in the Phase I trial were within the well-defined safety levels of the drug, which enable us to proceed with further development of the Accordion Pill with the existing drug. Our Accordion Pill Platform Technology We believe that our Accordion Pill technology has the potential to improve the performance of approved drugs and drugs in development, includingLevodopa, by providing several distinct advantages, including, but not limited to: •increasing efficacy of the drug incorporated into the Accordion Pill; •improving safety of the drug incorporated into the Accordion Pill by reducing the side effects of such drugs; •reducing the number of daily administrations required to achieve the same or superior therapeutic effect as the non-Accordion Pill version of suchdrugs; and •expanding the intellectual property protection period of the drug incorporated into the Accordion Pill. 45  Our anticipated ability to file NDAs pursuant to Section 505(b)(2) for our existing pipeline and future products increases the likelihood of acceleratingthe time to commercialization of our products and decreasing costs when compared to those typically associated with NCEs. Our Accordion Pill platform technology is designed to increase the time that drugs are retained in the stomach as compared to other oral dosage forms,such as tablets and capsules. This capability is particularly important to drugs with a NAW, which are absorbed mainly in the upper part of thegastrointestinal, or GI, tract. Regular controlled-release formulations of such drugs currently on the market sometimes fail to provide an efficient solution, asonce the regular dosage form has passed the drug’s NAW in the upper GI tract, the drug is not, or is very poorly, absorbed in the distal parts of the GI tract.The Accordion Pill platform technology is also designed for drugs with low solubility, which do not efficiently dissolve in the GI tract, and drugs with lowpermeability, which do not efficiently penetrate the intestinal wall and reach the blood stream, such as Biopharmaceutics Classification System, or BCS,Class II (low solubility, high permeability) and Class IV (low solubility, low permeability) drugs. According to The AAPS Journal published by the AmericanAssociation of Pharmaceutical Scientists, of the top 200 oral drugs in the United States, Great Britain, Spain and Japan in 2006, approximately 30% to 35%were BCS Class II drugs and approximately 5% to 10% were BCS Class IV drugs. Further, according to Drug Development & Delivery, in 2006approximately 90% of NCEs in development were either BCS Class II or Class IV drugs. Poorly soluble drugs are sometimes characterized by lowbioavailability, which is strongly affected by the drug’s solubility. In addition, the extent of absorption of poorly soluble drugs can be dose dependent,leading to non-linear PK behavior. The Accordion Pill’s efficient GR and specific release mechanism prolongs the absorption phase of drugs with an NAW,which can result in significantly more stable plasma levels. In addition, the Accordion Pill has demonstrated an enhancement of the absorption of a poorlysoluble, BCS Class II/IV drug in a crossover PK clinical study in 12 healthy volunteers. For poorly soluble drugs, we believe that our technology acts throughthe gradual delivery of an undissolved drug by the Accordion Pill in the stomach, which allows for the complete dissolution of the drug dose in the stomachover the delivery period. The gradual passage of the drug from the stomach to the upper part of the GI tract enables an increase in the amount of the drug thatcan be dissolved and thus absorbed, in the upper small bowel. In addition, we believe that bile secretion in the upper part of the GI tract also improves theintestinal environment for better absorption. Finally, the significant dilution of the drug solution in the small bowel caused by prolonged delivery increasesthe amount of the drug available for absorption. Our clinical trials to date have demonstrated that the Accordion Pill is retained in the stomach for eight to 12 hours, as compared to significantly shortertime periods, typically as little as two to three hours, when using other solid dosage forms. The efficient GR and the predetermined release profile for eachspecific drug associated with our Accordion Pill technology demonstrated a significant improvement in PK, which is the drug plasma level over time and acorresponding improvement in efficacy and safety. The following chart depicts the Accordion Pill’s capability to improve the PK of Levodopa, which is a drug characterized by an NAW: AP-CDLD Phase II clinical trial — more stable Levodopa levels with statistically significantreduced peak-to-trough fluctuations 46  Levodopa plasma levels in n=8 advanced Parkinson’s disease patients following twice daily, or b.i.d, administration (eight hours apart) of AP-CDLD50/375 versus four times daily, or q.i.d, administration (four hours apart) of a commercial Carbidopa/Levodopa formulation (equivalent daily Levodopadose). The PK study was performed on day seven, following six days of drug administration at home. No Levodopa medication was allowed for ten hoursbefore the first administration at day seven. The PK results showed that the peak to trough ratio, which measures the maximum average concentration relativeto the minimum average concentration of LD plasma levels, was reduced from 29.9 to 3.2 with the AP-CDLD. Demonstration of the clinical benefits of thesepeak to trough ratios will be further studied and confirmed in the Phase III clinical trial. The following chart depicts the Accordion Pill’s capability to improve the PK of a BCS Class II/IV drug combined with our Accordion Pill technologythat is currently on the market and is characterized with poor solubility: PK results with the Accordion Pill with a BCS Class II/IV drug that is currently availableon the market in 12 healthy volunteers The results of our clinical trial have demonstrated approximately a 100% increase in bioavailability in 12 healthy volunteers with our Accordion Pilltechnology, as compared to the commercial formulation of the drug. Furthermore, the results demonstrated that the increase in bioavailability obtained whenadministering one Accordion Pill and two Accordion Pills was proportional to the increase in dosage, or linear absorption, whereas the commercialformulation does not show linear absorption in these dosage ranges. Although there is no assurance that these results will be repeated in other instances, we believe that these results are important because the enhancementof bioavailability of poorly soluble drugs is one of the main challenges facing the pharmaceutical industry. According to The AAPS Journal published by theAmerican Association of Pharmaceutical Scientists, of the top 200 oral drugs in the United States, Great Britain, Spain and Japan in 2006, approximately 30%to 35% were BCS Class II drugs and approximately 5% to 10% were BCS Class IV drugs. Further, according to Drug Development & Delivery, in 2006approximately 90% of NCEs in development were either BCS Class II or Class IV drugs. 47  Our Accordion Pill technology enables us to combine active pharmaceutical ingredients, or APIs, which are also referred to as drugs, and inactiveingredients that are included in the FDA’s list of approved inactive ingredients, into pharmaceutical-grade, biodegradable polymeric films, welded into aplanar structure, folded into the shape of an accordion and placed inside of a capsule. While in the stomach, the capsule dissolves and the Accordion Pillunfolds and releases the drug in a predetermined profile. In order to provide optimum results for each drug, each Accordion Pill drug differs and will likelydiffer in several ways, including composition, structure and properties. The diagram below illustrates the general structure of the Accordion Pill: All of the ingredients in the Accordion Pill (active and inactive) are combined physically, not chemically, thus maintaining the chemical composition ofthe active ingredients. The Accordion Pill has a drug release mechanism that is independent of the gastric retention mechanism. It can combine both immediate and controlledrelease profiles, as well as more than one drug. We have demonstrated that the Accordion Pill has the ability to carry a drug load of up to 550 mg. We havealso demonstrated that the Accordion Pill fully degrades in the intestine once it is expelled from the stomach. We have conducted more than 30 clinical trials with more than 3,000 administrations to study the safety and efficacy of the Accordion Pill, including theAccordion Pill platform alone and the Accordion Pill platform with various APIs. No significant adverse events related to the Accordion Pill were reported inthese clinical studies. These studies demonstrated that increasing gastro-retention time improves the performance of certain NAW and BCS Class II/IV drugs. Our Product Pipeline Our current product development pipeline includes three products in clinical trial stages. Our leading pipeline product, AP-CDLD, is focused onleveraging our Accordion Pill technology to improve the efficacy and safety of an approved drug for the treatment of Parkinson’s disease symptoms inadvanced Parkinson’s disease patients. We have agreed with the FDA on the remaining clinical development program for AP-CDLD for the treatment ofParkinson’s disease symptoms in advanced Parkinson’s disease patients, including the main principles of the single required pivotal Phase III clinical trial inadvanced Parkinson’s disease patients. In December 2015, we received a United States centralized institutional review board, or IRB, approval to initiate aPhase III clinical trial for AP-CDLD. Our second product, AP–ZP, is for the treatment of insomnia. We are currently seeking a potential strategic partner forfurther clinical development and commercialization of AP–ZP and our future development plans for AP–ZP will depend on the results of this process. Wehave an exclusive license from Yissum, an affiliate of The Hebrew University of Jerusalem, for developing, manufacturing and global marketing of productsbased on the core technology used in the Accordion Pill. In March 2016, we completed a Phase I clinical trial for our third pipeline product candidate whichis being developed for the prevention and treatment of gastroduodenal and small bowel NSAID induced ulcers. The PK results demonstrated in the Phase Itrial were within the well-defined safety levels of the drug, which enable us to proceed with further development of the Accordion Pill with the existing drug. 48  * Under 505(b)(2) ** Forecasted Parkinson’s Disease drug market in the seven major markets plus Brazil according to Global Data *** Forecasted insomnia drug market according to Global Data New Product Development for Biogen MA Inc. On April 15, 2015, we entered into an agreement with Biogen MA Inc., which we refer to as Biogen, for the development of a designated Accordion Pillwith one marketed, proprietary drug of Biogen. Pursuant to the agreement, we will conduct activities for the development of the designated Accordion Pillpursuant to an agreed upon research plan, which will be funded by Biogen, subject to the achievement of certain research plan milestones. We grantedBiogen an option to obtain an exclusive, worldwide, royalty bearing license to our technology, as implemented in the product being developed, for thecurrent approved indication of its proprietary drug. Pursuant to the agreement and to the extent we are not contractually precluded from doing so, at therequest of Biogen, we will negotiate in good faith the expansion of the license field for additional indications, and the terms and conditions thereof. Uponexercise of the option, Biogen will be responsible for, and bear all costs associated with, pre-clinical and clinical activities required for the purpose ofobtaining regulatory approval for the product being developed, as well as for the manufacturing and commercialization thereof. Biogen has also agreed toconsider in good faith engaging us as a manufacturer of commercial supply of the product being developed. Pursuant to the agreement, we either received or will be entitled to the following payments: •$250,000, which we received within 15 days from the execution of the agreement, for funding the research plan, and an additional aggregate amountof up to $670,000 for the achievement of research plan milestones; •$8,000,000 in consideration for the exercise of the option; •Several payments in an aggregate amount of $39 million upon the achievement of milestones related to the development of the product, regulatoryfilings for the purpose of obtaining regulatory approvals and reaching first commercial sales in the United States and Europe; and 49  •Royalties in a low single-digit rate on net sales, provided that the aggregate annual royalties will not exceed $25 million and the aggregate amountof royalties payable under the agreement will not exceed $100 million. We are entitled to the aforementioned royalty payments for the duration of the royalty term. The royalty term is defined with respect to the product beingdeveloped in each country as the period beginning on the date of the first commercial sale of the product being developed in such country and ending on thelater of (a) the expiration of the last to expire valid patent right claim that covers such product in such country and (b) the expiration of a regulatoryexclusivity period granted or afforded by applicable laws or by a regulatory authority with respect to such product in such country. We currently estimatethat the royalty term will last until at least 2028 in the United States based on the expiration of our IN-3 family patents. The agreement includes separate research, option exercise and commercialization periods. The research period includes certain research performancemilestones and begins on the date of the agreement and ends on the earlier of (a) Biogen’s termination of the agreement upon failure to meet such milestonesor in accordance with the agreement’s general termination provisions or (b) the acceptance date of such research materials. The option exercise period beginson the date of the agreement and ends on the earliest of (i) termination of the agreement upon failure to meet the research milestones, (ii) termination of theagreement in accordance with the agreement’s general termination provisions, which include the ability of Biogen to terminate the agreement without causeon at least 60 days prior written notice beginning on the earlier to occur of (x) receipt of specified research deliverables and (y) the six month anniversary ofthe agreement, (iii) the date that is 24 months after the acceptance date of the research materials (subject to extension due to clinical hold), or (iv) the exerciseof the option by Biogen. The commercial period begins on the option exercise date and ends with the expiration of the royalty term in all countries of theterritory, subject to the agreement’s general termination provisions. The agreement further includes provisions with respect to regulatory collaboration, confidentiality, title and maintenance of intellectual property ownedby the parties and developed under the agreement, liability, indemnification and insurance. Pursuant to the agreement, our know-how and intellectualproperty existing as of the date of the agreement and new know-how and intellectual property developed by the parties under the agreement in connectionwith the Accordion Pill, which is not specifically related to the collaboration product referred to in the agreement as “General Accordion Pill Technology”,will be owned by us and may be used by us for products and for purposes of additional collaborations, subject to the limits of the license. Our Competitive Strengths We believe our principal competitive strengths include the following: •A leading product candidate, AP-CDLD, being developed for the indication of treatment of Parkinson’s disease symptoms in advancedParkinson’s disease patients, received a U.S. centralized IRB approval in December 2015 to initiate a Phase III clinical trial. AP-CDLD, ourleading product candidate, being developed for the indication of treatment of Parkinson’s disease symptoms in advanced Parkinson’s diseasepatients, received a U.S. centralized IRB approval in December 2015 to initiate a Phase III clinical trial. We intend to begin recruiting patients forthe trial in the first half of 2016. The European Parkinson’s Disease Association, or EPDA, estimated in 2007 that 6.3 million people worldwidesuffer from Parkinson’s disease, and a 2015 report by Global Data estimated that the pharmaceutical market for Parkinson’s disease will reach $4.67billion in the United States, Japan, France, Germany, Italy, Spain and the United Kingdom, or the Seven Major Markets, plus Brazil by 2022. •Innovative and leverageable platform technology that enables us to develop multiple products and to provide substantial benefits for variousclasses of drugs with large potential markets. Our platform enables us to develop and produce multiple products for diverse markets, includingour leading product – AP-CDLD. Our platform includes our proprietary technology and know-how, with which we have developed the AccordionPill, including its independent drug release and GR mechanisms, and have combined various drugs with the Accordion Pill. Our platformtechnology can combine immediate and controlled release drug profiles and more than one drug and can incorporate drugs of various chemical andphysical characteristics. Our Accordion Pill has improved PK and efficacy in clinical studies via its combination with various drugs belonging todifferent drug classes such as NAW and poorly soluble drugs (BCS Class II/IV). 50  •Lower development risks and costs for our pipeline products. We believe that developing Accordion Pills for additional drug candidates will beassociated with reduced costs and regulatory risks compared to the development of NCEs and will allow us to develop our products in a cost-effective manner. The FDA has previously agreed that our two pipeline products in clinical trial stages would likely be eligible to file under Section505(b)(2), assuming the successful completion of their respective Phase III clinical trials. •No high fat or high calorie diet requirements when using our Accordion Pill products. In our clinical trials, our Accordion Pill products providedmodified PK to achieve desired clinical efficacy and safety of the drugs with which it was combined through prolonged GR under a regular caloriediet and did not require administration with a high calorie and high fat meal, which is a prerequisite for the administration of approved GR productscurrently on the market. This is highly important in the treatment of various diseases. In a food effect study that we conducted of our Phase IIIformulation of AP-CDLD, our results demonstrated that plasma concentrations of Carbidopa and Levodopa were similar, with no statisticallysignificant differences in all PK parameters measured, when AP-CDLD was taken with various food compositions. This suggests that the treatmentwith AP-CDLD, intended to be taken b.i.d (two times a day) or t.i.d (three times a day) with food, is independent of food content. •Strong intellectual property protection. We believe that we have a strong intellectual property portfolio protecting our platform, combination ofspecific drugs with our platform and manufacturing and production processes. See “— Intellectual Property.” •Proven manufacturing capabilities for clinical batches of our Accordion Pill platform technology. We have proven manufacturing capacity ofclinical batches of our platform technology in a compliant GMP facility. See “— Manufacturing.” Our Business Strategy We plan to leverage our Accordion Pill technology platform to become a leading specialty pharmaceutical company focused on developing,manufacturing and commercializing improved proprietary versions of approved and development stage drugs for the treatment of various diseases. We will continue to develop our existing product candidates while reviewing other drug candidates that may also benefit from our platform technology.We seek to create global partnerships to assist us in the development and marketing of our products and may also independently commercialize certainproducts in the U.S. We believe that our approach will allow us to continue to advance our current product candidates and should allow us to avoiddependency on a small number of drugs. Using this approach, we have advanced our product candidates into various stages of clinical development. Specific elements of our current strategyinclude the following: •Continue to advance our current pipeline by developing improved versions of drugs with reduced side effects and that enhance the efficacy ofexisting drugs. We expect that our products will potentially offer significant advantages over the original versions of the drugs. Results from ourcompleted Phase II clinical trial demonstrate that AP-CDLD can improve motor function in patients suffering “off time” episodes. “Off time” refers todebilitating periods of decreased motor and non-motor functions. We are pursuing the development and approval of AP-CDLD under the Section505(b)(2) pathway, which allows an abbreviated path to approval relying on a single pivotal Phase III clinical trial. In December 2015 we received aU.S. centralized IRB approval to initiate a Phase III clinical trial of AP-CDLD. We intend to begin recruiting patients for the trial in the first half of2016. If our pivotal Phase III clinical trial is successful, we intend to file for regulatory approval in the United States. 51  •Utilize the 505(b)(2) regulatory pathway to leverage extensive existing clinical and regulatory experience with the original drugs and bring ourimproved versions of these drugs to market more quickly. An NDA submitted under Section 505(b)(2) of the FDCA may be permitted to referencesafety and effectiveness data submitted by the original manufacturer of the underlying approved drug as part of its NDA, be based on the FDA’s priorconclusions regarding the safety and effectiveness of that previously approved drug, or rely on in part on data in the public domain. Reliance ondata collected by others may expedite the development program for our product candidates by potentially decreasing the amount of clinical datathat we would need to generate to submit an NDA. As the FDA has previously agreed that our two current pipeline products in clinical trial stageswould likely be eligible to file under Section 505(b)(2), assuming the successful completion of the Phase III clinical trials, we believe that there is astrong likelihood that our future products would similarly qualify. The factors related to this qualification are expected to reduce the time and costsassociated with clinical trials when compared to a traditional NDA for an NCE. We also believe the strategy of targeting drugs with proven safetyand efficacy provides a better prospect of clinical success of our proprietary development portfolio as compared to de novo drug development. Weestimate that the average time to market and cost of clinical trials for our products could be less than that required to develop a new drug. •Use our expertise with our platform technology to evaluate drug development and commercialization opportunities. We continuously seekattractive product candidates to develop and commercialize. We intend to focus on product candidates that we believe would be synergistic with ourAccordion Pill technology. We intend to use our expertise in our technology and our pharmacological expertise to grow our product candidateportfolio. •Seek attractive partnership opportunities. We believe that our Accordion Pill technology can be applied to many drugs that have already beenapproved by the FDA, as well as developmental stage drugs. We believe that the proprietary rights provided by our Accordion Pill technology,together with the clinical and compliance benefits, will be attractive to potential partners. We will seek to build a portfolio of commerciallyattractive partnerships in a blend of co-developments and licenses. Where possible, we will seek partnerships that allow us to participatesignificantly in the commercial success of each of the drugs. Although we are currently developing most of our current pipeline, we are looking topartner with the owners of rights to patented drugs in order to develop Accordion Pill versions of those drugs, and we may seek strategic partners tomarket our Accordion Pill products worldwide. We may also seek arrangements with third parties to assist in the development andcommercialization of our products. These arrangements will allow us to share the high development cost, minimize the risk of failure and enjoy ourpartners’ marketing capabilities, while also enabling us to treat a more significant number of patients. •Develop products that target significant commercial opportunities. Our existing product candidates are directed at diseases that have majorglobal markets. Our intent is to continue to develop products that present significant market opportunities by leveraging our According Pilltechnology. •Maintain a prominent intellectual property position. We believe our licensed and proprietary patents and patent applications provide and willprovide broad and comprehensive coverage for the use of our Accordion Pill technology for the treatment of certain diseases, focusing on BCS ClassII/IV and NAW drugs, or drugs where longer retention in the upper GI could improve efficacy and absorption and reduce side effects. We seek toprotect our proprietary position by, among other methods, filing U.S. and foreign patent applications related to our proprietary technology,inventions and improvements that we believe are important to the development of our business. We also rely on know-how and continuingtechnological innovation to develop and maintain our proprietary position. We have submitted and intend to continue to submit patent applicationsfor various Accordion Pill and drug combinations that we develop. 52  AP-CDLD for the Treatment of Parkinson’s Disease Symptoms in Advanced Parkinson’s Disease Patients Parkinson’s disease Parkinson’s disease is a progressive, degenerative disease characterized by movement symptoms such as involuntary tremor or trembling in the hands,arms and legs; muscle rigidity of the limbs and trunk; slowness of and a decline in movement; and impaired balance and coordination. In its advanced stages,the disease causes comprehensive dysfunction of the patient’s bodily systems, including difficulties in swallowing, speech disorders and significant mentaldecline. Parkinson’s disease results from a continuing loss of dopamine-producing nerve cells. Dopamine is required for normal functioning of the centralnervous system and smooth, coordinated function of the body’s muscles and movement. According to the National Parkinson’s Foundation, the symptoms ofParkinson’s disease appear when approximately 60–80% of dopamine-producing cells are damaged. Although there is presently no cure for Parkinson’s disease, there are a number of medications that provide relief from the symptoms. Dopaminereplacement therapy with Levodopa is generally considered to be the most effective treatment for Parkinson’s disease. After 50 years of clinical use,Levodopa therapy still offers the best symptomatic control of Parkinson’s disease and is the most widely used therapy. Levodopa is converted into dopaminein the brain and is usually administered with Carbidopa, which helps prevent Levodopa from converting to dopamine outside the brain. Levodopa helpsreduce tremor, stiffness and slowness and helps improve muscle control, balance and walking. Virtually all Parkinson’s disease patients will requireLevodopa therapy during the course of their disease. Parkinson’s disease patients typically experience a satisfactory response to initial treatment with Levodopa. However, at later stages of Parkinson’sdisease, there is a decline in the capacity of the nigrostriatal dopaminergic system, or the brain pathways that moderate control of voluntary movement, tosynthesize, store, and release dopamine. Therefore, the dopaminergic system becomes more and more dependent on dopamine from external sources, such asLevodopa treatment. As the disease progresses, it becomes increasingly difficult to control the symptoms adequately by Levodopa treatment, and patients develop motorcomplications, for the following reasons: •The duration of the response after each Levodopa dose declines, resulting in a “wearing off” effect, wherein the clinical benefits of Levodopa are lostuntil the next dose reaches therapeutic levels. •The patients suffer from longer periods in which Levodopa does not provide symptom relief and patients’ movements are severely restricted (i.e., offtime). •When Levodopa doses are increased to address the loss of clinical benefit, involuntary movements or troublesome dyskinesia emerges. Recent studies have reported that up to 50% of patients show the onset of motor fluctuations within two years of starting conventional Levodopatherapy. For many patients with advanced Parkinson’s disease, the repeated emergence of off states can occupy up to one-third or more of a typical wakingday. The loss of consistent symptomatic control from Levodopa is a major challenge for the long-term management of Parkinson’s disease. When Parkinson’sdisease patients experience “wearing off” between Levodopa doses, this short-duration response occurs in parallel to the drug’s peripheral PK profile.Therefore, with the evolution of these short-duration responses, improving the consistency in Levodopa’s plasma levels becomes the major factor forimproving symptom control. 53  Oral Levodopa formulations currently on the market do not provide satisfactory consistent Levodopa plasma levels. There are two major challenges tomaintaining consistency in Levodopa plasma levels: (i) the very short half-life of Levodopa (approximately 90 minutes) and (ii) the fact that Levodopa’sabsorption is confined to the upper part of the GI tract (i.e., it has an NAW). For drugs with an NAW, conventional controlled release formulations are limitedin providing long-acting performance, as once the drug has passed through the upper GI tract, it will no longer be absorbed. These factors result in high peak-to-trough ratios of Levodopa in the plasma, namely high variability of the concentration of the drug in the blood, rather than a consistent level beingmaintained, reducing the clinical benefits of Levodopa therapy. Providing stable Levodopa plasma levels is therefore a major unmet need for the long-termmanagement of Parkinson’s disease. Key opinion leaders interviewed by Datamonitor, a market research provider, summarized the unmet needs in Parkinson’s disease treatment to include,among others, greater efficacy in reducing motor complications, reducing side effects and reducing pill burden. Market. According to a 2015 report by Global Data, Parkinson’s disease is the second most common chronic progressive neurodegenerative disorder inthe elderly after Alzheimer’s disease, affecting 1%–2% of individuals worldwide over the age of 65. The EPDA estimated in 2007 that 6.3 million peopleworldwide suffer from Parkinson’s disease. According to a 2015 report by Global Data, the annual growth of Parkinson’s disease cases in individuals over theage of 65 from 2012 to 2022, in the Seven Major Markets plus Brazil, is estimated to be 3.28%. According to Global Data, in 2012 the market forpharmaceutical treatments for Parkinson’s disease was approximately $3.6 billion a year in the Seven Major Markets plus Brazil. Global Data estimates thatthe pharmaceutical market for Parkinson’s disease will reach $4.67 billion in the Seven Major Markets plus Brazil by 2022. 54  Our Solution — AP-CDLD AP-CDLD, our lead product candidate, is in development for the treatment of Parkinson’s disease symptoms. AP-CDLD is an Accordion Pill that containsthe generic drugs Carbidopa and Levodopa, which are currently approved for the treatment of Parkinson’s disease symptoms. We have successfullycompleted a Phase II clinical trial, and the FDA has permitted us to initiate a Phase III clinical trial of AP-CDLD. On May 5, 2015, we held an end of Phase IImeeting with the FDA, for which we have received the FDA’s memorandum of minutes, to discuss the clinical development program for AP-CDLD. We agreedwith the FDA on the remaining clinical development program for AP-CDLD for the treatment of Parkinson’s disease symptoms in advanced Parkinson’sdisease patients, including the main principles of the single required pivotal Phase III clinical trial in advanced Parkinson’s disease patients, and we amendedour clinical trial protocol to submit to the FDA for review. The protocol we submitted is as follows: •A multicenter, randomized, double-blind, double-dummy, parallel, active-controlled trial, comparing the efficacy and safety of AP-CDLD to SinemetIR, an immediate release CDLD, which is a conventional Levodopa medication for the treatment of Parkinson’s disease symptoms that is currentlyon the market. •Approximately 460 advanced Parkinson’s disease patients will be enrolled into the trial. •The total treatment period for each patient will be 25 weeks, composed of: ™ Six weeks open-label titration on Sinemet IR (all patients); ™ Six weeks open-label titration on two AP-CDLD strengths, given b.i.d. or t.i.d. (all patients); and ™ 13 weeks double-blind, double-dummy active comparator period, in which half of the patients will be randomized to AP-CDLD and half of thepatients will be randomized to Sinemet IR. •The primary efficacy endpoint will be a change from baseline to termination of treatment in the percent of daily off time during waking hours basedon Hauser home diaries. In addition, we will be required to submit evidence of the adequate safety experience of 100 patients receiving AP-CDLD for one year, with at least 50%receiving the highest proposed dose of AP-CDLD, as is required for drugs intended for long-term treatment of non-life-threatening conditions. We intend tocollect this safety data, fully or partially, from an open label extension of the Phase III study of AP-CDLD. We also agreed, at the FDA’s request, to conduct an additional bioavailability study to compare the PK between Sinemet IR and the to-be-marketedformulation of AP-CDLD because the formulation of AP-CDLD has changed from our previously completed comparative bioavailability study. We currentlyintend to conduct this study during 2016. The FDA also strongly suggested that we conduct additional dissolution testing and we anticipate doing so. See“— Current Regulatory Status of AP-CDLD.” In December 2015, we received a U.S. centralized IRB approval to initiate a Phase III clinical trial of AP-CDLD. We intend to begin recruiting patientsfor the trial in the first half of 2016. AP-CDLD is designed to provide a combination of immediate release and a continuous release of Levodopa, in the stomach, in proximity to itsabsorption site through our Accordion Pill. AP-CDLD is designed to provide stable Levodopa plasma therapeutic levels, resulting in reduced total off timewhile reducing or avoiding inducement of troublesome dyskinesia, or involuntary movements. The stable therapeutic levels of Levodopa in a patient’splasma provided by AP-CDLD are intended to significantly reduce the motor complications because the motor complications which are associated withLevodopa treatment are strongly correlated with the drug’s peripheral PK profile. More specifically, AP-CDLD is intended to reduce total off time while notincreasing, or even reducing, troublesome dyskinesia. We anticipate that AP-CDLD will be available in three dosages of Levodopa (250 mg, 400 mg and 500 mg), each provided in two release profiles(immediate release and controlled release), along with 50 mg of Carbidopa that is included in AP-CDLD. This array of dosages is designed to coverParkinson’s disease patients in various stages of the disease. AP-CDLD is designed to be taken b.i.d. and t.i.d. 55  AP-CDLD – Clinical Trials Phase II Clinical Trial Our Phase II clinical trial with AP-CDLD was a multi-center, open-label, randomized, crossover, active control trial that included five groups. Overall, 60patients completed the trial per protocol, in several medical centers in Israel. The Phase II clinical trial assessed safety, PK and pharmacodynamics/efficacy inpatients with various stages of Parkinson’s disease compared with their current Levodopa treatment. Each group of the clinical trial was deemed to initiateupon the first patient enrolling in a group and to be completed upon the conclusion of data analysis. The initiation and completion dates for groups 1, 3, 4, 5and 6 were August 2009 – December 2009, April 2010 – August 2010, December 2010 – July 2011, August 2011 – November 2011 and December 2011 –October 2012, respectively. The following table details the structure, design and purpose of the Phase II clinical trial: GroupNumber Trial Design Trial Purpose Population N (PP) Test Treatment TreatmentandDuration*Group 1 Open-label, multi-dose, multi-center, randomized 2-way crossovercomparative PK trial Early-stage PDpatients 12 AP-CDLD 50/250mg b.i.d for 7 daysGroup 2 This trial was originally planned in early non-fluctuators with a dose of 50/375 mg b.i.d. In light of the satisfactory PK results with50/250 mg b.i.d in this population, the higher dose was considered unnecessary and therefore the trial was not performed.Group 3 Open-label, multi-dose, multi-center, randomized 2-way crossovercomparative PK andPHDS trial Advanced PDpatients 10a AP-CDLD 50/375mg b.i.d for 7 daysGroup 4** Open-label, multi-dose, multi-center, randomized 2-way crossovercomparative PHDStrial Advanced PDpatients 16 AP-CDLD 50/375mg b.i.d for 21 daysGroup 5b** Open-label, multi-dose, multi-center, randomized 2-way crossovercomparative PHDStrial Advanced PDpatients 4 AP-CDLD 50/500mg b.i.d for 21 daysGroup 6** Open-label, multi-dose, multi-center, randomized 2-way crossovercomparative PHDStrial Advanced PDpatients 18 AP-CDLD 50/500mg b.i.d for 21 days aEight patients completed the PK trial.bGroup 5 was terminated early due to low enrollment.d = days; PP = Per Protocol; N = number of subjects; PD = Parkinson’s disease; PHDS = pharmacodynamics.*Not including add-on dosing of immediate release Carbidopa/Levodopa, if needed.** Compared against each patient’s optimized current Levodopa treatment. Pharmacokinetic Results Group 1 of our Phase II clinical trial with AP-CDLD was conducted with 12 male and female patients with non-fluctuating Parkinson’s disease. Thecrossover design included the following treatment arms: (i) AP-CDLD 50/250 mg administered b.i.d and (ii) immediate release CDLD 25/250 mgadministered by half tablet q.i.d, resulting in a total daily dosage of 50/500mg. The treatments were administered for six days, with the seventh dayconsisting of PK testing. On the PK day of the control period, patients were given an additional 50 mg of Carbidopa (12.5 mg q.i.d) to achieve therecommended daily 70 – 100 mg dose of Carbidopa. Immediately following the PK testing on day seven, the patients crossed over to the other treatment torepeat the seven day process. This study concluded that (i) the bioavailability of Levodopa when administered via AP-CDLD was similar to the immediaterelease reference; (ii) AP-CDLD provided more stable plasma levels of Levodopa, with reduced peak-to-trough ratio, when compared to the immediate releasereference; and (iii) AP-CDLD provided higher morning Levodopa plasma levels than the immediate release reference. 56  Group 3 of our Phase II clinical trial with AP-CDLD was conducted with ten male and female patients with advanced, fluctuating Parkinson’s disease, ofwhich eight completed the PK trial per protocol. The crossover design included the following treatment arms: in the AP-CDLD treatment arm, the AP-CDLD50/375 mg was administered b.i.d for six at home days of treatment with up to an additional three add-on immediate release Carbidopa/Levodopa, as needed,and on day seven, b.i.d administration of AP-CDLD 50/375 mg. In the control arm, the patient’s current treatments were administered for six at home daysand, on the seventh day, they were given immediate release Carbidopa/Levodopa 18.75/187.5 mg q.i.d, resulting in a total dosage of 75/750 mg. On theseventh day of each treatment regime, we conducted PK testing. Immediately following the PK testing on day seven, the patients were crossed over to theother treatment to repeat the seven day process. These trials concluded that (i) the PK of AP-CDLD demonstrated an efficient controlled-release profile, with significantly more stable Levodopa levels;(ii) the Levodopa absorption phase was increased more than six-fold versus the control treatment; (iii) the b.i.d administration of AP-CDLD provided dailycoverage of therapeutic Levodopa plasma levels; (iv) the peak-to-trough ratio in Levodopa plasma levels was half of those of the control; (v) the morning, orpre-first dose, Levodopa plasma levels of AP-CDLD, were significantly higher than the control; and (vi) Levodopa’s high bioavailability was preserved whenusing AP-CDLD. The following figure displays the concentrations of Levodopa in plasma of patients over time, comparing AP-CDLD [(pink)] to the reference treatment[(blue)]: AP-CDLD Phase II clinical trial — more stable Levodopa levels with statistically significant reducedpeak-to-trough fluctuations The PK results showed that peak to trough ratio, which measures the maximum average concentration relative to the minimum average concentration ofLD plasma levels, was reduced from 29.9 to 3.2 with the AP-CDLD. Cmax/Cmin with the AP-CDLD was 5.8. The average LD plasma levels during time 0-16hours was 1,038 ng/ml. 57  Pharmacodynamics Results The following figure sets forth the structure of the Phase II clinical trial for Groups 4 and 6: * Patient’s optimized CD/LD regimen. CD/LD = Carbidopa/Levodopa Groups 3, 4 and 6 of our Phase II clinical trial examined the pharmacodynamic effects of AP-CDLD. Each group assessed the effects in patients withadvanced Parkinson’s disease; ten, 16 and 18 patients completed the trials per protocol in Groups 3, 4 and 6, respectively. Groups 3 and 4 tested AP-CDLD inthe 50/375 mg strength, administered b.i.d. with additional CDLD immediate release tablets if needed; Group 6 tested the 50/500 mg strength administeredb.i.d. with additional CDLD immediate release tablets if needed. In these three trials, AP-CDLD was compared to the patients’ current Levodopa treatment(including a dopamine decarboxylase inhibitor, such as Carbidopa). All three groups were cross-over, with Group 3 receiving the treatments as describedabove and Groups 4 and 6 receiving each of their current treatment and AP-CDLD for 21 days, with the second tested treatment starting immediately aftercompletion of the first. In Groups 4 and 6, off time, on time and dyskinesia were assessed by patient-completed home diaries during days 18 through 20 ofeach arm. Because Levodopa is usually prescribed for long-term treatment, three weeks of treatment with AP-CDLD was sufficient to demonstrate statisticallysignificant improvements in the primary endpoint, as well as most of the secondary endpoints. The statistical significance of a result was captured by theassociated “p-value”, or the estimated probability that the observed effect was by chance. A “p-value” of less than 0.05 implied that there was less than a 5%probability that the observed effect was by chance, and was generally accepted as a statistically significant event. These studies demonstrated that (i) total offtime was decreased when taking AP-CDLD versus the control, by 44% and 45% in Groups 4 and 6, respectively (statistically significant p<0.0001); (ii)improvements in off time and on time without troublesome dyskinesia did not come at the expense of an increase of on time with troublesome dyskinesia,and, moreover, with the AP-CDLD 50/500 mg troublesome dyskinesia was decreased by 0.5 hours (statistically significant p = 0.002); (iii) the effect of AP-CDLD on total off time and on time with troublesome dyskinesia resulted in a total increase of “good” on time (i.e., without troublesome dyskinesia) of 2.1and 2.7 hours per day in Groups 4 and 6, respectively (statistically significant p<0.0001); (iv) the improvements in treating symptoms with AP-CDLD wereachieved with fewer daily doses; and (v) the improvements in treating symptoms with AP-CDLD correlate with stable Levodopa plasma levels throughout theday with appropriate therapeutic levels of the drug. The figure below reflects the mean total off time in hours over a 24 hour period during days 18 through 20 of Groups 4 and 6. The average total off timewas reduced by 1.9 hours and 2.3 hours with AP-CDLD 50/375 mg (Group 4) and 50/500 mg (Group 6), respectively. This reduction is statistically significant(p<0.0001). 58  AP-CDLD – Significant reduction of total off time compared to current Levodopa treatment The figure below reflects the mean total “good” on time (on time without troublesome dyskinesia) in hours over a 24 hour period during days 18 through20 of Groups 4 and 6. The average total “good” on time was increased by 2.1 hours and 2.7 hours with AP-CDLD 50/375 mg (Group 4) and 50/500 mg(Group 6), respectively. This reduction is statistically significant (p<0.0001). AP-CDLD – Increase of total “good” on time compared to current Levodopa treatment The figure below reflects the mean total on time with troublesome dyskinesia in hours over a 24 hour period during days 18 through 20 of Groups 4 and6. On time with troublesome dyskinesia was not changed and decreased by 0.5 hours (p = 0.002) with AP-CDLD 50/375 mg (Group 4) and 50/500 mg (Group6), respectively. 59  AP-CDLD – Reduction of total on time with dyskinesia compared to current Levodopa treatment Finally, the figure below displays the mean number of daily Levodopa administrations of the treatments in Groups 4 and 6. AP-CDLD –Number of daily Levodopa administrations compared to current Levodopa treatment *In the administration of the AP-CDLD arm, patients received b.i.d AP-CDLD pills and were allowed to take additional commerciallyavailable immediate release Carbidopa/Levodopa formulations, as add-ons when needed. As seen in the figure above, patients took, inaddition to the b.i.d AP-CDLD pills, one-and-a-half to two commercially available immediate-release Carbidopa/Levodopaformulations, in Groups 4 and 6, respectively. Demonstration of the clinical benefits of these peak to trough ratios will be further studied and confirmed in the Phase III clinical trial. 60  Phase I Clinical Trials We conducted four Phase I clinical trials - three to assess the PK profile of Levodopa when administered in several formulations and one to measure thegastric retention, or GR, time of our Accordion Pill without an active ingredient. The first PK trial was conducted with early formulations in 24 healthy volunteers to assess the PK profile of Levodopa when administered in thefollowing three forms: (i) in an Accordion Pill with a dosage of 75/300 mg; (ii) in the immediate release form currently on the market, Sinemet; and (iii) in thecontrolled release form currently on the market, Sinemet CR. This group underwent a partially randomized open trial compared with immediate releaseSinemet and controlled release Sinemet. The trial results indicated a significant prolongation of Levodopa’s mean residence time, or MRT, in the blood whenadministered with the Accordion Pill compared with the Sinemet and Sinemet CR. Furthermore, the study showed the level of Levodopa received with theAccordion Pill reached treatment-relevant levels. The second PK trial was conducted with early formulations in 23 healthy volunteers to assess the PK profile of Levodopa when administered in thefollowing two forms: (i) an Accordion Pill in two formulations, 75/300 mg and 50/200 mg; and (ii) in the currently marketed immediate release form,Sinemet. This was a randomized open trial, compared with immediate release Sinemet. The trial results indicated a very significant increase in the MRT ofLevodopa in the blood when administered with the Accordion Pill in both formulations, and a very significant prolongation of the absorption phase (up to 12hours) of Levodopa was demonstrated when administered with the Accordion Pill compared with Sinemet (two hours). The third PK trial was conducted with the AP-CDLD 50/500 mg Phase II formulation in 18 healthy volunteers to assess the PK profile of Levodopa whenadministered in the following two forms: (i) AP-CDLD 50/500 mg; and (ii) the currently marketed immediate release form, Sinemet. This was a randomizedopen trial, compared with immediate release Sinemet. The trial results indicated that the absorption phase of Levodopa was increased to approximately 10hours when administered with the Accordion Pill compared to approximately two hours with Sinemet. The GR Phase I clinical trial was a MRI study conducted with 17 Parkinson’s patients to measure the GR time of the Accordion Pill without an activepharmaceutical ingredient. This trial was a non-randomized open trial comparison of a few formulations. The results indicated that GR of over 13 hours canbe achieved in these patients using all three formulations. Safety AP-CDLD was tested for safety on Göttingen minipigs in accordance with the FDA’s guidelines. The study was 180 days and a subgroup of minipigswere kept for recovery for an additional 30 days without receiving any treatments. This study included the following four arms: AP-CDLD 50/400 mg threetimes daily, AP-CDLD 50/500 mg b.i.d, a Carbidopa/Levodopa reference (Sinemet) and a placebo. The study was completed in March 2014. The studyevaluated (i) animal wellbeing as represented by behavior, food consumption and weight, (ii) microscopic and macroscopic organ pathology, (iii) ophthalmicevaluation and (iv) electrocardiograms of the miniature pigs, which is the recording of the electrical activity of the heart. This study’s results form anadditional basis regarding the safety of AP-CDLD. In the Phase I and Phase II clinical trials, AP-CDLD was well-tolerated with no serious adverse events that were related to the study drug. Adverse eventswere generally mild in severity and resolved without intervention. The most common adverse events reported included nausea, vomiting, diarrhea,abdominal pain, chest pain and fatigue, which are known adverse events associated with Levodopa treatment. Current Regulatory Status of AP-CDLD On May 5, 2015, we held an end of Phase II meeting with the FDA, for which we have received the FDA’s memorandum of minutes, to discuss the clinicaldevelopment program for AP-CDLD. We agreed with the FDA on the remaining clinical development program for AP-CDLD for the treatment of Parkinson’sdisease symptoms in advanced Parkinson’s disease patients, including the main principles of the single required pivotal Phase III clinical trial in advancedParkinson’s disease patients, which is as follows: 61  •A multicenter, randomized, double-blind, double-dummy, parallel, active-controlled trial, comparing the efficacy and safety of AP-CDLD to SinemetIR, an immediate release CDLD, which is a conventional Levodopa medication for the treatment of Parkinson’s disease symptoms that is currentlyon the market. •Approximately 460 advanced Parkinson’s disease patients will be enrolled into the trial. •The total treatment period for each patient will be 25 weeks, composed of: ™Six weeks open-label titration on Sinemet IR (all patients); ™Six weeks open-label titration on two AP-CDLD strengths, given b.i.d. or t.i.d. (all patients); and ™13 weeks double-blind, double-dummy active comparator period, in which half of the patients will be randomized to AP-CDLD and half of thepatients will be randomized to Sinemet IR. •The primary efficacy endpoint will be a change from baseline to termination of treatment in the percent of daily off time during waking hours basedon Hauser home diaries. In addition, we will be required to submit evidence of the adequate safety experience of 100 patients receiving AP-CDLD for one year, with at least 50%receiving the highest proposed dose of AP-CDLD, as is required for drugs intended for long-term treatment of non-life-threatening conditions. We intend tocollect this safety data, fully or partially, from an open label extension of the Phase III study of AP-CDLD. A Data Safety Monitoring Board, or DSMB, has been selected for the Phase III clinical trial of AP-CDLD, as is commonly done in double blindmulticenter studies. The DSMB will periodically review the safety data of the trial and will specifically focus on the safety of AP-CDLD in the upper GI tract,including through gastric evaluations to be performed before and after the treatment period in the first 100 patients enrolled in the study. We also agreed, at the FDA’s request, to conduct an additional bioavailability study to compare the PK between Sinemet IR and the to-be-marketedformulation of AP-CDLD because the formulation of AP-CDLD has changed from our previously completed comparative bioavailability study. We currentlyintend to conduct this study during 2016. The FDA also strongly suggested that we conduct additional dissolution testing and we anticipate doing so. In December 2015, we received a U.S. centralized IRB approval to initiate a Phase III clinical trial for AP-CDLD. We intend to begin recruiting patientsfor the trial in the first half of 2016. According to our current plans, the Phase III clinical trial for AP-CDLD will be conducted in 130 sites in the U.S., Europeand Israel. AP–ZP for the Treatment of Insomnia Insomnia Insomnia is a condition characterized by difficulty falling asleep or maintaining sleep during the night. Chronic insomnia, or insomnia lasting more thanfour weeks, is often associated with a wide range of adverse conditions, including mood disturbances, difficulties with concentration and memory, and certaincardiovascular, pulmonary and GI disorders. Chronic sleep deprivation has also been associated with an increased risk of depression, diabetes and obesity,among other disorders. Historically, insomnia therapies have addressed sleep onset rather than sleep maintenance. Newer therapies have been approved withindications for sleep maintenance, although the ability of currently-available drugs to maintain sleep throughout the night without unwanted next-dayresidual effects remains limited. 