RedHill Biopharma Ltd.
Annual Report 2016

Plain-text annual report

Table of Contents 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 1934 OR ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2016 OR ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☐SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of event requiring this shell company report ________________Commission file number 001-35773 RedHill Biopharma Ltd. (Exact name of Registrant as specified in its charter) N/A (Translation of Registrant’s name into English) Israel (Jurisdiction of incorporation or organization) 21 Ha’arba’a Street, Tel Aviv 64739, Israel(Address of principal executive offices) Micha Ben Chorin, Chief Financial Officer21 Ha’arba’a Street, Tel Aviv 64739, IsraelTel: 972-3-541-3131; Fax: 972-3-541-3144(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 class Name of each exchange on which registeredAmerican Depositary Shares, each representing ten Ordinary Shares (1) NASDAQ Capital Market Ordinary Shares, par value NIS 0.01 per share (2) NASDAQ Capital Market (1)Evidenced by American Depositary Receipts.(2)Not for trading, but only in connection with the listing of the American Depositary Shares. Securities registered or to be registered pursuant to Section 12(g) of the Act: None(Title of Class) Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None(Title of Class) Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 170,581,594 Ordinary Shares Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ 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 1934. Yes ☐ No ☒ Indicate by check mark whether the registrant (1) has (cid:69)iled all reports required to be (cid:69)iled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuantto Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐ No ☐ Indicate by check mark whether the registrant is a large accelerated (cid:69)iler, an accelerated (cid:69)iler, or a non-accelerated (cid:69)iler. See de(cid:69)inition of “accelerated (cid:69)iler and large accelerated (cid:69)iler” in Rule12b-2 of the Exchange Act. (Check one): Large Accelerated filer ☐Accelerated filer ☒Non-accelerated filer ☐☐ 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 Financing Reporting Standards as issued by the International Accounting Standards Board ☒Other ☐ If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. 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 ☒ We are an “emerging growth company” as de(cid:69)ined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and, as such, may elect to comply with certain reduced public companyreporting requirements. Table of Contents TABLE OF CONTENTS ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS5 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE5 ITEM 3. KEY INFORMATION5 ITEM 4. INFORMATION ON THE COMPANY33 ITEM 4A. UNRESOLVED STAFF COMMENTS70 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS70 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES80 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS98 ITEM 8. FINANCIAL INFORMATION99 ITEM 9. THE OFFER AND LISTING99 ITEM 10. ADDITIONAL INFORMATION102 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK114 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES115 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES116 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS116 ITEM 15. CONTROLS AND PROCEDURES117 ITEM 16. [RESERVED]118 ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT118 ITEM 16B. CODE OF ETHICS118 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES118 ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.118 ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.118 ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT.118 ITEM 16G. CORPORATE GOVERNANCE119 ITEM 16H. MINE SAFETY DISCLOSURE119 ITEM 17. FINANCIAL STATEMENTS119 ITEM 18. FINANCIAL STATEMENTS119 ITEM 19. EXHIBITS120 EXHIBIT INDEX 123 2 Table of Contents Unless the context otherwise requires, all references to “RedHill,” “we,” “us,” “our,” the “Company” and similardesignations refer to RedHill Biopharma Ltd., a limited liability company incorporated under the laws of the State of Israel,and its direct and indirect subsidiaries. The term “NIS” refers to New Israeli Shekels, the lawful currency of the State ofIsrael, the terms “dollar”, “US$”, “$” or “U.S.” refer to U.S. dollars, the lawful currency of the United States of America. Ourfunctional and presentation currency is the U.S. dollar. Unless otherwise indicated, U.S. dollar amounts herein (other thanamounts originally receivable or payable in dollars) have been translated for the convenience of the reader from theoriginal NIS amounts at the representative rate of exchange as of February 22, 2017 ($1 = NIS 3.71). The dollar amountspresented should not be construed as representing amounts that are receivable or payable in dollars or convertible intodollars, unless otherwise indicated. Foreign currency transactions in currencies other than U.S. dollars are translated inthis Annual Report into U.S. dollars using exchange rates in effect at the date of the transactions. All references to the term “therapeutic candidates” include both pharmaceuticals and programs related to theirdevelopment, such as diagnostics and devices. FORWARD-LOOKING STATEMENTS Some of the statements under the sections entitled “Item 3. Key Information — Risk Factors,” “Item 4. Information on theCompany,” “Item 5. Operating and Financial Review and Prospects” and elsewhere in this Annual Report may includeforward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that maycause our actual results, performance or achievements to be materially different from any future results, performance orachievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-lookingstatements by terms including “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,”“potential,” “predicts,” “projects,” “should,” “will,” “would,” and similar expressions intended to identify forward-lookingstatements. Forward-looking statements re(cid:69)lect our current views with respect to future events and are based onassumptions and subject to risks and uncertainties. In addition, the sections of this Annual Report entitled “Item 4.Information on the Company” contain information obtained from independent industry and other sources that we may nothave independently validated. You should not put undue reliance on any forward-looking statements. Unless we arerequired to do so under U.S. federal securities laws or other applicable laws, we do not intend to update or revise anyforward-looking statements. Factors that could cause our actual results to differ materially from those expressed or implied in such forward-lookingstatements include, but are not limited to: ·the initiation, timing, progress and results of our research, manufacturing, preclinical studies, clinical trials, andother therapeutic candidate development efforts, as well as the extent and number of additional studies that wemay be required to conduct;·our ability to advance our therapeutic candidates into clinical trials or to successfully complete our preclinicalstudies or clinical trials;·our receipt of regulatory clarity and approvals for our therapeutic candidates, Donnatal, and products that wemay sell or market, and the timing of other regulatory filings and approvals;·the research, manufacturing, preclinical and clinical development, commercialization, and market acceptance ofour therapeutic candidates, Donnatal, and products that we may sell or market;·our ability to establish and maintain corporate collaborations for our therapeutic candidates, Donnatal, andproducts that we may sell or market;·our ability to acquire products, rights to products or commercialization rights to products approved for marketingin the U.S. or other territories that achieve commercial success;·our ability to build and maintain our own marketing, sales, and commercialization capabilities, includingcomplying with all applicable laws, regulations and guidelines;·the interpretation of the properties and characteristics of our therapeutic candidates and of the results obtainedwith our therapeutic candidates in research, development, manufacturing, preclinical studies or clinical trials;·the implementation of our business model, ongoing and strategic plans for our business, therapeutic candidates,Donnatal, and products that we may sell or market;·the scope of protection we are able to establish and maintain for intellectual property rights covering ourtherapeutic candidates and our ability to operate our business without infringing upon the intellectual propertyrights of others;3 ®®®®Table of Contents·estimates of our expenses, future revenues, capital requirements and our need for additional financing;·parties from whom we acquire rights to our intellectual property defaulting in their obligations towards us;·the impact of competitive companies and technologies within our industry; and·the impact of the political and security situation in Israel, the U.S. and other countries in which we may obtainapprovals for our products on our business. 4 Table of Contents ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not applicable. ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable. ITEM 3. KEY INFORMATION A. Selected Financial Data The following table sets forth our selected (cid:69)inancial data, which is derived from our (cid:69)inancial statements prepared inaccordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting StandardsBoard. We have derived the selected (cid:69)inancial data as of December 31, 2016, 2015 and 2014 and for the years endedDecember 31, 2016, 2015 and 2014 from our audited (cid:69)inancial statements included elsewhere in this Annual Report onForm 20-F. We have derived the selected (cid:69)inancial data as of December 31, 2013, and 2012 and for the years endedDecember 31, 2013 and 2012 from our audited (cid:69)inancial statements not included in this Annual Report. You should readthis selected (cid:69)inancial data and other information provided in this Annual Report in conjunction with, and is quali(cid:69)ied in itsentirety by, our historical (cid:69)inancial information including “Item 5. Operating and Financial Review and Prospects” and ourfinancial statements and related notes appearing elsewhere in this Annual Report. Year ended December 31 2016 2015 2014 2013 2012 (U.S. Dollars, in thousands, except per share and weighted average shares data) Statement of ComprehensiveLoss Revenues 101 3 7,014 12 16 Cost of Revenue — — 1,050 — — Research and developmentexpenses, net 25,241 17,771 12,700 8,100 6,455 General, administrative andbusiness developmentexpenses 5,403 4,134 4,011 2,684 2,601 Other (income) expenses — 100 (100) — — Operating loss 30,543 22,002 10,647 10,772 9,040 Financial income 1,548 1,124 319 158 197 Financial expenses 375 212 383 14 1,483 Financial (income) expenses,net (1,173) (912) 64 (144) 1,286 Loss and comprehensive loss 29,370 21,090 10,711 10,628 10,326 Loss per Ordinary Share (in U.S.dollars) Basic 0.23 0.19 0.12 0.17 0.20 Diluted 0.24 0.19 0.13 0.17 0.20 Weighted average number ofOrdinary Shares used incomputing loss per OrdinaryShare 128,513,729 110,813,742 86,610,126 62,379,171 52,595,128 Weighted average number ofOrdinary Shares used incomputing diluted loss pershare 128,808,543 111,714,566 87,222,188 62,379,171 52,595,128 5 Table of Contents As of December 31 (U.S. Dollars, in thousands) 2016 2015 2014 2013 2012 Balance Sheet Data Cash and short-term investments 66,154 58,138 22,945 12,113 18,365 Working capital 62,459 54,996 24,299 10,186 17,485 Total assets 74,212 66,828 28,856 14,340 20,096 Total liabilities 11,511 6,751 3,845 2,415 1,078 Accumulated deficit (89,635) (61,944) (42,218) (33,260) (23,887) Equity 62,701 60,077 25,011 11,925 19,018 B. Capitalization and Indebtedness Not applicable. C. Reasons for the Offer and Use of Proceeds Not applicable. D. Risk Factors You should carefully consider the risks we describe below, in addition to the other information set forth elsewhere in thisAnnual Report, including our (cid:27)inancial statements and the related notes beginning on page F-1, before deciding to invest inour ordinary shares (the “Ordinary Shares”) or our American Depositary Shares (“ADSs”). These material risks couldadversely impact our results of operations, possibly causing the trading price of our Ordinary Shares and ADSs to decline,and you could lose all or part of your investment. Risks Related to Our Financial Condition and Capital Requirements Since our incorporation in 2009, we have focused primarily on the development and acquisition of late clinical-stagetherapeutic candidates and have a history of operating losses. We expect to incur additional losses in the future andmay never be profitable. Since our incorporation in 2009, we have focused primarily on the development and acquisition of late clinical-stagetherapeutic candidates. All of our therapeutic candidates are in the clinical development stage and none of our therapeuticcandidates has been approved for marketing or are being marketed or commercialized in the U.S., although RIZAPORT hasbeen approved for marketing in Germany but has yet to be marketed. In addition, we were recently granted certain rightsto promote, but not sell or distribute, Donnatal in the U.S. pursuant to an exclusive commercialization agreement (the “Co-Promotion Agreement”) with a subsidiary of Concordia International Corp. (“Concordia”). Pursuant to the Co-PromotionAgreement, Concordia maintains all responsibility to receive orders of Donnatal and distribute Donnatal in ourmarketing territories. Most of our therapeutic candidates will require additional clinical trials before we can obtain the regulatory approvals inorder to initiate commercial sales. We have incurred losses since inception, principally as a result of research anddevelopment, general, administrative and business development expenses in support of our operations. We experiencednet losses of approximately $28.9 million in 2016, $21.1 million in 2015 and $10.7 million in 2014. As of December 31,2016, we had an accumulated de(cid:69)icit of approximately $89.6 million. We may incur signi(cid:69)icant additional losses as wecontinue to focus our resources on prioritizing, selecting and advancing our therapeutic candidates, promoting Donnataland products that we may sell or market. Our ability to generate any revenue and achieve pro(cid:69)itability depends mainlyupon our ability, alone or with others, to successfully develop our therapeutic candidates, obtain the required regulatoryapprovals in various territories and commercialize our therapeutic candidates and promote Donnatal and products wemay acquire or for which we may acquire commercialization rights. We may be unable to achieve any or all of these goalswith regard to our therapeutic candidates. As a result, we may never be pro(cid:69)itable or achieve signi(cid:69)icant or sustainedrevenues. 6 ®®®®®®Table of ContentsOur limited operating history makes it difficult to evaluate our business and prospects. We have a limited operating history and our operations to date have been limited primarily to acquiring and in-licensingtherapeutic candidates, research and development, raising capital and recruiting scienti(cid:69)ic and management personnel andthird-party partners. Except with respect to RHB-106 and related rights, which is out-licensed to Valeant PharmaceuticalsInternational, Inc. (“Valeant”), and with respect to RIZAPORT, for which we have received marketing approval in Germanyand have entered into exclusive license agreements to commercialize in Spain and South Korea, we have not yetdemonstrated an ability to commercialize or obtain regulatory approval for any of our therapeutic candidates.Consequently, any predictions about our future performance may not be accurate, and you may not be able to fully assessour ability to complete development or commercialization of our therapeutic candidates, the success of products that wemay sell or market, the success of promoting Donnatal, obtain regulatory approvals, reimbursement, achieve marketacceptance or favorable pricing for our therapeutic candidates, Donnatal and products that we may sell or market. Our current working capital may not be suf(cid:47)icient to complete our research and development with respect to any orall of our therapeutic candidates or to commercialize our products or products to which we have rights, includingto promote Donnatal. We will need to raise additional capital to achieve our strategic objectives of acquiring, in-licensing, developing and commercializing therapeutic candidates, marketing, Donnatal, and products that we maysell or market, and our failure to raise suf(cid:47)icient capital would signi(cid:47)icantly impair our ability to fund ouroperations, develop our therapeutic candidates, and commercialize the products we may sell or market, such asDonnatal,attract development or commercial partners and retain key personnel. As of December 31, 2016, we had cash and short-term investments of approximately $66.2 million, and as of December 31,2015, we had cash and short-term investments of approximately $58.1 million. We have funded our operations primarilythrough public and private offerings of our securities. We plan to fund our future operations through commercializationand out-licensing of our therapeutic candidates, commercialization of in-licensed or acquired products and raisingadditional capital through the sale of equity or debt. These amounts are not suf(cid:69)icient to complete the research anddevelopment of all of our therapeutic candidates, and we are also not yet certain of the (cid:69)inancial impact of ourcommercialization activities. Accordingly, we may need to raise additional capital in the future. To date, our business has generated limited revenues. As we plan to continue expending funds in research anddevelopment, including clinical trials, as well as to acquire additional products, we will need to raise additional capital inthe future through either debt or equity (cid:69)inancing or pursuant to development or commercialization agreements with thirdparties with respect to particular therapeutic candidates. However, we cannot be certain that we will be able to raise capitalon commercially reasonable terms or at all, or that our actual cash requirements will not be greater than anticipated. Wemay have dif(cid:69)iculty raising needed capital or securing a development or commercialization partner in the future as a resultof, among other factors, our lack of revenues from commercialization of the therapeutic candidates and marketing ofDonnatal and products that we may sell or market, as well as the inherent business risks associated with our company,our therapeutic candidates, Donnatal, and products that we may sell or market, and present and future market conditions.To the extent we are able to generate revenues from Donnatal, we may still need to raise capital because the revenuesfrom Donnatal, if any, may not be suf(cid:69)icient to cover all of our operating expenses and may not be suf(cid:69)icient to cover ourcommercial operations expenses. In addition, global and local economic conditions may make it more dif(cid:69)icult for us toraise needed capital or secure a development or commercialization partner in the future and may impact our liquidity. Ifwe are unable to obtain future (cid:69)inancing or obtain suf(cid:69)icient future (cid:69)inancing, we may be forced to delay, reduce the scopeof, or eliminate one or more of our research, development or commercialization programs for our therapeutic candidates,marketing of Donnatal, and products that we may sell or market, any of which may have material adverse effect on ourbusiness, (cid:69)inancial condition and results of operations. Moreover, to the extent we are able to raise capital through theissuance of debt or equity securities, it could result in substantial dilution to existing shareholders. Our long-term capital requirements are subject to numerous risks. Our long-term capital requirements are expected to depend on many potential factors, including: ·the number of therapeutic candidates in development;·the regulatory clarity and path of each of our therapeutic candidates;·the progress, success and cost of our clinical trials and research and development programs includingmanufacturing;·the identification and acquisition of additional therapeutic candidates;7 ®®®®®® ®®®®®Table of Contents·the costs, timing and outcome of regulatory review and obtaining regulatory clarity and approval of ourtherapeutic candidates and addressing regulatory and other issues that may arise post-approval;·the costs of enforcing our issued patents and defending intellectual property-related claims;·the costs of manufacturing, developing and maintaining sales, marketing and distribution channels;·our ability to successfully commercialize our therapeutic candidates, promote Donnatal, and products that wemay sell or market, including through securing commercialization agreements with third parties and favorablepricing and market share or through securing and maintaining our own commercialization capabilities;·our ability to successfully commercialize products that we develop or acquire or for which we acquirecommercialization rights; and·our consumption of available resources more rapidly than currently anticipated, resulting in the need foradditional funding sooner than anticipated. Risks Related to Our Business and Regulatory Matters If we or our development or commercialization partners are unable to obtain or maintain the U.S. Food and DrugAdministration (“FDA”) or other foreign regulatory clearance and approval for our therapeutic candidates orproducts we may sell or market, we or our commercialization partners will be unable to commercialize ourtherapeutic candidates or products we may sell or market. To date, we have not marketed, distributed or sold any therapeutic candidate or product, although we have obtainedmarketing approval for RIZAPORT in Germany, and in December 2016, we entered into a Co-Promotion Agreementpursuant to which we were granted certain rights in the U.S. to promote Donnatal(phenobarbital & belladonna alkyloids),an anticholinergic and barbiturate combination drug product used as adjunctive therapy for irritable bowel syndrome, acondition characterized by abdominal pain, bloating, and diarrhea or constipation. It may also be used as adjunctivetherapy for acute enterocolitis and duodenal ulcers. Donnatal is a prescription drug included in the Drug Ef(cid:69)icacy Study Implementation (“DESI”) review program of theFDA. Donnatal was (cid:69)irst commercialized before Congress’s 1962 amendment to the Food Drug and Cosmetic Act. The1962 amendment required evidence of ef(cid:69)icacy to be granted FDA approval. At that time, the FDA introduced the DESIprogram to evaluate the ef(cid:69)icacy of drugs approved before 1962. Under DESI, Donnatal is not an FDA-approved drug, butit is cleared to be marketed and sold until a (cid:69)inal determination regarding ef(cid:69)icacy is made. To our knowledge at this timeand based on our review of docketed correspondence with the FDA, the FDA has not made a (cid:69)inal determination as to theefficacy of Donnatal. Currently, we have seven therapeutic candidates in various programs and clinical development stages, “RHB-105” for theeradication of H. pylori infection; “RHB-104” for the treatment of Crohn’s disease and potentially other diseases; “RHB-106”(out-licensed to Valeant) for bowel preparation; BEKINDA (RHB-102) for acute gastroenteritis and gastritis, irritablebowel syndrome with diarrhea (“IBS-D”), and for the prevention of chemotherapy and radiotherapy-induced nausea andvomiting; YELIVA (ABC294640), a sphingosine kinase-2 (“SK2”) selective inhibitor targeting multiple oncology,in(cid:69)lammatory and gastrointestinal (“GI”) indications; “MESUPRON” for targeting GI and other solid tumor cancers; andRIZAPORT (RHB-103) for the treatment of acute migraine headaches. Our therapeutic candidates are subject to extensivegovernmental laws, regulations and guidelines relating to development, clinical trials, manufacturing andcommercialization of drugs. Other than RIZAPORT which has received marketing approval to date only in Germany, wemay not be able to obtain marketing approval for any of our therapeutic candidates in a timely manner or at all. Inaddition, although we have certain rights to promote Donnatalin the U.S., which is currently included in the FDA DESIreview program, we cannot guarantee that our co-promotion partner will continue to be allowed to sell or promoteDonnatal in the U.S. Any material delay in obtaining or maintaining, or the failure to obtain or maintain, required regulatory clearances andapprovals will increase our costs and materially adversely affect our ability to generate future revenues. Any regulatoryclearance or approval to market a therapeutic candidate, Donnatal or products that we may sell or market may be subjectto limitations on the indicated uses for marketing or may impose restrictive conditions of use, including cautionaryinformation, thereby limiting the size of the market for the therapeutic candidate, Donnatal, or products that we may sellor market. We also are, and will be, subject to numerous regulatory requirements from both the FDA and other foreignregulatory authorities that govern the conduct of clinical trials, manufacturing and marketing authorization, pricing andthird-party reimbursement. Moreover, clearance or approval by one regulatory authority does not ensure clearance orapproval by other regulatory authorities in separate jurisdictions. Each jurisdiction may have different approval processes8 ®®® ®®®®®®®®® ®®®Table of Contentsand may impose additional testing, development and manufacturing requirements for our therapeutic candidates,Donnatal, and products that we may sell or market. Additionally, the FDA or other foreign regulatory authorities maychange its clearance or approval policies or adopt new laws, regulations or guidelines in a manner that materially delaysor impairs our ability to obtain the necessary regulatory clearances or approvals or our ability to commercialize ourtherapeutic candidates, promote Donnatal and products that we may sell or market. We or our commercialization partners are subject to risks related to the regulatory environment with respect toDonnatal. Currently, we will promote Donnatal. Donnatal is a pre-1962 drug that is not FDA-approved, but it is currently cleared tobe marketed and sold in the U.S. as it is included in the FDA DESI review program. Based on our review of docketed correspondence with the FDA, our co-promotion partner, Concordia, is currently a partyto the unresolved Notice of Opportunity Hearing for anticholinergic and barbiturate combination drug products. We makeno assurances that the FDA will not seek to begin a hearing process to remove Donnatalfrom the market, commenceproceedings to remove Donnatal from the market, or otherwise remove Donnatal from the market at any time. If thiswere to happen, it could have a material adverse effect on our reputation, business, (cid:69)inancial condition, and results ofoperations. Clinical trials and related non-clinical studies may involve a lengthy and expensive process with an uncertainoutcome, and results of earlier studies and trials may not be predictive of future trial results. We or ourdevelopment or commercialization partners will not be able to commercialize our therapeutic candidates andproducts we may sell or market without completing such trials, even products that may have already been clearedor approved for marketing. We have limited experience in conducting and managing the clinical trials that are required to commence commercial salesof our therapeutic candidates. Clinical trials and related non-clinical studies are expensive, complex, can take many yearsand have uncertain outcomes. We cannot predict whether we, independently or through third parties, will encounterproblems with any of the completed, ongoing or planned clinical trials that will cause delays, including suspension of aclinical trial, delay of data analysis or release of the (cid:69)inal report. The clinical trials of our therapeutic candidates may takesigni(cid:69)icantly longer to complete than is estimated. Failure can occur at any stage of the testing and we may experiencenumerous unforeseen events during, or as a result of, the clinical trial process that could materially delay or preventcommercialization of our current or future therapeutic candidates. In connection with the clinical trials for our therapeutic candidates and other therapeutic candidates that we may seek todevelop in the future, either on our own or through licensing or partnering agreements, we face various risks anduncertainties, including but not limited to: ·delays in securing clinical investigators or trial sites for the clinical trials;·delays in receiving import or other government approvals to ensure appropriate drug supply;·delays in obtaining institutional review board (IRB) and other regulatory approvals to commence or continue aclinical trial;·expiration of clinical trial material before or during our trials as a result of degradation of, or other damage to, theclinical trial material;·negative or inconclusive results from clinical trials;·the FDA or other foreign regulatory authorities may disagree with the number, design, size, conduct orimplementation of our clinical studies;·the FDA or other foreign regulatory authorities may require us to conduct additional clinical trials or studies inconnection with therapeutic candidates in development as well as for products that have already been cleared andapproved for marketing;·inability to monitor patients adequately during or after treatment;·problems with investigator or patient compliance with the trial protocols;·a therapeutic candidate may not prove safe or ef(cid:69)icacious; there may be unexpected or even serious adverse eventsand side effects from the use of a therapeutic candidate;·the results with respect to any therapeutic candidate may not con(cid:69)irm the positive results from earlier preclinicalstudies or clinical trials;9 ®®®®®® ®®Table of Contents·the results may not meet the level of statistical signi(cid:69)icance required by the FDA or other foreign regulatoryauthorities;·the results may justify only limited or restrictive uses, including the inclusion of warnings and contraindications,which could significantly limit the marketability and profitability of a therapeutic candidate;·the clinical trials may be delayed or not completed due to the failure to recruit suitable candidates or if there is alower rate of suitable candidates than anticipated or if there is a delay in recruiting suitable candidates; and·changes to the current regulatory requirements related to clinical trials which can delay, hinder or lead tounexpected costs in connection with our receiving the applicable regulatory clearances or approvals. A number of companies in the pharmaceutical and biotechnology industries, including those with greater resources andexperience than us, have suffered signi(cid:69)icant setbacks in advanced clinical trials, even after seeing promising results inearlier clinical trials. As such, despite the results reported in earlier clinical trials of our therapeutic candidates, we do notknow if the clinical trials we conduct will demonstrate adequate ef(cid:69)icacy and safety suf(cid:69)icient to obtain regulatoryapproval to market our therapeutic candidates. If any of the clinical trials of any of our current or future therapeuticcandidates does not produce favorable results, our ability to obtain regulatory approval for the therapeutic candidate maybe adversely impacted, which could have a material adverse effect on our business, (cid:69)inancial condition and results ofoperations. If we are unable to establish collaborations for our therapeutic candidates or products we may sell or market, orotherwise not be able raise substantial additional capital, we will likely need to alter our development andcommercialization plans. Our drug development programs and the potential commercialization of our therapeutic candidates and products that wemay sell or market, such as Donnatal,will require additional cash to fund expenses. As such, our strategy includes eitherselectively partnering or collaborating with multiple pharmaceutical and biotechnology companies to assist us infurthering development or potential commercialization of our therapeutic candidates, promoting Donnatal and productsthat we may sell or market, in whole or in part, in some or all jurisdictions or through securing our owncommercialization capabilities. Although we are currently aware of potential new third-party partners for the developmentor commercialization of our therapeutic candidates, marketing of Donnatal, and development or commercialization ofproducts that we may sell or market, we may not be successful in entering into collaborations with third parties onacceptable terms, or at all. In addition, if we fail to negotiate and maintain suitable development, commercialization orpromotion agreements or otherwise raise substantial additional capital to secure our own commercialization capabilities,we may have to limit the size or scope of our activities or we may have to delay one or more of our development orcommercialization programs. Any failure to enter into development or commercialization agreements with respect to thedevelopment, marketing and commercialization of any therapeutic candidate or failure to develop, market andcommercialize such therapeutic candidate independently may have an adverse effect on our business, (cid:69)inancial conditionand results of operations. Any collaborative arrangements that we have established or may establish may not be successful, or we mayotherwise not realize the anticipated bene(cid:47)its from these collaborations, including our out-licensing of RHB-106 andRIZAPORT. We do not control third parties with whom we have or may have collaborative arrangements, and werely on such third parties to achieve results which may be signi(cid:47)icant to us. In addition, any future collaborativearrangements may place the development or commercialization of our therapeutic candidates, marketingof Donnatal, or development or commercialization of products that we may sell or market,outside our control,may require us to relinquish important rights or may otherwise be on terms unfavorable to us. Each of our collaborative arrangements requires us to rely on external consultants, advisors, and experts for assistance inseveral key functions, including clinical development, manufacturing, regulatory, market research, intellectual propertyand commercialization. We do not control these third parties, but we rely on such third parties to achieve results whichmay be signi(cid:69)icant to us. To date, we have out-licensed one of our therapeutic candidates, RHB-106, and related rights toValeant and have entered into exclusive license agreements with Grupo JUSTE, S.A.Q.F. (now Exeltis Healthcare, S.L.) andPharmatronic Co. to commercialize RIZAPORT in Spain and South Korea, respectively. We do not control Valeant, ExeltisHealthcare, S.L. or Pharmatronic Co., but we rely on Valeant to clinically develop and commercialize RHB-106 and relatedrights and rely on Exeltis Healthcare, S.L. and Pharmatronic Co. to obtain regulatory approvals and commercializeRIZAPORT in Spain and South Korea, respectively. In addition, with respect to Donnatal, pursuant to the Co-PromotionAgreement, we rely on Concordia as the party responsible for, among others, the manufacture, supply, and other operatingresponsibilities for Donnatal in all territories in the U.S. 10 ® ®®®® ®®®®Table of ContentsRelying upon collaborative arrangements to develop and commercialize our therapeutic candidates, such as RHB-106 andRIZAPORT, and products that we may sell or market, and Donnatal, subjects us to a number of risks, including but notlimited to the following: ·we may not be able to control the amount and timing of resources that our collaborators may devote to ourtherapeutic candidates, Donnatal, or products that we may to sell or market;·should a collaborator fail to comply with applicable laws, rules, or regulations when performing services for us,we could be held liable for such violations;·our collaborators may experience (cid:69)inancial dif(cid:69)iculties, making it dif(cid:69)icult for them to ful(cid:69)ill their obligations tous, including payment obligations, or they may experience changes in business focus;·our collaborators’ partners may fail to secure adequate commercial supplies of our therapeutic candidates uponor after obtaining marketing approval, if at all, Donnatal, or of products that we may sell or market;·our collaborators' partners may have a shortage of qualified personnel;·we may be required to relinquish important rights, such as marketing and distribution rights;·business combinations or signi(cid:69)icant changes in a collaborator’s business or business strategy may adverselyaffect a collaborator’s willingness or ability to complete its obligations under any arrangement;·under certain circumstances, a collaborator could move forward with a competing therapeutic candidate orproduct developed either independently or in collaboration with others, including our competitors; and·collaborative arrangements are often terminated or allowed to expire, which could delay the development andmay increase the cost of developing our therapeutic candidates or may limit or terminate our rights to promoteDonnatal in the U.S. or products we may sell or market. In addition, our reliance upon Concordia in connection with our promoting of Donnatal pursuant to the Co-PromotionAgreement subjects us to a number of additional risks, including but not limited to, the following: ·we do not control Concordia’s communications with the FDA, and the FDA may determine to withdraw Donnatalfrom the market due to any action or inaction taken by Concordia (see “– We or our development orcommercialization partners may be subject to product withdrawal requests by the FDA or other foreign regulatoryauthorities for Donnatal or products which we may sell or market.”);·we rely on Concordia to manufacture Donnatal through third-party manufacturers with the requisite quality andmanufacturing standards as required under applicable laws and regulations, and we also rely on Concordia tosupply Donnatal, which may result in us having Donnatal in insuf(cid:69)icient quantities or on timelines to achieveadequate or successful promotion and sale of Donnatal in the U.S.; ·Concordia may increase or decrease the price of Donnatal to a level that could adversely affect the sales orrevenues of Donnatal; ·we rely on Concordia for most decisions relating to the marketing of Donnatal, and any action or inaction takenby Concordia may adversely affect the sales of Donnatal; ·Concordia may not be successful in maintaining or expanding reimbursement from government or third-partypayors, such as insurance companies, health maintenance organizations and other health plan administrators,which may adversely affect the sales of Donnatal; and·Concordia may terminate the Co-Promotion Agreement with after an agreed upon period for reasons set forth inthe Co-Promotion Agreement. If any of these or other scenarios materialize, they could have an adverse effect on our business, (cid:69)inancial condition orresults of operations. Donnatal or products which we may sell or market may be withdrawn from the market at any time due to productwithdrawal requests by the FDA or other foreign regulatory authorities. Products we acquire or to which we acquire commercialization rights may be subject to withdrawal requests by the FDAor other foreign regulatory authorities for various reasons. For instance, certain products, such as Donnatal, may besubject to regulatory review due to their classi(cid:69)ication as a DESI product which the FDA has the right to determine asineffective and impose limitations or request withdrawal of the product from the market. Donnatal is currently subject tothe FDA’s DESI proceedings, to determine its effectiveness and the right to continue to be marketed in the U.S. and there isno assurance as to the outcome of such proceedings. To our knowledge at this time and based on our review of docketedcorrespondence with the FDA, the FDA has not made a final determination as to the efficacy of Donnatal. In addition,11 ®®®®®®®®®®®®®®®®®®®®®Table of Contentsthe process and timing of any FDA DESI proceedings with respect to Donnatal are unclear. Historically, the FDA hasgenerally permitted products to stay on the market during these proceedings, although there is no assurance as to the timeof commencement of such proceedings or whether the FDA will in fact grant such permission to any future DESI-relatedproceedings, including for Donnatal. Regulatory authorities in other jurisdictions may have similar procedures that maysubject any product we may sell or market to limitations or withdrawal requests. In addition, the FDA or other foreignregulatory authorities may determine that the chemistry, manufacturing and controls (“CMC”) of marketed products thatwe develop, acquire or to which we acquire commercialization rights, such as Donnatal, is unsatisfactory due to themanufacturing standards of the products. If either of these or any regulatory action is taken, Donnatalorany product wesell or market could be withdrawn from the market at any time. In addition, we could suffer from delays in furthercommercialization of any product we sell or market. We may not be successful in acquiring products or companies that own the rights to, or otherwise acquirecommercialization rights to, products cleared or approved for marketing in the U.S. or elsewhere that achievecommercial success or in building our own marketing and commercialization capabilities. Part of our strategy is to identify and acquire rights to products that have been cleared or approved for marketing in the U.S.or elsewhere, in particular, those with a therapeutic focus on GI, in(cid:69)lammation or cancer. Speci(cid:69)ically, we seek to acquirerights to products that are already commercialized, which would enable us to commercialize such products independentlyand build our own marketing and commercialization capabilities. We recently entered into a Co-Promotion Agreementwith Concordia pursuant to which we were granted certain rights to promote Donnatal in the U.S., which is our (cid:69)irstagreement to commercialize a product being marketed in the U.S., However, there can be no assurance as to our ability toidentify and acquire rights to any additional products, in particular those with a therapeutic focus on GI, in(cid:69)lammation orcancer. If we are not successful in acquiring any products or in promoting Donnatal, we may not be able to build ormaintain our own marketing and commercialization capabilities. This may limit our ability to commercialize products onour own and may require us to contract with third-party development or commercialization partners which may not be oncommercially favorable terms. Additionally, these efforts to establish commercial capabilities could be found more costlythan our forecast and have an adverse effect on our business, financial condition and results of operations. In addition, there can be no assurance that we will accurately or consistently identify products approved for marketing thatwill achieve commercial success or that we will be able to successfully commercialize. We may encounter dif(cid:47)iculties successfully expanding our operations to build and maintain our own marketing andcommercialization capabilities. To build and maintain our own marketing and commercialization capabilities we will need to expand, among other things,our development, regulatory, manufacturing, marketing and sales capabilities and to increase our personnel toaccommodate sales, including establishing a direct sales force and commercial team. Expanding our operations would alsoimpose signi(cid:69)icant added responsibilities on our management. We must be able to manage our independentcommercialization efforts effectively, hire, train and integrate additional management, administrative and sales andmarketing personnel, and improve our managerial, operational and (cid:69)inance systems, all of which may impose a strain onour administrative and operational infrastructure and adversely affect our research and development activities. We mayalso not have suf(cid:69)icient funds to (cid:69)inance the hiring of the additional personnel and the expansion of our marketing andcommercialization activities. If we are not able to effectively expand our operations to build our own marketing andcommercialization capabilities, our revenues and growth may be adversely affected, which will have a material adverseeffect on our business, financial condition and results of operations. We have no history of independently commercializing therapeutic candidates or marketed products and may havedifficulty promoting Donnatal or commercializing any product on our own. We have no prior experience in commercializing therapeutic candidates or marketed products on our own, which maymaterially increase marketing and sales expenses or cause us to be ineffective in these efforts. We recently entered into aCo-Promotion Agreement with Concordia pursuant to which we were granted certain rights to promote Donnatal in theU.S. There can be no assurance we will successfully commercialize our therapeutic candidates or promote Donnatal orany products we may sell or market. 12 ®®®® ®®®®®Table of ContentsIn addition, many companies, both public and private, including well-known pharmaceutical companies and smallerniche-focused companies, are currently selling, marketing and distributing drug products that directly compete with thetherapeutic candidates that we may seek to commercialize. Many of these companies have signi(cid:69)icantly greater (cid:69)inancialcapabilities, marketing and sales experience and resources than us. As a result, our competitors may be more successfulthan we are in commercializing products. We rely on third parties to conduct our clinical trials and related non-clinical studies and those third parties maynot perform satisfactorily, including but not limited to failing to meet established deadlines for the completion ofsuch clinical trials. We currently do not have the ability to independently conduct clinical trials and related non-clinical studies for ourtherapeutic candidates, and we rely on third parties, such as contract research organizations, medical institutions, contractlaboratories, development and commercialization partners, clinical investigators and independent study monitors toperform these functions. Our reliance on these third parties for research and development activities reduces our controlover these activities. Furthermore, these third parties may also have relationships with other entities, some of which maybe our competitors. Although we have, in the ordinary course of business, entered into agreements with such third parties,other than with respect to RHB-106 and related rights, which we have out-licensed to Valeant, we continue to beresponsible for con(cid:69)irming that each of our clinical trials and related non-clinical studies is conducted in accordance withits general investigational plan and protocol. Moreover, the FDA requires us to comply with regulations and standards,commonly referred to as good clinical practices (“GCP”), for conducting, recording and reporting the results of clinicaltrials to assure that data and reported results are credible and accurate and that the trial participants are adequatelyprotected, and regulatory authorities in other jurisdictions may have similar responsibilities and requirements. Ourreliance on third parties does not relieve us of these responsibilities and requirements. If these third parties do notsuccessfully carry out their contractual duties or meet expected deadlines, we may be required to replace them or performsuch functions independently. Although we believe that there are a number of other third-party contractors we couldengage to continue these activities, it may result in a delay of the affected trial and additional costs. Accordingly, we maybe materially delayed in obtaining regulatory approvals for our therapeutic candidates and may be materially delayed inour efforts to successfully commercialize our therapeutic candidates for targeted diseases. In addition, our ability to bring our therapeutic candidates to market depends on the quality and integrity of data that wepresent to regulatory authorities in order to obtain marketing authorizations. Although we attempt to audit and control thequality of third-party data, we cannot guarantee the authenticity or accuracy of such data, nor can we be certain that suchdata has not been fraudulently generated. If third parties do not manufacture our therapeutic candidates or do not manufacture and sell any products we maysell or market in suf(cid:47)icient quantities, in the required timeframe, and at an acceptable cost and quality, clinicaldevelopment and commercialization of our therapeutic candidates or promotion of products we may sell or marketwould be delayed and sales of any product we may sell or market may be adversely affected. We do not currently own or operate manufacturing facilities. We rely, and expect to continue to rely, on third parties tomanufacture clinical and commercial quantities of our therapeutic candidates and products that we may sell or market. ForRIZAPORT, we rely on IntelGenx Corp. to supply and provide suf(cid:69)icient quantities in the required timeframe forregistration and sales in Spain and South Korea, and for Donnatal, we rely on Concordia, which has a manufacturingagreement with a third party to provide suf(cid:69)icient quantities of Donnatal in the required timeframe. Our reliance on thirdparties includes our reliance on them for quality assurance related to regulatory compliance. Our current and anticipatedfuture reliance upon others for the manufacture of our therapeutic candidates and any products that we may sell or marketmay adversely affect our future operations and our ability to develop therapeutic candidates and commercialize anytherapeutic candidates and any products that we may sell or market on a timely and competitive basis. We may not be able to maintain our existing or future third-party manufacturing arrangements on acceptable terms, if atall. If for some reason our manufacturers or our development or commercialization partners’ manufacturers do notperform as agreed or expected, we or our partners may be required to replace them. Although we are not substantiallydependent upon our existing manufacturing agreements since we could replace them with other third-party manufacturers,we may incur added costs and delays in identifying, engaging, qualifying and training any such replacements, and suchadditional costs and delays may adversely impact our ability to obtain regulatory clearances and approvals tocommercialize our therapeutic candidates or any product we may sell or market, or make such commercialization ormarketing economically unfeasible.13 ®®®Table of Contents We rely on third parties to manufacture and supply us with high quality active pharmaceutical ingredients (“APIs”)in the quantities we require on a timely basis. We currently do not manufacture any APIs ourselves. Instead, we rely on third-party vendors for the development,manufacture and supply of our APIs that are used to formulate our therapeutic candidates and products we may sell ormarket. If these suppliers are incapable or unwilling to meet our current or future needs on acceptable terms or at all, wecould experience a delay in obtaining regulatory clearances or approvals for our therapeutic candidates or products that wemay sell or market or in conducting clinical trials of our therapeutic candidates and incur additional costs or experience anadverse effect on our sale of any product we may sell or market. For example, our supplier of raw materials for RIZAPORT has been sending updates to the FDA regarding progress ofcorrective actions in regard to compliance issues at its manufacturing facility and subsequently invited the FDA for re-inspection, which are independent of us and not speci(cid:69)ic to RIZAPORT. Although we were informed that the supplierrecently resolved these compliance issues and although we have been working to ensure continued supply of thenecessary raw materials for RIZAPORT from an alternative supplier, our ability to obtain FDA approval for RIZAPORTmay be delayed until we are able to successfully manufacture new batches with new API secured from a compliant source. While there may be several alternative suppliers of APIs on the market, we have yet to conclude extensive investigationsinto the quality or availability of their APIs. As a result, we can provide no assurances that supply sources will not beinterrupted from time to time. Changing API suppliers or (cid:69)inding and qualifying new API suppliers can be costly and take asigni(cid:69)icant amount of time. Many APIs require signi(cid:69)icant lead time to manufacture. There can also be challenges inmaintaining similar quality or technical standards from one manufacturing batch to the next. If we are not able to (cid:69)ind stable, affordable, high quality, or reliable supplies of our APIs, we may not be able to produceenough supplies of our therapeutic candidates or products we may sell or market, which could have a material adverseeffect on our business, financial condition or results of operations. We anticipate continued reliance on third-party manufacturers if we are successful in obtaining marketingapproval from the FDA and other regulatory agencies for any of our therapeutic candidates and reliance on third-party manufacturers for any products that we may sell or market, including Donnatal. To date, our therapeutic candidates have been manufactured in relatively small quantities for preclinical testing andclinical trials as well as for other regulatory purposes by third-party manufacturers. If the FDA or other regulatory agenciesapprove any of our therapeutic candidates for commercial sale, we expect that we would continue to rely, at least initially,on third-party manufacturers to produce commercial quantities of our approved therapeutic candidates. In addition, weexpect that we will rely, at least initially, on third-party manufacturers to produce commercial quantities of Donnatal orany product that we may sell or market. These manufacturers may not be able to successfully increase or maintain themanufacturing capacity for any of our approved therapeutic candidates, Donnatal or any product we may sell or market,in a timely or economic manner, or at all. Signi(cid:69)icant scale-up of manufacturing may require additional validation studies,which the FDA or other foreign regulatory agencies must review and approve. If the third-party manufacturers are unableto successfully increase or maintain the manufacturing capacity for a therapeutic candidate or for products that we maysell or market, or we are unable to establish our own manufacturing capabilities or secure replacement third-partymanufacturers, the commercial launch of any approved products may be delayed or there may be a shortage in supplywhich could have a material adverse effect on our business, financial condition or results of operations. We and our third-party manufacturers are, and will be, subject to regulations of the FDA and other foreignregulatory authorities. We and our third-party manufacturers are, and will be, required to adhere to laws, regulations and guidelines of the FDAand other foreign regulatory authorities setting forth current good manufacturing practices (“cGMP”). These laws,regulations and guidelines cover all aspects of the manufacturing, testing, quality control and recordkeeping relating to ourtherapeutic candidates and any products we may sell or market, including Donnatal. We and our third-partymanufacturers may not be able to comply with applicable laws, regulations and guidelines. We and our third-partymanufacturers are and will be subject to unannounced inspections by the FDA, state regulators and similar foreignregulatory authorities outside the U.S. Our failure, or the failure of our third-party manufacturers, to comply withapplicable laws, regulations and guidelines could result in the imposition of sanctions on us, including fines, injunctions,14 ®®®®®®®®Table of Contentscivil penalties, failure of regulatory authorities to grant marketing approval of our therapeutic candidates, delays,suspension or withdrawal of approvals, license revocation, seizures or recalls of our therapeutic candidates andcommercially marketed products, operating restrictions and criminal prosecutions, any of which could signi(cid:69)icantly andadversely affect regulatory approval and supplies of our therapeutic candidates and commercially marketed products, andmaterially and adversely affect our reputation, business, financial condition and results of operations. Our therapeutic candidates, Donnatal, and any product we may sell or market, even if all regulatory clearancesand approvals are obtained, will be subject to ongoing regulatory review. If we fail to comply with continuing U.S.and applicable foreign laws, regulations and guidelines, we could lose those clearances and approvals, and ourreputation, business, financial condition and results of operations may be materially and adversely affected. Even if our therapeutic candidates, Donnatal, and products we may sell or market receive regulatory approval, we and ourcommercialization partners, as applicable, will be subject to ongoing reporting obligations with respect to our therapeuticcandidates, Donnatal, and any product we may sell or market,including pharmacovigilance, and the manufacturingoperations of our therapeutic candidates, Donnatal, and any product we may sell or market will be subject to continuingregulatory review, including inspections by the FDA and other foreign regulatory authorities. The results of any ongoingreview may result in withdrawal from the market of a therapeutic candidate, Donnatal, or another product we may sell ormarket, interruption of manufacturing operations or imposition of labeling or marketing limitations for such therapeuticcandidate or product. Since many more patients are exposed to drugs following their marketing clearance or approval,serious but infrequent adverse reactions that were not observed in clinical trials may be observed during the