62  Zaleplon, branded as Sonata, is a sedative (also called a hypnotic) approved for the treatment of insomnia. Zaleplon belongs to the nonbenzodiazepineshypnotic drug family, which is the most common type of class of drug used to treat insomnia. Zaleplon is known to induce the rapid and effective onset ofsleep and generally does not have the next-day residual effects, that are characteristic of many other drugs that are currently being marketed to treat insomnia.The lack of next-day effects is largely due to Zaleplon’s short half-life (approximately one hour), but, because of this short half-life, Zaleplon is cleared fromthe blood relatively rapidly and is generally not effective for maintaining sleep throughout the night. Thus, Zaleplon is currently not approved for a sleepmaintenance indication and Zaleplon is not recommended for chronic use in the elderly. Sonata has been off patent since June 2008. Market. Global Data estimates that, in 2013, there were approximately 140 million prevalent cases of chronic insomnia (including cases both fulfillingthe definition of chronic insomnia in the Diagnostic and Statistical Manual of Mental Disorders, Fourth Edition (DSM-IV), and not fulfilling the DSM-IVcriteria) in the Seven Major Markets. In 2015, Global Data estimated that the sleep disorder drug market in the Seven Major Markets will reach approximately$1.8 billion in 2023. Although there are currently numerous drugs available for the treatment of insomnia, according to members of our Scientific Advisory Team, such as Dr.Thomas Roth, none of the currently available drugs provides a comprehensive solution that (i) rapidly induces the onset of sleep within a short time afteradministration, (ii) maintains continuous sleep throughout the night and (iii) has no or minimal “next-day” residual side effects, such as drowsiness or“hangover.” According to Medscape from WebMD, in 2011 the Centers for Disease Control and Prevention estimated that drowsy driving contributes to anestimated 100,000 car accidents and approximately 1,500 deaths each year in the United States. The FDA’s policy with regard to insomnia drugs has been changed due to concerns regarding next day alertness and functionality. To date, the twoleading insomnia drugs that are indicated for both sleep induction and sleep maintenance are Zolpidem CR and Lunesta. In May 2013, the FDA announcedthat patients who take modified-release formulations of Zolpidem should refrain, for the day after using the drug, from driving or engaging in any activitythat requires full alertness, even if the patient has slept for the required eight-hour period after taking the drug. Further, in January 2014, the FDA ordered areduction of the recommended dosages of certain sleep drugs that contained Zolpidem by one half due to the decline in next day functionality and alertnessof people using such drugs. According to the FDA, Zolpidem was the most widely used drug in prescription sleep medications in 2011. In May 2014, theFDA ordered a reduction of the recommended starting dose of Lunesta (eszopiclone) to the minimum approved dose because eszopiclone levels in somepatients may be high enough the morning after use to impair activities that require alertness, including driving, even if the patients feel fully awake.Accordingly, we believe that, notwithstanding the expected minimal hangover effects of AP–ZP, the FDA will require the labeling for AP–ZP to carry a “nextday” warning. Our Solution – AP–ZP AP–ZP, our second product candidate, is intended to provide a comprehensive solution for the treatment of insomnia. AP–ZP is designed, using ourpatented Accordion Pill technology, to induce and maintain sleep and minimize “next-day” residual side effects. Due to the short half-life of Zaleplon,minimal hangover effects are expected, improving on certain leading currently marketed treatments. However, as noted below, the FDA will require thelabeling for AP–ZP to carry the required “next-day” warning relating to potential residual side effects, such as impairment of activities that require alertness.AP–ZP is an Accordion Pill that contains 25 mg to 35 mg of the generic drug Zaleplon, with combined immediate and controlled release profiles. Weachieved our primary endpoints in our Phase II clinical trial of AP–ZP, and in the third quarter of 2014 we had a Type C meeting with the FDA to discuss theclinical development pathway of AP–ZP. See “— Current Regulatory Status of AP–ZP.” 63  AP–ZP – Clinical Trials Proof of Concept and Phase II Clinical Trial A double-blind, three-way crossover, randomized, placebo-controlled proof of concept, or POC, study of AP–ZP was performed in two medical centers inIsrael, following which a separate double-blind, two-way crossover, randomized, placebo-controlled Phase II clinical trial of AP–ZP was conducted under anIND in five medical centers in the United States and in one medical center in Israel. The POC study was initiated in October 2010 and was completed inFebruary 2011. The Phase II clinical trial of AP–ZP was initiated in April 2011 and was completed in November 2011. Both studies assessed the efficacy,next day residual effects and safety in patients with primary insomnia, who experience difficulty both falling and staying asleep, comparing AP–ZP versus aplacebo. Both studies assessed efficacy by using polysomnography, or PSG, a multi-parametric objective test for studying sleep conducted at night. The nextday residual effect was assessed in both studies within one hour of waking using: Digital Symbol Substitution Test, or DSST, a neuropsychological test usedto evaluate cognitive condition by having the patient match provided symbols to digits as quickly as possible, Visual Analog Scale, or VAS, a questionnaireaimed at measuring the patient’s subjective impressions as to his or her cognitive condition, and memory testing. The POC study included ten patients with primary insomnia and tested two AP–ZP strengths. This study demonstrated a trend toward improved efficacyin reducing wake time after sleep onset, or WASO, with the high dose tested. Similar trends of improved efficacy were demonstrated in the latency topersistent sleep, or LPS, and total sleep time, or TST, with the same dose. No residual sedition was found by both DSST and VAS tests in both tested strengths. The Phase II clinical trial with AP–ZP assessed the efficacy and safety in 83 patients with primary insomnia, who experienced difficulty both falling andstaying asleep, comparing AP–ZP versus a placebo. This trial used PSG. The patients each participated in six nights of PSG (two nights for each of screening,test formulation and placebo) with four to seven days between each treatment. The primary endpoint was TST, measured by both PSG and patient reports,with secondary endpoints of (i) effectiveness of sleep induction, measured as LPS and (ii) sleep maintenance, measured as WASO and number of awakenings.Residual effects were evaluated within one hour of waking using the DSST, VAS and memory testing. Safety was also evaluated. The primary endpoint of increased TST was achieved in the Phase II clinical trial. TST measured by PSG for patients after receiving the test article was381 minutes, in comparison to 363.9 minutes for those same patients after receiving the placebo (statistically significant p =0.002). In addition, statisticallysignificant improvement of LPS was achieved in the Phase II clinical trial as the mean LPS for patients after receiving the test article was 31 minutes, incomparison to 45 minutes for those same patients after receiving the placebo (statistically significant (p<0.001). Thus, this trial revealed that when patientsreceived AP–ZP they tended to fall asleep faster and sleep longer when compared to the placebo. This trial, through both DSST and VAS, demonstrated animportant attribute of AP–ZP. AP–ZP did not show residual sedative effect when compared to a placebo. There were no clinically significant adverse eventsreported, and the drug was well-tolerated. The WASO for the entire night was similar between AP–ZP and the placebo; however, in a post hoc analysis, astatistically significant improvement of WASO in the first four hours of the night was demonstrated as WASO in the first four hours was 16.1 minutes forpatients after receiving the test article, in comparison to 26.3 minutes for those same patients after receiving the placebo (statistically significant (p<0.0001).In the post hoc analysis, gender differences were found in all efficacy tested parameters. The following table demonstrates that no residual sedition was found by both DSST and VAS with the AP–ZP as compared to the placebo: Least Square Means and Standard Errors AP–ZP Placebo Outcome Measure Mean StandardError Mean StandardError DSST 41.48 0.69 41.42 0.63 VAS 57.92 1.80 54.65 1.66 We believe that these results are important in light of the FDA’s growing concern related to next day effects of hypnotic drugs. 64  Phase I Clinical Trials We conducted four Phase I clinical trials of which three groups assessed the PK profile of Zaleplon when administered in several formulations, and oneassessed the effect of food on the overnight GR of the Accordion Pill when administered immediately, one-and-a-half, or three hours after dinner. The first trial was an open-label trial conducted with early formulations of AP–ZP in 16 healthy volunteers to compare the PK profile of Zaleplon in twoAP–ZP strengths to the currently marketed drug. The trial results indicated a significant increase in the mean MRT of Zaleplon in the plasma whenadministered with AP–ZP compared with the drug currently on the market. The second PK trial was an open-label trial conducted with AP–ZP Phase II formulations in 12 healthy volunteers to compare the PK profile of Zaleplonin two AP–ZP strengths to the currently marketed drug. The trial results showed that the PK profile was significantly better when the drug was administeredwith the Accordion Pill. The Accordion Pill maintained the rapid appearance of the drug in the blood and the drug blood concentration level was maintainedfor a significantly longer period compared with the preparation currently on the market. The third PK trial was a Phase I double-blind, crossover, randomized, four-armed trial with 32 healthy volunteers to assess the “next day effect” of twoadditional AP–ZP formulations. The four arms included: (i) Zopiclone, a nonbenzodiazepine hypnotic agent that is used in the treatment of insomnia and isnot commercially available in the United States, as a positive control, (ii) a placebo and (iii) two doses of AP–ZP. The trial revealed no difference in next-daycognitive side-effects between the AP–ZP groups and the placebo group; cognitive side effects were observed with the usage of the commercially availableZopiclone (the positive control). The GR trial was a MRI open-label trial conducted in 14 healthy volunteers to assess the effect of food on the overnight GR of the Accordion Pill whenadministered immediately, one-and-a-half, or three hours after dinner. The results showed that very good GR can also be achieved if Accordion Pill is takenone-and-a-half or three hours following dinner. Current Regulatory Status of AP–ZP Based on various communications with the FDA regarding the clinical development pathway of AP–ZP, including a recent Type C meeting, the FDA hasindicated that: •the duration of treatment for each patient in any Phase III clinical trial must be three months; •the Section 505(b)(2) pathway will be appropriate for the submission of the AP–ZP NDA; •we may be able to design the development plan of AP–ZP in a manner that would allow one single Phase III clinical trial in separate groups offemales (adults and elderly) and males (adults and elderly) may suffice for an NDA submission; •a driving safety study prior to the approval of AP–ZP will be required; •a three month safety non-clinical study will be required prior to the initiation of the Phase III clinical trial; and •a detailed Phase III protocol should be submitted to and approved by the FDA. We are currently seeking a potential strategic partner for further clinical development and commercialization of AP–ZP and our future developmentplans for AP–ZP will depend on the results of this process. Accordion Pill Baclofen We previously completed a Phase I clinical trial for an Accordion Pill using the drug Baclofen, which is indicated for the treatment of spasticity. Due tochanges in the projected market for Baclofen, we have no current plans to further develop or commercialize our Accordion Pill Baclofen. 65  Development of Accordion Pills with additional drugs We are continuously evaluating the possibilities of developing Accordion Pills with various additional specific drugs for its pipeline. In March 2016, wecompleted a Phase I clinical trial for our third pipeline product candidate which is being developed for the prevention and treatment of gastroduodenal andsmall bowel NSAID induced ulcers. Our Phase I clinical trial was a three arm, cross-over, single dose PK study, in 18 healthy volunteers. The trial comparedthe plasma levels of the drug when given with two different doses of the Accordion Pill with those of the current formulation of the existing drug. The PKresults demonstrated in the Phase I trial were within the well-defined safety levels of the drug, which enable us to proceed with further development of theAccordion Pill with the existing drug. Many drugs, such as proton pump inhibitors, are currently used to protect the stomach and duodenum from NSAID induced injuries, such as ulcers.Technological improvements in the detection of the small intestine have shown that injuries associated with NSAID usage also occur frequently in the smallintestine. Currently, there are no proven-effective therapies for these NSAID induced injuries in the small intestine. NSAIDs are widely used to manage the pain of osteoarthritis, rheumatoid arthritis and other painful conditions. The most common type of arthritis iscalled osteoarthritis, which is one of the most frequent causes of physical disability among adults. According to a 2010 report by the National Institutes ofHealth, it is estimated that by 2030, 20% of Americans, or approximately 70 million people, will be over 65 years old and at increased risk for osteoarthritis.The second most common form of arthritis is rheumatoid arthritis. According to a 2013 report by Global Data, it is estimated that by 2023, approximately 2million Americans over 18 years old will be diagnosed with rheumatoid arthritis. Manufacturing We are currently manufacturing the Accordion Pill in our production and packaging facility located in Har Hotzvim, in Jerusalem, Israel, in the samebuilding as our offices. This production and packaging facility granted the Certificate of GMP Compliance of Manufacturer from the Israeli Ministry ofHealth in April 2014. This certificate applies in Israel, as well as in the EU, in accordance with the Conformity Assessment and Acceptance of IndustrialProducts (CAA) agreement between the EU and Israel. The certificate is valid for two years as of the day it was issued. We have the capacity to manufacture the required quantities for our Phase III study of AP-CDLD. We completed installation a fully automated assemblyline in September 2015 that enables us to manufacture approximately two to three million capsules annually. We have not yet determined if we or one ormore of our future commercial partners will manufacture commercial quantities of our products. See “Risk Factors — Risks Related to Our Operations inIsrael.” We have received Israeli government grants for certain of our research and development activities. The terms of these grants may require us to satisfyspecified conditions in order to manufacture products and transfer technologies outside of Israel. We may be required to pay penalties in addition to therepayment of the grants. Such grants may be terminated or reduced in the future, which would increase our costs.” The FDA will likely condition granting any marketing approval, if any, on a satisfactory on-site inspection of our manufacturing facilities. See “RiskFactors — Risks Related to the Regulation of Our Company and its Business — Our product candidates are manufactured through a compounding, filmcasting and assembly process, and if we or one of our materials suppliers encounters problems manufacturing our products or raw materials, our businesscould suffer.” We anticipate that we will continue to produce our drug products for clinical trials and, we are evaluating several alternatives for the production of ourdrug products for commercialization. We are considering various possibilities for manufacturing, including, among others, outsourcing or licensing themanufacturing rights to third party manufacturers or business partners, or establishing a specially designed production plant in Israel to produce our drugproducts for commercialization. We may also pursue a combination of producing our own drug products, outsourcing and licensing. Establishing amanufacturing facility to produce commercial quantities of our products will require a substantial investment by any party intending to manufacture ourproducts. 66  Our manufacturing process consists of the following stages: compounding, which includes manufacturing of solutions and/or suspensions; film casting,which involves manufacturing of specific layers of films, including films containing the applicable drug; assembly and capsulation, which is processing andfolding the films into an accordion shape and capsulation; and packaging, which entails packaging the pills in plastic bottles or blister packs. Raw Materials and Supplies With the exception of three inactive ingredients, we believe the raw materials that we require to manufacture AP-CDLD and AP–ZP, as well as the rawmaterials that we require for our research and development operations relating to our products, are widely available from numerous suppliers and aregenerally considered to be generic pharmaceutical materials and supplies. Except as described below, we do not rely on a single supplier for the currentproduction of any product in our pipeline or for our research and development operations relating to our products. We usually contract with suppliers in Israel and worldwide to purchase the materials required for the research and development operations of ourproducts. All the materials required in the research and development operations of our products are off-the-shelf pharmaceutical products; special productionor special requirements are not required to order these materials. We have no written agreements with most of our suppliers. Rather, we submit purchase ordersto our suppliers from time to time and as required. Three of our inactive ingredients used in our products have only one supplier of each such ingredient. The three suppliers are each large, well-establishedsuppliers (BASF, the Dow Chemical Company and Evonik), and most of the pharmaceutical industry relies on these suppliers when they need to purchasecertain pharmaceutical products such as these inactive ingredients. To avoid a shortfall of these materials, we usually purchase sufficient material in advancefor a period of at least one year. The pharmaceutical industry usually relies on these three manufacturers as suppliers of specific materials. The prices of thesecommonly used raw materials are not volatile. Marketing and Sales We do not currently have any marketing or sales capabilities. We intend to license to, or enter into strategic alliances with, companies in thepharmaceutical business, which are equipped to market and/or sell our products, if any, through their well-developed marketing and distribution networks.We may establish marketing and/or sales forces in the future in addition to licensing arrangements or strategic alliances. Competition The pharmaceutical and drug delivery technologies industries are characterized by rapidly evolving technology, intense competition and a highly risky,costly and lengthy research and development process. Adequate protection of intellectual property, successful product development, adequate funding andretention of skilled, experienced and professional personnel are among the many factors critical to success in the pharmaceutical industry. Depomed, Inc. has several products on the market based on its GR technology. Several companies have reported the commencement of research projectsrelated to systems designed for GR including Teva Pharmaceutical Industries, Flamel Technologies S.A., Sun Pharma and others, all of which developproducts delivered orally that are designed for GR. We are not aware of any approved drug delivery system currently on the market that is similar to theAccordion Pill, nor are we aware of any product candidates that are similar to our Accordion Pill with respect to mechanism of action. Other drug delivery technologies, other drugs on the market, new drugs under development (including drugs that are in more advanced stages ofdevelopment in comparison to our product pipeline) and additional drugs that were originally intended for other purposes, but were found effective for theindications we target, may all be competitive to the current products in our pipeline. In fact, some of these drug delivery systems and drugs are well-established and accepted among patients and physicians in their respective markets, are orally bioavailable, can be efficiently produced and marketed, andare relatively safe and inexpensive. Moreover, other companies of various sizes engage in activities similar to ours, including large pharmaceuticalcompanies, such as Pfizer and Novartis, who have established in-house capabilities for the development of drug delivery technologies. Most, if not all, of ourcompetitors have substantially greater financial and other resources available to them. Competitors include companies with marketed products and/or anadvanced research and development pipeline. 67  Current Treatments on the Market and in Development for Parkinson’s Disease The current common treatments for Parkinson’s disease include Levodopa (usually used in conjunction with other drugs such as Carbidopa), which iscurrently the standard and most efficient Parkinson’s medication used, and dopamine agonists, such as bromocriptine, pergolide, pramipexole and ropinirole,as well as MAO inhibitors and COMT inhibitors. However, Levodopa therapy is associated with “wearing-off”, a condition in which a treatment’s effectsdiminish over time as the disease progresses, and dyskinesia, or involuntary disturbing movements. We believe our direct competition will only include other technologies designed to address the need for more stable Levodopa levels. As such, AP-CDLD will compete against other Levodopa-based Parkinson’s drugs that are already on the market, such as Sinemet, a combination of Levodopa andCarbidopa, which is sold by Merck, as well as generic Sinemet, which is sold by various generic manufacturers. In addition, other technologies and drugdelivery systems designed to address the Levodopa blood concentration problem currently exist. To our knowledge, based on publicly-filed documents,press releases and published studies, we believe the companies described below would be our primary competition with respect to AP-CDLD. Novartis and Orion combine Levodopa and Carbidopa with Comtan (entacapone), a drug that inhibits the clearance of Levodopa from the blood, therebyslowing the rapid drop in the Levodopa level in the blood. Additional drug candidates that are developed by Bial and Orion are based on the same approach.The combined sales of this product by Novartis and Orion in 2014 were approximately $457 million. Solvay Pharmaceuticals, which has been acquired by Abbott Laboratories, and assigned to AbbVie Inc., introduced a drug delivery system based onimplanting a tube in the duodenum area attached to an external pump that releases Levodopa formulation directly to the NAW. This product has beenapproved for marketing in the United States and Europe. The invasive nature of implanting a tube in patients, most of whom are elderly, as well as variousdifficulties related to the system, are certain disadvantages of this technology. Impax Laboratories has developed a product, RytaryTM, or IPX066, a continuous release Levodopa capsule formulation. The product was approved inJanuary 2015. XenoPort is developing a product, XP21279, based on the chemical modification of Levodopa to enable absorption along the entire GI tract. Accordingto its 2015 annual report, XenoPort plans to seek partners for the further development and potential commercialization of XP21279. Depomed, Inc. has a Phase II product candidate, DM-1992, for the treatment of motor symptoms associated with Parkinson’s disease. Depomedcompleted a Phase II study for DM-1992 and it announced a summary of the results of the Phase II study in November 2012. According to its 2014 annualreport, Depomed is continuing to evaluate partnering opportunities for DM-1992 and monitoring competitive developments. Civitas Therapeutics, Inc., which was acquired by Acorda Therapeutics, Inc. in September 2014, had a Phase IIb product candidate, CVT-301, a self-administered, adjunctive, as needed, inhaled oral Levodopa, for the ability to rapidly and predictably treat “off” episodes as they occur. In December 2014,Acorda announced the initiation of a Phase III clinical trial of CVT-301 in Parkinson’s disease. NeuroDerm Ltd. has multiple product candidates, including subcutaneous (ND0612H and ND0612L) and intra-duodenal (ND0680) administration forms,for the treatment of patients suffering from severities of Parkinson’s disease. These product candidates are currently in development, ranging from plannedbioequivalence trials (ND0680) to an ongoing Phase IIa trial (ND0612H and ND0612L) to completed Phase II clinical trials (ND0612L). In December 2015,NeuroDerm announced the start of patient enrollment in its Phase II Trial of ND0612H for Advanced Parkinson’s disease. In addition, NeuroDerm announcedthat it is planning to initiate a Phase III pivotal efficacy trial for its ND0612L treatment for patients with moderate to severe Parkinson’s disease as well as along-term safety follow-up study in the first half of 2016. 68  Other technologies for delivering Levodopa, such as through the skin (transdermal administration) using a patch, injections or inhalations, as well as newformulations and chemical modifications of Levodopa and/or complementary drugs, currently exist and might compete with AP-CDLD as well, but, to ourknowledge, these technologies, formulations and modifications have not yet been submitted for approval. Current Treatments for Insomnia There are numerous drugs in use for sleep disorders and the global market is currently controlled by drugs belonging to a group of substances thatactivate GABA receptors in the brain, a neurotransmitter found in the brain that is involved in sleep. These drugs include Ambien and Ambien CR fromSanofi, Zolpidem, the generic form of Ambien, zolpidem ER, the generic form of Ambien CR, Lunesta from Sepracor and Sonata from King Pharmaceuticals,which became the generic drug Zaleplon during 2008. We will also compete against other drugs commonly used for sleep disorders, including melatoninagonists such as Rozerem, several hypnotic benzodiazepines such as temazapam (Restoril) and flurazepam (Dalmane), sedating antidepressants such astrazodone (Desyrel), and orexin receptor antagonists such as suvorexant (Belsomra), a recently approved insomnia drug from Merck. Furthermore, several newdrugs are currently under development for treating insomnia. Based on a survey by Global Data, the following products are in Phase II and higherdevelopmental stages: SKP1041 (controlled-release Zaleplon) from Somnus, Piromelatine from Neurim and EVT-201 from Evotec. We are not aware of anymarketed product that does not contain the “next day” warning on its label. Government Regulation In the United States, the FDA regulates pharmaceuticals and biologics under the FDCA and the Public Health Service Act, or PHS Act, and theirimplementing regulations. These products are also subject to other federal, state, and local statutes and regulations, including federal and state consumerprotection laws, laws protecting the privacy of health-related information, and laws prohibiting unfair and deceptive acts and trade practices. The process required by the FDA before a new drug product may be marketed in the United States generally involves the following: completion ofextensive preclinical laboratory tests and preclinical animal studies, all performed in accordance with the FDA’s Good Laboratory Practice, or GLP,regulations; submission to the FDA of an IND which FDA must allow to become effective before human clinical trials may begin and must be updatedannually; performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the product candidate for each proposedindication; and submission to the FDA of an NDA for a drug, and BLA for biological product, after completion of all pivotal clinical trials. An IND is a request for authorization from the FDA to administer an investigational drug product to humans. We currently have effective INDs for two ofour potential products: AP-CDLD for the treatment of Parkinson’s disease symptoms and AP–ZP for the treatment of insomnia. Clinical trials involve the administration of the investigational drug to human subjects under the supervision of qualified investigators in accordancewith Current Good Clinical Practices, or cGCPs, which include the requirement that all research subjects provide their informed consent for their participationin any clinical trial. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND.Additionally, approval must also be obtained from each clinical trial site’s Institutional Review Board, or IRB, before the trials may be initiated, and the IRBmust monitor the trial until completed. There are also requirements governing the reporting of ongoing clinical trials and clinical trial results to publicregistries. Clinical trials are usually conducted in three phases. Phase I clinical trials are normally conducted in small groups of healthy volunteers to assess safetyand find the potential dosing range. After a safe dose has been established, the drug is administered to small populations of sick patients (Phase II) to look forinitial signs of efficacy in treating the targeted disease or condition and to continue to assess safety. Phase III clinical trials are usually multi-center, double-blind controlled trials in hundreds or even thousands of subjects at various sites to assess as fully as possible both the safety and effectiveness of the drug. 69  The FDA, the IRB, or the clinical trial sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that theresearch subjects are being exposed to an unacceptable health risk. Additionally, some clinical trials are overseen by an independent group of qualifiedexperts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This group reviews unblinded data from clinical trialsand provides authorization for whether or not a trial may move forward at designated check points. A DSMB may order a trial halted if it believes the dangersposed by the trial are unacceptable or the product is so effective as to make it unethical to administer placebos or alternate treatments to the non-treatmentarms. We may also suspend or terminate a clinical trial based on evolving business objectives and/or competitive climate. Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, detailed investigational drug productinformation is submitted to the FDA in the form of an NDA requesting approval to market the product for one or more indications. The application includesall relevant data available from pertinent preclinical and clinical trials, including negative or ambiguous results as well as positive findings, together withdetailed information relating to the product’s chemistry, manufacturing, controls and proposed labeling, among other things. Once the NDA submission has been accepted for filing, the FDA’s goal is to review applications within ten months of filing. However, the review processis often significantly extended by FDA requests for additional information or clarification. The FDA may refer the application to an advisory committee forreview, evaluation and recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisorycommittee, but it typically follows such recommendations. After the FDA evaluates the NDA and conducts inspections of manufacturing facilities where the drug product will be formulated and its drug will beproduced, it may issue an approval letter or, instead, a Complete Response Letter. An approval letter authorizes commercial marketing of the drug withspecific prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and theapplication is not ready for approval. A Complete Response Letter may require additional clinical data or an additional pivotal Phase III clinical trial(s), orother significant, expensive and time-consuming requirements related to clinical trials, preclinical studies or manufacturing, or any combination thereof.Even if such additional information is submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. The FDA could alsoapprove the NDA with restrictive indications, labeling that includes particular risk information, a risk evaluation and strategy to mitigate risks, which couldinclude medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and otherrisk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling, development of adequate controls andspecifications, or a commitment to conduct one or more post-market studies or clinical trials. Such post-market testing may include Phase IV clinical trialsand surveillance to further assess and monitor the product’s safety and effectiveness after commercialization. After regulatory approval of a drug product is obtained, we are required to comply with a number of post-approval requirements. As a holder of anapproved NDA, we would be required to report, among other things, certain adverse reactions and production problems to the FDA, to provide updated safetyand efficacy information, and to comply with requirements concerning advertising and promotional labeling for any of our products. Also, quality controland manufacturing procedures must continue to conform to cGMP after approval to ensure and preserve the long term stability of the drug product. The FDAperiodically inspects manufacturing facilities to assess compliance with cGMP, which imposes extensive procedural, substantive, and record keepingrequirements. In addition, changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require priorFDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting anddocumentation requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers must continue to expendtime, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance. 70  We produce, and expect to continue to produce, the quantities of our product candidates required for our clinical trials, and we do not yet have a need toproduce our product candidates for commercial purposes. Future FDA and state inspections may identify compliance issues at our facilities or at the facilitiesof our contract manufacturers or licensees that may disrupt production or distribution, or require substantial resources to correct. In addition, discovery ofpreviously unknown problems with a product or the failure to comply with applicable requirements may result in restrictions on a product, manufacturer orholder of an approved NDA, including withdrawal or recall of the product from the market or other voluntary withdrawal of the product’s approval, seizure, orFDA-initiated judicial action that could delay or prohibit further marketing. Newly discovered or developed safety or effectiveness data may require changesto a product’s approved labeling, including the addition of new warnings and contraindications, and also may require the implementation of other riskmanagement measures. Also, new government requirements, including those resulting from new legislation, may be established, or the FDA’s policies maychange, which could delay or prevent regulatory approval of our products under development. In addition, as the NDA holder, we are responsible for legal and regulatory compliance for advertising and promotion of the drug product. We arerequired to provide to the FDA copies of all drug promotion at the time of first use, and to ensure that all information disseminated conforms to the product’sapproved labeling and other FDA regulations and policies. 505(b)(2) Applications We intend to submit NDAs for our proposed products, assuming that the clinical data justify submission, under Section 505(b)(2) of the FDCA, andassuming the FDA agrees with our assessment that a given proposed product qualifies for review under that section. If the FDA disagrees with that assessmentor revises its decision at a later date, we would be compelled to file under section 505(b)(1), which is the normal route used for traditional new drugs wherethe data relied upon for the NDA filing have been developed by the sponsor during its clinical trials. In contrast, Section 505(b)(2) permits the filing of anNDA when at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant hasnot obtained a right of reference. The applicant may rely on published literature and the FDA’s findings of safety and effectiveness based on certain pre-clinical or clinical studies conducted for an approved product. The FDA may also require companies to perform additional studies or measurements tosupport the change from the approved product. The FDA may then approve the new product candidate for all or some of the label indications for which thereferenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant. The abbreviated Section 505(b)(2)approval pathway increases the likelihood that the timeframe and costs associated with commercializing products will be lower than under a typical Section505(b)(1) approval pathway. Upon approval of an NDA or a supplement thereto, NDA sponsors are required to list with the FDA each patent with claims that cover the applicant’sproduct or an approved method of using the product. Each of the patents listed by the NDA sponsor is published in the Orange Book, which is an FDAresource listing approved drug products with therapeutic equivalence evaluations. When an Abbreviated New Drug Application, or ANDA, applicant files itsapplication with the FDA, the applicant is required to certify to the FDA concerning any patents listed for the reference product in the Orange Book, exceptfor patents covering methods of use for which the ANDA applicant is not seeking approval. To the extent that the Section 505(b)(2) applicant is relying onstudies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product inthe Orange Book to the same extent that an ANDA applicant would. Specifically, the applicant must certify with respect to each patent that: •the required patent information has not been filed; •the listed patent has expired; •the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or •the listed patent is invalid, unenforceable or will not be infringed by the new product. 71  A certification that the new product will not infringe the already approved product’s listed patents or that such patents are invalid or unenforceable iscalled a Paragraph IV certification. If the applicant does not challenge the listed patents or indicates that it is not seeking approval of a patented method ofuse, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired. If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to theNDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringementlawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days after the receipt of a ParagraphIV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months after the receipt of the Paragraph IV notice,expiration of the patent, or a decision in the infringement case that is favorable to the ANDA applicant. This same procedure that applied to an ANDAapplicant also applies to an NDA applicant under Section 505(b)(2). Patent Term Restoration and Extension A patent claiming a new drug product may be eligible for a limited patent term extension under the Hatch-Waxman Act, which permits a patentrestoration of up to five years for the patent term lost during product development and the FDA regulatory review. The restoration period granted is typicallyone-half the time between the effective date of an IND and the submission date of an NDA, plus the time between the submission date of an NDA and theultimate approval date. Patent term restoration cannot be used to extend the remaining term of a patent past a total of 14 years from the product’s approvaldate. Only one patent applicable to an approved drug product is eligible for the extension, and the application for the extension must be submitted prior tothe expiration of the patent in question. A patent that covers multiple drugs for which approval is sought can only be extended in connection with one of theapprovals. The USPTO reviews and approves the application for any patent term extension or restoration in consultation with the FDA. Marketing Exclusivity A Section 505(b)(2) NDA applicant may be eligible for its own regulatory exclusivity period, such as three-year exclusivity. A Section 505(b)(2) NDAapplicant for a particular condition of approval, or change to a marketed product, such as a new extended release formulation for a previously approvedproduct, may be granted a three-year market exclusivity if one or more clinical studies, other than bioavailability or bioequivalence studies, were essential tothe approval of the application and were conducted or sponsored by the applicant. Should this occur, the FDA would be precluded from approving any otherapplication for the same new condition of use or for a change to the drug product that was granted exclusivity until after that three-year exclusivity periodhas run. Additional exclusivities may also apply. Other U.S. Healthcare Laws and Compliance Requirements For products distributed in the United States, we will also be subject to additional healthcare regulation and enforcement by the federal government andthe states in which we conduct our business. 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 under federal healthcare programs such as Medicare and Medicaid. •The federal Anti-Inducement Act which prohibits persons from offering remuneration beneficiaries to induce them to use a particular item or servicepayable in whole or in part by Medicare or Medicaid. 72  •The Ethics in Patient Referrals Act of 1989, commonly referred to as the Stark Law, and its corresponding regulations, prohibit physicians fromreferring patients for designated health services (including outpatient drugs) reimbursed under the Medicare or Medicaid programs to entities withwhich the physicians or their family members have a financial relationship or an ownership interest, subject to narrow regulatory exceptions, andprohibits those entities from submitting claims to Medicare or Medicaid for payment of items or services provided to a referred beneficiary. •The federal False Claims Act imposes criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entitiesfor knowingly presenting, or causing to be presented, to the federal government claims for payment that are false or fraudulent or making a falsestatement to avoid, decrease, or conceal an obligation to pay money to the federal government. •HIPAA imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also imposes obligations,including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable healthinformation. •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. •Analogous state laws and regulations, such as state anti-kickback and false claims laws, apply to sales or marketing arrangements and claimsinvolving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, and some state laws requirepharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidancepromulgated by the federal government. •A PPACA provision, generally referred to as the Physician Payment Sunshine Act or Open Payments Program, imposes reporting and disclosurerequirements for applicable drug and device manufacturers of covered products with regard to payments or other transfers of value made tophysicians, dentists and teaching hospitals, and certain investment/ownership interests held by physicians in the reporting entity. These disclosuresare publicly available. Efforts to ensure that our business arrangements with third parties comply with applicable healthcare laws and regulations could be costly. Although webelieve our business practices are structured to be compliant with applicable laws, it is possible that governmental authorities will conclude that our businesspractices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws andregulations. If our past or present operations, including activities conducted by our sales team or agents, are found to be in violation of any of these laws orany other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines,exclusion from third party payor programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians,providers or entities with whom we do business are found to be not in compliance with applicable laws, they may be subject to criminal, civil oradministrative sanctions, including exclusion from government funded healthcare programs. Many aspects of these laws have not been definitively interpreted by the regulatory authorities or the courts, and their provisions are open to a variety ofsubjective interpretations which increases the risk of potential violations. In addition, these laws and their interpretations are subject to change. Any actionagainst us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses, divert our management’sattention from the operation of our business, and damage our reputation. In addition, from time to time in the future, we may become subject to additional laws or regulations administered by the FTC, or by other federal, state,local or foreign regulatory authorities, to the repeal of laws or regulations that we generally consider favorable or to more stringent interpretations of currentlaws or regulations. We are not able to predict the nature of such future laws, regulations, repeals or interpretations, and we cannot predict what effectadditional governmental regulation, if and when it occurs, would have on our business in the future. Such developments could, however, requirereformulation of certain products to meet new standards, recalls or discontinuance of certain products not able to be reformulated, additional record-keepingrequirements, increased documentation of the properties of certain products, additional or different labeling, additional scientific substantiation, additionalpersonnel or other new requirements. Any such developments could have a material adverse effect on our business. 73  The growth and demand for eCommerce could result in more stringent consumer protection laws that impose additional compliance burdens on onlineretailers. These consumer protection laws could result in substantial compliance costs and could interfere with the conduct of our business. There is currently great uncertainty in many states whether or how existing laws governing issues such as property ownership, sales and other taxes, andlibel and personal privacy apply to the Internet and commercial online retailers. These issues may take years to resolve. For example, tax authorities in anumber of states, as well as a Congressional advisory commission, are currently reviewing the appropriate tax treatment of companies engaged in onlinecommerce and new state tax regulations may subject us to additional state sales and income taxes. New legislation or regulation, the application of laws andregulations from jurisdictions whose laws do not currently apply to our business, or a change in application of existing laws and regulations to the Internetand commercial online services could result in significant additional taxes on our business. These taxes could have an adverse effect on our results ofoperations. Intellectual Property Our success depends, at least in part, on our ability to protect our proprietary technology and intellectual property, and to operate without infringing orviolating the proprietary rights of others. We rely on a combination of patent, trademark, trade secret and copyright laws, know-how, intellectual propertylicenses and other contractual rights (including confidentiality and invention assignment agreements) to protect our proprietary technology and intellectualproperty, including related intellectual property rights. Patents As of December 31, 2015, we own or exclusively license three families of patents to use within our field of business that are registered in variouscountries, including in the United States, Israel, Australia, Canada, South Africa, France, Germany, Spain, Switzerland, Ireland, the United Kingdom and othercountries. We have also filed patent applications with respect to eight additional patent families in various countries, four of which have active pendingapplications that have yet to be approved. Our patents and patent applications generally relate to gastroretentive delivery devices for oral intake of agentsand the integration of drugs into our delivery systems and their production, and are expected to expire at various dates between 2020 and 2029. We also relyon trade secrets to protect certain aspects of our technology. The following discussion describes certain of what we consider to be our material patents andpatent applications. IN-1 and Yissum License Agreement At present, among other patents, we consider our patent family that we exclusively license from Yissum (i.e., Gastroretentive Controlled ReleasePharmaceutical Dosage Forms) pursuant to the license agreement described below, or the License Agreement, and which we refer to as IN-1, to be material tothe operation of our business. This patent covers the gastroretentive controlled release of an active ingredient in the GI tract. This patent does not cover theimplementation of the accordion technology with respect to any particular drug or in a manner that is readily manufactured commercially, but it broadlycovers folded forms, and forms the foundation for the accordion technology in its most basic form. The system is intended mainly for drugs with an NAW,drugs that act locally in the digestive system and drugs whose active receptors are in the upper part of the GI tract. The system is intended for clinical use inhumans and in animals. The patent is issued in the United States, Israel, Japan Australia, Canada, South Africa, the United Kingdom and six other Europeancountries, and expires in 2020. 74  In the License Agreement, Yissum granted us an exclusive license for developing, manufacturing and marketing of products based, directly or indirectly,on the IN-1 patent, the know-how and research results defined therein. Under the provisions of the License Agreement, as amended, Yissum may not transferits rights in the patent without our prior written consent. In consideration of the license, we have undertaken to pay Yissum royalties equaling 3% of the totalnet revenues from the sale of products based on Yissum’s patent and royalties equal to 15% of any payment or benefit whatsoever received by us from anysublicensee. At the current time we have not commenced sales and have not granted any sublicenses to any third parties. The parties to the LicenseAgreement are entitled to terminate the agreement in case of bankruptcy or receivership of the other party, or a material breach (including in respect of anypayment obligations) that is not cured within 30 days. The License Agreement will remain in effect until the later of the expiration date of the patent or 15years from the first commercial sale on the basis of the license. We have the right to assign our rights in the License Agreement with the prior consent ofYissum, not to be unreasonably withheld, and we are entitled to grant sublicenses under the licensed IP to third parties in our sole discretion, and anysublicensee(s) thereunder will not be required to assume any undertaking towards Yissum. In January 2008, we signed an addendum to the License Agreement to conduct an additional joint development and study regarding a technology,different from the Accordion Pill, for the GR of a drug. This addendum provides that the intellectual property rights produced as a result of the jointdevelopment and study will be jointly owned and we are entitled to receive a license for Yissum’s share in these rights in return for payment of royalties. Onepatent application has been filed by Yissum and us as a result of the development related to that joint project, but this patent application was abandoned. IN-3 An additional patent family (i.e., Method and Apparatus for Forming Delivery Devices for Oral Intake of an Agent), which we refer to as IN-3, coversvarious methods for making and folding the gastroretentive drug delivery system, and for folding it in an accordion configuration allowing its integrationinto an ordinary oral capsule. The IN-3 family patents, which expire in 2027, except for the first United States patent of this family, which expires in 2028,allow the Accordion Pill to be manufactured in mass quantities and therefore to be more readily commercialized. We consider our licensed proprietaryprocess for folding and cutting the films forming the drug delivery system for integration in an accordion-like configuration into an ordinary oral capsule tobe material to our business. We have three granted patents in the U.S. and an additional pending patent application in connection with IN-3, as well asgranted patents in Israel, Europe and Japan. Importantly, the second IN-3 patent granted in the U.S. covers a specific embodiment of the Accordion Pill,particularly suitable for insoluble or poorly soluble drugs. Similar divisional applications have been filed in other countries and patents for this have alreadybeen granted in Israel and Japan. IN-7 and IN-8 Two additional patents families (i.e., Accordion Pill with Levodopa and Zaleplon as the active ingredient, respectively) that we consider material to ourbusiness, which we refer to as IN-7 and IN-8, respectively, relate to the integration of specific drugs into Accordion Pill products. The accordion technologycovered by our other patents cannot be applied in an obvious manner to any given drug that might benefit from prolonged gastroretentive release. This isbecause the layer structure of an Accordion Pill must be varied and specially designed by reference to factors that are unique to any given drug andindication, such as the quantity of active ingredient desired to be released, the length of time for which the release is indicated, the relative solubility of theparticular drug molecule, and other factors. IN-7 and IN-8 relate to applications to protect the specific integration of Levodopa and Zaleplon, respectively,into an Accordion Pill. The IN-7 patent family relates to the Accordion Pill dosage form, the main feature of which is the uniform inner drug-containing layer,which allows for, but does not require, high load of the drug, while maintaining the requisite structural or mechanical strength of the Accordion Pill. Thesetwo patent applications were each filed in the United States, the European Patent Office, Japan and several other countries in April 2009. We have threegranted U.S. patents for an Accordion Pill with Carbidopa/Levodopa as the active ingredient(s) (IN-7), which are in force until April 17, 2029, andapplications for this patent in Israel and in South Korea have been allowed. An additional family of our patent applications that is related to IN-7, which we refer to as IN-11, seeks protection for the formulation of an AccordionPill containing Levodopa that is specifically formulated for Parkinson’s disease in a specific treatment regimen. We filed the IN-11 patent application in theUnited States, Canada, EPO, India and Israel. Any granted patent of IN-11 will expire in November 2031. 75  Patent applications with respect to IN-8 are still pending in some countries. European, Israeli and Chinese patents for IN-8 were granted. General We intend to submit patent applications for each Accordion Pill and drug combination that we develop. The patent outlook for companies like ours isgenerally uncertain and may involve complex legal and factual questions. Our ability to maintain and consolidate our proprietary position for ourtechnology will depend on our success in obtaining effective claims and enforcing those claims once granted. We do not know whether any of our patentapplications or any patent applications that we license will result in the issuance of any patents. Our issued patents and those that may be issued in the future,or patents that we exclusively license, may be challenged, narrowed, circumvented or found to be invalid or unenforceable, which could limit our ability tostop competitors from marketing related products or the length of term of patent protection that we may have for our products. We cannot be certain that wewere the first to invent the inventions claimed in our owned patents or patent applications, or that Yissum was the first to invent the invention claimed in thepatent that we exclusively license from Yissum. In addition, our competitors may independently develop similar technologies or duplicate any technologydeveloped by us, and the rights granted under any issued patents may not provide us with any meaningful competitive advantages against these competitors.Furthermore, because of the extensive time required for development, testing and regulatory review of a potential product, it is possible that, before any ofour products can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby reducingany advantage of the patent. Trademarks We rely on trade names, trademarks and service marks to protect our name brands. Our registered trademarks are registered in Israel and includeRETACCORD and ACCORDION PILL. We are in the process of registering the ACCORDION PILL trademark in the United States and Europe. Trade Secrets and Confidential Information In addition to patents, we rely on trade secrets and know-how to develop and maintain our competitive position. Trade secrets and know-how can bedifficult to protect. We rely on, among other things, confidentiality and invention assignment agreements to protect our proprietary know-how and otherintellectual property that may not be patentable, or that we believe is best protected by means that do not require public disclosure. For example, we requireour employees to execute confidentiality agreements in connection with their employment relationships with us, and to disclose and assign to us inventionsconceived in connection with their services to us. However, there can be no assurance that these agreements will be enforceable or that they will provide uswith adequate protection. We also seek to preserve the integrity and confidentiality of our data, trade secrets and know-how by maintaining physical securityof our premises and physical and electronic security of our information technology systems. We may be unable to obtain, maintain and protect the intellectual property rights necessary to conduct our business, and may be subject to claims thatwe infringe or otherwise violate the intellectual property rights of others, which could materially harm our business. For a more comprehensive summary ofthe risks related to our intellectual property, see “Risk Factors — Risks Related to Our Intellectual Property.” Properties Our principal executive offices are located in Har Hotzvim at 12 Hartom Street, Jerusalem, Israel 9777512. The space is in a commercial office buildingand houses our office space of approximately 900 square meters, manufacturing facility for our clinical trials of approximately 670 square meters, whichincludes production, packaging, warehousing and logistics areas, and our laboratory facilities of approximately 200 square meters. The manufacturing and laboratory facilities are fully equipped for manufacturing and testing of the required quantities for Phase III clinical trials,including, mixers, casting equipment, laminating equipment, capsulating equipment and analytical equipment such as High Pressure/Performance LiquidChromatography and dissolution testers. These facilities are cGMP compliant and approved by Israeli and European regulatory authorities and qualified forPhase III manufacturing. 