commercialmarketing of the therapeutic candidate or any product we may sell or market, including Donnatal. As we develop ourtherapeutic candidates or commercialize our products, we may also periodically discuss with the FDA and otherregulatory authorities certain clinical, regulatory and manufacturing matters and, our views may, at times, differ fromthose of the FDA and other regulatory authorities. For example, the FDA may seek to regulate our therapeutic candidates orany product we may sell or market that consist of two or more active ingredients as combination drugs under itsCombination Drug Policy. The Combination Drug Policy requires that we demonstrate that each active ingredient in a drugproduct contributes to the product’s claimed effect. If the FDA raises questions regarding whether available data andinformation provided to the FDA demonstrate the contribution of each active ingredient in such combination drugproducts, we may be required to provide additional information, which may require us to conduct additional preclinicalstudies or clinical trials. If we are required to conduct additional clinical trials or other testing of our therapeuticcandidates, Donnatal or any product we may sell or market, we may face substantial additional expenses, be delayed inobtaining marketing approval or may never obtain marketing approval for such therapeutic candidate or product we maysell or market, including Donnatal. In addition, Donnatal is currently subject to the FDA’s DESI proceedings to determineits effectiveness and the right to continue to be marketed in the U.S., and there is no assurance as to the outcome of suchproceedings. To our knowledge at this time and based on our review of docketed correspondence with the FDA, the FDAhas not made a (cid:69)inal determination as to the ef(cid:69)icacy of Donnatal. See “– We or our development or commercializationpartners may be subject to product withdrawal requests by the FDA or other foreign regulatory authorities for Donnatal orproducts which we may sell or market.” In addition, third-party manufacturers and the manufacturing facilities that we and our development or commercializationpartners use to manufacture any therapeutic candidate and any products that we may sell or market, including Donnatal,will be subject to periodic review and inspection by the FDA and may be subject to similar review by other regulatoryauthorities. Later discovery of previously unknown problems with any therapeutic candidate or product we may sell ormarket, including Donnatal, manufacturer or manufacturing process, or failure to comply with rules and regulatoryrequirements, may result in actions, including but not limited to the following: ·restrictions on such therapeutic candidate, marketed product, manufacturer or manufacturing process;·warning letters from the FDA or other foreign regulatory authorities;·withdrawal of the therapeutic candidate or marketed product from the market;·suspension or withdrawal of regulatory approvals;·refusal to approve pending applications or supplements to approved applications that we or our development orcommercialization partners submit;·voluntary or mandatory recall;·fines;·refusal to permit the import or export of our therapeutic candidates or products that we may sell or market;·product seizure or detentions;·injunctions or the imposition of civil or criminal penalties; and15 ®®® ®®®®®®®®®®Table of Contents·adverse publicity. If we or our commercialization partners, suppliers, third-party contractors or clinical investigators are slow to adapt, orare unable to adapt, to changes in existing regulatory requirements or the adoption of new regulatory requirements orpolicies, we and our development or commercialization partners may lose marketing clearance or approval for any of ourtherapeutic candidates if any of our therapeutic candidates are approved, and we may lose marketing clearance or approvalof any products already cleared or approved for marketing in any jurisdiction, resulting in decreased or lost revenue fromsuch therapeutic candidates and products and could also result and other civil or criminal sanctions, including (cid:69)ines andpenalties. Modi(cid:47)ications to our therapeutic candidates, or to any product that we may sell or market, may require newregulatory clearances or approvals or may require us or our development or commercialization partners, asapplicable, to recall or cease marketing of these therapeutic candidates or products until clearances or approvalsare obtained. Modi(cid:69)ications to our therapeutic candidates and any products we may sell or market, after they have been cleared orapproved for marketing, if at all, may require new regulatory clearance or approvals, and, if necessitated by a problem witha marketed product, may result in the recall or suspension of marketing of the previously approved and marketed productuntil clearances or approvals of the modi(cid:69)ied product are obtained. The FDA and other regulatory authorities requirepharmaceutical product and device manufacturers to initially make and document a determination of whether or not amodi(cid:69)ication requires a new approval, supplement or clearance. A manufacturer may determine in conformity withapplicable laws, regulations and guidelines that a modi(cid:69)ication may be implemented without pre-clearance by the FDA orother regulatory authorities. However, the FDA or other regulatory authorities can review a manufacturer’s decision andmay disagree. The FDA or other regulatory authorities may also on their own initiative determine that a new clearance orapproval is required. If the FDA or other regulatory authorities require new clearances or approvals of any pharmaceuticalproduct for which we or our partners, including development or commercialization partners previously receivedmarketing approval, we or our partners, including development or commercialization partners may be required to recalland stop marketing such marketed product, which could require us or our partners, including development orcommercialization partners to redesign the marketed product and may cause a material adverse effect on our reputation,business, financial condition and results of operations. We may depend on our ability to identify and in-license or acquire therapeutic candidates to achieve commercialsuccess, including products approved for marketing in the U.S. or elsewhere. Our seven therapeutic candidates were all acquired or licensed by us from third parties. We evaluate internally and withexternal consultants each therapeutic candidate. However, there can be no assurance as to our ability to accurately orconsistently identify therapeutic candidates that are likely to achieve commercial success, speci(cid:69)ically therapeuticcandidates that have been approved for marketing in the U.S. or elsewhere. In addition, even if we identify additionaltherapeutic candidates that are likely to achieve commercial success, there can be no assurance as to our ability to in-license or acquire such therapeutic candidates under favorable terms or at all. We compete with other entities for some in-license or acquisition opportunities. As part of our overall strategy, we pursue opportunities to in-license or acquire therapeutic candidates. We may competefor in-license and acquisition opportunities with other established and well-capitalized companies. As a result, we may beunable to in-license or acquire additional therapeutic candidates at all or on favorable terms. Our failure to further in-license or acquire therapeutic candidates in the future may materially hinder our ability to grow and could materially harmour business, financial condition and results of operations. If we cannot meet our obligations under our acquisition, in-license or other development or commercializationagreements or renegotiate our obligations under such agreements, or if other events occur that are not within ourcontrol such as bankruptcy of a licensor or a partner, we could lose the rights to our therapeutic candidates orproducts we may sell or market, experience delays in developing or commercializing our therapeutic candidates orproducts we may sell or market or incur additional costs, which could have a material adverse effect on ourbusiness, financial condition and results of operations. We acquired our rights to three of our therapeutic candidates, RHB-105, RHB-104 and RHB-106, from a third partypursuant to an asset and purchase agreement. In addition, we in-licensed our rights to four other therapeutic candidates,16 Table of ContentsBEKINDA, YELIVA, MESUPRON and RIZAPORT pursuant to license agreements in which we received exclusiveperpetual licenses to certain patent rights and know-how related to these therapeutic candidates. We have also obtainedcertain rights to promote Donnatal in the U.S. underour Co-Promotion Agreement. These agreements require us to makepayments and satisfy various performance obligations in order to maintain our rights and licenses with respect to thesetherapeutic candidates and marketed products. If we do not meet our obligations under these agreements, or if other eventsoccur that are not within our control such as the bankruptcy of a licensor, we could lose the rights to our therapeuticcandidates, experience delays in developing or commercializing our therapeutic candidates or incur additional costs, anyof which could have a material adverse effect on our business, (cid:69)inancial condition and results of operations. In addition,our agreement with IntelGenx Corp. for RIZAPORT requires us to renegotiate certain provisions of the agreement in theevent the agreed-to budget is exceeded by a certain amount. In the event we are required to renegotiate this agreement,there is no guarantee that we will agree upon new terms promptly, or at all, which could delay the development orcommercialization of RIZAPORT. In addition, we are responsible for the cost of (cid:69)iling and prosecuting certain patent applications and maintaining certainissued patents licensed to us. If we do not meet our obligations under these agreements in a timely manner or if otherevents occur that are not within our control, such as the bankruptcy of a licensor, which impact our ability to prosecutecertain patent applications and maintain certain issued patents licensed to us, we could lose the rights to our therapeuticcandidates which could have a material adverse effect on our business, (cid:69)inancial condition and results of operations. Wemanage a large portfolio of patents and may decide to discontinue maintaining certain patents in certain territories forvarious reasons, such as a current belief that the commercial market for the therapeutic candidate will not be large or thatthere is a near-term patent expiration that may reduce the value of the therapeutic candidate. In the event we discontinuemaintaining such patents, we may not be able to enforce rights for our therapeutic candidates or protect our therapeuticcandidates from competition in those territories. Our business could suffer if we are unable to attract and retain key employees. The loss of the services of members of senior management or other key personnel could delay or otherwise adverselyimpact the successful completion of our planned clinical trials or the commercialization of our therapeutic candidates andany product we may sell or market, including Donnatal or otherwise affect our ability to manage our company effectivelyand to carry out our business plan. These key personnel are Dror Ben-Asher, our Chief Executive Of(cid:69)icer, Reza Fathi, Ph.D.,our Senior Vice President for Research and Development, Gilead Raday, our Chief Operating Of(cid:69)icer, Adi Frish, our SeniorVice President for Business Development and Licensing, Guy Goldberg, our Chief Business Of(cid:69)icer, and Micha Ben Chorin,our Chief Financial Of(cid:69)icer. We do not maintain key-man life insurance. Although we have entered into employment orconsultancy agreements with all of the members of our senior management team, members of our senior managementteam may resign at any time. High demand exists for senior management and other key personnel in the pharmaceuticalindustry. There can be no assurance that we will be able to continue to retain and attract such personnel. Our growth and success also depend on our ability to attract and retain additional highly quali(cid:69)ied scienti(cid:69)ic, technical,business development, marketing, sales, managerial and (cid:69)inance personnel. We experience intense competition forquali(cid:69)ied personnel, and the existence of non-competition agreements between prospective employees and their formeremployers may prevent us from hiring those individuals or subject us to liability from their former employers. Inaddition, as part of our plan to promote Donnataland potentially products we may develop, we will need to build andexpand and maintain our marketing and sales capabilities. While we attempt to provide competitive compensationpackages to attract and retain key personnel, many of our competitors are likely to have greater resources and moreexperience than we have, making it dif(cid:69)icult for us to compete successfully for key personnel. If we cannot attract andretain suf(cid:69)iciently quali(cid:69)ied suitable employees on acceptable terms, we may not be able to develop and commercializecompetitive therapeutic candidates. Further, any failure to effectively integrate new personnel could materially prevent usfrom successfully growing our company. We face several risks associated with international business. We operate our business in multiple international jurisdictions. Such operations could be materially affected by changes inforeign exchange rates, capital and exchange controls, expropriation and other restrictive government actions, changes inintellectual property legal protections and remedies, trade regulations and procedures and actions affecting approval,production, pricing, and marketing of, reimbursement for and access to, our therapeutic candidates and products we maysell or market, including Donnatal, as well as by political unrest, unstable governments and legal systems and inter-17 ®®®® ®®®® ®Table of Contentsgovernmental disputes. Any of these changes could have a material adverse effect on our business, (cid:69)inancial condition andresults of operations. Risks Related to Our Industry Even if our therapeutic candidates or any product we may sell or market, receive, have received regulatoryclearance or approval or do not require regulatory clearance or approval, they may not become commercially viableproducts. Except for RIZAPORT, which has been approved for marketing in Germany but has yet to be marketed, none of ourtherapeutic candidates or products have been cleared or approved for marketing, and except for Donnatal,for which wewere granted certain rights to promote Donnatal in the U.S., none is currently being marketed or commercialized in anyjurisdiction. Even if any of our therapeutic candidates or any product we may sell or market receive, have received or donot require regulatory clearance or approval, it may not become a commercially viable product. For example, even if we orour development or commercialization partners receive regulatory clearance or approval to market a therapeuticcandidate, or have received regulatory clearance or approval to sell or market any product, the clearance or approval maybe subject to limitations on the indicated uses or subject to labeling or marketing restrictions which could materially andadversely affect their marketability and pro(cid:69)itability. In addition, a new therapeutic candidate may appear promising at anearly stage of development or after clinical trials but never reach the market, or it may reach the market but not result insuf(cid:69)icient product sales, if any. A therapeutic candidate or any product that we may sell or market, may not result incommercial success for various reasons, including but not limited to: ·difficulty in large-scale manufacturing, including yield and quality;·low market acceptance by physicians, healthcare payors, patients and the medical community as a result of lowerdemonstrated clinical safety or ef(cid:69)icacy compared to products, prevalence and severity of adverse side effects, orother potential disadvantages relative to alternative treatment methods;·insuf(cid:69)icient or unfavorable levels of reimbursement from government or third-party payors, such as insurancecompanies, health maintenance organizations and other health plan administrators;·infringement on proprietary rights of others for which we or our development or commercialization partners havenot received licenses;·incompatibility with other therapeutic candidates or marketed products;·other potential advantages of alternative treatment methods and competitive forces that may make it moredifficult for us to penetrate a particular market segment, if at all;·ineffective marketing, sales and distribution activities and support;·lack of significant competitive advantages over existing products on the market;·lack of cost-effectiveness or unfavorable pricing compared to other alternatives available on the market;·inability to generate suf(cid:69)icient revenues from the sale or marketing of a product in view of the economicarrangements that we have with commercialization or other partners;·changes to labels, indications or other regulatory requirements as they relate to the commercialization of ourproducts;·inability to establish collaborations with third-party development or commercialization partners on acceptableterms, or at all, and our inability or unwillingness for cost or other reasons to commercialize the therapeuticcandidates or any product we may sell or market on our own; and·timing of market introduction of competitive products. Physicians, various other health care providers, patients, payors or the medical community in general may be unwilling toaccept, utilize or recommend any of our approved therapeutic candidates and any product we may sell or market. If we areunable, either on our own or through third parties, to manufacture, commercialize or market our proposed formulations,therapeutic candidates or any product we may sell or market when planned, or to develop them commercially, we may notachieve any market acceptance or generate meaningful revenue. The market for our therapeutic candidates and for any product we may sell or market is rapidly changing andcompetitive, and new drug delivery mechanisms, drug delivery technologies, new drugs, treatments and productswhich may be developed by others could impair our ability to maintain and grow our business and remaincompetitive. The pharmaceutical and biotechnology industry is highly competitive, and we face signi(cid:69)icant competition from manypharmaceutical, biopharmaceutical and biotechnology companies that are researching, developing and marketing products18 ®® ®Table of Contentsdesigned to address the indications for which we are currently developing therapeutic candidates or may developtherapeutic candidates in the future or for which we may sell or market products. There are various other companies thatcurrently market, are in the process of developing or may develop in the future products that address all of the indicationsor diseases treated by our therapeutic candidates or products that we may sell or market. For information regarding ourcompetition, see Item 4. “Information on the Company – B. Business Overview – Our Therapeutic Candidates”. New drug delivery mechanisms, drug delivery technologies, new drugs and new treatments that have been developed orthat are in the process of being developed or will be developed by others may render our therapeutic candidates andproducts we may sell or market noncompetitive or obsolete, or we may be unable to keep pace with technologicaldevelopments or other market factors. Some of these technologies may have an entirely different approach or means ofaccomplishing similar therapeutic effects compared to our therapeutic candidates and products we may sell or market. Inaddition, Donnataland products we may sell or market may compete with products for market share, and generic drugsor products that treat the same indications as Donnatal or products we may sell or market can have an adverse effect onour revenues by reducing our market share or requiring us to reduce the price of the products we market. Technological competition from, and commercial capabilities of, pharmaceutical and biotechnology companies,universities, governmental entities and others is intense and is expected to increase. Many of these entities havesigni(cid:69)icantly greater research and development capabilities, human resources and budgets than we do, as well assubstantially more marketing, manufacturing, (cid:69)inancial and managerial resources. These entities represent signi(cid:69)icantcompetition for us. Acquisitions of, or investments in, competing pharmaceutical or biotechnology companies by largecorporations could increase such competitors’ financial, marketing, manufacturing and other resources. The potential widespread acceptance of therapies that are alternatives to ours may limit market acceptance of ourformulations, therapeutic candidates or products we may sell or market, even if commercialized. Many of our targeteddiseases and conditions can also be treated by other medications or drug delivery technologies. These treatments may bewidely accepted in medical communities and have a longer history of use, among other possible advantages. Theestablished use of these competitive drugs may limit the potential for our therapeutic candidates to receive widespreadacceptance if commercialized and may limit the potential for widespread acceptance of promoting Donnataland forproducts we may sell or market. We could be adversely affected if healthcare reform measures substantially change the market for medical care orhealthcare coverage in the U.S. On March 23, 2010, President Obama signed the “Patient Protection and Affordable Care Act” (P.L. 111-148) and on March30, 2010, the President signed the “Health Care and Education Reconciliation Act” (P.L. 111-152), collectively commonlyreferred to as the “Healthcare Reform Law.” The Healthcare Reform Law included a number of new rules regarding healthinsurance, the provision of health care, and conditions to reimbursement for healthcare services provided to Medicare andMedicaid patients. Through the law making process, substantial changes have been and continue to be made to the currentsystem for paying for healthcare in the U.S., including changes made in order to extend medical bene(cid:69)its to tens of millionsof Americans who lacked insurance coverage and to contain healthcare costs. Extending coverage to a large populationcould substantially change the structure of the health insurance system and the methodology for reimbursing medicalservices and drugs. This legislation is one of the most comprehensive and signi(cid:69)icant reforms ever experienced by the U.S.in the healthcare industry and has signi(cid:69)icantly changed the way healthcare is (cid:69)inanced by both governmental and privateinsurers. This legislation has impacted the scope of healthcare insurance and incentives for consumers and insurancecompanies, among others. Additionally, the Healthcare Reform Law’s provisions are designed to encourage providers to(cid:69)ind cost savings in their clinical operations. Pharmaceuticals represent a signi(cid:69)icant portion of the cost of providing care.Through modi(cid:69)ied reimbursement rates and other incentives, the U.S. government is requiring that providers identify themost cost-effective services, supplies and pharmaceuticals. This environment has caused changes in the purchasing habitsof providers and resulted in speci(cid:69)ic attention to the pricing negotiation, product selection and utilization reviewsurrounding pharmaceuticals. To the extent that our therapeutic candidates may at some point be reimbursable by U.S.federal government programs, this attention may result in our therapeutic candidates and products we may sell or marketbeing chosen less frequently or the pricing being substantially lowered. Some of the provisions of the Healthcare ReformLaw have not yet been fully implemented and the effect of the legislation is dif(cid:69)icult to predict. At this stage, we are unableto estimate the full extent of the direct or indirect impact of the Healthcare Reform Law on us. These structural changes could entail further modi(cid:69)ications to the existing system of private payors and governmentprograms (such as Medicare, Medicaid and state children’s health insurance programs), creation of government-sponsored19 ® ®® Table of Contentshealthcare insurance sources, or some combination of both, as well as other changes. Restructuring the coverage ofmedical care in the U.S. could impact the reimbursement for prescribed drugs and pharmaceuticals, such as those we andour development or commercialization partners are currently developing or those that we may sell or market. Ifreimbursement for approved therapeutic candidates or any product we may sell or market, if any, is substantially reducedin the future, or rebate obligations associated with them are substantially increased, it could have a material adverse effecton our business, financial condition and results of operations. Extending medical bene(cid:69)its to those who currently lack coverage will likely result in substantial cost to the U.S. federalgovernment, which may force signi(cid:69)icant additional changes to the healthcare system in the U.S. Much of the funding forexpanded healthcare coverage may be sought through cost savings. While some of these savings may come from realizinggreater ef(cid:69)iciencies in delivering care, improving the effectiveness of preventive care and enhancing the overall quality ofcare, much of the cost savings may come from reducing the cost of care and increased enforcement activities. Cost of carecould be reduced by decreasing the level of reimbursement for medical services or products (including those therapeuticcandidates currently being developed by us or our development or commercialization partners or any product we may sellor market, including Donnatal), or by restricting coverage (and, thereby, utilization) of medical services or products. Ineither case, a reduction in the utilization of, or reimbursement for, any therapeutic candidate or any product we may sell ormarket, including Donnatal, or for which we receive marketing approval in the future, could have a material adverse effecton our business, financial condition and results of operations. Several states and private entities initially mounted legal challenges to the Healthcare Reform Law, and they continue tolitigate various aspects of the legislation. On July 26, 2012, the U.S. Supreme Court generally upheld the provisions of theHealthcare Reform Law at issue as constitutional. However, the U.S. Supreme Court held that the legislation improperlyrequired the states to expand their Medicaid programs to cover more individuals. As a result, the states have a choice as towhether they will expand the number of individuals covered by their respective state Medicaid programs. Some stateshave determined that they will not expand their Medicaid programs and will develop other cost-saving and coveragemeasures to provide care to currently uninsured individuals. Many of these efforts to date have included the institution ofMedicaid-managed care programs. The manner in which these cost-saving and coverage measures are implemented couldhave a material adverse effect on our business, (cid:69)inancial condition and results of operations. Further, the healthcareregulatory environment has seen signi(cid:69)icant changes in recent years and is still in (cid:69)lux. Legislative initiatives to modify,limit, or repeal the Healthcare Reform Law and judicial challenges continue, including a recent executive order issued bythe U.S. President directing government agencies and departments to minimize the economic burden of the HealthcareReform Law to the extent permitted by law, and may increase in light of the change in administrations following thepresidential election. We cannot predict the impact on our business of future legal challenges to the Healthcare ReformLaw or other changes to the current laws and regulations. If third-party payors do not adequately reimburse customers for any of our therapeutic candidates that areapproved for marketing or for products that we may sell or market, including Donnatalthey might not bepurchased or used, and our revenues and profits will not increase and they may decrease. Our revenues and pro(cid:69)its will depend heavily upon the availability of adequate reimbursement for the use of our approvedtherapeutic candidates, if any, and any products that we may sell or market, from governmental or other third-partypayors, both in the U.S. and in foreign markets. Reimbursement by a third-party payor may depend upon a number offactors, including but not limited to the third-party payor’s determination that the use of an approved therapeutic candidateand product is, among others: ·a covered benefit under its health plan;·safe, effective and medically necessary;·appropriate for the specific patient;·cost-effective; and·neither experimental nor investigational. Obtaining reimbursement approval for a therapeutic candidate or for any product that we may sell or market from anygovernment or other third-party payor is a time-consuming and costly process that could require us or our development orcommercialization partners to provide supporting scienti(cid:69)ic, clinical and cost-effectiveness data for the use of ourtherapeutic candidates or any product that we may sell or market to each payor. Even when a payor determines that atherapeutic candidate or any product that we may sell or market is eligible for reimbursement, the payor may imposecoverage limitations that preclude payment for some uses that are approved by the FDA or other foreign regulatory20 ®®® Table of Contentsauthorities. Reimbursement rates may vary according to the use of the therapeutic candidate or the use of any product thatwe may sell or market and the clinical setting in which it used, may be based on payments allowed for lower-cost productsthat are already reimbursed, may be incorporated into existing payments for products or services, and may re(cid:69)lectbudgetary constraints or imperfections in Medicare, Medicaid or other data used to calculate these rates. In particular,reimbursement for the use of Donnatalis not available from Medicare and Medicaid, and reimbursement from otherthird-party payors may be limited for Donnataldue to its status as a DESI product. In the U.S., there have been, and we expect that there will continue to be, federal and state proposals to constrainexpenditures for medical products and services, which may affect payments for our therapeutic candidates or for anyproduct that we may sell or market in the U.S. In addition, there is a growing emphasis on comparative effectivenessresearch, both by private payors and by government agencies. To the extent other drugs or therapies are found to be moreeffective than our products, payors may elect to cover such therapies in lieu of our products or reimburse our products at alower rate. Legislation that reduces reimbursement for our therapeutic candidates could adversely impact how much orunder what circumstances healthcare providers will prescribe or administer our therapeutic candidates, if approved, or forany product that we may sell or market. This could materially and adversely impact our business, (cid:69)inancial condition andresults of operations by reducing our ability to generate revenue, raise capital, obtain additional collaborators and market.At this stage, we are unable to estimate the extent of the direct or indirect impact of any such federal and state proposals. Furthermore, the Centers for Medicare and Medicaid Services frequently change product descriptors, coverage policies,product and service codes, payment methodologies and reimbursement values. Third-party payors often follow Medicarecoverage policy and payment limitations in setting their own reimbursement rates, and both the Centers for Medicare andMedicaid Services and other third-party payors may have sufficient market power to demand significant price reductions. We are subject to additional federal and state laws and regulations relating to our business, and our failure tocomply with those laws could have a material adverse effect on our business, financial condition and results ofoperations. Upon our marketing of products in the U.S., we will become subject to additional healthcare regulation and enforcement bythe federal government and the states in which we conduct or will conduct our business. The laws that may affect ourability to operate include, but are not limited to, the following: ·the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfullysoliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either thereferral of an individual for, or the purchase, order or recommendation of, any good or service for which paymentmay be made under government healthcare programs such as the Medicare and Medicaid programs;·the federal Anti-Inducement Law (also known as the Civil Monetary Penalties Law), which prohibits a person fromoffering or transferring remuneration to a Medicare or State healthcare program bene(cid:69)iciary that the person knowsor should know is likely to in(cid:69)luence the bene(cid:69)iciary’s selection of a particular provider, practitioner or supplierof any item or service for which payment may be made, in whole or in part, by Medicare or a State healthcareprogram;·the Ethics in Patient Referrals Act of 1989, commonly referred to as the Stark Law, which prohibits physiciansfrom referring Medicare or Medicaid patients for certain designated health services where that physician or familymember has a (cid:69)inancial relationship with the entity providing the designated health service, unless an exceptionapplies;·federal false claims laws that prohibit, among other things, individuals or entities from knowingly presenting, orcausing to be presented, claims for payment from Medicare, Medicaid or other government healthcare programsthat are false or fraudulent;·the so-called federal “Sunshine Act”, which requires pharmaceutical and medical device companies to monitor andreport certain (cid:69)inancial relationships with physicians and other healthcare providers to the Centers for Medicareand Medicaid Services for disclosure to the public;·the federal Food, Drug, and Cosmetic Act, which among other things, strictly regulates drug product and medicaldevice marketing, prohibits manufacturers from marketing such products for off-label use and regulates thedistribution of samples;·federal criminal laws that prohibit executing a scheme to defraud any healthcare bene(cid:69)it program or making falsestatements relating to healthcare matters; and·state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which mayapply to items or services reimbursed by any third-party payor, including commercial insurers. 21 ® ® Table of ContentsFurther, the Healthcare Reform Law, among other things, amends the intent requirement of the federal anti-kickback andcriminal healthcare fraud statutes. A person or entity can now be found guilty of fraud or an anti-kickback violationwithout actual knowledge of the statute or speci(cid:69)ic intent to violate it. In addition, the Healthcare Reform Law provides thatthe government may assert that a claim including items or services resulting from a violation of the federal Anti-KickbackStatue constitutes a false or fraudulent claim for purposes of the False Claims Act. Possible sanctions for violation of theseanti-kickback laws include monetary (cid:69)ines, civil and criminal penalties, exclusion from Medicare, Medicaid and othergovernment programs and forfeiture of amounts collected in 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 materialadverse effect on our reputation, business, financial condition and results of operations. The Healthcare Reform Law also imposes reporting requirements on certain medical device and pharmaceuticalmanufacturers, among others, to make annual public disclosures of certain payments and other transfers of value tophysicians and teaching hospitals and ownership or investment interests held by physicians or their immediate familymembers. Failure to submit required information may result in civil monetary penalties of up to an aggregate of $150,000per 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 the Centers for Medicare and Medicaid Services by March 31 each year. The Centers forMedicare and Medicaid Services made the data publicly available on its searchable database beginning in September 2014. In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians formarketing, medical directorships, and other purposes. Some states, such as California, Massachusetts and Vermont,mandate implementation of corporate compliance programs, along with the tracking and reporting of gifts, compensationand other remuneration to physicians, and some states limit or prohibit such gifts. Most recently, there has been a trend in federal and state legislation aimed at requiring pharmaceutical companies todisclose information about their production and marketing costs, and ultimately lowering costs for drug products. Severalstates have introduced bills that would require disclosure of certain pricing information for prescription drugs that haveno threshold amount or are above a certain annual wholesale acquisition cost, and in June 2016 Vermont became the (cid:69)irststate to pass legislation requiring certain drug companies to disclose information relating to justi(cid:69)ication of certain priceincreases. The U.S. Congress has also introduced bills targeting prescription drug price transparency. Any such implementation of legislation requiring publication of drug costs could materially and adversely impact ourbusiness, (cid:69)inancial condition and results of operations by promoting a reduction in drug prices. As such, patients maychoose to use other low-cost, established drugs or therapies. The scope and enforcement of these laws are uncertain and subject to change in the current environment of healthcarereform, especially in light of the lack of applicable precedent and regulations. We cannot predict the impact on ourbusiness, (cid:69)inancial condition nor results of operations of any changes in these laws. Federal or state regulatory authoritiesmay challenge our current or future activities under these laws. Any such challenge could have a material adverse effect onour reputation, business, (cid:69)inancial condition and results of operations. Any state or federal regulatory review of us,regardless of the outcome, would be costly and time-consuming. We could be exposed to signi(cid:47)icant drug product liability claims which could be time consuming and costly todefend, divert management attention and adversely impact our ability to obtain and maintain insurance coverage. The clinical trials that we conduct, and the testing, manufacturing, marketing and commercial sale and use or misuse ofour therapeutic candidates and any products we may sell or market, involve and will involve an inherent risk thatsigni(cid:69)icant liability claims may be asserted against us or our development or commercial partners. We currently have aproduct liability policy that includes coverage for our clinical trials and intend to obtain product liability insurance thatcovers our co-promotion of Donnatal. Should we decide to seek additional insurance against such risks before productsales commence, there is a risk that such insurance will be unavailable to us, or if it can be obtained at such time, that itwill be available at an unaffordable cost. Even if we obtain insurance, it may prove inadequate to cover claims or litigationcosts, especially in the case of wrongful death claims. Product liability claims or other claims related to our therapeuticcandidates and any products we may sell or market, regardless of merit or their outcome, could require us to spendsigni(cid:69)icant time and money in litigation or to pay signi(cid:69)icant settlement amounts or judgments. Any successful productliability or other claim may prevent us from obtaining adequate liability insurance in the future on commercially desirableor reasonable terms. An inability to obtain suf(cid:69)icient insurance coverage at an acceptable cost or otherwise to protectagainst potential22 st®Table of Contentsproduct liability claims could prevent or inhibit the commercialization of our therapeutic candidates or products we maysell or market. A product liability claim could also signi(cid:69)icantly harm our reputation and the market price of our sharesand delay market acceptance of our therapeutic candidates and decrease demand for any products that we sell or market,including Donnatal. Global economic conditions may make it more dif(cid:47)icult for us to commercialize our therapeutic candidates and anyproducts that we may sell or market. The pharmaceutical industry, like other industries and businesses, continues to face the effects of the challengingeconomic environment. Patients experiencing the effects of the challenging economic environment, including highunemployment levels and increases in co-pays, may switch to generic products, delay treatments, skip doses or use otherless effective treatments to reduce their costs. Challenging economic conditions in the U.S. include the demands by payorsfor substantial rebates and formulary restrictions limiting access to brand-name drugs. In addition, in Europe and in anumber of emerging markets there are government-mandated reductions in prices for certain pharmaceutical products, aswell as government-imposed access restrictions in certain countries. All of the aforesaid may make it more dif(cid:69)icult for usto commercialize our therapeutic candidates and any products that we may sell or market. Our business involves risks related to handling regulated substances which could severely affect our ability toconduct research and development of our therapeutic candidates. In connection with our or our development or commercialization partners’ research and clinical development activities, aswell as the manufacture of materials and therapeutic candidates and any products that we may sell or market, we and ourdevelopment or commercialization partners are subject to federal, state and local laws, rules, regulations and policiesgoverning the use, generation, manufacture, storage, air emission, ef(cid:69)luent discharge, handling and disposal of certainmaterials, biological specimens and waste. We and our development or commercialization partners may be required toincur signi(cid:69)icant costs to comply with environmental and health and safety regulations in the future. Our research andclinical development, as well as the activities of our manufacturing and commercialization partners, both now and in thefuture, may involve the controlled use of hazardous materials, including but not limited to certain hazardous chemicals.We cannot completely eliminate the risk of accidental contamination or injury from these materials. In the event of such anoccurrence, we could be held liable for any damages that result and any such liability could exceed our resources. Risks Related to Intellectual Property We may be unable to adequately protect or enforce our rights to intellectual property, causing us to lose valuablerights. Loss of patent rights may lead us to lose market share and anticipated profits. Our success depends, in part, on our ability, and the ability of our development or commercialization partners to obtainpatent protection for our therapeutic candidates and any products that we may sell or market, maintain the con(cid:69)identialityof our trade secrets and know-how, operate without infringing on the proprietary rights of others and prevent others frominfringing on our proprietary rights. We try to protect our proprietary position by, among other things, (cid:69)iling U.S., European, and other patent applicationsrelated to our therapeutic candidates, inventions and improvements that may be important to the continuing developmentof our therapeutic candidates, and we plan to try to do the same with products we may acquire, sell or market in the future,where this is possible. Because the patent position of pharmaceutical companies involves complex legal and factual questions, we cannot predictthe validity and enforceability of patents with certainty. Our issued patents and the issued patents of our development orcommercialization partners may not provide us with any competitive advantages, may be held invalid or unenforceable asa result of legal challenges by third parties or could be circumvented. Ownership of the patent rights we in-license fromour development or commercialization partners or the patent rights to the products already approved for marketing thatwe acquire or for which we acquire commercialization rights may be challenged, and as a result, the rights we in-licenseand the rights to products we acquire may turn out not to be exclusive or we may not actually have rights under the patentsdespite receiving representations from a development or commercialization partner. Our competitors may alsoindependently develop drug delivery technologies or products similar to ours or design around or otherwise circumventpatents issued to, or licensed by, us. Thus, any patents that we own or license from others may not provide any protectionagainst competitors. Our pending patent applications, those we may file in the future or those we may license from third23 ®Table of Contentsparties may not result in patents being issued. If these patents are issued, they may not provide us with proprietaryprotection or competitive advantages. The degree of future protection to be afforded by our proprietary rights is uncertainbecause legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keepour competitive advantage. Patent rights are territorial; thus, the patent protection we do have will only extend to those countries in which we haveissued patents. Even so, the laws of certain countries do not protect our intellectual property rights to the same extent asdo the laws of the U.S. and the European Union. Competitors may successfully challenge our patents, produce similar drugsor products that do not infringe our patents, or produce drugs in countries where we have not applied for patent protectionor that do not respect our patents. Furthermore, it is not possible to know the scope of claims that will be allowed inpublished applications and it is also not possible to know which claims of granted patents, if any, will be deemedenforceable in a court of law. After the completion of development and registration of our patents, third parties may still manufacture or marketproducts in infringement of our patent-protected rights. Such manufacture or market of products in infringement of ourpatent-protected rights is likely to cause us damage and lead to a reduction in the prices of our therapeutic candidates orany product we may sell or market, including Donnatal, thereby reducing our potential profits. In addition, due to the extensive time needed to develop, test and obtain regulatory approval for our therapeutic candidatesor any product we may sell or market, any patents that protect our therapeutic candidate or any product we may sell ormarket may expire early during commercialization. This may reduce or eliminate any market advantages that such patentsmay give us. Following patent expiration, we may face increased competition through the entry of generic products into themarket and a subsequent decline in market share and profits. In addition, in some cases we may rely on our licensors to conduct patent prosecution, patent maintenance or patentdefense on our behalf. Therefore, our ability to ensure that these patents are properly prosecuted, maintained, or defendedmay be limited, which may adversely affect our rights in our therapeutic candidates and potential approved for marketingproducts. Any failure by our licensors or development or commercialization partners to properly conduct patentprosecution, patent maintenance, patent enforcement, or patent defense could materially harm our ability to obtainsuitable patent protection covering our therapeutic candidates or products or ensure freedom to commercialize theproducts in view of third-party patent rights, thereby materially reducing our potential profits. In addition, Donnatal, for which we were granted certain rights to promote Donnatal in the U.S, is not protected bypatents. If the FDA proceedings related to Donnatal designed to determine its effectiveness will be ongoing, only productsthat receive a New Drug Application (“NDA”) from the FDA, DESI products and those actively participating in the hearingprocess of the FDA may be marketed. However, other competing products may freely enter the market, and we and ourpartners may not have suf(cid:69)icient intellectual property rights in Donnatal to protect it from such competition. See “Item 3.Key Information – D. Risk Factors – Risks Related to Our Business and Regulatory Matters – We or our development orcommercialization partners may be subject to product withdrawal requests by the FDA or other foreign regulatoryauthorities for Donnatal or products which we may sell or market.” If we are unable to protect the con(cid:47)identiality of our trade secrets or know-how, such proprietary information maybe used by others to compete against us. In addition to (cid:69)iling patents, we generally try to protect our trade secrets, know-how and technology by entering intocon(cid:69)identiality or non-disclosure agreements with parties that have access to it, such as our development orcommercialization partners, employees, contractors and consultants. We also enter into agreements that purport to requirethe disclosure and assignment to us of the rights to the ideas, developments, discoveries and inventions of our employees,advisors, research collaborators, contractors and consultants while we employ or engage them. However, theseagreements can be dif(cid:69)icult and costly to enforce or may not provide adequate remedies. Any of these parties may breachthe con(cid:69)identiality agreements and willfully or unintentionally disclose our con(cid:69)idential information, or our competitorsmight learn of the information in some other way. The disclosure to, or independent development by, a competitor of anytrade secret, know-how or other technology not protected by a patent could materially adversely affect any competitiveadvantage we may have over any such competitor. To the extent that any of our employees, advisors, research collaborators, contractors or consultants independentlydevelop, or use independently developed, intellectual property in connection with any of our projects, disputes may ariseas to the24 ®®®®®®Table of Contentsproprietary rights to this type of information. If a dispute arises with respect to any proprietary right, enforcement of ourrights can be costly and unpredictable and a court may determine that the right belongs to a third party. Legal proceedings or third-party claims of intellectual property infringement and other challenges may require usto spend substantial time and money and could prevent us from developing or commercializing our therapeuticcandidates and any products we may sell or market. The development, manufacture, use, offer for sale, sale or importation of our therapeutic candidates or any products thatwe may sell or market may infringe on the claims of third-party patents or other intellectual property rights. The nature ofclaims contained in unpublished patent (cid:69)ilings around the world is unknown to us and it is not possible to know whichcountries patent holders may choose for an extension of their (cid:69)ilings under the Patent Cooperation Treaty or othermechanisms. We may also be subject to claims based on the actions of employees and consultants with respect to theusage or disclosure of intellectual property learned at other employers. The cost to us of any intellectual propertylitigation or other infringement proceeding, even if resolved in our favor, could be substantial. Some of our competitorsmay be able to sustain the costs of such litigation or proceedings more effectively because of their substantially greater(cid:69)inancial resources. Uncertainties resulting from the initiation and continuation or defense of intellectual propertylitigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.Intellectual property litigation and other proceedings may also absorb signi(cid:69)icant management time. Consequently, we areunable to guarantee that we will be able to manufacture, use, offer for sale, sell or import our therapeutic candidates or anyproducts we may sell or market in the event of an infringement action. In the event of patent infringement claims, or to avoid potential claims, we may choose or be required to seek a licensefrom a third party and would most likely be required to pay license fees or royalties or both. These licenses may not beavailable on acceptable terms, or at all. Even if we were able to obtain a license, the rights may be non-exclusive, whichcould potentially limit our competitive advantage. Ultimately, we could be prevented from commercializing a therapeuticcandidate and any products that we may sell or market or be forced to cease some aspect of our business operations if, as aresult of actual or threatened patent infringement or other claims, we are unable to enter into licenses on acceptable terms.This inability to enter into licenses could have a material adverse effect on our business, (cid:69)inancial condition and results ofoperations. We may be subject to other patent-related litigation or proceedings that could be costly to defend and uncertain intheir outcome. In addition to infringement claims against us, we may become a party to other patent litigation or proceedings beforeregulatory agencies, including interference or re-examination proceedings (cid:69)iled with the U.S. Patent and Trademark Of(cid:69)iceor opposition proceedings in other foreign patent of(cid:69)ices regarding intellectual property rights with respect to ourtherapeutic candidates or any products that we may sell or market, as well as other disputes regarding intellectualproperty rights with development or commercialization partners, or others with whom we have contractual or otherbusiness relationships. Post-issuance oppositions are not uncommon, and we and/or our development orcommercialization partners will be required to defend these opposition procedures as a matter of course. Oppositionprocedures may be costly, and there is a risk that we may not prevail which could harm our business significantly. Risks Related to our Ordinary Shares and ADSs We may be a “passive foreign investment company” for U.S. federal income tax purposes, which could result inadverse U.S. federal income tax consequences to U.S. investors. While the determination of passive foreign investment company, or PFIC, status is fact-speci(cid:69)ic and generally cannot bemade until the close of the taxable year in question, based on the value and composition of our assets, we may be a PFICfor U.S. federal income tax purposes for our current taxable year and future taxable years. A non-U.S. corporation will beconsidered a PFIC for any taxable year if either (1) at least 75% of its gross income for such year is passive income or (2)at least 50% of the value of its assets (based on an average of the quarterly values of the assets during such year) isattributable to assets that produce or are held for the production of passive income. Because the value of our assets forpurposes of this determination will generally be determined by reference to the market price of the ADSs, our PFIC statuswill depend in large part on the market price of the ADSs. A separate determination must be made each taxable year as towhether we are a PFIC (after the close of each such taxable year). If we are a PFIC for any taxable year during which a U.S.Holder (as defined in “Item 10. Additional Information – Taxation — U.S. Federal Income Tax Considerations –25 Table of ContentsPassive Foreign Investment Companies”) holds Ordinary Shares or ADSs, the U.S. Holder may be subject to adverse taxconsequences, including (i) the treatment of all or a portion of any gain on disposition as ordinary income, (ii) theapplication of an interest charge with respect to such gain and certain dividends and (iii) compliance with certain reportingrequirements. Each U.S. Holder is strongly urged to consult its own tax advisor regarding these issues. See “Item 10.Additional Information – E. Taxation – U.S. Federal Income Tax Considerations – Passive Foreign Investment Companies.” The market price of our Ordinary Shares and our ADSs are subject to (cid:47)luctuation, which could result in substantiallosses by our investors. The stock market in general and the market price of our Ordinary Shares on the Tel Aviv Stock Exchange (“TASE”) and ourADSs on the NASDAQ Capital Market in particular, are subject to (cid:69)luctuation, and changes in the price of our securities maybe unrelated to our operating performance. The market price of our Ordinary Shares on the TASE and the market price ofour ADSs on the NASDAQ Capital Market have (cid:69)luctuated in the past, and we expect they will continue to do so. The marketprice of our Ordinary Shares and ADSs are and will be subject to a number of factors, including but not limited to: ·announcements of technological innovations or new therapeutic candidates or new products approved formarketing by us or others;·announcements by us of signi(cid:69)icant acquisitions, strategic partnerships, in-licensing, out-licensing, joint venturesor capital commitments;·expiration or terminations of licenses, research contracts or other development or commercialization agreements;·public concern as to the safety of drugs we, our development or commercialization partners or others develop ormarket;·the volatility of market prices for shares of biotechnology companies generally;·success or failure of research and development projects;·departure of or major events adversely affecting key personnel;·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 or ADSs arecovered by analysts;·changes in government regulations or patent proceedings and decisions;·developments by our development or commercialization partners; and·general market conditions and other factors, including factors unrelated to our operating performance. These factors and any corresponding price (cid:69)luctuations may materially and adversely affect the market price of ourOrdinary Shares or ADSs and result in substantial losses by our investors. Additionally, market prices for securities of biotechnology and pharmaceutical companies historically have been veryvolatile. The market for these securities has from time to time experienced signi(cid:69)icant price and volume (cid:69)luctuations forreasons unrelated to the operating performance of any one company. In the past, following periods of market volatility,shareholders have often instituted securities class action litigation. If we were involved in securities litigation, it couldhave a substantial cost and divert resources and attention of management from our business, even if we are successful. Future sales of our Ordinary Shares or ADSs could reduce the market price of our Ordinary Shares and ADSs. All of our outstanding Ordinary Shares are registered and available for sale in Israel. In addition, as of February 22, 2017,we had options to purchase 20,275,548 Ordinary Shares under our 2010 Stock Option Plan outstanding and non-tradablewarrants to purchase an aggregate of 2,025,458 ADSs (each representing 10 Ordinary Shares) outstanding. In addition, ourboard of directors reserved up to 30,000,000 Ordinary Shares for issuance under our 2010 Stock Option Plan. Substantialsales of our Ordinary Shares or ADSs, or the perception that such sales may occur in the future, including sales of sharesissuable upon the exercise of options and warrants, may cause the market price of our Ordinary Shares or ADSs to decline.Moreover, the issuance of shares underlying our options and warrants will also have a dilutive effect on our shareholders,which could further reduce the price of our Ordinary Shares and ADSs on their respective exchanges. 