76  We lease this space, which presently consists of a total area of approximately 1,770 square meters, from an unaffiliated third party, pursuant to a leaseagreement which, as amended, expires June 30, 2018. Pursuant to the lease, as amended, our annual rental costs for 2015 were NIS 1.7 million (excludingVAT) and our expected rental costs for 2016 are approximately NIS 1.75 million (excluding VAT). Although we will continue to produce product candidates ourselves for use in clinical trials, we are currently evaluating several alternatives for theproduction of our drug products for commercialization, including the possibility of establishing our own production plant, outsourcing or licensing themanufacturing rights to third-party manufacturers. However, at this time, no decision has been made regarding the location or method of production of ourdrug products for commercialization. We believe this existing property is sufficient for our needs in the foreseeable future and that we have the ability torenew our lease at market terms and expand if required. Insurance We have obtained directors’ and officers’ liability insurance with maximum coverage of $40 million in the aggregate for the benefit of our office holdersand directors, effective upon the closing of our initial public offering in the United States. Such directors’ and officers’ liability insurance contains certainstandard exclusions. We also maintain insurance for our premises for a maximum of NIS 38.0 million, including coverage of equipment and lease improvements against riskof loss (fire, natural hazard and allied perils, excluding damage from theft - hereinafter “named perils”) and business interruption insurance coverage causedby named perils out of which up to NIS 17.0 million for fixed cost and up to NIS 35.0 million for expenses related to our Phase III clinical trial for AP-CDLD.In addition, we maintain the following insurance: employer liability with coverage of NIS 20.0 million; third-party liability with coverage of NIS 20.0million; and all risk coverage for machinery breakdown of our casting machine of approximately NIS 5.0 million. We also procure additional insurance for each specific clinical trial which covers a certain number of trial participants and which varies based on theparticular clinical trial. Certain of such policies are based on the Declaration of Helsinki, which is a set of ethical principles regarding human experimentationdeveloped for the medical community by the World Medical Association, and certain protocols of the Israeli Ministry of Health. We believe our insurance policies are adequate and customary for a business of our kind. However, because of the nature of our business, we cannotassure you that we will be able to maintain insurance on a commercially reasonable basis or at all, or that any future claims will not exceed our insurancecoverage. Research Grants Grants under the Israeli Encouragement of Industrial and Development Law Under the Encouragement of Industrial and Development Law, 5744-1984, or the Research Law, research and development programs which meetspecified criteria and are approved by a committee of the OCS are eligible for grants. The grants awarded are typically for up to 50% of the project’sexpenditures, as determined by the research committee. The grantee is required to pay royalties to the State of Israel on income generated from the sale ofproducts (and related services associated with such products), whether received by the grantee or any affiliated entity (as defined in the Royalty Regulations),developed, in whole or in part, within the framework of an OCS-funded project or deriving therefrom. In accordance with the provisions of theEncouragement of Industrial Research and Development Regulations (Royalty Rates and Rules for Payment), 5756-1996, or the Royalty Regulations,royalties are paid beginning from the date of the sale of the first product developed according to an OCS-funded project at rates between 3% to 6% (thoughtypically not greater than 4.5%) of sales of the product, depending on the situation and applicable criteria, and are payable until the repayment of the fullamount of the total OCS funding, linked to the U.S. Dollar, and accrued interest (LIBOR), or in certain cases, payable up to the increased royalty cap. Theterms of the Israeli government participation also require that products developed using government grants be manufactured in Israel and that the technologydeveloped thereunder may not be transferred outside of Israel, unless approval is received from the OCS (such approval is not required for the transfer of aportion of the manufacturing capacity which does not exceed, in the aggregate, 10% of the portion declared to be manufactured abroad in the applications forfunding, in which case only notification is required) and additional payments are made to the State of Israel. However, this does not restrict the export ofproducts that incorporate the funded technology. See “Risk Factors — Risks Related to Our Operations in Israel” for additional information. 77  From January 1, 2009 through December 31, 2015, we received approximately NIS 32.6 million in grants from the OCS to support our research anddevelopment programs. In May and June 2015, the OCS approved a grant of up to NIS 9.1 million with respect to a follow-up program for the clinicaldevelopment of the Accordion Pill for the period from January 1, 2015 through December 31, 2015. In October 2015, we submitted to the OCS a changerequest for the 2015 program and, consequently, the support grant was reduced to NIS 8 million. As of the date of this annual report, we have receivedapproximately NIS 5.2 million of the 2015 grant. In December 2015, we submitted to the OCS a follow-up program for the clinical development of theAccordion Pill for the period from January 1, 2016 through December 31, 2016. Environmental Matters We are subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewaterdischarges, noise emissions, the use, management and disposal of hazardous materials and wastes and the cleanup of contaminated sites. In addition, all ofour laboratory personnel participate in instruction on the proper handling of chemicals, including hazardous substances before commencing employment,and during the course of their employment with us. In addition, all information with respect to any chemical substance that we use is filed and stored as aMaterial Safety Data Sheet, as required by applicable environmental regulations. Based on information currently available to us, we do not expectenvironmental costs and contingencies to have a material adverse effect on us. The operation of our facilities, however, entails risks in these areas. Significantexpenditures could be required in the future if we are required to comply with new or more stringent environmental or health and safety laws, regulations orrequirements. We hold a business license from the Jerusalem Municipality with respect to manufacturing pharmaceutical products at 12 Hartom Street, Har Hotzvim inJerusalem. The license is valid until December 31, 2017. The business license was granted after an inspection of our raw materials inventory, which we arepermitted to maintain in our facilities and warehouses located at 12 Hartom Street. We also hold a toxic substance permit from July 14, 2015, which is validuntil July 29, 2018. On December 15, 2015, following our discussions with the Ministry of Environmental Protection to relax certain restrictions included in our businesslicense, including, among others, to remove certain conditions the compliance with which is not feasible in the premises in which our facility is located, ourbusiness license was updated with additional terms which match our current activity. We believe our business, operations and facilities are being operated in compliance in all material respects with applicable environmental and health andsafety laws and regulations. Legal Proceedings From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation issubject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. There are currently nopending material legal proceedings, and we are currently not aware of any legal proceedings or claims against us or our property that we believe will haveany significant effect on our business, financial position or operating results. None of our officers or directors is a party against us in any legal proceeding. ITEM 4A. Unresolved Staff Comments. Not applicable. 78  ITEM 5. Operating and Financial Review and Prospects. You should read the following discussion along with our financial statements and the related notes included in this annual report. The followingdiscussion contains forward-looking statements that are subject to risks, uncertainties and assumptions, including those discussed under “Risk Factors.”U.S. dollar amounts herein have been translated for the convenience of the reader from the original NIS amounts at the representative rate of exchange asof December 31, 2015 (NIS 3.902 = $1.00). Our actual results, performance and achievements may differ materially from those expressed in, or implied by,these forward-looking statements. See “Special Note About Forward-Looking Statements.” We have prepared our financial statements in accordance withIFRS, as issued by the IASB. Overview We are a clinical stage biopharmaceutical company focused on developing drugs based on our proprietary Accordion Pill platform technology, which werefer to as the Accordion Pill. Our Accordion Pill is an oral drug delivery system that is designed to improve the efficacy and safety of existing drugs anddrugs in development by utilizing an efficient gastric retention, or GR, and specific release mechanism. Our product pipeline currently includes three productcandidates in clinical trial stages. Our leading product candidate, Accordion Pill Carbidopa/Levodopa, or AP-CDLD, is being developed for the indication oftreatment of Parkinson’s disease symptoms in advanced Parkinson’s disease patients. We have successfully completed a Phase II clinical trial for AP-CDLDfor the treatment of Parkinson’s disease symptoms in advanced Parkinson’s disease patients and have agreed with the U.S. Food and Drug Administration, orthe FDA, on the remaining clinical development program for AP-CDLD for the treatment of Parkinson’s disease symptoms in advanced Parkinson’s diseasepatients, including the main principles of the single required pivotal Phase III clinical trial in advanced Parkinson’s disease patients. See “Business —Current Regulatory Status of AP-CDLD.” In December 2015, we received a centralized U.S. IRB approval to initiate a Phase III clinical trial for AP-CDLD.See “Business — Current Regulatory Status of AP-CDLD.” Our second product candidate, Accordion Pill Zaleplon, or AP–ZP, is being developed for theindication of treatment of insomnia, including sleep induction and the improvement of sleep maintenance. We have successfully completed a Phase IIclinical trial for AP–ZP for the treatment of insomnia under an Investigational New Drug, or IND, application that we submitted to the FDA on August 4, 2009for AP–ZP as a treatment for the induction and maintenance of sleep in patients suffering from insomnia. In our correspondence with the FDA, the FDApreviously agreed that an acceptable regulatory pathway for each of AP-CDLD and AP–ZP would be to file a new drug application, or NDA, pursuant toSection 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, or FDCA. See “Business — Government Regulation — 505(b)(2) Applications.” The FDA hasindicated in written correspondence to us that we may be able to design the development program for AP–ZP in a manner that would allow us to obtainsufficient data for the NDA submission for AP-ZP in one pivotal Phase III clinical trial. However, at this point in the development process of AP-ZP, thedetails of such a trial have not been determined or confirmed with the FDA. In March 2016, we completed a Phase I clinical trial for our third pipeline productcandidate which is being developed for the prevention and treatment of gastroduodenal and small bowel NSAID induced ulcers. The PK results demonstratedin the Phase I trial were within the well-defined safety levels of the drug, which enable us to proceed with further development of the Accordion Pill with theexisting drug. 79  Our Accordion Pill platform technology is designed to increase the time that drugs are retained in the stomach as compared to other oral dosage forms,such as tablets and capsules. This capability is particularly important to drugs with a narrow absorption window, or NAW, which are absorbed mainly in theupper part of the gastrointestinal, or GI, tract. Regular controlled-release formulations of such drugs currently on the market sometimes fail to provide anefficient solution, as once the regular dosage form has passed the drug’s NAW in the upper GI tract, the drug is not, or is very poorly, absorbed in the distalparts of the GI tract. The Accordion Pill platform technology is also designed for drugs with low solubility, which do not efficiently dissolve in the GI tract,and drugs with low permeability, which do not efficiently penetrate the intestinal wall and reach the blood stream, such as Biopharmaceutics ClassificationSystem, or BCS, Class II (low solubility, high permeability) and Class IV (low solubility, low permeability) drugs. According to The AAPS Journal publishedby the American Association of Pharmaceutical Scientists, of the top 200 oral drugs in the United States, Great Britain, Spain and Japan in 2006,approximately 30% to 35% were BCS Class II drugs and approximately 5% to 10% were BCS Class IV drugs. Further, according to Drug Development &Delivery, in 2006 approximately 90% of new chemical entities, or NCEs, in development were either BCS Class II or Class IV drugs. The Accordion Pill’sefficient GR and specific release mechanism prolongs the absorption phase of drugs with an NAW, which can result in significantly more stable plasmalevels. In addition, the Accordion Pill has demonstrated an enhancement of the absorption of a poorly soluble, BCS Class II/IV drug in a crossover PK clinicalstudy in 12 healthy volunteers. For poorly soluble drugs, we believe that our technology acts through the gradual delivery of an undissolved drug by theAccordion Pill in the stomach, which allows for the complete dissolution of the drug dose in the stomach over the delivery period. The gradual passage of thedrug from the stomach to the upper part of the GI tract enables an increase in the amount of the drug that can be dissolved and thus absorbed, in the uppersmall bowel. In addition, we believe that bile secretion in the upper part of the GI tract also improves the intestinal environment for better absorption. Finally,the significant dilution of the drug solution in the small bowel caused by prolonged delivery increases the amount of the drug available for absorption. Our clinical trials to date have demonstrated that the Accordion Pill is retained in the stomach for eight to 12 hours, as compared to significantly shortertime periods, typically as little as two to three hours, when using other solid dosage forms. The efficient GR and the predetermined release profile for eachspecific drug associated with our Accordion Pill technology demonstrated a significant improvement in PK, which is the drug plasma level over time and acorresponding improvement in efficacy and safety. History of Losses Since our inception, we have generated significant losses in connection with our research and development, including the clinical development of AP-CDLD and AP–ZP. As of December 31, 2015, we had an accumulated deficit of NIS 193 million (approximately $49.5 million). We expect that additionallosses will be accumulated in the near future as a result of our research and development activities. Such research and development activities will requirefurther resources if we are to be successful. As a result, we may continue to incur operating losses, and we may need to obtain additional funds to furtherdevelop our research and development programs and our product candidates. As a result of, among other things, our research and development activities, as well as the fact that we have not generated revenues since our inception,for the year ended December 31, 2015, our net loss was approximately NIS 27.9 million (approximately $7.1 million). We have funded our operations primarily through the sale of equity securities (both in private placements and in public offerings on the NASDAQCapital Market and the TASE as described above), funding received from the OCS and other funds, and reimbursements received pursuant to collaborationswith multinational pharmaceutical companies in connection with certain research and development activities. From our inception until our initial publicoffering in the United States in August 2015, we raised approximately NIS 208.7 million in various private placements, our initial public offering in Israel inFebruary 2010 and in various rights issuances. We received approximately NIS 129.7 million (approximately $34 million) from our initial public offering inthe United States in August 2015. As of December 31, 2015, we had approximately NIS 119.7 million (approximately $30.7 million) of cash, cashequivalents, short-term bank deposits and financial assets at fair value. Operating Expenses Our current operating expenses consist of two components, research and development expenses and general and administrative expenses. Research and Development Expenses: Our research and development expenses during the 12 months ended 2013, 2014 and 2015 relate primarily to the development of AP–CDLD. We recordexpenses for each product candidate on a direct cost basis only, rather than on a project basis. Direct costs, which include contract research organizationexpenses, clinical trials and pre-clinical trials, consulting expenses, APIs, and other similar expenses are recorded to the product candidate for which suchexpenses are incurred. However, salaries and related personnel expenses, indirect materials and costs for facilities and equipment are considered overhead andare shared among all of our product candidates and are not recorded on a product-by-product basis. Our direct costs related to product candidates other thanAP–CDLD for 2013, 2014 and 2015 were insignificant. We expect our research and development expense to remain our primary expense in the near future aswe continue to develop our products. Increases or decreases in research and development expenditures are primarily attributable to the number and/orduration of the clinical studies that we conduct. 80  We expect that a large percentage of our research and development expense in the future will be incurred in support of our current and future clinicaldevelopment projects. Due to the inherently unpredictable nature of clinical development processes, we are unable to estimate with any certainty the costs wewill incur in the continued development of our product candidates in our pipeline for potential commercialization. Clinical development timelines, theprobability of success and development costs can differ materially from expectations. We expect to continue to conduct additional clinical trials for ourproduct candidates. While we are currently focused on advancing our product development, our future research and development expenses will depend on the clinicalsuccess of our product candidates, as well as ongoing assessments of the candidates’ commercial potential. As we obtain results from clinical studies, we mayelect to discontinue or delay clinical studies for one or more of our product candidates in certain indications in order to focus our resources on morepromising product candidates. Completion of clinical studies may take several years or more, but the length of time generally varies according to the type,complexity, novelty and intended use of a product candidate. We expect our research and development expenses to increase in the future from current levels as we continue the advancement of our clinical productdevelopment. The lengthy process of completing clinical studies and seeking regulatory approval for our product candidates requires the expenditure ofsubstantial resources. Any failure or delay in completing clinical studies, or in obtaining regulatory approvals, could cause a delay in generating productrevenue and cause our research and development expenses to increase and, in turn, have a material adverse effect on our operations. Because of the factors setforth above, we are not able to estimate with any certainty when we would recognize any net cash inflows from our projects. General and Administrative Expenses: Our general and administrative expenses consist primarily of salaries and expenses related to employee benefits, including share-based compensation, forour general and administrative employees, which includes employees in executive and operational roles, including finance and human resources, as well asconsulting, legal and professional services related to our general and administrative operations. Our general and administrative expenses, such as accounting and legal fees, have increased since we have become a public company in the United States. Other Gains, Net Other gains, net, consist of change in the fair value of the financial assets at fair value through profit or loss and in 2014 other gains, net, also consisted ofindemnification from an insurance company. Financial Expense and Income Financial expense and income consist of interest earned on our cash, cash equivalents and short-term bank deposits; bank fees and other transactionalcosts; change in fair value of derivative financial instruments and expenses or income resulting from fluctuations of the dollar and other currencies, in whicha portion of our assets and liabilities are denominated, against the NIS (our functional currency). Results of Operations The table below provides our results of operations for the year ended December 31, 2015 as compared to the year ended December 31, 2014 and for theyear ended December 31, 2014 compared to the year ended December 31, 2013. 81  Year ended December 31, 2013 2014 2015 2015 Conveniencetranslationinto USD NIS in thousands in thousands Statements of comprehensive loss data: Research and development expenses 17,410 17,740 29,257 7,498 Less-participation in research and developmentexpenses (8,393) (5,544) (10,556) (2,705)Research and development expenses, net 9,017 12,196 18,701 4,793 General and administrative expenses 9,633 9,332 10,828 2,775 Other gains, net (474) (836) (76) (19)Operating loss 18,176 20,692 29,453 7,549 Financial income (434) (1,136) (2,458) (630)Financial expenses 648 812 889 228 Financial expenses (income), net 214 (324) (1,569) (402)Loss and comprehensive loss 18,390 20,368 27,884 7,147 NIS USD Basic and diluted loss per ordinary share 4.25 4.22 3.58 0.92 Number of ordinary shares used in computing lossper ordinary share (in thousands) 4,322 4,825 7,791 7,791 Year Ended December 31, 2015 Compared to Year Ended December 31, 2014 Research and Development Expenses, Net Our research and development expenses, net, for the year ended December 31, 2015 amounted to approximately NIS 18.7 million (approximately $4.8million), an increase of NIS 6.5 million compared to approximately NIS 12.2 million for the year ended December 31, 2014. The increase was primarily due toan increase in expenses related to preparation towards our Phase III clinical trial for AP-CDLD, payroll and related expenses and other expenses associatedwith our Phase III clinical trial for AP-CDLD, which were partially offset by increases in research and development-related grants and participation in researchand development expenses from the OCS received in 2015 compared to 2014. 82  General and Administrative Expenses Our general and administrative expenses for the year ended December 31, 2015 amounted to approximately NIS 10.8 million (approximately $2.8million), an increase of NIS 1.5 million compared to approximately NIS 9.3 million for the year ended December 31, 2014. The increase was primarily due toan increase in professional services, payroll and related expenses and other expenses associated with being a public company in the United States. Other Gains, Net Our other gains, net, for the year ended December 31, 2015 amounted to approximately NIS 76,000 (approximately $19,000), compared toapproximately NIS 836,000 for the year ended December 31, 2014. The other gains for the year ended December 31, 2014 consist primarily ofindemnification from an insurance company in the amount of approximately NIS 887,000. Other gains, net for the year ended December 31, 2015 consists ofchange in the fair value of financial assets. Operating Loss As a result of the foregoing research and development, net, general and administrative expenses, and other gains, net, as well as our failure to generaterevenues since our inception, for the year ended December 31, 2015 our operating loss was approximately NIS 29.4 million (approximately $7.6 million), anincrease of NIS 8.7 million compared to our operating loss for the year ended December 31, 2014 of approximately NIS 20.7 million. This increase primarilyresulted from an increase in expenses related to preparation towards our Phase III clinical trial for AP-CDLD, payroll and related expenses and other expensesassociated with our Phase III clinical trial for AP-CDLD, which were partially offset by increases in research and development-related grants and participationin research and development expenses from the OCS increases in professional services, payroll and related expenses and other expenses associated with beinga public company in the United States and a decrease in our other gains, net. Financial Income (Expense), Net For the year ended December 31, 2015, we had financial income from interest on cash equivalents and bank deposits in the amount of approximately NIS174,000 and foreign currency exchange income in the amount of approximately NIS 2.3 million. In addition to bank fees, we also had financial expensesfrom change in fair value of derivative financial instruments in the amount of approximately NIS 829,000. Loss and Comprehensive Loss As a result of the foregoing research and development, net, general and administrative expenses, and other gains, net and financial expense/income, net,as well as our failure to generate revenues since our inception, for the year ended December 31, 2015 our loss and comprehensive loss was approximately NIS27.9 million (approximately $7.1 million) an increase of NIS 7.5 million compared to our net loss for the year ended December 31, 2014 of approximatelyNIS 20.4 million. This increase primarily resulted from an increase in expenses related to preparation towards our Phase III clinical trial for AP-CDLD, payrolland related expenses and other expenses associated with our Phase III clinical trial for AP-CDLD, which were partially offset by increases in research anddevelopment-related grants and participation in research and development expenses from the OCS, increases in professional services, payroll and relatedexpenses and other expenses associated with being a public company in the United States, an increase in our financial income, net and a decrease in our othergains, net. Year Ended December 31, 2014 Compared to Year Ended December 31, 2013 Research and Development Expenses, Net Our research and development expenses, net, for the year ended December 31, 2014 amounted to approximately NIS 12.2 million compared toapproximately NIS 9.0 million for the year ended December 31, 2013. The increase was primarily due to the decrease in research and development-relatedgrants received in 2014 compared to 2013 in the amount of approximately NIS 2.8 million. 83  General and Administrative Expenses Our general and administrative expenses for the year ended December 31, 2014 amounted to approximately NIS 9.3 million compared to approximatelyNIS 9.6 million for the year ended December 31, 2013. The decrease was primarily due to a decrease in share-based compensation in the amount ofapproximately NIS 647,000 and an increase in professional services in the amount of approximately NIS 175,000. Other Gains, Net Our other gains, net, for the year ended December 31, 2014 amounted to approximately NIS 836,000, compared to approximately NIS 474,000 for theyear ended December 31, 2013. The other gains for the year ended December 31, 2014 consist primarily of indemnification from an insurance company in theamount of approximately NIS 887,000. The other gains for the year ended December 31, 2013 consist of change in the fair value of the financial assets at fairvalue through profit or loss in the amount of approximately NIS 474,000. Operating Loss As a result of the foregoing research and development, net, general and administrative expenses, and other gains, net, as well as our failure to generaterevenues since our inception, for the year ended December 31, 2014 our operating loss was approximately NIS 20.7 compared to our operating loss for theyear ended December 31, 2013 of approximately NIS 18.2 million. This increase primarily resulted from a decrease in research and development-relatedgrants received in 2014 compared to 2013 in the amount of approximately NIS 2.8 million. Financial Income (Expense), Net For the year ended December 31, 2014, we had financial income from interest on cash equivalents in the amount of approximately NIS 617,000 andforeign currency exchange income in the amount of approximately NIS 519,000. In addition to bank fees, we also had financial expenses from change in fairvalue of derivative financial instruments in the amount of approximately NIS 729,000. Loss and Comprehensive Loss As a result of the foregoing research and development, net, general and administrative expenses, and other gains, net and financial expense/income, net,as well as our failure to generate revenues since our inception, for the year ended December 31, 2014 our loss and comprehensive loss was approximately NIS20.4 million compared to our net loss for the year ended December 31, 2013 of approximately NIS 18.4 million. This increase primarily resulted from adecrease in research and development-related grants received in 2014 compared to 2013 in the amount of approximately NIS 2.8 million, net of an increase infinancial income in 2014 compared to 2013 in the amount of approximately NIS 702,000. Liquidity and Capital Resources Since our inception, we have funded our operations primarily through public (in Israel and in the U.S.) and private offerings of our equity securities,grants from the OCS and other grants from organizations such as the Michael J. Fox Foundation, and payments received under the feasibility and relatedagreements we have entered into with multinational pharmaceutical companies, pursuant to which we are entitled to full coverage of our development costswith regard to the projects specified in those agreements. As of December 31, 2015, we had cash and cash equivalents, short-term bank deposits and financial assets at fair value through profit or loss ofapproximately NIS 119.7 million (approximately $30.7 million) as compared to approximately NIS 30.1 million as of December 31, 2014. Net cash used in operating activities was approximately NIS 30.8 million (approximately $7.9 million) for the year ended December 31, 2015 comparedwith net cash used in operating activities of approximately NIS 17 million for the year ended December 31, 2014. This increase primarily resulted from anincrease in our loss and comprehensive loss of approximately NIS 7.5 million and an increase in changes in operating asset and liability items ofapproximately NIS 6.3 million. 84  We had negative cash flow from investing activities of approximately NIS 24.8 million (approximately $6.4 million) for the year ended December 31,2015 compared to positive cash flow from investing activities of approximately NIS 9.7 million for the year ended December 31, 2014. The change primarilyresulted from an increase in purchase of property and equipment in the amount of approximately NIS 5.4 million and from investing in a short-term bankdeposit in the amount of approximately NIS 19.4 million. We had positive cash flow from financing activities of approximately NIS 124.1 million (approximately $31.8 million) for year ended December 31,2015 as compared to a positive cash flow from financing activities of approximately NIS 17.2 million for the year ended December 31, 2014. The positivecash flow from financing activities for the year ended December 31, 2015 was primarily due to proceeds from our initial public offering in the United Statesin the amount of approximately NIS 116.8 million. As of December 31, 2015, we believe our existing cash resources will be sufficient to fund our projected cash requirements approximately through atleast the next 12 months. Nevertheless, our current cash resources are not sufficient to complete the research and development of all of our product candidatesand we will require significant additional financing in the future to fund our operations if and when we progress into additional clinical trials of our productcandidates for their respective indications and clinical trials for other indications, obtain regulatory approval for one or more of our product candidatesobtain commercial manufacturing capabilities and commercialize one or more of our product candidates. Current Outlook According to our estimates and based on our budget, we believe our existing cash resources will be sufficient to fund out projected cash requirementsthrough at least the next 12 months. We believe we will need to raise significant additional funds before we have any cash flow from operations, if at all. Developing drugs, conducting clinical trials, obtaining commercial manufacturing capabilities and commercializing products is expensive and we willneed to raise substantial additional funds to achieve our strategic objectives. We will require significant additional financing in the future to fund ouroperations, including if and when we progress into additional clinical trials of our product candidates, obtain regulatory approval for one or more of ourproduct candidates, obtain commercial manufacturing capabilities and commercialize one or more of our product candidates. We currently anticipate that wewill utilize approximately $18 million for clinical trial activities over the course of the next 12 months. Our future capital requirements will depend on manyfactors, including, but not limited to: •the progress and costs of our clinical trials and other research and development activities; •the scope, prioritization and number of our clinical trials and other research and development programs; •the amount of revenues and contributions we receive under future licensing, collaboration, development and commercialization arrangements withrespect to our product candidates; •the costs of the development and expansion of our operational infrastructure; •the costs and timing of obtaining regulatory approval for one or more of our product candidates; •the ability of us, or our collaborators, to achieve development milestones, marketing approval and other events or developments under our potentialfuture licensing agreements; •the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights; •the costs and timing of securing manufacturing arrangements for clinical or commercial production; •the costs of contracting with third parties to provide sales and marketing capabilities for us or establishing such capabilities ourselves; 85  •the costs of acquiring or undertaking development and commercialization efforts for any future products, product candidates or technology; •the magnitude of our general and administrative expenses; and •any cost that we may incur under future in- and out-licensing arrangements relating to one or more of our product candidates. Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financings or by out-licensingapplications of one or more of our product candidates. We cannot be certain that additional funding will be available to us on acceptable terms, if at all. Iffunds are not available, we may be required to delay, reduce the scope of or eliminate research or development plans for, or commercialization efforts withrespect to, one or more of our product candidates and make necessary change to our operations to reduce the level of our expenditures in line with availableresources. Contractual Obligations Our significant contractual obligations as of December 31, 2015 included the following (in thousands): Total Lessthan1 Year 1 – 3Years 3 – 5Years Morethan5 Years Operating Lease Obligations in NIS 4.35 million 1.75 million 2.6 million — — Operating Lease Obligations in $ 1.1 million 450,000 665,000 — — Off-Balance Sheet Arrangements We have no off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial condition, changes infinancial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. Trend Information We are a development stage company and it is not possible for us to predict with any degree of accuracy the outcome of our research and developmentefforts. As such, it is not possible for us to predict with any degree of accuracy any significant trends, uncertainties, demands, commitments or events that arereasonably likely to have a material effect on our net loss, liquidity or capital resources, or that would cause financial information to not necessarily beindicative of future operating results or financial condition. However, to the extent possible, certain trends, uncertainties, demands, commitments and eventsare in this “Operating and Financial Review and Prospects.” Critical Accounting Policies This discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared inaccordance with IFRS as issued by the IASB. The preparation of these financial statements requires management to make estimates that affect the reportedamounts of our assets, liabilities and expenses. Significant accounting policies employed by us, including the use of estimates, are presented in the notes tothe financial statements included elsewhere in this annual report. We periodically evaluate our estimates, which are based on historical experience and onvarious other assumptions that management believes to be reasonable under the circumstances. Critical accounting policies are those that are most importantto the portrayal of our financial condition and results of operations and require management’s subjective or complex judgments, resulting in the need formanagement to make estimates about the effect of matters that are inherently uncertain. If actual performance should differ from historical experience or if theunderlying assumptions were to change, our financial condition and results of operations may be materially impacted. 86  Share-based payments For the purpose of the evaluation of the fair value and the manner of the recognition of share-based compensation, our management is required toestimate, among others, various parameters that are included in the calculation of the fair value of the option as well as our results and the number of optionsthat will vest. Prior to our initial public offering in the United States, the fair value of our ordinary shares used in the calculation of the fair value of the optionwas the market price of our ordinary shares on the TASE. Since the completion of our initial public offering in the United States, the fair value of our ordinaryshares used in the calculation of the fair value of the option is the market price of our ordinary shares on the NASDAQ Capital Market. The actual results andthe estimates that are made in the future may be significantly different from the current estimates. Financial derivatives instrument The investors in our August 2013 financing round had the benefit of anti-dilution protection until the occurrence of the earliest of one of the followingevents: (1) the consummation of an initial public offering of our ordinary shares on the NASDAQ Stock Market in which we raise at least $12.0 million or amerger with a company traded on the NASDAQ Stock Market which immediately following the closure of such merger holds free and unencumbered cashand/or publically raised, prior to September 30, 2014, a cumulative amount of at least $12.0 million, (2) the consummation of a merger or acquisition event,or an M&A Event, or (3) four years from the execution of the investment agreement. During this period, in the event of the occurrence of an M&A Event ornew investment in our company at a price per share that is lower than NIS 66.93, or the Protection Threshold Price, an investor who still held ordinary sharespurchased in the August 2013 financing round was entitled to Downside Protection. As a result of anti-dilution shares issued to investors in our August 2013financing round following our October 2014 rights offering, the Protection Threshold Price was effectively reduced to NIS 32.65. The sale of ordinary sharesin our initial public offering in the United States at the initial public offering price of $6.00 per share required us to issue 174,566 ordinary shares to investorsin our August 2013 financing round as a result of the Downside Protection based on 192,398 ordinary shares held by investors in our August 2013 financinground as of August 3, 2015 and the exercise price of the related warrants still held by investors in our August 2013 financing round was reduced from NIS 35to NIS 21.7. The Downside Protection mechanism that was terminated following the initial public offering in the U.S. was accounted for as financial liabilitythat was a financial derivative instrument. Under the terms of the investment agreement, the investors have the right to exercise the warrants into sharesthrough a net-settlement mechanism. This net-settlement mechanism is accounted for as financial liability that is a financial derivative instrument. Prior to the consummation of our initial public offering in the United States, these liabilities were measured at fair value using the Monte Carlo model, astandard valuation technique for this type of instrument, on the basis of observable inputs (such as the price of our shares, the risk-free interest and theexercise price) and unobservable inputs (such as expected volatility, expected life and the probability of potential scenarios as described in the investmentagreement). Following the consummation of our initial public offering in the United States, the financial liability of the net-settlement mechanism ismeasured at fair value using a standard valuation technique for this type of instrument (Black-Scholes model) on the basis of various parameters (such as theprice of the Company's shares, expected life, expected volatility, risk-free interest and exercise price). Jumpstart Our Business Startups Act of 2012 We are an emerging growth company within the meaning of the rules under the Securities Act, and we will utilize certain exemptions from variousreporting requirements that are applicable to public companies that are not emerging growth companies. Such exemptions include, but are not limited to, (i)not being required to comply with the auditor attestation requirements of Section 404, (ii) being exempt from adoption of new or revised financialaccounting standards until they would apply to private companies, (iii) being exempt from compliance with any new requirements adopted by the PCAOBrequiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional informationabout our audit and our financial statements and (iv) reduced disclosure obligations regarding executive compensation. We could remain an “emerginggrowth company” for up to five years from the date of our first sale of common equity securities pursuant to an effective registration statement under theSecurities Act, or until the earliest of (a) the last day of the first fiscal year in which our annual gross revenue exceeds $1.0 billion (as such amount is indexedfor inflation every five years by the SEC to reflect the change in the Consumer Price Index for All Urban Consumers published by the Bureau of LaborStatistics, setting the threshold to the nearest $1.0 million) or more, (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under theExchange Act, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700.0 million as of the last business day ofour most recently completed second fiscal quarter, or (c) the date on which we have issued more than $1.0 billion in nonconvertible debt during thepreceding three year period. 87  The JOBS Act also permits us, as an “emerging growth company,” to take advantage of an extended transition period to comply with certain new orrevised accounting standards if such standards apply to companies that are not issuers. We are choosing to “opt out” of this provision and, as a result, we willcomply with new or revised accounting standards when they are required to be adopted by issuers. This decision to opt out of the extended transition periodunder the JOBS Act is irrevocable. Government Policies and Factors We believe certain governmental policies and factors could materially affect, directly or indirectly, our operations or your investment. Please see “RiskFactors — Risks Related to Our Company and Its Business” and “Risk Factors — Risks Related to the Regulation of Our Company and Its Business.” ITEM 6. Directors, Senior Management and Employees. A. Directors and Senior Management. We are managed by a board of directors, which is currently comprised of six members, and our executive officers. Each of our executive officers isappointed by our board of directors. The table below sets forth our directors and executive officers as of December 31, 2015. The business address for each ofour executive officers and directors is c/o Intec Pharma Ltd., 12 Hartom Street, Har Hotzvim, Jerusalem 9777512, Israel. Name Age PositionZvika Joseph 50 Chairman of the Board of DirectorsZeev Weiss 54 Chief Executive Officer and DirectorLiat Flaishon 50 Vice President of Business Development and Clinical AffairsNadav Navon 47 Executive Vice President of Research & Development and OperationsOren Mohar 45 Chief Financial OfficerGil Bianco 64 External Director and Chairperson of the Audit CommitteeAmir Hayek 52 DirectorHila Karah 47 DirectorIssac Silberman 64 External Director and Chairperson of the Compensation Committee Our Executive Officers and Directors Mr. Zvika Joseph has been our chairman of the board of directors since March 2002. Mr. Joseph is the co-founder of Intec. Prior to co-founding Intec,Mr. Joseph served as head of marketing of Adgar Ltd., a public real estate investment and development company whose shares are traded on the TASE. Mr.Joseph is an experienced investment professional with diverse contacts within Israeli and European financial circles. He studied at Regent’s College at theEuropean Business School in London and holds a BSc in business administration from Mercy College in New York. Mr. Zeev Weiss has been our Chief Executive Officer since October 2014 and has served on our board of directors since October 2014. Prior to that, heserved as our Co-Chief Executive Officer from November 2013 until October 2014. Prior to serving as our Co-Chief Executive Officer, he served as ourExecutive Vice President of Commercial Operations commencing in September 2006. Mr. Weiss has approximately 15 years of experience in healthcarecorporate development, strategic planning and corporate finance. Prior to his service with us, Mr. Weiss served as the Head of Life Sciences Strategicconsulting with PricewaterhouseCoopers Israel, an accounting firm, from 2002 until 2006. He is a certified public accountant in Israel, and has a BSc inBiology, a B.A. in accounting and has completed MSc studies in neuro-biochemistry, each from Tel Aviv University in Tel Aviv, Israel. 88  Dr. Liat Flaishon joined us in December 2013 and was appointed as our Vice President Business Development and Clinical Affairs in March 2014. Priorto her service with us, Dr. Flaishon served as the business development director at Pluristem Therapeutics, a call-therapy biotechnology company, where shewas responsible for the development of the clinical pipeline. Prior to that, from 2007 to 2011, Dr. Flaishon worked for over five years at TevaPharmaceuticals, a pharmaceutical company, holding numerous positions, the most recent of which was the director of Drug Safety Risk Management Plansin the global pharmacovigilance department. Dr. Flaishon received her medical degree from the Sackler School of Medicine at Tel-Aviv University, and herPh.D. in immunology from The Weizmann Institute of Science in Rehovot, Israel. Dr. Flaishon is also a board-certified internal medicine physician whoworked for 10 years at the Tel-Aviv Sourasky Medical Center in Tel-Aviv, Israel. Dr. Nadav Navon has been with us since March 2006 and has served as our Executive Vice President of Research & Development and Operations sinceMarch 2015. Before that he served as our Vice President of Research & Development and Operations since May 2013. Prior to his service with us, Dr. Navonheaded the analytical and quality assurance operations at Sharon Laboratories Ltd., a chemical company that develops and manufactures raw materials for thepharmaceutical, cosmetic and food industries, from 2001 to 2006. Prior to that, Dr. Navon led a number of research and development projects in the Negev’sNuclear Research Center. Dr. Navon has a Ph.D. in inorganic and analytical chemistry, and an MBA and a BSc in chemistry, each from Ben-Gurion Universityin Beer-Sheva, Israel. Oren Mohar has served as our Chief Financial Officer since January 2015. From January 2010 to December 2014, he was an Audit and CorporateFinance senior partner at PricewaterhouseCoopers in Tel Aviv, Israel. From July 2005 to December 2009, he was an Audit partner at PricewaterhouseCoopersin Tel Aviv, Israel. Prior to joining PricewaterhouseCoopers in 2002, he was a certified public accountant at Andersen in Tel Aviv, Israel. Mr. Mohar is acertified public accountant in Israel and holds a B. A. in Accounting and Business awarded by the Israeli College of Management in Rishon LeZion, Israel. Mr. Gil Bianco has served as one of our external directors since April 2010. From November 2009 to November 2012, Mr. Bianco served as a director ofD-Pharm Ltd., an Israeli public biopharmaceutical company, and from May 2007 to May 2010, Mr. Bianco served as a director of BioLineRx Ltd. (NASDAQ:BLRX), a clinical-stage biopharmaceutical development company. From December 2003 to December 2009, Mr. Bianco served as an external director of theTel Aviv Stock Exchange Ltd. Prior to that, from 2001 to 2003, Mr. Bianco served as chief executive officer of Agis Industries Ltd., a pharmaceuticalmanufacturer. Mr. Bianco currently serves as an external director at Mazor Robotics Ltd. (NASDAQ: MZOR and TASE: MZOR.TA), a medical devicecompany. Mr. Bianco is also a director of several private companies in the fields of biotech and medical devices. Mr. Bianco holds a B.A. in economics andaccounting from Tel-Aviv University in Tel-Aviv, Israel and is a certified public accountant in Israel. Mr. Amir Hayek has served as one of our directors since December 2009. Mr. Hayek was the chief executive officer of The Manufacturers Association ofIsrael until September 2015. Prior to joining The Manufacturers Association of Israel, Mr. Hayek was the president and chief executive officer of ElectronicsLine 3000, a developer, manufacturer and provider of advanced security, safety, connectivity and control solutions, and held many high-level business-related leadership roles with the Israeli government, including the chief executive officer of the Ministry of Industry and Trade, the chief executive officer ofthe Israeli Export Institute and economic advisor to the Minister of Industry and Trade. Mr. Hayek has also served as a director for many public and privatecompanies, including Castro Ltd., a publicly-traded Israeli clothing company (TASE: CAST). Mr. Hayek has B.A. degrees in both economics and accountingfrom Tel-Aviv University in Tel-Aviv, Israel and is a certified public accountant in Israel. 89  Ms. Hila Karah has served as one of Intec Pharma’s directors since December 2009. Ms. Karah was the chief investment officer of Eurotrust Ltd., aninvestment company, from 2006 until 2013, where she focused primarily on making early-stage investments in life science companies. Ms. Karah has been aprivate and public equity investor in several high-tech, bio-tech and internet companies since 1999. Prior to joining Eurotrust, she served as a partner andfinancial analyst at Perceptive Life Sciences Ltd., a New York-based hedge fund. Prior to her position at Perceptive Life Sciences, Ms. Karah was a researchanalyst at Oracle Partners Ltd., a healthcare-focused hedge fund based in Connecticut. Ms. Karah currently serves as a director at Cyren Ltd., a publicly-tradedtechnology and security company (NASDAQ CYRN), a director of Labstyle Innovations Ltd., a publicly-traded biodiagnostics company headquartered inIsrael (OTCMKTS: DRIO) and from May 2011 until May 2013, Mrs. Karah served as a director of Glycominds Ltd., a publicly-traded Israeli biodiagnosticscompany (TASE: GLCM). She has a B.A. in molecular and cell biology from the University of California, Berkeley, in Berkeley, California and has studied atthe University of California, Berkeley – University of California, San Francisco School of Medicine Joint Medical Program. Mr. Issac Silberman has served as one of our external directors since April 2010. Since 2007, Mr. Silberman has also served as a special investmentadvisor at Sullam Holdings L.R. Ltd., a financial services corporation in the Lenny Recanati Group, focusing primarily on investments in high-tech,biotechnology and real estate companies. Mr. Silberman also serves as a director in other private Israeli companies, and has over 20 years of prior experienceas an executive officer of various public and private companies. Mr. Silberman holds a B.A. in economics and accounting from Tel Aviv University in TelAviv, Israel, and he is a certified public accountant in Israel. Our Scientific Advisory Team Our Scientific Advisory Team including specialists and experts from the United States, Europe and Israel, with experience in the fields ofgastroenterology, the central nervous system, neurological diseases, and safety and regulation. Our Scientific Advisory Team plays an active role in advisingus with respect to our products, technology development, clinical trials and safety. The following sets forth certain information with respect to our ScientificAdvisory Team members. Prof. Nir Giladi, a leader in the field of movement disorders, is an associate professor at the Sackler Faculty of Medicine at Tel Aviv University andchairman of the Department of Neurology at the Tel Aviv Sourasky Medical Center. Prof. Giladi has been a member of the International Movement DisordersSociety (MDS) since 2010. Prof. Giladi is also a member of the International Board of the Research Group of the World Health Organization on Parkinson’sDisease and other Movement Disorders. Prof. Giladi has published extensively in peer-reviewed journals and has served on the editorial boards of theMovement Disorders Journal, Parkinsonism & Related Disorders and the Journal of Neural Transmission (associate editor). Dr. Peter LeWitt, a neurologist, is a professor of neurology at Wayne State University School of Medicine in Detroit and directs the Parkinson’s Diseaseand Movement Disorders Program at Henry Ford Hospital in Detroit, Michigan, where he also maintains a movement disorders subspecialty practice. Hisclinical and basic neuroscience research has targeted neurodegenerative and symptomatic therapies for Parkinson’s disease and other neurological disorders,and his range of research interests has included animal models of neurological disease, biomarkers, gene therapy and pharmacokinetic analysis. Dr. LeWitt isaffiliated with the Parkinson Study Group and other clinical research consortia, and has extensive experience in clinical trials and regulatory aspects of drugdevelopment. Dr. Werner Poewe, a neurologist, is a professor of neurology and director of the Department of Neurology at Innsbruck Medical University in Innsbruck,Austria. Dr. Poewe’s main research interests are in the field of movement disorders with particular emphasis on the clinical pharmacology of Parkinson’sdisease and dystonia. He has authored and co-authored more than 550 original articles and reviews in the field of movement disorders. He served as Presidentof the International Movement Disorder Society from 2000 through 2002, as President of the Austrian Society of Neurology from 2002 to 2004 and is thepast President of the Austrian Parkinson’s Disease Society. Prof. Thomas Roth is the director of the Sleep Disorders and Research Center at Henry Ford Health System in Detroit, Michigan. Dr. Roth’s researchprimarily focuses on sleep processes. His work includes research on sleep loss, sleep fragmentation and deviation from sleep processes, includingpharmacological effects and sleep pathologies. Dr. Roth has held numerous leadership positions within his field. He is a former chairman of the NationalCenter on Sleep Disorders Research Advisory Board at the National Institutes of Health and a former president of the United States Sleep Research Society,the American Sleep Disorders Association and the National Sleep Foundation. He also served as past editor-in-chief of the journal Sleep. In addition to hisposition at Henry Ford, he is a clinical professor of psychiatry at the University of Michigan School of Medicine in Ann Arbor, Michigan. He has publishedextensively in these areas. 