26 Table of ContentsOur Ordinary Shares and our ADSs are traded on different markets and this may result in price variations. Our Ordinary Shares have been traded on the TASE since February 2011, and our ADSs have been listed on the NASDAQCapital Market since December 27, 2012. Trading in our securities on these markets takes place in different currencies(U.S. dollars on the NASDAQ Capital Market and NIS on the TASE), and at different times (resulting from different timezones, different trading days and different public holidays in the U.S and Israel). The trading prices of our securities onthese two markets may differ due to these and other factors. Any decrease in the price of our securities on one of thesemarkets could cause a decrease in the trading price of our securities on the other market. There has been a limited market for our ADSs. We cannot ensure investors that an active market will continue or besustained for our ADSs on the NASDAQ Capital Market, and this may limit the ability of our investors to sell ourADSs in the U.S. In the past, there was limited trading in our ADSs, and there is no assurance that an active trading market of our ADSs willcontinue or will be sustained. Limited or minimal trading in our ADSs has in the past, and may in the future, lead todramatic (cid:69)luctuations in market price and investors may not be able to liquidate their investment at all or at a price thatreflects the value of the business. While our ADSs began trading on the NASDAQ Capital Market in December 2012, we cannot assure you that we willmaintain compliance with all of the requirements for our ADSs to remain listed. Additionally, there can be no assurancethat trading of our ADSs on such market will be sustained or desirable. We have incurred additional increased costs as a result of the listing of our ADSs on the NASDAQ Capital Market,and we may need to devote substantial time and resources to new compliance initiatives and reportingrequirements. As a public company in the U.S. and Israel, we incur additional signi(cid:69)icant accounting, legal and other expenses as a resultof the listing of our securities on both the NASDAQ Capital Market and the TASE. These include costs associated with thereporting requirements of the Securities and Exchange Commission (“SEC”) and the requirements of the NASDAQ ListingRules, as well as requirements under Section 404 and other provisions of the Sarbanes-Oxley Act of 2002 (“Sarbanes-OxleyAct”). These rules and regulations have increased our legal and (cid:69)inancial compliance costs, introduced new costs such asinvestor relations, travel costs, stock exchange listing fees and shareholder reporting, and made some activities moretime consuming and costly. Any future changes in the laws and regulations affecting public companies in the U.S. andIsrael, including Section 404 and other provisions of the Sarbanes-Oxley Act, the rules and regulations adopted by the SECand the NASDAQ Listing Rules, as well as applicable Israeli reporting requirements, will result in increased costs to us aswe respond to such changes. These laws, rules and regulations could make it more dif(cid:69)icult and costly for us to obtaincertain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policylimits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of theserequirements could also make it more dif(cid:69)icult for us to attract and retain quali(cid:69)ied persons to serve on our board ofdirectors, our board committees or as executive officers and may require us to pay more for such positions. Since we are an “emerging growth company,” as de(cid:69)ined in the JOBS Act, we may take advantage of certain temporaryexemptions from various reporting requirements, including, but not limited to, not being required to comply with theauditor attestation requirements of Section 404 of the Sarbanes Oxley Act (and the rules and regulations of the SECthereunder). We will remain an emerging growth company until the earliest of: (a) the last day of our (cid:69)iscal year duringwhich we have total annual gross revenues of at least $1.0 billion; (b) the last day of our (cid:69)iscal year following the (cid:69)ifthanniversary of the date of the (cid:69)irst sale of our Ordinary Shares pursuant to an effective registration statement (in our case,December 31, 2018); (c) the date on which we have, during the previous three-year period, issued more than $1.0 billion innon-convertible debt; or (d) the date on which we are deemed to be a “large accelerated (cid:69)iler” under the Securities ExchangeAct of 1934, as amended, (the “Exchange Act”), which would occur if the market value of our Ordinary Shares held by non-af(cid:69)iliates is $700 million or more as of the last business day of our most recently completed (cid:69)iscal quarter. When theseexemptions cease to apply, we expect to incur additional expenses and devote increased management effort towardensuring compliance with such reporting requirements. We cannot predict or estimate the amount of additional costs wemay incur as a result of complying with these additional reporting requirements. 27 Table of ContentsAs a foreign private issuer, we are permitted to follow certain home country corporate governance practices insteadof applicable SEC and NASDAQ Stock Market requirements, which may result in less protection than is accorded toinvestors under rules applicable to domestic issuers. As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead ofthose otherwise required under the NASDAQ Listing Rules for domestic issuers. For instance, we follow home countrypractice in Israel with regard to, among other things, director nomination procedures and quorum at shareholders’meetings. In addition, we follow our home country law, instead of the NASDAQ Listing Rules, which require that we obtainshareholder approval for certain dilutive events, such as for the establishment or amendment of certain equity-basedcompensation plans, an issuance that will result in a change of control of the Company, certain transactions other than apublic offering involving issuances of a 20% or more interest in the Company and certain acquisitions of the stock orassets of another company. Following our home country governance practices as opposed to the requirements that wouldotherwise apply to a U.S. domestic issuer listed on the NASDAQ Stock Market may provide less protection than is accordedto investors under the NASDAQ Listing Rules applicable to domestic issuers. In addition, as a foreign private issuer, we are exempt from the rules and regulations under the Exchange Act related to thefurnishing and content of proxy statements, and our of(cid:69)icers, directors and principal shareholders are exempt from thereporting and short-swing pro(cid:69)it recovery provisions contained in Section 16 of the Exchange Act. In addition, we are notrequired under the Exchange Act to (cid:69)ile annual, quarterly and current reports and (cid:69)inancial statements with the SEC asfrequently or as promptly as domestic companies whose securities are registered under the Exchange Act. We may fail to maintain effective internal controls over (cid:47)inancial reporting, which may adversely affect investorconfidence in us and, as a result, may affect the value of our Ordinary Shares and ADSs. We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among otherthings, the effectiveness of our internal control over (cid:69)inancial reporting. Pursuant to the JOBS Act, we are classi(cid:69)ied as an“emerging growth company,” and we are exempt from certain reporting requirements, including the auditor attestationrequirements of Section 404 of the Sarbanes-Oxley Act. Under this exemption, our auditor will not be required to attest toand report on management’s assessment of our internal controls over (cid:69)inancial reporting during a (cid:69)ive-year transitionperiod commencing in 2013. Our management report regarding our internal control over (cid:69)inancial reporting must include, among other things,disclosure of any material weaknesses identi(cid:69)ied by our management in our internal control over (cid:69)inancial reporting. Thecontinuous process of strengthening our internal controls and complying with Section 404 is complicated and time-consuming. We have documented and tested our internal control systems and procedures in order for us to comply with therequirements of Section 404. While our assessment of our internal control over (cid:69)inancial reporting resulted in ourconclusion that as of December 31, 2016, our internal control over (cid:69)inancial reporting was effective, we cannot predict theoutcome of our testing in future periods. If we fail to maintain the adequacy of our internal controls, we may not be able toensure that we can conclude on an ongoing basis that we have effective internal controls over (cid:69)inancial reporting. Failureto maintain effective internal control over (cid:69)inancial reporting could result in investigation or sanctions by regulatoryauthorities, and could have a material adverse effect on our reputation, business, (cid:69)inancial condition, results of operations,and investor con(cid:69)idence in the accuracy and completeness of our (cid:69)inancial reports, which would cause the price of ourOrdinary Shares and ADSs to decline. We currently do not anticipate paying cash dividends, and accordingly, investors must rely on the appreciation inour ADSs and our Ordinary Shares for any return on their investment. We currently anticipate that we will retain future earnings for the development, operation and expansion of our businessand do not anticipate declaring or paying any cash dividends for the foreseeable future. Therefore, the success of aninvestment in our ADSs and our Ordinary Shares will depend upon any future appreciation in their value. There is noguarantee that our ADSs or our Ordinary Shares will appreciate in value or even maintain the price at which our investorshave purchased their securities. 28 Table of ContentsInvestors in our ADSs may not receive the same distributions or dividends as those we make to the holders of ourOrdinary Shares, and, in some limited circumstances, investors in our ADSs may not receive dividends or otherdistributions on our Ordinary Shares and may not receive any value for them, if it is illegal or impractical to makethem available to investors in our ADSs. The depositary for the ADSs has agreed to pay to investors in our ADSs the cash dividends or other distributions it or thecustodian receives on Ordinary Shares or other deposited securities underlying the ADSs, after deducting its fees andexpenses. Investors in our ADSs will receive these distributions in proportion to the number of Ordinary Shares such ADSsrepresent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distributionavailable to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consistsof securities that require registration under the Securities Act of 1933, as amended, but that are not properly registered ordistributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreigncurrency that was part of a dividend made in respect of deposited Ordinary Shares may require the approval or license of,or a (cid:69)iling with, any government or agency thereof, which may be unobtainable. In these cases, the depositary maydetermine not to distribute such property and hold it as “deposited securities” or may seek to effect a substitute dividendor distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable andpracticable substitute. We have no obligation to register under U.S. securities laws any ADSs, Ordinary Shares, rights orother securities received through such distributions. We also have no obligation to take any other action to permit thedistribution of ADSs, Ordinary Shares, rights or anything else to holders of ADSs. In addition, the depositary may deductfrom such dividends or distributions its fees and may withhold amounts on account of taxes or other governmentalcharges to the extent the depositary believes it is required to make such withholding. This means that investors in ourADSs may not receive the same distributions or dividends as those we make to the holders of our Ordinary Shares, and, insome limited circumstances, investors in our ADSs may not receive any value for such distributions or dividends if it isillegal or impractical for us to make them available to investors in our ADSs. These restrictions may cause a materialdecline in the value of the ADSs. Holders of ADSs must act through the depositary to exercise their rights as our shareholders. Holders of our ADSs do not have the same rights as our shareholders and may only exercise the voting rights with respectto the underlying Ordinary Shares in accordance with the provisions of the deposit agreement for the ADSs. Under Israelilaw, the minimum notice period required to convene a shareholders’ meeting is no less than 35 or 21 calendar days,depending on the proposals on the agenda for the shareholders’ meeting. When a shareholders’ meeting is convened,holders of our ADSs may not receive suf(cid:69)icient notice of a shareholders’ meeting to permit them to withdraw theirOrdinary Shares to allow them to cast their vote with respect to any speci(cid:69)ic matter. In addition, the depositary and itsagents may not be able to send voting instructions to holders of our ADSs or carry out their voting instructions in a timelymanner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of our ADSs in atimely manner, but we cannot assure holders that they will receive the voting materials in time to ensure that they caninstruct the depositary to vote their ADSs. Furthermore, the depositary and its agents are not responsible for any failure tocarry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result,holders of our ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not votedas they requested. In addition, in the capacity as an ADS holder, they are not able to call a shareholders’ meeting. The depositary for our ADSs gives us a discretionary proxy to vote our Ordinary Shares underlying ADSs if a holderof our ADSs does not give voting instructions, except in limited circumstances, which could adversely affect theirinterests. Under the deposit agreement for the ADSs, the depositary gives us a discretionary proxy to vote our Ordinary Sharesunderlying ADSs at shareholders’ meetings if a holder of our ADSs does not give voting instructions, unless: ·we have instructed the depositary that we do not wish a discretionary proxy to be given;·we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting;or·we have informed the depositary that a matter to be voted on at the meeting would have a material adverse impacton shareholders. 29 Table of ContentsThe effect of this discretionary proxy is that a holder of our ADSs cannot prevent our Ordinary Shares underlying suchADSs from being voted, absent the situations described above, and it may make it more dif(cid:69)icult for holders of our ADSs toinfluence our management. Holders of our Ordinary Shares are not subject to this discretionary proxy. Risks Related to our Operations in Israel We conduct our operations in Israel and therefore our results may be adversely affected by political, economic andmilitary instability in Israel and the region. We are incorporated under the laws of the State of Israel, our principal of(cid:69)ices are located in central Israel and some of ourof(cid:69)icers, employees and directors are residents of Israel. Accordingly, political, economic and military conditions in Israeland the surrounding region may directly affect our business. Since the establishment of the State of Israel in 1948, anumber of armed con(cid:69)licts have taken place between Israel and its Arab neighbors. Any hostilities involving Israel or theinterruption or curtailment of trade within Israel or between Israel and its trading partners could adversely affect ouroperations and results of operations and could make it more dif(cid:69)icult for us to raise capital. During the summer of 2014,Israel was engaged in an armed con(cid:69)lict with Hamas in Gaza, which involved missile strikes against civilian targets invarious parts of Israel and negatively affected business conditions in Israel. In addition, recent political uprisings andcon(cid:69)licts in various countries in the Middle East, including Egypt and Syria, are affecting the political stability of thosecountries. It is not clear how this instability will develop and how it will affect the political and security situation in theMiddle East. This instability has raised concerns regarding security in the region and the potential for armed con(cid:69)lict. Inaddition, it is widely believed that Iran, which has previously threatened to attack Israel, has been stepping up its efforts toachieve nuclear capability. Iran is also believed to have a strong in(cid:69)luence among extremist groups in the region, such asHamas in Gaza and Hezbollah in Lebanon. Additionally, the Islamic State of Iraq and Levant (ISIL), a violent jihadist group,is involved in hostilities in Iraq and Syria. Although ISIL’s activities have not directly affected the political and economicconditions in Israel, ISIL’s stated purpose is to take control of the Middle East, including Israel. The tension between Israeland Iran or these groups may escalate in the future and turn violent, which could affect the Israeli economy in general andus in particular. Any armed con(cid:69)licts, terrorist activities or political instability in the region could adversely affectbusiness conditions and could harm our results of operations. For example, any major escalation in hostilities in theregion could result in a portion of our employees being called up to perform military duty for an extended period of time.Parties with whom we do business have sometimes declined to travel to Israel during periods of heightened unrest ortension, forcing us to make alternative arrangements when necessary. In addition, the political and security situation inIsrael may result in parties with whom we have agreements involving performance in Israel claiming that they are notobligated 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 situationin the Middle East. Although the Israeli government currently covers the reinstatement value of direct damages that arecaused by terrorist attacks or acts of war, there is no assurance that this government coverage will be maintained, or ifmaintained, will be suf(cid:69)icient to compensate us fully for damages incurred. Any losses or damages incurred by us couldhave a material adverse effect on our business. Any armed con(cid:69)licts or political instability in the region would likelynegatively affect business conditions and could harm our results of operations. The State of Israel and Israeli companies have been subject to economic boycotts. These restrictions and boycotts mayhave material adverse impact on our operating results, financial condition or the expansion of our business. Our operations may be disrupted as a result of the obligation of management or personnel to perform militaryservice. Some of our employees in Israel, including members of our senior management, perform up to one month, and in somecases more, of annual military reserve duty until they reach the age of 40 or older and, in the event of a military con(cid:69)lict,may be called to active duty. There have also been periods of signi(cid:69)icant call-ups of military reservists, and it is possiblethat there will be military reserve duty call-ups in the future. Our operations could be disrupted by the absence of asigni(cid:69)icant number of our employees. Such disruption could have a material adverse effect on our business, (cid:69)inancialcondition and results of operations. 30 Table of ContentsBecause a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results ofoperations may be harmed by currency fluctuations and inflation. Our reporting and functional currency is the U.S. dollar. Most of the royalty payments from our agreements with ourdevelopment or commercialization partners are payable in U.S. dollars, and we expect our revenues from future licensingand co-promotion agreements to be denominated mainly in U.S. dollars or in Euros. We pay a substantial portion of ourexpenses in U.S. dollars; however, a portion of our expenses, including salaries of the employees in Israel and payment topart of the service providers in Israel and other territories, are paid in NIS and in other currencies. In addition, a portion ofour (cid:69)inancial assets is held in NIS and in other currencies. As a result, we are exposed to the currency (cid:69)luctuation risks. Forexample, if the NIS strengthens against the U.S. dollar, our reported expenses in U.S. dollars may be higher. In addition, ifthe NIS weakens against the U.S. dollar, the U.S. dollar value of our financial assets held in NIS will decline. Provisions of the RedHill Biopharma Ltd. 2010 Option Plan (the “2010 Option Plan”), Israeli law and our articles ofassociation may delay, prevent or otherwise impede a merger with, or an acquisition of, our Company, or anacquisition of a signi(cid:47)icant portion of our shares, which could prevent a change of control, even when the terms ofsuch a transaction are favorable to us and our shareholders. Our 2010 Option Plan provides that all options granted by us will be fully accelerated upon a “hostile takeover” of theCompany. A “hostile takeover” is defined in our 2010 Option Plan as an event in which any person, entity or group that wasnot an “interested party”, as de(cid:69)ined in the Israeli Securities Law – 1968, on the date of the initial public offering of ourOrdinary Shares on the TASE, will become a “controlling shareholder” as de(cid:69)ined in the Israel Securities Law, 1968. See“Item 6. Directors, Senior Management and Employees – E. Share Ownership – Option Plans” for a description of interestedparties under the Israeli Securities Law – 1968, or a “holder,” as de(cid:69)ined in the Israel Securities Law 1968, of 25% or moreof the voting rights in the Company or any merger or consolidation involving the Company, in each case without aresolution by the board of directors of the Company supporting the transaction. In addition, if a “Signi(cid:69)icant Event” occursand following which the employment of a grantee with the Company or a related company is terminated by the Companyor a related company other than for “Cause”, and unless the applicable agreement provides otherwise or the board ofdirectors determines otherwise, all the outstanding options held by or for the bene(cid:69)it of any such grantee will beaccelerated and immediately vested and exercisable. A “Signi(cid:69)icant Event” is de(cid:69)ined in our 2010 Option Plan as aconsolidation or merger of the Company with or into another corporation approved by the board of directors of theCompany in which the Company is the continuing or surviving corporation or in which the continuing or survivingcorporation assumes the option or substitutes it with an appropriate option in the surviving corporation. The Israeli Companies Law, 1999, or the Israeli Companies Law, regulates mergers, requires tender offers for acquisitionsof shares or voting rights above speci(cid:69)ied thresholds, requires special approvals for transactions involving directors,of(cid:69)icers or signi(cid:69)icant shareholders and regulates other matters that may be relevant to these types of transactions. Forexample, a merger may not be consummated unless at least 50 days have passed from the date that a merger proposal was(cid:69)iled by each merging company with the Israel Registrar of Companies and at least 30 days from the date that theshareholders of both merging companies approved the merger. In addition, a majority of each class of securities of thetarget company must approve a merger. Moreover, the Israeli Companies Law provides that certain purchases of securitiesof a public company are subject to tender offer rules. As a general rule, the Israeli Companies Law prohibits any acquisitionof shares or voting power in a public company that would result in the purchaser holding 25% or more, or more than 45%of the voting power in the company, if there is no other person holding 25% or more, or more than 45% of the votingpower in a company, respectively, without conducting a special tender offer. The Israeli Companies Law further providesthat a purchase of shares or voting power of a public company or a class of shares of a public company, which will resultin the purchaser’s holding 90% or more of the company’s shares, class of shares or voting rights, is prohibited unless thepurchaser conducts a full tender offer for all of the company’s shares or class of shares. The purchaser will be allowed topurchase all of the company’s shares or class of shares (including those shares held by shareholders who did not respondto the offer), if either (i) the shareholders who do not accept the offer hold less than 5% of the issued and outstandingshare capital of the company or of the applicable class, and more than half of the shareholders who do not have a personalinterest in the offer accept the offer, or (ii) the shareholders who do not accept the offer hold less than 2% of the issued andoutstanding share capital of the company or of the applicable class. The shareholders, including those who indicated theiracceptance of the tender offer (except if otherwise detailed in the tender offer document), may, at any time within sixmonths following the completion of the tender offer, petition the court to alter the consideration for the acquisition. At therequest of an offeree of a full tender offer which was accepted, the court may determine that the consideration for theshares purchased under the tender offer was lower than their fair value and compel the offeror to pay to the offerees thefair value of the shares. Such application to the court may be filed as a class action.31 Table of Contents In addition, the Israeli Companies Law provides for certain limitations on a shareholder that holds more than 90% of thecompany’s shares, or class of shares. Pursuant to our articles of association, the size of our board of directors may be no less than (cid:69)ive persons and no morethan seven, excluding the external directors whose appointment is required by law. The directors who are not externaldirectors are divided into three classes, as nearly equal in number as possible. At each annual general meeting, the term ofone class of directors expires, and the directors of such class are re-nominated to serve an additional three-year term thatexpires at the annual general meeting held in the third year following such election. This process continues inde(cid:69)initely.Such provisions of our articles of association make it more dif(cid:69)icult for a third party to affect a change in control ortakeover attempt that our management and board of directors oppose. Furthermore, Israeli tax considerations may, in certain circumstances, make potential transactions unappealing to us or tosome of our shareholders. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent asU.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferralcontingent on the ful(cid:69)illment of numerous conditions, including a holding period of two years from the date of thetransaction during which sales and dispositions of shares of the participating companies are restricted. Moreover, withrespect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomespayable even if no actual disposition of the shares has occurred. These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with anothercompany, or an acquisition of a signi(cid:69)icant portion of our shares, even if such an acquisition or merger would be bene(cid:69)icialto us or to our shareholders. See “Item 10. Additional Information – B. Memorandum and Articles of Association.” It may be dif(cid:47)icult to enforce a U.S. judgment against us and our directors and of(cid:47)icers in Israel or the U.S., or toserve process on our directors and officers. We are incorporated in Israel. Most of our directors and executive of(cid:69)icers reside outside of the U.S., and most of our assetsand most of the assets of our directors and executive of(cid:69)icers are located outside of the U.S. Therefore, a judgment obtainedagainst us or most of our executive of(cid:69)icers and our directors in the U.S., including one based on the civil liabilityprovisions of the U.S. federal securities laws, may not be collectible in the U.S. and may not be enforced by an Israeli court.It may also be dif(cid:69)icult to affect service of process on these persons in the U.S. or to assert U.S. securities law claims inoriginal actions instituted in Israel. The obligations and responsibilities of our shareholders are governed by Israeli law which may differ in somerespects from the obligations and responsibilities of shareholders of U.S. companies. Israeli law may imposeobligations and responsibilities on a shareholder of an Israeli company that are not imposed upon shareholders ofcorporations in the U.S. We are incorporated under Israeli law. The obligations and responsibilities of the holders of our Ordinary Shares aregoverned by our articles of association and Israeli law. These obligations and responsibilities differ in some respects fromthe obligations and responsibilities of shareholders in typical U.S.-based corporations. In particular, a shareholder of anIsraeli company has a duty to act in good faith toward the company and other shareholders and to refrain from abusing itspower in the company, including, among other things, in voting at the general meeting of shareholders on matters such asamendments to a company’s articles of association, increases in a company’s authorized share capital, mergers andacquisitions and interested party transactions requiring shareholder approval. In addition, a shareholder who knows that itpossesses the power to determine the outcome of a shareholder vote or to appoint or prevent the appointment of a directoror executive officer in the company has a duty of fairness toward the company. There is limited case law available to assistus in understanding the implications of these provisions that govern shareholders’ actions. These provisions may beinterpreted to impose additional obligations and responsibilities on holders of our Ordinary Shares that are not typicallyimposed on shareholders of U.S. corporations. Claims for indemni(cid:47)ication by our directors and of(cid:47)icers may reduce our available funds to satisfy successfulshareholder claims against us and may reduce the amount of money available to us. The Israeli Companies Law and our articles of association permit us to indemnify our directors and of(cid:69)icers for actsperformed by them in their capacity as directors and officers. The Israeli Companies Law provides that a company may32 Table of Contentsnot exempt or indemnify a director or an of(cid:69)icer nor enter into an insurance contract, which would provide coverage forany monetary liability incurred as a result of: (a) a breach by the director or of(cid:69)icer of his duty of loyalty, except forinsurance and indemni(cid:69)ication where the director or of(cid:69)icer acted in good faith and had a reasonable basis to believe thatthe act would not prejudice the company; (b) a breach by the director or of(cid:69)icer of his duty of care if the breach was doneintentionally or recklessly, except if the breach was solely as a result of negligence; (c) any act or omission done with theintent to derive an illegal personal bene(cid:69)it; or (d) any (cid:69)ine, civil (cid:69)ine, monetary sanctions, or forfeit imposed on the of(cid:69)iceror director. Our articles of association provide that the Company may exempt or indemnify a director or an of(cid:69)icer to themaximum extent permissible under law. See Item 6. “Directors, Senior Management and Employees – C. Board Practices -Corporate Governance Practices - Exemption, Insurance and Indemnification of Directors and Officers". We have issued letters of indemni(cid:69)ication to our directors and of(cid:69)icers, pursuant to which we have agreed to indemnifythem in advance for any liability or expense imposed on or incurred by them in connection with acts they perform in theircapacity as a director or of(cid:69)icer, subject to applicable law. The amount of the advance indemnity is limited to the higher of25% of our then shareholders’ equity, per our most recent annual financial statements, or $5 million. Our indemni(cid:69)ication obligations limit the personal liability of our directors and of(cid:69)icers for monetary damages for breachof their duties as directors by shifting the burden of such losses and expenses to us. Although we have obtained directors'and of(cid:69)icers' liability insurance, certain liabilities or expenses covered by our indemni(cid:69)ication obligations may not becovered by such insurance or the coverage limitation amounts may be exceeded. As a result, we may need to use asigni(cid:69)icant amount of our funds to satisfy our indemni(cid:69)ication obligations, which could severely harm our business and(cid:69)inancial condition and limit the funds available to who may choose to bring a claim against our Company. Theseprovisions and resultant costs may also discourage us from bringing a lawsuit against directors and of(cid:69)icers for breachesof their duties, and may similarly discourage the (cid:69)iling of derivative litigation by our shareholders against the directorsand officers even though such actions, if successful, might otherwise benefit our security holders. ITEM 4. INFORMATION ON THE COMPANY A. History and Development of the Company Our legal and commercial name is RedHill Biopharma Ltd. The company was incorporated on August 3, 2009 and wasregistered as a private company limited by shares under the laws of the State of Israel. Our principal executive of(cid:69)ices arelocated at 21 Ha’arba’a Street, Tel Aviv, Israel and our telephone number is 972-3-541-3131. In February 2011, we completed our initial public offering in Israel, pursuant to which we issued 14,302,300 OrdinaryShares, and 7,151,150 tradable Series 1 Warrants to purchase 7,151,150 Ordinary Shares for aggregate gross proceeds ofapproximately $14 million. On December 27, 2012, we completed the listing of our ADSs on the NASDAQ Capital Market.Our Ordinary Shares are traded on the Tel-Aviv Stock Exchange under the symbol “RDHL,” and our ADSs are traded on theNASDAQ Capital Market under the symbol "RDHL". Our capital expenditures for the years ended December 31, 2016, 2015 and 2014 were approximately $85,000, $14,000 and$70,000, respectively. Our current capital expenditures involve equipment and leasehold improvements. B. Business Overview We are a specialty biopharmaceutical company primarily focused on the development and commercialization of lateclinical-stage, proprietary, orally-administered, small molecule drugs for the treatment of GI and in(cid:69)lammatory diseasesand cancer. From inception to the end of the period covered by this Annual Report, we have invested a total of $6.2 millionon in-licensing and acquisitions of therapeutic candidates and related technologies. Depending on the speci(cid:69)ic development program, our therapeutic candidates are designed to exhibit greater ef(cid:69)icacy andprovide improvements over existing drugs by improving their safety pro(cid:69)ile, reducing side effects, lowering the number ofadministrations, using a more convenient administration form or providing a cost advantage. Where applicable, we intendto seek FDA approval for the commercialization of certain of our therapeutic candidates through the alternative Section505(b)(2) regulatory path under the Federal Food, Drug, and Cosmetic Act of 1938, as amended, and in correspondingregulatory paths in other foreign jurisdictions. Our current pipeline consists of seven clinical development therapeuticcandidates. 33 Table of ContentsWe generate our pipeline of therapeutic candidates by identifying, rigorously validating and in-licensing or acquiringproducts that are consistent with our products strategy and that we believe exhibit a relatively high probability oftherapeutic and commercial success. With the exception of RIZAPORT which was approved for marketing in Germany,our therapeutic candidates have not yet been approved for marketing and, to date, our therapeutic candidates have notgenerated meaningful sales. We intend to commercialize our therapeutic candidates through licensing and othercommercialization arrangements with pharmaceutical companies on a global and territorial basis. We also evaluate, on acase by case basis, co-development and similar arrangements and the independent commercialization of our therapeuticcandidates in the U.S. We have recently entered into a Co-Promotion Agreement with a subsidiary of Concordia, pursuant towhich we were granted certain rights to promote Donnatal in the U.S., and we have begun building our own marketing andcommercialization capabilities in the U.S. to support the promotion of Donnatalas well as the potential futurecommercialization of our therapeutic candidates and any product we may sell or market. Our Strategy Our goal is to become a signi(cid:69)icant player in the development and commercialization of pharmaceuticals for the treatmentof inflammatory and GI diseases and cancer. Key elements of our strategy are to: ·identify and acquire rights to products from pharmaceutical companies that have encountered cash (cid:69)low oroperational problems or that decide to divest one or more of their products for various reasons. Speci(cid:69)ically, weseek to acquire rights to and develop products that are intended to treat pronounced clinical needs, have patent orother protections, and have target markets totaling tens of millions to billions of dollars. Additionally, we seek toacquire rights to and develop products based on different technologies designed to reduce our dependency on anyspeci(cid:69)ic product or technology. We identify such opportunities through our broad network of contacts and othersources in the pharmaceutical field;·advance our initiative to become a revenue-generating, GI-focused, specialty biopharmaceutical company with acommercial presence in the U.S. to support potential future commercialization of our therapeutic candidates andproducts approved for marketing by identifying and acquiring rights to products that have been approved formarketing in the U.S from pharmaceutical companies that are interested in divesting one or more of their products.Speci(cid:69)ically, we seek to acquire rights to products that are already commercialized in the U.S., preferably with atherapeutic focus on GI, in(cid:69)lammation or cancer, which would enable us to commercialize such productsindependently and build our own marketing and commercialization capabilities. We identify such opportunitiesthrough our broad network of contacts and other sources in the pharmaceutical field;·enhance existing pharmaceutical products, including broadening their range of indications, or launching innovativeand advantageous pharmaceutical products based on existing active ingredients. Because there is a large knowledgebase regarding existing products, the preclinical, clinical and regulatory requirements needed to obtain marketingapproval for enhanced formulations are relatively well- de(cid:69)ined. In particular, clinical trial designs, inclusioncriteria and endpoints previously accepted by regulators may sometimes be re-used. In addition to reducing costsand time to market, we believe that targeting therapeutics with proven safety and ef(cid:69)icacy pro(cid:69)iles provides us abetter prospect of clinical success;·where applicable, utilize the FDA’s 505(b)(2) regulatory pathway to potentially obtain more timely and ef(cid:69)icientapproval of our formulations of previously approved products. Under the 505(b)(2) process, we are able to seekFDA approval of a new dosage form, strength, route of administration, formulation, dosage regimen, or indication ofa pharmaceutical product that has previously been approved by the FDA. This process enables us to partially relyon the FDA (cid:69)indings of safety or ef(cid:69)icacy for previously approved drugs, thus avoiding the duplication of costly andtime-consuming preclinical and various human studies. See “Item 4. Information on the Company – B. BusinessOverview – Government Regulations and Funding – Section 505(b)(2) New Drug Applications”; and·cooperate with third parties to develop or commercialize therapeutic candidates in order to share costs and leveragethe expertise of others. Our seven current clinical stage therapeutic candidates include “RHB-105”, “RHB-104”, “BEKINDA”, “RHB-106”, “YELIVA”, “MESUPRON” and “RIZAPORT” and related research and development programs, the most advanced ofwhich are described below. We have also entered into a co-promotion agreement with Concordia pursuant to which wewere granted certain rights to promote Donnatal in the U.S.. 34 ®®® ®®®®Table of ContentsOur Therapeutic Candidates and Donnatal Summary A summary of our therapeutic candidates’ select programs is provided below: Name of Product Relevant Indication PotentialAdvantagesOverMost ExistingTreatments DevelopmentStage Rights to the ProductRHB-105 H. pylori infection Improved efficacy,potential to overcomebacterial resistance; all-in-one pill First Phase IIIstudy in the U.S.completed.ConfirmatoryPhase III studyplanned Acquired all rights to the composition anduse of two antibiotics and a proton pumpinhibitor, worldwide and exclusive. We filedour own IP applications directed to theproposed commercial formulation and useRHB-104 Crohn’s disease Novel mechanism ofaction and improvedclinical benefit(targeting suspectedunderlying cause ofCrohn's disease) First Phase IIIstudy in N.America, Israel,Australia, NewZealand andEurope ongoing Acquired all rights to the triple antibioticcombination and its use, worldwide andexclusive. We filed our own IP applicationsdirected to the proposed commercialformulation and useRHB-104 Multiple sclerosis(MS) Oral formulation andnovel mechanism ofaction Phase IIa proof ofconcept study inIsrael completed Acquired all rights to the triple antibioticcombination and its use, worldwide andexclusive. We filed our own IP applicationsdirected to the proposed commercialformulation and useRHB-104 NontuberculousMycobacteria(NTM) infections Oral formulationtargeting suspectedunderlying cause ofNTM infections Under review Acquired all rights to the triple antibioticcombination and its use, worldwide andexclusive. We filed our own IP applicationsdirected to the proposed commercialformulation and useBEKINDA24mg Acutegastroenteritis andgastritis No other approved 5-HT3 serotonin receptorinhibitor for thisindication; once dailydosing Phase IIIongoing in theU.S. Worldwide, exclusive license to technologyused in the commercial formulation. Wefiled our own IP applications directed to theproposed commercial formulation and useBEKINDA12mg IBS-D Potential 5-HT3serotonin receptorinhibitor with improvedsafety, whilemaintaining efficacy, forbroader use in theindication Phase II ongoingin the U.S. Worldwide, exclusive license to technologyused in the commercial formulation. Wefiled our own IP applications directed to theproposed commercial formulation and useRHB-106 Bowel preparation Oral pill, avoid severebad taste of chemicalsolutions, no knownnephrotoxicity issues Licensed toValeant (whichacquired SalixPharmaceuticals,Inc.) Worldwide rights licensed to ValeantYELIVA Advanced solidtumors Oral administration,first-in-class SK2selective inhibitor, withanti-inflammatory andanti-cancer activities Phase I study inthe U.S. completed(ABC-101) Worldwide, exclusive licenseYELIVA Refractory orrelapsed diffuselarge B-Celllymphoma(DLBCL), includingpatients withvirus-induced (e.g.,KSHV- or EBV-associated)lymphoma, orKaposi sarcoma Oral administration,first-in-class SK2selective inhibitor, withanti-inflammatory andanti-cancer activities Phase I/IIa studyin the U.S.initiated (ABC-102) Worldwide, exclusive licenseYELIVA Refractory orrelapsed multiplemyeloma Oral administration,first-in-class SK2selective inhibitor, withanti-inflammatory andanti-cancer activities Phase Ib/II studyin the U.S.initiated (ABC-103) Worldwide, exclusive license35 ®® ® ®®®Table of ContentsYELIVA Advancedhepatocellularcarcinoma Oral administration,first-in-class SK2selective inhibitor, withanti-inflammatory andanti-cancer activities Phase II study inthe U.S. initiated(ABC-106) Worldwide, exclusive licenseYELIVA Oncology support,prevention ofradiation -associatedmucositis in thetreatment of headand neck cancer Oral administration,first-in-class SK2selective inhibitor, withanti-inflammatory andanti-cancer activities. Phase Ib studyplanned (ABC-104) Worldwide, exclusive licenseYELIVA Moderate tosevere ulcerativecolitis Oral administration,first-in-class SK2selective inhibitor, withanti-inflammatory andanti-cancer activities. Phase II studyplanned (ABC-105) Worldwide, exclusive licenseMESUPRON Gastrointestinaland other solidtumors Oral administration; newnon-cytotoxic approachto cancer therapypotentially inhibitingboth tumor invasion andmetastasis Completed twoPhase II studies;Pre-clinicalstudies ongoing,preparations forPhase I/II studyfor resectedpancreatic cancer Worldwide exclusive license; excludes China,Hong Kong, Taiwan and MacaoRIZAPORT Acute migraine Oral thin filmformulation; Avoidsexacerbation of nausea,administered withoutwater, ease of use,convenient portabilityand discrete carriageand use NDA filed andaccepted,CompleteResponse Letter(CRL) receivedand preparing forresubmission inthe U.S.; Europeanmarketingapplicationapproved inGermany Worldwide, exclusive license and co-developmentCombinationagainst Ebolavirus Ebola virusdisease Efficacy and safety Nonclinicalresearchcollaboration witha U.S. governmentagency ongoing All worldwide rights to the product. We filedour own IP applications directed to thecombination formulations and their use RHB-105 RHB-105 is intended for the eradication of H. pylori bacterial infection in the GI tract. RHB-105 is a combination of threeapproved drug products – omeprazole, which is a proton pump inhibitor (prevents the secretion of hydrogen ionsnecessary for digestion of food in the stomach), amoxicillin and rifabutin, which are antibiotics. RHB-105 is administeredto patients orally. Chronic infection with H. pylori irritates the mucosal lining of the stomach and small intestine. The original discovery ofthe H. pylori bacteria and its association with peptic ulcer disease warranted the Nobel Prize in 2005. H. pylori infectionhas since been associated with a variety of outcomes which include: dyspepsia (non-ulcer or functional), peptic ulcerdisease (duodenal ulcer and gastric ulcer), primary gastric B-cell lymphoma, vitamin B12 de(cid:69)iciency, iron de(cid:69)iciency,anemia and gastric cancer. Gastric cancer is one of the most commonly diagnosed cancers worldwide and one of the most common causes of cancer-related deaths, accounting for approximately 700,000 deaths annually. According to a 2010 report by Polk DB et al.published in Nature Reviews Cancer, H. pylori-induced gastritis is the strongest singular risk factor for cancers of thestomach, and eradication of H. pylori signi(cid:69)icantly decreases the risk of developing cancer in infected individuals withoutpre-malignant lesions. RHB-105 was granted Quali(cid:69)ied Infectious Disease Product (“QIDP”) designation by the FDA in November 2014. The QIDPdesignation was granted under the FDA's Generating Antibiotic Incentives Now Act, which is intended to encouragedevelopment of new antibiotic drugs for the treatment of serious or life-threatening infections that have the potential topose a serious threat to public health. The granted QIDP designation allows us to benefit from Fast-Track development36 ®®®®Table of Contentsstatus with an expedited development pathway for RHB-105 and Priority Review status which potentially provides shorterreview time by the FDA of a future potential marketing application. If approved, RHB-105 will also receive an additional(cid:69)ive years of U.S. market exclusivity on top of the standard exclusivity period, for a total of eight years of marketexclusivity. RHB-105 is targeting a signi(cid:69)icantly broader indication than that of existing H. pylori therapies, as a (cid:69)irst line treatment ofH. pylori infection, regardless of ulcer status. We acquired the rights to RHB-105 pursuant to an agreement with Giaconda Limited. See “Item 4. Information on theCompany – B. Business Overview – Acquisition and License Agreements – Acquisition of RHB-104, RHB-105 and RHB-106.” Competition and Market The most common treatments of H. pylori type bacteria combine clarithromycin or metronidazole antibiotics withamoxicillin and a proton pump inhibitor. Such current standard of care treatments fail in approximately 30% of thepatients due to the development of antibiotic resistance, based on reports by Prof. David Y. Graham, M.D., et al. publishedin Nature Clinical Practice Gastroenterology & Hepatology in 2008 and in Gut in 2010 and by Malfertheiner P. et al.published in Gut in 2012. As published in the 2006 study report by Dr. T.J. Borody, et. al. in Alimentary Pharmacology & Therapeutics, the potentialadvantage of RHB-105 over these drugs (such as PrevPac of Takeda Pharmaceuticals and Pylera of Allergan Plc) wasshown in a Phase II study comprised of 130 subjects. In the study, a different formulation of RHB-105, using the sameantibiotic ingredients and a similar proton pump inhibitor, was shown to eradicate H. pylori in over 90% of treatedpatients who failed previous eradication attempts using standard of care treatments. Furthermore, (cid:69)inal results from thefirst Phase III study in the U.S. (the “ERADICATE Hp Study”) conducted by us demonstrated 89.4% efficacy in eradicating H.pylori infection with RHB-105 in 118 dyspepsia patients with confirmed H. pylori infection. In the U.S., we estimate that approximately three million patients per annum that present with (cid:69)irst time dyspepticsymptoms caused by an H. pylori infection, based on a 2007 report by Colin W. Howden, M.D., et. al. published in TheAmerican Journal of Managed Care and a 2005 report by Nicholas J. Talley, M.D., et al. published in The American Journalof Gastroenterology. Based on this (cid:69)igure, combined with the price of branded treatments, we estimate the potential globaland U.S. market for RHB-105 was approximately $4.83 billion and $1.45 billion in 2015, respectively. Clinical Development A Phase II clinical trial in Australia was completed with a different formulation of RHB-105, using the same antibioticingredients and a similar proton pump inhibitor. A (cid:69)irst Phase III trial in the U.S., the ERADICATE Hp Study, which wascompleted in 2015, showed 89.4% eradication of H. pylori with RHB-105 therapy while open-label standard-of-careyielded an H. pylori eradication rate of 63% in placebo subjects. Professor David Y. Graham, MD, from Baylor College of Medicine, Houston, Texas, served as the lead investigator of theERADICATE Hp Study. We met with the FDA in April 2016 to discuss the successful results of the ERADICATE Hp Study and the proposed designof the con(cid:69)irmatory Phase III study for the treatment of H. pylori infection. In light of the feedback received from the FDA,we expect to initiate a con(cid:69)irmatory Phase III randomized, double-blind, active comparator, two-arm clinical study,comparing RHB-105 against a dual therapy amoxicillin and omeprazole regimen at equivalent doses in the second quarterof 2017. In January 2017, we entered into an agreement with ICON Clinical Research Limited to perform clinical trialservices for the confirmatory Phase III study. Pursuant to a recommendation from the FDA, we intend to complete a supportive pharmacokinetic (PK) program by end ofthe (cid:69)irst quarter of 2017, prior to initiating the con(cid:69)irmatory Phase III study. Subject to their successful outcome, we expectthat the supportive PK program and the con(cid:69)irmatory Phase III study will complete the clinical package required for asubmission of an NDA for RHB-105, if we proceed to file an NDA. 37 ®®Table of ContentsThe following chart summarizes the clinical trial history and status of RHB-105: Clinicaltrial name Developmentphase of theclinical trial Purpose of theclinical trial Clinicaltrial site Number ofsubjects ofthe trial Nature andstatus ofthe trial Schedule- Phase IIa Examining thetherapeuticcandidate’seffectiveness intreating H. pyloriinfection in patientsfor whom standardof care had failed totreat the infection Center forDigestiveDisease,Australia 130 The trial wascompleted andindicated that thetreatment iseffective for H.pylori-infectedpatients for whomstandard of care hadfailed to treat theinfection Completed in2005- ComparativeBioavailability Comparing thebioavailability ofRHB-105 to thebioavailability of anequivalent dose ofcommerciallyavailable activeingredients AlgorithmePharma,Canada 16 Completed Completed in2013ERADICATEHp Study Phase III Examining theeffectiveness, safetyand PK of the finalformulation 13 sites in theU.S. Up to 118 Completed Completed in2015- ComparativeBioavailability Comparing thebioavailability ofRHB-105 in fed andfasted state and tothe bioavailabilityof the activecomparator for theconfirmatory PhaseIII study AlgorithmePharma,Canada 18 Ongoing OngoingTBD Phase III Assess the safetyand efficacy of RHB-105 as compared toactive comparator Up to 55 sitesin the U.S. 440 Planned Planned forinitiation inQ2 2017 We cannot predict with certainty our development costs, and such costs may be subject to change. See “Item 3. KeyInformation – D. Risk Factors – Risks Related to Our Financial Condition and Capital Requirements.” RHB-104 Crohn’s Disease RHB-104 is intended to treat Crohn’s disease, which is a serious in(cid:69)lammatory disease of the GI system that may causesevere abdominal pain and bloody diarrhea, malnutrition and potentially life-threatening complications. RHB-104 is a patented combination of clarithromycin, clofazimine and rifabutin, three generic antibiotic ingredients, in asingle capsule. The compound was developed to treat Mycobacterium avium paratuberculosis (“MAP”) infections inCrohn’s disease. 38 Table of ContentsTo date, Crohn’s disease has been considered an autoimmune disease, but the exact pathological mechanism is unclear. Dr.Robert J. Greenstein suggested in The Lancet Infectious Diseases, 2003 that Crohn’s disease is caused by MAP, the sameorganism responsible for a major cause of disease in animal agriculture production, domestic and wild animals. Thishypothesis is supported by an expanding number of scienti(cid:69)ic and clinical studies published in peer-reviewed journalssince a National Institute of Allergy and Infectious Diseases conference that focused on MAP in Crohn’s disease took placein 1998. Speci(cid:69)ic genetic loci like NOD2 have been implicated in the pathogenesis of Crohn’s disease with mutations inNOD2 suspected of leading to defective recognition of MAP and increased compensatory immune activation in patientswith Crohn’s disease. Recent advances in diagnostic technology have led to increasingly higher identi(cid:69)ication of MAP, withstudies, such as Bull TJ et al. J Clin Microbiol, 2003 and Shafran I et al. Dig Dis Sci, 2002, demonstrating high prevalence ofMAP in Crohn’s disease patients. However, there is currently no FDA-approved commercial diagnostic test for MAP. In 2011, we obtained FDA “Orphan Drug” status for RHB-104 for the treatment of Crohn’s disease in the pediatricpopulation. See “Item 4. Information on the Company – B. Business Overview – Government Regulations and Funding –Orphan Drug Designation.” The formulation for RHB-104 is presently complete and manufacturing of the all-in-one capsules for our clinical trials iscurrently in process. Stability testing of the clinical trial material is ongoing. We acquired the rights to RHB-104 pursuant to an asset purchase agreement with Giaconda Limited, a publicly tradedAustralian company. See “Item 4. Information on the Company – B. Business Overview – Acquisition and LicenseAgreements – Acquisition of RHB-104, RHB-105 and RHB-106.” A diagnostic technology enabling the identi(cid:69)ication of the presence of MAP bacterial DNA in patients was developed andpatented by Professor Saleh Naser of the University of Central Florida in Orlando. On September 15, 2011, we entered intoan agreement with the University of Central Florida Research Foundation, Inc. (“UCF”), pursuant to which we acquired theexclusive rights in this patented diagnostic test. See “Item 4. Information on the Company – B. Business Overview –Acquisition and License Agreements – License Agreement related to RHB-104.” On February 12, 2012, we entered into an agreement with Q Squared Solutions LLC (f/k/a Quest Diagnostics Ltd.) (“QSquared”) to develop a commercial diagnostic test for detecting the presence of MAP bacterial DNA in the blood basedupon the rights we acquired from UCF. Additional intellectual property covering other aspects of MAP detection waslicensed from the University of Minnesota in December 2014 in order to potentially enhance our ability to detect MAP. OnJanuary 29, 2015, we announced that, together with Q Squared, we concluded a pre-submission meeting with the FDAregarding the development path of a commercial companion diagnostic test for the detection of MAP in Crohn’s diseasepatients. We reported in October 2016 the results from the MAP diagnostic development program, including an initial validation ofour platform PCR (polymerase chain reaction) detection methodology licensed from UCF and developed by Professor SalehA. Naser, a leading investigator in the (cid:69)ield of Mycobacterium avium subspecies paratuberculosis (MAP) and its associationwith Crohn’s disease. Further testing of the methodology at three different U.S. laboratories has successfully identi(cid:69)iedMAP DNA in blood samples drawn from patients with Crohn’s disease, including a test in collaboration with the BaylorCollege of Medicine intended to further advance the development of a companion diagnostic for MAP. Furtheroptimization of the processes for rapid detection of MAP is currently in progress. We believe that ensuring that any futurecommercial test is accurate and reproducible is critical to the successful development of a companion diagnostic. Competition and Market According to GlobalData, a provider of market intelligence for the pharmaceutical sector, there were approximately 1.39million prevalent cases of Crohn's disease in the 10 major markets in 2016. This number of prevalent cases is expected toincrease to 1.48 million by 2022. According to a report by EvaluatePharma, a leading market intelligence and information resource, the market of drugtreatments for Crohn’s disease was estimated to exceed $7.6 billion worldwide in 2016. The report also estimates that theworldwide market for drug treatment of Crohn’s disease will exceed $8 billion in 2017. 