90  Dr. James Walsh is the executive director and senior scientist of the Sleep Medicine and Research Center at St. Luke’s Hospital in St. Louis, a visitingprofessor in the Department of Psychiatry at Stanford University and an adjunct professor of psychology at Saint Louis University. He also serves asexecutive director of the Academic Alliance for Sleep Research. His primary research interests include insomnia, clinical pharmacology, shiftwork and therelationship of sleep and behavior. Dr. Walsh has published extensively in these areas. Most of the members of our Scientific Advisory team are paid for their services to us at their hourly consulting fees. We paid members of our ScientificAdvisory Team an aggregate of approximately NIS 153,000 for services rendered during 2015. B. Compensation. The table below reflects the compensation granted to our five most highly compensated office holders (as defined in the Companies Law) during or withrespect to the year ended December 31, 2015. We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.” Forpurposes of the table below, “compensation” includes amounts accrued or paid in connection with salary cost, consultancy fees, bonuses, equity-basedcompensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking to provide suchcompensation. All amounts reported in the table are in terms of cost to the Company, as recognized in our financial statements for the year ended December31, 2015, plus compensation paid to such Covered Executives following the end of the year in respect of services provided during the year. Each of theCovered Executives was covered by our D&O liability insurance policy and was entitled to indemnification and exculpation in accordance with applicablelaw and our articles of association. Annual Compensation of our Senior Management Name and Principal Position (1) Salary (2) Equity-BasedCompensation (3) Allother compensation(4) Total TotalConveniencetranslation NIS into USD Zvika Joseph – Chairman of the Board ofDirectors 693,181 255,398 69,515 1,018,094 260,916 Zeev Weiss – Chief Executive Officer 691,819 71,099 60,745 823,663 211,087 Oren Mohar – Chief Financial Officer 724,779 365,370 62,437 1,152,586 295,383 Dr. Nadav Navon – Executive Vice President ofResearch & Development and Operations 680,067 116,511 55,489 852,067 218,367 Dr. Liat Flaishon – Vice President of BusinessDevelopment and Clinical Affairs 597,532 173,051 52,378 822,961 210,970 91  (1) All Covered Executives, except our Chairman, are employed on a full time (100%) basis. Our Chairman is employed on a 75% basis. (2) Salary includes the Covered Executive’s gross salary plus payment of social benefits made by us on behalf of such Covered Executive. Such benefits mayinclude, to the extent applicable to the Covered Executive, payments, contributions and/or allocations for savings funds (e.g., managers’ life insurancepolicy), education funds (referred to in Hebrew as “keren hishtalmut”), pension, severance, risk insurances (e.g., life, or work disability insurance), paymentsfor social security and tax gross-up payments, vacation, medical insurance and benefits, convalescence or recreation pay and other benefits and perquisitesconsistent with our policies. (3) Represents the equity-based and phantom share based compensation expenses recorded in the Company's financial statements for the year endedDecember 31, 2015, based on the option's fair value, calculated in accordance with accounting guidance for equity-based compensation. For a discussion ofthe assumptions used in reaching this valuation, see Note 13 to our financial statements. (4) Includes mainly leased car and mobile phone expenses. Employment and Consulting Agreements Our employees are employed under the terms prescribed in their respective personal contracts, in accordance with the decisions of our management.Under these employment contracts, the employees are entitled to the social benefits prescribed by law and as otherwise provided in their personal contracts.These employment contracts each contain provisions standard for a company in our industry regarding non-competition, confidentiality of information andassignment of inventions. Under current applicable employment laws, we may not be able to enforce covenants not to compete and therefore may be unableto prevent our competitors from benefiting from the expertise of some of our former employees. See “Risk Factors — Risks Related to Our Company and ItsBusiness” for a further description of the enforceability of non-competition clauses. We also provide certain of our employees with a company car, which isleased from a leasing company. Our office holders are also employed under the terms and conditions prescribed in personal contracts, with Zeev Weiss, our Chief Executive Officer, andZvika Joseph, our chairman of the Board, being employed by us on an hourly basis and part-time, respectively. These personal contracts provide for noticeperiods of varying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continueto receive base salary and benefits. These agreements also contain customary provisions regarding non-competition, confidentiality of information andassignment of inventions. However, the enforceability of the non-competition and assignment of inventions provisions may be limited under applicable law.See “Risk Factors — Risks Related to Our Company and Its Business.” Services and Employment Agreements with Our Chairman of the Board of Directors Zvika Joseph Mr. Joseph has been the chairman of our board of directors since 2002. Under Mr. Joseph’s employment agreement, he is entitled to a gross monthlysalary of NIS 45,000 linked to the Israeli consumer price index, and to social benefits, such as annual paid vacation days, convalescent payment, manager’sinsurance, sick leave vocational studies fund and disability insurance. In addition, we provide Mr. Joseph with a leased company car and a mobile phone. Mr.Joseph’s employment agreement is terminable by either us or Mr. Joseph upon six months prior written notice. 92  As of December 31, 2015, Mr. Joseph held options to purchase 137,944 ordinary shares with a weighted exercise price of NIS 53.21, of which 40,160were vested, 6,667 will vest over time and 91,117 will vest in the event that a material agreement, as defined in our compensation policy, is signed betweenus and a third party. Services and Employment Agreements with Our Chief Executive Officer Zeev Weiss Mr. Weiss has served as our Chief Executive Officer since October 2014. Prior to that, he served as our Co-Chief Executive Officer alongside Mr. GioraCarni, from November 2013 until October 2014. Prior to serving as our Co-Chief Executive Officer, he served as our Executive Vice President of CommercialOperations commencing in September 2006. Mr. Weiss is an independent contractor, and pursuant to his consulting agreement with us, he is entitled topayment on an hourly basis, at the rate of NIS 315 per working hour, subject to a monthly aggregate cap of no more than 200 monthly billable working hours.The monthly consideration is linked to the Israeli consumer price index for April 2012 and is updated on a quarterly basis. In addition, we provide Mr. Weisswith a leased company car, for which we bear any expenses related thereto, and with a mobile phone. Furthermore, we will bear any travel expenses inconnection with any of Mr. Weiss’ travels on our behalf. Mr. Weiss’s consulting agreement is terminable by either us or Mr. Weiss upon 180 days’ priorwritten notice, or immediately by us upon certain “for cause” events. Mr. Weiss’ employment agreement contains customary provisions regardingnoncompetition, confidentiality of information and assignment of inventions. As of December 31, 2015, Mr. Weiss held options to purchase 97,023 ordinary shares with a weighted exercise price of NIS 28.55, of which 37,500 werevested, 2,500 will vest over time and 57,023 will vest in the event that a material agreement, as defined in our compensation policy, is signed between us anda third party. Services and Employment Agreement with Our Chief Financial Officer Oren Mohar Mr. Mohar has served as our Chief Financial Officer since January 2015. Under Mr. Mohar’s employment agreement, he is entitled to a monthly grosssalary of NIS 45,000, which is linked to the Israeli consumer price index for December 2014 and is updated on a quarterly basis, and to social benefits, such asannual paid vacation days, severance pay, recuperation pay, manager’s insurance, sick leave and studies fund. In addition, we provide Mr. Mohar with aleased company car and a mobile phone. Mr. Mohar’s employment agreement is terminable by either us or Mr. Mohar upon 90 days’ prior written notice. Mr.Mohar’s employment agreement contains customary provisions regarding noncompetition, confidentiality of information and assignment of inventions. As of December 31, 2015, Mr. Mohar held options to purchase 60,000 ordinary shares with an exercise price of NIS 27.93, of which 28,000 were vested,20,000 will vest over time and 12,000 will vest in the event that a material agreement, as defined in our compensation policy, is signed between us and athird party. Services and Employment Agreement with Our Vice President of Research & Development and Operations Dr. Nadav Navon Dr. Navon has served as our Executive Vice President of Research & Development and Operations since March 2015. Under Dr. Navon’s employmentagreement, he is entitled to a monthly gross salary of NIS 44,000, and to social benefits, such as annual paid vacation days, convalescent payment, manager’sinsurance, sick leave vocational studies fund and disability insurance. In addition, we provide Dr. Navon with a leased company car and a mobile phone. Dr.Navon’s employment agreement is terminable by either us or Dr. Navon upon 3 months’ prior written notice. Dr. Navon’s employment agreement containscustomary provisions regarding noncompetition, confidentiality of information and assignment of inventions. 93  As of December 31, 2015, Dr. Navon held options to purchase 88,200 ordinary shares with a weighted exercise price of NIS 53.10, of which 26,625 werevested, 4,375 will vest over time and 57,200 will vest in the event that a material agreement, as defined in our compensation policy, is signed between us anda third party. Services and Employment Agreement with Our Vice President of Business Development and Clinical Affairs Dr. Liat Flaishon Dr. Flaishon has served as our Vice President of Business Development and Clinical Affairs since March 2014, after the completion of a successful trialperiod. Under Dr. Flaishon’s employment agreement, she is entitled to a gross monthly salary of 38,000 NIS, and to social benefits, such as annual paidvacation days, convalescent payment, manager’s insurance, sick leave, vocational studies fund and disability insurance. In addition, we provide Dr. Flaishonwith a leased company car and a mobile phone. Dr. Flaishon’s employment agreement is terminable by either us or Dr. Flaishon by prior written notice inaccordance with the provisions of the Prior Notice Upon Termination Law (2001), or immediately by us upon certain “for cause” events. Dr. Flaishon’semployment agreement contains customary provisions regarding noncompetition, confidentiality of information and assignment of inventions. As of December 31, 2015, Dr. Flaishon held options to purchase 60,000 ordinary shares with an exercise price of NIS 39.55, of which 24,00 will vest overtime and 36,000 will vest in the event that a material agreement, as defined in our compensation policy, is signed between us and a third party. In January 2016, Dr. Flaishon submitted a resignation letter informing us of her decision to terminate her employment with the Company at the end ofMarch 2016. We are currently in advanced stages of recruiting a substitute to Dr. Flaishon and expect to fill her position shortly after the date of this annualreport on Form 20-F. Equity Compensation Plan We maintain the 2005 Plan, which was adopted by our board of directors on September 19, 2005, that provides for granting options to our directors,officers, employees, consultants, advisers and service providers. As of December 31, 2015, a total of 1,400,000 options were reserved for issuance under the2005 Plan, of which options to purchase 816,098 ordinary shares were issued and outstanding thereunder. In addition, as of December 31, 2015, we hadoutstanding options to purchase 8,035 ordinary shares that were issued to consultants outside of the 2005 Plan; all of these options are vested andoutstanding. Of such outstanding options, options to purchase 332,629 ordinary shares were vested as of December 31, 2015, with a weighted averageexercise price of NIS 46.98 per share, and will expire between 2016 and 2020. The 2005 Plan permits options to be awarded to Participants (as such term is defined in the 2005 Plan) pursuant to Section 102 of the Ordinance andSection 3(i) of the Ordinance, based on entitlement and compliance with the terms for receiving options under these sections of the Ordinance. Section 102 ofthe Ordinance provides to employees, directors and officers who are not controlling shareholders (i.e., such persons are not deemed to hold 10% of thecompany’s share capital, or to be entitled to 10% of the company’s profits or to appoint a director to the company’s board of directors) and are Israeliresidents, favorable tax treatment for compensation in the form of shares or options issued or granted, as applicable, to a trustee under the “capital gainstrack” for the benefit of the applicable employee, director or officer and are (or were) to be held by the trustee for at least two years after the date of grant orissuance. Options granted under Section 102 of the Ordinance will be deposited with a trustee appointed by the company in accordance with Section 102 ofthe Ordinance and the relevant income tax regulations and guidelines, and will be granted in the employee income track or the capital gains track. The 2005Plan will be managed by the board of directors of the company or any other committee or person that our board of directors of authorizes for this purpose.According to our board of directors’ resolution of September 19, 2005, the options granted under Section 102 of the Ordinance will be granted under thecapital gains track. The 2005 Plan also permit us to grant options to U.S. residents, which may qualify as “incentive stock options” within the meaning ofSection 422 of the U.S. Internal Revenue Code of 1986, as amended, or the Code, and to residents of other jurisdictions. 94  Options granted under the 2005 Plan are subject to applicable vesting schedules and generally for all awards granted after May 27, 2010, expire six yearsfrom the grant date (however, generally, awards granted prior to such date, expire ten years from the grant date). Upon the termination of a Participant’s engagement with us for any reason other than death, retirement, disability or due cause, all unvested optionsallocated shall automatically expire 90 days after the termination, unless expired earlier due to their term. If the Participant’s engagement was terminated forcause (as defined in the 2005 Plan), the Participant’s right to exercise any unexercised options, awarded and allocated in favor of such Participant, whethervested or not, shall immediately cease and expire as of the date of such termination. If the Participant dies, retires or is disabled, any vested but unexercisedoptions shall automatically expire 12 months from the termination of the engagement, unless expired earlier due to their term. In the event that options allocated under the 2005 Plan expire or otherwise terminate in accordance with the provisions of the 2005 Plan, such expired orterminated options shall become available for future grant awards and allocations under the 2005 Plan. In the event of (i) the sale of all or substantially all of our assets; (ii) a sale (including an exchange) of all or substantially all of our share capital; or (iii) amerger, consolidation or like transaction of ours with or into another corporation, then, subject to obtaining the applicable approvals of the Israeli taxauthorities, the board of directors in its sole discretion shall resolve: (a) if and how any unvested options shall be canceled, replaced or accelerated; (b) if andhow any vested options (including options with respect to which the vesting period has been accelerated according to the foregoing) shall be exercised,replaced and/or sold by a trustee or us (as the case may be) on the behalf of the respective Israeli Participants; and (c) how any underlying shares issued uponexercise of the options and held by a trustee on behalf any Israeli Participants shall be replaced and/or sold by such trustee on behalf of the IsraeliParticipants. On January 6, 2016, our board of directors adopted the 2015 Equity Incentive Plan, or the 2015 Plan. As of the date of this annual report on Form 20-F,the maximum number of ordinary shares reserved for issuance under the 2015 Plan is 700,00, subject to future adjustments. Similar to the 2005 Plan, the 2015Plan permits options to be awarded to Participants (as such term is defined in the 2015 Plan) pursuant to Section 102 of the Ordinance and Section 3(i) of theOrdinance, based on entitlement and compliance with the terms for receiving options under these sections of the Ordinance. The 2015 Plan also permit us togrant options to U.S. residents, which may qualify as “incentive stock options” within the meaning of Section 422 of the Code, and to residents of otherjurisdictions. Options under the 2015 Plan will be subject to applicable vesting schedules and will generally expire up to ten years from the grant date. Upon the termination of a Participant’s engagement with us for any reason other than death, retirement, disability or due cause, any vested butunexercised options will automatically expire 90 days after termination, unless earlier expired due to their term, and all unvested options will expire upon thedate of termination. If the Participant’s engagement was terminated for cause (as defined in the 2015 Plan), the Participant’s right to exercise any unexercisedoptions, awarded and allocated in favor of such Participant, whether vested or not, will immediately cease and expire as of the date of such termination. If theParticipant dies, retires or is disabled, any vested but unexercised options shall automatically expire 12 months from the termination of the engagement,unless expired earlier due to their term and all unvested options shall expire upon the date of termination. C. Board Practices. Board of Directors Under the Companies Law and our articles of association, the management of our business is vested in our board of directors. Our board of directors mayexercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executive officers are responsible forour day-to-day management and have individual responsibilities established by our board of directors. Our Chief Executive Officer is appointed by, andserves at the discretion of, our board of directors, subject to his personal contract with the Company. All other executive officers are also appointed by ourboard of directors, and are subject to the terms of their personal employment agreements (as such may be updated from time to time). 95  Prior to the consummation of our initial public offering in the United States, our board of directors affirmatively determined that a majority of ourdirectors are independent in accordance with the NASDAQ Capital Market rules. Our board of directors determined that all of our directors other than ZeevWeiss and Zvika Joseph are independent under such rules. The definition of independent director under the NASDAQ Capital Market rules and externaldirector under the Companies Law overlap to a significant degree such that we would generally expect the two directors serving as external directors tosatisfy the requirements to be independent under the NASDAQ Capital Market rules. The definition of external director includes a set of statutory criteria thatmust be satisfied, including criteria whose aim is to ensure that there is no factor which would impair the ability of the external director to exerciseindependent judgment. The definition of independent director specifies similar, if slightly less stringent, requirements in addition to the requirement that theboard consider any factor which would impair the ability of the independent director to exercise independent judgment. In addition, our external directorseach serve for a period of three years. However, external directors must be elected by a special majority of shareholders while independent directors may beelected by a simple majority. See “— External Directors” below for a description of the requirements under the Companies Law for a director to serve as anexternal director. Under our articles of association, our board of directors must consist of at least four and not more than nine directors, including at least two externaldirectors required to be appointed under the Companies Law. Our board of directors currently consists of six members, including our non-executive Chairmanof the board of directors. Other than our two external directors, our directors are elected at the annual and/or special general meeting of our shareholders by asimple majority. Because our ordinary shares do not have cumulative voting rights in the election of directors, the holders of a majority of the voting powerrepresented at a shareholders meeting have the power to elect all of our directors, subject to the special approval requirements for external directors (See “—External Directors”). We have held elections for each of our non-external directors at each annual meeting of our shareholders since our initial public offeringin Israel. In addition, our articles of association allow our board of directors to appoint directors to fill vacancies on our board of directors, for a term of officeending on the earlier of the next annual general meeting of our shareholders, or the conclusion of the term of office in accordance with our articles or anyapplicable law, subject to the maximum number of directors allowed under our articles of association. External directors are elected for an initial term of threeyears and may be elected for up to two additional three-year terms, provided that, for Israeli companies traded on NASDAQ Capital Market and certain otherinternational exchanges, such term may be extended indefinitely in increments of additional three-year terms. External directors may be removed from officeonly under the limited circumstances set forth in the Companies Law. See “— External Directors.” Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financialexpertise. See “— External Directors.” In determining the number of directors required to have such expertise, our board of directors must consider, amongother things, the type and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimumnumber of directors of our Company who are required to have accounting and financial expertise is one. Our board of directors has determined that Mr. AmirHayek, Mr. Bianco and Mr. Silberman have accounting and financial expertise and possess professional qualifications as required under the Companies Law. Chairman of the Board Our articles of association provide that the chairman of the board is appointed by the members of the board of directors and serves as chairman of theboard throughout his term as a director, unless resolved otherwise by the board of directors. The Companies Law provides that a person, who is, directly orindirectly, subordinated to the chief executive officer of a public company, may not serve as the chairman of its board of directors. In addition, neither thechief executive officer nor his relative is eligible to serve as chairman of the board of directors (and vice versa), unless such nomination was approved by amajority of the company’s shareholders for a term not exceeding three years, and either: (i) such majority included the majority of the voting shareholders(shares held by abstaining shareholders are not considered) which are not controlling shareholders and have no personal interest regarding the decision; or(ii) the aggregate number of shares voting against the proposal did not exceed 2% of company voting shareholders. The term can be extended for additionalthree year terms, in the same manner. 96  External Directors Under the Companies Law, we are required to include at least two members who qualify as external directors, and following a recent amendment to theCompanies Law, any and all such external directors are no longer required to be Israeli residents in the case of a company listed on a foreign stock exchange(such as our Company). One of the external directors must have accounting and financial expertise. Gil Bianco and Issac Silberman have served as ourexternal directors since 2010. Mr. Bianco and Mr. Silberman were reelected to serve a second term from April 2013 and until April 2016. Our board ofdirectors has determined that both Mr. Bianco and Mr. Silberman have accounting and financial expertise. The provisions of the Companies Law set forth special approval requirements for the election of external directors. External directors must be elected bya majority vote of the shares present and voting at a shareholders meeting, provided that either: •such majority includes at least a majority of the shares held by all shareholders who are non-controlling shareholders and do not have a personalinterest in the election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that arevoted at the meeting, excluding abstentions, to which we refer as a disinterested majority; or •the total number of shares voted by non-controlling shareholders and by shareholders who do not have a personal interest in the election of theexternal director, against the election of the external director, does not exceed 2% of the aggregate voting rights in the company. The term controlling shareholder is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, excludingsuch ability deriving solely from his or her position as a director of the company or from any other position with the company. A shareholder is presumed tobe a controlling shareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors ofthe company or its general manager. With respect to certain matters, a controlling shareholder is deemed to include a shareholder that holds 25% or more ofthe voting rights in a public company if no other shareholder holds more than 50% of the voting rights in the company. The initial term of an external director is three years. Thereafter, an external director may be reelected by shareholders to serve in that capacity for up totwo additional three-year terms, except as provided below, provided that either: (i)his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rightsand is approved at a shareholders’ meeting by a disinterested majority, where the total number of shares held by non-controlling, disinterestedshareholders voting for such reelection exceeds 2% of the aggregate voting rights in the company. In such event, the external director soreappointed may not be a Related or Competing Shareholder, or a relative of such shareholder, at the time of the appointment, and is not and hasnot had any affiliation with a Related or Competing Shareholder, at such time or during the two years preceding such person’s reappointment toserve an additional term as external director. The term “Related or Competing Shareholder” means a shareholder proposing the reappointment or ashareholder holding 5% or more of the outstanding shares or voting rights of the company, provided, that at the time of the reappointment, suchshareholder, the controlling shareholder of such shareholder, or a company controlled by such shareholder, have a business relationship with thecompany or are competitors of the company. Additionally, the Israeli Minister of Justice, in consultation with the Israeli Securities Authority, maydetermine matters that under certain conditions will not constitute a business relationship or competition with the company; 97  (ii)the external director proposed his or her own nomination, and such nomination was approved in accordance to the requirements described in theparagraph above; or (iii)his or her service for each such additional term is recommended by the board of directors and is approved at a shareholders meeting by the samemajority required for the initial election of an external director (as described above). The term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including the NASDAQ Capital Market, may beextended indefinitely in increments of additional three-year terms, in each case provided that the audit committee and the board of directors of the companydetermined that in light of the external director’s expertise and special contribution to the work of the board of directors and its committees, the reelection forsuch additional period(s) is in the best interest of the company, and provided that the external director is reelected subject to the same shareholder voterequirements as if elected for the first time (as described above). Prior to the approval of the reelection of the external director at a general shareholdersmeeting, the company’s shareholders must be informed of the term previously served by him or her and of the reasons, which led the board of directors andaudit committee to recommend the extension of his or her tenure. External directors may be removed from office by a special general meeting of shareholders called by the board of directors, which approves suchdismissal by the same majority vote required for their election or by a court, in each case, only under limited circumstances, including ceasing to meet thestatutory qualifications for appointment, or violating their duty of loyalty towards the company. If an external directorship becomes vacant and there arefewer than two external directors on the board of directors at the time, then the board of directors is required under the Companies Law to call a specialshareholders’ meeting as soon as practicable to appoint a replacement external director. Each committee of the board of directors that is authorized to exercise the powers of the board of directors must include at least one external director,except that the audit committee and the compensation committee must include all external directors then serving on the board of directors. Under theCompanies Law, external directors of a company are prohibited from receiving, directly or indirectly, any compensation from the company other thancompensation and reimbursement of expenses amounts for their services as external directors prescribed under the Companies Law and the regulationspromulgated thereunder. Compensation of an external director is determined prior to his or her appointment and may not be changed during his or her termsubject to certain exceptions. The Companies Law provides that a person is not qualified to serve as an external director if (i) the person is a relative of a controlling shareholder of thecompany, or (ii) if that person or his or her relative, partner, employer, another person to whom he or she was directly or indirectly subordinate, or any entityunder the person’s control, has or had, during the two years preceding the date of appointment as an external director: (a) any affiliation with the company,with any person or entity controlling the company or a relative of such person on the date of appointment, or with any entity controlled by or under commoncontrol with the company; or (b) in the case of a company with no shareholder holding 25% or more of its voting rights, had at the date of appointment as anexternal director, any affiliation with a person then serving as chairman of the board or chief executive officer, a holder of 5% or more of the issued sharecapital or voting power in the company or the most senior financial officer. The term relative is defined as a spouse, sibling, parent, grandparent or descendant; spouse’s sibling, parent or descendant; and the spouse of each of theforegoing persons. The term affiliation includes (subject to certain exceptions): •an employment relationship; •a business or professional relationship even if not maintained on a regular basis (excluding insignificant relationships); •control; and 98  •service as an office holder, excluding service as a director in a private company prior to the initial public offering of its shares if such director wasappointed as a director of the private company in order to serve as an external director following the initial public offering. Additionally, the Israeli Minister of Justice, in consultation with the ISA, is authorized to determine that certain matters will not constitute an affiliation. The term “office holder” is defined under the Companies Law as a general manager, chief business manager, deputy general manager, vice generalmanager, any other person assuming the responsibilities of any of these positions regardless of that person’s title, a director and any other manager directlysubordinate to the general manager. In addition, no person may serve as an external director of a company if: (i) that person’s position or professional or other activities create, or may create,a conflict of interest with that person’s responsibilities as a director or otherwise interfere with that person’s ability to serve as an external director; (ii) at thetime of appointment, such person serves as a director of another company and an external director of the other company is also a director of the company; (iii)the person is an employee of the ISA or of an Israeli stock exchange; or (iv) such person received direct or indirect compensation from the company inconnection with such person’s services as an external director, other than as permitted by the Companies Law and the regulations promulgated thereunder. Following the termination of an external director’s service on a board of directors, such former external director and his or her spouse and children maynot receive a direct or indirect benefit by the company, its controlling shareholder or any entity under the control of its controlling shareholder. Theforegoing includes engagement as an office holder or director of the company or a company controlled by its controlling shareholder or employment by, orprovision of services to, any such company for consideration, either directly or indirectly, including through a corporation controlled by such former externaldirector. This restriction extends for a period of two years with regard to the former external director and his or her spouse or child and for one year withrespect to other relatives of the former external director. If at the time at which an external director is appointed all members of the board of directors who are not controlling shareholders or relatives ofcontrolling shareholders of the company are of the same gender, the external director to be appointed must be of the other gender. According to regulations promulgated under the Companies Law, a person may be appointed as an external director only if he or she has professionalqualifications. In addition, at least one of the external directors must be determined by our board of directors to have accounting and financial expertise.However, if at least one of our other directors (i) meets the independence requirements under the Exchange Act, (ii) meets the standards of the NASDAQCapital Market Listing Rules for membership on the audit committee and (iii) has accounting and financial expertise as defined under Companies Law, thenneither of our external directors is required to possess accounting and financial expertise as long as each possesses the requisite professional qualifications. A director with accounting and financial expertise is a director who, due to his or her education, experience and skills, possesses an expertise in, and anunderstanding of, financial and accounting matters and financial statements, such that he or she is able to understand the financial statements of the companyand initiate a discussion about the presentation of financial data. In determining whether the director has financial and accounting expertise the board ofdirectors shall consider education, experience and the knowledge in the following subjects: (i) accounting issues and internal auditing issues typical to thecompany’s industry and to companies of the same size and complexity as the company; (ii) the nature of the Internal Auditor’s position in the company andhis or her duties; and (iii) the preparation of financial statements and their approval subject to the Companies Law and the Israeli Securities Law. A director is deemed to have professional qualifications if he or she has any of (i) an academic degree in economics, business management, accounting,law or public administration, (ii) an academic degree or has completed another form of higher education in the primary field of business of the company or ina field which is relevant to his/her position in the company, or (iii) at least five years of experience serving in one of the following capacities, or at least fiveyears of cumulative experience serving in two or more of the following capacities: (a) a senior business management position in a company with a significantvolume of business; (b) a senior position in the company’s primary field of business; or (c) a senior position in public administration or service. The board ofdirectors is charged with determining whether a director possesses financial and accounting expertise or professional qualifications. 99  Audit Committee Our audit committee consists of Mr. Amir Hayek, along with our two external directors, Gil Bianco and Issac Silberman. Mr. Bianco serves as theChairman of the audit committee. Companies Law Requirements Under the Companies Law, we are required to appoint an audit committee. The audit committee must be comprised of at least three directors, includingall of the external directors, one of whom must serve as chairman of the committee. The audit committee may not include the chairman of the board ofdirectors, a controlling shareholder of the company or a relative of a controlling shareholder, a director employed by or providing services on a regular basisto the company, to a controlling shareholder or to an entity controlled by a controlling shareholder or a director most of whose livelihood depends on acontrolling shareholder. In addition, under the Companies Law, the audit committee of a publicly traded company must consist of a majority of unaffiliated directors. An“unaffiliated director” under the Companies Law is generally defined as either an external director or as a director who meets the following criteria: •he or she meets the qualifications for being appointed as an external director, except for the requirement that the director be an Israeli resident(which does not apply to companies such as ours whose securities have been offered outside of Israel or are listed outside of Israel); and •he or she has not served as a director of the company for a period exceeding nine consecutive years, provided that, for this purpose, a break of lessthan two years in service shall not be deemed to interrupt the continuation of the service. The Companies Law further requires that generally, any person who does not qualify to be a member of the audit committee may not attend the auditcommittee’s meetings and voting sessions, unless such person was invited by the chairperson of the committee for the purpose of presenting on a specificsubject, provided, however, that an employee of the company who is not the controlling shareholder or a relative thereof, may attend the discussions of thecommittee provided that the resolutions are resolved without his or her presence. A company’s legal advisor and company secretary whom are not thecontrolling shareholder or a relative thereof may attend the meeting and voting sessions, if required by the committee. The quorum required for the convening of meetings of the audit committee and for adopting resolutions by the audit committee is a majority of themembers of the audit committee, provided such majority is comprised of a majority of independent directors, and at least one of those present is an externaldirector. Listing Requirements Under the NASDAQ Capital Market corporate governance rules, 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. All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQCapital Market corporate governance rules. Prior to the consummation of our initial public offering in the United States, our board of directors affirmativelydetermined that Gil Bianco is an audit committee financial expert as defined by the SEC rules and has the requisite financial experience as defined by theNASDAQ Capital Market corporate governance rules. 100  Each of the members of the audit committee is “independent” as such term is defined in Rule 10A-3(b)(1) under the Exchange Act, which is differentfrom the general test for independence of board and committee members. Audit Committee Role Prior to the consummation of our initial public offering in the United States, our board of directors adopted an audit committee charter to be effectiveupon the listing of our shares on the NASDAQ Capital Market that sets forth the responsibilities of the audit committee consistent with the rules of the SECand the Listing Rules of the NASDAQ Capital Market, as well as the requirements for such committee under the Companies Law, including the following: •oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement ofour independent registered public accounting firm to the board of directors in accordance with Israeli law; •recommending the engagement or termination of the person filling the office of our internal auditor; and •recommending the terms of audit and non-audit services provided by the independent registered public accounting firm for pre-approval by ourboard of directors. 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 and systems of internal control over financial reporting. Our audit committee also oversees theaudit efforts of our independent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent ofmanagement. Under the Companies Law, our audit committee is responsible for: (i)determining whether there are deficiencies in the business management practices of our Company, including in consultation with our internalauditor or the independent auditor, and making recommendations to the board of directors to improve such practices; (ii)determining the approval process for transactions that are ‘non-negligible’ (i.e., transactions with a controlling shareholder that are classified bythe audit committee as non-negligible, even though they are not deemed extraordinary transactions), as well as determining which types oftransactions would require the approval of the audit committee, optionally based on criteria which may be determined annually in advance by theaudit committee; (iii)determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest andwhether such transaction is extraordinary or material under Companies Law) (see “— Approval of Related Party Transactions under Israeli Law”); (iv)where the board of directors approves the working plan of the internal auditor, to examine such working plan before its submission to our board ofdirectors and proposing amendments thereto; (v)examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools todispose of its responsibilities; (vi)examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors orshareholders, depending on which of them is considering the appointment of our auditor; and (vii)establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to suchemployees. 101  Our audit committee may not approve any actions requiring its approval (see “— Approval of Related Party Transactions under Israeli Law”), unless atthe time of the approval a majority of the committee’s members are present, which majority consists of unaffiliated directors including at least one externaldirector. Pursuant to a recent amendment to the Companies Law enacted on February 17, 2016, a company whose audit committee’s composition meets therequirements set forth for the composition of a compensation committee (as further detailed below) is permitted to have one committee acting as both anaudit and compensation committee. Compensation Committee and Compensation Policy Our compensation committee currently consists of Mr. Amir Hayek, Mr. Issac Silberman and Mr. Gil Bianco. Mr. Silberman serves as the Chairman of thecompensation committee. Under the Companies Law, the board of directors of a public company must appoint a compensation committee and adopt a compensation policy. Thecompensation committee must be comprised of at least three directors, including all of the external directors, who must constitute a majority of the membersof the compensation committee, and one of the external directors must serve as chairman of the committee. However, subject to certain exceptions, Israelicompanies whose securities are traded on stock exchanges such as the NASDAQ Capital Market, and who do not have a controlling shareholder, do not haveto meet this majority requirement; provided, however, that the compensation committee meets other Companies Law composition requirements, as well as therequirements of the jurisdiction where the company’s securities are listed. Each compensation committee member that is not an external director must be adirector whose compensation does not exceed an amount that may be paid to an external director (under the Companies Law and applicable regulations). Thecompensation committee is subject to the same Companies Law restrictions as the audit committee as to who may not be a member of the committee. The compensation policy must be based on certain considerations, must include certain provisions and needs to reference certain matters as set forth inthe Companies Law. The compensation policy must be approved by the company’s board of directors after considering the recommendations of thecompensation committee. In addition, the compensation policy needs to be approved by the company’s shareholders by a simple majority, provided that (i)such majority includes a majority of the votes cast by the shareholders who are not controlling shareholders and who do not have a personal interest in thematter, present and voting (abstentions are disregarded) or (ii) the votes cast by shareholders who are not controlling shareholders and who do not have apersonal interest in the matter who were present and voted against the compensation policy, constitute two percent or less of the voting power of thecompany. Such majority determined in accordance with clause (i) or (ii) is hereinafter referred to as the “Compensation Majority.” To the extent a compensation policy is not approved by shareholders at a duly convened shareholders meeting, the board of directors of a company mayoverride the resolution of the shareholders following a re-discussion of the matter by the board of directors and the compensation committee and for specifiedreasons, and after determining that despite the rejection by the shareholders, the adoption of the compensation policy is in the best interest of the company. A compensation policy that is for a period of more than three years must be approved in accordance with the above procedure once in every three years. Notwithstanding the above, the amendment of existing terms of office and employment of office holders (other than directors or controlling shareholdersand their relatives, who serve as office holders) requires the sole approval of the compensation committee, if such committee determines that the amendmentis not material in relation to its existing terms. 102  In accordance with the Companies Law, and following the recommendation of our compensation committee, our board of directors approved ourcompensation policy, and our shareholders, in turn, approved the compensation policy at our annual general meeting of shareholders that was held in January2014. The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms ofengagement of office holders, to which we refer as a compensation policy. That policy must be adopted by the company’s board of directors, after consideringthe recommendations of the compensation committee, and will need to be brought for approval by the company’s shareholders, which approval requires aSpecial Approval for Compensation as defined below under “— Approval of related party transactions under Israeli law — Fiduciary duties of directors andexecutive officers.” The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, includingexculpation, insurance, indemnification or any monetary payment or 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 the following additional factors: •the knowledge, skills, expertise and accomplishments of the relevant office holder; •the office holder’s roles and responsibilities and prior compensation agreements with him or her; •the ratio between the cost of the terms of employment of an office holder and the cost of the compensation of the other employees of the company,including those employed through manpower companies, in particular the ratio between such cost and the average and median compensation of theother employees of the company, as well as the impact such disparities may have on the work relationships in the company; •the possibility of reducing variable compensation, if any, at the discretion of the board of directors; and the possibility of setting a limit on theexercise value of non-cash variable equity-based compensation; and •as to severance compensation, if any, the period of service of the office holder, the terms of his or her compensation during such service period, thecompany’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and themaximization of its profits, and the circumstances under which the person is leaving the company. The compensation policy must also include the following principles: •the link between variable compensation and long-term performance and measurable criteria; •the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation; •the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data uponwhich such compensation was based was inaccurate and was required to be restated in the company’s financial statements; •the minimum holding or vesting period for variable, equity-based compensation; and •maximum limits for severance compensation. The compensation committee is responsible for (a) recommending the compensation policy to a company’s board of directors for its approval (andsubsequent approval by its shareholders) and (b) duties related to the compensation policy and to the compensation of a company’s office holders as well asfunctions previously fulfilled by a company’s audit committee with respect to matters related to approval of the terms of engagement of office holders,including: •recommending whether a compensation policy should continue in effect, if the then-current policy has a term of greater than three years (approval ofeither a new compensation policy or the continuation of an existing compensation policy must in any case occur every three years); 103  •recommending to the board of directors periodic updates to the compensation policy; •assessing implementation of the compensation policy; and •determining whether the compensation terms of the chief executive officer of the company need not be brought to approval of the shareholders. Compensation Committee Role Under the Companies Law the compensation committee is responsible, among others, for (i) recommending to the board of directors regarding itsapproval of a compensation policy in accordance with the requirements of the Companies Law; (ii) overseeing the development and implementation of suchcompensation policy and recommending to the board of directors regarding any amendments or modifications that the compensation committee deemsappropriate; and (iii) determining whether to approve transactions concerning the terms of engagement and employment of our officers and directors thatrequire compensation committee approval under the Companies Law. Internal Auditor Under the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor in accordance with the recommendationof the audit committee. An internal auditor may not be: •a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights; •a person (or a relative of a person) who has the power to appoint a director or the general manager of the company; •an office holder (including a director) of the company (or a relative thereof); or •a member of the company’s independent accounting firm, or anyone on his or her behalf. The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The auditcommittee is required to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. Mr.Haim Halfon has been appointed as our internal auditor. Mr. Haim Halfon is a certified internal auditor and a partner of Amit, Halfon CPA. The board of directors shall determine the direct supervisor of the internal auditor. The internal auditor is required to submit his findings to the auditcommittee, unless specified otherwise by the board of directors. Approval of Related Party Transactions under Israeli Law Fiduciary Duties of Directors and Executive Officers The Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Management — ExecutiveOfficers and Directors” is an office holder under the Companies Law. An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of carewith which a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires that an office holderact in good faith and in the best interests of the company. The duty of care includes a duty to use reasonable means to obtain: 104  •information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and •all other important information pertaining to any such action. The duty of loyalty includes a duty to: •refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs; •refrain from any activity that is competitive with the company; •refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and •disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or herposition as an office holder. Disclosure of Personal Interests of an Office Holder and Approval of Certain Transactions The Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she may be aware of and allrelated material information or documents concerning any existing or proposed transaction with the company. An interested office holder’s disclosure mustbe made promptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. A personal interest includesan interest of any person in an act or transaction of a company, including a personal interest of such person’s relative or of a corporate body in which suchperson or a relative of such person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least onedirector or the general manager, but excluding a personal interest stemming from one’s ownership of shares in the company. A personal interest furthermoreincludes the personal interest of a person for whom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or hervote on behalf of a person for whom he or she holds a proxy even if such shareholder has no personal interest in the matter. An office holder is not however,obligated to disclose a personal interest if it derives solely from the personal interest of his or her relative in a transaction that is not considered anextraordinary transaction. Under the Companies Law, an extraordinary transaction is defined as any of the following: •a transaction other than in the ordinary course of business; •a transaction that is not on market terms; or •a transaction that may have a material impact on a company’s profitability, assets or liabilities. If it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction, unless thecompany’s articles of association provide for a different method of approval. Our articles of association do not provide otherwise. Further, so long as an officeholder has disclosed his or her personal interest in a transaction, the board of directors may approve an action by the office holder that would otherwise bedeemed a breach of the duty of loyalty. However, a company may not approve a transaction or action that is adverse to the company’s interest or that is notperformed by the office holder in good faith. An extraordinary transaction in which an office holder has a personal interest requires approval of thecompany’s audit committee followed by the approval of the board of directors. The compensation of, or an undertaking to indemnify or insure, an officeholder who is not a director requires approval by the company’s compensation committee, followed by the approval of the company’s board of directors, and,if such compensation arrangement or an undertaking to indemnify or insure is inconsistent with the company’s stated compensation policy, or if the saidoffice holder is the Chief Executive Officer (apart from a number of specific exceptions), then such arrangement is subject to the approval of a majority voteof the shares present and voting at a shareholders meeting, provided that either: (a) such majority includes at least a majority of the shares held by allshareholders who are not controlling shareholders and do not have a personal interest in such compensation arrangement (excluding abstainingshareholders); or (b) the total number of shares of non-controlling shareholders and shareholders who do not have a personal interest in the compensationarrangement and who vote against the arrangement does not exceed 2% of the company’s aggregate voting rights. We refer to this as the Special Approval forCompensation. Arrangements regarding the compensation, indemnification or insurance of a director require the approvals of the compensation committee,board of directors and shareholders by simple majority, and under certain circumstances, a Special Approval for Compensation. 105  Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not bepresent at such a meeting or vote on that matter unless the chairman of the relevant committee or board of directors, as applicable, determines that he or sheshould be present in order to present the transaction that is subject to approval. Generally, if a majority of the members of the audit committee or the board ofdirectors, as applicable, have a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee or theboard of directors, as applicable. In the event a majority of the members of the board of directors have a personal interest in the approval of a transaction, thenthe approval thereof shall also require the approval of the shareholders. Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain Transactions Pursuant to the Companies Law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to acontrolling shareholder of a public company. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includesa shareholder who holds 25% or more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company.For this purpose, the holdings of all shareholders who have a personal interest in the same transaction will be aggregated. The approval of the auditcommittee or the compensation committee, as the case may be, the board of directors and the shareholders of the company, in that order is required for (a)extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, (b) the engagement with a controllingshareholder or his or her relative, directly or indirectly, for the provision of services to the company, (c) the terms of engagement and compensation of acontrolling shareholder or his or her relative who is not an office holder or (d) the employment of a controlling shareholder or his or her relative by thecompany, other than as an office holder (collectively referred as Transaction with a Controlling Shareholder). In addition, such shareholder approval requiresone of the following, which we refer to as a Special Majority: •at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting at themeeting approving the transaction, excluding abstentions; or •the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at themeeting do not exceed 2% of the voting rights in the company. To the extent that any such Transaction with a Controlling Shareholder is for a period extending beyond three years, approval is required once everythree years, unless, with respect to certain transactions, the audit committee determines that the duration of the transaction is reasonable given thecircumstances related thereto. Arrangements regarding the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require theapproval of the compensation committee, board of directors and shareholders by a Special Majority and the terms thereof may not be inconsistent with thecompany’s stated compensation policy. Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder, a relative thereof, or with a director,that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the auditcommittee and board of directors. Under these regulations, a shareholder holding at least 1% of the issued share capital of the company or the voting rightsmay require, within 14 days of the publication of such determinations, that despite such determinations by the audit committee and the board of directors,such transaction will require shareholder approval under the same majority requirements that would otherwise apply to such transactions. 106  Shareholder Duties Pursuant to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and its other shareholdersand to refrain from abusing his or her power in the company, including, among other things, in voting at a general meeting and at shareholder class meetingswith respect to the following matters: •an amendment to the company’s articles of association; •an increase of the company’s authorized share capital; •a merger; or •the approval of related party transactions and acts of office holders that require shareholder approval. In addition, a shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, certain shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder, anyshareholder who knows that he or she has the power to determine the outcome of a shareholder vote at a general meeting or a shareholder class meeting andany shareholder who has the power to appoint or to prevent the appointment of an office holder of the company or other power towards the company. TheCompanies Law does not define the substance of the duty of fairness, except to state that the remedies generally available upon a breach of contract will alsoapply in the event of a breach of the duty to act with fairness. Exculpation, Insurance and Indemnification of Directors and Officers Under the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company mayexculpate an office holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty ofcare but only if a provision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. Thecompany may not exculpate in advance a director from liability arising out of a prohibited dividend or distribution to shareholders. Under the Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed byhim or her as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of associationinclude a provision authorizing such indemnification: •monetary liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved bya court. However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertakingmust be limited to events which, in the opinion of the board of directors, can be foreseen based on the company’s activities when the undertaking toindemnify is given, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and suchundertaking shall detail the abovementioned foreseen events and amount or criteria; •reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (i) as a result of an investigation or proceeding institutedagainst him or her by an authority authorized to conduct such investigation or proceeding, provided that (A) no indictment was filed against suchoffice holder as a result of such investigation or proceeding; and (B) no financial liability, such as a criminal penalty, was imposed upon him or heras a substitute for the criminal proceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposedwith respect to an offense that does not require proof of criminal intent; and (ii) in connection with a monetary sanction; and 107  •reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him orher by the company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as aresult of a conviction for an offense that does not require proof of criminal intent. Under the Companies Law and the Israeli Securities Law 5728-1968, or the Israeli Securities Law, a company may insure an office holder against thefollowing liabilities incurred for acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association: •a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the actwould not harm the company; •a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; and •a monetary liability imposed on the office holder in favor of a third party. Under our articles of association, we may insure and indemnify an office holder against the aforementioned liabilities as well as the following liabilities: •a breach of duty of care to the Company or to a third party; •any other action which is permitted by law to insure an office holder against; •expenses incurred and/or paid by the office holder in connection with an administrative enforcement procedure under any applicable law includingthe Efficiency of Enforcement Procedures in the Securities Authority Law (legislation amendments), 5771-2011 and the Israeli Securities Law, whichwe refer to as an Administrative Enforcement Procedure, and including reasonable litigation expenses and attorney fees; and •a monetary liability in favor or a victim of a felony pursuant to Section 52ND of the Israeli Securities Law. Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following: •a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that theoffice holder acted in good faith and had a reasonable basis to believe that the act would not harm the company; •a breach of duty of care committed intentionally or recklessly, excluding a breach arising solely out of the negligent conduct of the office holder; •an act or omission committed with intent to derive illegal personal benefit; or •a civil or administrative fine or forfeit levied against the office holder. Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensationcommittee and the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders. See “— Approval ofRelated Party Transactions under Israeli Law.” Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by theCompanies Law and the Israeli Securities Law. 108  We have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law and ourarticles of association, and undertaking to indemnify them to the fullest extent permitted by law and our articles of association. This indemnification islimited to events determined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by theboard of directors as reasonable under the circumstances. The maximum indemnification amount set forth in such agreements is limited to an amount which shall not exceed 25% of our shareholders equity basedon our most recently audited or reviewed financial statements prior to actual payment of the indemnification amount. Such maximum amount is in additionto any amount paid (if paid) under insurance and/or by a third-party pursuant to an indemnification arrangement. In the opinion of the SEC, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is against public policyand therefore unenforceable. We have obtained directors’ and officers’ liability insurance for the benefit of our office holders and intend to continue to maintain such coverage andpay all premiums thereunder to the fullest extent permitted by the Companies Law. In addition, prior to the closing of our initial public offering in the UnitedStates, we entered into agreements with each of our office holders undertaking to indemnify them to the fullest extent permitted by the Companies Law,including with respect to liabilities resulting from the offering to the extent that these liabilities are not covered by insurance. Code of Ethics In November 2011, our board of directors adopted a Code of Ethics that was amended in April 2014, applicable to all of our directors, officers, managersand employees, including our Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other persons performing similarfunctions. Our board of directors further amended the Code of Ethics prior to the effectiveness of the registration statement of our initial public offering in theUnited States so that the Code of Ethics qualifies as a “code of ethics” as defined in Item 16B of Form 20-F promulgated by the SEC. Upon the effectivenessof the registration statement of our initial public offering in the United States, the full text of the Code of Ethics was posted on our website atwww.intecpharma.com. Information contained on, or that can be accessed through, our website does not constitute a part of this annual report and is notincorporated by reference herein. If we make any amendment to the Code of Ethics or grant any waivers, including any implicit waiver, from a provision ofthe Code of Ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of the SEC.Under Item 16B of the SEC’s Form 20-F, if a waiver or amendment of the Code of Ethics applies to our principal executive officer, principal financial officer,principal accounting officer or controller and relates to standards promoting any of the values described in Item 16B(b) of Form 20-F, we are required todisclose such waiver or amendment on our website in accordance with the requirements of Instruction 4 to such Item 16B. D. Employees. As of December 31, 2015, we had 52 employees, five of whom were employed in management, six of whom were employed in finance andadministration, 34 of whom were employed in research and development and operations and seven of whom were employed in clinical trials and qualityassurance. All of these employees are located in Israel. Israeli labor laws principally govern the length of the workday, minimum wages for employees, procedures for hiring and dismissing employees,determination of severance pay, annual leave, sick days, advance notice of termination of employment, equal opportunity and anti-discrimination laws andother conditions of employment. Subject to certain exceptions, Israeli law generally requires severance pay upon the retirement, death or dismissal of anemployee, and requires us and our employees to make payments to the National Insurance Institute, which is similar to the U.S. Social SecurityAdministration. Our employees have defined benefit pension plans that comply with applicable Israeli legal requirements, which also include the mandatorypension payments required by applicable law and allocations for severance pay. 109  While none of our employees are party to any collective bargaining agreements, certain provisions of the collective bargaining agreements between theHistadrut (General Federation of Labor in Israel) and the Coordination Bureau of Economic Organizations (including the Industrialists’ Associations) areapplicable to our employees by extension orders issued by the Israel Ministry of Economy (previously the Israeli Ministry of Trade, Industry and Labor).These provisions primarily concern the length of the workweek, pension fund benefits for all employees and for employees in the industry section, insurancefor work-related accidents, travel expenses reimbursement, holiday leave, convalescent payments and entitlement for vacation days. We generally provideour employees with benefits and working conditions beyond the required minimums. We have never experienced any employment-related work stoppagesand believe our relationship with our employees is good. E. Share Ownership. The following table sets forth certain information regarding the beneficial ownership of our ordinary shares as of December 31, 2015 by: •each of our directors and executive officers; •all of our executive officers and directors as a group; and •each person (or group of affiliated persons) known by us to be the beneficial owner of more than 5% of the outstanding ordinary shares. Except as otherwise indicated in the footnotes to this table, we believe the persons named in this table have sole voting and investment power withrespect to all the ordinary shares indicated. The following table sets forth information relating to the beneficial ownership of our ordinary shares as ofDecember 31, 2015. As of December 31, 2015 OrdinaryShares % Zvika Joseph 201,371(1) 1.76%Zeev Weiss 97,163(2) + Oren Mohar 28,000(3) + Liat Flaishon — — Nadav Navon 35,835(4) + Gil Bianco 10,751(5) + Amir Hayek 10,751(5) + Hila Karah 10,751(5) + Issac Silberman 10,751(5) + All executive officers and directors as a group (9 people) 405,373(6) 3.55%Phoenix Holdings Ltd. 576,933(7) 5.04%Cormorant Global Healthcare Master Fund, LP 800,000 6.99%Sabby Healthcare Master Fund 670,449 5.86%Opaleye Management Inc. 630,000 5.50% +Less than 1%.*Percentages and number of ordinary shares calculated in accordance with SEC rules and based upon 11,448,191 ordinary shares issued and outstandingas of December 31, 2015. 110  (1)Consists of 161,211 ordinary shares, options to purchase 20,827 ordinary shares with an exercise price of NIS 81.1 per share and with an expiration dateof May 1, 2017 and options to purchase 19,333 ordinary shares with an exercise price of NIS 56.35 per share and with an expiration date of August 26,2019. All such options have vested or will vest within 60 days of December 31, 2015.(2)Consists of 59,663 ordinary shares, and options to purchase 37,500 ordinary shares with an exercise price of NIS 47.60 per share and with an expirationdate of May 30, 2018. All such options have vested or will vest within 60 days of December 31, 2015.(3)Options to purchase 28,000 ordinary shares with an exercise price of NIS 27.93 per share and with an expiration date of January 1, 2021. All such optionshave vested or will vest within 60 days of December 31, 2015.(4)Consists of 8,585 ordinary shares and options to purchase 21,000 ordinary shares with an exercise price of NIS 42.69 per share and with an expirationdate of October 13, 2016 and options to purchase 6,250 ordinary shares with an exercise price of NIS 56.35 per share and with an expiration date ofAugust 26, 2019. All such options have vested or will vest within 60 days of December 31, 2015.(5)Consists of options to purchase 10,751 ordinary shares with an exercise price of NIS 48.91 per share and with an expiration date of July 1, 2020. All suchoptions have vested or will vest within 60 days of December 31, 2015.(6)See footnotes (1) through (5).(7)Consists of 576,933 ordinary shares. The ordinary shares are beneficially owned by various direct or indirect, majority or wholly-owned subsidiaries ofthe Phoenix Holding Ltd. The Phoenix Holding Ltd. is a majority-owned subsidiary of Delek Group Ltd. The majority of Delek Group Ltd.’s outstandingshares and voting rights are owned, directly and indirectly, by Itshak Sharon (Tshuva) through private companies wholly-owned by him, and theremainder is held by the public according to the following segmentation: 527,780 ordinary shares held by Phoenix Holdings Ltd. - Gemel and Pension,2,700 ordinary shares held by Excellence Investments Ltd - mutual funds and 46,453 ordinary shares are held by Excellence Investments Ltd ETF. None of our shareholders has different voting rights from other shareholders. ITEM 7. Major Shareholders and Related Party Transactions. A. Major Shareholders. Except as set forth in “Item 6. Directors, Senior Management and Employees—E. Share Ownership”, to the best of our knowledge, no other person whowe know beneficially owns 5.0% or more of the Company’s ordinary shares outstanding as of December 31, 2015. None of our shareholders has differentvoting rights from other shareholders. Other than as described herein, to the best of our knowledge, we are not owned or controlled, directly or indirectly, byanother corporation, by any foreign government or by any natural person or legal persons, severally or jointly, and we are not aware of any arrangement thatmay, at a subsequent date, result in a change of control of our company. B. Related Party Transactions. The following is a description of some of the transactions with related parties to which we are party and which were in effect within the past three fiscalyears. The descriptions provided below are summaries of the terms of such agreements and do not purport to be complete and are qualified in their entirety bythe complete agreements. We believe that we have executed all of our transactions with related parties on terms no less favorable to us than those we could have obtained fromunaffiliated third parties. See “Management — Approval of Related Party Transactions under Israeli Law.” Indemnification Agreements Our articles of association permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted by the CompaniesLaw. We have obtained directors’ and officers’ insurance for each of our officers and directors and have entered into indemnification agreements with all ofour current officers and directors. 111  We have entered into indemnification and exculpation agreements with each of our current office holders and directors exculpating them to the fullestextent permitted by the law and our articles of association and undertaking to indemnify them to the fullest extent permitted by the law and our articles ofassociation, including with respect to liabilities resulting from this annual report, to the extent such liabilities are not covered by insurance. See“Management — Exculpation, Insurance and Indemnification of Directors and Officers.” Registration Rights Agreement The investors in our August 2013 financing round have piggyback registration rights for any ordinary shares purchased in the round or received pursuantto the exercise of warrants issued in the round. The subscription agreements with respect to such shares provided that because such shares were not includedin the registration statement of our initial public offering in the United States, following the expiration or earlier waiver of the lock-up period for our initialpublic offering in the United States, the holders of up to 976,225 ordinary shares, consisting of (a) 522,681 ordinary shares, including 202,018 ordinaryshares issued as a result of a previous Downside Protection event, (b) 198,812 ordinary shares underlying warrants issued as part of the August 2013 financialround, (c) an additional 80,166 ordinary shares underlying warrants that were issued as part of the August 2013 financing round because we did not completecertain obligations by September 30, 2014 and (d) 174,566 ordinary shares to investors in our August 2013 financing round as a result of the DownsideProtection based on 192,398 ordinary shares held by investors in our August 2013 financing round as of August 3, 2015, would be entitled to request that weregister such securities under the Securities Act, subject to cutback for marketing reasons and certain other conditions. In order to better define theseregistration rights, on July 8, 2015 we entered into a new registration rights agreement, which we refer to as the Registration Rights Agreement, with theinvestors who previously held such rights. The investors party to the Registration Rights Agreement have demand and piggyback registration rights withrespect to the foregoing shares, subject to customary terms, conditions and limitations. As of the date hereof, 128,265 of the 320,663 ordinary sharesoriginally issued in the August 2013 financing round have been sold on the TASE, thus we no longer have any registration rights with respect to suchordinary shares. Employment and Consulting Agreements We have or have had employment, consulting or related agreements with each member of our senior management. See “Management — ExecutiveOfficers and Directors — Employment and Consulting Agreements.” C. Interests of Experts and Counsel. Not applicable. ITEM 8. Financial Information. A. Financial Statements and Other Financial Information. See “Item 18. Financial Statements” for a list of all financial statements filed as part of this Annual Report on Form 20-F. Legal Matters We are neither party to any legal or arbitration proceedings, including those relating to bankruptcy, receivership or similar proceedings and thoseinvolving any third-party, nor any governmental proceedings pending or known to be contemplated, which may have, or have had in the recent past,significant effects on the company’s financial position or profitability. Dividend Policy We have never declared or paid cash dividends to our shareholders. Currently we do not intend to pay cash dividends. We intend to reinvest anyearnings in developing and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our board ofdirectors and will depend on a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capitalrequirements, business prospects, applicable Israeli law and other factors our board of directors may deem relevant. Accordingly, we have not appointed anypaying agent. 112  In addition, the distribution of dividends is limited by the Companies Law, which permits the distribution of dividends only out of distributable profits.See “Description of Share Capital — Dividends.” In addition, if we pay a dividend out of income attributed to our Benefited Enterprise during the taxexemption period, we may be subject to tax on the grossed-up amount of such income at the corporate tax rate which would have been applied to suchBenefited Enterprise’s income had we not enjoyed the exemption. See Item 10. Additional Information—E. Taxation—Certain Israeli Tax Considerations”for additional information. B. Significant Changes. No significant changes with respect to our financial statements have occurred since December 31, 2015. ITEM 9. The Offer and Listing. 9.A.4 Offer and Listing Details Our ordinary shares have been listed on the Nasdaq Capital Market under the symbol “NTEC” since August 4, 2015. Prior to that date, there was nopublic trading market for our ordinary shares in the United States. Our initial public offering was priced at $6.00 per share. The following table sets forth forthe periods indicated the high and low sales prices per ordinary share as reported on the NASDAQ Capital Market: Low High Annual Information: 2015 $5.25 $6.19 Quarterly Information Third Quarter 2015 (commencing August 4, 2015) $5.26 $6.19 Fourth Quarter 2015 5.25 6.15 Monthly Information: August 2015 $5.26 $6.19 September 2015 5.38 6.19 October 2015 5.36 6.09 November 2015 5.30 6.15 December 2015 5.25 5.99 Our ordinary shares have been listed on the TASE under the symbol “INTP” since February 14, 2010. Prior to that date, there was no public tradingmarket for our ordinary shares in Israel. Our initial public offering was priced at NIS 45.28 per share. The following table sets forth for the periods indicatedthe high and low sales prices per ordinary share as reported on the TASE: Low High Annual Information: 2015 NIS20.15 NIS 36.80 Quarterly Information First Quarter 2015 NIS23.80 NIS31.05 Second Quarter 2015 26.60 36.80 Third Quarter 2015 20.15 36.42 Fourth Quarter 2015 20.57 24.00 Monthly Information: July 2015 NIS28.74 NIS36.42 August 2015 20.15 33.80 September 2015 21.00 23.81 October 2015 20.57 22.98 November 2015 21.30 24.00 December 2015 20.66 23.00 113  9.B. Plan of distribution Not applicable. 9.C. Market for Ordinary Shares Our ordinary shares have been quoted on the NASDAQ Capital Market since August 4, 2015 under the symbol “NTEC” and on the TASE since 2010under the symbol “INTP”. 9.D. Selling shareholders Not applicable. 9.E. Dilution Not applicable. 9.F. Expenses of the issue Not applicable. ITEM 10. Additional Information. A. Share Capital. Not applicable. B. Memorandum and Articles of Association. The following are summaries of material provisions of our articles of association and the Companies Law insofar as they relate to the material terms ofour ordinary shares. Holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders at a shareholder meeting.Shareholders may vote at shareholder meetings either in person, by proxy or by written ballot. Israeli law does not allow public companies to adoptshareholder resolutions by means of written consent in lieu of a shareholder meeting. The board of directors shall determine and provide a record date foreach shareholders meeting and all shareholders at such record date may vote. Unless stipulated differently in the Companies Law or in our articles ofassociation, all shareholders’ resolutions shall be approved by a simple majority vote. Except as otherwise disclosed herein, an amendment to our articles ofassociation requires the prior approval of a simple majority of our shares represented and voting at a general meeting and of the holders of a class of shareswhose rights are being affected (or the consent in writing of all the holders of such class of shares). Our number with the Israeli Registrar of Companies is513022780. Our purpose is set forth in Section 3 of our articles of association and includes every lawful purpose. Our ordinary shares that are fully paid for are issued in registered form and may be freely transferred under our articles of association, unless the transfer isrestricted or prohibited by applicable law or the rules of a stock exchange on which the shares are traded. The ownership or voting of our ordinary shares bynon-residents of Israel is not restricted in any way by our articles of association or Israeli law, except for ownership by nationals of some countries that are, orhave been, in a state of war with Israel. Pursuant to the Companies Law and our articles of association, our board of directors may exercise all powers and take all actions that are not requiredunder law or under our articles of association to be exercised or taken by our shareholders, including the power to borrow money for company purposes. 114  Our articles of association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law andmust be approved by a resolution duly passed by our shareholders at a general or special meeting by voting on such change in the capital. In addition,transactions that have the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings andprofits and an issuance of shares for less than their nominal value, require a resolution of our board of directors and court approval. Dividends Under the Companies Law, we may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concernthat the distribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the CompaniesLaw, the distribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years legally available fordistribution according to our then last reviewed or audited financial statements, provided that the date of the financial statements is not more than six monthsprior to the date of distribution. In the event that we do not have retained earnings or earnings generated over the two most recent years legally available fordistribution, we may seek the approval of the court in order to distribute a dividend. The court may approve our request if it is convinced that there is noreasonable concern that the payment of a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due. Shareholder Meetings Under the Companies Law, we are required to hold an annual general meeting of our shareholders once in every calendar year and no later than 15months following the date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to asspecial meetings. Our board of directors may call special meetings whenever it deems fit, at such time and place, within or outside of Israel, as it maydetermine. In addition, the Companies Law and our articles of association provide that our board of directors is required to convene a special meeting uponthe written request of (i) any two of our directors or one quarter of the directors then in office (ii) one or more shareholders holding, in the aggregate, 5% ofthe our issued share capital and 1% of our outstanding voting power or 5% of our outstanding voting power. Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at generalmeetings are the shareholders of record on a date to be decided by the board of directors. Furthermore, the Companies Law and our articles of associationrequire that resolutions regarding the following matters must be passed at a general meeting of our shareholders: •amendments to our articles of association; •appointment or termination of our auditors; •appointment of directors and appointment and dismissal of external directors; •approval of acts and transactions requiring general meeting approval pursuant to the Companies Law; •director compensation, indemnification and change of the principal executive officer; •increases or reductions of our authorized share capital; •a merger; •the exercise of our board of directors’ powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise of any ofits powers is required for our proper management; and •authorizing the chairman of the board of directors or his relative to act as the company’s chief executive officer or act with such authority; orauthorize the company’s chief executive officer or his relative to act as the chairman of the board of directors or act with such authority. 115  The Companies Law requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting and if theagenda of the meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, or anapproval of a merger, notice must be provided at least 35 days prior to the meeting. The Companies Law does not allow shareholders of publicly traded companies to approve corporate matters by written consent. Consequently, ourarticles of association do not allow shareholders to approve corporate matters by written consent. Pursuant to our articles of association, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote beforethe shareholders at a general meeting. Quorum The quorum required for our general meetings of shareholders consists of at least two shareholders present in person, by proxy or written ballot who holdor represent between them at least 25% of the total outstanding voting rights, within half an hour from the appointed time. A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or on a later date if so specifiedin the summons or notice of the meeting. At the reconvened meeting, any number of our shareholders present in person or by proxy shall constitute a lawfulquorum. Resolutions Our articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by applicable law. Israeli law provides that a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot in which theshareholder indicates how he or she votes on resolutions relating to the following matters: •an appointment or removal of directors; •an approval of transactions with office holders or interested or related parties, that require shareholder approval; •an approval of a merger; •authorizing the chairman of the board of directors or his relative to act as the company’s chief executive officer or act with such authority; orauthorize the company’s chief executive officer or his relative to act as the chairman of the board of directors or act with such authority; •any other matter that is determined in the articles of association to be voted on by way of a written ballot. Our articles of association do not stipulateany additional matters; and •other matters which may be prescribed by Israel’s Minister of Justice. The provision allowing the vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient to determine thevote. The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its othershareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when voting at general meetings onmatters such as changes to the articles of association, increasing the company’s registered capital, mergers and approval of certain interested or related partytransactions. A shareholder also has a general duty to refrain from depriving any other shareholder of its rights as a shareholder. In addition, any controllingshareholder, any shareholder who knows that its vote can determine the outcome of a shareholder’s vote and any shareholder who, under such company’sarticles of association, can appoint or prevent the appointment of an office holder or other power towards the company, is required to act with fairness towardsthe company. The Companies Law does not describe the substance of this duty except that the remedies generally available upon a breach of contract willalso apply to a breach of the duty to act with fairness, and, to the best of our knowledge, there is no binding case law that addresses this subject directly. 116  Under the Companies Law, unless provided otherwise in a company’s articles of association, a resolution at a shareholders meeting requires approval bya simple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the resolution. Generally, a resolutionfor the voluntary winding up of the company requires the approval of holders of 75% of the voting rights represented at the meeting, in person, by proxy orby written ballot and voting on the resolution. 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. Access to Corporate Records Under the Companies Law, all shareholders of a company generally have the right to review minutes of the company’s general meetings, its shareholdersregister and principal shareholders register, articles of association, financial statements and any document it is required by law to file publicly with the IsraeliCompanies Registrar and the ISA. Any of our shareholders may request access to review any document in our possession that relates to any action ortransaction with a related party, interested party or office holder that requires shareholder approval under the Companies Law. We may deny a request toreview a document if we determine that the request was not made in good faith, that the document contains a commercial secret or a patent or that thedocument’s disclosure may otherwise prejudice our interests. Acquisitions under Israeli Law Full Tender Offer A person wishing to acquire shares or a class of shares of an Israeli public company and who would, as a result, own more than 90% of the targetcompany’s issued and outstanding share capital or of a certain class of its shares, is required by the Companies Law to make a full tender offer (as defined inthe Companies Law) to all of the company’s shareholders for the purchase of all of the issued and outstanding shares of the company or class of shares. Ifeither (i) the shareholders who do not accept the offer hold, in the aggregate, less than 5% of the issued and outstanding share capital of the company or of theapplicable class, and more than half of the shareholders who do not have a personal interest in the offer accept the offer, or (ii) the shareholder who do notaccept the offer hold less than 2% of the issued and outstanding share capital of the company or of the applicable class, then all of the shares that the acquireroffered to purchase will be transferred to the acquirer by operation of law. However, a shareholder that had its shares so transferred, whether or not it acceptedthe tender offer (unless otherwise provided in the offering memorandum), may, within six (6) months from the date of acceptance of the tender offer, petitionthe court to determine that the tender offer was for less than fair value and that the fair value should be paid as determined by the court. If the shareholderswho did not accept the tender offer hold at least 5% of the issued and outstanding share capital of the company or of the applicable class of shares, theacquirer may not acquire shares of the company that will increase its holdings to more than 90% of the company’s issued and outstanding share capital or ofthe applicable class from shareholders who accepted the tender offer. 117  Special Tender Offer According to the Companies Law, an acquisition pursuant to which a purchaser shall hold a “controlling stake”, that is defined as 25% or more of thevoting rights if no other shareholder holds a controlling stake, or an acquisition pursuant to which such purchaser shall hold more than 45% of the votingrights of the company if no other shareholder owns more than 45% of the voting rights, may not be performed by way of market accumulation, but only byway of a special tender offer (as defined in the Companies Law) made to all of the company’s shareholders on a pro rata basis. A special tender offer may notbe consummated unless a majority of the shareholders who announced their stand on such offer have accepted it (in counting the total votes of suchshareholders, shares held by the controlling shareholders, shareholders who have personal interest in the offer, shareholders who own 25% or more of thevoting rights in the company, relatives or representatives of any of the above or the bidder and corporations under their control, shall not be taken intoaccount). A shareholder may be free to object to such an offer without such objection being deemed as a waiver of his right to sell its respective shares if thetransaction is approved by a majority of the company’s shareholders despite his objection. Shares purchased not in accordance with those provisions shallbecome “dormant shares” and shall not grant the purchaser any rights so long as they are held by the purchaser. If a special tender offer is accepted, then thepurchaser or any person or entity controlling it or under common control with the purchaser or such controlling person or entity may not make a subsequenttender offer for the purchase of shares of the target company and may not enter into a merger with the target company for a period of one year from the date ofthe offer, unless the purchaser or such person or entity undertook to effect such an offer or merger in the initial special tender offer. Under regulations enacted pursuant to the Companies Law, the above special tender offer requirements may not apply to companies whose shares arelisted for trading on a foreign stock exchange if, among other things, the relevant foreign laws or the rules of the stock exchange, include provisions limitingthe percentage of control which may be acquired or that the purchaser is required to make a tender offer to the public. However, the ISA’s opinion is that suchleniency does not apply with respect to companies whose shares are listed for trading on stock exchanges in the United States, including the NASDAQCapital Market, which do not provide for sufficient legal restrictions on obtaining control or an obligation to make a tender offer to the public, therefore thespecial tender offer requirements shall apply to such companies. Merger The Companies Law permits merger transactions if approved by each party’s board of directors and, unless certain requirements described under theCompanies Law are met, a majority of each party’s shares voted on the proposed merger at a shareholders’ meeting called with at least 35 days’ prior notice. For purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the shares represented at theshareholders meeting that are held by parties other than the other party to the merger, or by any person who holds 25% or more of the outstanding shares orthe right to appoint 25% or more of the directors of the other party, vote against the merger. If the transaction would have been approved but for the separateapproval of each class or the exclusion of the votes of certain shareholders as provided above, a court may still approve the merger upon the request ofholders of at least 25% of the voting rights of a company, if the court holds that the merger is fair and reasonable, taking into account the value of the partiesto the merger and the consideration offered to the shareholders. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists areasonable concern that, as a result of the merger, the surviving company will be unable to satisfy the obligations of any of the parties to the merger, and mayfurther give instructions to secure the rights of creditors. In addition, a merger may not be completed unless at least 50 days have passed from the date that a proposal for approval of the merger was filed by eachparty with the Israeli Registrar of Companies and 30 days have passed from the date the merger was approved by the shareholders of each party. Antitakeover Measures The Companies Law allows us to create and issue shares having rights different from those attached to our ordinary shares, including shares providingcertain preferred rights, distributions or other matters and shares having preemptive rights. As of the date of this annual report, we do not have any authorizedor issued shares other than our ordinary shares. In the future, if we do create and issue a class of shares other than ordinary shares, such class of shares,depending on the specific rights that may be attached to them, may delay or prevent a takeover or otherwise prevent our shareholders from realizing apotential premium over the market value of their ordinary shares. The authorization of a new class of shares will require an amendment to our articles ofassociation which requires the prior approval of the holders of a majority of our shares at a general meeting. In addition, the rules and regulations of the TASEalso limit the terms permitted with respect to a new class of shares and prohibit any such new class of shares from having voting rights. Shareholders voting insuch meeting will be subject to the restrictions provided in the Companies Law as described above. 118  C. Material Contracts The following are summary descriptions of certain material agreements to which we are a party. The descriptions provided below do not purport to becomplete and are qualified in their entirety by the complete agreements, which are attached as exhibits to this annual report on Form 20-F. For a description of our material agreements relating to our strategic collaborations and research arrangements and other material agreements, please referto “Item 4. Information on the Company.” Employment Agreements See “Item 6. Directors, Senior Management and Employees—B. Compensation—Employment Agreements and Arrangements with Directors and RelatedParties.” D. Exchange Controls. There are no Israeli government laws, decrees or regulations that restrict or that affect our export or import of capital or the remittance of dividends,interest or other payments to non-resident holders of our securities, including the availability of cash and cash equivalents for use by us and our wholly-owned subsidiaries, except for ownership by nationals of certain countries that are, or have been, declared as enemies of Israel or otherwise as set forth under“Item 10. Additional Information—E. Taxation.” E. Taxation. The following is a summary of the material Israeli tax laws applicable to us, and some Israeli Government programs benefiting us. This section alsocontains a discussion of some Israeli tax consequences to persons owning our ordinary shares. This summary does not discuss all the aspects of Israeli tax lawthat may be relevant to a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatmentunder Israeli law. Examples of this kind of investor include traders in securities or persons that own, directly or indirectly, 10% or more of our outstandingvoting capital, all of whom are subject to special tax regimes not covered in this discussion. Some parts of this discussion are based on a new tax legislationwhich has not been subject to judicial or administrative interpretation. The discussion should not be construed as legal or professional tax advice and doesnot cover all possible tax considerations. SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE ISRAELI OR OTHER TAX CONSEQUENCES OF THEPURCHASE, OWNERSHIP AND DISPOSITION OF OUR ORDINARY SHARES, INCLUDING, IN PARTICULAR, THE EFFECT OF ANY FOREIGN, STATEOR LOCAL TAXES. General Corporate Tax Structure in Israel Israeli companies are generally subject to corporate tax on their taxable income at the rate of 25% for the 2016 tax year. However, the effective tax ratepayable by a company that derives income from an Approved Enterprise, a Benefited Enterprise or a Preferred Enterprise (as discussed below) may beconsiderably less. Capital gains derived by an Israeli company are subject to tax at the prevailing corporate tax rate. 119  Law for the Encouragement of Industry (Taxes), 1969 We believe that we qualify as an “Industrial Company” within the meaning of the Law for the Encouragement of Industry (Taxes), 1969, or the IndustryEncouragement Law. The Industry Encouragement Law provides several tax benefits for “Industrial Companies.” The Industry Encouragement Law defines an “Industrial Company” as an Israeli resident company incorporated in Israel, of which 90% or more of itsincome in any tax year, other than income from defense loans, is derived from an “Industrial Enterprise” owned by it and located in Israel or in the “Area”, inaccordance with the definition in the section 3a of the Income Tax Ordinance, or the Ordinance. An “Industrial Enterprise” is defined as an enterprise which isheld by an Industrial Enterprise whose principal activity in a given tax year is production activity. The following corporate tax benefits, among others, are available to Industrial Companies: •amortization over an eight-year period of the cost of patents and rights to use a patent and know-how that were purchased in good faith and are usedfor the development or advancement of the Industrial Enterprise, commencing from the tax year where the Industrial Enterprise began to use them; •under certain conditions, an election to file consolidated tax returns with related Israeli Industrial Companies; and •expenses related to a public offering are deductible in equal amounts over three years. There can be no assurance that we will continue to qualify as an Industrial Company or that the benefits described above will be available to us in thefuture. Tax Benefits under the Law for the Encouragement of Capital Investments, 1959 Tax benefits prior to the 2005 Amendment The Law for the Encouragement of Capital Investments, 1959, generally referred to as the “Investments Law”, provides that a capital investment ineligible facilities may, upon application to the Investment Center of the Ministry of Industry, Trade and Labor of the State of Israel the (“Investment Center”),be granted the status of an Approved Enterprise. Each certificate of approval for an Approved Enterprise relates to a specific investment program delineatedboth by its financial scope, including its capital sources, and by its physical characteristics, e.g., the equipment to be purchased and utilized pursuant to theprogram. The tax benefits under the Investments Law also apply to income generated by a company from the grant of a usage right with respect to know-howdeveloped pursuant to the Approved Enterprise, income generated from royalties, and income derived from a service which is auxiliary to such usage right orroyalties, provided that such income is generated within the ordinary course of business of the company investing in the Approved Enterprise. If a company has more than one approval or only a portion of its capital investments are approved, its effective tax rate is the result of a weighted averageof the applicable rates. The Tax Benefits under the Investments Law are not, generally, available with respect to income derived from products manufacturedoutside of Israel. In addition, the Tax Benefits available to a company investing in an Approved Enterprise are contingent upon the fulfillment of conditionsstipulated in the Investments Law and related regulations and the criteria set forth in the specific certificate of approval, as described above. In the event thata company does not meet these conditions, it would be required to refund the amount of tax benefits, plus a consumer price index linked adjustment andinterest. A company which qualifies as a foreign investment company (a “FIC”) will be eligible for a three-year extension of tax benefits following the expirationof the seven-year period referenced above. In addition, in the event that the level of foreign ownership in an Approved Enterprise reaches 49% or higher, thecorporate tax rate applicable to income earned from the Approved Enterprise is reduced as follows: 120  % of Foreign Ownership Tax Rate 49% or more but less than 74% 20%74% or more but less than 90% 15%90% or more 10% A company qualifies as a FIC if (i) it has received at least NIS 5 million in loans (for a minimum period of three years) or as investment in share capitalfrom a foreign resident who is consequently entitled to at least 25% of the “rights” in the company (consisting of profit sharing rights, voting rights andappointment of directors), or (ii) if a foreign resident has purchased the company’s shares from an existing shareholder, consequently entitling the foreignshareholder to at least 25% of such rights in the company provided that the company’s outstanding and paid-up share capital exceeds NIS 5 million Thedetermination as to whether a company qualifies as an FIC is made on an annual basis. Amendment 68 to the Investments Law (the “2011 Amendment”) eliminated the definition of a FIC. However, according to the 2011 Amendment’stransitional provisions, the tax benefits of companies with Approved Enterprise or Benefited Enterprise plans that opt to remain under the ApprovedEnterprise or Benefited Enterprise regime in accordance with the Investments Law prior to the 2011 Amendment will be preserved. In circular no. 3/2012, (the“Circular”) the Israeli Tax Authority addressed its position regarding the implementation of the aforementioned transitional provisions. According to theCircular, a company’s foreign ownership percentage for purposes of Approved Enterprise or Benefited Enterprise benefits cannot exceed its percentage onDecember 31, 2010, the last day before the 2011 Amendment was implemented. Additionally, a company owning an Approved Enterprise on or after April 1, 1986, may elect to forgo its entitlements to grants and tax benefits under theGrant Track and apply for alternative package of tax benefits for a benefit period of between seven and ten years (the “Alternative Track”). Under theAlternative Track, a company’s undistributed income derived from the Approved Enterprise will be exempt from corporate tax for a period of between twoand ten years, starting from the first year the company derives taxable income under the Approved Enterprise program. The length of time of this exemptionwill depend on the geographic location of the Approved Enterprise within Israel and the type of the approved enterprise. After the exemption period lapses,the company subject to tax at a tax rate of 25% (or a lower rate in the case of a FIC) for the remainder of the benefit period. A company that has elected the Alternative Track and subsequently pays a dividend out of income derived from the Approved Enterprise during the taxexemption period will be subject to corporate tax on the amount which is determined by the distributed amount grossed up with the effective corporate taxrate which would have been applied had the company not elected the Alternative Track, which is at referred above ranged between 10%-25%. Under theInvestments Law, the transfer of funds from the Company to shareholders and other related parties may be deemed to be regarded as a dividend distributionfor this purpose in certain circumstances. Dividends paid out of income derived from an Approved Enterprise are generally subject to withholding tax atsource at the reduced rate of 15%, if the dividend is distributed during the tax exemption period or within 12 years thereafter. In the event, however, whichthe company qualifies as a FIC, there is no such time limitation) or such lower rate as may be provided in an applicable tax treaty. Under the Alternative Track, dividends paid by a company are considered to be attributable to income received from the entire company and thecompany’s effective tax rate is the result of a weighted average of the various applicable tax rates, excluding any tax-exempt income. Under the InvestmentsLaw, a company that has elected the Alternative Track is not obliged to distribute retained profits, and may generally decide from which year’s profits todeclare dividends. The Company is not entitled to an Approved Enterprise status. Tax benefits under the 2005 Amendment An amendment to the Investments Law, which effective as of April 1, 2005, has changed certain provisions of the Investments Law. An eligibleinvestment program under the Amendment qualifies for benefits as a “Benefited Enterprise” (rather than as an Approved Enterprise which status is stillapplicable for investment programs approved prior to December 31, 2004 and/or investment programs under the Grant Track). According to the amendment,only Approved Enterprises receiving cash grants require the prior approval of the Investment Center. 121  The duration of the tax benefits described herein is limited to the earlier of seven or ten years (depending on the geographic location of the ApprovedEnterprise within Israel) from the Commencement Year (as described below) or 12 years from the first day of the Year of Election. Commencement Year isdefined as the later of the first tax year in which a company had derived liable income for tax purposes from the Benefited Enterprise, or the year of electionwhich is the year in which a company requested to have the tax benefits apply to the Benefited Enterprise. The tax benefits granted to a Benefited Enterpriseare determined, depending on the geographic location of the Benefited Enterprise within Israel, according to one of the following, which may be applicableto us: (i) Similar to the currently available Alternative Track, exemption from corporate tax may be available on undistributed income for a period of two to tenyears, depending on the geographic location of the Benefited Enterprise within Israel, and a reduced corporate tax rate of 10% to 25% for the remainder of thebenefit period, depending on the level of foreign investment in each year. Benefits may be granted for a term of seven to ten years, depending on the level offoreign investment in the company. If the company pays a dividend out of income derived from the Benefited Enterprise during the tax exemption period,such income will be subject to deferred corporate tax with respect to the amount distributed (grossed up with the effective corporate tax rate which wouldhave applied had the company not enjoyed the exemption) at the rate which would have applied had such company had the status of a Benefited Enterprise.The company is required to withhold tax on such distribution at a rate of 15%, or such lower rate may be provided in an applicable tax treaty; or (ii) A special track which enables companies owning facilities in certain geographical locations in Israel to pay corporate tax at a flat rate of 11.5% onincome the Benefited Enterprise (the “Ireland Track”). The benefit period is for ten years. Upon payment of dividends, the company is required to withholdtax on such dividend at a rate of 15% for Israeli residents and at a rate of 4% for foreign residents. Generally, a company that is Abundant in Foreign Investment (owned by at least 74% foreign shareholders and has undertaken to invest a minimum sumof $20 million in the Benefited Enterprise) is entitled to an extension of the benefit period by an additional five years, depending on the rate of its incomethat is derived in foreign currency. Under the Investments Law, we may be entitled to tax benefits, by virtue of our status as a “Benefited Enterprise,” which was awarded to us in October2007. We received the status of a plant under establishment in Development Area A in a tax-exempt track, subject to compliance with the applicablerequirements of the Investment Law. As of December 31, 2015, we had not yet generated operating income that will allow us to benefit from the tax benefitsunder the Investment Law. The tax benefits under the Investment Law will apply for a period of up to ten years from the first year in which taxable incomewill be generated and are scheduled to expire at the end of 2023. In order to remain eligible for the tax benefits of a Benefited Enterprise, we must continue to meet certain conditions stipulated in the Investment Lawand its regulations, as amended. In addition, in order to remain eligible for the tax benefits available to the Benefited Enterprise, we must also comply withthe conditions set forth in the tax ruling. These conditions include, among other things, that the production, directly or through subcontractors, of all ourproducts should be performed within certain regions of Israel. If we do not meet these requirements, the tax benefits would be reduced or canceled. Tax benefits under the 2011 Amendment On December 29, 2010, the Israeli Parliament approved the 2011 Amendment. The 2011 Amendment significantly revised the tax incentive regime inIsrael and commenced on January, 1 2011. The 2011 Amendment introduced a new status of “Preferred Enterprise”, replacing the existed status of “Benefited Enterprise”. Similarly to a“Beneficiary Company”, a Preferred Company is an industrial company meeting certain conditions (including a minimum threshold of 25% export).However, under the 2011 Amendment the requirement for a minimum investment in productive assets in order to be eligible for the benefits granted under theInvestments Law as with respect to “Benefited Enterprise” was cancelled. 