39 Table of ContentsTherapeutic interventions in Crohn’s disease patients are based on the disease location, severity and associatedcomplications. Therapeutic approaches for the treatment of Crohn’s disease are individualized according to the patient’ssymptomatic response and tolerance to the prescribed treatment. Since the existing treatments are not curative, the currenttherapeutic approaches are sequential and involve treatment of an acute disease or inducing clinical remission throughmucosal healing, followed by maintenance of the response or remission to improve the patient’s quality of life. Currently available drugs on the market for the treatment of Crohn’s disease offer only symptomatic relief, the effects ofwhich are largely temporary or partial and are accompanied by numerous adverse effects. The most commonly prescribeddrugs for treatment of Crohn’s disease include 5 Aminosalicylates (5-ASA, such as mesalamine), corticosteroids (such asprednisone), immunosuppressant drugs (such as azathioprine and methotrexate) and biologic agents, including TNF-αinhibitors (such as Remicade, Humira and Cimzia), an integrin inhibitor (Tysabri, Entyvio) and an IL 12 and IL23inhibitor (Stelara). Unlike drugs currently on the market for the treatment of Crohn’s disease which are immunosuppressive agents, RHB-104is intended to address the suspected cause of the disease - MAP bacterial infection. To the best of our knowledge, there areno drugs approved for marketing that target infections caused by MAP bacteria in Crohn’s disease patients. We may also be exposed to potentially competitive products which may be under development to treat Crohn’s disease,including new anti-TNFα, biological and other new therapies. Additionally, a clinical trial is being conducted by Valeantwith the antibiotic rifaximin (Xifaxan) for the treatment of Crohn’s disease. Clinical Development A Phase III clinical trial for RHB-104 was conducted in Australia, sponsored by Pharmacia, a Swedish company (whichmerged with P(cid:69)izer), with the primary objective of evaluating the ratio of patients with recurrent symptoms of Crohn’sdisease following the initial induction of remission with 16 weeks of treatment. Subjects were subsequently assessed at52, 104 and 156 weeks. The main secondary objective was the percentage of patients who achieved clinical remission at16 weeks. The results of the trial were published by Professor Warwick Selby et al. in 2007 in the medical journalGastroenterology. Although the study did not meet the main objective of showing a difference in relapse rate with long-term treatment, there was a statistically signi(cid:69)icant difference between the treatment groups in the percentage of subjects inremission at week 16. Professor Marcel Behr and Professor James Hanley from McGill University published a re-analysisof the study in The Lancet Infectious Diseases in June 2008, based on the intent-to-treat (ITT) principle and found that therewas a signi(cid:69)icant statistical advantage for the active therapy over the placebo throughout the period of administration thatdisappeared once the active therapy was discontinued. In October 2012, we entered into an agreement with our Canadian service provider which, in turn, entered into a back-to-back agreement with a Canadian manufacturer to complete the manufacturing and supply of RHB-104 for our clinical trials.In addition, we entered into additional manufacturing agreements directly with the Canadian manufacturer. In June 2011, we entered into an agreement with our Canadian service provider which entered into a back-to-backagreement with PharmaNet Canada Inc. for the provision of clinical trial services for the RHB-104 adult studies in NorthAmerica and Europe. PharmaNet was subsequently acquired by inVentiv Health and our agreements were transferred toinVentiv. See “– Master Service Agreement with 7810962 Canada Inc. and see also "Clinical Services Agreement – ClinicalServices Agreement related to RHB-104." Subsequent to our discussions with the FDA for approval to conduct the North American trial based upon an InvestigativeNew Drug (IND) approved by the FDA on July 18, 2007, we made a number of changes to the original protocol. On August29, 2012, we revised the IND (cid:69)iled by Giaconda with the submission of a new Phase III protocol to the FDA, and after 30days, the IND became effective. Based upon the response from the FDA on issues relating to the clinical study, additionalchanges have been made, and will be made, to the clinical study in North America, Israel, and other countries. Furtheramendments to the protocol were submitted to the FDA in 2014 and 2016 responding to recommendations from theinvestigators, and in order to expedite recruitment in the study. In October 2013, we commenced a randomized, double-blind, placebo-controlled (cid:69)irst Phase III clinical trial in NorthAmerica, Europe, Israel, Australia and New Zealand, and other countries with RHB-104 (“MAP US”), based on the analysisand data from a Phase III trial conducted in Australia with the RHB-104 active ingredients in a different formulation. TheMAP US study is ongoing and is expected to enroll 410 patients with moderately to severely active40 ®®®®®®®Table of ContentsCrohn’s disease at up to 150 clinical sites in the U.S., Canada, Europe, Israel, Australia and New Zealand. Patients arerandomized 1:1 to receive either RHB-104 or a placebo for 52 weeks and are evaluated for the primary endpoint ofremission (Crohn’s disease active index (“CDAI”) <150) at week 26 of treatment. In February 2017, we entered into an agreement with our Canadian service provider which entered into a back-to-backagreement with inVentiv Health for the provision of clinical trial services for an RHB-104 open-label extension study thatwould allow patients who complete 26 weeks of study drug administration and remain out of remission (CDAI>150) theopportunity to receive treatment with RHB-104 for a 52-week period. Following a pre-planned review of safety data, an independent interim Data and Safety Monitoring Board (DSMB)unanimously recommended in December 2016 that the MAP US study continue as planned, without any modi(cid:69)ications.Two additional DSMB meetings are planned to take place after 50% and after 75% of the 410 patients planned to beenrolled in the study complete the 26 weeks of study participation. Over half of the patients have already been enrolled inthe MAP US study, with the 205 patient enrolled in August 2016. As a result, we expect the second independent DSMBmeeting to be held in the second quarter of 2017, after the (cid:69)irst 205 patients complete 26 weeks of study participation. Thesecond DSMB meeting will include safety and interim ef(cid:69)icacy analysis and will evaluate the option of an early stop forsuccess, according to a pre-speci(cid:69)ied statistical signi(cid:69)icance threshold for analysis requiring overwhelming ef(cid:69)icacy ofRHB-104 versus placebo in the primary endpoint (two sided p-value <0.003). Assuming that the study is not stopped earlyfor success or inef(cid:69)icacy following the second DSMB meeting, we expect to complete the recruitment of all 410 subjectsplanned to enroll for the study by the end of 2017. Additional studies will be required to support a U.S. NDA for RHB-104. We also plan to initiate two additional ex-U.S. small-scale open-label clinical studies with RHB-104, each with up to 20Crohn’s disease patients, to provide additional supportive clinical data for potential future marketing applications, as wellas to evaluate RHB-104’s ef(cid:69)icacy in newly diagnosed and treatment-naïve Crohn’s disease patients and as an add-ontherapy to current standard of care. 41 thTable of ContentsThe following chart summarizes the clinical trial history and status of RHB-104 and its earlier individual active agents: Clinical trialauthor/designnation Developmentphase of theclinical trial Purpose of theclinical trial Clinicaltrial site Plannednumber of subjects ofthe trial Nature andstatus ofthe trial ScheduleBorody 2002 Phase IIa Examining the effect ofthe treatment onCrohn’s disease patients Center forDigestiveDisease,Australia 12 Performed Completed in 2002Borody 2005 Phase II Examining the effect ofthe treatment onCrohn’s disease patients Center forDigestiveDisease,Australia 52 Performed Completed in 2005Selby Phase III Examining the effect ofthe treatment with theproduct on Crohn’sdisease patients 20 clinicalcenters inAustralia 213 The trial wasperformedand indicatedpromisingimprovementrates,although itdid not meetthe main trialobjective, asdefined Published in 2007Biovail PK study2007 PK Study Optimize theformulation of RHB-104on a PK basis Toronto,Ontario 24 Trialcompared twoformulationsto determinethe optimumformulationfor RHB-104 Completed in 2007MAP US Phase III Assess the safety andefficacy of RHB-104 inCrohn’s disease patients U.S.,Canada.Israel,Australia,NewZealandand Europe 410 Phase III trialin NorthAmerica,Israel, andothercountries hascommenced First patiententered study inQ3 2013Food Effect Study PK Study Determine the effectof foodon the bioavailability ofRHB-104 in healthyvolunteers AlgorithmePharma,Canada 84 Completed Completed in 2014Drug-Drug InteractionStudy PK Study To assess the net PKeffect of multiple dosesof RHB-104 on CYP3A4enzymes in healthyvolunteers AlgorithmePharma,Canada 36 Ended Ended in 2014 We cannot predict with certainty our development costs, and such costs may be subject to change. See “Item 3. KeyInformation – D. Risk Factors – Risks Related to Our Financial Condition and Capital Requirements.” Multiple Sclerosis (“MS”) MS is an in(cid:69)lammatory, demyelinating, and neurodegenerative disease of the central nervous system of uncertain etiologythat exhibits characteristics of both infectious and autoimmune pathology. There is a growing consensus in the medicalcommunity that a dysregulated immune system plays a critical role in the pathogenesis of MS.42 Table of Contents Clinical Development We have performed several preclinical studies, including studies in an experimental autoimmune encephalomyelitis (EAE)mouse model of MS, to investigate the potential impact of RHB-104 in treating MS. The (cid:69)irst preclinical study measuredcytokine production (biomarkers of in(cid:69)lammation) and demonstrated that the RHB-104 treatment led to a signi(cid:69)icantreduction of pro-in(cid:69)lammatory cytokine concentrations of IL-6 and TNF, which are associated with in(cid:69)lammation and MS,compared to the control group. The second preclinical study measured the ef(cid:69)icacy of RHB-104 as prophylactic therapy,and the treatment with RHB-104 demonstrated a signi(cid:69)icant reduction in the in(cid:69)lammatory area and level of demyelination,compared with the control group. The third preclinical study measured relapses, demonstrating RHB-104’s ef(cid:69)icacy insignificantly reducing the incidence of relapse compared with the control group. Following these preclinical studies, in June 2013, we initiated a Phase IIa proof-of-concept study with RHB-104 forrelapsing remitting multiple sclerosis (“RRMS”) (the “CEASE MS” study) at two clinical sites in Israel. The study wascompleted, and the top-line (cid:69)inal results (48 weeks) were announced in December 2016. The top-line (cid:69)inal results (48weeks) were consistent with the interim results (24 weeks) suggesting meaningful positive safety and clinical signalsupon 24 weeks of treatment with RHB-104 as an add-on therapy, including an encouraging relapse-free rate, ExpandedDisability Status Scale scores and MRI results, which support further clinical development. The following chart summarizes the development history and status of RHB-104-MS: Trial name Developmentphase Purpose ofthe trial Clinicaltrial sites Plannednumber ofsubjects of the trial Nature andstatus ofthe trial ScheduleEAE Mouse T-cellFunction Study Pre-Clinical Measure cytokineproduction as ameasure ofinflammation inEAE mice treatedwith RHB-104 vs.negative controls - Completed2012EAE ProphylaxisStudy Pre-Clinical Scoring EAEseverity in micetreatedprophylacticallywith RHB-104 vs.negative controls - Completed2012EAE Relapse Study Pre-Clinical Scoring EAEseverity in micetreated with RHB-104 vs. negativeand positivecontrols - Completed2012Lipopolysaccharide(LPS)-inducedcytokine productionstudy Pre-Clinical Measure LPSinduced cytokineproduction inC57BL/6 micetreated with RHB-104 vs. negativeandpositive controls - Completed2013CEASE-MS Phase IIa Proof of conceptstudy to assess thesafety and efficacyof RHB-104 inRRMS Israel 18 Completed Completed2016. Final top-line resultsannounced inDecember2016 Additional trials will be required as part of the RHB-104 MS global development program and regulatory strategy. We cannot predict with certainty our development costs, and such costs may be subject to change. See “Item 3. KeyInformation – D. Risk Factors – Risks Related to Our Financial Condition and Capital Requirements.” 43 Table of ContentsNontuberculous Mycobacteria Infections In January 2017, RedHill announced that RHB-104 had been granted Quali(cid:69)ied Infectious Disease Product (“QIDP”)designation by the FDA for the treatment of Nontuberculous Mycobacteria (“NTM”) infections. RedHill plans to consultwith the FDA regarding the RHB-104 development program for NTM infections. BEKINDA (RHB-102) BEKINDA is a once-daily bi-modal extended release oral formulation of ondansetron, a leading member of the family of 5-HT3 serotonin receptor inhibitors. We are developing BEKINDA with two dosages: 24 mg and 12 mg. BEKINDA is underdevelopment for the intended use in the following indications, which are novel indications for ondansetron targeting largepotential markets: 1)Acute gastroenteritis and gastritis - 24 mg strength 2)Irritable Bowel Syndrome with Diarrhea (IBS-D) - 12 mg strength RedHill is also exploring the development of BEKINDA 24 mg for the oncology support indications of chemotherapy andradiotherapy-induced nausea and vomiting in Europe. This is an existing indication for ondansetron targeting a smallerpotential market. This program is currently on hold given the focus on the gastroenteritis and IBS-D programs. BEKINDA utilizes a technology called CDT that uses salts to provide an extended release of ondansetron. The CDTplatform enables extended drug release (i.e., measured rate of introduction of active drug) at a relatively lowmanufacturing cost. In March 2014, we entered into a License Agreement with Temple University to secure direct rights to patents related toBEKINDA. Previously, these rights were licensed to us from SCOLR, which announced that they had ceased businessoperations in 2013. See “Item 4. Information on the Company – B. Business Overview – Acquisition and LicenseAgreements – License Agreement for BEKINDA”. Acute Gastroenteritis and Gastritis Acute gastroenteritis and gastritis both involve in(cid:69)lammation of the mucus membranes of the GI tract. Symptoms ofgastroenteritis and gastritis include nausea, vomiting, diarrhea and abdominal pain. Acute gastroenteritis and gastritis area major cause of emergency room visits, particularly for pediatrics. If approved, BEKINDA could potentially decrease thenumber of emergency room visits of patients suffering from acute gastroenteritis and gastritis by offering them an effectiveand long-lasting treatment which can be taken in the comfort of their home. Competition and Market A single dose of BEKINDA is intended to treat nausea and vomiting over a time window of approximately 24 hours. Thisis potentially advantageous for acute gastroenteritis and gastritis patients as it is intended to provide them with relief fromnausea and vomiting symptoms for a full 24-hour period with a single oral tablet, thus avoiding the need to take additionaldrugs (tablets) during the day or receiving intravenously administered drugs. BEKINDA could also potentially reduce theburden on health systems by reducing visits to emergency departments. If BEKINDA is approved for the treatment of acute gastroenteritis and gastritis, it could potentially hold substantialadvantages over existing treatments. To the best of our knowledge, if approved, BEKINDA will be the (cid:69)irst 5-HT3serotonin receptor inhibitor indicated for the treatment of acute gastroenteritis and gastritis in the U.S. If approved,BEKINDA could be prescribed by primary care physicians to patients early on, potentially preventing emergency roomvisits, dehydration and the need to provide IV fluids. BEKINDA is targeting an annual potential worldwide market for acute gastroenteritis and gastritis treatment estimated toexceed $650 million, based on Graves S. Nancy, Acute Gastroenteritis, Prim Care Clin Of(cid:69)ice Pract 40 (2013) 727–741 andour analysis. 44 ®®®®®®®®®®®®®®®®®Table of ContentsTo the best of our knowledge, there are no other 5-HT3 serotonin receptor inhibitors indicated or in the clinical stage ofdevelopment in the U.S. for this indication. Patients presenting at hospitals with gastroenteritis and gastritis are oftentreated primarily in IV administration with antiemetic drugs not indicated or approved for this condition, off label,including 5-HT3 serotonin receptor inhibitors. To the best of our knowledge, a product that potentially directly competes with BEKINDA is EUR-1025 for controlledrelease of ondansetron, based on a different technology of controlled release originally developed by Eurand N.V. (nowowned by Adare Pharmaceuticals, Inc.). According to Eurand N.V.’s press release from March 4, 2010, Eurand N.V.completed two pivotal pharmacokinetic studies of EUR-1025 intended to establish the bioequivalence of EUR-1025 versusZofran (ondansetron hydrochloride). To the best of our knowledge, EUR-1025 was being developed for the indication ofpostoperative-induced nausea and vomiting, for which Zofran and generic ondansetron were already approved, andaccording to Eurand N.V.’s press release, a Phase III study was planned to be conducted in this indication. To the best ofour knowledge, the Phase III study was not initiated and there has not been further clinical development of EUR-1025 sincethe completion of the above-mentioned pharmacokinetic studies. Clinical Development We are conducting a randomized, double-blind, placebo-controlled, parallel group Phase III study (the “GUARD study”) at29 clinical sites in the U.S. We completed enrollment for the study in February 2017. Three hundred twenty (320) adultsand children over the age of 12 were treated in the GUARD study. Patients were randomized to receive either BEKINDA ora placebo. The primary endpoint for the study is the absence of vomiting and the need for rescue medications orintravenous hydration after 30 minutes and through 24 hours after the (cid:69)irst dose of the study drug. Secondary endpointsinclude, among others, frequency of vomiting, severity and time to resolution of nausea and time to resumption of normalactivities. We implemented a protocol amendment to the ongoing GUARD study to increase the safety data collected so thatthe study results may support a potential NDA (cid:69)iling, as recommended by the FDA. We expect to receive top-line resultsfrom the GUARD study in the second quarter of 2017. Following prior discussions with the FDA, the GUARD study isintended to support potential future submissions of marketing applications in the U.S. for this indication. The lead investigator for the Phase III study is Dr. Robert A. Silverman, MD, MS, Associate Professor at the Hofstra NorthShore-LIJ School of Medicine and an emergency medicine specialist. Clinical trialname Developmentphase of theclinical trial Purpose of theclinical trial Clinicaltrial site Plannednumber ofsubjectsof the trial Nature andstatus ofthe trial ScheduleGUARD Study Phase III Randomizeddouble blindplacebo-controlled PhaseIII study in acutegastroenteritisand gastritis 29 sites in theU.S. 320 Evaluating thesafety andefficacy ofBEKINDA inacutegastroenteritisand gastritis Top-linedataexpected inQ2 2017 We cannot predict with certainty our development costs, and such costs may be subject to changes. See “Item 3. KeyInformation – D. Risk Factors – Risks Related to Our Financial Condition and Capital Requirements.” Irritable Bowel Syndrome with Diarrhea (IBS-D) Irritable bowel syndrome (IBS) is a multifactorial disorder marked by recurrent abdominal pain or discomfort and alteredbowel function. Certain factors that alter GI function can contribute to IBS symptoms, including stress, priorgastroenteritis, and changes in the gut microbiome, bile acids and short-chain fatty acids, which may stimulate 5-HT3serotonin release and increase colonic permeability and motility. (Source: http://www.mayoclinic.org/medical-professionals/clinical-updates/digestive-diseases/better-agents-needed-irritable-bowel-syndrome-diarrhea). In preliminary studies, ondansetron has demonstrated activity in IBS-D (Garsed K, Chernova J, Hastings M, et al. GutPublished Online First December 12, 2013). Unlike alosetron (a currently approved 5-HT3 antagonist in IBS-D),ondansetron has not been noted to cause ischemic colitis (FDA labeling for Lotronex (alosetron), 2010; FDA labeling forZofran (ondansetron), 2014).45 ®®®®®®®Table of Contents BEKINDA is a bimodal release formulation of ondansetron. It provides an initial release similar to immediate releaseondansetron and then extended release over 24 hours. In light of the activity of ondansetron demonstrated in thepreliminary studies described above, and because of its extended release properties and once daily dosing, we believe it isa promising candidate for treatment of IBS-D. Competition and Market IBS is one of the most common GI disorders, and IBS-D is the most common subtype of IBS in the U.S., according to areport by GlobalData. According to reports by Saito YA. et al published in 2002 in The American Journal of Gastroenterology and by Lovell RM etal., published in 2012 in Clinical Gastroenterology and Hepatology, it is estimated that at least 30 million Americans maysuffer from IBS. According to GlobalData, approximately 40% of the cases of IBS worldwide are of the IBS-D subtype. According to a report from EvaluatePharma, the U.S. potential market for IBS-D treatments is estimated to reachapproximately $830 million in 2017 and exceed $1 billion in 2018. To the best of our knowledge, there is one other 5-HT3 serotonin receptor inhibitor indicated for this indication in the U.S.– alosetron (currently marketed under the brand name Lotronex by Sebela Pharmaceuticals and generic versionsmarketed by Actavis plc, West-Ward and Amneal Pharmaceuticals). However, alosetron is approved only for the treatmentof IBS in women with severe chronic IBS-D and is under a restricted prescribing program due to potential severe sideeffects. The active ingredient in BEKINDA, ondansetron, is approved by the U.S. FDA as an oncology support antiemeticand has a good safety pro(cid:69)ile. Therefore, we believe that BEKINDA, if approved for the treatment of IBS-D in the U.S., mayprovide improved safety while maintaining ef(cid:69)icacy, for broader use in the treatment of IBS-D and has the potential to bethe preferred 5-HT3 serotonin receptor inhibitor treatment for patients suffering from IBS-D. According to GlobalData, theU.S. sales of Lotronex were approximately $60 million in 2016. Ramosetron, another 5-HT3 serotonin receptor inhibitor,is marketed by Astellas Pharma Inc. under the brand name Irribow for the treatment of IBS-D in Japan and South Korea, forchemotherapy -induced nausea and vomiting in Japan, South Korea and China, and for and postoperative nausea andvomiting in South Korea. To the best of our knowledge, there is currently no clinical development of ramosetron formarketing approval in the U.S. for any indication. To the best of our knowledge, one of the main competitors of BEKINDA for the treatment of IBS-D is Xifaxan (rifaximin),marketed in the U.S. by Valeant. Xifaxanis an antibiotic treatment that was approved for the treatment of IBS-D in 2015.Xifaxan is also approved in the U.S. for the treatment of hepatic encephalopathy and traveler's diarrhea. According to areport by GlobalData, it is believed that Xifaxan exerts its therapeutic effects in patients with IBS by treating intestinalbacteria overgrowth. In the treatment of IBS-D patients, Xifaxan is administered orally at a dose of 550 mg three timesdaily for two weeks. According to a GlobalData analysis, due to the chronic nature of IBS, physicians may have safetyconcerns associated with the long-term use of antibiotics, such as the induction of antibiotic resistance and imbalance inthe intestinal (cid:69)lora. According to a report by EvaluatePharma, the worldwide annual sales of Xifaxan for the treatment ofIBS are estimated to exceed $920 million by 2020. Viberzi (eluxadoline) is another drug for the treatment of IBS-D approved by the FDA in 2015. Viberzi is a locally-actingmu-opioid receptor agonist and a delta-opioid receptor antagonist marketed in the U.S. by Ironwood Pharmaceuticals andAllergan plc. According to EvaluatePharma, the worldwide sales of Viberzi are estimated to reach $470 million in 2020. Donnatal (Phenobarbital, Hyoscyamine Sulfate, Atropine Sulfate, Scopolamine Hydrobromide) is also used as a treatmentfor IBS and included in the FDA DESI review program, although it is not approved by the FDA. In December 2016, we weregranted certain rights to promote Donnatal (tablets and elixir) in the U.S. pursuant to an exclusive Co-PromotionAgreement with Concordia. Clinical Development We are conducting a randomized, double-blind, placebo-controlled, Phase II study to evaluate the safety and ef(cid:69)icacy ofBEKINDA 12 mg in patients with IBS-D. The study is expected to enroll 120 adults over the age of 18 who suffer from46 ®®®®®®®®® ®®®®®®®®®®Table of ContentsIBS-D in up to 16 clinical sites in the U.S. Patients are randomized to receive either BEKINDA 12 mg once daily or aplacebo. Top-line results are expected in mid-2017. The primary endpoint for the trial is the proportion of patients in each treatment group with response in stool consistencyon study drug as compared to baseline. Response is de(cid:69)ined as per FDA guidelines for the indication. Additional endpointswill be analyzed including: ·Proportion of patients in each treatment group who are pain responders, per FDA guidance definition·Proportion of patients in each treatment group who are overall responders, per FDA guidance definition·Differences between treatment groups in: oAbdominal painoAbdominal discomfortoFrequency of defecationoIncidence and severity of adverse events Clinical trialname Developmentphase of theclinical trial Purpose of theclinical trial Clinicaltrial site Plannednumber ofsubjectsof the trial Nature andstatus ofthe trial Schedule- Phase II Randomizeddouble blindplacebo-controlled PhaseII study in IBS-D Up to 16 sites inthe U.S. Up to 120 Evaluating thesafety andefficacy ofBEKINDA 12 mgin IBS-D Top-linedataexpected inmid-2017 We cannot predict with certainty our development costs and such costs may be subject to change. See “Item 3. KeyInformation – D. Risk Factors – Risks Related to Our Financial Condition and Capital Requirements. Oncology Support Clinical Development We completed two comparative bioavailability studies with BEKINDA 24 mg given once daily as compared to approvedregimens of Zofran 8 mg tablets given in multiple doses per day, a food-effect study and a comparative bioavailabilitystudy with BEKINDA 24 mg given once daily as compared to Zofran 16 mg suppository, which is approved in majorterritories in the EU. The following chart summarizes the PK trial history and status of BEKINDA: Clinical trialname Developmentphase of theclinical trial Purpose of theclinical trial Clinicaltrial site Number ofsubjectsof the trial Nature andstatus ofthe trial SchedulePK Program ComparativeBioavailability Five PK studieswith BEKINDA AlgorithmePharma, Canada 80 To supportmarketingapplications in EUand U.S. inoncology support Completedin 2016- ComparativeBioavailability ComparativeBioavailabilityof BEKINDA12 mg AlgorithmePharma, Canada 44 To supportmarketingapplications in EUin oncologysupport Completedin 2017 We submitted a Marketing Authorization Application (MAA) for BEKINDA 24 mg in Europe for chemotherapy andradiotherapy-induced nausea and vomiting in December 2014, which we subsequently decided to withdraw. We conductedanother comparative bioavailability study with BEKINDA 12 mg compared to Zofran 16 mg suppository and Zofran 8 mgbid regimens and concluded, subject to final clinical study report yet to be received, that bioequivalence of the two47 ®®®®®®®®® ®®®Table of Contentsapproved regimens is unlikely. Given the focus on the gastroenteritis and IBS-D programs, the oncology support programfor the EU is currently on hold. In the U.S., FDA feedback in 2015 indicated that clinical ef(cid:69)icacy data is required to support a U.S. NDA for BEKINDA foroncology support indications under the 505(b)(2) regulatory path. Further development for oncology support indicationswill be decided as data from the ongoing and planned efficacy studies with BEKINDA for acute gastroenteritis and gastritisand IBS-D becomes available. We cannot predict with certainty our development costs, and such costs may be subject to changes. See “Item 3. KeyInformation – D. Risk Factors – Risks Related to Our Financial Condition and Capital Requirements.” RHB-106 RHB-106 is a tablet intended for the preparation and cleansing of the GI tract prior to the performance of abdominalprocedures, including diagnostic tests such as colonoscopy, barium enema or virtual colonoscopy, as well as surgicalinterventions, such as laparotomy. As noted above, we acquired the rights to RHB-106 pursuant to an agreement with Giaconda Limited. See “Item 4.Information on the Company – B. Business Overview – Acquisition and License Agreements – Acquisition of RHB-104,RHB-105 and RHB-106.” On February 27, 2014, we entered into a licensing agreement with Salix Pharmaceuticals, Ltd. (“Salix”), which was lateracquired by Valeant, pursuant to which Salix licensed the exclusive worldwide rights to our RHB-106 encapsulatedformulation for bowel preparation and rights to other purgative developments. Pursuant to this agreement, we received anupfront payment of $7 million and are entitled to an additional potential $5 million in subsequent milestone payments. Inaddition, as part of the terms of the agreement, Salix agreed to pay us tiered royalties on net sales of RHB-106, ranging fromthe low single-digits up to low double-digits. See “Item 4. Information on the Company – B. Business Overview –Acquisition and License Agreements – Exclusive License Agreement with Valeant Pharmaceuticals International, Inc.” Competition and Market According to a report by EvaluatePharma, the worldwide market of laxative products intended for cleansing the GI systemwas estimated at approximately $900 million in 2016 and is expected to exceed $1 billion in 2021. To the best of our knowledge, the main competitors of RHB-106 are GI cleansing products based on polyethylene glycol(PEG 3350). These products are delivered in the form of a water-soluble powder, and require users to drink between 2-4liters of solution before performance of the gastroenterological procedure. In addition to the need to drink considerableamounts of solution, a common side effect that raises dif(cid:69)iculties with users is the accompanying harsh and unpleasanttaste, leading to potential dif(cid:69)iculties with patient compliance. RHB-106 offers the potential for improved patientcompliance because it is tasteless and eliminates the need for drinking several liters of ill-(cid:69)lavored electrolyte solution.RHB-106 also potentially has an advantage compared to currently available tablet products in the (cid:69)ield in that it does notcontain sodium phosphate, an active ingredient linked with a risk of nephrotoxicity. An additional product, called PrepoPik in the U.S., is marketed by Ferring Pharmaceuticals and received FDA approval onJuly 17, 2012. The product, marketed under the name PicoPrep in other countries, is based on an active chemicalingredient called sodium picosulfate, the same active ingredient used in RHB-106. This product is intended to be used forclearing the GI system and it is given in the form of a water-soluble powder and requires drinking quantities of (cid:69)luids.Another product, called Suprep in the U.S., is marketed by BrainTree Laboratories Inc. and received FDA approval in 2010as an osmotic laxative indicated for cleansing of the colon in preparation for colonoscopy in adults. Suprep’s activeingredients include sodium sulfate, potassium sulfate and magnesium sulfate in oral solution, and it is administered as asplit-dose regimen (taken in the evening before and on the day of the colonoscopy). In August 2016 Perrigo Company Plcannounced tentative FDA approval of its generic version of Suprep; however, it has not begun marketing the genericversion of Suprep, and, to the best of our knowledge, no other generic version of Suprep is currently marketed in the U.S. Products administered in the form of tablets or capsules that were released on the market in the U.S., such as OsmoPrepand Visicol (marketed by Valeant), are based on a chemical substance called sodium phosphate. In December 2008, the48 ®®®®®®®®®® ®Table of ContentsFDA published a severe warning against the use of these products due to rare but severe side effects linked to kidneydamage. As a consequence of this development, the FDA required in 2008 that oral sodium phosphate products carry asevere warning (black box label). As announced by Salix (now Valeant), following the black box warning received from theFDA, sales in 2009 of these products declined by 39% compared to 2008. A leading product among the PEG 3350 family of products is MoviPrep, marketed by Valeant in the U.S. and by NorgineB.V. in Europe. It requires drinking about 2 liters of solution, and some users report it has an unpleasant taste. Thepotential advantage of RHB-106 over the current competitor products of the PEG 3350 type (such as MoviPrep), as well asover PicoPrep, is that it is administered in an oral tablet, permits the patient to drink any clear liquid with the product andspares the patient the exposure to the unpleasant taste that may accompany these products. RHB-106 also does not fallunder the black box warning against nephrotoxicity issued by the FDA in December 2008 with respect to currentlymarketed sodium phosphate capsule preparations. To the best of our knowledge, Norgine B.V. is also developing a new PEG-based bowel preparation oral solution namedPlenvu(NER1006), administered as a 2-day split dose regimen. According to Norgine B.V., Plenvu is being developed toprovide whole bowel cleansing, with an additional focus on the ascending colon. Norgine B.V. announced in October 2016that a third Phase III study of Plenvu met its primary endpoints. On August 8, 2016, Norgine B.V. announced that thecommercial rights to Plenvuin the U.S. and Canada were licensed to Valeant. Salix (now Valeant), which acquired a worldwide exclusive license to RHB-106 and other purgative developments from us,estimated in its 2014 Investor Day that the peak year revenue from their encapsulated bowel prep would reachapproximately $280 million. Clinical Development Following the acquisition of Salix by Valeant, we received con(cid:69)irmation, in July 2015, that Valeant is continuing thedevelopment of RHB-106. Clinicaltrial name Developmentphase of theclinical trial Purpose of theclinical trial Clinical site Number ofsubjects ofthe trial Nature andstatus ofthe trial Performanceschedule- Phase IIa Comparison ofthe product’seffectiveness andsafety with anexisting product Center forDigestiveDisease,Australia 60 Performed Completed in2005 YELIVA (ABC294640) YELIVA is a proprietary, (cid:69)irst-in-class, orally-administered SK2 selective inhibitor, with anti-in(cid:69)lammatory and anti-cancer activities, targeting multiple inflammatory, GI and oncology indications. YELIVA inhibits SK2, a lipid kinase that catalyzes formation of the lipid signaling molecule sphingosine 1-phosphate(“S1P”). S1P promotes cancer growth and proliferation and pathological in(cid:69)lammation, including TNFα signaling and otherin(cid:69)lammatory cytokine production. Speci(cid:69)ically, by inhibiting the SK2 enzyme, YELIVA blocks the synthesis of S1P whichregulates fundamental biological processes such as cell proliferation, migration, immune cell traf(cid:69)icking and angiogenesis,and is also involved in immune-modulation and suppression of innate immune responses from T cells. On March 31, 2015, we entered into an exclusive worldwide license agreement with Apogee Biotechnology Corporation(Apogee), pursuant to which Apogee granted us the exclusive worldwide development and commercialization rights toABC294640 (which we then renamed to YELIVA) and additional intellectual property for all indications. Under the termsof the agreement, we agreed to pay Apogee an upfront payment of $1.5 million, as well as $4 million in potential milestonepayments, and tiered royalties starting in the low double-digits. See “Item 4. Information on the Item 4. Information on theCompany – B. Business Overview – Acquisition and License Agreements – License Agreement for YELIVA”. 49 ®®®™ ™™™ ®®®®®®Table of ContentsCompetition and Market YELIVA, an orally-administered, (cid:69)irst-in-class SK2 inhibitor is being developed for several indications, including for thetreatment of refractory/relapsed diffused large B-cell lymphoma (“DLBCL”) and Kaposi sarcoma, for refractory or relapsedmultiple myeloma, for advanced hepatocellular carcinoma (“HCC”) and for radioprotection in head and neck cancerpatients undergoing therapeutic radiotherapy. Additional oncology and GI and in(cid:69)lammatory disease indications arecurrently being explored. DLBCL can affect any age group but occurs mostly in elderly people (average age is mid-60s). The most widely usedtreatment for DLBCL is chemotherapy, usually with a regimen of 4 drugs known as “CHOP” (cyclophosphamide,doxorubicin, vincristine, and prednisone), plus the monoclonal antibody rituximab (Rituxan). This regimen, known as R-CHOP, is most often given in cycles 3 weeks apart. According to the American Cancer Society, DLBCL is the most common subtype of non-Hodgkin’s lymphoma in the U.S.,accounting for an estimated 30% of the approximately 72,000 projected non-Hodgkin’s lymphoma cases to be diagnosed inthe U.S. in 2017. The total worldwide sales of DLBCL therapies are estimated at approximately $1.5 billion in 2017according to GlobalData. There are several drugs in late-stage clinical development for DLBCL. Kaposi sarcoma (“KS”) is a cancer that develops from the cells that line lymph or blood vessels, mostly commonlyappearing as tumors on the skin and on mucosal surfaces. Human herpesvirus-8 (“HHV-8”), also called Kaposi sarcomaherpesvirus (“KSHV”), is found in the lesions of all patients with Kaposi sarcoma. There are several types of KS, de(cid:69)ined bythe different populations it develops in. According to the American Cancer Society, the most common type of KS in the U.S.is epidemic or HIV-related KS, which develops in people infected with HIV. According to the American Cancer Society, KSoccurs at a rate of about 6 cases per million people each year; it is more common in men than in women and rarely seen inchildren. Treatment of KS is decided based on the patient’s immune system as well as the number, location, and size of theKS lesions, and may include local therapy, radiation, chemotherapy and treatment with biologic agents (immunotherapy). The American Cancer Society estimated that approximately 30,200 new cases of multiple myeloma will be diagnosed inthe U.S. in 2017 and approximately 12,500 deaths are expected to occur. The risk of multiple myeloma increases as peopleage. Standard treatment options for multiple myeloma include biological therapy, chemotherapy, corticosteroids, stem celltransplantation and radiation therapy. The total worldwide sales of multiple myeloma therapies were estimated to exceed$12 billion in 2016 according to GlobalData. There are several drugs in late-stage clinical development for multiplemyeloma. Hepatocellular carcinoma is the most common primary malignant cancer of the liver, accounting for approximately 85%of liver cancer cases, according to GlobalData. It is the second and sixth most frequent cause of cancer-related deathsworldwide in men and women, respectively. Annual worldwide incidence of liver cancer was estimated to have reached782,000 cases in 2012, with a mortality rate of 95%; the corresponding U.S. numbers are 30,000 and 80%, respectively,according to a 2012 report by the World Health Organization International Agency for Research on Cancer. Most patientswith HCC suffer from liver cirrhosis, which develops following long periods of chronic liver disease. The majority of HCCcases are associated with hepatitis B and hepatitis C virus infections. Few treatment options exist for patients diagnosed atan advanced stage, representing the majority of HCC patients. Sorafenib (Nexavar) is a targeted drug approved for thetreatment of HCC in patients who are not candidates for surgery and do not have severe cirrhosis. According to Globaldata,the worldwide market for the treatment of HCC is estimated to reach approximately $780 million in 2020. There areseveral drugs in late-stage clinical development for hepatocellular carcinoma. Radiation therapy can cause both acute and chronic side effects. The side effects that develop depend on, among otherthings, the area of the body being treated, the dose given per day, the total dose given, the patient’s general medicalcondition, and other treatments given at the same time. Acute side effects may include skin irritation or damage at regionsexposed to the radiation beams. The oral cavity is highly susceptible to direct and indirect toxic effects of cancerchemotherapy and ionizing radiation. According to a 2011 publication by Peterson DE et al., the incidence of World HealthOrganization grades 3 or 4 oral mucositis in patients receiving high-dose head and neck radiation (e.g. 60–70 Gy) to theoral cavity approaches 85%, but all treated patients have some degree of oral mucositis. There are currently limitedtherapeutic options to prevent oral mucositis in cancer patients undergoing radiotherapy. To the best of our knowledge,several drugs are currently in development for prevention of oral mucositis in cancer patients undergoing radiationtherapy. These development programs include Phase II clinical studies for IZN-6N4, an oral rinse developed by Izun50 ®®®Table of ContentsPharamaceuticals Corp., for GC-4419, a small molecule enzyme replacement developed by Galera Therapeutics, Inc. and forBrilacidin, a defensin-mimetic antibiotic developed by Cellceutix Corporation. To the best of our knowledge, there is only one other SK2 inhibitor being developed by SphynKx Therapeutics LLC(“SphynKx”). According to SphynKx’s website, SphynKx’s SK2 inhibitor program is targeting (cid:69)ibrosis and is currently inpre-clinical development stage of lead optimization. Clinical Development ABC-101: Advanced solid tumors A Phase I study, (cid:69)irst-in-man evaluation of YELIVA in advanced solid tumors was completed in the summer of 2015. Finalresults demonstrated that the study, conducted at the Medical University of South Carolina (MUSC), successfully met itsprimary and secondary endpoints, demonstrating that the compound is well tolerated and can be safely administered tocancer patients at doses predicted to have therapeutic activity. Twenty-one patients with advanced solid tumors were treated with YELIVA in the study, the majority of who were GIcancer patients, including pancreatic, colorectal and cholangiocarcinoma cancers. The study included the (cid:69)irst-ever longitudinal analysis of plasma S1P levels as a potential pharmacodynamic biomarkerfor activity of a sphingolipid-targeted drug. Administration of YELIVA resulted in a rapid and pronounced decrease inlevels of S1P with several patients having prolonged stabilization of disease. The study was supported by grants from the U.S. National Cancer Institute (NCI) awarded to MUSC Hollings Cancer Center,an NCI-Designated Cancer Center, and from the FDA Office of Orphan Products Development (OOPD) awarded to Apogee. ABC-102: Refractory/relapsed diffused large B-cell lymphoma (DLBCL) In June 2015, we initiated a Phase I/IIa study in the U.S. evaluating YELIVAin patients with refractory/relapsed DLBCL atthe Louisiana State University Health Sciences Center (LSUHSC) in New Orleans. In view of improving recruitmentprospects, the study was recently modified to include Kaposi sarcoma subjects. The study is intended to evaluate the safety and tolerability of YELIVA, as well as to provide a preliminary evaluation ofef(cid:69)icacy of the study drug in patients with refractory/relapsed DLBCL, primarily patients with HIV-related DLBCL and inpatients with Kaposi sarcoma. Up to 33 patients are expected to be enrolled in the study. The study is funded primarily by a grant awarded to Apogee bythe National Cancer Institute Small Business Technology Transfer program. Dr. Chris Parsons, MD, an associate professorin the Departments of Medicine and Microbiology, Immunology & Parasitology at LSUHSC, is the lead investigator for thestudy. ABC-103: Refractory or relapsed multiple myeloma A Phase Ib/II study with YELIVA for the treatment of refractory or relapsed multiple myeloma was initiated in the thirdquarter of in 2016. The study is being conducted at Duke University Medical Center and is planned to enroll up to 77patients. The study is funded primarily by a grant awarded by the NCI Small Business Innovation Research program,awarded to Apogee in conjunction with Duke University. The primary objectives of the (cid:69)irst portion of the study (Phase I) are to assess safety and determine the maximum tolerateddose in this group of patients. Secondary objectives include assessment of antitumor activity and determination of the PKand pharmacodynamic (PD) properties of YELIVAin refractory or relapsed multiple myeloma patients. The primary objectives of the second portion of the study (Phase II) are to assess the overall treatment response rate andoverall survival. Secondary objectives include evaluating the treatment response of YELIVA in patients with refractory orrelapsed multiple myeloma after three cycles of treatment and evaluation of pharmacodynamic markers. 51 ®®®® ®®® ®Table of ContentsABC-106: Advanced hepatocellular carcinoma A Phase II study to evaluate the ef(cid:69)icacy and safety of YELIVA as a second-line monotherapy in patients with advancedhepatocellular carcinoma (“HCC”) was initiated in the third quarter of 2016. The study is currently being conducted atMUSC and will include additional collaborating clinical sites. The study is planned to enroll up to 39 patients who haveexperienced tumor progression following treatment with first-line single-agent sorafenib (Nexavar). A U.S. NCI grant awarded to MUSC for a research program covering a variety of solid tumor cancers will partially supportthis study. The trial is additionally funded by us. ABC-104: Oncology support, radioprotectant. Prevention of radiation-associated mucositis in the treatment of head andneck cancer. A Phase Ib study is planned to evaluate YELIVA as a radioprotectant in head and neck cancer patients undergoingtherapeutic radiotherapy. We expect to initiate the study with YELIVA mid-2017. The primary objective of the study is to determine a recommended Phase II dose of YELIVA in combination with cisplatinchemoradiotherapy. The secondary objectives include determining PK properties of YELIVA (e.g., the effect of food andinteraction with cisplatin) and pharmacodynamic assessments by measuring plasma levels of various markers.Furthermore, severity of mucositis and quality of life will be assessed in placebo and YELIVAtreated patients to plan fora randomized placebo-controlled study. Following the successful Phase I study with YELIVA in patients with advanced solid tumors, and in light of thecompound’s novel mechanism of action, we are evaluating potential clinical studies in inflammatory indications. ABC-105: Ulcerative Colitis (“UC”) We plan to initiate a Phase II study in the second half of 2017 post-expanded toxicology studies. The primary objective ofthis study is to evaluate ef(cid:69)icacy of YELIVA in patients with moderate to severe UC by the proportion of patients who arein remission at the end of treatment. Secondary objectives include assessing pharmacodynamics and PKs of YELIVA inthis study population, as well as the safety in UC patients. 52 ®®®®®®® ®®®Table of ContentsThe following chart summarizes the clinical trial history andstatus of YELIVA: Clinical trialname Developmentphase of theclinical trial Purpose ofthe clinicaltrial Clinicaltrial site Plannednumber ofsubjects ofthe trial Nature andstatus ofthe trial ScheduleABC-101 Phase I Safety, PK andpharmacodynamicstudy in patientswith advanced solidtumors MedicalUniversity ofSouth Carolina,Charleston, U.S. 22 Completed. Top-line resultsindicate the studydrug is welltolerated and canbe safelyadministered tocancer patients Completedin 2015;final clinicalstudyreport in2016ABC-102 Phase I/IIa Safety andpreliminary efficacystudy in refractoryor relapsed DLBCL,including patientswith virus-induced(e.g., KSHV- or EBV-associated)lymphoma, orKaposi sarcoma Louisiana StateUniversity, NewOrleans, U.S. Up to 33 Study wasinitiated andrecently modifiedto increaserecruitmentprospects. Patientenrollment isanticipated Initiated Q22015ABC-103 Phase Ib/II Safety and efficacystudy in patientswith refractory orrelapsed multiplemyeloma that havepreviously beentreated withproteasomeinhibitors andimmunomodulatorydrugs Duke University,North Carolina,U.S. andcollaboratingsites(multicenter,U.S.) Up to 77 Study wasinitiated Initiated Q32016ABC-104 Phase Ib Safety and efficacystudy in theprevention ofmucositis incombination withradiotherapy fortreatment ofsquamous headand neck carcinoma Multicenterstudy across theU.S. Up to 32 Planned Mid-2017ABC-105 Phase II A study for thetreatment ofmoderate to severeulcerative colitis Multicenterstudy Up to 94 Planned ExpectedH2 2017ABC-106 Phase II A Safety andEfficacy Study inPatients withAdvancedHepatocellularCarcinoma WhoHave Progressed onSorafenib MedicalUniversity ofSouth Carolina,Charleston, U.S.A.andcollaboratingsites(Multicenter,U.S.) From 12 to 39 Study wasinitiated Initiated Q32016 We cannot predict with certainty our development costs, and such costs may be subject to changes. See “Item 3. KeyInformation – D. Risk Factors – Risks Related to Our Financial Condition and Capital Requirements.”53 ®Table of Contents MESUPRON MESUPRON (INN: upamostat) is a proprietary small molecule, (cid:69)irst-in-class, protease inhibitor administered by oralcapsule. MESUPRON has several potential mechanisms of action to inhibit tumor invasion and metastasis and it presents a newnon-cytotoxic approach to cancer therapy. As mentioned under “Item 4. Information on the Company – B. Business Overview – Acquisition and License Agreements –License Agreement for MESUPRON”, on June 30, 2014 we signed an exclusive license agreement for this oncologytherapeutic candidate. Under this agreement, we are responsible for all development, regulatory and commercialization ofMESUPRON in the entire world, excluding China, Taiwan, Macao and Hong Kong. Competition and Market MESUPRON is an orally-administered protease inhibitor with several potential mechanisms of action to inhibit tumorinvasion and metastasis and has been developed for the treatment of solid tumor cancers, including GI cancers, with thefocus on locally advanced non-metastatic pancreatic cancer. Pancreatic cancer is the fourth leading cause of cancer mortality in western countries. It is characterized as a disease withvery high unmet need in oncology. According to data from the National Cancer Institute, with approximately 53,000 newcases diagnosed in 2016 and approximately 41,000 deaths, pancreatic cancer is the 12 most common cancer in the U.S.and the third most common cause of cancer-related death. The overall (cid:69)ive-year survival rate for the disease is only 7.7%in the U.S., representing one of the poorest prognoses across the GI cancers. The total worldwide sales of pancreatic cancertherapies are estimated to reach approximately $1.6 billion in 2017, according to GlobalData. According to the same GlobalData report, the majority of pancreatic cancer cases are diagnosed late, at which point thedisease is already locally advanced or metastatic. Furthermore, pancreatic cancer is predominately a cancer of the elderly,with the median age of diagnosis being 71 years in the U.S. These factors result in a signi(cid:69)icant minority (approximately20%) of advanced patients being ineligible for chemotherapy treatment, who are managed with best supportive care. Pancreatic adenocarcinoma has some of the highest levels of unmet needs in the oncology space, which present manychallenges for physicians treating pancreatic cancer patients. Surgical resection remains the only curative method. Patientswho are classi(cid:69)ied as resectable (no regional or distant organ metastasis) are often treated by surgical intervention,depending on the location of the tumor within the pancreas. Patients with greater than Stage IIb disease are usually deemedunresectable. Of the unresectable group, the majority of locally-advanced patients are treated in the same manner asmetastatic patients - with treatment choices that are mainly dependent on their performance status. There are a number of drugs in late-stage clinical development for pancreatic cancer. There are several drugs in late-stageclinical development for pancreatic cancer. Clinical Development Several Phase I trials and two Phase II proof-of-concept trials have been completed with MESUPRON. The (cid:69)irst Phase II trialin locally advanced non-metastatic pancreatic cancer and the second trial in metastatic breast cancer established thetherapeutic candidate's safety and tolerability pro(cid:69)ile. The Phase II trials with MESUPRON in both indications failed todemonstrate signi(cid:69)icant improvement in either progression-free survival or overall survival. While response rates werearithmetically higher in patients receiving MESUPRON than in control patients, in no case did these differences approachclinical or statistical signi(cid:69)icance. A post hoc subgroup analysis of the breast cancer study suggested that a certainclinically-de(cid:69)ined subgroup may bene(cid:69)it from MESUPRON added to capecitabine, a standard single agent cytotoxic therapy.In the pancreatic cancer study, patients treated with the higher dose of MESUPRON, along with gemcitabine, had a threemonth longer median overall survival than those treated with gemcitabine alone, although the difference was notstatistically signi(cid:69)icant. The Phase II trials with MESUPRON were done with 227 randomized subjects, of which 95 subjectswere in the pancreatic cancer study and 132 subjects were in the metastatic breast cancer study. 54 thTable of ContentsNone of the prior studies used any molecular markers to target certain patient populations. Using technologies developedsince the original clinical trials were performed, we are currently performing several preclinical studies, includingbiomarker analysis and mechanism of action studies. Some of these studies were completed in 2016, while others are stillongoing. We expect that the (cid:69)indings from these studies can help us determine the patient populations to be studied insubsequent clinical trials. We are preparing a protocol for a Phase I/II study of the safety, ef(cid:69)icacy and dose evaluation ofMESUPRON in combination with chemotherapy in patients receiving adjuvant chemotherapy for resected pancreaticcancer. We anticipate the Phase I/II study to be initiated in up to 6 sites in Germany in the second half of 2017. In the third quarter of 2016, we initiated a manufacturing campaign for the preparation of MESUPRON. We cannot predict with certainty our development costs, and such costs may be subject to change. See “Item 3. KeyInformation – D. Risk Factors – Risks Related to Our Financial Condition and Capital Requirements.” RIZAPORT RIZAPORT is an oral thin (cid:69)ilm formulation of rizatriptan intended for the treatment of acute migraine headaches.Migraines are commonly treated with triptans, a class of molecules that narrow (constrict) blood vessels in the brain inorder to relieve swelling and other migraine symptoms. Examples of triptans include sumatriptan, zolmitriptan andrizatriptan, the API in RIZAPORT. RIZAPORT is based on a patented technology called “VersaFilm.” This technology allows the production of thin (cid:69)ilmstrips that dissolve rapidly in the mouth, allowing the drug to be absorbed through the oral mucosa and into thebloodstream. The proprietary VersaFilm technology is a novel, non-mucoadhesive, fast dissolving oral dosage form. The VersaFilm platform offers potential advantages that include fast absorption of the drug and the convenience of usecompared to conventional tablets. We acquired the rights to RIZAPORT under an August 26, 2010 joint development and commercialization agreement withIntelGenx Corp., pursuant to which we received a worldwide, exclusive and perpetual license to various patent rights andknow-how related to RIZAPORT. See “Item 4. Information on the Company – B. Business Overview – Acquisition andLicense Agreements – License Agreement for RIZAPORT”. Competition and Market To the best of our knowledge, the main competitors of RIZAPORT are oral drugs from the triptan family (5-HT 1B/1Dserotonin agonists), such as rizatriptan from Merck and Co., Inc., which is marketed in the U.S. under the name of Maxaltand in generic form since 2012, and sumatriptan, produced by GlaxoSmithKline and marketed in the U.S. as Imitrex and ingeneric form since 2009. According to a report from GlobalData, the prevalence of migraines in the U.S. is estimated toreach over 30 million cases in 2017. The triptan market, the target market for RIZAPORT, was estimated at approximately$593 million worldwide in 2016 according to EvaluatePharma. In December 2012, the patent on rizatriptan expired and, as of the date of this (cid:69)iling, there are various generic versions ofMaxalt and Maxalt MLT available for prescription. We believe that RIZAPORT could compare favorably to the other triptan drugs due to the fact that it is delivered throughoral dissolution, rather than through conventional tablets. This feature may be especially advantageous to patientssuffering dysphagia, and to patients who suffer from migraine-related nausea, which according to an article published byLipton RB et al. is estimated to affect 80% of all of total migraine population. We believe that RIZAPORT will also beadvantageous to patient populations such as geriatrics, who often struggle with swallowing capsules with water. Clinical Development In April 2012, we completed, together with our development partner IntelGenx Corp., a bioequivalence clinical study toexamine the PK equivalence between the soluble (cid:69)ilm of RIZAPORT and rizatriptan of Merck & Co. Inc. (Maxalt MLT),with 26 volunteers. The (cid:69)inal results of the clinical trial demonstrated that RIZAPORT met its speci(cid:69)ied endpoints and theFDA criteria in all parameters for bioequivalence with rizatriptan of Merck & Co. Inc. (Maxalt MLT). 55 ®®®®™™®®®®®®®®®®®®®®®Table of ContentsIn March 2013, together with IntelGenx Corp., we (cid:69)iled a NDA with the FDA for U.S. marketing approval under the 505(b)(2)regulatory path for RIZAPORT. On February 4, 2014, together with IntelGenx Corp., we announced the receipt of a complete response letter from the FDAindicating that certain matters would need to be addressed prior to obtaining approval for marketing. These matters relatedprimarily to third-party CMC issues, as well as to packaging and labeling of the (cid:69)ilm. The FDA’s letter did not raise anysafety issues or questions regarding the results of the clinical trials. On March 3, 2014, together with IntelGenx Corp., weresponded to the FDA’s complete response letter and in response, the FDA requested additional CMC data. In relation to theFDA response, we were also informed that a supplier of raw material for RIZAPORT was having compliance discussionswith the FDA that are not specific to RIZAPORT. In April 2014, together with IntelGenx Corp., we initiated a comparative bioavailability study with RIZAPORT and theEuropean reference drug Maxalt Lingua marketed in Germany by MSD Sharp & Dohme GMBH, based on a positiveEuropean Scienti(cid:69)ic Advice meeting with the German Federal Institute for Drugs and Medical Devices (BfArM) regardingRIZAPORT that took place in 2013. In May 2014, together with IntelGenx Corp., we announced the successful completionof the clinical trial that demonstrated bioequivalence based on the criteria discussed with BfArM. Based on the data from that trial, we submitted a MAA to BfArM, as the reference member state under the European MutualRecognition Procedure. In October 2015, BfArM informed us that the MAA had been approved. Approval from Luxembourgis anticipated in 2017. In July 2016, we, together with IntelGenx Corp., entered into an exclusive license agreement with Grupo JUSTE S.A.Q.F.,pursuant to which we granted Grupo JUSTE an exclusive license to commercialize RIZAPORT in Spain and a right of (cid:69)irstrefusal for the commercialization rights in certain additional territories. Under the terms of the agreement, we grantedGrupo JUSTE the exclusive rights to register and commercialize RIZAPORT in Spain and a right of (cid:69)irst refusal for apredetermined term for the territories of Belize, the Caribbean, Chile, Colombia, Costa Rica, Dominican Republic, ElSalvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, the Middle East and Morocco. An upfront payment was paidby Grupo JUSTE, and we and IntelGenx Corp. are entitled to receive additional milestone payments upon the achievement ofcertain prede(cid:69)ined regulatory and commercial targets, as well as tiered royalties. The initial term of the agreement is tenyears from the date of the (cid:69)irst commercial sale and will automatically renew for an additional two-year term. Commerciallaunch of RIZAPORT in Spain is expected to take place in the second half of 2017. In January 2017, Exeltis Healthcare, S.L.acquired from Grupo JUSTE S.A.Q.F. all activities of Grupo JUSTE S.A.Q.F. related to the pharmaceutical business. In the third quarter of 2016, Grupo JUSTE filed an MAA for RIZAPORT to the Spanish regulatory authorities. On December 13, 2016, we, together with IntelGenx Corp., entered into an exclusive license agreement with PharmatronicCo. granting Pharmatronic Co. an exclusive license to commercialize RIZAPORT in the Republic of Korea (South Korea).Under the terms of the agreement, we and IntelGenx Corp. are entitled to receive an upfront payment and are entitled toreceive additional milestone payments upon the achievement of certain predetermined regulatory and commercial targets,as well as tiered royalties. The initial term of the agreement is ten years from the date of the (cid:69)irst commercial sale and willautomatically renew for an additional two-year term. Commercial launch of RIZAPORT in South Korea is expected to takeplace in the first quarter of 2019. Following the receipt of a complete response letter from the FDA, as announced on February 4, 2014, we, together withIntelGenx Corp., expect to re-submit the NDA for RIZAPORTto the FDA in the third quarter of 2017 and subsequentlyreceive a new Prescription Drug User Fee Act (PDUFA) date. 56 ®®®®®®®®®®®®® Table of ContentsThe following chart summarizes the clinical trial history and status of RIZAPORT: Clinical trialname Developmentphase of theclinical trial Purpose ofthe clinicaltrial Clinicaltrial site Numberof subjectsof the trial Nature andstatus of the trial SchedulePLT-008-09 Phase I PK comparisonwith a parallelproduct RA ChemPharma, India 10 The trial wasperformed andindicatedsimilaritybetween the PKprofile of thetherapeuticcandidate andthe profile of thereferenceproduct Completedin 2009RZA-P9-688 ComparativeBioequivalence PK comparisonwith MaxaltMLT AlgorithmePharma, Canada 26 Completed thestudydemonstratingbioequivalenceas defined by theFDA Completedin 2012RZA-P3-697 ComparativeBioequivalence PK comparisonwith MaxaltLingua AlgorithmePharma, Canada 26 Completed thestudydemonstratingbioequivalenceas defined by theEuropeanMedicinesAgency (“EMA”) Completedin 2014 Together with IntelGenx Corp., we are working diligently on a variety of options to ensure continued supply of the rawmaterial. We cannot predict with certainty our development costs and they may be subject to changes. See “Item 3. Key Information– D. Risk Factors – Risks Related to Our Financial Condition and Capital Requirements.” Donnatal Regulatory status In December 2016, we entered into the Co-Promotion Agreement with Concordia to promote Donnatal (Phenobarbital,Hycosamine Sulfate, Atropine Sulfate, Scopolamine Hydrobromide). The prescription drug product is sold in twoformulations: an immediate-release tablet and an immediate-release fast-acting liquid (tablets and elixir). Based on Concordia’s 2015 Annual Information Form, Concordia currently, markets its Donnatal products as the owner ofthe conditionally approved abbreviated NDA for Donnatal and as a party to the unresolved Notice of Opportunity Hearingfor anticholinergic and barbiturate combination drug products. Donnatal is included in the FDA DESI review program. TheDESI program was created, in part, to require the FDA to conduct a retrospective evaluation of the effectiveness of drugproducts that were approved as safe between 1938 and 1962 through the new drug approval process. According to the DESIprogram, drugs approved before October 10, 1962, were reviewed to evaluate whether there was substantial evidence oftheir effectiveness. When a review was completed, the FDA would issue a DESI notice describing the marketing conditionsfor the class of drug products covered by the notice. Donnatal has been approved for safety but not for ef(cid:69)icacy for its labeled uses. As a DESI drug, Donnatal is classi(cid:69)ied as“possibly effective” as an adjunctive therapy in the treatment of IBS (irritable colon, spastic colon, and mucous colitis)57 ®®®®®®®®®®Table of Contentsand acute enterocolitis. Donnatal may also be useful as adjunctive therapy in the treatment of duodenal ulcer. It has notbeen shown conclusively whether articholinergic/antispasmodic drugs aid in the healing of duodenal ulcers, decrease therate of recurrences or prevent complications. Donnatal slows the natural movements of the gut by relaxing the mucous inthe stomach and intestines and acts on the brain to produce a calming effect. The FDA has said that all products marketed as drugs under the DESI Program are new drugs, requiring FDA approval of anNDA or an abbreviated NDA for marketing. The agency has issued guidance that outlines its priorities for enforcementaction relating to a particular drug’s effect on public safety and other factors. The FDA has used enforcement discretionconcerning many DESI drugs, particularly where there is a pending hearing on a (cid:69)inal determination regarding ef(cid:69)icacy thathas not yet been made. There is a long and complicated regulatory history involving Donnatal, but currently there is anopen hearing request for anticholinergic and barbiturate combination drug products, of which Donnatal is one. WhileConcordia is ultimately responsible for regulatory compliance as the application holder, if the FDA convenes a hearing andconcludes the product has not been shown to be effective, it may take enforcement action, including requiring Donnatal tobe removed from the market. Market and Competition According to reports by Saito YA. et al. published in 2002 in The American Journal of Gastroenterology and by Lovell RM etal., published in 2012 in Clinical Gastroenterology and Hepatology, it is estimated that at least 30 million Americans maysuffer from IBS. The U.S. potential market for IBS treatments is estimated by EvaluatePharma to exceed $2.4 billion by2018. According to Concordia International Corp. Investor Presentation from October 2016, Donnatal accounted for 7.7%of Concordia’s consolidated revenues in the first half of 2016. According to Medi-Span Price Rx Pro service, a third party is distributing an unapproved generic version of Donnatal inthe U.S. Concordia International Corp. reported in its third quarter 2016 Management’s Discussion and Analysis report(dated November 7, 2016) that it had commenced a lawsuit against the third party and its principal owner claimingdamages from such conduct. According to GlobalData, antispasmodic drugs, such as Donnatal, are commonly prescribed as (cid:69)irst-line therapies for IBSpatients. There are several competing antispasmodic drugs indicated for the treatment of IBS on the U.S. market, includingformulations of hyoscyamine sulfate, one of the active ingredients in Donnatal. Hyoscyamine sulfate is marketed ingeneric form and also under the brand names Levsin and Nulev (by Meda Pharmaceuticals Inc.). Another competing drugwhich includes both antispasmodic and a sedative activity, as Donnatal does, is a (cid:69)ixed-dose combination ofchlordiazepoxide and clidinium bromid marketed in generic form and under the brand name Librax (by Valeant). Anadditional competing anticholinergics/antispasmodics drug is dicyclomine hydrochloride, marketed in generic form andunder the brand name Bentyl (by Allergan Inc.). Additional competing drugs in the U.S. include Linzess (Ironwood Pharmaceutical Inc. and Allergan Inc.) and Amitiza(Takeda Pharmaceuticals U.S.A) which are used as second-line treatments in patients with IBS with constipation (“IBS-C”),and Xifaxan (Valeant), Viberzi (Ironwood Pharmaceutical Inc. and Allergan Inc.) and Lotronex (Sebela Pharmaceuticals)which are used as second or third-line therapies for patients with IBS-D. Antidepressants, mainly tricyclic antidepressantsand selective serotonin reuptake inhibitors, are also used as second or third-line treatments in patients with IBS. There areseveral drugs in late-stage clinical development for IBS. Termination of Rights in RP101 and RHB-101 RP101 On August 13, 2014, we entered into a binding exclusive option agreement with RESprotect GmbH, a German company,granting us an option to acquire the oncology therapeutic candidate RP101 and the next generation compounds. OnFebruary 23, 2017, we provided RESprotect a notice of termination of the option agreement, clarifying that we would notexercise or extend the option to acquire RP101 and thus terminated the exclusive option agreement for RP101. RHB-101 On November 18, 2009, we entered into an exclusive license agreement with Egalet a/s, a private Danish pharmaceuticalcompany, pursuant to which Egalet a/s granted us a worldwide, exclusive and perpetual license to a therapeutic candidate58 ®®®®®®®®®®®®®®®®®®®®Table of Contentscontaining the active ingredient “carvedilol”, named by us “RHB-101”. On January 23, 2017, we provided Egalet a/s anotice of termination of the exclusive license agreement for RHB-101. Acquisition and License Agreements Acquisition of RHB-104, RHB-105 and RHB-106 On August 11, 2010, we entered into an asset purchase agreement with Giaconda Limited, a publicly traded Australiancompany, pursuant to which Giaconda Limited transferred all of its patents, tangible assets, production (cid:69)iles, regulatoryapprovals and other data related to the “Myoconda”, “Heliconda” and “Picoconda” products to us. We renamed theseproducts RHB-104, RHB-105 and RHB-106, respectively. Giaconda Limited further transferred to us products in process,product samples and raw materials, as well as certain rights of (cid:69)irst refusal with respect to intellectual property in relationto digestive condition treatments. The agreement excluded the transfer of the rights to two products of Giaconda Limitedthat are not related to RHB-104, RHB-105 and RHB-106. However, to the extent that the intellectual property associatedwith these two other products may be required for the research, development, manufacture, registration, import/export,use, commercialization, distribution, sale or offer for sale of any of RHB-104, RHB-105 and RHB-106, Giaconda Limitedgranted us an exclusive worldwide assignable right to such intellectual property for such purposes. The closing of thistransaction occurred on August 26, 2010. We paid Giaconda Limited $500,000 in consideration for the assets purchased by us. We and Giaconda Limited also agreedthat until the expiration of the last patent transferred to us, we will pay to Giaconda Limited 7% of net sales from the saleof the products by us and 20% of the royalties received from sublicensees, in each case, only after we recoup the amountsand expenses exceeding an approved budget. Under the agreement, it was agreed that none of Giaconda Limited, the developer of the products, nor any of theirrespective af(cid:69)iliates may compete with us or assist others to compete with us with respect to the products and acquiredtechnology. Such non-compete undertaking will be in force for a period of time of up to 10 years from the date of theagreement. The agreement provides that, should we elect not to proceed with the registration proceedings or the maintenance of anypatent transferred to us, we will notify Giaconda Limited and Giaconda Limited will have the right to proceed with theregistration, maintenance, development and commercialization of such patent at its expense. Should Giaconda Limitedexercise such right, it will be entitled to all amounts received in connection with sales relating to such patent. The agreement also requires us to make a good faith, continuous and commercially reasonable effort to allocateappropriate (cid:69)inancial resources to prepare, initiate and complete the clinical development of the products (with theexception of Picoconda) and (cid:69)ile an application for regulatory marketing approval in accordance with industry standards.Development failures, negative regulatory decisions, or other reasons beyond our control will not constitute a breach ofthis obligation. Should we breach this obligation with respect to the development of any of the products, and fail to curethe breach within 90 days from the date that Giaconda Limited sends us a default notice, Giaconda Limited may buy backall of the intellectual property rights with respect to such product for the original purchase price, plus the relateddevelopment costs incurred by us through the date of the buy-back. In connection with the license agreement with Salix (later acquired by Valeant), dated February 27, 2014, described below,we amended the asset purchase agreement and related agreements by excluding from the non-compete undertakings ofGiaconda and certain of its af(cid:69)iliate products, technology and related activities in the purgative (cid:69)ield and excluded fromsuch non-compete undertakings certain of Giaconda's affiliates. License Agreement for BEKINDA In March 2014, we entered into a License Agreement with Temple University to directly secure rights to patents related toBEKINDA. Previously, these rights were licensed to us from SCOLR Pharma Inc. (“SCOLR”), which announced that theyhad ceased business operations in 2013. The agreement with Temple University replaced our previous license agreementwith SCOLR. SCOLR had itself licensed those patents from Temple University, the original owner of the patents. Under theagreement with Temple University, we will continue to develop its BEKINDA formulation and pursue commercializationoptions once relevant. 59 ®®®Table of ContentsLicense Agreement for YELIVA On March 31, 2015 we entered into an exclusive license agreement with Apogee, a privately-held biotech company locatedin Hummelstown, Pennsylvania, U.S., under which Apogee granted us the exclusive, world-wide development andcommercialization rights to ABC294640 (which we then renamed to YELIVA) and additional intellectual property rights.YELIVA is a proprietary, (cid:69)irst-in-class, orally-administered SK2 inhibitor, with anti-in(cid:69)lammatory and anti-canceractivities, targeting multiple in(cid:69)lammatory, GI and oncology indications. Under the terms of the agreement, we agreed topay Apogee an upfront payment of $1.5 million, as well as an additional amount of $2 million which will be paid on theearlier of (i) a speci(cid:69)ic date or (ii) reaching a speci(cid:69)ic development milestone. In addition, we undertook to pay up to anadditional $2 million in potential development milestone payments and potential tiered royalties starting in the lowdouble-digits. Such potential royalties are due until the later of: (i) the expiration of the last to expire licensed patent thatcovers the product in the relevant country; and (ii) the expiration of regulatory exclusivity in the relevant country. ThroughDecember 31, 2016, we paid Apogee the initial amount of $1.5 million and recognized an amount of $2 million as a currentliability. The license agreement will stay in effect as of its effective date unless terminated earlier as described in theagreement. We are entitled to terminate the agreement at any time upon 30 days’ prior written notice to Apogee. Theagreement also provides for the right of termination for each party in the event of a material breach committed by the otherparty. License Agreement for MESUPRON On June 30, 2014, we entered into an exclusive license agreement with Wilex AG (“Wilex”), a German biopharmaceuticalcompany focused on oncology, under which Wilex granted us the exclusive worldwide (excluding China, Hong Kong,Taiwan and Macao) development and commercialization rights for all indications to MESUPRON, a small molecule,proprietary, uPA inhibitor administered by oral capsule. In consideration for the license we paid Wilex an upfront payment of $1 million. We have agreed to pay Wilex tieredroyalties on net revenues, ranging from mid-teens up to 30%. The license agreement will stay in effect as long as we are required to make royalty payments. We are entitled to terminatethe agreement at any time on 30 days’ written notice to Wilex. The agreement also provides right of termination for eachparty in the event of a breach. License Agreement for RIZAPORT On August 26, 2010, we entered into a joint development and commercialization agreement with IntelGenx Corp. underwhich IntelGenx Corp. granted us a worldwide, exclusive and perpetual license to use its rights in patents and know-howrelating to a triptan formula based on the VersaFilm™ technology, which we call RIZAPORT. The license includes the right to grant sublicenses. The license covers the co-developing, selling, offering for sale andimporting the product for all indications, including, but not limited to, acute treatment of migraine attacks with or withoutan aura and all other therapeutic, diagnostic, and other human or animal uses. The license provides that IntelGenx Corp. reserves the right to grant licenses to manufacture the product, subject to theapproval of a steering committee. The agreement further limits our right to grant sublicenses by requiring that we giveprior notice to IntelGenx Corp. of the identity of any proposed sub-licensee and provide IntelGenx Corp. with informationregarding the main elements of the proposed sublicense agreement. If IntelGenx Corp. objects to a sublicense, the proposedsublicense will be presented for the approval of a steering committee. Pursuant to the agreement, as amended, the parties agreed on joint product development activities. Accordingly, IntelGenxCorp. agreed to devote suf(cid:69)icient resources (subject to the approved budget in the agreement) in order to conduct clinicaltrials and (cid:69)ile an application with the FDA for marketing of the product, and we agreed to (cid:69)inance the balance of thedevelopment in the amount of approximately $1.2 million. The joint development of the product is to be conducted through a steering committee, comprised of an equal number ofmembers appointed by us and IntelGenx Corp. The committee is charged with supervising progress of our research anddevelopment efforts, reporting on possible delays and deciding on required revisions in the plan. IntelGenx Corp. has thedeciding vote in any vote relating to issues of development, regulation and manufacture, while we have the deciding vote60 ®®®®®Table of Contentsin any vote relating to issues of licensing, commercialization and collaborations. In consideration for the license, we madeup-front and milestone payments in the aggregate amount of $800,000 and we are required to make additional milestonepayments of up to $500,000 upon receipt of FDA marketing approval for the product. Under the agreement, after recovery of certain costs and expenses, the Company will pay 60% royalties on sublicenserevenues, less certain deductible amounts, as detailed in the agreement, for the (cid:69)irst $2 million of such revenues. Forrevenues beyond the $2 million, the Company will pay royalties at 20% - 40% of the Company’s revenues, after recoveryof certain costs and expenses as detailed in the agreement. The 20% rate also applies until the Company recoversadditional fees covered by the Company, as detailed in the agreement. The agreement provides that all intellectual property developed or to be developed exclusively by IntelGenx Corp. willbelong exclusively to IntelGenx Corp. and will be licensed to us, and the intellectual property to be developed or (cid:69)inancedjointly by IntelGenx Corp. and us will be jointly owned by us and IntelGenx Corp., and each party may make use of suchjoint intellectual property for uses not competing with either the product or the other party. The agreement is of unlimited duration and will remain in force until terminated in accordance with its terms. Either partymay terminate the agreement if (i) the other party is in material breach and does not cure within ninety (90) days; or (ii) abankruptcy or liquidation event occurs with respect to the other party. Additionally, we may terminate the agreement forconvenience upon providing thirty (30) days written notice to IntelGenx Corp. On February 18, 2016, the parties agreed that IntelGenx Corp. will manufacture RIZAPORT for regulatory and commercialpurposes and the parties have set allocation of certain costs associated with the manufacturing of RIZAPORTfor theobtainment of regulatory approval for marketing. License Agreement for MAP diagnostic test related to RHB-104 On September 18, 2011, we entered into a license agreement with the UCF pursuant to which we were granted an exclusivelicense for all indications and medical uses to a patent-protected diagnostic test that identi(cid:69)ies the presence of MAPbacterial DNA in peripheral blood through DNA testing. The license covers future commercial use of the test, including itsmanufacture, marketing, sale and commercialization. Under the agreement, we may grant sublicenses for the test with the consent of the UCF, from whom consent may not beunreasonably withheld. To date, in consideration for the license, we have made payments in the aggregate amount of $125,000, and are required tomake additional annual minimum royalty payments of $35,000 in each subsequent year until the last patent covered bythe agreement expires. These annual minimum payment amounts will be deducted from future royalty payments. In addition, we are required to make royalty payments equal to payments 7% of future sales, or an annual minimumamount noted above, as well as 20% of payments we receive from granting sublicenses. The agreement will remain in force on a country by country basis until the last patent covered by the agreement expires.UCF may terminate the agreement if (i) we are in material breach; (ii) if we fail to pay royalties when due and payablefollowing provision of sixty (60) days’ notice; or (iii) a bankruptcy or liquidation event occurs with respect to us. We mayterminate the agreement at any time by providing ninety (90) days written notice to UCF. Additional License Agreements related to MAP diagnostic test for RHB-104 We are developing a diagnostic test for MAP in conjunction with Q Squared, University of Minnesota and Baylor College ofMedicine. This is part of our efforts to develop a validated and precise method of detecting Mycobacterium aviumsubspecies paratuberculosis (MAP), which we believe plays an important role in Crohn’s disease and potentially otherdiseases. Exclusive License Agreement with Valeant Pharmaceuticals International, Inc. On February 27, 2014, we entered into a worldwide exclusive license agreement with Salix (now Valeant), pursuant towhich Salix licensed the worldwide exclusive rights to our RHB-106 encapsulated formulation for bowel preparation and61 ®® Table of Contentsrights to other purgative developments. Pursuant to the agreement, we granted Salix the right to develop and commercializeRHB-106 or the related rights. Additionally, we waived any applicable rights of (cid:69)irst refusal granted to us by Giaconda Limited and its af(cid:69)iliates in ourAugust 2010 asset purchase agreement transaction with respect to intellectual property in relation to digestive conditiontreatments. Pursuant to the agreement, we received an up-front payment of $7 million and are entitled to an additional amount of up to$5 million in subsequent milestone payments. In addition, Salix agreed to pay us tiered royalties on net sales, ranging fromlow single-digit up to low double-digits. Other than with respect to the rights granted to us, as described below, we agreed, during the term of the agreement, not tocompete in the purgative field. Salix granted us an option to commercialize certain of the products of Salix, in pre-determined territories. This right issubject to such products being available for distribution in the applicable territories and Salix's agreement to a potentialexclusive distribution arrangement with us. We were granted exclusivity as to the commercialization right under theoption, for a limited period, which has since expired. The agreement expires on the date the royalties are no longer payable in connection with RHB-106 or relatedrights. Following expiration of the agreement, the rights granted under the agreement shall become fully-paid, perpetual,royalty-free and irrevocable. We have the right, following notice to Valeant, to terminate the agreement in the event thatValeant does not pursue the development of RHB-106 or related rights. This termination right is effective until the date onwhich all subsequent milestone payments referred to above have been paid to us. Master Service Agreement with 7810962 Canada Inc. On April 28, 2011, we entered into a master service agreement, which was later amended, with 7810962 Canada Inc., ourCanadian service provider for various project management services. The agreement allowed our Canadian service providerto enter into service agreements with third parties for the relevant services. The agreement may be terminated by eitherparty upon 30 days’ advance notice. The agreement with our Canadian service provider provides that certain research and development services related to ourprojects will be carried out pursuant to our speci(cid:69)ic requests and upon the signing of speci(cid:69)ic agreements for each project.Such agreements must include a description of the required services, service terms and fees. To date, we, through ourCanadian service provider, have entered into manufacturing, clinical services and regulatory agreements mainly related toRHB-104. Furthermore, pursuant to the agreement, the Canadian service provider may provide us with a discount to the research anddevelopment services with respect to incentives programs from various authorities that may be granted to the Canadianservice provider in the future. As of December 31, 2016, the estimated discount we will receive from our Canadian serviceprovider is approximately $0.2 million. Clinical Services Agreements Clinical Services Agreement related to RHB-104 On June 15, 2011, we entered into an agreement with our Canadian service provider which entered into a back-to-backagreement with inVentiv Health (f/k/a PharmaNet Canada Inc.), a subsidiary of an international CRO company, and otherrelated entities, for the purpose of performing the clinical trial for RHB-104. InVentiv Health is a leading provider of globaldrug development services to pharmaceutical and biotechnology companies, offering therapeutically-specializedcapabilities for Phase I-IV clinical development, and pursuant to the agreement, is responsible for the performance of theclinical trial, including entering into agreements with medical centers to perform the trial, supervision of the performanceand progress of the trial and the analysis of the results, all pursuant and subject to applicable regulatory requirements. Pursuant to this agreement and subsequent amendments, inVentiv Health is entitled to receive $14.0 million in connectionwith the MAP US Phase III clinical trial as well as reimbursement of investigator grant costs and pass-through costs to be62 Table of Contentspaid during the trial for an estimated amount of about $6.1 million. The payments will be spread over the period of theclinical trial based upon quarterly administration fees and milestone payments based on patient recruitment, completionof subject dosing and report preparation, investigators grants paid to research centers that participate in the trial, as well asreimbursements of certain expenses. These fees, however, are partial costs for the RHB-104 program and may increase inaccordance with the (cid:69)inal clinical trial protocol, length of the study and payments to be made to third parties, such asinvestigator grants costs and additional service providers, including other clinical research organizations. The agreement includes a timetable for the recruitment of patients, performance of the trial and analysis of results,including a timetable for the performance of ongoing patient follow-up. Such timetables may vary as a result of possibledelays in recruitment of patients for the clinical trial. The agreement will remain in force until all relevant services have been provided and we have made all paymentsthereunder, or until terminated. Either party may terminate the agreement (i) if the other party is in material breach anddoes not cure within thirty (30) days; or (ii) upon a bankruptcy or liquidation event with respect to the other party. Thisagreement also provides that we may terminate the agreement at any time without cause upon providing forty-(cid:69)ive (45)days written notice to our Canadian service provider. Co-Promotion Agreement On December 30, 2016, we entered into a Co-Promotion Agreement with a subsidiary of Concordia, an internationalspecialty pharmaceutical company focused on generic and legacy pharmaceutical products and orphan drugs, as part ofour strategic initiative to become a revenue-generating, GI-focused, specialty pharmaceutical company with a commercialpresence in the U.S. to support potential future commercialization of our therapeutic candidates. In connection with theCo-Promotion Agreement and such strategic initiative, we formed Redhill Biopharma Inc., a wholly-owned subsidiary, inthe state of Delaware on January 19, 2017. We intend to pursue our commercial activities in the U.S. through thissubsidiary. Under the Co-Promotion Agreement, we will be responsible for certain promotional activities related to Donnatal in theU.S., and Concordia will continue to be responsible for, among other things, the manufacturing and supply and pricing ofDonnatalin all territories. We and Concordia will share the revenues generated from the promotion of Donnatal by usbased upon an agreed upon split. There are no upfront or milestone payments required to be paid by us under the Co-Promotion Agreement. The initial term of the Co-Promotion Agreement is three years. We may terminate the Co-PromotionAgreement after six months from the effective date of the Co-Promotion Agreement upon three months’ notice for reasonsset forth in the Co-Promotion Agreement. Concordia may terminate the Co-Promotion Agreement after an agreed uponperiod and for reasons set forth in the Co-Promotion Agreement. We expect to initiate gradual promotion of Donnatal inthe coming months. Intellectual Property Our success depends in part on our ability to obtain and maintain proprietary protection for our technology andtherapeutic candidates, its therapeutic applications, and related technology and know-how, to operate without infringingthe proprietary rights of others and to prevent others from infringing our proprietary rights. Our policy is to seek to protectour proprietary position by, among other methods, (cid:69)iling U.S. and foreign patent applications related to our proprietarytechnology, inventions and improvements that are important to the development of our business. We also rely on ourtrade secrets, know-how and continuing technological innovation to develop and maintain our proprietary position. Wevigorously defend our intellectual property to preserve our rights and gain the bene(cid:69)it of our technological investments.We have rights, either through assignment, asset purchase or in-licensing, to a total of approximately 360 issued patentsand 115 patent applications. The patents and patent applications are registered in the U.S. and other key jurisdictions, thedetails of each family of patents being provided below. In addition, we have licensed rights to various platformtechnologies on a non-exclusive basis. The patent positions of companies such as ours are generally uncertain and involve complex legal and factual questions.Our ability to maintain and solidify our proprietary position for our technology will depend on our success in obtainingeffective claims and enforcing those claims once granted. 63 ®® ®®Table of ContentsRHB-105 RHB-105 is protected by two patent families. The (cid:69)irst patent family, titled “Improved Method of Eradication of H. pylori”,was acquired as part of our asset purchase agreement with Giaconda Limited, and provides patent protection until2019. This family includes one U.S. patent and over 15 foreign patents. The second patent family, titled “Pharmaceutical Compositions for the Treatment of Helicobacter Pylori”, was (cid:69)iled by usand will provide patent protection until 2034. This family includes two U.S. patents, one pending U.S. patent application,and over 15 pending foreign patent applications. RHB-104 – Inflammatory Bowel Disease RHB-104 for In(cid:69)lammatory Bowel Disease is protected by two patent families. The (cid:69)irst patent family, titled “Methods andCompositions for Treating In(cid:69)lammatory Bowel Disease”, was acquired as part of our asset purchase agreement with fromGiaconda Limited, and provides patent protection until 2018. This family includes one U.S. patent and over 20 foreignpatents. The second patent family, titled “Method and Composition for Treating In(cid:69)lammatory Bowel Disease”, was (cid:69)iled by us andwill provide patent protection until 2029. This family includes four U.S. patents, one pending U.S. patent application, sixforeign patents and two pending foreign patent applications. We have also in-licensed from UCF U.S. Patent No. 7,488,580 entitled “Protocol for Detection of Mycobacterium AviumSubspecies Paratuberculosis in Blood”, which will expire in 2026. This patent relates to a method of diagnosingin(cid:69)lammatory bowel disease caused by MAP using a sample of peripheral tissue. In addition, in(cid:69)lammatory bowel diseasecaused by MAP can be monitored and evaluated. Further, we have in-licensed U.S. Patent Nos. 7,074,559 and 7,867,704 from The University of Minnesota entitled“Mycobacterial Diagnostics”. One U.S. patent will expire in 2022, and the other U.S. patent will expire in 2026. Theacquired diagnostic technology is intended for the detection of Mycobacterium avium subspecies paratuberculosis (MAP)bacterium. RHB-104 – Multiple Sclerosis (“MS”) Another patent family that we filed relates to “A Composition and Method for Treating an Autoimmune Disease” and coverscompositions comprising effective amounts of rifabutin, clarithromycin and clofazimine to enable treatment of MS. Thispatent family will provide patent protection for methods of treating MS, with RHB-104, up until 2032. This familyincludes one pending U.S. patent application and over 15 pending foreign patent applications. BEKINDA - Gastritis, Gastroenteritis, IBS-D and Oncology Support We have in-licensed a patent from Temple University entitled “Monolithic tablet for controlled drug release”, with a U.S.patent expiry date in 2018. This patent relates to formulations based on a swellable hydrodynamically balancedmonolithic matrix. BEKINDA and its use in treating gastroenteritis and other conditions is protected by two patent families that were (cid:69)iled byus, titled “Antiemetic Extended Release Solid Dosage Forms” and “Ondansetron Extended Release Solid Dosage Forms forTreating Either Nausea, Vomiting or Diarrhea Symptoms”, and if issued would provide patent protection through 2034 and2035, respectively. This family includes three pending U.S. patent applications and over 35 foreign patent applications. RHB-106 - Colonic Evacuation We acquired from Giaconda Limited, as part of our asset purchase agreement, two patent families titled “Picosulfate-containing preparation for colonic evaluation” and “Administering osmotic colonic evacuant containing a picosulfate”,both of which expired in 2016. These patents did not protect our RHB-106 colonic formulation. 64 ®®Table of ContentsThe RHB-106 colonic formulation is protected by a patent family (cid:69)iled by us and entitled “Formulations and Methods ofManufacturing Formulations for use in Colonic Evacuation”. If issued, this patent will provide protection until 2033. We are party to an exclusive agreement by which Salix (later acquired by Valeant). licensed the worldwide exclusive rightsto the RHB-106 patent portfolio. As part of the agreement, Salix is responsible for the patent families related to RHB 106. YELIVA - Inflammatory, Oncology, and GI Indications This patent portfolio was in-licensed by us from Apogee Biotechnology Corp. YELIVA (ABC294640) is a (cid:69)irst-in-class,proprietary SK2 inhibitor, administered orally, with anti-cancer and anti-in(cid:69)lammatory activities, targeting a number ofpotential inflammatory, oncology and GI indications. YELIVA includes three patent families. The (cid:69)irst, titled “Sphingosine Kinase Inhibitors”, provides patent protectionthrough 2028. The second patent family, titled “Methods for the Treatment and Prevention of In(cid:69)lammatory Diseases”,provides patent protection through 2030. The third patent family, titled “Sphingosine Kinase Inhibitor Prodrugs”, providespatent protection through 2031. These patents relate to sphingosine kinase inhibitors, pharmaceutical compositions, methods of preparing the inhibitors,methods of treating in(cid:69)lammatory diseases using the inhibitors, methods of treating cancer using the inhibitors, andmethods of inhibiting sphingosine kinase. MESUPRON – Oncology This patent portfolio was in-licensed by us from Wilex. MESUPRON is a (cid:69)irst-in-class uPA inhibitor administered by oralcapsule. The (cid:69)irst patent family relates to crystalline modi(cid:69)ications of N- α -(2,4,6-triisopropylphenylsulfonyl)-3-hydroxyamidino-(L)-phenylalanine 4-ethoxycarbonylpiperazide or salts thereof, which can be used as pharmaceutical agents, and topharmaceutical compositions and pharmaceutical uses comprising these novel crystalline modi(cid:69)ications. The patents inthis family will expire in 2025. The second patent family relates to Urokinase inhibitor compounds. The patents in this family will expire in 2024. The third patent family relates to methods for the production of phenylalanine derivatives. The patents in this family willexpire in 2023. The fourth patent family relates to methods for producing phenylalanine derivatives. The patents in this family will expirein 2025. The fifth patent family relates to a method for producing phenylalanine derivatives. The U.S. patent will expire in 2025. The sixth patent family relates to Urokinase Inhibitors. The patents in this family will expire in 2019. The seventh patent family relates to a method of preparing methylhydroxyalkylcellulose. The U.S. patent will expire in2026. The eighth patent family relates to formulations for phenylalanine derivatives. The patents in this family will expire in2025. The ninth patent family relates to Urokinase inhibitors. The patents in this family will expire in 2018. RIZAPORT - Acute Migraines We have in-licensed from IntelGenx Corp., three issued U.S. patents, three pending U.S. non-provisional patent applications,and 15 pending international patent applications covering various aspects of the VersaFilm technology. U.S. Patent No.9,301,948, which provides patent protection through 2034, covers our RIZAPORT product. Fifteen (15) foreigncounterpart patent applications are currently pending.65 ®®®®TM®Table of Contents Government Regulations and Funding Pharmaceutical companies are subject to extensive regulation by national, state and local agencies such as the FDA in theU.S., the Ministry of Health in Israel, or the EMA. The manufacture, clinical trials, distribution, marketing and sale ofpharmaceutical products are subject to government regulation in the U.S. and various foreign countries. To manufactureboth new therapeutic drug candidates for clinical trials and approved therapeutic drugs for sale and distribution in the U.S.,we must follow rules and regulations in accordance with current cGMP codi(cid:69)ied in 21 CFR 210 and 211. Additionally, weare responsible for ensuring that the API in of each therapeutic drug or therapeutic drug candidate is manufactured inaccordance to the International Conference on Harmonization (“ICH”) Q7 guidance that has been adopted by theFDA. Further, we are required to conduct clinical trials that present data indicating that our therapeutic drug candidates aresafe and ef(cid:69)icacious in accordance with current good clinical practice and codi(cid:69)ied in 21 CFR 312. If we do not comply withapplicable requirements, we may be (cid:69)ined, the government may refuse to approve our marketing applications or not allowus to manufacture or market our products, and we may be criminally prosecuted. We and our contract manufacturers andclinical research organizations may also be subject to regulations under other federal, state and local laws, including, butnot limited to, the U.S. Occupational Safety and Health Act, the Resource Conservation and Recovery Act, the Clean Air Actand import, export and customs regulations as well as the laws and regulations of other countries. The U.S. government hasincreased its enforcement activity regarding illegal marketing practices domestically and internationally. As a result,pharmaceutical companies must ensure their compliance with the Foreign Corrupt Practices Act and federal healthcarefraud and abuse laws, including the False Claims Act. These regulatory requirements impact our operations and differ in one country to another, so that securing the applicableregulatory approvals of one country does not imply the approval in another country. However, securing the approval of amore stringent body, i.e. the FDA, may facilitate receiving the approval by a regulatory authority in a different countrywhere the regulatory requirements are similar or less stringent. The approval procedures involve high costs and aremanpower intensive, usually extend over many years and require highly skilled and professional resources. U.S. Food and Drug Administration (“FDA”) Approval Process for New Molecular Entities Our therapeutic drug candidates are classi(cid:69)ied as New Molecular Entities. The steps required to be taken before therapeuticdrug candidate may be marketed in the U.S. generally include: ·completion of pre-clinical laboratory and animal testing;·the submission to the FDA of an investigational new drug, or IND, application which must be evaluated and foundacceptable by the FDA before human clinical trials may commence;·performance of adequate and well-controlled human clinical trials to establish the safety and ef(cid:69)icacy of theproposed drug product candidate for its intended use; and·the submission and approval of an NDA. Clinical studies are conducted under protocols detailing, among other things, the objectives of the study, what types ofpatients may enter the study, schedules of tests and procedures, drugs, dosages, and length of study, as well as theparameters to be used in monitoring safety, and the ef(cid:69)icacy criteria to be evaluated. A protocol for each clinical study andany subsequent protocol amendments must be submitted to the FDA as part of the IND. In all the countries that are signatories of the Helsinki Declaration (including Israel), the prerequisite for conductingclinical trials (on human subjects) is securing the preliminary approval of the competent authorities of that country toconduct medical experiments on human subjects in compliance with the other principles established by the HelsinkiDeclaration. The clinical testing of a therapeutic drug candidate generally is conducted in three sequential phases prior to approval, butthe phases may overlap or be combined. However, safety information should be submitted before initiation of asubsequent clinical phase. A fourth, or post approval, phase may include additional clinical studies. The phases aregenerally as follows: Phase I. In Phase I clinical studies, the therapeutic drug candidate is tested in a small number of healthy volunteers, thoughin cases where the therapeutic drug candidate may make the volunteer ill, clinical patients with the targeted condition maybe used. These “dose-escalation” studies are designed to evaluate the safety, dosage tolerance, metabolism andpharmacologic actions of the therapeutic drug candidate in humans, side effects associated with increasing doses, and, in66 Table of Contentssome cases, to gain early evidence on ef(cid:69)icacy. The number of participants included in Phase I studies is generally in therange of 20 to 80. Phase II. In Phase II studies, in addition to safety, the sponsor evaluates the ef(cid:69)icacy of the therapeutic drug candidate ontargeted indications to determine dosage tolerance and optimal dosage and to identify possible adverse effects and safetyrisks. Phase II studies typically are larger than Phase I but smaller than Phase III studies and may involve several hundredparticipants. Phase III. Phase III studies typically involve an expanded patient population at geographically-dispersed test sites andinvolve control groups taking a reference compound or a placebo (an inactive compound identical in appearance to thestudy compound). They are performed after preliminary evidence suggesting effectiveness of the product candidate hasbeen obtained and are designed to further evaluate clinical ef(cid:69)icacy and safety, to establish the overall bene(cid:69)it-riskrelationship of the product candidate and to provide an adequate basis for a potential product approval. Phase III studiesusually involve several hundred to several thousand participants. Phase IV. Phase IV clinical trials are post marketing studies designed to collect additional safety data as well as potentiallyexpand a product indication. Post marketing commitments may be required of, or agreed to by, a sponsor after the FDA hasapproved a therapeutic drug candidate for marketing. These studies are used to gain additional information from thetreatment of patients in the intended therapeutic indication and to verify a clinical bene(cid:69)it in the case of drugs approvedunder accelerated approval regulations. If the FDA approves a product while a company has ongoing clinical trials thatwere not necessary for approval, a company may be able to use the data from these clinical trials to meet all or part of anyPhase IV clinical trial requirement. These clinical trials are often referred to as Phase IV post-approval or post marketingcommitments. Failure to promptly conduct Phase IV clinical trials could result in the inability to deliver the product intointerstate commerce, misbranding charges, and civil monetary penalties. Clinical trials must be conducted in accordance with the FDA’s GCP requirements. The U.S. Food and Drug Administrationmay order the temporary or permanent discontinuation of a clinical study at any time or impose other sanctions if itbelieves that the clinical study is not being conducted in accordance with FDA requirements or that the participants arebeing exposed to an unacceptable health risk. An institutional review board, or IRB, generally must approve the clinicaltrial design and patient informed consent at study sites that the IRB oversees and also may halt a study, either temporarilyor permanently, for failure to comply with the IRB’s requirements, or may impose other conditions. Additionally, someclinical studies are overseen by an independent group of quali(cid:69)ied experts organized by the clinical study sponsor, knownas a data safety monitoring board or committee. The FDA recommends that data safety monitoring board should be used toperform regular interim analysis for long-term clinical studies where safety concerns may be unusually high. This grouprecommends whether or not a trial may move forward at designated check points based on access to certain data from thestudy. The clinical study sponsor may also suspend or terminate a clinical trial based on evolving business objectives orcompetitive climate. As a product candidate moves through the clinical testing phases, manufacturing processes are further de(cid:69)ined, re(cid:69)ined,controlled and validated. The level of control and validation required by the FDA would generally increases as clinicalstudies progress. We and the third-party manufacturers on which we rely for the manufacture of our therapeutic drugs andtherapeutic drug candidates and their respective API are subject to requirements that drugs be manufactured, packaged andlabeled in conformity with cGMP. In addition to our third-party API manufacturers, we are responsible for ensuring thatour third-party excipient manufacturers conform to cGMP requirements. To comply with cGMP requirements,manufacturers must continue to spend time, money and effort to meet requirements relating to personnel, facilities,equipment, production and process, labeling and packaging, quality control, recordkeeping and other requirements. Assuming completion of all required testing in accordance with all applicable regulatory requirements, detailedinformation on the product candidate is submitted to the FDA in the form of a NDA, requesting approval to market theproduct for one or more indications, together with payment of a user fee, unless waived. An NDA includes all relevant dataavailable from pertinent nonclinical and clinical studies, including negative or ambiguous results as well as positive(cid:69)indings, together with detailed information on the chemistry, manufacture, control and proposed labeling, among otherthings. To support marketing approval, the data submitted must be suf(cid:69)icient in quality and quantity to establish the safetyand efficacy of the product candidate for its intended use to the satisfaction of the FDA. If an NDA submission is accepted for filing, the FDA begin an in-depth review of the NDA. Under the Prescription Drug UserFee Act, or PDUFA, the FDA’s goal is to complete its initial review and respond to the applicant within ten months67 Table of Contentsof a completed submission, unless the application relates to an unmet medical need in a serious or life-threateningindication, in which case the goal may be within six months of a completed NDA submission. However, PDUFA goal datesare not legal mandates and the FDA response may occur several months beyond the original PDUFA goal date. Further, thereview process and the target response date under PDUFA may be extended if the FDA requests or the NDA sponsorotherwise provides additional information or clari(cid:69)ication regarding information already provided in the NDA. The NDAreview process can, accordingly, be very lengthy. During its review of an NDA, the FDA may refer the application to anadvisory committee for review, evaluation and recommendation as to whether the application should be approved. TheFDA is not bound by the recommendation of an advisory committee, but it typically follows such recommendations. Datafrom clinical studies are not always conclusive and the FDA or any advisory committee it appoints may interpret datadifferently than the applicant. After the FDA evaluates the NDA and conducts a pre-approval inspection on all manufacturing facilities where the drugproduct candidate or its API will be produced, it will either approve commercial marketing of the drug product candidatewith prescribing information for speci(cid:69)ic indications or issue a complete response letter indicating that the application isnot ready for approval and stating the conditions that must be met in order to secure approval of the NDA. If the completeresponse letter requires additional data and the applicant subsequently submits that data, the FDA nevertheless mayultimately decide that the NDA does not satisfy its criteria for approval. The FDA could also approve the NDA with a RiskEvaluation and Mitigation Strategies, or REMS, plan to mitigate risks, which could include medication guides, physiciancommunication 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 and speci(cid:69)ications, or a commitment to conduct post-marketing testing. The FDA mayalso request a Phase IV clinical trial to further assess and monitor the product’s safety and ef(cid:69)icacy after approval.Regulatory approval of products for serious or life-threatening indications may require that participants in clinical studiesbe followed for long periods to determine the overall survival benefit of the drug product candidate. If the FDA approves one of our therapeutic drug candidates, we will be required to comply with a number of post-approvalregulatory requirements. We would be required to report to the FDA, among other things, certain adverse reactions andproduction problems, and provide updated safety and ef(cid:69)icacy information and comply with requirements concerningadvertising and promotional labeling for any of our products. Also, quality control and manufacturing procedures mustcontinue to conform to cGMP after approval, and the FDA periodically inspects manufacturing facilities to assesscompliance with cGMP, which imposes extensive procedural, substantive and record keeping requirements. If we seek tomake certain changes to an approved therapeutic drug, such as certain manufacturing changes, we may need the FDA toreview and approve before the change can be implemented. For example, if we change the manufacturer of a product or itsAPI, the FDA may require stability or other data from the new manufacturer, which will take time and is costly to generate,and the delay associated with generating this data may cause interruptions in our ability to meet commercial demand, ifany. At their discretion, physicians may prescribe approved pharmaceutical products for indications that pharmaceuticalproducts have not been approved for use by the FDA. However, we may not label or promote pharmaceutical products foran indication that has not been approved. Securing FDA approval for new indications of an approved therapeutic drugrequires a Section 505(b)(2) (cid:69)iling, is similar to the process for approval of the original indication and requires, amongother things, submitting data from adequate and well-controlled studies that demonstrate the product’s safety and ef(cid:69)icacyin the new indication. Even if such studies are conducted, the FDA may not approve any change in a timely fashion, or atall. We rely, and expect to continue to rely, on third parties for the manufacture of clinical and future commercial, quantities ofour therapeutic candidates. Future FDA and state inspections may identify compliance issues at these third-party facilitiesthat 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 inrestrictions on a product, manufacturer or holder of an approved NDA, including withdrawal or recall of the product fromthe market or other voluntary, FDA-initiated or judicial action that could delay or prohibit further marketing. Newlydiscovered or developed safety or ef(cid:69)icacy data may require changes to a product’s approved labeling, including theaddition of new warnings and contraindications, and also may require the implementation of other risk managementmeasures. Many of the foregoing could limit the commercial value of an approved product or require us to commitsubstantial additional resources in connection with the approval of a product. Also, new government requirements,including those resulting from new legislation, may be established, or the FDA’s policies may change, which could delayor prevent regulatory approval of our products under development. 