122  A Preferred Company is entitled to a reduced flat tax rate with respect to the income attributed to the Preferred Enterprise, at the following rates: Tax Year Development Region “A” Other Areas within Israel 2011-2012 10% 15%2013 7% 12.5%2014 onwards* 9% 16% * In august 2013, the Israeli Parliament (the Knesset) approved an amendment to the Investments Law pursuant to which the previously scheduledgradual reduction in the tax rates applicable to Preferred Enterprises would be repealed as of 2014 to the tax rates reflected on the above table. The classification of income generated from the provision of usage rights in know-how or software that were developed in the Preferred Enterprise, aswell as royalty income received with respect to such usage, as Preferred Enterprise income is subject to the issuance if a pre-ruling from the Israeli TaxAuthority stipulates that such income is associated with the productive activity of the Preferred Enterprise in Israel. In addition, the 2011 Amendment introduced a new status of “Special Preferred Company”, which is an Industrial company meeting, in addition to theconditions prescribed for “Preferred Company,” certain additional conditions (including that the total Preferred Enterprise income is at least NIS 1.5 billionin the given tax year). The tax rate applicable for a period of 10 years to income generated by such an enterprise will be reduced to 5%, if located inDevelopment Region “A”, or to 8%, if located in other area within the State of Israel. Dividends distributed from income which is attributed to a “Preferred Enterprise” or a “Special Preferred Enterprise” will be subject to withholding tax atsource at the following rates: (i) Israeli resident corporations – 0%, (ii) Israeli resident individuals – 20% (iii) non-Israeli residents - 20%, subject to a reducedtax rate under the provisions of an applicable double tax treaty. The 2011 Amendment also revised the Grant Track to apply only to the approved programs located in Development Region “A” and shall provide notonly cash grants (as prior to the Amendment) but also the granting of loans. The rates for grants and loans shall not be fixed but up to 20% of the amount ofthe approved investment (may be increased with additional 4%). In addition, a company owning a Preferred Enterprise under the Grant Track may be entitledalso to the tax benefits which are prescribed for a Preferred Company. The provisions of the 2011 Amendment shall not apply to existing “Benefited Enterprises” or “Approved Enterprises”, which will continue to be entitledto the tax benefits under the Investment Law, as has been in effect prior to the New Amendment, unless the company owning such enterprises had made anelection to apply the provisions of the 2011 Amendment (such election cannot be later rescinded), which is to be filed with the Israeli Tax Authority, not laterthan the date prescribed for the filing of the company’s annual tax return for the respective year. We have examined the possible effect, if any, of the provisions of the 2011 Amendment on our financial statements and have decided, at this time, not toapply for the new benefits under the 2011 Amendment. Taxation of the Company Shareholders Capital Gains Capital gain tax is imposed on the disposal of capital assets by an Israeli resident, and on the disposal of such assets by a non-Israel resident if thoseassets are either (i) located in Israel; (ii) are shares or a right to a share in an Israeli resident corporation, or (iii) represent, directly or indirectly, rights to assetslocated in Israel. The Ordinance distinguishes between “Real Gain” and the “Inflationary Surplus”. Real Gain is the excess of the total capital gain overInflationary Surplus computed generally on the basis of the increase in the Israeli CPI between the date of purchase and the date of disposal. 123  The capital gain accrued by individuals on the sale of our ordinary shares will be taxed at the rate of 25%. However, if the individual shareholder is a“Controlling Shareholder” (i.e., a person who holds, directly or indirectly, alone or together with another, 10% or more of one of the Israeli residentcompany’s means of control) at the time of sale or at any time during the preceding twelve (12) months period, such gain will be taxed at the rate of 30%. The real capital gain derived by corporations will be generally subject to the ordinary corporate tax (25% in 2016). Individual and corporate shareholder dealing in securities in Israel are taxed at the tax rates applicable to business income – 25% for corporations in2016 and a marginal tax rate of up to 50% in 2016 for individuals, including a 2% excess tax for high earning individuals whose taxable income from Israelisources exceeds a certain threshold (approximately NIS 811,000 in 2016). Notwithstanding the foregoing, capital gain derived from the sale of our ordinaryshares by a non-Israeli shareholder may be exempt under the Ordinance from Israeli taxation provided that the following cumulative conditions are met: (i)the shares were purchased upon or after the registration of the securities on the stock exchange (this condition shall not apply to shares purchased on or afterJanuary 1, 2009), (ii) the seller does not have a permanent establishment in Israel to which the derived capital gain is attributed. Non-Israeli corporations willnot be entitled to the foregoing exemptions if (i) an Israeli resident has a controlling interest, directly or indirectly, alone or together with another (i.e.,together with a relative, or together with someone who is not a relative but with whom, according to an agreement, there is regular cooperation in materialmatters of the company, directly or indirectly), or together with another Israeli resident, exceed 25% in one or more of the means of control in such non-Israeliresident corporation or (ii) Israeli residents are the beneficiaries of, or are entitled to, 25% or more of the revenues or profits of such non-Israeli residentcorporation, whether directly or indirectly. In addition, the sale of shares may be exempt from Israeli capital gain tax under the provisions of an applicable tax treaty. For example, the U.S.-Israel Double Tax Treaty exempts U.S. resident from Israeli capital gain tax in connection with such sale, provided (i) the U.S.resident owned, directly or indirectly, less than 10% of an Israeli resident company’s voting power at any time within the 12 month period preceding suchsale; (ii) the seller, being an individual, is present in Israel for a period or periods of less than 183 days at the taxable year; and (iii) the capital gain from thesale was not derived through a permanent establishment of the U.S. resident in Israel. In some instances where our shareholders may be liable for Israeli tax on the sale of their ordinary shares, the payment of the consideration may besubject to withholding of Israeli tax at source. Shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order toavoid withholding at source at the time of sale. Either the purchaser, the Israeli stockbrokers or financial institution through which the shares are held is obliged, subject to the above mentionedexemptions, to withhold tax upon the sale of securities on the amount of the consideration paid upon the sale of the securities (or on the real capital gainrealized on the sale, if known), at the rate of 25% in respect of a corporation and/or an individual. At the sale of securities traded on a stock exchange a detailed return, including a computation of the tax due, must be filed and an advanced paymentmust be paid on January 31 and June 30 of every tax year in respect of sales of securities made within the previous six months. However, if all tax due waswithheld at source according to applicable provisions of the Ordinance and regulations promulgated thereunder the aforementioned return need not be filedand no advance payment must be paid. Capital gain is also reportable on the annual income tax return. 124  Dividends As of January 1, 2014, any distribution of dividends from income attributed to a Preferred Enterprise is generally subject to a tax at a rate of 20%.However, if such dividends are distributed to an Israeli company, no tax is imposed. As of January 1, 2014, dividends distributed from income attributed to anApproved Enterprise and/or a Benefited Enterprise are subject to a tax rate of 20%. Notwithstanding the above, a reduced 15% tax rate will be applicable ifthe dividend was distributed out of income of: (i) Approved Enterprise activated prior to 2014; or (ii) Benefited Enterprise with a “Year of Election” prior to2014. Those rates may be further reduced under the provisions of any applicable double tax treaty. If the dividend is attributable partly to income derived from an Approved Enterprise, Benefited Enterprise or Preferred Enterprise, and partly from othersources of income, the income tax rate will be a blended rate reflecting the relative portions of the types of income. A distribution of dividends from income, which is not attributed to an Approved Enterprise/Benefited Enterprise/Preferred Enterprise to an Israeliresident individual, will generally be subject to income tax at a rate of 25%. However, a 30% tax rate will apply if the dividend recipient is a “ControllingShareholder” (as defined above) at the time of distribution or at any time during the preceding 12 months period. If the recipient of the dividend is an Israeliresident corporation, such dividend will be exempt from income tax provided the income from which such dividend is distributed was derived or accruedwithin Israel. The Ordinance generally provides that a non-Israeli resident (either individual or corporation) is subject to an Israeli income tax on the receiptof dividends at the rate of 25% (30% if the dividends recipient is a “Controlling Shareholder” (as defined above), at the time of distribution or at any timeduring the preceding 12 months period); those rates are subject to a reduced tax rate under the provisions of an applicable double tax treaty. Thus, under the U.S.-Israel Double Tax Treaty the following rates will apply in respect of dividends distributed by an Israeli resident company to a U.S.resident: (i) with regard to a dividend distributed from income which is not attributed to an Approved Enterprise/ Benefited Enterprise/ Preferred Enterprise, ifthe U.S. resident is a corporation which holds during that portion of the taxable year which precedes the date of payment of the dividend and during thewhole of its prior taxable year (if any), at least 10% of the outstanding shares of the voting stock of the Israeli resident paying corporation and not more than25% of the gross income of the Israeli resident paying corporation for such prior taxable year (if any) consists of certain type of interest or dividends – themaximum tax rate of withholding is 12.5% if a certificate for a reduced withholding tax rate would be provided in advance from the Israeli Tax Authority, (ii)with regard to a dividend distributed from income derived from an Approved Enterprise/ Benefited Enterprise/ Preferred Enterprise under the InvestmentsLaw, if the U.S. resident is a corporation which holds during that portion of the taxable year which precedes the date of payment of the dividend and duringthe whole of its prior taxable year (if any), at least 10% of the outstanding shares of the voting stock of the Israeli resident paying corporation and not morethan 25% of the gross income of the Israeli resident paying corporation for such prior taxable year (if any) consists of certain type of interest or dividends, andgiven the fact that the text of the U.S.-Israel Double Tax Treaty has not been updated, the tax rate of withholding 15% will be applicable if a certificate for areduced withholding tax rate would be provided in advance from the Israeli Tax Authority, and (iii) in all other cases, the tax rate is 25%, or the domestic rate(if such is lower). The aforementioned rates under the Israel U.S. Double Tax Treaty will not apply if the dividend income was derived through a permanentestablishment of the U.S. resident in Israel. A non-Israeli resident who receives dividend income derived from or accrued from Israel, from which the full amount of tax was withheld at source, isgenerally exempt from the obligation to file tax returns in Israel with respect to such income, provided that (i) such income was not generated from businessconducted in Israel by the taxpayer, and (ii) the taxpayer has no other taxable sources of income in Israel with respect to which a tax return is required to befiled. Payors of dividends on our shares, including the Israeli stockbroker effectuating the transaction, or the financial institution through which the securitiesare held, are generally required, subject to any of the foregoing exemption, reduced tax rates and the demonstration of a shareholder of his, her or its foreignresidency, to withhold taxes upon the distribution of dividends at a rate of 25%, provided that the shares are registered with a Nominee Company (forcorporations and individuals). 125  Excess Tax Individuals who are subject to tax in Israel are also subject to an additional tax at a rate of 2% on annual income exceeding a certain threshold(approximately NIS 810,720 for 2016, which amount is linked to the annual change in the Israeli consumer price index), including, but not limited to incomederived from dividends, interest and capital gains. Foreign Exchange Regulations Non-residents of Israel who hold our ordinary shares are able to receive any dividends, and any amounts payable upon the dissolution, liquidation andwinding up of our affairs, repayable in non-Israeli currency at the rate of exchange prevailing at the time of conversion. However, Israeli income tax isgenerally required to have been paid or withheld on these amounts. In addition, the statutory framework for the potential imposition of currency exchangecontrol has not been eliminated, and may be restored at any time by administrative action. Estate and gift tax Israeli law presently does not impose estate or gift taxes. U.S. Federal Income Tax Consequences The following is a general summary of what we believe to be certain material U.S. federal income tax consequences relating to the purchase, ownershipand disposition of our ordinary shares by U.S. Investors (as defined below) that hold such ordinary shares as capital assets. This summary is based on theCode, the regulations of the U.S. Department of the Treasury issued pursuant to the Code, or the Treasury Regulations, the income tax treaty between theUnited States and Israel (the “U.S.-Israel Tax Treaty”), and administrative and judicial interpretations thereof, all as in effect on the date hereof and all ofwhich are subject to change, possibly with retroactive effect, or to different interpretation. No ruling has been sought from the IRS with respect to any U.S.federal income tax consequences described below, and there can be no assurance that the IRS or a court will not take a contrary position. This summary is forgeneral information purposes only, it does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that mayapply to a U.S. Investor as a result of the purchase, ownership, and disposition of our ordinary shares, and it does not constitute tax advice. This summarydoes not address all of the tax considerations that may be relevant to specific U.S. Investors in light of their particular circumstances or to U.S. Investorssubject to special treatment under U.S. federal income tax law (including, without limitation, banks, financial institutions, insurance companies, tax-exemptentities, retirement plans, tax-deferred accounts, regulated investment companies, “S corporations,” grantor trusts, partnerships, dealers or traders in securitiesor currencies, brokers, real estate investment trusts, certain former citizens or residents of the United States, persons who acquire our ordinary shares as part ofa straddle, hedge, conversion transaction or other integrated investment, persons subject to the alternative minimum tax, persons who acquire our ordinaryshares through the exercise or cancellation of employee stock options or otherwise as compensation for their services, persons that have a “functionalcurrency” other than the U.S. dollar, persons that own (or are deemed to own, indirectly or by attribution) 10% or more of our ordinary shares, or persons thatmark their securities to market for U.S. federal income tax purposes). This summary does not address any U.S. state or local or non-U.S. tax considerations orany U.S. federal estate, gift, generation skipping or alternative minimum tax considerations or any U.S. federal tax consequences other than U.S. federalincome tax consequences. As used in this summary, the term “U.S. Investor” means a beneficial owner of our ordinary shares that is, for U.S. federal income tax purposes, (i) anindividual citizen or resident of the United States, (ii) a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created ororganized in or under the laws of the United States, any state thereof, or the District of Columbia, (iii) an estate the income of which is subject to U.S. federalincome tax regardless of its source or (iv) a trust with respect to which a court within the United States is able to exercise primary supervision over itsadministration and one or more U.S. persons have the authority to control all of its substantial decisions, or that has a valid election in effect under applicableTreasury Regulations to be treated as a “United States person.” 126  If an entity treated as a partnership for U.S. federal income tax purposes holds our ordinary shares, the tax treatment of such partnership and each partnerthereof will generally depend upon the status and activities of the partnership and such partner. A holder that is treated as a partnership for U.S. federalincome tax purposes should consult its own tax advisor regarding the U.S. federal income tax considerations applicable to it and its partners of the purchase,ownership and disposition of its ordinary shares. Prospective investors should be aware that this summary does not address the tax consequences to investors who are not U.S. Investors. Prospectiveinvestors should consult their own tax advisors as to the particular tax considerations applicable to them relating to the purchase, ownership and dispositionof their ordinary shares, including the applicability of U.S. federal, state and local tax laws and non-U.S. tax laws. Taxation of U.S. Investors The discussions under “— Distributions” and under “— Sale, Exchange or Other Disposition of Ordinary Shares” below assumes that we will not betreated as a PFIC for U.S. federal income tax purposes. We believe that we were classified as a PFIC for 2015, but have not determined whether we will be aPFIC in 2016 or any subsequent year, and it is possible that we will be a PFIC in 2016 or in any subsequent year. For a discussion of the rules that wouldapply if we are treated as a PFIC, see the discussion under “— Passive Foreign Investment Company.” Distributions. We have no current plans to pay dividends. To the extent we pay any dividends, a U.S. Investor will be required to include in grossincome as a taxable dividend (without reduction for any Israeli tax withheld from such distribution) the amount of any distributions made on the ordinaryshares to the extent that those distributions are paid out of our current or accumulated earnings and profits as determined for U.S. federal income tax purposes.Any distributions in excess of our earnings and profits will be applied against and will reduce (but not below zero) the U.S. Investor’s tax basis in its ordinaryshares (thereby increasing the amount of gain, or decreasing the amount of loss, to be recognized by the U.S. Investor on a subsequent disposition of theordinary shares), and, to the extent they exceed that tax basis, will be treated as gain from the sale or exchange of those ordinary shares. We do not expect tomaintain calculations of our earnings and profits under U.S. federal income tax principles. Therefore, a U.S. Investor should expect that the entire amount ofany distribution generally may be treated as dividend income. If we were to pay dividends, we expect to pay such dividends in NIS. A dividend paid in NIS, including the amount of any Israeli taxes withheld, will beincludible in a U.S. Investor’s income as a U.S. dollar amount calculated by reference to the exchange rate in effect on the date such dividend is received,regardless of whether the payment is in fact converted into U.S. dollars. If the dividend is converted to U.S. dollars on the date of receipt, a U.S. Investorgenerally will not recognize a foreign currency gain or loss. However, if the U.S. Investor converts the NIS into U.S. dollars on a later date, the U.S. Investormust include, in computing its income, any gain or loss resulting from any exchange rate fluctuations. The gain or loss will be equal to the differencebetween (i) the U.S. dollar value of the amount included in income when the dividend was received and (ii) the amount received on the conversion of the NISinto U.S. dollars. Such gain or loss will generally be ordinary income or loss and United States source for U.S. foreign tax credit purposes. U.S. Investorsshould consult their own tax advisors regarding the tax consequences to them if we pay dividends in NIS or any other non-U.S. currency. Subject to certain significant conditions and limitations, including potential limitations under the U.S.-Israel Tax Treaty, any Israeli income taxes paidon or withheld from distributions from us and not refundable to a U.S. Investor may be credited against the investor’s U.S. federal income tax liability or,alternatively, may be deducted from the investor’s taxable income. The election to deduct, rather than credit, foreign taxes, is made on a year-by-year basisand applies to all foreign taxes paid by a U.S. Investor or withheld from a U.S. Investor that year. Dividends paid on the ordinary shares generally willconstitute income from sources outside the United States, which may be relevant in calculating a U.S. Investor’s foreign tax credit limitation. The limitationon foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends paid on our ordinary sharesshould generally be categorized as “passive category income” or, in the case of some U.S. Investors, as “general category income” for U.S. foreign tax creditpurposes. 127  Because the rules governing foreign tax credits are complex, U.S. Investors should consult their own tax advisors regarding the availability of foreign taxcredits in their particular circumstances. Dividends paid on the ordinary shares will not be eligible for the “dividends-received” deduction generally allowed to corporate U.S. Investors withrespect to dividends received from U.S. corporations. Certain distributions treated as dividends that are received by an individual U.S. Investor from “qualified foreign corporations” generally qualify for a20% reduced maximum tax rate so long as certain holding period and other requirements are met. A non-U.S. corporation (other than a corporation that istreated as a PFIC for the taxable year in which the dividend is paid or the preceding taxable year) generally will be considered to be a qualified foreigncorporation (i) if it is eligible for the benefits of a comprehensive tax treaty with the United States which the Secretary of Treasury of the United Statesdetermines is satisfactory for purposes of this provision and which includes an exchange of information program, or (ii) with respect to any dividend it payson stock which is readily tradable on an established securities market in the United States. Dividends paid by us in a taxable year in which we are not a PFICand with respect to which we were not a PFIC in the preceding taxable year are expected to be eligible for the 20% reduced maximum tax rate, although wecan offer no assurances in this regard. However, any dividend paid by us in a taxable year in which we are a PFIC or were a PFIC in the preceding taxable yearwill be subject to tax at regular ordinary income rates (along with any applicable additional PFIC tax liability, as discussed below). As noted above, webelieve that we were classified as a PFIC for 2015 but have not determined whether we will be a PFIC for any subsequent year. In addition, a non-corporateU.S. Investor will not be eligible for reduced U.S. federal income tax rate with respect to dividend distributions on ordinary shares if (a) such U.S. Investor hasnot held the ordinary shares for at least 61 days during the 121-day period starting on the date which is 60 days before, and ending 60 days after the ex-dividend date, (b) to the extent the U.S. Investor is under an obligation to make related payments on substantially similar or related property or (c) withrespect to any portion of a dividend that is taken into account by the U.S. Investor as investment income under Section 163(d)(4)(B) of the Code. Any daysduring which the U.S. Investor has diminished its risk of loss with respect to ordinary shares (for example, by holding an option to sell the ordinary shares) arenot counted towards meeting the 61-day holding period. Non-corporate U.S. Investors should consult their own tax advisors concerning whether dividendsreceived by them qualify for the reduced rate of tax. The additional 3.8% net investment income tax (described below) may apply to dividends received by certain U.S. Investors who meet the modifiedadjusted gross income thresholds. Sale, Exchange or Other Disposition of Ordinary Shares. Subject to the discussion under “— Passive Foreign Investment Company” below, a U.S.Investor generally will recognize capital gain or loss upon the sale, exchange or other disposition of our ordinary shares in an amount equal to the differencebetween the amount realized on the sale, exchange or other disposition and the U.S. Investor’s adjusted tax basis in such ordinary shares. The adjusted taxbasis in an ordinary share generally will be equal to the cost basis of such ordinary share. This capital gain or loss will be long-term capital gain or loss if theU.S. Investor’s holding period in our ordinary shares exceeds one year. Preferential tax rates for long-term capital gain (currently, with a maximum rate of20%) will apply to individual U.S. Investors. The deductibility of capital losses is subject to limitations. The gain or loss will generally be income or lossfrom sources within the United States for U.S. foreign tax credit purposes, possibly subject to certain exceptions under the U.S.-Israel Tax Treaty.Additionally, certain losses may be treated as foreign source to the extent certain dividends were received by the U.S. Investor within the 24-month periodpreceding the date on which the U.S. Investor recognized the loss. The additional 3.8% net investment income tax (described below) may apply to gainsrecognized upon the sale, exchange or other taxable disposition of our ordinary shares by certain U.S. Investors who meet the modified adjusted gross incomethresholds. U.S. Investors should consult their own tax advisors regarding the U.S. federal income tax consequences of receiving currency other than U.S. dollarsupon the disposition of their ordinary shares. 128  Passive Foreign Investment Company In general, a corporation organized outside the United States will be treated as a PFIC for U.S. federal income tax purposes in any taxable year in whicheither (i) at least 75% of its gross income is “passive income” or (ii) on average at least 50% of its assets by value produce passive income or are held for theproduction of passive income. Passive income for this purpose generally includes, among other things, certain dividends, interest, royalties, rents and gainsfrom commodities and securities transactions and from the sale or exchange of property that gives rise to passive income. Passive income also includesamounts derived by reason of the temporary investment of funds, including those raised in a public offering. Assets that produce or are held for theproduction of passive income include, among other things, cash, even if held as working capital or raised in a public offering, marketable securities and otherassets that may produce passive income. In determining whether a non-U.S. corporation is a PFIC, a proportionate share of the income and assets of eachcorporation in which it owns, directly or indirectly, at least a 25% interest (by value) is taken into account. A foreign corporation’s PFIC status is an annual determination that is based on tests that are factual in nature and our status for any year will depend onour income, assets, and activities for such year, including, without limitation, how quickly we use the cash proceeds from our initial public offering in theUnited States in our business. In addition, because the value of our gross assets may be determined in part by reference to our market capitalization, a declinein the value of our ordinary shares may result in our becoming a PFIC. We expect to have been classified as a PFIC for 2015, but have not determined whetherwe will be a PFIC in 2016 or in future years. Because the PFIC determination is highly fact intensive, there can be no assurance that we will not be a PFIC in2016 or any subsequent year. U.S. Investors should be aware of certain tax consequences of investing directly or indirectly in us if we are a PFIC. A U.S. Investor is subject to differentrules depending on whether the U.S. Investor makes an election to treat us as a “qualified electing fund,” known as a QEF election, makes a “mark-to-market”election with respect to the ordinary shares, or makes neither election. An election to treat us as a QEF will not be available if we do not provide theinformation necessary to make such an election. It is not expected that a U.S. Investor will be able to make a QEF election because we do not intend toprovide U.S. Investors with the information necessary to make a QEF election. QEF Election. One way in which certain of the adverse consequences of PFIC status can be mitigated is for a U.S. Investor to make a QEF election.Generally, a shareholder making the QEF election is required for each taxable year to include in income a pro rata share of the ordinary earnings and netcapital gain of the QEF, subject to a separate election to defer payment of taxes, which deferral is subject to an interest charge. An election to treat us as a QEFwill not be available if we do not provide the information necessary to make such an election. It is not expected that a U.S. Investor will be able to make aQEF election because we do not intend to provide U.S. Investors with the information necessary to make a QEF election. As discussed below, however, amark-to-market election that may alleviate some of the adverse consequences of PFIC status may be available to a U.S. Investor. Mark-to-Market Election. Alternatively, if our ordinary shares are treated as “marketable stock,” a U.S. Investor would be allowed to make a “mark-to-market” election with respect to our ordinary shares, provided the U.S. Investor completes and files IRS Form 8621 in accordance with the relevantinstructions and related Treasury Regulations. If that election is made, the U.S. Investor generally would include as ordinary income in each taxable year theexcess, if any, of the fair market value of our ordinary shares at the end of the taxable year over such holder’s adjusted tax basis in such ordinary shares. Thus,the U.S. Investor may recognize taxable income without receiving any cash to pay its tax liability with respect to such income. The U.S. Investor would alsobe permitted an ordinary loss in respect of the excess, if any, of the U.S. Investor’s adjusted tax basis in our ordinary shares over their fair market value at theend of the taxable year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. A U.S. Investor’stax basis in our ordinary shares would be adjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of ourordinary shares would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of our ordinary shares would be treatedas ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included in income by the U.S. Investor, and any loss inexcess of such amount will be treated as capital loss. Amounts treated as ordinary income will not be eligible for the favorable tax rates applicable toqualified dividend income or long-term capital gains. 129  Generally, stock will be considered marketable stock if it is “regularly traded” on a “qualified exchange” within the meaning of applicable TreasuryRegulations. A class of stock is regularly traded on an exchange during any calendar year during which such class of stock is traded, other than in de minimisquantities, on at least 15 days during each calendar quarter. To be marketable stock, our ordinary shares must be regularly traded on a qualifying exchange (i)in the United States that is registered with the SEC or a national market system established pursuant to the Exchange Act or (ii) outside the United States thatis properly regulated and meets certain trading, listing, financial disclosure and other requirements. Our ordinary shares are expected to constitute“marketable stock” as long as they remain listed on the NASDAQ Capital Market and are regularly traded. A mark-to-market election will not apply to our ordinary shares held by a U.S. Investor for any taxable year during which we are not a PFIC, but willremain in effect with respect to any subsequent taxable year in which we become a PFIC. The election will not remain in effect if the ordinary shares are nolonger regularly traded on a qualified exchange or the IRS consents to the revocation of the election. A mark-to-market election will not apply to any PFICsubsidiary that we own. Each U.S. Investor is encouraged to consult its own tax advisor with respect to the availability and tax consequences of a mark-to-market election with respect to our ordinary shares. Each U.S. investor should consult its own tax adviser with respect to the applicability of the “net investment income tax” (discussed below) where amark-to-market election is in effect. Default PFIC Rules. A U.S. Investor who does not make a timely QEF election or a mark-to-market election, referred to in this disclosure as a “Non-Electing U.S. Investor,” will be subject to special rules with respect to (i) any “excess distribution” (generally, the portion of any distributions received by theNon-Electing U.S. Investor on the ordinary shares in a taxable year in excess of 125% of the average annual distributions received by the Non-Electing U.S.Investor in the three preceding taxable years, or, if shorter, the Non-Electing U.S. Investor’s holding period for the ordinary shares), and (ii) any gain realizedon the sale or other disposition of such ordinary shares. Under these rules: •the excess distribution or gain would be allocated ratably over the Non-Electing U.S. Investor’s holding period for such ordinary shares; •the amount allocated to the current taxable year and any year prior to us becoming a PFIC would be taxed as ordinary income; and •the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayerfor that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such othertaxable year. If a Non-Electing U.S. Investor who is an individual dies while owning our ordinary shares, the Non-Electing U.S. Investor’s successor would beineligible to receive a step-up in tax basis of such ordinary shares. Non-Electing U.S. Investors should consult their tax advisors regarding the application ofthe “net investment income tax” (described below) to their specific situation. To the extent a distribution on our ordinary shares does not constitute an excess distribution to a Non-Electing U.S. Investor, such Non-Electing U.S.Investor generally will be required to include the amount of such distribution in gross income as a dividend to the extent of our current or accumulatedearnings and profits (as determined for U.S. federal income tax purposes) that are not allocated to excess distributions. The tax consequences of suchdistributions are discussed above under “— Taxation of U.S. Investors — Distributions.” Each U.S. Investor is encouraged to consult its own tax advisor withrespect to the appropriate U.S. federal income tax treatment of any distribution on our ordinary shares. 130  If we are treated as a PFIC for any taxable year during the holding period of a Non-Electing U.S. Investor, we will continue to be treated as a PFIC for allsucceeding years during which the Non-Electing U.S. Investor is treated as a direct or indirect Non-Electing U.S. Investor even if we are not a PFIC for suchyears. A U.S. Investor is encouraged to consult its tax advisor with respect to any available elections that may be applicable in such a situation, including the“deemed sale” election of Section 1298(b)(1) of the Code (which will be taxed under the adverse tax rules described above). We may invest in the equity of foreign corporations that are PFICs or may own subsidiaries that own PFICs. If we are classified as a PFIC, underattribution rules U.S. Investors will be subject to the PFIC rules with respect to their indirect ownership interests in such PFICs, such that a disposition of theordinary shares of the PFIC or receipt by us of a distribution from the PFIC generally will be treated as a deemed disposition of such ordinary shares or thedeemed receipt of such distribution by the U.S. Investor, subject to taxation under the PFIC rules. There can be no assurance that a U.S. Investor will be ableto make a QEF election with respect to PFICs in which we invest, and a U.S. Investor may not make a mark-to-market election with respect to a PFIC in whichwe invest. Each U.S. Investor is encouraged to consult its own tax advisor with respect to tax consequences of an investment by us in a corporation that is aPFIC. Under Section 1291(f) of the Code, the IRS has issued proposed Treasury regulations that, subject to certain exceptions, would cause a U.S. Investor thathad not made a timely QEF election to recognize gain upon certain transfers of our ordinary shares that would otherwise not be subject to U.S. federal incometax (e.g., gifts and exchanges pursuant to corporate reorganizations). The U.S. federal income tax rules relating to PFICs, QEF elections, and mark-to market elections are complex. U.S. Investors are urged to consulttheir own tax advisors with respect to the purchase, ownership and disposition of our ordinary shares, any elections available with respect to suchordinary shares and the IRS information reporting obligations with respect to the purchase, ownership and disposition of our ordinary shares. Certain Reporting Requirements Certain U.S. Investors are required to file IRS Form 926, Return by U.S. Transferor of Property to a Foreign Corporation, and certain U.S. Investors may berequired to file IRS Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, reporting transfers of cash or other propertyto us and information relating to the U.S. Investor and us. Substantial penalties may be imposed upon a U.S. Investor that fails to comply. In any year in which we are classified as a PFIC, a U.S. Investor will be required to file IRS Form 8621 (Information Return by a Shareholder of a PassiveForeign Investment Company or Qualified Electing Fund). In addition, recently enacted legislation requires certain U.S. Investors to report information on IRS Form 8938 with respect to their investments incertain “foreign financial assets,” which would include an investment in our ordinary shares, to the IRS. Investors who fail to report required information could become subject to substantial civil and criminal penalties. U.S. Investors should consult their taxadvisors regarding the possible implications of these reporting requirements on their investment in our ordinary shares. Disclosure of Reportable Transactions If a U.S. Investor sells or disposes of the ordinary shares at a loss or otherwise incurs certain losses that meet certain thresholds, such U.S. Investor may berequired to file a disclosure statement with the IRS. Failure to comply with these and other reporting requirements could result in the imposition of significantpenalties. 131  Backup Withholding Tax and Information Reporting Requirements Generally, information reporting requirements will apply to distributions on our ordinary shares or proceeds on the disposition of our ordinary sharespaid within the United States (and, in certain cases, outside the United States) to U.S. Investors other than certain exempt recipients, such as corporations.Furthermore, backup withholding (currently at 28%) may apply to such amounts if the U.S. Investor fails to (i) provide a correct taxpayer identificationnumber, (ii) report interest and dividends required to be shown on its U.S. federal income tax return, or (iii) make other appropriate certifications in therequired manner. U.S. Investors who are required to establish their exempt status generally must provide such certification on IRS Form W-9. Backup withholding is not an additional tax. Amounts withheld as backup withholding from a payment may be credited against a U.S. Investor’s U.S.federal income tax liability and such U.S. Investor may obtain a refund of any excess amounts withheld by filing the appropriate claim for refund with the IRSand furnishing any required information in a timely manner. Medicare Tax on Investment Income Certain U.S. persons, including individuals, estates and trusts, will be subject to an additional 3.8% Medicare tax, or “net investment income tax,” onunearned income. For individuals, the additional net investment income tax applies to the lesser of (i) “net investment income” or (ii) the excess of “modifiedadjusted gross income” over $200,000 ($250,000 if married and filing jointly or $125,000 if married and filing separately). “Net investment income”generally equals the taxpayer’s gross investment income reduced by the deductions that are allocable to such income. Investment income generally includespassive income such as interest, dividends, annuities, royalties, rents, and capital gains. U.S. Investors are urged to consult their own tax advisors regardingthe implications of the additional net investment income tax resulting from their ownership and disposition of our ordinary shares. THE DISCUSSION ABOVE IS A GENERAL SUMMARY. IT DOES NOT COVER ALL TAX MATTERS THAT MAY BE OF IMPORTANCE TO APROSPECTIVE INVESTOR. EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT ITS OWN TAX ADVISOR ABOUT THE TAXCONSEQUENCES TO IT OF RELATING TO THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR ORDINARY SHARES IN LIGHT OFTHE INVESTOR’S OWN CIRCUMSTANCES. F. Dividends and Paying Agents. Not applicable. G. Statements by Experts. Not applicable. H. Documents on Display. You may read and copy this Annual Report on Form 20-F, including the related exhibits and schedules, and any document we file with the SEC withoutcharge at the SEC’s public reference room at 100 F Street, N.E., Room 1580, Washington, DC 20549. You may also obtain copies of the documents atprescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC also maintains an Internet website that contains reports and other informationregarding issuers that file electronically with the SEC. Our filings with the SEC are also available to the public through the SEC’s website athttp://www.sec.gov. As a foreign private issuer, we will be exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and ourofficers, directors and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of theExchange Act. Furthermore, as a foreign private issuer, we are also not subject to the requirements of Regulation FD (Fair Disclosure) promulgated under theExchange Act. In addition, we will not be required under the Exchange Act to file annual or other reports and financial statements with the SEC as frequentlyor as promptly as U.S. companies whose securities are registered under the Exchange Act. Instead, we will file with the SEC, within 120 days after the end ofeach fiscal year, or such other applicable time as required by the SEC, an annual report on Form 20-F containing financial statements audited by anindependent registered public accounting firm. We also intend to furnish certain other material information to the SEC under cover of Form 6-K. 132  In addition, because our ordinary shares are traded on the TASE, we have filed Hebrew language periodic and immediate reports with, and furnishinformation to, the TASE and the ISA, as required under Chapter Six of the Israel Securities Law, 1968. Copies of our filings with the ISA can be retrievedelectronically through the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and the TASE website (www.maya.tase.co.il). We maintain a corporate website at www.intecpharma.com. Information contained on, or that can be accessed through, our website does not constitute apart of this annual report on Form 20-F. We have included our website address in this annual report on Form 20-F solely as an inactive textual reference. I. Subsidiary Information. Not applicable. ITEM 11. Quantitative and Qualitative Disclosures About Market Risk. Quantitative and Qualitative Disclosure About Market Risk We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position,results of operations or cash flows due to adverse changes in financial market prices and rates, including interest rates and foreign exchange rates, of financialinstruments. Foreign Currency Exchange Risk Our foreign currency exposures give rise to market risk associated with exchange rate movements of the U.S. dollar, our functional and reportingcurrency effective January 1, 2016, mainly against the NIS and the Euro. Our NIS and Euro expenses consist principally of payments made to employees, sub-contractors and consultants for clinical trials and other research and development activities. We anticipate that a portion of our expenses will continue to bedenominated in currencies other than the U.S. dollar. If the U.S. dollar fluctuates significantly against the NIS it may have a negative impact on our results ofoperations. We manage our foreign exchange risk by aligning the currencies for holding short-term investments with the currencies of expected expenses,based on our expected cash flows. To date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financialexposure from fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from thematerial adverse effects of such fluctuations. Set forth below is a sensitivity test to possible changes in U.S. dollars / NIS exchange rate as of December 31, 2015: Sensitive instrument Income (loss) fromchange in exchangerate (U.S. dollarsin thousands) Value(U.S.dollarsinthousands) Income (loss) fromchange in exchangerate (U.S. dollarsin thousands) Down 2% Down 5% Up 5% Up 2% Cash and cash equivalents 50 124 2,485 (124) (50)Financial assets at fair value through profit or loss 40 101 2,024 (101) (40)Accounts receivable (except prepaid expenses and advances tosuppliers) 16 39 780 (39) (16)Accounts payable and accrued expenses (17) (42) (835) 42 17 Total loss 89 222 (222) (89) 133  Interest Rate Risk We have an exposure to interest income sensitivity, which is affected by changes in the general level of Israeli interest rates. We currently do not hedgeagainst interest rate exposure. Because of the short-term maturities of our cash equivalents, short-term bank deposits and investment securities, we do notbelieve that an increase in market rates would have any significant impact on the realized value of our investment securities. A 10% change in interest rateswould not have a material effect on the fair value of our investment portfolio. We do not anticipate undertaking any significant long-term borrowings. At present, our investments consist primarily of cash and cash equivalents,short-term bank deposits and financial assets at fair value. We may invest in investment-grade marketable securities with maturities of up to three years,including commercial paper, money market funds, and government/non-government debt securities. The primary objective of our investment activities is topreserve principal while maximizing the income that we receive from our investments without significantly increasing risk and loss. ITEM 12. Description of Securities Other Than Equity Securities. A. Debt Securities. Not applicable. B. Warrants and Rights. Not applicable. C. Other Securities. Not applicable. D. American Depositary Shares. Not applicable. PART II ITEM 13. Defaults, Dividend Arrearages and Delinquencies. Not applicable. ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds. A.Not applicable. B.Not applicable. C.Not applicable. D.Not applicable. 134  E. Use of Proceeds. On August 7, 2015, we completed our initial public offering of 5,025,000 ordinary shares at a public offering price of $6.00 per ordinary share. OnSeptember 18, 2015, the underwriters’ exercised their underwriters’ option in part to purchase an additional 638,750 ordinary shares to cover over-allotments,for aggregate gross offering proceeds of approximately $34.0 million. Maxim Group LLC and Roth Capital Partners acted as joint book-running managers ofthe offering. The offer and sale of all of the shares in the offering were registered under the Securities Act pursuant to a registration statement on Form F-1,which was declared effective on August 3, 2015 (File No. 333-204836). We received aggregate net proceeds from the offering of approximately $30.32 million, after deducting approximately $2.38 million of underwritingdiscounts and commissions and approximately $1.3 million of estimated offering expenses directly payable by us. None of the underwriting discounts andcommissions or other offering expenses were incurred or paid to our directors or officers or their associates or to persons owning ten percent or more of ourordinary shares or to any of our affiliates. As of December 31, 2015, the net proceeds from our initial public offering were held in cash and cash equivalents and short-term deposits. Since then, wehave deployed approximately $30.7 million to fund our Phase III clinical trial for our current product candidate, AP-CDLD, and its continued development,and the balance for working capital, capital expenditures and other general corporate purposes, including a Phase I clinical trial that we initiated in December2015 for one of our early stage pipeline products. We will need to raise additional capital in order to complete our Phase III clinical trial for AP-CDLD and itscontinued development. We have broad discretion in the use of the net proceeds from our initial public offering and could spend the proceeds in ways that donot improve our results of operations or enhance the value of our ordinary shares. We have no current understandings, commitments or agreements with respect to any material acquisition of or investment in any technologies, productsor companies. ITEM 15. Controls and Procedures. Disclosure Controls and Procedures We performed an evaluation of the effectiveness of our disclosure controls and procedures that are designed to ensure that information required to bedisclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported timely within the time periodspecified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure thatinformation required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act, is accumulated and communicated to theissuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timelydecisions regarding required disclosure. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving the desired controlobjectives. Based on our evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, have concluded that our disclosurecontrols and procedures (as defined in Rules 13a-15(e) and 15(d) - 15(e) of the Exchange Act) as of the end of the period covered by this report are effective atsuch reasonable assurance level. Management’s Annual Report on Internal Control over Financial Reporting This annual report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of theCompany’s registered public accounting firm due to a transition period established by rules of the SEC for newly public companies. 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, 2015 that have materiallyaffected, or are reasonably likely to materially affect, our internal control over financial reporting. 135  ITEM 16. [RESERVED] ITEM 16A. Audit Committee Financial Expert. Our board of directors affirmatively determined that Gil Bianco is an audit committee financial expert as defined by the SEC rules and has the requisitefinancial experience as defined by the NASDAQ Capital Market corporate governance rules. For information relating to Mr. Bianco’s qualifications andexperience, see “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management.” ITEM 16B. 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 16Bof Form 20-F promulgated by the SEC and as required by the Nasdaq Capital Market Listing Rules, which refers to Section 406(c) of the Sarbanes-Oxley Act.Section 406(c) of the Sarbanes-Oxley Act provides that a “code of ethics” means such standards as are reasonably necessary to promote (i) honest and ethicalconduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; (ii) full, fair, accurate,timely and understandable disclosure in the periodic reports required to be filed by the issuer; and (iii) compliance with applicable governmental rules andregulation. The full text of the Code of Business Conduct and Ethics is posted on our website at www.intecpharma.com. Information contained on, or that can beaccessed through, our website does not constitute a part of this annual report and is not incorporated by reference herein. We will provide a copy of such codeof ethics without charge upon request by mail or by telephone. If we make any amendment to the Code of Business Conduct and Ethics or grant any waivers,including any implicit waiver, from a provision of the Code of Business Conduct and Ethics, we will disclose the nature of such amendment or waiver on ourwebsite to the extent required by the rules and regulations of the SEC. ITEM 16C. Principal Accountant Fees and Services. Kesselman & Kesselman, Certified Public Accountant (Israel), a member firm of PricewaterhouseCoopers International Limited, an independentregistered public accounting firm, served as our independent public accountants for the fiscal years ended December 31, 2015 and 2014, for which auditedfinancial statements appear in this Annual Report on Form 20-F. The following table presents the aggregate fees for professional services rendered by such accountants to us during their respective term as our principalaccountants in 2014 and 2015. 2015 2014 (US$ in thousands) (US$ in thousands) Audit Fees (1) 219 133 Audit-Related Fees (2) - - Tax Fees (3) 3 - All Other Fees (4) - - Total 222 133 (1) Audit fees consists of services that would normally be provided in connection with statutory and regulatory filings or engagements, including servicesthat generally only the independent accountant can reasonably provide, and including audit services in connection with our initial public offering in theUnited States in August 2015.(2) Audit-related fees would be assurance and related services by the principal accountant that are reasonably related to the performance of the audit or reviewof our financial statements and are not reported under item (1).(3) Tax fees relate to tax compliance, planning and advice.(4) All other fees would be fees billed for products and services provided by the principal accountant, other than the services reported in items (1) through (3). 136  Audit Committee Pre-Approval Policies 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 and systems of internal control over financial reporting. Our audit committee also oversees theaudit efforts of our independent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent ofmanagement. Our audit committee has authorized all auditing and non-auditing services provided by Kesselman & Kesselman during 2014 and 2015 and thefees paid for such services. ITEM 16D. Exemptions from the Listing Standards for Audit Committees. Not applicable. ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers. Not applicable. ITEM 16F. Change in Registrant’s Certifying Accountant. Not applicable. ITEM 16G. Corporate Governance. Companies incorporated under the laws of the State of Israel whose shares are publicly traded, including companies with shares listed on the NASDAQCapital Market, are considered public companies under Israeli law and are required to comply with various corporate governance requirements under Israelilaw relating to such matters as external directors, the audit committee, the compensation committee and an internal auditor. These requirements are inaddition to the corporate governance requirements imposed by the Listing Rules of the NASDAQ Capital Market and other applicable provisions of U.S.securities laws to which we became subject (as a foreign private issuer) upon the closing of our initial public offering in the United States and the listing ofour ordinary shares on the NASDAQ Capital Market. Under the Listing Rules of the NASDAQ Capital Market, a foreign private issuer, such as us, maygenerally follow its home country rules of corporate governance in lieu of the comparable requirements of the Listing Rules of the NASDAQ Capital Market,except for certain matters including (among others) the composition and responsibilities of the audit committee and the independence of its members withinthe meaning of the rules and regulations of the SEC. NASDAQ Capital Market Listing Rules and Home Country Practices In accordance with Israeli law and practice, and subject to the exemption set forth in Rule 5615 of the Listing Rules of the NASDAQ Capital Market, ifour ordinary shares are approved for listing on the NASDAQ Capital Market we intend to follow the provisions of the Companies Law, rather than the ListingRules of the NASDAQ Capital Market, with respect to the following requirements: •Distribution of certain reports to shareholders. As opposed to the Listing Rules of the NASDAQ Capital Market, which require listed issuers tomake certain reports, such as annual reports, interim reports and quarterly reports, available to shareholders in one of a number of specific manners,Israeli law does not require us to distribute periodic reports directly to shareholders, and the generally accepted business practice in Israel is not todistribute such reports to shareholders, but to make such reports available through a public website. In addition to making such reports available ona public website, we plan to make our audited financial statements available to our shareholders at our offices and will only mail such reports toshareholders upon request. As a foreign private issuer, we are generally exempt from the SEC’s proxy solicitation rules. See “Where You Can FindMore Information” for a description of our Exchange Act reporting obligations. 137  •Nomination of directors. With the exception of our external directors and directors elected by our board of directors due to vacancy, our directorsare elected by an annual meeting of our shareholders to hold office until the next annual meeting following his or her election. See “Management —Board Practices.” The nominations for directors, which are presented to our shareholders by our board of directors, are generally made by the boardof directors itself, in accordance with the provisions of our articles of association and the Companies Law. Nominations need not be made by anominating committee of our board of directors consisting solely of independent directors or by independent directors constituting a majority ofindependent directors, as required under the Listing Rules of the NASDAQ Capital Market. •Compensation of officers. We follow the provisions of the Companies Law with respect to matters in connection with the composition andresponsibilities of our compensation committee, office holder compensation and any required approval by the shareholders of such compensation.Israeli law and our articles of association do not require that the independent members of our board of directors, or a compensation committeecomposed solely of independent members of our board of directors, determine an executive officer’s compensation, as is generally required underthe Listing Rules of the NASDAQ Capital Market with respect to the Chief Executive Officer and all other executive officers of a company.However, the Companies Law requires that each of our audit and compensation committees be comprised of at least three members, including all ofour external directors, and that the external or independent directors must constitute a majority of the members of each committee. See“Management — Board Practices — External Directors.” In addition, the Companies Law requires that additional members of the compensationcommittee and the external directors be compensated equally. Our compensation committee has been established and conducts itself in accordancewith the provisions governing the composition of and the responsibilities of a compensation committee as set forth in the Companies Law.Furthermore, compensation of office holders is determined and approved by our compensation committee, and in general, by our board of directorsas well, and in certain circumstances by our shareholders. Thus, we will seek shareholder approval for all corporate actions with respect to officeholder compensation (including the compensation required to be approved for our chief executive officer) requiring such approval under therequirements of the Companies Law, including seeking prior approval of the shareholders for the compensation policy and for certain office holdercompensation, rather than seeking approval for such corporate actions in accordance with Listing Rules of the NASDAQ Capital Market. For moreinformation, see “Compensation Committee and Compensation Policy.” •Compensation Committee. According to the Companies Law, we established a compensation committee. Prior to the consummation of our initialpublic offering in the United States, our board of directors affirmatively determined that each member of our compensation committee qualifies as“independent” under applicable NASDAQ Capital Market and SEC rules. •Independent directors. Israeli law does not require that a majority of the directors serving on our Board be “independent,” as defined underNASDAQ Capital Market Listing Rule 5605(a)(2), but rather requires we have at least two external directors who meet the requirements of theCompanies Law, as further described under “Management — Board Practices — External Directors.” We are required, however, to ensure that allmembers of our audit committee are “independent” under the Companies Law and the applicable NASDAQ Capital Market and SEC criteria forindependence and under Israeli law, the audit committee and compensation committee must each include all external directors then serving on ourboard of directors. We must also ensure that a majority of the members of our audit committee are “unaffiliated directors” as defined in theCompanies Law as further described under the caption “— Audit Committee — Companies Law Requirements.” Israeli law does not require that ourindependent directors conduct regularly scheduled meetings at which only such independent directors are present, as required by the NASDAQCapital Market Listing Rules. Prior to the consummation of our initial public offering in the United States, our board of directors affirmativelydetermined that each of Gil Bianco, Amir Hayek, Hila Karah and Issac Silberman qualified as “independent” under the NASDAQ Capital Marketindependence standards. 138  •Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of theCompanies Law, rather than seeking approval for corporate actions in accordance with NASDAQ Capital Market Listing Rule 5635. In particular,under this NASDAQ Capital Market rule, shareholder approval is generally required for: (i) an acquisition of shares or assets of another company thatinvolves the issuance of 20% or more of the acquirer’s shares or voting rights or if a director, officer or 5% shareholder has greater than a 5% interestin the target company or the consideration to be received; (ii) the issuance of shares leading to a change of control; (iii) adoption or amendment ofequity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights (including securities convertible into, orexercisable for, equity) of a listed company via a private placement (or via sales by directors, officers or 5% shareholders) if such equity is issued (orsold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder approval is required for, amongother things: (a) transactions with directors concerning the terms of their service or indemnification, exemption and insurance for their service (or forany other position that they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are allrequired, (b) extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval furtherdescribed under “Disclosure of personal interests of controlling shareholders and approval of certain transactions,” (c) terms of office andemployment or other engagement of our controlling shareholder, if any, or such controlling shareholder’s relative, which require the specialapproval further described under “Disclosure of personal interests of controlling shareholders and approval of certain transactions,” (d) approval oftransactions with our Chief Executive Officer with respect to his or her compensation, whether in accordance with our approved compensationpolicy or not in accordance with our approved compensation policy, or transactions with our officers not in accordance with our approvedcompensation policy, and (e) approval of our compensation policy for office holders. In addition, under the Companies Law, a merger requiresapproval of the shareholders of each of the merging companies. See also “Additional Information — Memorandum and Articles of Association —Merger.” •Quorum for shareholder meetings. As permitted under the Companies Law, pursuant to our articles of association, the quorum required for anordinary meeting of shareholders will consist of at least two shareholders present in person, by proxy or by other voting instrument in accordancewith the Companies Law, who hold at least 25% of the voting power of our shares (and in an adjourned meeting, with some exceptions, any numberof shareholders), instead of 33 ⅓% of the issued share capital required under the NASDAQ Capital Market corporate governance rules. Other than the foregoing home country practices, we otherwise comply with the rules generally applicable to U.S. domestic companies listed on theNASDAQ Capital Market. We may in the future decide to use the foreign private issuer exemption with respect to some or all of the other NASDAQ CapitalMarket corporate governance rules. Following our home country corporate governance practices as opposed to the requirements that would otherwise applyto a U.S. company listed on the NASDAQ Capital Market may provide less protection to you than what is accorded to investors under the Listing Rules of theNASDAQ Capital Market applicable to domestic U.S. issuers. ITEM 16H. Mine Safety Disclosure. Not applicable. PART III ITEM 17. Financial Statements. We have responded to Item 18 in lieu of responding to this item. ITEM 18. Financial Statements. Please refer to the financial statements beginning on page F-1. The following financial statements, financial statement schedules and related notes arefiled as part of this Annual Report on Form 20-F, together with the report of the independent registered public accounting firm.  139  INTEC PHARMA LTD.2015 ANNUAL REPORT 140  INTEC PHARMA LTD.2015 ANNUAL REPORT TABLE OF CONTENTS Page REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMF-2FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015: Statements of Financial PositionF-3Statements of Comprehensive LossF-4Statements of Changes in EquityF-5-F-6Statements of Cash FlowsF-7- F-8Notes to the Financial StatementsF-9 - F-42 F -1  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the shareholders ofINTEC PHARMA LTD. We have audited the accompanying statements of financial position of Intec Pharma Ltd. (the “Company”) at December 31, 2014 and 2015 and the relatedstatements of comprehensive loss, changes in equity and cash flows for each of the three years in the period ended December 31, 2015. These financialstatements are the responsibility of the Company's Board of Directors and management. Our responsibility is to express an opinion on these financialstatements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by the Company's Board of Directors and management, as well as evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31,2014 and 2015 and the results of its operations, changes in equity and cash flows for each of the three years in the period ended December 31, 2015, inaccordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). We draw your attention to note 1a(2) to the financial statements, which notes that the Company has not yet generated any revenues from its operations andhas cumulative losses (as of December 31, 2015 the cumulative losses were approximately NIS 193 million). The Company’s current cash resources are notsufficient to complete the research and development of all of its products. Management expects that the Company will continue to incur losses in theforeseeable future from its activities, which will result in negative cash flows from operating activities. If the Company is unsuccessful in funding its plans, itmay need to make the necessary changes to its operations to reduce the level of expenditures in line with available resources. Tel-Aviv, Israel/s/ Kesselman & KesselmanMarch 10, 2016Certified 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 F -2  INTEC PHARMA LTD.STATEMENTS OF FINANCIAL POSITION Conveniencetranslation intoUSD(note 1b) Note December 31 December 31, 2014 2015 2015 NIS in thousands In thousands Assets CURRENT ASSETS: Cash and cash equivalents 5a 22,287 92,277 23,649 Short-term bank deposits 5b 19,510 5,000 Financial assets at fair value through profit or loss 6 7,820 7,897 2,024 Restricted bank deposits 11d, 11e 292 240 62 Other receivables 7 1,120 9,211 2,361 31,519 129,135 33,096 NON-CURRENT ASSETS - Property and equipment 8 17,101 15,906 4,076 TOTAL ASSETS 48,620 145,041 37,172 Liabilities and equity CURRENT LIABILITIES - Accounts payable and accruals: Trade 716 2,394 614 Other 9 6,503 2,731 701 7,219 5,125 1,315 NON-CURRENT LIABILITIES - Derivative financial instruments 10 4,528 1,277 327 COMMITMENTS AND CONTINGENT LIABILITIES 11 TOTAL LIABILITIES 11,747 6,402 1,642 EQUITY: 13 Ordinary shares 2,701 2,701 692 Share premium 198,566 328,985 84,312 Warrants 2,249 - - Accumulated deficit (166,643) (193,047) (49,474)TOTAL EQUITY 36,873 138,639 35,530 TOTAL LIABILITIES AND EQUITY 48,620 145,041 37,172 The accompanying notes are an integral part of the financial statements. F -3  INTEC PHARMA LTD.STATEMENTS OF COMPREHENSIVE LOSS Conveniencetranslationinto USD(note 1b) Note Year ended December 31 December 31, 2013 2014 2015 2015 NIS in thousands In thousands RESEARCH AND DEVELOPMENTEXPENSES 14 (17,410) (17,740) (29,257) (7,498)LESS- PARTICIPATION IN RESEARCH ANDDEVELOPMENT EXPENSES 11b, 11c 8,393 5,544 10,556 2,705 RESEARCH AND DEVELOPMENTEXPENSES, net (9,017) (12,196) (18,701) (4,793)GENERAL AND ADMINISTRATIVEEXPENSES 15 (9,633) (9,332) (10,828) (2,775)OTHER GAINS, net 6, 11g 474 836 76 19 OPERATING LOSS (18,176) (20,692) (29,453) (7,549)FINANCIAL INCOME 16 434 1,136 2,458 630 FINANCIAL EXPENSES 16 (648) (812) (889) (228)FINANCIAL INCOME (EXPENSES), net (214) 324 1,569 402 LOSS AND COMPREHENSIVE LOSS (18,390) (20,368) (27,884) (7,147) NIS USD BASIC AND DILUTED LOSS PERORDINARY SHARE 17 (4.25) (4.22) (3.58) (0.92)The accompanying notes are an integral part of the financial statements. F -4  (Continued) - 1 INTEC PHARMA LTD.STATEMENTS OF CHANGES IN EQUITY Ordinary shares Number ofshares Issued andpaid up sharecapital SharePremium Warrants Accumulateddeficit Total NIS in thousands BALANCE AT JANUARY 1, 2013 CHANGES DURING 2013: 3,984,445 1,992 146,357 7,877 (130,666) 25,560 Proceeds from issuance of shares and warrants, seenote 13b(1) 231,000 116 13,561 1,338 15,015 Proceeds from issuance of shares as part of aninvestment agreement, see note 10 320,663 160 7,290 7,450 Exercise of warrants (Series 3) 4,181 2 262 (13) 251 Expiration of warrants (Series 3) 449 (449) - Exercise of options by employees and serviceproviders 15,242 8 540 548 Share-based compensation 1,829 1,829 Comprehensive loss (18,390) (18,390)BALANCE AT DECEMBER 31, 2013 4,555,531 2,278 168,459 8,753 (147,227) 32,263 CHANGES DURING 2014: Proceeds from issuance of shares and warrants net ofNIS 742 thousand issuance costs, see note 13b(3) 577,795 289 15,392 911 16,592 Proceeds from issuance of shares as part of anaddendum to an investment agreement, see note10 202,018 101 6,499 6,600 Issuance of shares to former related party, see note11e 50,909 26 229 (255) - Expiration of warrants (Series 1) 5,197 (5,197) - Expiration of non-tradable warrants 2,218 (2,218) - Exercise of options by employees and serviceproviders 14,214 7 572 579 Share-based compensation 1,207 1,207 Comprehensive loss (20,368) (20,368)BALANCE AT DECEMBER 31, 2014 5,400,467 2,701 198,566 2,249 (166,643) 36,873 CHANGES DURING 2015: Expiration of non-tradable warrants, see note 13b(1) 1,338 (1,338) - Exercise of warrants (Series 7) , see note 13b(3) 208,843 7,639 (329) 7,310 Expiration of warrants (Series 7) , see note 13b(3) 582 (582) - Proceeds from issuance of shares through publicoffering, net of NIS 12,878 thousand issuancecosts, see note 13b(5) 5,663,750 116,780 116,780 Shares issued as part of an anti-dilution right, see note10 174,566 4,080 4,080 Exercise of options by employees and serviceproviders 565 * * Share-based compensation 1,480 1,480 Comprehensive loss (27,884) (27,884)BALANCE AT DECEMBER 31, 2015 11,448,191 2,701 328,985 - (193,047) 138,639 * Represents an amount less than NIS 1,000 and USD 1,000 The accompanying notes are an integral part of the financial statements. F -5  (Concluded) - 2 INTEC PHARMA LTD.STATEMENTS OF CHANGES IN EQUITY Ordinary Shares Number ofshares Issued and paid up sharecapital SharePremium Warrants Accumulateddeficit Total Convenience translation into USD (note 1b) in thousands BALANCE AT JANUARY 1, 2015 5,400,467 692 50,888 576 (42,706) 9,450 CHANGES DURING 2015: Expiration of non-tradable warrants, see note13b(1) 343 (343) - Exercise of warrants (Series 7), see note 13b(3) 208,843 1,958 (84) 1,874 Expiration of warrants (Series 7), see note 13b(3) 149 (149) - Proceeds from issuance of shares through aninitial public offering, net of NIS 3,300thousand issuance costs, see note 13b(5) 5,663,750 29,928 29,928 Shares issued as part of an anti-dilution right, seenote 10 174,566 1,046 1,046 Exercise of options by employees and serviceproviders 565 * * Share-based compensation 379 379 Comprehensive loss (7,147) (7,147)BALANCE AT DECEMBER 31, 2015 11,448,191 692 84,312 - (49,474) 35,530 * Represents an amount less than NIS 1,000 and USD 1,000 The accompanying notes are an integral part of the financial statements. F -6  (Continued) - 1INTEC PHARMA LTD. STATEMENTS OF CASH FLOWS Conveniencetranslationinto USD(note 1b) Year ended December 31 December 31, 2013 2014 2015 2015 NIS in thousands In thousands CASH FLOWS FROM OPERATING ACTIVITIES: Loss for the year (18,390) (20,368) (27,884) (7,147)Adjustments to reconcile comprehensive loss to net cash from operations (seeappendix A) 6,172 3,371 (2,912) (746)Net cash used in operating activities (12,218) (16,997) (30,796) (7,893)CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (5,376) (271) (5,405) (1,385)Investments in short-term deposits - - (19,425) (4,978)Proceeds from disposal (purchase) of financial assets at fair value throughprofit or loss, net (5,955) 10,016 (1) * Changes in restricted bank deposits, net 76 (31) 49 12 Net cash provided by (used in) investing activities (11,255) 9,714 (24,782) (6,351)CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of shares through public offering, net of issuance costs - - 116,780 29,928 Exercise of warrants (series 7) - - 7,310 1,874 Exercise of warrants (series 3) 251 - - - Exercise of options by employees and service providers 548 579 * * Issuance of shares and warrants as part of an investment agreement, net ofissuance costs, see note 10 17,692 - - - Issuance of shares as part of an addendum to the investment agreement, seenote 10 - 101 - - Issuance of shares and warrants, net of issuance costs 15,015 16,592 - - Net cash provided by financing activities 33,506 17,272 124,090 31,802 INCREASE IN CASH AND CASH EQUIVALENTS 10,033 9,989 68,512 17,558 CASH AND CASH EQUIVALENTS – BEGINNING OF YEAR 1,953 11,763 22,287 5,712 EXCHANGE DIFFERENCES ON CASH AND CASH EQUIVALENTS (223) 535 1,478 379 CASH AND CASH EQUIVALENTS - END OF YEAR 11,763 22,287 92,277 23,649 * Represents an amount less than NIS 1,000 and USD 1,000 The accompanying notes are an integral part of the financial statements. F -7  (Concluded) - 2INTEC PHARMA LTD.STATEMENTS OF CASH FLOWS Conveniencetranslation into USD(note 1b) Year ended December 31 December 31, 2013 2014 2015 2015 NIS in thousands In thousands APPENDIX A Adjustments to reconcile loss and comprehensive loss to net cash providedfrom operations: Income and expenses not involving cash flows: Depreciation 2,176 2,092 2,898 743 Exchange differences on restricted deposits (6) (1) 3 * Changes in the fair value of derivative financial instruments (32) 729 829 212 Exchange differences on cash and cash equivalents 223 (535) (1,478) (379)Exchange differences on short-term bank deposit (85) (22)Losses (gains) on financial assets at fair value through profit or loss (474) 51 (76) (19)Share-based compensation to investors, see note 10 88 - - - Share-based compensation to employees and service providers 1,829 1,207 1,480 379 3,804 3,543 3,571 914 Changes in operating asset and liability items: Decrease (increase) in other receivables 871 1,463 (8,091) (2,073)Increase (decrease) in accounts payable and accruals 1,497 (1,635) 1,608 413 2,368 (172) (6,483) (1,660) 6,172 3,371 (2,912) (746)APPENDIX B: Information regarding investment and financing activities not involving cashflows: Liability with respect to property purchase order, see note 11f 3,931 Settlement of liability in respect to derivative financial instrument to equity,see note 10 6,499 4,080 1,046 Supplementary information to the statement of cash flows - Interest received 402 617 171 44 * Represents an amount less than USD 1,000 The accompanying notes are an integral part of the financial statements. F -8  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS NOTE 1 - GENERAL INFORMATION: a.General Information: 1) Intec Pharma Ltd. (the "Company") is engaged in the development of proprietary technology, which enables the gastric retention ofcertain drugs. The technology is intended to significantly improve the efficiency of the drugs and substantially reduce their side-effectsor the effective doses. The Company is a limited liability public company incorporated and domiciled in Israel. The registered address of its offices is 12Hartom St., Jerusalem, Israel. The Company’s ordinary shares are being traded on the Tel-Aviv Stock Exchange Ltd. ("TASE") Since August 4 2015, the Company'sordinary shares have also been traded on the NASDAQ Capital Market ("NASDAQ"), see note 13b(5). 2) The Company is engaged in research and development activities and has not yet generated revenues from its operations. There is noassurance that the Company’s operations will generate positive cash flow. As of December 31, 2015 the cumulative losses of theCompany were approximately NIS 193 million. Management expects that the Company will continue to incur losses from its operationsin the foreseeable future, which will result in negative cash flows from operating activities. The Company plans to fund its future operations through submission of applications for grants from governmental authorities andprivate funds and raising capital from the public and/or private investors and/or institutional investors. The Company's current cashresources are not sufficient to complete the research and development of all of its products. The Company's management believes its cash and cash equivalents as of December 31, 2015 will allow the Company to fund itsoperating plan through at least 12 months from the date of this report. If the Company is unsuccessful in executing the abovementionedplans, it may need to make the necessary changes to its operations to reduce the level of expenditures in line with available resources. 3) On August 7, 2015, the Company completed its public offering of its ordinary shares on the NASDAQ. The Company raised, togetherwith the exercise of part of the underwriters’ over-allotment option, a total of approximately $30 million (NIS 117 million, net ofcommissions to the underwriters and offering expenses in the amount of NIS 12.9 million). For more details, see note 13b(5). b.Convenience translation into US dollars (“dollars”, “USD” or “$”) For the convenience of the reader, the reported New Israeli Shekel (NIS) amounts as of December 31, 2015 and for the year then ended havebeen translated into dollars at the Bank of Israel's representative rate of exchange for December 31, 2015 ($1 = NIS 3.902). The dollaramounts presented in these financial statements should not be construed as representing amounts that are receivable or payable in dollars orconvertible into dollars, unless otherwise indicated. c.Approval of financial statements The financial statements were approved by the Company's Board of Directors on March 10, 2016. F -9  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: a.Basis of presentation of the financial statements: The Company’s financial statements as of December 31, 2015 and December 31, 2014 and for each of the three years in the period endedDecember 31, 2015, have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by theInternational Accounting Standards Board ("IASB"). The significant accounting policies described below have been applied on a consistent basis for all years presented, unless noted otherwise. The financial statements have been prepared on the basis of historical cost, subject to adjustments in respect of revaluation of financialassets and financial liabilities at fair value through profit or loss. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requiresmanagement to exercise its judgment in the process of applying the Company’s accounting policies. Areas involving a higher degree ofjudgment or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3. Actualresults may differ materially from estimates and assumptions used. b.Foreign currency transaction: 1)Functional and presentation currency Items included in the financial statements are measured using the currency of the primary economic environment in which theCompany operates (the “functional currency”). The financial statements are presented in NIS, which has been the Company’s functionaland presentation currency since inception through December 31, 2015. Effective January 1, 2016, as a result of a number of factors,including a significant increase in expected expenses denominated in U.S. dollars relating to advanced clinical trials, the Company’sfunctional and presentation currency will be the U.S. dollar. 2)Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of eachtransaction. Foreign exchange gains which derive from the settlement of such transactions and from the translation at year-endexchange rates of monetary assets and liabilities denominated in foreign currencies are recorded to the statement of comprehensive lossamong financing income or expenses. F -10  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued): c.Property and equipment Property and equipment items are stated at cost less accumulated depreciation. Depreciation is computed by the straight-line method, overthe estimated useful lives as follows: Years Computer and peripheral equipment 3 Production and laboratory equipment 10 Office furniture and equipment 5-14 Automated production line 7 Leasehold improvements are depreciated by the straight-line method over the shorter of the lease term and the estimated useful life of theimprovements. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimatedrecoverable amount. Depreciation of property under construction begins when it is available for use, i.e. when it is in the location and condition necessary for itto be capable of operating in the manner intended by management. d.Intangible assets The Company applies the cost method of accounting for initial and subsequent measurements of intangible assets. Under this method ofaccounting, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Costs associated with research are recognized as an expense as incurred. Costs associated with development projects (which relate to thedesign and the testing of new products or improvements) are recognized as intangible assets when the following criteria are met: -It is technically feasible to complete the intangible assets so that it will be available for use;-Management intends to complete the intangible assets and use or sell it;-There is an ability to use or sell the intangible assets;-It can be demonstrated how the intangible assets will generate probable future economic benefits;-Adequate technical, financial and other resources to complete the development and to use or sell the intangible assets are available; andcosts associated with the intangible asset during development can be measured reliably. Other development costs that do not meet the above criteria are recognized as expenses as incurred. Development costs previouslyrecognized as an expense are not recognized as an asset in a subsequent period. As of December 31, 2015, the Company has not yet capitalized development costs. F -11  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued): e.Government grants and other grants: 1)The Company receives participation in research and development expenses from the State of Israel through the Office of the ChiefScientist of the Israeli Ministry of Economy ("OCS") in the form of grants which qualify as "forgivable loans", in accordance with IAS20, “Accounting for Government Grants and Disclosure of Government Assistance,” since the grants are repayable only if theCompany generates revenues related to the project that is the subject of the grant. The Company recognizes each forgivable loan as a grant receivable and a reduction of expenses on a systematic basis at the same timethe Company records, as an expense, the related development costs for which the loan is received, provided that there is reasonableassurance that (a) the Company complies with the conditions attached to the loan and (b) the loan will be received. The amount of theforgivable loan is recognized based on the participation rate approved by the OCS. Since the Company has reasonable grounds to believe it will meet the terms for forgiveness, the loan is accounted for as a governmentgrant. Government grants relating to costs are deferred and recognized in the statement of comprehensive loss over the periodnecessary to match them with the costs that they are intended to compensate. 2)The Company receives other grants from certain funds. The grants are recorded to the comprehensive loss as a reduction of relatedresearch and development expenses over the period necessary to match these grants with the costs that they are intended tocompensate. f.Financial assets: 1)Classification The Company classifies its financial assets in the following categories: (i) at fair value through profit or loss and (ii) loans andreceivables. The classification depends on the purpose for which each financial asset was acquired. The Company’s managementdetermines the classification of financial assets at initial recognition. a)Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an activemarket. These assets are included in current assets, except for maturities greater than 12 months after the end of the reportingperiod, which are classified as non-current assets. The Company’s loans and receivables are comprised of “other receivables”,“cash and cash equivalents”, "short term bank deposits" and “restricted bank deposits” in the statement of financial position (Seenote g below). F -12  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued): b)Financial assets at fair value through profit or loss This category includes financial assets that are managed and their performance is evaluated on a fair value basis. Thus upon theirinitial recognition, these assets are designated by management at fair value through profit or loss. Assets in this category areclassified as current assets if they are expected to be settled within 12 months. 2)Recognition and measurement Regular purchases and sales of financial assets are recognized on the settlement date, which is the date on which the asset is deliveredto the Company or delivered by the Company. Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit orloss. Financial assets carried at fair value through profit or loss are initially recognized at fair value, and transaction costs are expensedin profit or loss. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or havebeen transferred and the Company has transferred substantially all risks and rewards of ownership. Financial assets at fair value throughprofit or loss are subsequently carried at fair value. Loans and receivables are subsequently recorded at amortized cost using theeffective interest method. Gains or losses arising from changes in the fair value of the “financial assets at fair value through profit or loss” are presented in thestatement of comprehensive loss within “Other gains, net” in the period in which they arise. g. Cash and cash equivalents Cash and cash equivalents include cash on hand and short-term bank deposits (original maturities of three months or less) that are notrestricted as to withdrawal or use and are therefore considered to be cash equivalents. h.Restricted deposits The Company has placed a lien on NIS deposits in banks to secure its liabilities and commitments to various parties. See notes 11d and 11e. i.Share capital The Company's ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of new shares are shown inequity as a deduction from the issue proceeds. j.Trade payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers.Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of thebusiness if longer). Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effectiveinterest method. F -13  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued): k.Provisions Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that anoutflow of resources will be required to settle the obligation and the amount has been reliably estimated. l.Derivative financial instruments Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-measured at theirfair value. Changes in the fair value of derivative financial instruments are recognized in the statement of comprehensive loss withinfinancing income or expenses. Derivative financial instruments issued by the Company include the following: ·Derivative financial instrument - warrants ("Warrants")·Derivative financial instrument - anti-dilution right ("Anti-dilution right")·Derivative financial instrument - additional warrants, which were issued in November 2014 ("Additional warrants") m.Employee benefits: 1)Retirement benefit obligations The retirement benefit obligation of the Company is a defined contribution plan. A defined contribution plan is a post-employmentbenefit plan which is subject to section 14 of the Israeli severance pay law under which the Company pays fixed contributions intoa separate and independent entity. The Company has no legal or constructive obligations to pay further contributions if the funddoes not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The Company operates various pension plans that are generally funded through payments to insurance companies or trustee-administered funds. In accordance with their terms, the pension plans meet the definition of a defined contribution plan, asdescribed above. 2)Vacation days and recreation pay Labor laws in Israel entitle every employee to vacation days and recreation pay, both of which are computed annually. Theentitlement with respect to each employee is based on the employee’s length of service at the Company. The Company recognizesa liability and an expense in respect of vacation and recreation pay as earned by the employee based on his or her entitlement. F -14  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued): n.Share-based payments The Company operates an equity-settled, share-based compensation plan for employees, under which it receives services from employees asconsideration for equity instruments (options) of the Company. The fair value of such services received in exchange for the grant of theoptions is recognized as an expense in the statement of comprehensive loss. Non-market performance and service conditions are included in assumptions about the number of options that are expected to vest. Thetotal amount of expense is recognized over the vesting period, which is the period over which all of the specified vesting conditions are tobe satisfied. At the end of each reporting period, the Company revises its estimates of the number of options that are expected to vest basedon the non-market vesting conditions. The Company recognizes the impact of a revision in the original estimates, if any, in the statement of comprehensive loss, with acorresponding adjustment to equity. When the options are exercised, the Company issues new shares. The proceeds received, net of any directly attributable transaction costs,are credited to share capital (at par value) and share premium when the options are exercised. The fair value of the services received from service providers, other than labor services, are determined according to fair value of the servicesreceived, unless that value cannot be reliably measured, in which case the value of the benefit is determined based on the value of theinstruments issued. o.Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.Payments made under operating leases are charged to the statement of comprehensive loss on a straight-line basis over the period of thelease. p.Loss per share The computation of basic loss per share is based on the Company’s loss divided by the weighted average number of ordinary sharesoutstanding during the period. In calculating the diluted loss per share, the Company adds to the average number of shares outstanding that was used to calculate the basicloss per share the weighted average of the number of shares to be issued assuming all shares that have a potentially dilutive effect have beenconverted into shares. The potential shares, as described, are only taken into account in cases where their effect is dilutive (increasing theloss per share). Since the addition of potential shares reduces loss per share, these potential shares are not taken into account, and basic anddiluted loss per share are identical. q.Deferred taxes Deferred income taxes are recognized, using the liability method, for temporary differences arising between the tax bases of assets andliabilities and their carrying amounts in the financial statements. F -15  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued): Deferred income taxes are determined using tax rates (and laws) that have been enacted or substantially enacted by the statement offinancial position date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liabilityis settled. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available againstwhich the temporary differences can be utilized. Since the Company is unable to assess whether it will have taxable income in the foreseeable future, no deferred tax assets were recorded inthese financial statements. r.Standard that is not yet in effect and has not been early adopted by the Company for the financial year beginning 1 January 2015: 1)IFRS 9, Financial instruments ("IFRS 9") IFRS 9, ‘Financial instruments’, addresses the classification, measurement and recognition of financial assets and financial liabilities.The complete version of IFRS 9 was issued in July 2014. It replaces the guidance in IAS 39 that relates to the classification andmeasurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primarymeasurement categories for financial assets: amortized cost, fair value through other comprehensive income and fair value throughprofit or loss. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of thefinancial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocableoption at inception to present changes in fair value in other comprehensive income. Further, the expected credit losses model replacesthe incurred loss impairment model used in IAS 39. For financial liabilities, there were no changes to classification and measurementexcept for the recognition of changes in the Company's own credit risk in other comprehensive income for liabilities designated at fairvalue through profit or loss. The standard is effective for accounting periods beginning on or after January 1, 2018. Early adoption is permitted. The Company hasnot yet assessed IFRS 9’s full impact. 2)IFRS 16, Leases ("IFRS 16") IFRS 16 defines a lease as a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period oftime in exchange for consideration. Under IFRS 16 lessees have to recognize a lease liability reflecting future lease payments and a‘right-of-use asset’ for almost all lease contracts. The standard replaces the current guidance in IAS 17. The standard is effective for annual periods beginning on or after January 1,2019. The Company has not yet assessed IFRS 16’s full impact. NOTE 3 - CRITICAL ACCOUNTING ESTIMATES The accounting estimates are continually evaluated and adjusted based on historical experience and other factors, including expectation offuture events that are believed to be reasonable under the circumstances. The Company makes estimates and assumptions concerning the future. Such estimates, by nature, are subjective and complex and consequently may differ from actual results. F -16  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 3 - CRITICAL ACCOUNTING ESTIMATES (continued): The estimates for which there is significant risk of causing a material adjustment to the carrying amounts of liabilities within the next financialyear are outlined below: a.Share-based payments For the purpose of the evaluation of the fair value and the manner of the recognition of share-based compensation, the Company'smanagement is required to estimate, among other things, various parameters that are included in the calculation of the fair value of theoption as well as the Company’s results and the number of options that will vest. The actual results and the estimates that are made in thefuture may be significantly different from the current estimates. b.Derivative financial instruments As described in note 10, the Company has financial liabilities in respect to derivative financial instruments. These liabilities historically were measured at fair value using a standard valuation technique for this type of instrument (Monte Carlomodel) on the basis of observable inputs (such as the price of the Company's shares, risk-free interest and exercise price) and unobservableinputs (such as expected volatility, expected life and the probability of potential scenarios as described in the agreement). Per the agreement described in note 10 and following the completion of the Company's public offering on the NASDAQ, see note 13b(5),the valuation technique of the derivative financial instruments was changed from the Monte Carlo model to the Black-Scholes model, astandard valuation technique for this type of instrument. At December 31, 2015 these liabilities were measured at fair value using the Black-Scholes model on the basis of various parameters (such as the price of the Company's shares, expected life, expected volatility, risk-freeinterest and exercise price). Changes in the financial inputs underlying the model may cause significant changes in the fair value of the liability. NOTE 4 - FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT:a.Financial risk management: 1)Financial risk factors The Company’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and cash flowinterest rate risk), credit risk and liquidity risk. The Company’s overall risk management program focuses on the unpredictability offinancial markets and seeks to minimize potential adverse effects on the Company’s financial performance. In the Company’sopinion, the influence of market risk and credit risk is immaterial. Risk management is carried out by the Company's management which identifies and evaluates the financial risks in closecooperation with the Company's management. F -17  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 4 - FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued): a)Market risk Foreign exchange risk – the Company's operations are exposed to foreign exchange risk derived from cash and cashequivalents, short term bank deposits, other receivables and other payables. In 2015 the gain on changes in foreign exchangerates was approximately NIS 2.3 million. These changes had no material effect on the Company's operations. Set forth below is information on the linkage of monetary items: December 31, 2014 December 31, 2015 NIS Dollar Othercurrencies NIS Dollar Othercurrencies NIS in thousands Assets: Current assets: Cash and cash equivalents 12,800 4,731 4,756 9,697 71,754 10,826 Short-term bank deposits - - - - 19,510 - Financial assets at fair value through profit orloss 7,820 - - 7,897 - - Restricted deposits 292 - - 240 - - Other receivables 1,120 - - 9,211 - - Total current assets 22,032 4,731 4,756 27,045 91,264 10,826 Total assets 22,032 4,731 4,756 27,045 91,264 10,826 Liabilities: Current liabilities - Accounts payable and accruals: Trade 399 317 - 731 1,589 74 Other 2,234 338 3,931 2,526 205 - Total current liabilities 2,633 655 3,931 3,257 1,794 74 Non-current liabilities - Derivatives financial instruments 4,528 - - 1,277 - - Total liabilities 7,161 655 3,931 4,534 1,794 74 Net asset value 14,871 4,076 825 22,511 89,470 10,752 b)Credit risks Credit risks are handled by the Company's management. Credit risks arise from cash and cash equivalents, deposits in banksand receivable balances that have not yet been settled. The portfolio is well diversified (without a material investment in anysingle corporate bond) and, accordingly, minimal credit risk exists with respect to these investments. The Company’s cash and cash equivalents and financial assets at fair value through profit or loss at December 31, 2015 and2014 were deposited with an A-rated Israeli bank. In the Company’s opinion, the credit risk in respect of these balances isremote. c)Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequateamount of committed credit facilities. F -18  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 4 - FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued): Management monitors rolling forecasts of the Company’s liquidity reserve (comprising cash and cash equivalents, financialassets at fair value through profit or loss and deposits). This is generally carried out based on the expected cash flows inaccordance with practice and limits set by the management of the Company. The Company has not yet generated any revenue from the sale of drugs or royalties; the Company is therefore exposed to liquidity risk,taking into consideration the forecasts of cash flows required to finance its investments and other activities. The table presented below classifies the Company's financial liabilities into relevant maturity groupings based on the remaining periodto the contractual maturity date. The amounts presented in the table represent the contractual undiscounted cash flows. Less than one year NIS in thousands Non-derivative financial liabilities: As of December 31, 2015 - Accounts payable and accruals 4,557 As of December 31, 2014 - Accounts payable and accruals 6,803 As of December 31, 2015, the cash and cash equivalents balance amounted to approximately NIS 92.3 million, short term bank depositsbalance amounted to approximately NIS 19.5 million and the investment of bonds issued by the State of Israel and other bondsamounted to approximately NIS 7.9 million, which are expected to generate sufficient cash flow to the Company for liquidity riskmanagement in the upcoming year. 2)Capital management The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order toprovide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost ofcapital. It should be indicated that the Company is in the development stage and has not yet generated revenue from the sale of drugs orfrom royalties. 3)Fair value estimations The following is an analysis of the financial instruments measured at fair value through profit or loss, using valuation methods. Thedifferent levels have been defined as follows: *Quoted prices (unadjusted) in active markets for identical assets or liabilities(Level 1).*Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, asprices) or indirectly (that is, derived from prices) (Level 2).*Inputs for the asset or liability that are not based on observable market data (thatis unobservable input) (Level 3). F -19  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 4 - FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued): The following table presents the Company’s assets and liabilities that are measured at fair value at December 31, 2015 and December 31,2014. 2014 2015 Level 1 Level 3 Level 1 Level 3 NIS in thousands Assets - financial assets at fair value through profit and loss 7,820 7,897 Liabilities - derivative financial instruments 4,528 1,277 The following table presents the changes in Level 3 instruments for the three years ended December 31, 2015: Derivativefinancialinstrument - warrants Derivativefinancialinstrument - antidilution right Derivativefinancialinstrument -additionalwarrants Total NIS in thousands Opening balance as of the date of issuance 4,781 4,384 1,165 10,330 Loss (gain) recognized in profit or loss during 2013 (1,408) 1,470 (94) (32)Closing balance as of December 31, 2013 3,373 5,854 1,071 10,298 Loss (gain) recognized in profit or loss during 2014 (2,141) 3,568 (698) 729 Settlement of liability in respect to derivative financial instrumentto equity (6,499) (6,499)Issuance of additional warrants (see note 10) 373 (373) - Closing balance as of December 31, 2014 1,605 2,923 - 4,528 Loss (gain) recognized in profit or loss during 2015 (328) 1,157 829 Settlement of liability in respect to derivative financial instrumentto equity (4,080) (4,080)Closing balance as of December 31, 2015 1,277 - - 1,277 For more information about the assumptions used for measuring the fair value of the derivative financial instruments (level 3), see note 10. b.Financial instruments: Assets: December 31 2014 2015 NIS in thousands 1) Loans and receivables: Cash and cash equivalents 22,287 92,277 Short-term bank deposits - 19,510 Restricted bank deposits 292 240 Other receivables 1,021 3,044 2) Financial assets at fair value through profit or loss 7,820 7,897 F -20  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 4 - FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued): Liabilities: December 31 2014 2015 NIS in thousands 1) Financial liabilities at amortized cost - trade and other payables 6,803 4,557 2) Derivative financial instruments 4,528 1,227 NOTE 5 - CASH , CASH EQUIVALENTS AND SHORT TERM BANK DEPOSITS: a.Cash and cash equivalents As of December 31, 2015 and December 31, 2014, cash and cash equivalents include cash in hand. The carrying amount of cash and cashequivalents approximates their fair value, since the effect of discounting is immaterial. b.Short-term bank deposits The short-term bank deposit is linked to the Dollar and bears interest at an annual rate of 1%. NOTE 6 - FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS The Company holds financial assets at fair value through profit or loss. Those assets include bonds issued by the State of Israel and corporatebonds with a minimum of A rating by Israeli rating agencies. As of December 31, 2015 and December 31, 2014, the amount of the financial assetsat fair value through profit or loss is approximately NIS 7.9 million and NIS 7.8 million, respectively. Changes in the fair value of the financial assets at fair value through profit or loss are recorded in the statement of comprehensive loss as “Othergains, net”. The gain (loss), net from changes in fair value through profit or loss amounted to NIS 76 thousand, NIS (51) thousand and NIS 474thousand in 2015, 2014 and 2013, respectively. NOTE 7 - OTHER RECEIVABLES: December 31 2014 2015 NIS in thousands Prepaid expenses 99 903 Advances to suppliers - 5,264 Institutions 203 564 Grants receivable 818 2,480 1,120 9,211 F -21  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 8 - PROPERTY AND EQUIPMENT Composition and movement grouped by major classifications: Cost Accumulated depreciation Balance at Additions Balance at Balance at Additions Balance at Net book value beginning during end of beginning during end of Beginning End of year year year of year year year of the year of the year NIS in thousands NIS in thousands NIS in thousands Composition in 2015: Computers and communicationsequipment 432 63 495 366 40 406 66 89 Production and laboratoryequipment 13,090 993 14,083 7,384 1,172 8,556 5,706 5,527 Office furniture and equipment 501 47 548 350 36 386 151 162 Leasehold improvements 6,206 30 6,236 5,092 1,144 6,236 1,114 - Automated production line, seenote 11f 10,064 570 10,634 506 506 10,064 10,128 30,293 1,703 31,996 13,192 2,898 16,090 17,101 15,906 Composition in 2014: Computers and communicationsequipment 385 47 432 331 35 366 54 66 Production and laboratoryequipment 12,875 215 13,090 6,164 1,220 7,384 6,711 5,706 Office furniture and equipment 492 9 501 314 36 350 178 151 Leasehold improvements 6,206 6,206 4,291 801 5,092 1,915 1,114 19,958 271 20,229 11,100 2,092 13,192 8,858 7,037 Automated production line, seenote 11f 6,133 3,931 10,064 6,133 10,064 26,091 4,202 30,293 11,100 2,092 13,192 14,991 17,101 F -22  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 9 - ACCOUNTS PAYABLE AND ACCRUALS - OTHER: December 31 2014 2015 NIS in thousands Expenses payable 1,363 1,108 Liability with respect to property, see note 11f 3,931 - Salary and related expenses, including social security and other taxes 793 1,055 Accrual for vacation days and recreation pay for employees 363 514 Other 53 54 6,503 2,731 The carrying amount of others accounts payables approximates their fair value, since effect of discounting is immaterial. NOTE 10 - INVESTMENT AGREEMENT AND DERIVATIVE FINANCIAL INSTRUMENTS: a.In August 2013, the Company signed an agreement with several investors in a total amount of US$5 million ("the Agreement"). Accordingto the Agreement, the Company issued to the investors 320,663 ordinary shares with no par value and Warrants exercisable into 192,398ordinary shares with no par value. These warrants are exercisable over a period of four years from the date of their issuance for an exerciseprice of NIS 64.14. Under the terms of these Warrants, the investors have the right to exercise them into shares through a net-settlementmechanism ("net settlement"). In addition, the Company undertook to issue Additional warrants exercisable into 80,166 ordinary shares with no par value, in the event inthat, by September 30, 2014, the Company did not consummate an initial public offering of its ordinary shares on the NASDAQ in which itraised at least US$12 million or a merger with a company traded on the NASDAQ which immediately following the closure of such mergerheld free and unencumbered cash and/or publically raised, prior to September 30, 2014, a cumulative amount of at least US $12 million("Dual Listing"). These Additional warrants were issued in November 2014 and are exercisable over a period of two years from the date oftheir issuance for an exercise price of NIS 64.14. See note 10e. The investors were also entitled to anti-dilution protection until the occurrence of the earliest of one of the following events: (1) the DualListing, which was completed on August 7, 2015, (2) consummation of a merger or acquisition event (“M&A Event”) or (3) four years fromthe signing date of the Agreement. During this period, in case of the occurrence of an M&A Event or new investment in the Company at aprice per share that is lower than NIS 66.93 (the “Protection Threshold Price”), an investor would have been entitled to an additionalallotment of shares in accordance with a formula set forth in the Agreement, less the shares that were already issued following any previousanti-dilution right ("Downside Protection"). In the event of the activation of the Downside Protection mechanism, the exercise price of theWarrants which are still held by an investor would have been reduced by the same calculation. b.As part of closing of the Agreement, 6,414 warrants were granted to third parties who assisted the Company with the investment process.These warrants have the same terms as the Warrants issued to the investors. F -23  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 10 - INVESTMENT AGREEMENT AND DERIVATIVE FINANCIAL INSTRUMENTS (continued): c.Due to their terms, the Warrants and Additional warrants that were issued as part of this Agreement do not qualify for equity classificationand are treated as a derivative financial liability. As of December 31, 2014 the Anti dilution right was also classified as a derivative financialliability and following the completion of the public offering on August 7, 2015, see note 13b(5), and the termination of the DownsideProtection mechanism, the Anti dilution right was classified to equity. d.On October 22, 2014, the Company and the investors signed an Addendum to the Agreement ("the Addendum") following the rightsissuance that was completed on October 1, 2014 (see note 13b(3)). According to the Addendum, 202,018 additional ordinary shares wereissued in consideration of approximately NIS 101 thousand. Due to the additional ordinary shares issuance, Anti dilution right in theamount of approximately NIS 6.5 million was settled to equity. In addition, the exercise price of the Warrants which were issued to the investors, reduced from NIS 64.14 to NIS 35. Following the rightsissuance, the conversion rate was adjusted so each warrant which was issued to the investors in 2013 is exercisable into 1.003 ordinaryshares. e.In November 2014, the Company issued to the investors