68 Table of ContentsSection 505(b)(2) New Drug Applications As an alternate path for FDA approval of new indications or new formulations of previously-approved therapeutic drugs, acompany may (cid:69)ile a Section 505(b)(2) NDA, instead of a “stand-alone” or “full” NDA, somewhat similar to the process forapproval of the original indication or reference drug and requires, among other things, submitting data from adequate andwell-controlled studies that demonstrate the product’s safety and ef(cid:69)icacy in the new indication. Even if such studies areconducted, the FDA may not approve any change in a timely fashion, or at all. Section 505(b)(2) of the Food, Drug, andCosmetic Act, was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, otherwiseknown as the Hatch-Waxman Amendments. Section 505(b)(2) was enacted to allow a company to avoid duplicative testingby permitting the applicant to leverage previously performed pertinent clinical and non-clinical studies into the currentNDA submission. Some examples of therapeutic drugs candidates that may be allowed to follow a 505(b)(2) path toapproval are candidates that have a new dosage form, strength, route of administration, formulation or indication. The Hatch-Waxman Amendments permit the applicant to rely upon certain published nonclinical or clinical studiesconducted for an approved product or the FDA’s conclusions from prior review of such studies. The FDA may requirecompanies to perform additional studies or measurements to support any changes from the approved product. The FDAmay then approve the new product for all or some of the labeled indications for which the reference product has beenapproved, as well as for any new indication supported by the NDA. While references to nonclinical and clinical data notgenerated by the applicant or for which the applicant does not have a right of reference are allowed, all development,process, stability, quali(cid:69)ication and validation data related to the manufacturing and quality of the new product must beincluded in an NDA submitted under Section 505(b)(2). To the extent that the Section 505(b)(2) applicant is relying on the FDA’s conclusions regarding studies conducted for analready approved product, the applicant is required to certify to the FDA concerning any patents listed for the approvedproduct in the FDA’s Orange Book publication. Speci(cid:69)ically, the applicant must certify that: (i) the required patentinformation has not been (cid:69)iled; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire on aparticular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed bythe new product. The Section 505(b)(2) application also will not be approved until any non-patent exclusivity, such asexclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the reference product hasexpired. Thus, the Section 505(b)(2) applicant may invest a signi(cid:69)icant amount of time and expense in the development ofits products only to be subject to significant delay and patent litigation before its products may be commercialized. Orphan Drug Designation The Orphan Drug Act of 1983, or Orphan Drug Act, encourages manufacturers to seek approval of products intended totreat “rare diseases and conditions” with a prevalence of fewer than 200,000 patients in the U.S. or for which there is noreasonable expectation of recovering the development costs for the product. For products that receive Orphan Drugdesignation by the FDA, the Orphan Drug Act provides tax credits for clinical research, FDA assistance with protocoldesign, eligibility for FDA grants to fund clinical studies, waiver of the FDA application fee, and a period of seven years ofmarketing exclusivity for the product following FDA marketing approval. GAIN Act The FDA's Generating Antibiotic Incentives Now (GAIN) Act is intended to encourage development of new antibiotic drugproduct candidates for the treatment of serious or life-threatening infections. For products that receive Quali(cid:69)ied InfectiousDisease Product (“QIDP”) designation under the Act, the Act provides Fast-Track development status with an expediteddevelopment pathway and Priority Review status which potentially provides shorter review time by the FDA of a futurepotential marketing application. Following FDA approval, an additional (cid:69)ive years of U.S. market exclusivity applies,received on top of the standard exclusivity period. C. Organizational Structure Our wholly-owned and only subsidiary, Redhill Biopharma Inc., was incorporated in Delaware on January 19, 2017. 69 Table of ContentsD. Property, Plant and Equipment We lease approximately 826 square meters of of(cid:69)ice space, a 27 square meter warehouse and eleven parking spaces in the“Platinum” building at 21 Ha’arba’a Street, Tel Aviv, Israel, of which we sublease 216 square meters of of(cid:69)ice space to athird party. The projected yearly gross rental expenses are approximately $357,000 per year. The term under our leaseagreement will expire on January 31, 2020. These offices have served as our corporate headquarters since April 2011. ITEM 4A. UNRESOLVED STAFF COMMENTS Not applicable. ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS You should read the following discussion of our (cid:27)inancial condition and results of operations in conjunction with the(cid:27)inancial statements and the notes thereto included elsewhere in this Annual Report. The following discussion containsforward-looking statements that re(cid:27)lect our plans, estimates and beliefs. Our actual results could differ materially from thosediscussed in the forward-looking statements. Factors that could cause or contribute to these differences include thosediscussed below and elsewhere in this Annual Report, particularly those in “Item 3. Key Information – D. Risk Factors.” Company Overview We are a specialty biopharmaceutical company primarily focused on the development and commercialization of lateclinical-stage, proprietary, orally-administered, small molecule drugs for the treatment of GI and in(cid:69)lammatory diseasesand cancer. Depending on the speci(cid:69)ic development program, our therapeutic candidates are designed to provide improvements overexisting drugs by improving their safety pro(cid:69)ile, reducing side effects, lowering the number of daily administrations, usinga more convenient administration form, providing a cost advantage or exhibiting greater ef(cid:69)icacy. Where applicable, weintend to seek FDA approval for the commercialization of certain of our therapeutic candidates through the alternativeSection 505(b)(2) regulatory path under the Federal Food, Drug, and Cosmetic Act of 1938, as amended, and incorresponding regulatory paths in other foreign jurisdictions. Our current development pipeline consists of seven lateclinical development therapeutic candidates. In addition, we were recently granted certain rights to promote Donnatal, for certain territories in the U.S., a specialty GI product currently included in the FDA DESI review program, as part of ourstrategy to build our own marketing and commercialization capabilities in the U.S., among others, to support potentialfuture commercialization of our therapeutic candidates. We have funded our operations primarily through public and private offerings of our securities. Because our therapeuticcandidates and products are currently in development, and because we plan to commence promotion of Donnatal in thecoming months with no anticipation for signi(cid:69)icant revenues or pro(cid:69)its in the near future, we cannot estimate when and ifwe will generate significant revenues or profits in the future from our therapeutic candidates, products or Donnatal. The following is a description of our seven therapeutic candidates and Donnatal: RHB-105 is a patented combination of three drugs – omeprazole, which is a proton pump inhibitor, amoxicillin andrifabutin, both of which are antibiotics. RHB-105 is intended for the treatment of H. pylori bacterial infection. We acquiredownership rights in patents, tangible assets, production (cid:69)iles and regulatory approvals and other data and certain third-party agreements related to RHB-105 pursuant to the Asset Purchase Agreement with Giaconda Limited described above.See “Item 4. Information on the Company – B. Business Overview – Acquisition and License Agreements – Acquisition ofRHB-104, RHB-105 and RHB-106.” RHB-104 is a patented combination of three antibiotics (i.e. clarithromycin, clofazamine and rifabutin) in a single capsulethat is intended for the treatment Crohn’s disease and potentially other autoimmune diseases such as MS. Unlike otherdrugs on the market for the treatment of Crohn’s disease that are immunosuppressive agents, RHB-104 is intended todirectly address the suspected cause of the disease. On August 11, 2010, we entered into an asset purchase agreement withGiaconda Limited, pursuant to which we acquired ownership rights in patents, tangible assets, production (cid:69)iles andregulatory approvals and other data and certain third-party agreements related to RHB-104, RHB-105 and RHB-106 in70 ®®®®Table of Contentsexchange for $500,000 and royalty payments of 7% of net sales and 20% of sublicense fees, in each case, only after werecoup the amounts and expenses exceeding the approved budget. See “Item 4. Information on the Company – B. BusinessOverview – Acquisition and License Agreements – Acquisition of RHB-104, RHB-105 and RHB-106.” BEKINDA (RHB-102) is a proprietary once-daily controlled release oral formulation of ondansetron, in combination withsalts, intended for the prevention of chemotherapy and radiotherapy induced nausea and vomiting, by means of an oralformulation of ondansetron. BEKINDA is anticipated to prevent chemotherapy and radiotherapy induced nausea andvomiting over a time frame of approximately 24 hours. On May 2, 2010, we received a worldwide, exclusive and perpetuallicense to use patents and know-how relating to BEKINDA from SCOLR Pharma, Inc. in exchange for an up-front paymentof $100,000, future potential milestone payments of up to $500,000 and future royalties, for a (cid:69)ixed period of time asdetermined under the agreement, of 8% of our net sales or sublicense fees. SCOLR announced during 2013 that it hadceased business operations, and we entered into a License Agreement with Temple University to secure direct rights topatents related to BEKINDA. See “Item 4. Information on the Company – B. Business Overview – Acquisition and LicenseAgreements – License Agreement for BEKINDA.” See “Item 3. Key Information – D. Risk Factors – Risk Related to OurBusiness and Regulatory Matters – If we are not able to secure or defend patents related to BEKINDA, our ability tocommercialize BEKINDA or enter into commercialization agreements with potential partners with respect to this productmay be adversely affected.” RHB-106 is a proprietary formulation in tablet form intended for the preparation and cleansing of the GI tract prior to theperformance of abdominal procedures. We acquired ownership rights in patents, tangible assets, production (cid:69)iles andregulatory approvals and other data and rights in certain third-party agreements related to RHB-106 pursuant to the AssetPurchase Agreement with Giaconda Limited described above. See “Item 4. Information on the Company – B. BusinessOverview – Acquisition and License Agreements – Acquisition of RHB-104, RHB-105 and RHB-106.” On February 27,2014, we entered into a licensing agreement with Salix (later acquired by Valeant) by which Salix licensed the exclusiveworldwide rights to our RHB-106 encapsulated formulation for bowel preparation, and rights to other purgativedevelopments. YELIVA (ABC294640) is a patent-protected, (cid:69)irst-in-class, orally-administered SK2 inhibitor, with anti-in(cid:69)lammatory andanti-cancer activities, targeting multiple inflammatory, GI and oncology indications. On March 31, 2015, we entered into anexclusive worldwide license agreement with Apogee, under which agreement Apogee granted us the exclusive worldwidedevelopment and commercialization rights to ABC294640 (which we then renamed to YELIVA) and additional intellectualproperty for all indications. Under the terms of the agreement, we agreed to pay Apogee an upfront payment of $1.5 millionin addition to another $4 million in potential development milestones and tiered royalties starting in the low double digits.For more information regarding this agreement, see Item 4. “Information on the Company – B. Business Overview –Acquisition and License Agreements – License Agreement for YELIVA.” MESUPRON is a patent-protected protease inhibitor, administered by oral capsule, targeting GI and other solid tumorcancers. On June 30, 2014 we acquired from Wilex the exclusive development and commercialization rights toMESUPRON, excluding China, Hong Kong, Taiwan and Macao, for all indications. We made an upfront payment to Wilex of$1.0 million with potential tiered royalties on net revenues, ranging from mid-teens up to 30%. We are responsible for alldevelopment, regulatory and commercialization of MESUPRON. See “Item 4. Information on the Company – B. BusinessOverview – Acquisition and License Agreements – License Agreement for MESUPRON.” RIZAPORT (RHB-103) is a patented oral thin (cid:69)ilm formulation of rizatriptan intended for the treatment of acute migraineheadaches. On August 26, 2010, we entered into a joint development and commercialization agreement with IntelGenxCorp. pursuant to which IntelGenx Corp. granted us a worldwide, exclusive and perpetual license to use RIZAPORT and togrant sublicenses. In consideration for the license, we made up-front and milestone payments in the aggregate amount of$800,000 and are required to make additional milestone payments of up to $500.000. In addition, we are required to makeroyalty payments to IntelGenx Corp., after recovery of certain costs and expenses, of 60% royalties on sublicenserevenues, less certain deductible amounts as detailed in the agreement, for the (cid:69)irst $2 million of such revenues. Forrevenues beyond the $2 million, we will pay royalties at 20% - 40% of our revenues from the therapeutic candidate, afterrecovery of certain costs and expenses as detailed in the agreement. The 20% rate also applies until we recover additionalfees covered by us as detailed in the agreement. The term of the agreement is for an inde(cid:69)inite period and is subject tocertain termination rights. See “Item 4. Information on the Company – B. Business Overview – Acquisition and License Agreements – LicenseAgreement for RIZAPORT.”71 ®®®®®®®®®®®®®Table of Contents Donnatalis a prescription oral drug used in the treatment of IBS. On December 30, 2016, we entered into the Co-Promotion Agreement with a subsidiary of Concordia, pursuant to which we were granted certain rights to promoteDonnatalin the U.S.. We expect to initiate gradual promotion of Donnatal in the coming months. JOBS Act We are an emerging growth company. As an “emerging growth company”, we have elected to rely on various exemptions,including without limitation, not (i) providing an auditor’s attestation report on our system of internal controls over(cid:69)inancial reporting pursuant to Section 404 and (ii) complying with any requirement that may be adopted by the PublicCompany Accounting Oversight Board regarding mandatory audit (cid:69)irm rotation or a supplement to the auditor’s reportproviding additional information about the audit and the (cid:69)inancial statements (auditor discussion and analysis). Theseexemptions will apply until the earliest of (a) the last day of our (cid:69)iscal year during which we have total annual grossrevenues of at least $1.0 billion; (b) the last day of our (cid:69)iscal year following the (cid:69)ifth anniversary of the date of the (cid:69)irst saleof our Ordinary Shares pursuant to an effective registration statement (in our case, December 31, 2018); (c) the date onwhich we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (d) thedate on which we are deemed to be a “large accelerated (cid:69)iler” under the Exchange Act, which would occur if the marketvalue of our Ordinary Shares held by non-af(cid:69)iliates is $700 million or more as of the last business day of our most recentlycompleted fiscal quarter. Components of Statement of Comprehensive Loss Revenues In 2016 we recorded revenues with respect to RIZAPORT, for which we have received marketing approval in Germanyand have entered into exclusive license agreements to commercialize in Spain and South Korea. In 2015 we recorded non-signi(cid:69)icant revenues in connection with royalty payments received from a third-party licensee of limited rights to a patentthat we acquired from Giaconda Limited. In 2014, for the first time, we had meaningful revenues as a result of our licensingagreement with Salix with respect to RHB-106 and related rights. Cost of Revenues Direct costs related to the revenues, such as royalties to third parties, and other related costs. Research and Development Expenses See “– C. Research and Development, Patents and Licenses” below. General, Administrative Expenses and Business Development General, administrative expenses and business development consist primarily of compensation for employees, directorsand consultants in executive and operational functions and professional services. Other signi(cid:69)icant general, administrativeand business development costs include office related expenses, travel, conferences, investor relations and others. Financial Income and Expense Financial income and expense consists of non-cash (cid:69)inancing expenses in connection with changes in the fair value ofderivative financial instruments, interest earned on our cash, cash equivalents and short-term bank deposits, bank fees andother transactional costs and expense or income resulting from (cid:69)luctuations of the U.S. dollar against other currencies, inwhich a portion of our assets and liabilities are denominated like NIS, for example. Critical Accounting Policies and Estimates The preparation of (cid:69)inancial statements, in conformity with IFRS requires companies to make estimates and assumptionsthat affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets andliabilities at the date of the (cid:69)inancial statements and the reported amounts of revenues and expenses during the reportingperiod. These estimates and judgments are subject to an inherent degree of uncertainty, and actual results may differ. Our72 ® ® ®®Table of Contentssigni(cid:69)icant accounting policies are more fully described in Note 2 to our (cid:69)inancial statements included elsewhere in thisAnnual Report. Critical accounting estimates and judgments are continually evaluated and are based on historicalexperience and other factors, including expectations of future events that are believed to be reasonable under thecircumstances, and are particularly important to the portrayal of our (cid:69)inancial position and results of operations. Ourestimates are primarily guided by observing the following critical accounting policies: Impairment of Intangible Assets - Since the development of our therapeutic candidates has not yet been completed andthey are de(cid:69)ined as research and development assets acquired by us, we review, on an annual basis or when indications ofimpairment are present, whether those assets are impaired. We make judgments to determine whether indications arepresent that require reviewing the impairment of these intangible assets. An impairment loss is recognized for the amountby which the asset's carrying amount exceeds its recoverable amount. The recoverable amounts of cash generating unitsare based on our estimates as to the development of the therapeutic candidates, changes in market scope, marketcompetition and timetables for regulatory approvals. Since the above require certain judgments and the use of estimates,actual results may differ from our estimations and as a result would increase or decrease our related actual results. Recent Accounting Pronouncements The recent accounting pronouncements are set forth in Note 2 to our audited (cid:69)inancial statements beginning on page F-1 ofthis Annual Report. We are assessing the expected effect of the accounting pronouncements on our financial statements. A. Operating Results History of Losses Since inception in 2009, we have generated signi(cid:69)icant losses mainly in connection with the research and development ofour therapeutic candidates. Such research and development activities are expected to expand over time and will requirefurther resources. As a result, we expect to continue incurring operating losses, which may be substantial over the nextseveral years, and we will need to obtain additional funds to further develop our research and development programs. Asof December 31, 2016, we had an accumulated deficit of approximately $89.6 million. We expect to continue to fund our operations over the next several years through public or private equity offerings, debt(cid:69)inancings, commercialization of our therapeutic candidates, products we may sell or market, or through revenues frommarketing of Donnatal. Quarterly Results of Operations The following tables show our unaudited quarterly statements of operations for the periods indicated. We have preparedthis quarterly information on a basis consistent with our audited (cid:69)inancial statements and we believe it includes alladjustments, consisting of normal recurring adjustments necessary for a fair statement of the information shown. Three Months Ended March June Sep. Dec. March June Sep. Dec. March June Sep. Dec. 31 30 30 31 31 30 30 31 31 30 30 31Statements of operations 2014 2015 2016 Revenues 7,005 4 4 1 1 1 1 — — 1 — 100 Cost of revenue 1,050 — — — — — — — — — — —Research and developmentexpenses, net 1,736 3,157 4,103 3,704 3,829 5,090 3,901 4,951 4,676 6,031 7,038 7,496 General, administrative andbusiness developmentexpenses 1,027 961 912 1,111 927 801 692 1,714 1,227 1,164 1,416 1,596 Other (income) expenses (100) — — — — — — 100 — — Operating loss (income) (3,292) 4,114 5,011 4,814 4,755 5,890 4,592 6,765 5,903 7,194 8,454 8,992 Financial income 89 133 415 — 286 167 1,420 235 380 666 109 1,013 Financial expenses 4 543 (360) 514 173 873 120 30 1 24 599 370 Net loss (income) (3,377) 4,524 4,236 5,328 4,642 6,596 3,292 6,560 5,524 6,552 8,944 8,349 73 ®Table of ContentsOur quarterly revenues and operating results have varied in the past and are expected to vary in the future due to numerousfactors. We believe that period-to-period comparisons of our operating results are not necessarily meaningful and shouldnot be relied upon as indications of future performance. Comparison of the Year Ended December 31, 2016 to the Year Ended December 31, 2015 Revenues Revenues for the year ended December 31, 2016 were $0.1 million, compared to immaterial revenues for the year endedDecember 31, 2015. The revenues in the year ended December 31, 2016 were licensing revenues regarding RIZAPORT. Research and Development Expenses Research and development expenses for the year ended December 31, 2016 were approximately $25.2 million, an increaseof $7.4 million, or approximately 42%, compared to $17.8 million for the year ended December 31, 2015. The increaseresulted primarily from the ongoing Phase III MAP US study with RHB-104 (Crohn's disease), the ongoing Phase III andPhase II studies with BEKINDA (acute gastroenteritis and IBS-D, respectively) and from several Phase I/II studies withYELIVA for multiple indications. General, Administrative and Business Development Expenses General, administrative and business development expenses for the year ended December 31, 2016 were approximately$5.4 million, an increase of $1.3 million, or approximately 32%, compared to $4.1 million for the year ended December31, 2015. The increase was mainly due to an increase in professional services, enhanced business development, investorrelations activities and operating expenses. Operating Loss Operating loss for the year ended December 31, 2016 was approximately $30.5 million, compared to $22.0 million for theyear ended December 31, 2015. The increase was mainly due to an increase in research and development expenses, asdetailed above. Financing Income and Expenses We recognized (cid:69)inancial income, net of $1.2 million for the year ended December 31, 2016, compared to (cid:69)inancial income,net of $0.9 million for the year ended December 31, 2015. The increase was mainly related to a fair value gain onderivative financial instruments. Comparison of the Year Ended December 31, 2015 to the Year Ended December 31, 2014 Revenues and Cost of revenues Revenues for the year ended December 31, 2015 were immaterial in connection with payments received from a third-partylicensee of limited rights to a patent that we acquired from Giaconda Limited compared to $7 million for the year endedDecember 31, 2014 from the Salix transaction. Research and Development Expenses Research and development expenses for the year ended December 31, 2015 were approximately $17.8 million, an increaseof $5.1 million, or approximately 40%, compared to $12.7 million for the year ended December 31, 2014. The increaseresulted primarily from clinical trial costs of approximately $13.6 million, net, related mainly to the Phase III clinicalstudies with RHB-104 (Crohn's disease), RHB-105 (H. pylori) and BEKINDA (acute gastroenteritis and gastritis). 74 ®®®®Table of ContentsGeneral and Administrative Expenses General and administrative expenses for the year ended December 31, 2015 were approximately $4.1 million, an increaseof $0.1 million, or approximately 2%, compared to $4.0 million for the year ended December 31, 2014. The increase wasmainly due to an increase in professional services. Operating Loss Operating loss for the year ended December 31, 2015 was approximately $22.0 million compared to $10.6 million for theyear ended December 31, 2014. The increase was mainly due to revenues from the Salix licensing transaction in 2014 andto an increase in research and development Expenses in 2015. Financing Income and Expenses We recognized (cid:69)inancial income, net of $0.9 million for the year ended December 31, 2015, compared to (cid:69)inancialexpenses, net of $0.1 million for the year ended December 31, 2014. The (cid:69)inancing income, net in 2015 was mainly derivedfrom a fair value gain on derivative (cid:69)inancial instruments while the (cid:69)inancing expenses, net in 2014 mainly derived fromchanges in exchange rates. B. Liquidity and Capital Resources Liquidity and Capital Resources Our therapeutic candidates are in research and development stage, and therefore, we do not generate signi(cid:69)icant revenues.Since inception, we have funded our operations primarily through public and private offerings of our equity securities,investor loans, and a payment received under our Exclusive License Agreement with Salix. In December 2016, we enteredinto the Co-Promotion Agreement with Concordia, pursuant to which we were granted certain rights to promote Donnatalin the U.S. As of December 31, 2016, we had approximately $66.2 million of cash, cash equivalents and short terminvestments. On February 3, 2011, we raised gross proceeds of approximately $14 million in connection with our initial public offeringon the TASE of 14,302,300 Ordinary Shares and 7,151,150 tradable Series 1 Warrants. Each tradable Series 1 Warrant wasexercisable into one Ordinary Share. By February 2, 2014, the tradable Series 1 Warrants expiration date, 3,246,082 Series1 Warrants had been exercised for an aggregate amount of $4 million (based on the representative U.S. dollar–NIS rate ofexchange of 3.498 on February 2, 2014). On January 10, 2013, we issued in a private placement 6,481,280 Ordinary Shares at a price per share of NIS 4.00(approximately $1.06 based on the representative U.S. dollar – NIS rate of exchange of 3.78 on January 10, 2013) and non-tradable warrants to purchase up to 3,240,640 Ordinary Shares at exercise prices ranging from $1.18 to $1.54 per share,depending on the date of exercise. By January 10, 2015, the warrant expiration date, 682,200 warrants had been exercisedfor an aggregate amount of approximately $1.0 million. The remaining 2,558,440 unexercised warrants expired. On January 8, 2014, we issued in a private placement a total of 894,740 units, each unit consisting of one ADS and a three-year warrant to purchase 0.4 of an ADS, at a purchase price of $9.50 per unit, for an aggregate gross amount of $8.5 million.We also issued warrants to purchase an aggregate of 357,896 ADSs, at an exercise price of $11 per ADS. Investors in theprivate placement were OrbiMed Israel Partners Limited Partnership and Broad(cid:69)in Healthcare Master Fund, LTD. OnJanuary 10, 2017, warrants to purchase an aggregate of 252,632 ADSs were exercised for aggregate proceeds ofapproximately $2.63 million, and the unexercised warrants expired. On January 21, 2014, we issued in a private placement a total of 10,458,740 Ordinary Shares at a purchase price of NIS 3.9per share and three-year warrants to purchase an aggregate of 4,183,496 Ordinary Shares at an exercise price of NIS 4.9 pershare, linked to changes in the NIS-U.S. dollar exchange rate, for an aggregate gross amount of $11.7 million (based on therepresentative U.S. dollar–NIS rate of exchange of 3.49 on January 22, 2014). Investors in the private placement were Israeliinstitutional investors, among others were Migdal Insurance Company, Yelin Lapidot, Excellence Nessuah and SpheraGlobal Healthcare Master Fund. On January 21, 2017, all of these warrants expired unexercised. 75 ®Table of ContentsOn February 27, 2014, we entered into a Worldwide Exclusive License Agreement with Salix (now Valeant), pursuant towhich Salix licensed the worldwide exclusive rights to our RHB-106 encapsulated formulation for bowel preparation andrights to other purgative developments. Under the license agreement, Salix paid an upfront payment of $7.0 million. Weare also entitled to milestone payments and royalties based on net sales of RHB-106. See "Item 4. Information on theCompany – B. Business Overview – Acquisition and License Agreements – Exclusive License Agreement with ValeantPharmaceuticals International, Inc." On February 13, 2015, we sold 1,000,000 ADSs in an underwritten public offering of our ADSs in the U.S. at a publicoffering price of $12.50 per ADS, for gross proceeds to us of $12.5 million, before underwriting discounts andcommissions and other offering expenses. On February 18, 2015, the underwriters exercised in full their over-allotmentoption to purchase from us an additional 150,000 ADSs (15% of the original offering amount) at the public offering price of$12.50 per ADS, for gross proceeds of $1.9 million. Following exercise of the over-allotment option, our offering totaled1,150,000 ADSs representing gross proceeds of approximately $14.4 million, before underwriting discounts andcommissions and other offering expenses. On July 22, 2015, we sold 2,462,000 ADSs in an underwritten public offering of our ADS in the U.S. at a public offering priceof $16.25 per ADS, for gross proceeds to us of approximately $40 million, before underwriting discounts and commissionsand other offering expenses. On July 28, 2015, the underwriters partially exercised their over-allotment option to purchasefrom us an additional 277,143 ADSs (approximately 11% of the original offering amount) at the public offering price of$16.25 per ADS, for gross proceeds of approximately $4.5 million. Following the exercise of the over-allotment option, ouroffering totaled 2,739,143 ADSs representing gross proceeds of approximately $44.5 million, before underwritingdiscounts and commissions and other offering expenses. On December 27, 2016, we sold 2,250,000 ADSs and warrants to purchase 1,125,000 ADSs in an underwritten publicoffering for gross proceeds of approximately $23 million. Concurrent with the underwritten public offering, we sold1,463,415 ADSs and warrants to purchase 731,708 ADSs in a concurrent registered direct offering in the U.S. for grossproceeds of approximately $15 million. The offering price in both offerings was $10.25 for a (cid:69)ixed combination of one ADSand a warrant to purchase 0.5 of an ADS. The warrants in both offerings have a per ADS exercise price of $13.33 and have aterm of three years. In addition, on December 27, 2016, the underwriters partially exercised their option and purchasedwarrants to purchase 168,750 ADSs for a purchase price of $0.0047 per warrant. On January 3, 2017, the underwriterspartially exercised their option and purchased 133,104 ADSs. Following the second partial exercise of the underwriters’option, our underwritten public offering and the concurrent registered direct offering totaled 3,846,519 ADSs and warrantsto purchase 2,025,458 ADSs, representing aggregate gross proceeds from both offerings combined of approximately $39.4million before deducting underwriting discounts and commissions, placement agent fees and other offering expenses. We estimate that so long as no signi(cid:69)icant revenues are generated from our therapeutic candidates or from out-licensingtransactions or from marketing of Donnatal, we will need to raise substantial additional funds to acquire, develop andcommercialize therapeutic candidates, as our current cash and short-term investments are not suf(cid:69)icient to complete theresearch and development of all of our therapeutic candidates and fund our operations. However, additional (cid:69)inancing maynot be available on acceptable terms, if at all. Our future capital requirements will depend on many factors including butnot limited to: ·the regulatory path of each of our therapeutic candidates;·our ability to successfully commercialize our therapeutic candidates and products we may sell or market,including securing commercialization agreements with third parties and favorable pricing and market share;·the progress, success and cost of our clinical trials and research and development programs;·the costs, timing and outcome of regulatory review and obtaining regulatory approval of our therapeuticcandidates and addressing regulatory and other issues that may arise post-approval;·the costs of enforcing our issued patents and defending intellectual property-related claims;·the costs of developing sales, marketing and distribution channels;·consumption of available resources more rapidly than currently anticipated, resulting in the need for additionalfunding sooner than anticipated; and·we may consume available resources more rapidly than currently anticipated, resulting in the need for additionalfunding sooner than anticipated. 76 ®Table of ContentsIf we are unable to commercialize or out-license our therapeutic candidates or obtain future (cid:69)inancing, we may be forced todelay, reduce the scope of, or eliminate one or more of our research and development programs related to the therapeuticcandidates, which may have material adverse effect on our business, (cid:69)inancial condition and results of operations. “Item 3.Key Information – D. Risk Factors – Risks Related to Our Financial Condition and Capital Requirements – Our currentworking capital may not be suf(cid:69)icient to complete our research and development with respect to any or all of ourtherapeutic candidates or to commercialize our products or products to which we have rights, including to promoteDonnatal. We will need to raise additional capital to achieve our strategic objectives of acquiring, in-licensing, developingand commercializing therapeutic candidates, marketing, Donnatal, and products that we may sell or market, and ourfailure to raise suf(cid:69)icient capital would signi(cid:69)icantly impair our ability to fund our operations, develop our therapeuticcandidates, and commercialize the products we may sell or market, such as Donnatal,attract development or commercialpartners and retain key personnel.” Cash Flow Operating activities For the year ended December 31, 2016, net cash (cid:69)low used in operating activities was approximately $28.2 million,compared to approximately $17.8 million for the year ended December 31, 2015 and $12.2 million for the year endedDecember 31, 2014. The increase in net cash (cid:69)low used in operating activities was a direct result of the increase in ouroperations, re(cid:69)lected by increased research and development activities and increased general, administrative and businessdevelopment expenses. Investment activities Net cash (cid:69)low provided by investing activities for the year ended December 31, 2016 was approximately $24.5 million,compared to approximately net cash (cid:69)low used in investing activities of $21.2 million in the year ended December 31,2015 and $17.9 million in the year ended December 31, 2014. For the year ended December 31, 2016, a total of $36.8million change in bank deposits and $12.2 million in purchase of (cid:69)inancial assets at fair value through pro(cid:69)it or loss. Forthe year ended December 31, 2015, we invested a total of $19.5 million in bank deposits and $1.6 million in purchasing ofintangible assets. For the year ended December 31, 2014, we invested a total of $17 million in bank deposits and $1.0million in purchasing of intangible assets. Financing activities Net cash (cid:69)low provided by (cid:69)inancing activities for the year ended December 31, 2016 amounted to approximately $36million, compared with approximately $54.8 million for the year ended December 31, 2015 and $24.4 million for the yearended December 31, 2014. For the year ended December 31, 2016, most of the cash from (cid:69)inancing activities resulted fromthe underwritten public offering and the concurrent registered direct offering for a total net amount of $35.8 million. In2015, most of the cash (cid:69)lows from (cid:69)inancing activities resulted from the two underwritten public offerings for a total netamount of $54.7 million. In 2014, most of the cash (cid:69)lows from (cid:69)inancing activities resulted from the January 2014 privateplacements for a total net amount of $19.4 million and from the exercise of warrants for a net amount of $5.0 million. We did not have any material commitments for capital expenditures, including any anticipated material acquisition ofplant and equipment or interests in other companies, as of December 31, 2016. 77 ®®® Table of ContentsC. Research and Development, Patents and Licenses Our research and development expenses consist primarily of costs of clinical trials, professional services, share-basedpayments and payroll and related expenses. The clinical trials costs are mainly related to payments to third parties tomanufacture our therapeutic candidates, to perform clinical trials with our therapeutic candidates and to provide us withregulatory services. We charge all research and development expenses to operations as they are incurred. We expect ourresearch and development expense to remain our primary expense in the near future as we continue to develop ourtherapeutic candidates. 2016 2015 2014Payroll and related expenses 0.7 0.6 0.6 Professional services 1.8 2 1.7 Share-based payments 0.8 0.9 0.9 Clinical trials, net 20.7 13.4 8.5 Intellectual property development 0.4 0.2 0.6 Other 0.8 0.7 0.4 Total 25.2 17.8 12.7 Due to the inherently unpredictable nature of clinical development processes, we are unable to estimate with any certaintythe costs we will incur in the continued development of the therapeutic candidates in our pipeline for potentialcommercialization. While we are currently focused on advancing each of our therapeutic candidates, our future research and developmentexpenses will depend on the clinical success of each therapeutic candidate, rate of patient recruitment and the ongoingassessments of each therapeutic candidate’s commercial potential. In addition, we cannot forecast with any degree ofcertainty which therapeutic candidates may be subject to future commercialization arrangements, when suchcommercialization arrangements will be secured, if at all, and to what degree such arrangements would affect ourdevelopment plans and capital requirements. See “Item 3. Key Information – D. Risk Factors – If we or our development orcommercialization partners are unable to obtain or maintain FDA or other foreign regulatory clearance and approval forour therapeutic candidates or products we may sell or market, we or our commercialization partners will be unable tocommercialize our therapeutic candidates or products we may sell or market.” As we obtain results from clinical trials, we may elect to discontinue or delay development and clinical trials for certaintherapeutic candidates in order to focus our resources on more promising therapeutic candidates or projects. Completionof clinical trials by us or our licensees may take several years or more, but the length of time generally varies according tothe type, complexity, novelty and intended use of a therapeutic candidate. See “Item 3. Key Information – D. Risk Factors –Risks Related to Our Business and Regulatory Matters.” We expect our research and development expenses to increase from current levels as we continue the advancement of ourclinical trials and therapeutic candidates’ development. The lengthy process of completing clinical trials and seekingregulatory approvals for our therapeutic candidates requires substantial expenditures. Any failure or delay in completingclinical trials, or in obtaining regulatory approvals, could cause a delay in generating product revenue and cause ourresearch and development expenses to increase and, in turn, have a material adverse effect on our operations. Due to thefactors set forth above, we are not able to estimate with any certainty if and when we would recognize any substantialrevenues from our projects. D. Trend Information We are a specialty biopharmaceutical company primarily focused primarily on the development and commercialization oflate clinical-stage, proprietary, orally-administered, small molecule drugs for the treatment of GI and in(cid:69)lammatorydiseases and cancer. It is not possible for us to predict with any degree of accuracy the outcome of our research and development or ourcommercialization success with regard to any of our therapeutic candidates. Our research and development expenditure isour primary expenditure. Increases or decreases in research and development expenditures are primarily attributable tothe level and results of our clinical trial activities and the amount of expenditure on those trials. In December 2016, wewere granted certain rights to promote Donnatalin the U.S., a specialty GI product currently included in the FDA DESIreview78 ® Table of Contentsprogram, which is part of our goal to build our own marketing and commercialization capabilities to support futurecommercialization of our therapeutic candidates. E. Off-Balance Sheet Arrangements Since inception, we have not entered into any transactions with unconsolidated entities whereby we have (cid:69)inancialguarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us tomaterial continuing risks, contingent liabilities, or any other obligations under a variable interest in an unconsolidatedentity that provides us with financing, liquidity, market risk or credit risk support. F. Tabular Disclosure of Contractual Obligations The following table summarizes our significant contractual obligations on December 31, 2016: More Less than 1-3 3-5 than 5 Total 1 year years years years (U.S. dollars in thousands) (Unaudited)Office lease obligations 1,141 370 771 — — Accounts payable and accrued expenses 3,356 3,356 — — — Payable in respect of intangible assetpurchase 2,000 2,000 — — — Total 6,497 5,726 771 — — The foregoing table does not include our in-license agreements with Temple University, IntelGenx Corp., Wilex, Apogee,our asset sale agreement with Giaconda Limited and our agreement with UCF or University of Minnesota, pursuant towhich we are obligated to make various payments upon the achievement of agreed upon milestones or make certainroyalty payments since we are unable to currently estimate the actual amount or timing of these payments. If all of themilestones are achieved over the life of each in-licensing agreement, we will be required to pay, in addition to the amountsin the above table and royalties on our net income, an aggregate amount of approximately $3.1 million for milestonesachieved. All of our in-licensing agreements are terminable at-will by us upon prior written notice. See “Item 4.Information on the Company – B. Business Overview – Acquisition and License Agreements.” The foregoing table does not include our manufacturing agreements pursuant to which we are obligated to make variouspayments upon the achievement of agreed upon milestones. We are unable to currently estimate the actual amount ortiming of these payments. If all of the milestones are achieved over the life of the manufacturing agreements, we will berequired to pay, in addition to the above table and royalties on our net income, an aggregate amount of approximately $2.4million. All of our manufacturing agreements are terminable at-will by us upon short prior written notice. The foregoing table also does not include payments payable under our clinical services agreements, all of which arecontingent upon the completion of milestones. See “Item 4. Information on the Company – B. Business Overview – ClinicalServices Agreements.” 79 Table of Contents ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A. Directors and Senior Management The following table sets forth the name, age and position of each of our executive of(cid:69)icers and directors as of the date ofthis Annual Report. Name Age Position(s) Executive Officers Dror Ben-Asher 51 Chief Executive Officer and Chairman of the Board of DirectorsMicha Ben Chorin 48 Chief Financial OfficerReza Fathi, Ph.D. 62 Senior Vice President Research and DevelopmentGilead Raday 42 Chief Operating OfficerAdi Frish 47 Senior Vice President Business Development and LicensingGuy Goldberg 41 Chief Business OfficerUri Hananel Aharon 36 Chief Accounting Officer Directors Dr. Shmuel Cabilly (2) 67 DirectorEric Swenden 72 DirectorDr. Kenneth Reed 63 DirectorDan Suesskind (1) 73 DirectorRick D. Scruggs 57 DirectorOfer Tsimchi (1), (2) 57 DirectorNurit Benjamini (1), (2) 50 DirectorNicolas A. Weinstein (3) 35 Board nominee(1)Member of our audit committee that also serves as our financial statements committee.(2)Member of our compensation committee.(3)Mr. Weinstein has been approved as a director nominee by our board of directors, and our shareholders will vote onhis election to the board of directors at the next annual meeting of our shareholders. Currently, he serves as anobserver to our board of directors. Executive officers Dror Ben-Asher has served as our Chief Executive Of(cid:69)icer and as a director since August 3, 2009. Since May 4, 2011, Mr.Ben-Asher has also served as Chairman of our board of directors. From January 2002 to November 2010, Mr. Ben-Asherserved as a manager at P.C.M.I. Ltd.. Mr. Ben-Asher is currently a director at Agrea Ltd. Mr. Ben-Asher holds an LLB fromthe University of Leicester, U.K., an MJur. from Oxford University, U.K. and completed LLM studies at Harvard University. Micha Ben Chorin has served as our Chief Financial Of(cid:69)icer since March 1, 2016. From 2014 until 2016, Mr. Ben Chorinserved as Chief Financial Of(cid:69)icer of Pyramid Analytics. From 2009 until 2013 he served as CFO of Starhome B.V., from2005 until 2009 as CFO of Winetwors, and from 1998 until 2005 Mr. Ben Chorin served as Chief Financial Of(cid:69)icer at GVT(currently Telefonica Brazil). Mr. Ben Chorin previously served on the boards of DIC and Petroleum & EnergyInfrastructures LTD. Mr. Ben Chorin holds a B.A. from Tel Aviv University and is a Certified Public Accountant. Reza Fathi, Ph.D., has served as our Senior Vice President Research and Development since May 1, 2010. From 2005 to2009, Dr. Fathi served as a Director of Research in XTL Biopharmaceuticals Inc., a biotechnology company engaged indeveloping small molecule clinical candidates for infectious diseases. Prior to that, from 2000-2005, Dr. Fathi served asDirector of Research at Vivoquest, Inc. where he was responsible for developing a number of novel natural product-basedcombinatorial technologies for infectious diseases such as HCV and HIV. Between 1998-2000, he served as a Manager ofChemical Biology Research at the Institute of Chemistry and Chemical Biology (ICCB) at Harvard Medical School,pioneering chemical genetics to identify small molecules in cancer biology, and from 1991-1998 headed the DiscoveryGroup at PharmaGenics, Inc. Dr. Fathi holds a Postdoctoral and Ph.D. in Chemistry from Rutgers University. 80 Table of ContentsGilead Raday has served as our Chief Operating Of(cid:69)icer since April 1, 2016. From December 5, 2012 until March 31, 2016,Mr. Raday served as Senior Vice President Corporate and Product Development. From November 2010 to December 2012,Mr. Raday served as our Vice President Corporate and Product Development. From January 2010 until October 2010, Mr.Raday served as Interim Chief Executive Of(cid:69)icer of Sepal Pharma Plc., an oncology drug development company, and fromJanuary 2009 to December 2009, he was an independent consultant, specializing in business development and projectmanagement in the (cid:69)ield of life sciences. From 2004 to 2008, Mr. Raday was a partner in Charles Street Securities Europe,LLP, an investment banking (cid:69)irm, where he was responsible for the (cid:69)ield of life sciences. Mr. Raday serves on the boards ofSepal Pharma Plc., and ViDAC Limited. Mr. Raday previously served on the boards of Morria Biopharmaceuticals Plc.,Vaccine Research International Plc., TKsignal Plc., and Miras Medical Imaging Plc. He received his M.Sc. in Neurobiologyfrom the Hebrew University of Jerusalem, Israel, and an M.Phil. in Biotechnology Management from Cambridge University,U.K. Adi Frish has served as our Senior Vice President Business Development and Licensing since December 5, 2012. FromOctober 2010 to December 2012, Mr. Frish served as our Vice President Business Development and Licensing. From 2006to 2010, Mr. Frish served as the Chief Business Development at Medigus Ltd., a medical device company in the endoscopic(cid:69)ield, and from 1998 to 2006, Mr. Frish was an associate and a partner at the law (cid:69)irm of Y. Ben Dror & Co. Mr. Frish holdsan LLB from Essex University, U.K. and an LLM in Business Law from the Bar-Ilan University, Israel. Guy Goldberg has served as our Chief Business Of(cid:69)icer since 2012. From 2007 to 2012, Mr. Goldberg served as VicePresident and then as Senior Vice President of Business Operations at Eagle Pharmaceuticals, a specialty injectable drugdevelopment company, based in New Jersey. From 2004 to 2007, Mr. Goldberg was an associate at ProQuest Investments,a healthcare focused venture capital (cid:69)irm, and from 2002 to 2004, Mr. Goldberg was a consultant at McKinsey & Company.Mr. Goldberg holds a B.A. in Economics and Philosophy from Yale University and a J.D. from Harvard Law School. Uri Hananel Aharon has served as our Chief Accounting Of(cid:69)icer since 2011. From 2007 to 2011, Mr. Aharon served as ateam manager at Ernst & Young Israel, specializing in auditing and (cid:69)inancial consulting for companies traded on TheNASDAQ Stock Market and the TASE, both in the biotech and high-tech sectors. From 2004 to 2007, Mr. Aharon served asan accounting intern at Ziv Haft, BDO. Mr. Aharon holds a B.A. in Accounting and Economics from the Hebrew Universityof Jerusalem, Israel, and an M.B.A. in Business Taxation from the Academic College for Management in Rishon Lezion,Israel. Directors Dr. Shmuel Cabilly has served as a member of our board of directors since August 26, 2010, and has served on ourcompensation committee since May 5, 2011. Dr. Cabilly is a scientist and inventor in the (cid:69)ield of immunology. In theBackman Research Institute of the City of Hope Dr. Cabilly initiated the development of a new breakthrough technology forrecombinant antibody production, which was patented and known as the “Cabilly Patent”. Dr. Cabilly was also a co-founder and a Chief Scientist of Ethrog Biotechnology, where he invented dry buffer technologies enabling the productionof a liquid free disposable apparatus for gel electrophoresis and a technology that enables the condensation of molecularseparation zones to a small gel area. This technology was sold to Invitrogen in 2001. Dr. Cabilly serves as a board memberat several companies, including Vidac Pharma Ltd., BioKine Therapeutics Ltd., Neuroderm Ltd., Biologic Design Ltd., andOrnim Inc. Dr. Cabilly holds a B.Sc. in Biology from the Ben Gurion University of Beer Sheva, Israel, an M.Sc. inImmunology and Microbiology from the Hebrew University of Jerusalem, Israel, and a Ph.D. in Immunology andMicrobiology from the Hebrew University of Jerusalem, Israel. Eric Swenden has served as a member of our board of directors since May 3, 2010, and has served on our investmentcommittee since May 5, 2011. From 1966 until 2001 Mr. Swenden served in various positions including Chief ExecutiveOf(cid:69)icer (since 1985) and Executive Chairman (since 1990) of Vandemoortele Food Group, a privately held Belgium-basedEuropean food group with revenue of approximately EUR 2 billion, and he currently serves on the board of directors ofTBC S.A. and Alterpharma N.V. Mr. Swenden holds an M.A. in Commercial Science from the University of Antwerp,Belgium. The board of directors has determined that Mr. Swenden is a financial and accounting expert under Israeli law. Dr. Kenneth Reed has served as a member of our board of directors since December 15, 2009. Dr. Reed is a dermatologistpracticing in a private practice under the name of Kenneth Reed M.D. PC. Dr. Reed currently serves on the board ofdirectors of Minerva Biotechnologies Corporation. Dr. Reed received his B.A from Brown University in the U.S and a M.Dfrom the university of Medicine and Dentistry of New Jersey in the U.S. Dr. Reed is a board certified dermatologist81 Table of Contentswith the over 25 years of clinical experience since completing the Harvard Medical School Residency Program inDermatology. Dr. Reed is also a cofounder of Early Cell, a prenatal diagnostics company, and Prescient Pharma. Dan Suesskind has served as a member of our board of directors since February 21, 2011 and has served on our auditcommittee and investment committee since May 5, 2011. From 1977 to 2008, Mr. Suesskind served as the Chief FinancialOf(cid:69)icer of Teva Pharmaceutical Industries Ltd. Mr. Suesskind served as a director of Teva Pharmaceutical Industries Ltd.from 1981 to 2001 and again from 2010 - 2014. In addition, Mr. Suesskind currently serves on the board of directors ofSyneron Medical Ltd., Israel Corporation Ltd. as well as a member of the board of trustees of the Hebrew University. Mr.Suesskind is one of the founders and a member of the steering committee of the Israeli Forum of Chief Financial Of(cid:69)icers. Mr. Suesskind holds a B.A. in Economics and Political Science from the Hebrew University of Jerusalem, Israel, and anM.B.A. from University of Massachusetts. The board of directors has determined that Mr. Suesskind is a (cid:69)inancial andaccounting expert under Israeli law. Rick D. Scruggs has served as a member of our board of directors since January 1, 2016. Mr. Scruggs most recently servedas Executive Vice President of Business Development at Salix until its acquisition by Valeant in March 2015. Mr. Scruggsjoined Salix in 2000, after working at Oclassen Pharmaceuticals Inc. and Watson Pharmaceuticals, and helped build Salix’scommercial organization, serving in various sales and commercial trade related positions. He was appointed as ExecutiveVice President in 2011 and was responsible for all business development activities as well as the worldwide distributionof Salix innovative products and intellectual property. Mr. Scruggs also served as the Head of the board of directors ofOceana Therapeutics, Salix’s European subsidiary. Mr. Scruggs holds a B.S. in Criminal Justice from the Appalachian StateUniversity in North Carolina. Ofer Tsimchi has served as a director on our board of directors since May 4, 2011, a member of our audit committee and asthe Chairman of our compensation committee since May 5, 2011. From 2008 to 2012, Mr. Tsimchi served as the Chairmanof the board of directors of Polysack Plastic Industries Ltd. and Polysack-Agriculture Products, and since 2006, he hasserved as a Partner in the Danbar Group Ltd., a holding company. Mr. Tsimchi currently serves on the board of directors ofKidron Industrial Materials Ltd., Amutat Zionut 2000, Danbar Group Ltd, and Polysack Agriculture Hi-Technologies,CaesarStone Sdot-Yam Ltd. and Maabarot Products Ltd. Mr. Tsimchi received his BA in Economics and Agriculture from theHebrew University of Jerusalem, Israel. The board of directors has determined that Mr. Tsimchi is a (cid:69)inancial andaccounting expert under Israeli law. Nurit Benjamini has served as a director on our board of directors and a chairperson of our audit committee and a memberof our compensation committee since February 16, 2016 and has served on our investment committee since February 22,2017. Since December 2013, Ms. Benjamini has served as the Chief Financial Of(cid:69)icer of TabTale Ltd. a company thatdevelops, designs and manufactures interactive digital content to be displayed on electronic devices and websites. From2011 to 2013, Ms. Benjamini served as the Chief Financial Of(cid:69)icer of Wixpress Ltd. (NASDAQ: WIX); from 2007 through2011, she served as the Chief Financial Of(cid:69)icer of CopperGate Communications Ltd. now Sigma Designs Israel, a subsidiaryof Sigma Designs Inc. (NASDAQ: SIGM); and from 2000 through 2007, she served as the Chief Financial Of(cid:69)icer ofCompugen Ltd. (NASDAQ: CGEN). Prior to that, from 1993 through 1998, Ms. Benjamini served as the Chief FinancialOf(cid:69)icer of Aladdin Knowledge Systems Ltd. (formerly NASDAQ: ALDN). Ms. Benjamini serves as an external director ofBiolineRx Ltd. (NASDAQ/TASE: BLRX), and as the chairperson of its audit committee, and on the board of directors, and aschairperson of the audit committee, of Allot Communications Ltd. (NASDAQ/TASE: ALLT). Ms. Benjamini holds a B.A. ineconomics and business and an M.B.A. in finance, both from Bar Ilan University, Israel. Nicolas Weinstein has served as Managing Director of Water Bear Investments LLC, a healthcare and real estateinvestments services company since January 2017. From 2014 to 2015, Mr. Weinstein served as country head in Chile forAbbott Laboratories / CFR Pharmaceuticals. In 2014, Mr. Weinstein served as VP Marketing & Sales of CFRPharmaceuticals, and from 2012 to 2013, he served as VP Business Development of CFR Pharmaceuticals. From 2008 to2010, Mr. Weinstein served as VP Marketing & Sales of CFR Pharmaceuticals. Mr. Weinstein currently leads the healthcareand venture investments of EMC2 Fund Ltd. and its partnership interests in Olive Tree Ventures Limited Partnership(Israel) and Puma Bioventures (a U.S. biotech fund). Mr. Weinstein is a director in investee companies of EMC2, includingAquila Diagnotics, Medasense, Via Surgical, Harbo and Selfpoint. Mr. Weinstein holds an M.Sc. in Finance fromUniversidad Adolfo Ibanez (Chile) and an MBA from the Kellogg School of Management (2012). Mr. Weinstein has beennominated to our board of directors by EMC2 Fund Ltd. pursuant to the right granted by the Company to any investor thatinvests at least $15 million in the Company in our December 2016 public offering to nominate one person to our board ofdirectors, subject to various conditions described in the prospectus the Company filed with the SEC. 82 Table of ContentsB. Compensation The aggregate compensation paid, and bene(cid:69)its in-kind granted to or accrued on behalf of all of our directors and executiveof(cid:69)icers for their services, in all capacities, to us during the year ended December 31, 2016 was approximately $2.5million. Out of that amount $1.6 million was paid as salary and consultants fees, $0.5 million was attributed to the valueof the options granted to senior management during 2016, approximately $0.1 million was attributed to retirement plansand $0.3 million attributed to other long-term bene(cid:69)its. No additional amounts have been set aside or accrued by us toprovide pension, retirement or similar benefits. The compensation terms for our directors and of(cid:69)icers are derived from their employment agreements and comply withour Compensation Policy for Executive Of(cid:69)icers and Directors as approved by our shareholders on June 8, 2016 (the“Compensation Policy”). The table and summary below outline the compensation granted to our (cid:69)ive highest compensated directors and of(cid:69)icersduring the year ended December 31, 2016. The compensation detailed in the table below refers to actual compensationgranted or paid to the director or officer during the year 2016. Value of Equity Base Salary or Value of Based Name and Position of director or Other Social Compensation All Other officer Payment (1) benefits (2) Bonuses Granted (3) Compensation (4) Total Amounts in U.S.