Additional warrants since the Company failed to fulfill the Dual Listing goal.These Warrants are exercisable until October 22, 2016 for an exercise price of NIS 35 which was reduced from NIS 64.14 following therights issuance. Under the terms of the Warrants, the investors have the right to exercise them into shares through a net-settlement. f.According to the Agreement and following the completion of the public offering on August 7, 2015, the investors were entitled to anadditional allotment of 174,566 ordinary shares and a reduction of the exercise price of the Warrants and Additional warrants from NIS 35to NIS 21.7. Accordingly, the liability to issue additional shares, in the amount of approximately NIS 4.1 million was credited to equity, asshares were issued on October 8, 2015 and the Downside Protection terminated. g.The financial derivatives are measured at fair value using standard valuation techniques for these types of instruments (Monte Carlo modelfor 2013 and 2014 and Black-Scholes model for 2015) on the basis of the following inputs: December 31 Observable Inputs : 2014 2015 Share price (NIS) 23.55 20.8 Exercise price (NIS) 35 21.7 Volatility 48.7%-49.6% 45.81%-51.48%Risk free rate 0.26%-0.67% 0.12%-0.31%Expected term (years) 0.75-2.75 0.81-1.72 F -24  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 10 - INVESTMENT AGREEMENT AND DERIVATIVE FINANCIAL INSTRUMENTS (continued): Additional unobservable inputs for December 31, 2014: Scenarios Probability Probability of occurrence of Qualifying Events only in 2015 15%-45.1%Probability of occurrence of Qualifying Events only in 2016 2.5%Probability of occurrence of Qualifying Events only in 2015 and 2016 2.4%Probability of occurrence of Qualifying Events in 2015 and 2017 1.8% Additional unobservable inputs for December 31, 2013: Scenarios Probability Probability of occurrence of Qualifying Events only in 2014 5%-22.5%Probability of occurrence of Qualifying Events only in 2015 6%Probability of occurrence of Qualifying Events in 2014 and 2015 2.5%-17.5%Probability of occurrence of Qualifying Events in 2014, 2015 and 2016 0.9%Probability of occurrence of Qualifying Events in 2014, 2015 and 2017 0.9% NOTE 11 - COMMITMENTS AND CONTINGENT LIABILITIES: a.Joint venture and exclusive license agreement In June 2000, the Company engaged in a joint venture and exclusive license agreement ("license agreement") with Yissum Research andDevelopment Company, owned by the Hebrew University of Jerusalem ("Yissum"). Under the license agreement, the Company has beengranted a perpetual and exclusive license to develop, manufacture and market products globally, which are based directly or indirectly on apatent owned by Yissum and based on the intellectual property that has been created as a result of the research that has been conducted byYissum and financed by the Company under the license agreement. The Company is entitled to grant sub-licenses to third parties and said sub-licenses may be perpetual, and any sublicensee thereunder willnot be required to assume any undertaking towards Yissum. Under the license agreement, the Company committed to act for the future development of products that are based on Yissum's patent andon the initial research activity that was undertaken under the license agreement (the “Products”). Several pending patents have resulted fromthe development work done by the Company, on its behalf or on behalf of the Company and Yissum jointly. F -25  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 11 - COMMITMENTS AND CONTINGENT LIABILITIES (continued): Further, the Company assumed in the license agreement all costs of submitting and managing patent applications, as well as maintainingpending and granted patents. In accordance with an amendment to the license agreement dated July 13, 2005 (which reduced royalty rates), and in exchange for thelicense, the Company agreed to pay 3% royalties on its overall net income (as defined in the license agreement) from the sale of theProducts, to Yissum from the time of the first commercial sale. Furthermore, the Company agreed to pay 15% royalties on sub-licenses onany payment or benefit whatsoever that the Company may receive from sub-licenses. As of the date of approval of the financial statements, the Company has not yet begun to sell and has not yet granted sub-licenses to anyparty, and, accordingly, no obligation has yet to arise to pay royalties in accordance with the license agreement. The parties are entitled to cancel the license agreement in the following cases: (a) the appointment of a liquidator or a receiver or thesubmission of an application for liquidation in relation to the other party, which is not cancelled within 180 days; (b) attachmentproceedings, debt collecting agency proceedings and similar proceedings in connection with a significant portion of the other party's assets;(c) the liquidation or bankruptcy of the other party; (d) a significant breach that is not repaired within 30 days from the time warning isgiven. If the license agreement is cancelled except in the case of its cancellation as a result of a breach by Yissum, the rights that weregranted under the license will return to Yissum. In accordance with the license agreement, the agreement will remain in force until the later of the expiry of the last patent that partiallyunderlies the Products on a global basis or 15 years from the time of the first commercial sale under the license agreement. In addition, as part of its development activities, the Company has engaged, from time to time, with Yissum in agreements for the provisionof laboratory and research services for optimizing the technology that is being developed by the Company. In January 2008, the Company engaged with Yissum in an agreement for the joint development of additional technology for the gastricretention of drugs. Among other things, pursuant to that agreement, intellectual property rights that may be created as a result of the jointresearch will be jointly owned and the Company will be granted a license to Yissum's share of those rights, in consideration for royalties atthe rates detailed above. It was also clarified that the rights in intellectual property that may be developed by the Company independentlyand without Yissum's involvement, or that of employees of the Hebrew University, will belong entirely to the Company. b.Cooperation agreements As part of its operations, the Company entered into feasibility agreements with multinational companies for the development of productsthat combine the Company's proprietary Accordion Pill platform technology with certain drugs for the treatment of various indications.These agreements sometimes include a mutual possibility of entering into negotiations for the acquisition of a future license for thecommercial use of the products that are being developed by the multinational companies under the feasibility agreements. In addition, thecompanies agreed to reimburse the Company for its expenses, based on milestones that are detailed in the feasibility agreements. Thisfunding is recognized in the statement of comprehensive loss as a deduction from research and development expenses, as they are incurred. F -26  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 11 - COMMITMENTS AND CONTINGENT LIABILITIES (continued): On April 15, 2015 an agreement was signed between the Company and Biogen MA Inc. (“Biogen“) with respect to the execution of aresearch, option and licensing agreement. The agreement is for the development of a designated accordion pill with a marketed, proprietarydrug of Biogen. Under the agreement, the Company will conduct activities for the development of the collaboration product, pursuant to anagreed upon research plan, which activities shall be funded by Biogen subject to achievement of certain research plan milestones. The Company shall be entitled to consideration of $920 thousand for achievement of research plan milestones. In addition for the exerciseof the option, achievement of additional milestones as described in the agreement and royalties based on sales, the Company shall beentitled to consideration of up to $147 million. c.OCS grants program In May and June 2015, in addition to previously approved programs, the Company received approval from the OCS for a participation inresearch and development activities performed by the Company ("Support Grant") from January 1, 2015 to December 31, 2015 in theamount of NIS 9.1 million. In October 2015, the Company submitted to the OCS a change request for the 2015 program and, consequently,the Support Grant was reduced to NIS 8 million. The Company is obligated to pay 3% to 4.5% royalties to the government of Israel, computed based on the revenues from licensing theproducts that the Company is developing that are assisted by the governmental grants. Such commitment is up to the amount of grantsreceived by the Company, linked to the U.S. dollar. Pursuant to reporting and royalty payment procedures of the OCS, such royalties will bepaid at an annual interest rate equal to LIBOR. The Company is subject to the provisions of the Israeli Law for the Encouragement ofIndustrial Research and Development and related regulations (the "Encouragement Regulations"). Pursuant to the EncouragementRegulations there are restrictions regarding intellectual property and manufacturing, as defined in the Encouragement Regulations, outsideof Israel, unless approval is received and additional payments are made to the OCS. Since management's assessment is that it is reasonably assured that the Company will comply with the conditions for the forgiveness of theOCS loan, this loan is treated as a government grant and, accordingly, no liability has been recognized in the financial statements. In 2015, 2014 and 2013, the participation in research and development expenses, amounts to approximately NIS 7.7 million, NIS 4.6million and NIS 3.5 million, respectively. In December 2015, in addition to previously approved programs, the Company submitted to the OCS a program of research anddevelopment activities as of January 1, 2016 to December 31, 2016. As of the date of approval of the financial statements, the Company hasnot yet received approval from the OCS for this program. F -27  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 11 - COMMITMENTS AND CONTINGENT LIABILITIES (continued): d.Operating long-term leases The Company is a tenant under a lease agreement in respect of offices and operational spaces until June 30, 2018. Rent payments are linkedto the CPI. The lease payments amounted in 2015 to approximately NIS 1.7 million. The total forecast lease payments from January 1, 2016 throughJune 30, 2018 are approximately NIS 4.35 million. To secure the Company’s obligations to the lease agreement, the Company has granted a bank guarantee to the lessor, which amounted toapproximately NIS 209 thousand as of December 31, 2015. e.A lawsuit On March 31, 2011, the Company received a statement of claim from a former related party, for an allocation of approximately 50,909 of theCompany’s ordinary shares. The lawsuit was in respect of a performance target relating to a share-based compensation transaction with the plaintiff. The Company hasrecorded expenses in its 2006 financial statements (the year in which the service was rendered) with respect to the share-basedcompensation. On September 8, 2013, the Israeli District Court ruled in favor of the plaintiff and ordered the Company to allocate to the plaintiff ordinaryshares constituting approximately 0.89% of the Company’s share capital at full dilution. The Company filed an appeal to the Israeli Supreme Court and concurrently issued the shares to the plaintiff on April 22, 2014. To secure the Company’s obligations that may arise as part of the appeal proceedings, the Company has granted a bank guarantee to theplaintiff in the amount of approximately NIS 50 thousand. On May 27, 2015, there was a court hearing relating to the Company's appeal. After the hearing, the Company decided to withdraw itsappeal and because of this withdrawal, the Company is not required to pay costs to the plaintiff and the bank guarantee was returned to theCompany. F -28  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 11 - COMMITMENTS AND CONTINGENT LIABILITIES (continued): f.Automated Production Line On August 30, 2011, the Company entered into an agreement with an international manufacturer for ordering an automated production linefor Accordion Pills. The order covers engineering design and planning, and amounted to approximately NIS 1.3 million. In May 2013, theCompany entered into a follow on order to manufacture and assemble the automated production line in the amount of approximately NIS9.3 million. On September 1, 2015, the installation of the automated production line was completed. As of December 31, 2015 the Companypaid the full amount of this order. The Company's management estimates that the useful life of the automated production line is 7 years andshould be depreciated by the straight-line method. g.Indemnification from insurance company In 2014, the Company received indemnification from an insurance company for damage caused to the Company's offices and operationalspaces in 2013, in the amount of NIS 887 thousand. NOTE 12 - TAXES ON INCOME: a.Corporate taxation in Israel: 1)Measurement of results for tax purposes The results of the Company are measured for tax purposes in accordance with Generally Accepted Accounting Principles in Israel(“Israeli GAAP”). These financial statements are prepared in accordance with IFRS. The difference between IFRS and Israeli GAAP,both on an annual and a cumulative basis, causes a difference between taxable results and the results reflected in these financialstatements. 2)Tax rates Income not eligible for Approved Enterprise benefit is taxed at a regular rate,which was 26.5% in 2015. In January 2016, the regulartax rate in Israel was reduced to 25% from 2016 and thereafter. In the absence of the expectation of taxable income in the future, no deferred tax asset is recorded in the financial statements. Capital gains are taxed at the standard corporate tax rate. F -29  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 12 - TAXES ON INCOME (continued): b.Tax benefits under the Law for the Encouragement of Capital Investments, 1959 (the "Law") Under the Law, the Company may be entitled to tax benefits, by virtue of its status as a "Benefited Enterprise", which was awarded to theCompany in October 2007. The Company received the status of a "plant under establishment" in Development Area A in a tax-exempt track, subject to compliancewith the applicable requirements by the Law. As of December 31, 2015, the Company has not yet generated operating income that will allow it to benefit from the tax benefits under theLaw. The tax benefits under the Law will apply for a period of up to ten years from the first year in which taxable income will be generated andare scheduled to expire at the end of 2023. c.Tax loss carryforwards As of December 31, 2015 the tax loss carryforwards of the Company were approximately NIS 193 million. The Company has not created deferred tax assets in respect of these tax loss carryforwards since their utilization is not expected in theforeseeable future. There is no expiration date on these loss carry forwards. d.Tax assessments Final tax assessments have been received by the Company through the year ended December 31, 2011. e.Value-added tax (VAT) The Company is registered as an authorized business for VAT purposes. NOTE 13 – EQUITY: a.Share capital: 1)Composition Share capital is composed of ordinary shares with no par value, as follows: Number of ordinary shares December 31 2014 2015 Authorized share capital 8,000,000 16,000,000 Issued and paid up share capital 5,400,467 11,448,191 2)The ordinary shares confer upon their holders participating and voting rights in shareholders meetings (where the holder of anordinary share has one vote), a right to receive a share of earnings and the right to receive assets of the Company upon its liquidation. F -30  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 13 – EQUITY (continued): b.Changes in share capital: 1)On February 13, 2013, the Company entered into agreements for a private placement with two institutional investors, in accordancewith which the Company allocated the offerees an overall quantity of 231,000 ordinary shares and 92,400 non-tradable andunlinked warrants (at a ratio of 2.5 shares to one warrant). Each warrant was exercisable into one ordinary share, each for an exerciseprice of NIS 80 (unlinked). Issuance proceeds amounted to approximately NIS 15 million. In respect of this issuance, there were noissuance costs. The warrants were exercisable until February 13, 2015 and all expired on that date. 2)Based on the investment agreement signed on August 6, 2013 and the Addendum to the investment agreement signed on October22, 2014, (as described in note 10), the Company issued to several investors during 2013, 320,663 ordinary shares and 198,812warrants and, in November 2014, 202,018 ordinary shares and 80,166 warrants. For more details, see note 10. 3)On May 27, 2014, the Company issued on the TASE a shelf prospectus for the issue of 4,000,000 ordinary share sand of up to 10series of warrants (Series 7 to 16), each of which may include no more than 4,000,000 warrants, which are exercisable such that eachwarrant from each of the series 7 to 16 will be exercisable into one ordinary share. On October 1, 2014, the Company issued 577,795 ordinary shares and 577,795 unlinked warrants (Series 7) through a rightsissuance. Each warrant (Series 7) was exercisable into one ordinary share, each for an exercise price of NIS 35 (unlinked). The sharesand warrants were offered through a rights issuance to the Company's shareholders at the trading day on the TASE on September15, 2014, such that each shareholder holding 15 ordinary shares was entitled to two ordinary shares and two warrants (Series 7) foran overall price of NIS 60. Issuance proceeds, net of issuance costs, amounted to NIS 16.6 million. Until April 26, 2015, 208,843 unlinked warrants (Series 7) were exercised to purchase 208,843 ordinary shares for consideration ofapproximately NIS 7.3 million. The remaining 368,952 unexercised and unlinked warrants (Series 7) expired on that date. 4)On March 29, 2015, further to an approval of the General Meeting on March 18, 2015, the Company executed a 50-to-1 reverseshare split of the Company's ordinary shares and eliminated their par value. Upon the effectiveness of the reverse share split, (i) thenumber of ordinary shares was proportionally decreased and their par value was eliminated, (ii) the number of ordinary shares intowhich each outstanding option and outstanding warrant to purchase ordinary shares is exercisable was proportionally decreased,and (iii) the exercise price of each outstanding option and outstanding warrant to purchase ordinary shares was proportionallyincreased. In addition, the general meeting approved an increase of the Company's authorized share capital to include, after thereverse share split, 16,000,000 ordinary shares with no par value. Unless otherwise indicated, all of the shares numbers, the optionsand warrants numbers, loss per share amounts, share prices, warrant exercise prices and option exercise prices in these financialstatements have been adjusted, on a retroactive basis, to reflect this 50-to-1 reverse share split. F -31  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 13 – EQUITY (continued): 5)On August 7, 2015, the Company completed its public offering of its ordinary shares on the NASDAQ, pursuant to which theCompany issued 5,025,000 ordinary shares with no par value, at a price of $6.00 per ordinary share, raising a total of approximately$26.5 million (net of commissions to the underwriters and offering expenses). In addition, on September 17, 2015, the underwritersexercised in part their over-allotment option and purchased an additional 638,750 ordinary shares at a price of $6 per share. Theproceeds from the exercise of the option, net of underwriters’ commission and offering expenses, were approximately $3.5 million,bringing the total net proceeds from the initial public offering to approximately $30 million. c.Share-based payment to employees and service providers: 1)On May 26, 2013, the Board of Directors approved a grant of 15,000 options to Company employees, where each option will beexercisable into one ordinary share, each for an exercise price of NIS 60.42. The options will vest over a four-year period, with halfof the options vesting at the end of a two-year period from the date of grant, and the second half vesting in eight equal quarterlytranches, subsequent to the two-year period from the grant date, subject to the employees' continued employment with theCompany at the time that each tranche vests. The options will expire six years after the date of grant. The value of the benefit inrespect of said options, as calculated on the grant date, is approximately NIS 530 thousand. See note 13c(10)(a) regarding theassumptions in respect of this calculation. 2)In August 2013, the Company's officers were granted options. Each option will be exercisable into one ordinary share. See section3 and section 4 of this note 13 below for options granted to the VP R&D and Operations and the Company's former Chief FinancialOfficer ("former CFO"), respectively. See note 19 regarding the options granted to the Chairman of the Company's Board ofDirectors, CEO and former Co-CEO. 3)On October 21, 2013, the Company's General Meeting approved, further to a resolution adopted by the Board of Directors onAugust 26, 2013 and the recommendation of the Compensation Committee on August 21, 2013, the amendment to theemployment agreement with the Company's Vice President R&D and Operations. As part of the updates, the Company's VicePresident R&D and Operations was granted options to purchase 57,200 ordinary shares, each for an exercise price of NIS 56.35.These options will be exercisable only in the event that a material agreement, as defined in his agreement, is signed between theCompany and a third party, and subject to his continued employment with the Company. These options will expire after six yearsfrom the date of grant. The value of the benefit of these options is approximately NIS 2 million and will be recognized in thefinancial statements of the Company only if a material agreement is signed. In addition, the Company's Vice President R&D andOperations was granted options to purchase 10,000 ordinary shares, each for an exercise price of NIS 56.35. F -32  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 13 – EQUITY (continued): These options will vest over a four-year period, with half of the options vesting at the end of a two-year period from the date ofgrant, and the second half of the options vesting in eight equal quarterly tranches subsequent to the two-year period from the grantdate, subject to his continued employment at the time that each tranche vests. The value of the benefit of those options, ascalculated at the date of grant, is approximately NIS 300 thousand. See note 13c(10)(d) regarding the assumptions in respect of thiscalculation. 4)On October 21, 2013, the Company's General Meeting approved, further to a resolution adopted by the Board of Directors onAugust 26, 2013 and recommendation of the compensation committee on August 21, 2013, the amendment to the employmentagreement with the Company's financial manager, who served as CFO until December 31, 2014. As part of the updates to theagreement the Company's former CFO will be granted options to purchase 35,000 ordinary shares, each for an exercise price of NIS56.35. These options will be exercisable only in the event that a material agreement, as defined in his agreement, is signed betweenthe Company and a third party, subject to his continued employment with the Company. These options will expire after six yearsfrom the date of grant. The value of the benefit of those options is approximately NIS 1.25 million and will be recognized in thefinancial statements of the Company only if a material agreement is signed. In addition, the Company's former CFO was grantedoptions to purchase 15,000 ordinary shares, each for an exercise price of NIS 56.35. These options will vest over a four-year period,with half of the options vesting at the end of a two-year period from the date of grant, and the second half of the options will vest ineight equal quarterly tranches subsequent to the two-year period from the grant date, subject to his continued employment at thetime that each tranche vests. The value of the benefit of these options, as calculated at the date of grant, is approximately NIS 500thousand. See note 13c(10)(d) regarding the assumptions in respect of this calculation. 5)See note 11e regarding the issuance of shares to former related party in April 2014. 6)On August 28, 2014, the Board of Directors approved a grant of 10,000 options to Company employees, where each option will beexercisable into one ordinary share, each for an exercise price of NIS 39.55. The options will vest over a four-year period, with halfof the options vesting at the end of a two-year period from the date of grant, and the second half vesting in eight equal quarterlytranches, subsequent to the two-year period from the grant date, subject to the employees' continued employment with theCompany at the time that each tranche vests. The options will expire six years after the date of grant. The value of the benefit inrespect of the said options, as calculated at the date of grant, is approximately NIS 175 thousand. See note 13c(10)(e) regarding theassumptions in respect of this calculation. F -33  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 13 - EQUITY (continued): 7)On August 28, 2014, the Board of Directors approved, further to a recommendation of the Compensation Committee, a grant of24,000 options to the Company’s VP Business Development and Clinical Affairs, where each option will be exercisable into oneordinary share, each for an exercise price of NIS 39.55. The options will vest over a four-year period, with half of the optionsvesting at the end of a two-year period from the date of grant, and the second half vesting in eight equal quarterly tranches,subsequent to the two-year period from the grant date, subject to the employees' continued employment with the Company at thetime that each tranche vests. The options will expire six years after the date of grant. The value of the benefit in respect of the saidoptions, as calculated at the date of grant, is approximately NIS 400 thousand. In addition, the Company's VP BusinessDevelopment and Clinical Affairs will be granted options to purchase 36,000 ordinary shares, each for an exercise price of NIS39.55. These options will be exercisable only in the event that a material agreement, as defined in the Company's compensationpolicy, is signed between the Company and a third party, subject to her continued employment with the Company. These optionswill expire after six years from the date of grant. The value of the benefit of those options is approximately NIS 620 thousand andwill be recognized in the financial statements of the Company only if a material agreement is signed. See note 13c(10)(e) regardingthe assumptions in respect of this calculation. 8)On October 6, 2014, the Board of Directors approved a grant of 61,200 options to Company employees, where each option will beexercisable into one ordinary share, each for an exercise price of NIS 32.47. The options will vest over a four-year period, with halfof the options vesting at the end of a two-year period from the date of grant, and the second half vesting in eight equal quarterlytranches, subsequent to the two-year period from the grant date, subject to the employees' continued employment with theCompany at the time that each tranche vests. The options will expire six years after the date of grant. The value of the benefit inrespect of the said options, as calculated at the date of grant, is approximately NIS 810 thousand. See note 13c(10)(f) regarding theassumptions in respect of this calculation. 9)On December 31, 2014, the Board of Directors approved, further to a recommendation of the Compensation Committee, effectiveJanuary 1, 2015, the appointment of the Company's Chief Financial Officer ("CFO"). As part of his employment agreement, a grantof 20,000 options was approved. Each option will be exercisable into one ordinary share, each for an exercise price of NIS 27.93.The options will vest over a four-year period, with half of the options vesting at the end of a two-year period from the date of grant,and the second half vesting in eight equal quarterly tranches, subsequent to the two-year period from the grant date, subject to theCFO's continued employment with the Company at the time that each tranche vests. These options will expire after six years fromthe date of grant. The value of the benefit in respect of the said options, as calculated at the date of grant, is approximately NIS 200thousand. In addition, a grant of 40,000 options was approved of which 12,000 options to purchase 12,000 ordinary shares, eachfor an exercise price of NIS 27.93 will be exercisable only in the event that a material agreement, as defined in the Company'scompensation policy, is signed between the Company and a third party, subject to the CFO's continued employment with theCompany. These options will expire after six years from the date of grant. The value of the benefit of those options isapproximately NIS 120 thousand and will be recognized in the financial statements of the Company only if a material agreement issigned. The remaining 28,000 options to purchase 28,000 ordinary shares were to become exercisable upon completion of anissuance of the Company's ordinary shares in a foreign stock exchange, subject to the CFO's continued employment with theCompany. F -34  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 13 - EQUITY (continued): The exercise price of these options will be NIS 27.93, and in the event that a material agreement has been signed, the higher of NIS27.93 and the average of the share price for the 30 trading days after the signing of a material agreement. These options will expireafter six years from the date of grant. See note 13c(10)(g) regarding the assumptions in respect of this calculation. In August 2015, following the completion of the public offering, see note 13b(5), 28,000 options, that were exercisable uponcompletion of an issuance of the Company's ordinary shares in a foreign stock exchange, as described above, were vested and thevalue of the benefit of those options in the amount of approximately NIS 280 thousand was recognized in the financial statementsof the Company. 10)Assumptions used in calculating options' fair value: The fair value of the options at the date of grant was calculated on the basis of the Black-Scholes model. The assumptions used incalculating the fair value of the options granted are as follows: Date of grant TheCompany'sordinaryshare price Expectedannual volatility* Risk-freeinterest rate** Expected lifeto exercise NIS % % In years (a) May 2013 57 68 3 6 (b) August 2013 60 45.07 1.9 3 (c) August 2013 60 51.61 2.6 4.5 (d) August 2013 60 59.95 3.2 6 (e) August 2014 38.5 46.24 1.9 6 (f) October 2014 30 46.64 1.9 6 (g) January 2015 27.93 48.07 1.9 6 *Until the end of third quarter 2013 the Company’s expected volatility was derived from an average of historical volatilities ofcertain companies that are similar to the Company (same market cap, clinical stage, etc.). In the following periods the Companyused its volatility in the calculation of expected volatility. **The risk-free interest rate was determined on the basis of the yield rates to maturity of unlinked government bonds bearing afixed interest rate, whose maturity dates correspond to the expected exercise dates of the options. F -35  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 13 - EQUITY (continued): 11)The following table contains additional information concerning options granted to employees and service providers: Year ended December 31 2013 2014 2015 Number of options (a) Options with an exercise price of NIS 0.5: Outstanding at beginning of year 145,565 140,195 137,951 Granted - - - Exercised (5,370) (2,244) (565)Forfeited - - - Expired - - - Outstanding at end of year 140,195 137,951 137,386 Exercisable at end of year 11,800 9,556 8,991 Weighted average remaining contractual life (years) 2.5 2.15 1.72 (b) Options with an exercise price of NIS 32.47 – NIS 81.1: Outstanding at beginning of year 327,586 519,740 630,089 Granted 207,200 131,200 60,000 Exercised (9,872) (11,970) - Forfeited (5,174) (8,881) (3,343)Expired - - - Outstanding at end of year 519,740 630,089 686,746 Exercisable at end of year 223,334 257,714 292,562 Weighted average remaining contractual life (years) 2.5 2.41 1.83 Each option that is exercisable affords the right to acquire one ordinary share of the Company. The options granted to the Company's employees are governed by principles of section 102 of the Israeli Income Tax Ordinance. Underthe tax classification elected by the Company and in accordance with those principles, the Company is not entitled to deduct the share-based payment as a salary expense in the Company's accounting records. F -36  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 14 - RESEARCH AND DEVELOPMENT EXPENSES: Year ended December 31 2013 2014 2015 NIS in thousands Payroll and related expenses 6,530 7,505 8,864 Materials and subcontractors 1,013 1,707 2,021 Professional services 2,246 1,674 1,817 Research and clinical trials 2,356 1,597 9,974 Rent and maintenance 2,460 2,329 2,489 Depreciation 2,097 2,021 2,822 Share-based compensation 359 384 591 Others 349 523 679 17,410 17,740 29,257 NOTE 15 - GENERAL AND ADMINISTRATIVE EXPENSES: Year ended December 31 2013 2014 2015 NIS in thousands Payroll and related expenses 2,778 2,826 3,224 Rent and maintenance 665 736 686 Professional services 3,990 4,165 4,577 Overseas travel and trade shows 151 89 256 Depreciation 79 71 76 Share-based compensation 1,470 823 889 Insurance, fees and others 500 622 1,120 9,633 9,332 10,828 NOTE 16 - FINANCIAL INCOME (EXPENSES): Year ended December 31 2013 2014 2015 NIS in thousands Financial income: Interest on cash equivalents and short term bank deposits 402 617 174 Changes in fair value of derivative financial instruments, see note 10 32 Gain on changes in exchange rates 519 2,284 434 1,136 2,458 Financial expenses: Bank fees 85 83 60 Changes in fair value of derivative financial instruments, see note 10 729 829 Loss on changes in exchange rates 239 Transaction costs for investment agreement 324 648 812 889 Total financial income (expenses), net (214) 324 1,569 F -37  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 17 - LOSS PER SHARE The basic loss per share is computed by dividing the Company's loss attributable to the holders of shares by the weighted average number ofordinary shares outstanding during the period. Year ended December 31 2013 2014 2015 NIS in thousands(except per share amounts) Loss per year as reported in the statements of comprehensive loss 18,390 20,368 27,482 Weighted average of ordinary shares outstanding during the period 4,322 4,825 7,791 Basic and diluted loss per share (4.25) (4.22) (3.53) The diluted loss per share does not include 824,132, 768,040 and 659,935 options granted to employees and service providers for the yearsended December 31, 2015, 2014 and 2013, respectively, 313,588 warrants (Series 1) which were issued in 2010 and expired in 2014, 577,795warrants (Series 7) which were issued in 2014 and expired in 2015, 103,673 warrants which were issued to institutional investors in 2010 andexpired in 2014, 92,400 warrants which were issued to institutional investors in 2013 and expired in 2015 and 198,812 and 80,166 warrantswhich were issued to several investors in 2013 and in 2014, respectively, as part of an investment agreement, because the effect of theirinclusion in the calculation would be anti-dilutive. NOTE 18 - EXPENSES RELATING TO EMPLOYEE BENEFITS: Year ended December 31 2013 2014 2015 NIS in thousands Payroll and other benefits 8,734 9,667 10,968 Social security 405 456 557 Share-based compensation 1,707 1,207 1,480 Post-employment benefits –defined contribution plan 910 1,038 1,178 11,756 12,368 14,183 Average number of employees to which these benefits are related 41 43 47 F -38  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 19 - TRANSACTIONS AND BALANCES WITH RELATED PARTIES "Related party" – has the meaning set forth in IAS 24R. The Company’s key management personnel (who are included, together with other persons, within the definition of "related parties" as definedin IAS 24R) in 2013 and 2014 include the members of the Board of Directors, the CEO and the former Co-CEO and in 2015 include themembers of the Board of Directors and the CEO. a.Transactions with related parties: Year ended December 31 2013 2014 2015 NIS in thousands Key management compensation expenses: Salaries and short-term employee benefits 2,312 2,239 1,672 Long term employment benefits 169 165 116 Share-based compensation expenses 1,359 605 326 3,840 3,009 2,114 1)Employment agreement with the Chairman of the Board (the "Chairman") On October 21, 2013, the Company's General Meeting approved, further to a resolution adopted by the Board of Directors onAugust 26, 2013 and recommendation of the Compensation Committee on August 21, 2013, the amendment to the employmentagreement with the Chairman. The following are the main updates to the agreement: a)Continued service in that position for an additional three years beginning on the date of the approval of the agreement by theGeneral Meeting. b)The Chairman was granted options to purchase 26,000 ordinary shares, each for an exercise price of NIS 56.35. 6,000 optionswere fully vested immediately following the approval of the general meeting and 20,000 options will vest in three equalannual tranches over a three-year period, subject to his continued employment at the time that each tranche vests. Theseoptions will expire after six years from the grant date. The value of the benefit of these options, as calculated at the date ofgrant, is approximately NIS 500 thousand. See note 13c(10)(b) regarding the assumptions in respect of this calculation. c)The Chairman was granted options to purchase 14,000 ordinary shares, each for an exercise price of NIS 56.35. These optionswill be exercisable only in the event that a material agreement, as defined in the employment agreement, is signed betweenthe Company and a third party, during the course of the period of the employment agreement or within 18 months from thetermination of employment. These options will expire after six years from the grant date. F -39  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 19 - TRANSACTIONS AND BALANCES WITH RELATED PARTIES (continued): The value of the benefit of those options, as calculated at the date of grant, is approximately NIS 200 thousand. In addition,options to purchase 35,463 ordinary shares at an exercise price of NIS 0.5 and options to purchase 41,654 ordinary shares atan exercise price of NIS 81.1 were granted under previous amendments of his employment agreement from October 2009 andMay 2011, respectively, and will be exercisable only if a material agreement is signed between the Company and a thirdparty, during the course of the period of the employment agreement or within 18 months from the termination of theemployment. The value of the benefit of the extension period, as calculated at the date of change, is approximately NIS 300thousand. See note 13c(10)(c) regarding the assumptions in respect of this calculation. d)The Company and the Chairman will be entitled to terminate the engagement between them upon six months prior writtennotice. In addition, on May 2011 the Chairman was granted options to purchase 20,827 ordinary shares at an exercise price of NIS 81.1.These options will expire after six years from grant date. As of the date of approval of these financial statements these options had vested but were not yet exercised. 2)Employment agreement with CEO On October 21, 2013, the Company's General Meeting approved, further to a resolution adopted by the Board of Directors on August26, 2013 and recommendation of the Compensation Committee on August 21, 2013, the amendment to the employment agreementwith the CEO Mr. Zeev Weiss, who was appointed as Co-CEO by the Board of Directors on November 7, 2013 and who wasappointed as CEO by the Board of Directors on October 7, 2014 after the former Co-CEO, Mr. Giora Carni, stepped down. The following are the main updates to the agreement: a)A grant of up to $300 thousand, to which the CEO was entitled subject to the signing of a material agreement as defined in theemployment agreement, will be cancelled. b)The CEO was granted options to purchase 15,000 ordinary shares with an exercise price of NIS 56.35. These options will beexercisable only in the event that a material agreement, as defined within his employment agreement, is signed between theCompany and a third party, subject to his continued employment in the Company. These options will expire after six yearsfrom grant date. The value of the benefit in those options as calculated at the date of grant is approximately NIS 500 thousandand will be recognized in the financial statements of the Company only if the material agreement is signed. F -40  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 19 - TRANSACTIONS AND BALANCES WITH RELATED PARTIES (continued): c)The Company and the CEO will be entitled to terminate the engagement after six months' prior written notice. On June 9, 2009, the CEO was granted options to purchase 42,023 ordinary shares at an exercise price of NIS 0.5. These options areexercisable only in the event that a material agreement, as defined within his employment agreement, is signed between the Companyand a third party. These options will expire after ten years from the date of grant. In addition, on May 2012, the CEO was granted options to purchase 40,000 ordinary shares at an exercise price of NIS 47.6. Theoptions will vest over a four-year period, with half of the options vesting at the end of a two-year period from the date of grant, and thesecond half of the options vesting in eight equal quarterly tranches subsequent to the two-year period from the grant date, subject tohis continued employment at the time that each tranche vests. These options will expire after six years from the date of grant. 3)Employment agreement with the former Co-CEO On October 21, 2013, the Company's General Meeting approved, further to a resolution adopted by the Board of Directors onAugust 26, 2013 and recommendation of the Compensation Committee on August 21, 2013, the amendment to the employmentagreement with the Company’s former Co-CEO, Mr. Giora Carni, who was appointed as Co-CEO on November 7, 2013, and whoceased to be Co-CEO and a related party on October 7, 2014. The following are the main updates to the agreement: a)The former Co-CEO was granted options to purchase 20,000 ordinary shares at an exercise price of NIS 56.35. These optionswill be exercisable only in the event that a material agreement, as defined in his agreement, is signed between the Companyand a third party, subject to his continued employment with the Company. These options will expire after six years from thedate of grant. The value of the benefit of those options is approximately NIS 700 thousand and will be recognized in thefinancial statements of the Company only if a material agreement is signed. b)Options to purchase 50,909 ordinary shares with an exercise price of NIS 0.5 were granted under the employment agreementdated September 2008. Such options will be exercisable only if a material agreement is signed between the Company and athird party, during the course of the period of the employment agreement. In addition, in August 2010, the former Co-CEO was granted options to purchase 80,631 ordinary shares at an exercise priceof NIS 47.6. As of the date of approval of the financial statements, these options were vested but were not yet exercised. F -41  INTEC PHARMA LTD.NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 19 - TRANSACTIONS AND BALANCES WITH RELATED PARTIES (continued): 3)On June 27, 2010, at a General Meeting of the Company's shareholders, further to a decision by the Company's Audit Committee andits Board of Directors, the Company’s shareholders approved the grant of 10,751 options to each of the three executive members ofthe Company's Board of Directors and to the two external directors. Each option will be exercisable into one ordinary share at anexercise price of NIS 48.91. These options will expire after ten years from the date of grant. As of the date of approval of the financialstatement all these options were vested. On March 2014, one of the directors, who ceased to serve as a director in January 2014,exercised 10,751 options that were granted to him in 2010 into 10,751 ordinary shares and 904 options that were granted to him in2006 into 904 ordinary shares for consideration of approximately NIS 526 thousand. b.Balances with related parties: December 31 2014 2015 NIS in thousands Statement of financial position items - current liabilities - Accounts payable and accruals - other 181 145 F -42  ITEM 19. Exhibits. Exhibit No. Exhibit Description 1.1* Certificate of Incorporation of Orly Guy Ltd., dated October 23, 2000 1.2* Certificate of Name Change of Orly Guy Ltd. to Intec Pharmaceutical (2000) Ltd., dated February 7, 2001 1.3* Certificate of Name Change of Intec Pharmaceutical (2000) Ltd. to Intec Pharma Ltd., dated March 15, 2004 1.4* Articles of Association of Intec Pharma Ltd. 2.1*** Specimen share certificate 4.1+* Joint Venture for R&D, dated June 1, 2000, by and between Yissum Research Development Company of the Hebrew University ofJerusalem and Intec Pharmaceutical Partnership Ltd. 4.2+* Notice of Extension Letter, dated October 5, 2004, from Intec Pharma Ltd. to Yissum Research Development Company of the HebrewUniversity of Jerusalem 4.3* Amendment, dated July 13, 2005, by and between Yissum Research Development Company of the Hebrew University of Jerusalem andIntec Pharma Ltd., to the Joint Venture for R&D Agreement dated June 1, 2000 4.4* Research Agreement, dated January 15, 2008, by and between Yissum Research Development Company of the Hebrew University ofJerusalem and Intec Pharma Ltd. 4.5* Form of Indemnification Letter 4.6* Intec Pharma Ltd. 2005 Share Option Plan 4.7***** Intec Pharma Ltd. 2015 Equity Incentive Plan 4.8* Subscription Agreement between Intec Pharma Ltd. and the investors listed on Schedules A and C thereto, dated August 6, 2013,including forms of Certificates of Warrants 4.9* Addendum & Amendment to that certain Subscription Agreement of August 6, 2013, dated October 20, 2014, by and between IntecPharma Ltd. and Gabriel Capital Management (GP) Ltd. 4.10* Unprotected Lease Agreement between Intec Pharma Ltd. and R.M.P.A. Assets Ltd., dated June 2, 2003, together with supplementsthereto dated as of April 21, 2004, January 1, 2006, December 15, 2009 and January 18, 2011 4.11 Lease Agreement – Appendix between Intec Pharma Ltd. and R.M.P.A. Assets Ltd., dated October 28, 2015 4.12* Employment Agreement, dated August 1, 2008, between Intec Pharma Ltd. and Giora Carni as amended by the Agreement, dated October12, 2010, and the Addendum to Agreement, dated October 21, 2013 141  4.13* Employment Agreement, dated June 1, 2009, between Intec Pharma Ltd. and Zeev Weiss as amended by Amendment to Agreement,dated 2012 and Addendum to Agreement, dated November 11, 2013 4.14* Employment Agreement, dated November 25, 2013, between Intec Pharma Ltd. and Liat Flaishon 4.15* Employment Agreement, dated January 15, 2006, between Intec Pharma Ltd. and Nadav Navon, as amended by Annex to EmploymentAgreement, dated May 29, 2011, Addendum to Agreement, dated March 2012 and Amendment to Agreement, dated October 21, 2013 4.16* Employment Agreement, dated December 31, 2014, between Intec Pharma Ltd. and Oren Mohar 4.17* Employment Agreement, dated November 1, 2004, between Intec Pharma Ltd. and Zvika Joseph, as amended by Addendum toEmployment Agreement, dated October 20, 2009, Amendment to Agreement, dated July 28, 2011 and Addendum to Agreement, datedOctober 21, 2013 4.18+** Amendment, dated March 12, 2015, by and between Yissum Research Development Company of the Hebrew University of Jerusalemand Intec Pharma Ltd., to the Joint Venture of R&D Agreement dated June 1, 2000. 4.19+** Research, Option and License Agreement, dated April 15, 2015, between Intec Pharma Ltd. and Biogen MA Inc. 4.20** Registration Rights Agreement, dated as of July 8, 2015, by and among Intec Pharma Ltd., Gabriel Capital Management (GP) Ltd. andthe other persons identified on Schedule A thereto 4.21*** Form of Indemnification Agreement 4.22*** Form of Exemption from Liability 12.1 Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities ExchangeAct of 1934, as amended 12.2 Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities ExchangeAct of 1934, as amended 13.1 Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 15.1 Consent of Kesselman & Kesselman, Certified Public Accountant (Isr.), independent registered public accounting firm, a member ofPricewaterhouseCoopers International Limited *Incorporated herein by reference to the Company’s Registration Statement on Form F-1 filed with the SEC on June 9, 2015.**Incorporated herein by reference to Amendment No. 1 to the Company’s Registration Statement on Form F-1 filed with the SEC on July 16, 2015.***Incorporated herein by reference to Amendment No. 2 to the Company’s Registration Statement on Form F-1 filed with the SEC on July 28, 2015.****Incorporated herein by reference to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form F-1 filed with the SEC onAugust 4, 2015.*****Incorporated herein by reference to the Company’s Registration Statement on Form S-8 filed with the SEC on February 25, 2016.+Certain portions of this agreement have been omitted under a confidential treatment order pursuant to Rule 406 of the Securities Act of 1933, asamended, and Rule 24b-2 of the Securities Exchange Act of 1934, as amended, and filed separately with the SEC. 142  SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersignedto sign this annual report on its behalf. INTEC PHARMA LTD. By: /s/ Zeev Weiss Zeev Weiss Chief Executive Officer Date: March 14, 2016 143 Exhibit 4.11 Lease Agreement - AppendixSigned by and between the parties on June 2, 2003 Made and entered into in Jerusalem on October 28, 2015 Between:R.M.P.A. assets ltd.Company number 51-1808008Which address is 12 Hartom St., Mount Hozvim, Jerusalem(Hereinafter referred to for the sake of brevity as "the Lessor") On the one hand And:Intec Pharma Ltd. (formerly Intec Pharmaceuticals (2000) Ltd)Corporation number 513022780Which address is 12 Hartom St., Mount Hozvim, Jerusalem(Hereinafter referred to for the sake of brevity as "the Lessee") On the other hand Whereas the parties have signed a lease agreement ("Lease Agreement") on date June 2, 2003, pursuant to which the lessee rented rental spaces located onthe 1st floor and 2nd floor of the building built on the plot known as " R.M.P.A. building" (to be called hereinafter: "The building"), a warehouse andparking spaces, all as set forth in the Lease Agreement and its appendices; Whereas the lessee is interested to extend the lease period and furthermore rent additional space on the second floor of the building; Whereas the lessor has agreed to extend the lease period and to lease additional space to the lessee in accordance with the terms set out specifically in thisappendix; Therefore, it was agreed, declared and stipulated between the parties as follows: - 1.The lease period will be extended by an additional 30 months period, commencing from January 1, 2016 and until June 30, 2018. 2.The Lessee is granted an option to extend the Lease Period by a further 12 months period, commencing on July 1, 2018 and until June 30. 2019(hereinafter: "the "option period "). The option will be exercised automatically unless the lessee notified the lessor that he does not intend to exercise theoption, at least 150 days prior to the expiry of the lease period. 3.All payments in respect of the leased property, as defined in the Lease Agreement, the appendices and addenda thereto, shall remain unchanged duringthe additional lease period. The rental fee, management fees, parking spaces and the warehouse will increase by 5% over the increase in the index duringthe option period as it would be exercised. 1  4.As from January 1, 2016, an additional space (hereinafter: the "additional space") on the second floor of the building, consisting of an area ofapproximately 78 square meters (m2) gross, will be added to the leased property , in accordance with the attached sketch. This space will be added to thecurrently leased space of 1,814 m2 gross, 10 m2 warehouse and 19 parking spaces. There may be a possibility of advancing the delivery date of theadditional space, by a written notice to the lessor, 30 days in advance. 5.After the signing of the parties to this Appendix and after the delivery of the additional space on the 2nd floor, the property will be deemed as inclusiveof the additional space, as if it was included in the Lease Agreement from the outset. 6.The additional space shall be leased to the lessee in its AS-IS condition, and all the adjustments that the lessee requires, will be carried out by the lesseeand at his expense. The separation of the additional space from the rest of the office space will be carried out by the lessee and at his expense. 7.The lessee states that he is aware that the additional space is installed with central air conditioning system which is not connected to the chillers' systemof the building. Should the lessee chooses to connect the additional space to the air chillers' system, he will have to carry out the change himself and athis own expense, as well as submit work plans for the lessor's approval, prior to the execution of the work. 8.The rental fees, their Linkage, the management fees and the remaining provisions of the Lease Agreement shall apply in their entirety to this Appendixand nothing in this appendix shall derogate and / or modify the provisions of the Lease Agreement, with the exception regarding the extension of theperiod and the addition of the supplement space leased by the lessee from the lessor. /s/ Yair Hadar /s/ Oren MoharThe Lessor The Lessee 2 Exhibit 12.1 CERTIFICATIONS I, Zeev Weiss, certify that: 1.I have reviewed this annual report on Form 20-F of Intec Pharma 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 thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4.The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the company, 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)Evaluated the effectiveness of the company’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 (c)Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by theannual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting;and 5.The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to thecompany’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the company’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal controlover financial reporting. Date: March 14, 2016 By:/s/ Zeev Weiss Zeev Weiss Chief Executive Officer (Principal Executive Officer) Exhibit 12.2 CERTIFICATIONS I, Oren Mohar, certify that: 1.I have reviewed this annual report on Form 20-F of Intec Pharma 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 thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4.The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the company, 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)Evaluated the effectiveness of the company’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 (c)Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by theannual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting;and 5.The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to thecompany’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the company’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal controlover financial reporting. Date: March 14, 2016 By:/s/ Oren Mohar Oren Mohar Chief Financial Officer (Principal Financial Officer) Exhibit 13.1 Certification Pursuant to 18 U.S.C Section 1350(Adopted by Section 906 of the Sarbanes-Oxley Act of 2002) In connection with the Annual Report of Intec Pharma Ltd. on Form 20-F for the year ended December 31, 2015 (the “Report”), each of the undersignedhereby certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that (i) the Report fully complies with the requirements of Section 13(a) or 15(d)of the Securities Exchange Act of 1934 and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition andresults of operations of Intec Pharma Ltd. A signed original of this written statement required by Section 906 has been provided to Intec Pharma Ltd. and will be retained by Intec Pharma Ltd.and furnished to the Securities and Exchange Commission or its staff upon request. March 14, 2016 By:/s/ Zeev Weiss Zeev Weiss Chief Executive Officer (Principal Executive Officer) By:/s/ Oren Mohar Oren Mohar Chief Financial Officer (Principal Financial Officer)  Exhibit 15.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-209700) of Intec Pharma Ltd. of our report datedMarch 10, 2016 relating to the financial statements, which appears in this Form 20-F. Tel-Aviv, Israel/s/ Kesselman & KesselmanMarch 14, 2016Certified Public Accountants (Isr.) A member firm of PricewaterhouseCoopers International Limited 

Continue reading text version or see original annual report in PDF format above