$ dollars are based on 2016 monthly average representative U.S. dollar – NIS rate of exchange Dror Ben-Asher, ChiefExecutive Officer (5) 262,454 52,084 — 338,118 18,787 671,443 Micha Ben Chorin, CFO 162,642 46,370 — 207,458 14,784 431,254 Gilead Raday, Chief OperatingOfficer 218,087 28,854 40,000 — 15,262 302,203 Reza Fathi, Senior VicePresident Research andDevelopment 246,000 — — — 21,014 267,014 Guy Goldberg, Chief BusinessOfficer 172,419 36,454 — — 12,525 221,398 (1)“Base Salary or Other Payment” means the aggregate yearly gross monthly salaries or other payments with respect tothe Company's Executive Officers and members of the board of directors for the year 2016.(2)“Social Benefits” include payments to the National Insurance Institute, advanced education funds, managers’ insuranceand pension funds; vacation pay; and recuperation pay as mandated by Israeli law.(3)Consists of the fair value of the equity-based compensation granted during 2016 in exchange for the directors andof(cid:69)icers services recognized as an expense in pro(cid:69)it or loss and is carried to accumulated de(cid:69)icit under equity. Thetotal amount recognized as an expense over the vesting period of the options.(4)“All Other Compensation” includes, among other things, car-related expenses (including tax gross-up), communicationexpenses, basic health insurance, and holiday presents.(5)Mr. Ben-Asher's employment terms as the Company’s Chief Executive Of(cid:69)icer provide that Mr. Ben-Asher is entitled toa monthly base gross salary of NIS 90,000 (approximately $24,300). Mr. Ben-Asher is further entitled to vacationdays, sick days and convalescence pay in accordance with market practice and applicable law, monthly remunerationfor a study fund, contribution by the Company to an insurance policy and pension fund, and additional bene(cid:69)its,including communication expenses. In addition, Mr. Ben-Asher is entitled to reimbursement of car-related expensesfrom the Company. Mr. Ben-Asher’s employment terms include an advance notice period of 180 days by the Companyand 90 days by Mr. Ben-Asher. During such advance notice period, Mr. Ben-Asher will be entitled to all of thecompensation elements, and to the continuation of vesting of any options or restricted shares granted to him.Additionally, in the event Mr. Ben-Asher's employment is terminated in connection with a “hostile takeover,” he willbe entitled to a special one-time bonus equal to his then current monthly salary and retirement bene(cid:69)its, includingpayments to an advanced study fund and pension arrangement and car expense reimbursement, multiplied by 12. A“hostile takeover” is de(cid:69)ined as an occurrence where a person, entity or group that was not an interested party underthe Israeli Securities Law 1968 on the date of the initial public offering of our Ordinary Shares, becomes a “controllingshareholder,” as de(cid:69)ined in the Israeli Securities Law 1968, or a “holder,” as de(cid:69)ined in the Israel Securities Law 1968,of 25% or more of the voting rights in the Company. In addition, in case of an “hostile takeover”, all options granted toMr. Ben-Asher will immediately vest in full. 83 Table of ContentsIn addition, all of our directors and executive of(cid:69)icers are covered under our directors’ and executive of(cid:69)icers’ liabilityinsurance policies and were granted letters of indemnification by us. Employment Agreements We have entered into employment or consultant agreements with each of our executive of(cid:69)icers. All of these agreementscontain customary provisions regarding noncompetition, con(cid:69)identiality of information and assignment ofinventions. However, the enforceability of the noncompetition provisions may be limited under applicable laws. For information on exemption and indemni(cid:69)ication letters granted to our directors and of(cid:69)icers, please see “Item 6 C. –Board Practices – Exemption, Insurance and Indemnification of Directors and Officers”. Director Compensation We currently pay our non-executive directors an annual cash fee of NIS 83,480 (approximately $22,500) and a cash fee ofNIS 4,390 (approximately $1,200) per meeting (or a smaller amount in the case where they do not physically attend themeeting). Compensation Policy On June 8, 2016, our shareholders approved the Compensation Policy for our directors and of(cid:69)icers in accordance withAmendment No. 20 to the Israeli Companies Law, pursuant to which we are required to determine compensation of ourdirectors and of(cid:69)icers and which must be approved by our shareholders every three years. The policy was previouslyapproved by our board of directors, upon recommendation of our compensation committee. The Compensation Policy is in effect for three years from the 2016 annual general meeting. Our Compensation Policyprinciples were designed to grant proper, fair and well-considered remuneration to our of(cid:69)icers, in alignment with ourlong-term best interests and overall organizational strategy. Part of the rationale is that our Compensation Policy shouldencourage our of(cid:69)icers to identify with our objectives, and an increase in of(cid:69)icer satisfaction and motivation should retainthe employment of high-quality officers in our service over the long term. C. Board Practices Appointment of Directors and Terms of Officers Pursuant to our articles of association, the size of our board of directors shall be no less than (cid:69)ive persons and no morethan seven persons, excluding the external directors whose appointment is required by law. The directors who are notexternal directors are divided into three classes, as nearly equal in number as possible. At each annual general meeting,which is required to be held annually, but not more than (cid:69)ifteen months after the prior annual general meeting, the term ofone class of directors expires, and the directors of such class are re-nominated to serve an additional three-year term thatexpires at the annual general meeting held in the third year following such election. This process continues inde(cid:69)initely.The directors of the (cid:69)irst class, currently consisting of Dror Ben-Asher and Rick Scruggs, will hold of(cid:69)ice until our annualgeneral meeting to be held in the year 2017. The directors of the second class, currently consisting of Dr. Kenneth Reed,and Eric Swenden, will hold of(cid:69)ice until our annual general meeting to be held in the year 2018 and the directors of thethird class, currently consisting of Dr. Shmuel Cabilly and Dan Suesskind, will hold of(cid:69)ice until our annual general meetingto be held in the year 2019. Until the next annual general meeting, the board of directors may elect new directors to (cid:69)illvacancies, or increase the number of members of the board of directors up to the maximum number provided in ourarticles of association. Any director so appointed may hold of(cid:69)ice until the (cid:69)irst general shareholders’ meeting convenedafter the appointment. See “Item 6. “Directors, Senior Management and Employees – C. Board Practices – Independent andExternal Directors – Israeli Companies Law Requirements” below for a description of the adoption by the Company of thecorporate governance exemptions set forth in Regulation 5D of the Israeli Companies Regulations (Relief for PublicCompanies with Shares Listed for Trading on a Stock Market Outside of Israel), 5760-2000, including with respect toexternal directors. Pursuant to the Israeli Companies Law, one may not be elected and may not serve as a director in a public company if he orshe does not have the required quali(cid:69)ications and the ability to dedicate an appropriate amount of time for the performanceof his duties as a director in the company, taking into consideration, among other things, the special needs84 Table of Contentsand size of the company. In addition, a public company may convene an annual general meeting of shareholders to elect adirector, and may elect such director, only if prior to such shareholders meeting, the nominee declares, among otherthings, that he or she possesses all of the required quali(cid:69)ications to serve as a director (and lists such quali(cid:69)ications insuch declaration) and has the ability to dedicate an appropriate amount of time for the performance of his duties as adirector of the company. Under the Israeli Companies Law, entry by a public company into a contract with a non-controlling director as to the termsof his of(cid:69)ice, including exculpation, indemni(cid:69)ication or insurance, requires the approval of the compensation committee,the board of directors and the shareholders of the company. A recent amendment to the Israeli Companies Law requires that the terms of service and engagement of the chief executiveof(cid:69)icer, directors or controlling shareholders (or a relative thereof) receive the approval of the compensation committee,board of directors, and shareholders, subject to limited exceptions. The appointment and terms of of(cid:69)ice of a company'sof(cid:69)icers, other than directors and the general manager (i.e., chief executive of(cid:69)icer) are subject to the approval by (cid:69)irst, thecompany’s compensation committee; second, the company’s board of directors, in each case subject to the company'scompensation policy, and then approved by its shareholders. However, in special circumstances, they may approve theappointment and terms of of(cid:69)ice of of(cid:69)icers inconsistent with such policy, provided that (i) they have considered thoseprovisions that must be included in the compensation policy according to the Israeli Companies Law and (ii) shareholderapproval is obtained (by a majority of shareholders that does not include the controlling shareholders of the company andany shareholders interested in the approval of the compensation). However, if the shareholders of the company do notapprove a compensation arrangement with an of(cid:69)icer inconsistent with the company’s compensation policy, in specialsituations the compensation committee and the board of directors may override the shareholders’ decision if each of thecompensation committee and the board of directors provide detailed reasons for their decision. In addition, non-materialamendments to the compensation of a public company’s of(cid:69)icers (other than the chief executive of(cid:69)icer and the directors)may be approved by the chief executive of(cid:69)icer of the company if the company’s compensation policy establishes that non-material amendments within the parameters established in the compensation policy may be approved by the chiefexecutive of(cid:69)icer, so long as the compensation is consistent with the company’s compensation policy. An amendment tothe Israeli Companies Law requires that by August 11, 2013, the board and shareholders (with approval by a “specialmajority” as further discussed below) adopt a compensation policy applicable to the company’s directors and of(cid:69)icerswhich must take into account, among other things, providing proper incentives to directors and of(cid:69)icers, the riskmanagement of the company, the of(cid:69)icer’s contribution to achieving corporate objectives and increasing pro(cid:69)its, and thefunction of the of(cid:69)icer or director. Under the Israeli Companies Law, a “special majority” requires (i) the vote of at least amajority of the shares held by shareholders who are not controlling shareholders or have a personal interest in theproposal (shares held by abstaining shareholders are not be taken into account); or (ii) that the aggregate number of sharesvoting against the proposal held by such shareholders does not exceed 2% of the company's voting shareholders. The compensation paid to a public company’s chief executive of(cid:69)icer is required to be approved by, (cid:69)irst, the company’scompensation committee; second, the company’s board of directors; and third, unless exempted under the regulationspromulgated under the Israeli Companies Law, by the company’s shareholders (by a special majority vote as discussedabove with respect to the approval of director compensation). However, if the shareholders of the company do not approvethe compensation arrangement with the chief executive of(cid:69)icer, the compensation committee and board of directors mayoverride the shareholders’ decision if each of the compensation committee and the board of directors provide a detailedreport for their decision. The renewal or extension of the engagement with a public company’s chief executive of(cid:69)icer neednot be approved by the shareholders of the company if the terms and conditions of such renewal or extension are no morebene(cid:69)icial than the previous engagement or there is no substantial difference in the terms and conditions under thecircumstances, and the terms and conditions of such renewal or extension are in accordance with the company’scompensation policy. The compensation committee and board of directors approval should be in accordance with thecompany’s stated compensation policy; however, in special circumstances, they may approve compensation terms of achief executive of(cid:69)icer that are inconsistent with such policy provided that they have considered those provisions thatmust be included in the compensation policy according to the Israeli Companies Law and that shareholder approval wasobtained (by a special majority vote as discussed above with respect to the approval of director compensation). Thecompensation committee may waive the shareholder approval requirement with regards to the approval of the initialengagement terms of a candidate for the chief executive of(cid:69)icer position, if they determine that the compensationarrangement is consistent with the company’s stated compensation policy, and that the chief executive of(cid:69)icer did not havea prior business relationship with the company or a controlling shareholder of the company and that subjecting theapproval of the engagement to a shareholder vote would impede the company’s ability to employ the chief executiveof(cid:69)icer candidate. The engagement with a public company’s chief executive of(cid:69)icer need not be approved by theshareholders of the company85 Table of Contentswith respect to the period from the commencement of the engagement until the next shareholder meeting convened by thecompany, if the terms and conditions of such engagement were approved by the compensation committee and the board ofdirectors of the company, the terms and conditions of such engagement are in accordance with the company’scompensation policy approved in accordance with the Israeli Companies Law, and if the terms and conditions of suchengagement are no more bene(cid:69)icial than the terms and conditions of the person previously serving in such role or there isno substantial difference in the terms and conditions of the previous engagement versus the new one under thecircumstances, including the scope of engagement. We have a service contract with one of our directors, Dror Ben-Asher, that provides for bene(cid:69)its upon termination of hisemployment as director. For more information, see “Item 6. Directors, Senior Management and Employees – B.Compensation” . Independent and External Directors - Israeli Companies Law Requirements We are subject to the provisions of the Israeli Companies Law. The Israeli Minister of Justice has adopted regulationsexempting companies like us whose shares are traded outside of Israel from some provisions of the Israeli CompaniesLaw. Under the Israeli Companies Law, except as provided below, companies incorporated under the laws of Israel whoseshares are either (i) listed for trading on a stock exchange or (ii) have been offered to the public in or outside of Israel, andare held by the public (Public Company) are required to appoint at least two external directors. Our board of directors has resolved to adopt the corporate governance exception set forth in Regulation 5D of the IsraeliCompanies Regulations (the “Regulation”). In accordance with the Regulation, a public company with securities listed oncertain foreign exchanges, including the NASDAQ Stock Market, that satis(cid:69)ies the applicable foreign country laws andregulations that apply to companies organized in that country relating to the appointment of independent directors andcomposition of audit and compensation committees and have no controlling shareholder are exempt from the requirementto appoint external directors or comply with the audit committee and compensation committee composition requirementsunder the Israeli Companies Law. In accordance with our board of directors’ resolution, pursuant to the Regulation, weintend to comply with the NASDAQ Listing Rules in connection with a majority of independent directors on the board ofdirectors and in connection with the composition of each of the audit committee and the compensation committee, in lieuof such requirements of the Israeli Companies Law. In accordance with the transition rules set forth in the Regulation,effective as of our adoption of the exemptions under the Regulation on May 22, 2016, our external directors then in of(cid:69)ice,Mr. Ofer Tsmichi and Ms. Nurit Benjamini, were no longer classi(cid:69)ied as such under the Israeli Companies Law. Thetransition rules provide that such directors have the right to remain in of(cid:69)ice as our directors at their option after theexemptions under the Regulation are adopted until the earlier of such directors' original end of term of of(cid:69)ice or the secondannual meeting of shareholders after the adoption of the exemption under the Regulation, which in the case of Ms. NuritBenjamini is until the date of our annual meeting of shareholders in 2017 and in the case of Mr. Ofer Tsimchi is the earlierof April 30, 2017 or the date of our annual meeting of shareholders in 2017. The Israeli Companies Law provides that a person may not be appointed as an external director if the person is a relative ofthe controlling shareholder or if the person or the person’s relative, partner, employer, someone to whom he issubordinated directly or indirectly or any entity under the person’s control, has, as of the date of the person’s appointmentto serve as external director, or had, during the two years preceding that date, any af(cid:69)iliation with us, our controllingshareholder, any relative of our controlling shareholder, as of the date of the person’s appointment to serve as externaldirector, or any entity in which, currently or within the two years preceding the appointment date, the controllingshareholder was the company or the company's controlling shareholder; and in a company without a controllingshareholder or without a shareholder holding 25% or more of the voting rights in the company, any af(cid:69)iliation to thechairman of the board of directors, to the general manager (Chief Executive Of(cid:69)icer), to a shareholder holding 5% or moreof the company's shares or voting rights, or to the chief of(cid:69)icer in the (cid:69)inancial or economic (cid:69)ield as of the date of theperson’s appointment. The term “affiliation” includes: ·an employment relationship;·a business or professional relationship maintained on a regular basis;·control; and·service as an officer, other than service as a director who was appointed in order to serve as an external director ofa company when such company was about to make an initial public offering.86 Table of Contents Under the Israeli Companies Law, an “of(cid:69)icer” is de(cid:69)ined as a general manager, chief business manager, deputy generalmanager, vice-general manager, any person (cid:69)iling any of these positions in a company even if he holds a different title,director or any manager directly subordinate to the general manager. However, a person may not serve as an external director if the person or the person’s relative, partner, employer, someoneto whom he is subordinated directly or indirectly or any entity under the person’s control has business or professionalrelationship with an entity which an af(cid:69)iliation with is prohibited as detailed above, even if such relationship is not on aregular basis (excluding negligible relationship). In addition, an external director may not receive any compensation otherthan the compensation permitted by the Israeli Companies Law. Regulations under the Israeli Companies Law provide for various instances and kinds of relationships in which an externaldirector will not be deemed to have “af(cid:69)iliation” with the public company for which he serves, or is a candidate for servingas an external director. No person can serve as an external director if the person’s positions or other businesses create, or may create, a con(cid:69)lict ofinterests with the person’s responsibilities as a director or may impair his ability to serve as a director. In addition, aperson who is a director of a company may not be elected as an external director of another company if, at that time, adirector of the other company is acting as an external director of the first company. Except for the cessation of classi(cid:69)ication of directors as external directors in connection with the adoption by certaincompanies listed on foreign stock exchanges, including the NASDAQ Stock Market, of the corporate governance exceptionsset forth in the Regulation, as described above, until the lapse of two years from termination of of(cid:69)ice, a company, itscontrolling shareholder, or a company controlled by him may not engage an external director, his spouse, or child to serveas an of(cid:69)icer in the company or in any entity controlled by the controlling shareholder and cannot employ or receiveprofessional services for consideration from that person, and may not grant such person any bene(cid:69)it either directly orindirectly, including through a corporation controlled by that person. The same restrictions apply to relatives other than aspouse or a child, but such limitations may only apply for one year from the date such external director ceased to beengaged in such capacity. In addition, if at the time an external director is appointed all current members of the board ofdirectors who are neither controlling shareholders nor relatives of controlling shareholders are of the same gender, thenthe external director to be appointed must be of the other gender. Under the Israeli Companies Law, a public company is required to appoint as an external director, a person who has“professional expertise” or a person who has “(cid:69)inancial and accounting expertise,” provided that at least one of the externaldirectors must have “(cid:69)inancial and accounting expertise.” However, if at least one of our other directors (1) meets theindependence requirements of the Exchange Act, (2) meets the standards of the NASDAQ Stock Market for membership onthe audit committee and (3) has (cid:69)inancial and accounting expertise as de(cid:69)ined in the Israeli Companies Law and applicableregulations, then neither of our external directors is required to possess (cid:69)inancial and accounting expertise as long as bothpossess other requisite professional quali(cid:69)ications. The determination whether a director possesses (cid:69)inancial andaccounting expertise is made by the board of directors. Under the Israeli Companies Law regulations, a director having (cid:69)inancial and accounting expertise is a person who, due tohis education, experience and quali(cid:69)ications is highly skilled in respect of, and understands, business-accounting mattersand (cid:69)inancial reports in a manner that enables him to understand in depth the company’s (cid:69)inancial statements and tostimulate discussion regarding the manner in which the (cid:69)inancial data is presented. Under the Israeli Companies Lawregulations, a director having professional expertise is a person who has an academic degree in either economics, businessadministration, accounting, law or public administration or another academic degree or has completed other highereducation studies, all in an area relevant to the main business sector of the company or in a relevant area for the board ofdirectors position, or has at least (cid:69)ive years of experience in one of the following or at least (cid:69)ive years of aggregateexperience in two or more of the following: a senior management position in the business of a corporation with asubstantial scope of business, in a senior position in the public service or a senior position in the main (cid:69)ield of thecompany’s business. Under the Israeli Companies Law, each Israeli public company is required to determine the minimum number of directorswith “accounting and (cid:69)inancial expertise” that such company believes is appropriate in light of the company’s type, size,the scope and complexity of its activities and other factors. Once a company has made this determination, it must ensurethat the necessary appointments to the board of directors are made in accordance with this determination. Our board of87 Table of Contentsdirectors determined that two directors with “accounting and (cid:69)inancial expertise” is appropriate for us. Our board ofdirectors currently has five directors with such “accounting and financial expertise.” External directors are to be elected by a majority vote at a shareholders’ meeting, provided that either (1) the majority ofshares voted at the meeting, including at least a majority of the votes of the shareholders who are not controllingshareholders (as de(cid:69)ined in the Israeli Companies Law), do not have a personal interest in the appointment (excluding apersonal interest which did not result from the shareholder’s relationship with the controlling shareholder), vote in favorof the election of the director without taking abstentions into account; or (2) the total number of shares of the abovementioned shareholders who voted against the election of the external director does not exceed two percent of theaggregate voting rights in the company. The initial term of an external director is three years and may be extended for two additional three-year terms undercertain circumstances and conditions. Nevertheless, regulations under the Israeli Companies Law provide that companies,whose shares are listed for trading both on the TASE and on the NASDAQ Stock Market, may appoint an external directorfor additional three-year terms, under certain circumstances and conditions. External directors may be removed only in ageneral meeting, by the same percentage of shareholders as is required for their election, or by a court, and in both casesonly if the external directors cease to meet the statutory quali(cid:69)ications for their appointment or if they violate their duty ofloyalty to us. Each committee authorized to exercise any of the powers of the board of directors, is required to include atleast one external director and the audit committee is required to include all of the external directors. An external director is entitled to compensation and reimbursement of expenses in accordance with regulationspromulgated under the Israeli Companies Law and is otherwise prohibited from receiving any other compensation,directly or indirectly, in connection with serving as a director except for certain exculpation, indemni(cid:69)ication andinsurance provided by the company. Committees Israeli Companies Law Requirements Our board of directors has established three standing committees, the audit committee, the compensation committee andthe investment committee. Audit Committee Under the Israeli Companies Law, the board of directors of a public company must appoint an audit committee. Except inthe case of companies listed on foreign stock exchanges, including the NASDAQ Stock Market, which have adopted thecorporate governance exceptions set forth in the Regulation, such as us, as described under "- Independent and ExternalDirectors - Israeli Companies Law Requirements", who are exempt from the audit committee composition requirementsunder the Companies Law, an audit committee of a public company under the Israeli Companies Law must be comprised ofat least three directors including all of the external directors. In addition, the Israeli Companies Law provides that the majority of the members of the audit committee, as well as themajority of members present at audit committee meetings, must be “independent” (as such term is de(cid:69)ined below) and thechairman of the audit committee must be an external director. In addition, the following are disquali(cid:69)ied from serving asmembers of the audit committee: the chairman of the board of directors, the controlling shareholder and her or hisrelatives, any director employed by the company or by its controlling shareholder or by an entity controlled by thecontrolling shareholder, a director who regularly provides services to the company or to its controlling shareholder or toan entity controlled by the controlling shareholder, and any director who derives most of its income from the controllingshareholder. Any persons not quali(cid:69)ied from serving as a member of the audit committee may not be present at the auditcommittee meetings during the discussion and at the time decisions are made, unless the chairman of the audit committeedetermines that the presence of such person is required to present a matter to the meeting or if such person quali(cid:69)ies underan available exemption in the Israeli Companies Law. An “independent director” is de(cid:69)ined as an external director or a director who meets the following conditions: (i) satis(cid:69)iescertain conditions for appointment as an external director (as described above) and the audit committee has determinedthat such conditions have been met and (ii) has not served as a director of the company for more than nine consecutiveyears, with any interruption of up to two years in service not being deemed a disruption in the continuity of such service.88 Table of Contents The role of the audit committee under the Israel Companies Law is to examine suspected (cid:69)laws in our businessmanagement, in consultation with the internal auditor or our independent accountants and suggest appropriate course ofaction in order to correct such (cid:69)laws. In addition, the approval of the audit committee is required to effect speci(cid:69)ied actionsand related party transactions. Additional functions to be performed by the audit committee include, among others, the following: ·determination whether certain related party actions and transactions are “material” or “extraordinary” forpurposes of the requisite approval procedures;·to determine whether to approve actions and transactions that require audit committee approval under the IsraelCompanies Law;·to assess the scope of work and compensation of the company’s independent accountant;·to assess the company’s internal audit system and the performance of its internal auditor and if the necessaryresources have been made available to the internal auditor considering the company’s needs and size; and·to determine arrangements for handling complaints of employees in relation to suspected (cid:69)laws in the businessmanagement of the company and the protection of the rights of such employees. Our audit committee also serves as our (cid:69)inancial statements committee. The members of our audit committee are Ms.Nurit Benjamini, Mr. Ofer Tsimchi and Mr. Dan Suesskind. A recent amendment to the Israeli Companies Law, enacted on February 17, 2016, or Amendment 27, allows a companywhose audit committee’s composition meets the requirements set for the composition of a compensation committee (asfurther detailed below) to have one committee acting as both audit and compensation committees. As of the date of thisAnnual Report, we have not elected to have one committee acting as both the audit and the compensation committees. Compensation Committee According to the Israeli Companies Law, the board of directors of a public company must establish a compensationcommittee. Except in the case of companies listed on foreign stock exchanges, including the NASDAQ Stock Market, whichhave adopted the corporate governance exceptions set forth in the Regulation, such as us, as described under "-Independent and External Directors - Israeli Companies Law Requirements", who are exempt from the compensationcommittee composition requirements under the Companies Law, the Israeli Companies Law requires that thecompensation committee must consist of at least three directors and including all of the external directors who mustconstitute a majority of its members. The remaining members must be quali(cid:69)ied to serve on the audit committee pursuantto the Israeli Companies Law requirements described above. The compensation committee chairman must be an externaldirector and any persons not quali(cid:69)ied from serving as a member of the compensation committee may not be present at thecompensation committee meetings during the discussion and at the time decisions are made, unless the chairman of thecompensation committee determines that the presence of such person is required to present a matter to the meeting or ifsuch person qualifies under an available exemption in the Israeli Companies Law. Our compensation committee, which consists of Mr. Ofer Tsimchi (chairman), Dr. Shmuel Cabilly and Ms. NuritBenjamini, administers issues relating to our global compensation plan with respect to our employees, directors andconsultants. Our compensation committee is responsible for making recommendations to the board of directors regardingthe issuance of share options and compensation terms for our directors and of(cid:69)icers and for determining salaries andincentive compensation for our executive of(cid:69)icers and incentive compensation for our other employees and consultants.Each of the members of the compensation committee is “independent” as such term is de(cid:69)ined in the NASDAQ ListingRules. Investment Committee Our investment committee, which consists of Mr. Eric Swenden (chairman), Mr. Dan Suesskind and Ms. Nurit Benjaminiassists the board in ful(cid:69)illing its responsibilities with respect to our (cid:69)inancial and investment strategies and policies,including determining policies and guidelines on these matters and monitoring implementation. It is also authorized toapprove certain (cid:69)inancial transactions and review risk factors associated with management of our (cid:69)inances and themitigation of such risks, as well as financial controls and reporting and various other finance-related matters. 89 Table of ContentsNASDAQ Stock Market Requirements Under the NASDAQ Listing Rules, we are required to maintain an audit committee consisting of at least three members, allof whom are independent and are (cid:69)inancially literate and one of whom has accounting or related (cid:69)inancial managementexpertise. The independence requirements of Rule 10A-3 of the Exchange Act implement two basic criteria for determiningindependence: ·audit committee members are barred from accepting directly or indirectly any consulting, advisory or othercompensatory fee from the issuer or an af(cid:69)iliate of the issuer, other than in the member’s capacity as a member ofthe board of directors and any board committee; and·audit committee members may not be an “af(cid:69)iliated person” of the issuer or any subsidiary of the issuer apartfrom her or his capacity as a member of the board of directors and any board committee. The SEC has de(cid:69)ined “af(cid:69)iliate” for non-investment companies as “a person that directly, or indirectly through one or moreintermediaries, controls, or is controlled by, or is under common control with, the person speci(cid:69)ied.” The term “control” isintended to be consistent with the other de(cid:69)initions of this term under the Exchange Act, as “the possession, direct orindirect, of the power to direct or cause the direction of the management and policies of a person, whether through theownership of voting securities, by contract, or otherwise.” A safe harbor has been adopted by the SEC, under which aperson who is not an executive of(cid:69)icer or 10% shareholder of the issuer would be deemed not to have control of the issuer. In accordance with the Sarbanes-Oxley Act of 2002 and the NASDAQ Listing Rules, the audit committee is directlyresponsible for the appointment, compensation and performance of our independent auditors. In addition, the auditcommittee is responsible for assisting the board of directors in reviewing our annual (cid:69)inancial statements, the adequacy ofour internal controls and our compliance with legal and regulatory requirements. The audit committee also oversees ourmajor (cid:69)inancial risk exposures and policies for managing such potential risks, discusses with management and ourindependent auditor significant risks or exposure and assesses the steps management has taken to minimize such risk. As noted above, the members of our audit committee include Ms. Nurit Benjamini, Mr. Ofer Tsimchi and Mr. DanSuesskind, with Ms. Benjamini serving as chairman. All members of our audit committee meet the requirements for(cid:69)inancial literacy under the NASDAQ Listing Rules. Our board of directors has determined that each of Mr. Ofer Tsimchiand Ms. Nurit Benjamini is an audit committee (cid:69)inancial expert as de(cid:69)ined by the SEC rules and all members of the auditcommittee have the requisite (cid:69)inancial experience as de(cid:69)ined by the NASDAQ Listing Rules. Each of the members of theaudit committee is “independent” as such term is defined in Rule 10A-3(b)(1) under the Exchange Act. Corporate Governance Practices Internal Auditor Under the Israeli Companies Law, the board of directors must appoint an internal auditor proposed by the audit committee.The role of the internal auditor is, among others, to examine whether our actions comply with the law and orderlybusiness procedure. Under the Israeli Companies Law, the internal auditor may not be an interested party, an of(cid:69)icer or adirector, a relative of an interested party, or a relative of an of(cid:69)icer or a director, nor may the internal auditor be ourindependent accountant or its representative. Ms. Dana Gottesman-Erlich, Partner at Risk Advisory Services Group at BDOIsrael, serves as our internal auditor. Duties of Directors and Of(cid:72)icers and Approval of Speci(cid:72)ied Related Party Transactions under the IsraeliCompanies Law Fiduciary Duties of Officers The Israeli Companies Law imposes a duty of care and a duty of loyalty on all directors and of(cid:69)icers of a company,including directors and executive of(cid:69)icers. The duty of care requires a director or an of(cid:69)icer to act with the level of care,according to which a reasonable director or officer in the same position would have acted under the same circumstances. 90 Table of ContentsThe duty of care includes a duty to use reasonable means to obtain: ·information on the appropriateness of a given action brought for the directors’ or of(cid:69)icer’s approval or performedby such person by virtue of such person’s position; and·all other important information pertaining to the previous actions. The duty of loyalty requires a director or an of(cid:69)icer to act in good faith and for the bene(cid:69)it of the company, and includes aduty to: ·refrain from any action involving a con(cid:69)lict of interest between the performance of the director’s or of(cid:69)icer’s dutiesin the company and such person’s personal affairs;·refrain from any activity that is competitive with the company’s business;·refrain from usurping any business opportunity of the company to receive a personal gain for the director, of(cid:69)iceror others; and·disclose to the company any information or documents relating to a company’s affairs which the director orofficer has received due to such person’s position as a director or an officer. Under the Israeli Companies Law, subject to certain exceptions, directors’ compensation arrangements require approval ofthe compensation committee, the board of directors and the shareholders. The Israeli Companies Law requires that a director or an of(cid:69)icer of a company promptly and, in any event, not later than the(cid:69)irst board meeting at which the transaction is discussed, disclose any personal interest that he may have and all relatedmaterial facts or document known to such person, in connection with any existing or proposed transaction by thecompany. A personal interest of a director or an of(cid:69)icer (which includes a personal interest of the director's or of(cid:69)icer’srelative) is in a company in which the director or of(cid:69)icer or the director's or of(cid:69)icer’s relative is: (i) a shareholder whichholds 5% or more of a company’s share capital or its voting rights, (ii) a director or a general manager, or (iii) in which thedirector or of(cid:69)icer has the right to appoint at least one director or the general manager. A personal interest also includes apersonal interest of a person who votes according to a proxy of another person, even if the other person has no personalinterest, and a personal interest of a person who gave a proxy to another person to vote on his behalf – in each case,regardless whether discretion with respect to how to vote lies with the person voting or not. In the case of an extraordinarytransaction, the director’s or the of(cid:69)icer’s duty to disclose applies also to a personal interest of the director or of(cid:69)icer’srelative. Under the Israeli Companies Law, an extraordinary transaction is a transaction: ·other than in the ordinary course of business;·other than on market terms; or·that is likely to have a material impact on the company’s profitability, assets or liabilities. Under the Israeli Companies Law, once a director or an of(cid:69)icer complies with the above disclosure requirement, the boardof directors may approve an ordinary transaction between the company and a director or an of(cid:69)icer, or a third party inwhich a director or an of(cid:69)icer has a personal interest, unless the articles of association provide otherwise. A transactiondoes not bene(cid:69)it to the company’s interest cannot be approved. Subject to certain exceptions, the compensation committeeand the board of directors must approve the conditions and term of office of an officer (who is not a director). If the transaction is an extraordinary transaction, both the audit committee and the board of directors, in that order, mustapprove the transaction. Under speci(cid:69)ic circumstances, shareholder approval may also be required. Whoever has apersonal interest in a matter, which is considered at a meeting of the board of directors or the audit committee, may not bepresent at this meeting or vote on this matter. However, if the chairman of the board of directors or the chairman of theaudit committee has determined that the presence of such person is required to present a matter at the meeting; suchof(cid:69)icer holder may be present at the meeting. Notwithstanding the foregoing, if the majority of the directors have a personalinterest in a matter, a director who has the personal interest in this matter may be present at this meeting or vote on thismatter, but the board of directors’ decision requires the shareholder approval. Controlling Shareholder Transactions and Actions Under the Israeli Companies Law, the disclosure requirements which apply to a director or an of(cid:69)icer also apply to acontrolling shareholder of a public company and to a person who would become a controlling shareholder as a result of a91 Table of Contentsprivate placement. A controlling shareholder includes a person who has the ability to direct the activities of a company,other than if this power derives solely from his/her position on the board of directors or any other position with thecompany. In addition, for such purposes a controlling shareholder includes a shareholder that holds 25% or more of thevoting rights in a public company if no other shareholder owns more than 50% of the voting rights in the company.Extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest,including a private placement in which a controlling shareholder has a personal interest; and the terms of engagement ofthe company, directly or indirectly, with a controlling shareholder or his or her relative (including through a corporationcontrolled by a controlling shareholder), regarding the company’s receipt of services from the controlling shareholder, andif such controlling shareholder is also a director or an of(cid:69)icer of the company or an employee, regarding his or her terms ofof(cid:69)ice and employment, require the approval of the audit committee, the board of directors and the shareholders of thecompany, in that order. The shareholders’ approval must include either: ·a majority of the shareholders who have no personal interest in the transaction and who are participating in thevoting, in person, by proxy or by written ballot, at the meeting (votes abstaining are not be taken into account); or·the total number of shares voted against the proposal by shareholders without a personal interest does not exceed2% of the aggregate voting rights in the Company. In addition, any such transaction whose term is more than three years requires the above mentioned approval every threeyears, unless, with respect to transactions not involving the receipt of services or compensation, the audit committeeapproves a longer term as reasonable under the circumstances. However, under regulations, promulgated pursuant to the Israeli Companies Law, certain transactions between a companyand its controlling shareholders, or the controlling shareholder’s relative, do not require shareholder approval. For information concerning the direct and indirect personal interests of certain of our directors or of(cid:69)icers and principalshareholders in certain transactions with us, see “Item 7. Major Shareholders – B. Related Party Transactions.” The Israeli Companies Law requires that every shareholder that participates, either by proxy or in person, in a voteregarding a transaction with a controlling shareholder indicate whether or not that shareholder has a personal interest inthe vote in question, the failure of which results in the invalidation of that shareholder’s vote. The Israeli Companies Law further provides that an acquisition of shares or voting rights in a public company must bemade by means of a tender offer if as a result of the acquisition the purchaser would become a holder of 45% of the votingrights of the company, unless there is a holder of more than 45% of the voting rights of the company or would become aholder of 25% of the voting rights unless there is another person holding 25% of the voting rights. This restriction doesnot apply to: ·an acquisition of shares in a private placement, if the acquisition had been approved in a shareholders meetingunder certain circumstances;·an acquisition of shares from a holder of at least 25% of the voting rights, as a result of which a person wouldbecome a holder of at least 25% of the voting rights; and·an acquisition of shares from a holder of more than 45% of the voting rights, as a result of which the acquirerwould become a holder of more than 45% of the voting rights in the company. The Israeli Companies Law further provides that a shareholder has a duty to act in good faith towards the company andother shareholders when exercising his rights and duties and must refrain from oppressing other shareholders, includingin connection with the voting at a shareholders’ meeting on: ·any amendment to the articles of association;·an increase in the company’s authorized share capital;·a merger; or·approval of certain transactions with control persons and other related parties, which require shareholderapproval. In addition, any controlling shareholder, any shareholder who knows that it possesses power to determine the outcome ofa shareholder vote and any shareholder who, pursuant to the provisions of a company’s articles of association, has the92 Table of Contentspower to appoint or prevent the appointment of a director or an of(cid:69)icer in the company, or has any other power over thecompany, is under a duty to act with fairness towards the company. Under the Israeli Companies Law, the laws that applyto a breach of a contract will generally also apply to a breach of duty of fairness. Exemption, Insurance and Indemnification of Directors and Officers Exemption of Officers and Directors Under the Israeli Companies Law, a company may not exempt an of(cid:69)icer or director from liability with respect to a breachof his duty of loyalty, but may exempt in advance an of(cid:69)icer or director from liability to the company, in whole or in part,with respect to a breach of his duty of care, except in connection with a prohibited distribution made by the company, if soprovided in its articles of association. Our articles of association provide for this exemption from liability for ourdirectors and officers. Directors’ and Officers’ Insurance The Israeli Companies Law and our articles of association provide that, subject to the provisions of the Israeli CompaniesLaw, we may obtain insurance for our directors and of(cid:69)icers for any liability stemming from any act performed by anofficer or director in his capacity as an officer or director, as the case may be with respect to any of the following: ·a breach of such officer’s or director’s duty of care to us or to another person;·a breach of such of(cid:69)icer’s or director’s duty of loyalty to us, provided that such of(cid:69)icer or director acted in goodfaith and had reasonable cause to assume that his act would not prejudice our interests;·a financial liability imposed upon such officer or director in favor of another person;·(cid:69)inancial liability imposed on the of(cid:69)icer or director for payment to persons or entities harmed as a result ofviolations in administrative proceedings as described in Section 52(54)(a)(1)(a) of the Israeli Securities Law(Party Harmed by the Breach);·expenses incurred by such of(cid:69)icer or director in connection with an administrative proceeding conducted in hismatter, including reasonable litigation expenses, including legal fees; or·a breach of any duty or any other obligation, to the extent insurance may be permitted by law. In June 2016, our shareholders approved our Compensation Policy, which includes, among other things, provisionsrelating to directors’ and of(cid:69)icers’ liability insurance. Pursuant to the Compensation Policy, we may obtain a liabilityinsurance policy, which would apply to our and/or our subsidiaries' directors and of(cid:69)icers, as they may be, from time totime, subject to the following terms and conditions: (a) the total insurance coverage under the insurance policy may notexceed $50 million; and (b) the annual premium payable by us for the insurance premium may not exceed $400,000annually. In addition, pursuant to our Compensation Policy, should we sell our operations (in whole or in part) or in caseof merger, spin-off or any other signi(cid:69)icant business combination involving us or part or all of our assets, we may obtaina director’s and of(cid:69)icers’ liability insurance policy (run-off) for our directors and of(cid:69)icers in of(cid:69)ice with regard to therelevant operations, subject to the following terms and conditions: (a) the insurance term may not exceed seven years; (b)the coverage amount may not exceed $50 million; (c) the premium payable by us may not exceed $400,000 annually. TheCompensation Policy is in effect for three years from the 2016 annual general meeting. Subsequent to the approval of the terms of our Compensation Policy, our compensation committee and board of directorsresolved to purchase a directors’ and of(cid:69)icers’ liability insurance policy, pursuant to which the total amount of insurancecovered under the policy would be $50 million This insurance was renewed in December 2016, for the periodcommencing on December 16, 2016 and ending on December 15, 2017. Pursuant to the foregoing approvals, we carrydirectors' and officers’ liability insurance. Indemnification of Officers and Directors The Israeli Companies Law provides that a company may indemnify an of(cid:69)icer or director for payments or expensesassociated with acts performed in his capacity as an of(cid:69)icer or director of the company, provided the company’s articles ofassociation include the following provisions with respect to indemnification: ·a provision authorizing the company to indemnify an of(cid:69)icer or director for future events with respect to amonetary liability imposed on him in favor of another person pursuant to a judgment (including a judgment given93 Table of Contentsin a settlement or an arbitrator’s award approved by the court), so long as such indemni(cid:69)ication is limited to typesof events which, in the board of directors’ opinion, are foreseeable at the time of granting the indemnityundertaking given the company’s actual business, and in such amount or standard as the board of directors deemsreasonable under the circumstances. Such undertaking must specify the events that, in the board of directors’opinion, are foreseeable in view of the company’s actual business at the time of the undertaking and the amount orthe standards that the board of directors deemed reasonable at the time;·a provision authorizing the company to indemnify an of(cid:69)icer or director for future events with respect toreasonable litigation expenses, including counsel fees, incurred by an of(cid:69)icer or director in which he is ordered topay by a court, in proceedings that the company institutes against him or instituted on behalf of the company orby another person, or in a criminal charge from which he was acquitted, or a criminal charge in which he wasconvicted for a criminal offense that does not require proof of criminal intent;·a provision authorizing the company to indemnify an of(cid:69)icer or director for future events with respect toreasonable litigation fees, including attorney’s fees, incurred by an of(cid:69)icer or director due to an investigation orproceeding (cid:69)iled against him by an authority that is authorized to conduct such investigation or proceeding, andthat resulted without (cid:69)iling an indictment against him and without imposing on him (cid:69)inancial obligation in lieu ofa criminal proceeding, or that resulted without (cid:69)iling an indictment against him but with imposing on him a(cid:69)inancial obligation as an alternative to a criminal proceeding in respect of an offense that does not require theproof of criminal intent or in connection with a monetary sanction;·a provision authorizing the company to indemnify an of(cid:69)icer or director for future events with respect to a PartyHarmed by the Breach;·a provision authorizing the company to indemnify an of(cid:69)icer or director for future events with respect to expensesincurred by such of(cid:69)icer or director in connection with an administrative proceeding, including reasonablelitigation expenses, including legal fees; and·a provision authorizing the company to retroactively indemnify an officer or director. Limitations on Insurance, Exemption and Indemnification The Israeli Companies Law and our articles of association provide that a company may not exempt or indemnify a directoror an of(cid:69)icer nor enter into an insurance contract, which would provide coverage for any monetary liability incurred as aresult of any of the following: ·a breach by the officer or director of his duty of loyalty, except for insurance and indemnification where the officeror director acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;·a breach by the of(cid:69)icer or director of his duty of care if the breach was done intentionally or recklessly, except ifthe breach was solely as a result of negligence;·any act or omission done with the intent to derive an illegal personal benefit; or·any fine, civil fine, monetary sanctions, or forfeit imposed on the officer or director. In addition, under the Israeli Companies Law, exemption of, indemni(cid:69)ication of, and procurement of insurance coveragefor, our directors and of(cid:69)icers must be approved by our audit committee and board of directors and, in speci(cid:69)iedcircumstances, by our shareholders. Letters of Indemnification We may provide a commitment to indemnify in advance any director or of(cid:69)icer of ours in the course of such person’sposition as our director or officer, all subject to the letter of indemnification, as approved by our shareholders from time totime and in accordance with our articles of association. We may provide retroactive indemni(cid:69)ication to any of(cid:69)icer to theextent allowed by the Israeli Companies Law. As approved by our shareholders on July 18, 2013, the amount of theadvance indemnity is limited to the higher of 25% of our then shareholders’ equity, per our most recent annual (cid:69)inancialstatements, or $5 million. As part of the indemni(cid:69)ication letters, we exempted our directors and of(cid:69)icers, in advance, to the extent permitted underlaw, from any liability for any damage incurred by them, either directly or indirectly, due to the breach of an of(cid:69)icer’s ordirector’s duty of care vis- à-vis us, within his acts in his capacity as an of(cid:69)icer or director. The letter provides that so longas not permitted under law, we do not exempt an of(cid:69)icer or director in advance from his liability to us for a breach of theduty of care upon distribution, to the extent applicable to the officer or director, if any. The letter also exempts an officer94 Table of Contentsor director from any liability for any damage incurred by him, either directly or indirectly, due to the breach of the of(cid:69)iceror director’s duty of care vis- à-vis us, by his acts in his capacity as an of(cid:69)icer or director prior to the letter of exemptionand indemnification becoming effective. D. Employees As of December 31, 2016, we had 13 employees, and we also received services from 14 consultants who provide servicesto us in the U.S., Canada and Belgium. As of December 31, 2014 2015 2016 CompanyEmployees Consultants Company Employees Consultants CompanyEmployees Consultants Management and administration 9 2 11 2 11 4 Research and development 1 8 1 11 2 10 While none of our employees is party to a collective bargaining agreement, certain provisions of the collective bargainingagreements between the Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of EconomicOrganizations (including the Industrialists’ Associations) are applicable to our employees by order of the Israel Ministryof Labor. These provisions primarily concern the length of the workday, minimum daily wages for professional workers,pension fund bene(cid:69)its for all employees, insurance for work-related accidents, procedures for dismissing employees,determination of severance pay and other conditions of employment. We generally provide our employees with bene(cid:69)itsand working conditions beyond the required minimums. We have never experienced any employment-related work stoppages and believe our relationship with our employees isgood. 95 Table of ContentsE. Share Ownership The following table sets forth information regarding the bene(cid:69)icial ownership of our outstanding Ordinary Shares as ofFebruary 22, 2017, of each of our directors and executive of(cid:69)icers individually and as a group based on informationprovided to us by our directors and executive of(cid:69)icers. The information in this table is based on 170,581,594 OrdinaryShares outstanding as of such date. The number of Ordinary Shares bene(cid:69)icially owned by a person includes OrdinaryShares subject to options or warrants held by that peron that were currently exercisable at, or exercisable within 60 daysof February 22, 2017. The Ordinary Shares issuable under these options and warrants are treated as if they wereoutstanding for purposes of computing the percentage ownership of the person holding these options and warrants but notthe percentage ownership of any other person. None of the holders of the Ordinary Shares listed in this table have votingrights different from other holders of the Ordinary Shares. Number ofSharesBeneficiallyHeld Percent ofClass Directors Dr. Kenneth Reed (1) 4,661,160 2.73 %Dr. Shmuel Cabilly (2) 4,329,178 2.53 %Eric Swenden (3) 2,468,710 1.44 %Dan Suesskind (4) 1,179,100 * Ofer Tsimchi (5) 330,000 * Rick D. Scruggs - - Nurit Benjamini - - Executive officers Dror Ben-Asher (6) 6,298,780 3.62 %Reza Fathi, Ph.D. (7) 1,451,250 * Adi Frish (8) 973,750 * Gilead Raday (9) 700,460 * Guy Goldberg (10) 593,750 * Uri Hananel Aharon (11) 377,500 * Micha Ben Chorin (12) 75,000 — All directors and executive officers as a group (14 persons) 23,438,638 13.01 %* Less than 1.0% (1)Includes options to purchase 346,103 Ordinary Shares exercisable within 60 days of February 22, 2017. The exerciseprice of these options range between $0.165 and $1.48 per share, and the options expiry date range between 2017 and2023. See "Item 5. Operating and Financial Review and Prospects – B. Liquidity and Capital Resources" for moreinformation regarding the warrants.(2)Includes options to purchase 195,000 Ordinary Shares exercisable within 60 days of February 22, 2017. The exerciseprice of these options range between $1.28 and $1.48 per share, and the options expiry date range between 2021 and2023. See "Item 5. Operating and Financial Review and Prospects – B. Liquidity and Capital Resources" for moreinformation regarding the warrants.(3)Includes options to purchase 81,250 Ordinary Shares exercisable within 60 days of February 22, 2017. The exerciseprice of these options range between $1.28 and $1.48 per share, and the options expiry date range between 2021 and2023. Includes warrants to purchase 47,500 ADSs with exercise price of $13.33 and an expiration date of December26, 2019 purchased in the public offering that closed on December 27, 2016.See "Item 5. Operating and FinancialReview and Prospects – B. Liquidity and Capital Resources" for more information regarding the warrants.(4)Includes options to purchase 735,000 Ordinary Shares exercisable within 60 days of February 22, 2017. The exerciseprice of these options range between $0. 5 and $1.48 per share, and the options expiry date range between 2018 and2023. See "Item 5. Operating and Financial Review and Prospects – B. Liquidity and Capital Resources" for moreinformation regarding the warrants.(5)Includes options to purchase 330,000 Ordinary Shares exercisable within 60 days of February 22, 2017. The exerciseprice of these options range between $1.05 and $1.48 per share, and the options expiry date range between 2018 and2021.96 Table of Contents(6)Includes options to purchase 3,591,397 Ordinary Shares exercisable within 60 days of February 22, 2017 and. Theexercise price of these options range between $0.165 and $1.48 per share, and the options expiry date range between2017 and 2023. See "Item 5. Operating and Financial Review and Prospects – B. Liquidity and Capital Resources" formore information regarding the warrants.(7)Includes options to purchase 1,181,250 Ordinary exercisable within 60 days of February 22, 2017. The exercise priceof these options range between $0.5 and $1.48 per share, and the options expiry date range between 2018 and 2021.See "Item 5. Operating and Financial Review and Prospects – B. Liquidity and Capital Resources" for more informationregarding the warrants.(8)Includes options to purchase 973,750 Ordinary Shares exercisable within 60 days of February 22, 2017. The exerciseprice of these options range between $0.165 and $1.56 per share, and the options expiry date range between 2017 and2022.(9)Includes options to purchase 700,460 Ordinary Shares exercisable within 60 days of February 22, 2017. The exerciseprice of these options range between $0.165 and $1.65 per share, and the options expiry date range between 2017 and2022.(10)Includes options to purchase 593,750 Ordinary Shares exercisable within 60 days of February 22, 2017. The exerciseprice of these options range between $0.165 and $1.56 per share, and the options expiry date range between 2017 and2022.(11)Includes options to purchase 347,500 Ordinary Shares exercisable within 60 days of February 22, 2017. The exerciseprice of these options range between $0.7 and $1.56 per share, and the options expiry date range between 2019 and2022.(12)Includes options to purchase 75,000 Ordinary Shares exercisable within 60 days of February 22, 2017. The exerciseprice of these options range between is $1.41 per share, and the options expiry is 2023. Option Plans 2010 Option Plan In 2010, we adopted the RedHill Biopharma Ltd. 2010 Option Plan. The 2010 Option Plan provides for the granting ofoptions to our directors, of(cid:69)icers, employees, consultants and service providers and individuals who are their employees,and to the directors, of(cid:69)icers, employees, consultants and service providers of our subsidiaries and af(cid:69)iliates. The 2010Option Plan provides for options to be issued at the determination of our board of directors in accordance with applicablelaws. As of February 22, 2017, there were 20,275,548 Ordinary Shares issuable upon the exercise of outstanding optionsunder the 2010 Option Plan. Administration of Our 2010 Option Plan Our 2010 Option Plan is administered by our compensation committee regarding the granting of options and the terms ofoption grants, including exercise price, method of payment, vesting schedule, acceleration of vesting and the other mattersnecessary in the administration of these plans. Options granted under the 2010 Option Plan to eligible Israeli employees,directors and of(cid:69)icers are granted under Section 102 of the Israel Income Tax Ordinance pursuant to which the options orthe Ordinary Shares issued upon their exercise must be allocated or issued to a trustee and be held in trust for two yearsfrom the date upon which such options were granted in order to bene(cid:69)it from the provisions of Section 102. Under Section102, any tax payable by an employee from the grant or exercise of the options is deferred until the transfer of the options orOrdinary Shares by the trustee to the employee or upon the sale of the options or Ordinary Shares, and gains may qualify tobe taxed as capital gains at a rate equal to 25%, subject to compliance with speci(cid:69)ied conditions. See “Item 10. AdditionalInformation – E. Taxation – Israeli Tax Considerations.” Options granted under 2010 Option Plan as amended generally vest over a period of 4 years and expire seven (7) yearsafter the grant date. The 2010 Option Plan, however, permits options to have a term of up to 10 years. If we terminate agrantee for cause (as such term is de(cid:69)ined in the 2010 Option Plan) the right to exercise all the options granted to thegrantee, the grantee’s vested and unvested options will expire immediately, on the earlier of: ·termination of the engagement; or·the date of the notice of the termination of the engagement. Upon termination of employment for any other reason, other than in the event of death, disability, retirement after the ageof 60, a merger or other change of control approved by the board of directors, or for cause, all unvested options will expire97 Table of Contentsand all vested options will generally be exercisable for 90 days following termination, or such other period as determinedby the plan administrator, subject to the terms of the 2010 Option Plan and the governing option agreement. Upon termination under the event of a merger or other change of control approved by the board of directors, the granteewill be entitled at the time of termination to full acceleration of all the options granted prior to the event. Under our 2010 Option Plan, as amended, in the event any person, entity or group that was not an interested party at thetime of our initial public offering on the TASE becoming a controlling shareholder, all options granted by us under the planwill be accelerated, so that the grantee will be entitled to exercise all of those options. A “controlling shareholder” in thisparagraph is a controlling shareholder, as de(cid:69)ined in the Israel Securities Law, 1968. An “interested party” is de(cid:69)ined in theSecurities Law and includes, among others: ·a holder of 5% or more of the outstanding shares or voting rights of an entity;·a person entitled to appoint one or more of the directors or chief executive officer of an entity;·a director of an entity or its chief executive officer;·an entity, in which an individual referred to above holds 25% or more of its outstanding shares or voting rights, oris entitled to appoint 25% or more of its directors; or·a person who initiated the establishment of the entity. Upon termination of employment due to death or disability, or retirement after the age of 60, subject to the board ofdirectors’ approval, all the vested options at the time of termination will be exercisable for 24 months, or such otherperiod as determined by the plan administrator, subject to the terms of the 2010 Option Plan and the governing optionagreement. ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A. Major Shareholders The following table sets forth certain information regarding the bene(cid:69)icial ownership of our outstanding Ordinary Sharesas of February 22, 2017, by each person or entity known to bene(cid:69)icially own 5.0% or more of our outstanding OrdinaryShares. The information with respect to bene(cid:69)icial ownership of the Ordinary Shares is given based on informationreported in such shareholder's Schedule 13G, and if no Schedule 13G was (cid:69)iled, based on the information provided to us bythe shareholders. The information in this table is based on 170,581,594 Ordinary Shares outstanding as of such date. In determining thenumber of Ordinary Shares bene(cid:69)icially owned by a person, we include any shares as to which the person has sole orshared voting power or investment power, as well as any Ordinary Shares subject to options or warrants held by thatperson that were currently exercisable at, or exercisable within 60 days of February 22, 2017. The Ordinary Sharesissuable under these options and warrants are treated as if they were outstanding for purposes of computing the percentageownership of the person holding these options and warrants but not the percentage ownership of any other person. None ofthe holders of the Ordinary Shares listed in this table have voting rights different from other holders of Ordinary Shares. Number ofSharesBeneficiallyHeld Percent ofOutstanding Equity EMC2 Fund Ltd. (1) 21,951,230 (2) 12.34 %(1)EMC2 Fund Ltd. (“EMC”) holds the ADSs and warrants to purchase ADSs. The address of EMC is Bayside ExecutivePark, Building No. 1, West Bay Street, PO Box SP-63131, Nassau, the Bahamas. Based on information provided to us,EMC is controlled by Banque Pictet & Cie SA.(2)Includes warrants to purchase 731,708 ADSs with an exercise price of $13.33 and an expiration date of December 26,2019, purchased by EMC in a registered direct offering that closed on December 27, 2016. See "Item 5. Operating andFinancial Review and Prospects – B. Liquidity and Capital Resources" for more information regarding the warrants. On February 10, 2017, 9,945,340 ADSs (equivalent to 99,453,400 Ordinary Shares, or approximately 58% of our totalissued and outstanding Ordinary Shares), were held of record by three record holders in the U.S., of which one holder had aU.S. address. As of February 22, 2017, there was one shareholder of record of our Ordinary Shares, which was located98 Table of Contentsin Israel. The number of record holders is not representative of the number of bene(cid:69)icial holders of our ADSs or OrdinaryShares because many of the ADSs and Ordinary Shares are held by brokers or other nominees. B. Related Party Transactions December 2016 Public Offering In our underwritten public offering which closed on December 27, 2016, Mr. Eric Swenden, one of our directors, purchased95,000 ADSs and warrants to purchase 47,500 ADSs. The terms of the issuance as well as the discount received by theunderwriters for these shares were the same as those offered to the public. In the concurrent registered direct offering, EMCpurchased 1,463,415 ADSs and warrants to purchase 731,708 ADSs at the same price as the public offering price. For moreinformation on the underwritten public offering, please see "Item 5. Operating and Financial Review and Prospects – B.Liquidity and Capital Resources". C. Interests of Experts and Counsel Not applicable. ITEM 8. FINANCIAL INFORMATION A. Financial Statements and Other Financial Information The financial statements required by this item are found at the end of this Annual Report, beginning on page F-1. Legal Proceedings From time to time, we may become party to legal proceedings and claims in the ordinary course of business. We are notcurrently a party to any significant legal proceedings. Dividend Policy We have never declared or paid cash dividends to our shareholders. Currently we do not intend to pay cash dividends. Wecurrently intend to reinvest any future earnings in developing and expanding our business. Any future determinationrelating to our dividend policy will be at the discretion of our board of directors and will depend on a number of factors,including future earnings, our (cid:69)inancial condition, operating results, contractual restrictions, capital requirements,business prospects, applicable Israeli law and other factors our board of directors may deem relevant. B. Significant Changes Except as otherwise disclosed in this Annual Report, no significant change has occurred since December 31, 2016. ITEM 9. THE OFFER AND LISTING A. Offer and Listing Details Our Ordinary Shares have been trading on the TASE under the symbol “RDHL” since February 2011. 99 Table of ContentsOrdinary Shares The following table sets forth, for the periods indicated, the reported high and low closing prices of our Ordinary Shares onthe TASE in NIS and U.S. dollars. U.S. dollar per Ordinary Share amounts are calculated using the U.S. dollar representativerate of exchange on the date to which the high or low market price is applicable, as reported by the Bank of Israel. NIS U.S.$ Price per Ordinary Share Price per Ordinary ShareAnnual High Low High Low2016 6.05 3.32 1.58 0.86 2015 7.80 4.34 2.03 1.12 2014 6.80 3.00 1.96 0.78 2013 4.29 3.23 1.15 0.92 2012 4.19 1.71 1.08 0.45 Quarter 2016 Fourth quarter 5.51 3.73 1.45 0.98 Third quarter 6.05 4.21 1.58 1.09 Second quarter 5.30 3.90 1.41 1.41 First quarter 5.14 3.32 1.31 0.86 2015 Fourth quarter 5.42 4.34 1.39 1.12 Third quarter 7.10 4.62 1.88 1.19 Second quarter 7.80 5.52 2.03 1.41 First quarter 6.16 4.89 1.57 1.26 Most Recent Six Months February 2017 (through February 22, 2017) 3.72 3.53 0.99 0.95 January 2017 4.17 3.57 1.08 0.94 December 2016 4.44 3.73 1.17 0.98 November 2016 4.74 4.33 1.24 1.12 October 2016 5.51 4.69 1.45 1.22 September 2016 5.84 5.50 1.55 1.46 August 2016 6.05 5.17 1.60 1.36 On February 22, 2017, the last reported closing price of our Ordinary Shares on the TASE was NIS 3.53 per share, or $0.95per share (based on the exchange rate reported by the Bank of Israel for such date). On February 22, 2016 the exchange rateof the NIS to the U.S. dollar was $1.00 = NIS 3.71, as reported by the Bank of Israel. ADSs Our ADSs have been trading on the NASDAQ Capital Market under the symbol “RDHL” since December 27, 2012. 100 Table of ContentsThe following table sets forth, for the periods indicated, the reported high and low closing prices of our ADSs on theNASDAQ Capital Market in U.S. dollars. U.S.$ Price per ADS Annual High Low 2016 16.29 8.21 2015 19.79 11.05 2014 19.20 8.03 2013 13.60 8.31 Quarter 2016 Fourth quarter 14.47 9.65 Third quarter 16.29 10.80 Second quarter 13.79 10.00 First quarter 12.61 8.21 2015 Fourth quarter 13.72 11.05 Third quarter 18.46 12.16 Second quarter 19.79 14.03 First quarter 15.92 12.52 Most Recent Six Months February 2017 (through February 22, 2017) 9.95 9.33 January 2017 10.88 9.62 December 2016 11.43 9.65 November 2016 12.19 10.91 October 2016 14.47 11.92 September 2016 15.24 13.89 August 2016 16.29 14.55 On February 22, 2017, the last reported price of our ADSs on the NASDAQ Capital Market was $9.42 per ADS. B. Plan of Distribution Not applicable. C. Markets Our Ordinary Shares are listed and traded on the TASE, and our ADSs, each representing ten Ordinary Share and evidencedby an American depositary receipt, or ADR, are traded on the NASDAQ Capital Market under the symbol “RDHL”. The ADRswere issued pursuant to a Depositary Agreement entered into with The Bank of New York. D. Selling Shareholders Not applicable. E. Dilution Not applicable. F. Expenses of the Issue Not applicable. 101 Table of Contents ITEM 10. ADDITIONAL INFORMATION A. Share Capital Not applicable. B. Memorandum and Articles of Association Securities Registers Our transfer agent and register is Bank of New York Mellon and its address is 101 Barclay Street, New York, NY. Objects and Purposes According to Section 4 of our articles of association, we shall engage in any legal business. Our number with the IsraeliRegistrar of Companies is 514304005. Private Placements Under the Israeli Companies Law, if (i) as a result of a private placement a person would become a controlling shareholderor (ii) a private placement will entitle investors to receive 20% or more of the voting rights of a company as calculatedbefore the private placement, and all or part of the private placement consideration is not in cash or in public tradedsecurities or is not in market terms and if as a result of the private placement the holdings of a substantial shareholder willincrease or as a result of it a person will become a substantial shareholder, then in either case, the allotment must beapproved by the board of directors and by the shareholders of the company. A “substantial shareholder” is de(cid:69)ined as ashareholder who holds (cid:69)ive percent or more of the company’s outstanding share capital, assuming the exercise of all of thesecurities convertible into shares held by that person. In order for the private placement to be on “market terms” the boardof directors has to determine, on the base of detailed explanation, that the private placement is on market terms, unlessproven otherwise. Board of Directors Under our articles of association, resolutions by the board of directors are decided by a majority of votes of the directorspresent, or participating, in the case of voting by media, and voting, each director having one vote. In addition, the Israeli Companies Law requires that certain transactions, actions and arrangements be approved asprovided for in a company’s articles of association and in certain circumstances by the compensation or audit committeeand by the board of directors itself. Those transactions that require such approval pursuant to a company’s articles ofassociation must be approved by its board of directors. In certain circumstances, compensation or audit committee andshareholder approval is also required. See “Item 6. Directors, Senior Management and Employees – C. Board Practices”. The Israeli Companies Law requires that a member of the board of directors or senior management of the companypromptly and, in any event, not later than the (cid:69)irst board meeting at which the transaction is discussed, disclose anypersonal interest that he or she may have, either directly or by way of any corporation in which he or she is, directly orindirectly, a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at leastone director or the general manager, as well as all related material information known to him or her, in connection withany existing or proposed transaction by the company. In addition, if the transaction is an extraordinary transaction, (thatis, a transaction other than in the ordinary course of business, otherwise than on market terms, or is likely to have amaterial impact on the company’s pro(cid:69)itability, assets or liabilities), the member of the board of directors or seniormanagement must also disclose any personal interest held by his or her spouse, siblings, parents, grandparents,descendants, spouse’s descendants, siblings and parents, and the spouses of any of the foregoing. Once the member of the board of directors or senior management complies with the above disclosure requirement, acompany may approve the transaction in accordance with the provisions of its articles of association. Under theprovisions of the Israeli Companies Law, whoever has a personal interest in a matter, which is considered at a meeting ofthe board of directors or the audit committee, may not be present at this meeting or vote on this matter, unless it is not anextraordinary transaction as de(cid:69)ined in the Israeli Companies Law. However, if the chairman of the board of directors orthe chairman102 Table of Contentsof the audit committee has determined that the presence of a director or an of(cid:69)icer with a personal interest is required forthe presentation of a matter, such of(cid:69)icer holder may be present at the meeting. Notwithstanding the foregoing, if themajority of the directors have a personal interest in a matter, they will be allowed to participate and vote on this matter,but an approval of the transaction by the shareholders in the general meeting will be required. Our articles of association provide that, subject to the Israeli Companies Law, all actions executed in good faith by theboard of directors or by a committee thereof or by any person acting as a director or a member of a committee of the boardof directors, will be deemed to be valid even if, after their execution, it is discovered that there was a (cid:69)law in theappointment of these persons or that any one of these persons was disqualified from serving at his or her office. Our articles of association provide that, subject to the provisions of the Israeli Companies Law, the board of directors mayappoint board of directors’ committees. The committees of the board of directors report to the board of directors theirresolutions or recommendations on a regular basis, as prescribed by the board of directors. The board of directors maycancel the resolution of a committee that has been appointed by it; however, such cancellation will not affect the validity ofany resolution of a committee, pursuant to which we acted, vis-à-vis another person, who was not aware of thecancellation thereof. Decisions or recommendations of the committee of the board which require the approval of the boardof directors will be brought to the directors’ attention a reasonable time prior to the discussion at the board of directors. According to the Israeli Companies Law, a contract of a company with its directors, regarding their conditions of service,including the grant to them of exemption from liability from certain actions, insurance, and indemni(cid:69)ication as well as thecompany’s contract with its directors on conditions of their employment, in other capacities, require the approval of thecompensation committee, the board of directors, and the shareholders by a Special Majority. Description of Securities Ordinary Shares The following is a description of our Ordinary Shares. Our authorized share capital is 300,000,000 Ordinary Shares, parvalue NIS 0.01 per share. The Ordinary Shares do not have preemptive rights, preferred rights or any other right to purchase our securities. Neitherour articles of association nor the laws of the State of Israel restrict the ownership or voting of Ordinary Shares by non-residents of Israel, except for subjects of countries which are enemies of Israel. Transfer of Shares. Fully paid Ordinary Shares are issued in registered form and may be freely transferred pursuant to ourarticles of association unless that transfer is restricted or prohibited by another instrument. Notices. Under the Israeli Companies Law and our articles of association, we are required to publish notices in twoHebrew-language daily newspapers or our website at least 21 calendar days’ prior notice of a shareholders’ meeting.However, under regulations promulgated under the Israeli Companies Law, we are required to publish notice in two dailynewspapers at least 35 calendar days prior any shareholders’ meeting in which the agenda includes matters which may bevoted on by voting instruments. Regulations under the Israeli Companies Law exempt companies whose shares are listedfor trading both on a stock exchange in and outside of Israel, from some provisions of the Israeli Companies Law. Anamendment to these regulations exempts us from the requirements of the Israeli proxy regulation, under certaincircumstances. According to the Israeli Companies Law and the regulations promulgated thereunder, for purposes of determining theshareholders entitled to notice and to vote at such meeting, the board of directors may (cid:69)ix the record date not more than 40nor less than four calendar days prior to the date of the meeting, provided that an announcement regarding the generalmeeting be given prior to the record date. Election of Directors. The number of directors on the board of directors shall be no less than (cid:69)ive and no more than seven,including the external directors whose appointment is required by law. The general meeting is entitled, at any time andfrom time to time, in a resolution approved by a majority of 75% or more of the votes cast by those shareholders presentand voting at the meeting in person, by proxy or by a voting instrument, not taking into consideration abstaining votes, tochange the minimum or maximum number of directors as stated above as well as to amend the board classification under103 Table of Contentsour Articles. For more information, please see “Item 6. Directors, Senior Management and Employees – C. Board Practices– Appointment of Directors and Terms of Office”. Dividend and Liquidation Rights. Our profits, in respect of which a resolution was passed to distribute them as dividend orbonus shares, are to be paid pro rata to the amount paid or credited as paid on account of the nominal value of shares heldby the shareholders. In the event of our liquidation, the liquidator may, with the general meeting’s approval, distributeparts of our property in specie among the shareholders and he may, with similar approval, deposit any part of our propertywith trustees in favor of the shareholders as the liquidator, with the approval mentioned above deems fit. Voting, Shareholders’ Meetings and Resolutions. Holders of Ordinary Shares are entitled to one vote for each Ordinary Shareheld on all matters submitted to a vote of shareholders. The quorum required for an ordinary meeting of shareholdersconsists of at least two shareholders present, in person or by proxy, or who has sent us a voting instrument indicating theway in which he is voting, who hold or represent, in the aggregate, at least 25% of the voting rights of our outstandingshare capital. A meeting adjourned for lack of a quorum is adjourned to the following day at the same time and place or anytime and place as prescribed by the board of directors in notice to the shareholders. At the reconvened meeting oneshareholder at least, present in person or by proxy constitutes a quorum except where such meeting was called at thedemand of shareholders. With the agreement of a meeting at which a quorum is present, the chairman may, and on thedemand of the meeting he must, adjourn the meeting from time to time and from place to place, as the meeting resolves.Annual general meetings of shareholders are held once every year within a period of not more than 15 months after the lastpreceding annual general shareholders’ meeting. The board of directors may call special general meetings of shareholders.The Israeli Companies Law provides that a special general meeting of shareholders may be called by the board of directorsor by a request of two directors or 25% of the directors in of(cid:69)ice, whichever is the lower, or by shareholders holding atleast 5% of our issued share capital and at least 1% of the voting rights, or of shareholders holding at least 5% of ourvoting rights. An ordinary resolution requires approval by the holders of a majority of the voting rights present, in person or by proxy, atthe meeting and voting on the resolution. Allotment of Shares. Our board of directors has the power to allot or to issue shares to any person, with restrictions andcondition as it deems fit. Acquisitions under Israeli Law Full Tender Offer A person wishing to acquire shares of an Israeli public company and who would as a result hold over 90% of the targetcompany’s issued and outstanding share capital is required by the Israeli Companies Law to make a tender offer to all ofthe company’s shareholders for the purchase of all of the issued and outstanding shares of the company. A person wishing to acquire shares of an Israeli public company and who would as a result hold over 90% of the issuedand outstanding share capital of a certain class of shares is required to make a tender offer to all of the shareholders whohold shares of the same class for the purchase of all of the issued and outstanding shares of the same class. If the shareholders who do not respond to or accept the offer hold less than 5% of the issued and outstanding share capitalof the company or of the applicable class of the shares, and more than half of the shareholders who do not have a personalinterest in the offer accept the offer, all of the shares that the acquirer offered to purchase will be transferred to the acquirerby operation of law. However, a tender offer will be accepted if the shareholders who do not accept it hold less than 2% ofthe issued and outstanding share capital of the company or of the applicable class of the shares. Upon a successful completion of such a full tender offer, any shareholder that was an offeree in such tender offer, whethersuch shareholder accepted the tender offer or not, may, within six months from the date of acceptance of the tender offer,petition the Israeli court to determine whether the tender offer was for less than fair value and that the fair value should bepaid as determined by the court. However, under certain conditions, the offeror may determine in the terms of the tenderoffer that an offeree who accepted the offer will not be entitled to petition the Israeli court as described above. If the shareholders who did not respond or accept the tender offer hold at least 5% of the issued and outstanding sharecapital of the company or of the applicable class, the acquirer may not acquire shares of the company that will increase its104 Table of Contentsholdings to more than 90% of the company’s issued and outstanding share capital or of the applicable class fromshareholders who accepted the tender offer. The description above regarding a full tender offer will also apply, with necessary changes, when a full tender offer isaccepted and the offeror has also offered to acquire all of the company’s securities. Special Tender Offer The Israeli Companies Law provides that an acquisition of shares of an Israeli public company must be made by means ofa special tender offer if as a result of the acquisition the purchaser would become a holder of at least 25% of the votingrights in the company. This rule does not apply if there is already another holder of at least 25% of the voting rights in thecompany. Similarly, the Israeli Companies Law provides that an acquisition of shares in a public company must be made by meansof a special tender offer if as a result of the acquisition the purchaser would become a holder of more than 45% of thevoting rights in the company, if there is no other shareholder of the company who holds more than 45% of the votingrights in the company. These requirements do not apply if the acquisition (i) occurs in the context of a private offering, on the condition that theshareholders meeting approved the acquisition as a private offering whose purpose is to give the acquirer at least 25% ofthe voting rights in the company if there is no person who holds at least 25% of the voting rights in the company, or as aprivate offering whose purpose is to give the acquirer 45% of the voting rights in the company, if there is no person whoholds 45% of the voting rights in the company; (ii) was from a shareholder holding at least 25% of the voting rights in thecompany and resulted in the acquirer becoming a holder of at least 25% of the voting rights in the company; or (iii) wasfrom a holder of more than 45% of the voting rights in the company and resulted in the acquirer becoming a holder ofmore than 45% of the voting rights in the company. The special tender offer may be consummated only if (i) at least 5% of the voting power attached to the company’soutstanding shares will be acquired by the offeror and (ii) the special tender offer is accepted by a majority of the votes ofthose offerees who gave notice of their position in respect of the offer; in counting the votes of offerees, the votes of aholder in control of the offeror, a person who has personal interest in acceptance of the special tender offer, a holder of atleast 25% of the voting rights in the company, or any person acting on their or on the offeror’s behalf, including theirrelatives or companies under their control, are not taken into account. In the event that a special tender offer is made, a company’s board of directors is required to express its opinion on theadvisability of the offer or must abstain from expressing any opinion if it is unable to do so, provided that it gives thereasons for its abstention. An of(cid:69)icer in a target company who, in his or her capacity as an of(cid:69)icer, performs an action the purpose of which is to causethe failure of an existing or foreseeable special tender offer or is to impair the chances of its acceptance, is liable to thepotential purchaser and shareholders for damages resulting from his acts, unless such of(cid:69)icer acted in good faith and hadreasonable grounds to believe he or she was acting for the bene(cid:69)it of the company. However, of(cid:69)icers of the target companymay negotiate with the potential purchaser in order to improve the terms of the special tender offer, and may furthernegotiate with third parties in order to obtain a competing offer. If a special tender offer was accepted by a majority of the shareholders who announced their stand on such offer, thenshareholders who did not respond to the special offer or had objected to the special tender offer may accept the offerwithin four days of the last day set for the acceptance of the offer. In the event that a special tender offer is accepted, thenthe purchaser or any person or entity controlling it and any corporation controlled by them must refrain from making asubsequent tender offer for the purchase of shares of the target company and may not execute a merger with the targetcompany for a period of one year from the date of the offer, unless the purchaser or such person or entity undertook toeffect such an offer or merger in the initial special tender offer. 105 Table of ContentsMerger The Israeli Companies Law permits merger transactions if approved by each party’s board of directors and, unless certainrequirements described under the Israeli Companies Law are met, a majority of each party’s shareholders, by a majority ofeach party’s shares that are voted on the proposed merger at a shareholders’ meeting. The board of directors of a merging company is required pursuant to the Israeli Companies Law to discuss and determinewhether in its opinion there exists a reasonable concern that, as a result of a proposed merger, the surviving company willnot be able to satisfy its obligations towards its creditors, taking into account the (cid:69)inancial condition of the mergingcompanies. If the board of directors has determined that such a concern exists, it may not approve a proposed merger.Following the approval of the board of directors of each of the merging companies, the boards of directors must jointlyprepare a merger proposal for submission to the Israeli Registrar of Companies. For purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majorityof the shares voting at the shareholders meeting (excluding abstentions) that are held by parties other than the other partyto the merger, any person who holds 25% or more of the means of control (See “Management – Audit Committee –Approval of Transactions with Related Parties” for a de(cid:69)inition of means of control) of the other party to the merger or anyone on their behalf including their relatives (See “Management – External Directors – Quali(cid:69)ications of External Directors”for a definition of relatives) or corporations controlled by any of them, vote against the merger. In addition, if the non-surviving entity of the merger has more than one class of shares, the merger must be approved byeach class of shareholders. If the transaction would have been approved but for the separate approval of each class ofshares or the exclusion of the votes of certain shareholders as provided above, a court may still rule that the company hasapproved the merger upon the request of holders of at least 25% of the voting rights of a company, if the court holds thatthe merger is fair and reasonable, taking into account the appraisal of the merging companies’ value and the considerationoffered to the shareholders. Under the Israeli Companies Law, each merging company must send a copy of the proposed merger plan to its securedcreditors. Unsecured creditors are entitled to receive notice of the merger, as provided by the regulations promulgatedunder the Israeli Companies Law. Upon the request of a creditor of either party to the proposed merger, the court may delayor prevent the merger if it concludes that there exists a reasonable concern that, as a result of the merger, the survivingcompany will be unable to satisfy the obligations of the target company. The court may also give instructions in order tosecure 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 approvalof the merger was (cid:69)iled with the Israeli Registrar of Companies and 30 days from the date that shareholder approval of bothmerging companies was obtained. Anti-takeover Measures The Israeli Companies Law allows us to create and issue shares having rights different from those attached to our OrdinaryShares, including shares providing certain preferred or additional rights to voting, distributions or other matters andshares having preemptive rights. We do not have any authorized or issued shares other than 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 rightsthat 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 requirean amendment to our articles of association which requires the prior approval of a majority of our shares represented andvoting at a general meeting. Shareholders voting at such a meeting will be subject to the restrictions under the IsraeliCompanies Law described in “– Voting”. C. Material Contracts For a description of other material agreements, please see "Item 4. Information on the Company – B. Business Overview. 106 Table of ContentsD. Exchange Controls Israeli law and regulations do not impose any material foreign exchange restrictions on non-Israeli holders of our OrdinaryShares. Dividends, if any, paid to holders of our Ordinary Shares, and any amounts payable upon our dissolution,liquidation or winding up, as well as the proceeds of any sale in Israel of our Ordinary Shares to an Israeli resident, may bepaid in non-Israeli currency or, if paid in Israeli currency, may be converted into U.S. dollars at the rate of exchangeprevailing at the time of conversion. E. Taxation Israeli Tax Considerations General The following is a summary of the material tax consequences under Israeli law concerning the purchase, ownership anddisposition of our Ordinary Shares or American Depositary Shares (Shares). This discussion does not purport to constitute a complete analysis of all potential tax consequences applicable toinvestors upon purchasing, owning or disposing of our Shares. In particular, this discussion does not take into account thespeci(cid:69)ic circumstances of any particular investor (such as tax-exempt entities, (cid:69)inancial institutions, certain (cid:69)inancialcompanies, broker-dealers, investors that own, directly or indirectly, 10% or more of our outstanding voting rights, all ofwhom are subject to special tax regimes not covered under this discussion). To the extent that issues discussed herein arebased on legislation which has yet to be subject to judicial or administrative interpretation, there can be no assurance thatthe views expressed herein will accord with any such interpretation in the future. Potential investors are urged to consult their own tax advisors as to the Israeli or other tax consequences of the purchase,ownership and disposition of the Shares, including, in particular, the effect of any foreign, state or 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 (tobe reduced to 24% in 2017 and to 23% in 2018 and thereafter). Taxation of Shareholders Capital Gains Capital gains tax is imposed on the disposition of capital assets by an Israeli resident and on the disposition of such assetsby a non-Israeli resident if those assets are either (i) located in Israel; (ii) are shares or a right to a share in an Israeliresident corporation, or (iii) represent, directly or indirectly, rights to assets located in Israel, unless an exemption isavailable or unless an applicable double tax treaty between Israel and the seller’s country of residence provides otherwise.The Israeli Income Tax Ordinance distinguishes between “Real Gain” and the “In(cid:69)lationary Surplus”. Real Gain is the excessof the total capital gain over In(cid:69)lationary Surplus computed generally on the basis of the increase in the Israeli ConsumerPrice Index between the date of purchase and the date of disposition. Inflationary Surplus is not subject to tax. Real Gain accrued by individuals on the sale of the Shares will be taxed at the rate of 25%. However, if the individualshareholder 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 resident company’s means of control) at the time of sale or at any time during thepreceding 12-month period, such gain will be taxed at the rate of 30%. Corporate and individual shareholders dealing in securities in Israel are taxed at the tax rates applicable to businessincome (25% in 2016, to be reduced to 24% in 2017 and to 23% in 2018 and thereafter), and a marginal tax rate of up to50% in 2016 for individuals, including an excess tax (as discussed below). Notwithstanding the foregoing, capital gains generated from the sale of our Shares by a non-Israeli shareholder may beexempt from Israeli tax under the Israeli Income Tax Ordinance provided that the following cumulative conditions are met:(i) the Shares were purchased upon or after the registration of the Shares on the stock exchange (this condition will107 Table of Contentsnot apply to shares purchased on or after January 1, 2009) and (ii) the seller does not have a permanent establishment inIsrael to which the generated capital gain is attributed. However, non-Israeli resident corporations will not be entitled tothe foregoing exemption if Israeli residents: (i) have a 25% or more interest in such non-Israeli corporation or (ii) are thebene(cid:69)iciaries of, or are entitled to, 25% or more of the income or pro(cid:69)its of such non-Israeli corporation, whether directlyor indirectly. In addition, such exemption would not be available to a person whose gains from selling or otherwisedisposing of the securities are deemed to be business income. In addition, the sale of the Shares may be exempt from Israeli capital gains tax under the provisions of an applicable doubletax treaty. For example, the Convention between the Government of the U.S. and the Government of the State of Israel withrespect to Taxes on Income (U.S.- Israel Double Tax Treaty) exempts a U.S. resident (for purposes of the treaty) from Israelicapital gain tax in connection with the sale of the Shares, provided that: (i) the U.S. resident owned, directly or indirectly,less than 10% of the voting power of the company at any time within the 12 month period preceding such sale; (ii) the U.S.resident, being an individual, is present in Israel for a period or periods of less than 183 days during the taxable year; and(iii) the capital gain from the sale was not derived through a permanent establishment of the U.S. resident in Israel;however, under the U.S-Israel Double Tax Treaty, the taxpayer would be permitted to claim a credit for such taxes againstthe U.S. federal income tax imposed with respect to such sale, exchange or disposition, subject to the limitations under U.S.law applicable to foreign tax credits. The U.S-Israel Double Tax Treaty does not relate to U.S. state or local taxes. Payers of consideration for the Shares, including the purchaser, the Israeli stockbroker or the (cid:69)inancial institution throughwhich the Shares are held, are obligated, subject to certain exemptions, to withhold tax upon the sale of Shares at a rate of25%of the consideration for individuals and corporations. Upon the sale of traded securities, a detailed return, including a computation of the tax due, must be (cid:69)iled and an advancedpayment must be paid to the Israeli Tax Authority on January 31 and July 31 of every tax year in respect of sales of tradedsecurities made within the previous six months. However, if all tax due was withheld at source according to applicableprovisions of the Israeli Income Tax Ordinance and regulations promulgated thereunder, such return need not be (cid:69)iled andno advance payment must be paid. Capital gains are also reportable on annual income tax returns. Dividends Dividends distributed by a company to a shareholder who is an Israeli resident individual will be generally subject toincome tax at a rate of 25%. However, a 30% tax rate will apply if the dividend recipient is a Controlling Shareholder, asde(cid:69)ined above, at the time of distribution or at any time during the preceding 12-month period. If the recipient of thedividend is an Israeli resident corporation, such dividend will be generally exempt from Israeli income tax provided thatthe income from which such dividend is distributed, derived or accrued within Israel. Dividends distributed by an Israeli resident company to a non-Israeli resident (either an individual or a corporation) aregenerally subject to Israeli withholding tax on the receipt of such dividends at the rate of 25% (30% if the dividendrecipient is a Controlling Shareholder at the time of distribution or at any time during the preceding 12-month period).These rates may be reduced under the provisions of an applicable double tax treaty. For example, under the U.S.-IsraelDouble Tax Treaty, the following tax rates will apply in respect of dividends distributed by an Israeli resident company toa U.S. resident: (i) if the U.S. resident is a corporation which holds during that portion of the taxable year which precedesthe date of payment of the dividend and during the whole of its prior taxable year (if any), at least 10% of the outstandingshares of the voting stock of the Israeli resident paying corporation and not more than 25% of the gross income of theIsraeli resident paying corporation for such prior taxable year (if any) consists of certain types of interest or dividends thetax rate is 12.5%; (ii) if both the conditions mentioned in clause (i) above are met and the dividend is paid from an Israeliresident company’s income which was entitled to a reduced tax rate under The Law for the Encouragement of CapitalInvestments, 1959, the tax rate is 15%; and (iii) in all other cases, the tax rate is 25%. The aforementioned rates under theU.S.-Israel Double Tax Treaty will not apply if the dividend income is attributed to a permanent establishment of the U.S.resident in Israel. Excess Tax Individual holders who are subject to tax in Israel (whether any such individual is an Israeli resident or non-Israeliresident) and who have taxable income that exceeds a certain threshold in a tax year ((NIS 810,720 for 2016 and NIS640,000 for 2017 and thereafter linked to the Israeli Consumer Price Index) will be subject to an additional tax at the rateof 2% in108 Table of Contents2016 (to be increased to 3% in 2017 and thereafter) on his or her taxable income for such tax year that is in excess of suchamount. For this purpose, taxable income includes taxable capital gains from the sale of securities and taxable incomefrom interest and dividends, subject to the provisions of an applicable double tax treaty. Foreign Exchange Regulations Non-residents of Israel who hold our Shares are able to receive any dividends, and any amounts payable upon thedissolution, liquidation and winding up of our affairs, repayable in non-Israeli currency at the rate of exchange prevailingat the time of conversion. However, Israeli income tax is generally required to have been paid or withheld on theseamounts. In addition, the statutory framework for the potential imposition of currency exchange control has not beeneliminated, and may be restored at any time by administrative action. U.S. Federal Income Tax Considerations The following is a summary of the material U.S. federal income tax consequences relating to the ownership and dispositionof our Ordinary Shares and ADSs by U.S. Holders, as de(cid:69)ined below. This summary addresses solely U.S. Holders whoacquire ADSs pursuant to this offering and who hold Ordinary Shares or ADSs, as applicable, as capital assets for taxpurposes. This summary is based on current provisions of the Internal Revenue Code of 1986, as amended (Code), currentand proposed Treasury regulations promulgated thereunder, and administrative and judicial decisions as of the datehereof, all of which are subject to change, possibly on a retroactive basis. In addition, this section is based in part uponrepresentations of the depositary and the assumption that each obligation in the deposit agreement and any relatedagreement will be performed in accordance with its terms. This summary does not address all U.S. federal income taxmatters that may be relevant to a particular holder or all tax considerations that may be relevant with respect to aninvestment in our Ordinary Shares or ADSs. This summary does not address tax considerations applicable to a holder of our Ordinary Shares or ADSs that may besubject to special tax rules including, without limitation, the following: ·dealers or traders in securities, currencies or notional principal contracts;·financial institutions;·insurance companies;·real estate investment trusts;·banks;·persons subject to the alternative minimum tax;·tax-exempt organizations;·traders that have elected mark-to-market accounting;·investors that hold Ordinary Shares or ADSs as part of a “straddle”, “hedge”, or “conversion transaction” withother investments;·regulated investment companies;·persons that actually or constructively own 10 percent or more of our voting shares;·persons that are treated as partnerships or other pass through entities for U.S. federal income purposes andpersons who hold the Shares through partnerships or other pass through entities; and·persons whose functional currency is not the U.S. dollars. This summary does not address the effect of any U.S. federal taxation other than U.S. federal income taxation. In addition,this summary does not include any discussion of state, local, or foreign tax consequences to a holder of our OrdinaryShares or ADSs. You are urged to consult your own tax advisor regarding the foreign and U.S. federal, state, andlocal and other tax consequences of an investment in Ordinary Shares or ADSs. For purposes of this summary, a “U.S. Holder” means a bene(cid:69)icial owner of an Ordinary Share or ADS that is for U.S. federalincome tax purposes: ·an individual who is a citizen or resident of the U.S.;109 Table of Contents·a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized inthe U.S. or under the laws of the U.S. or any political subdivision thereof;·an estate, the income of which is subject to U.S. federal income tax regardless of its source; or·a trust (1) if (a) a court within the U.S. is able to exercise primary supervision over the administration of the trustand (b) one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) that hasa valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. If an entity that is classi(cid:69)ied as a partnership for U.S. federal tax purposes holds Ordinary Shares or ADSs, the U.S. federaltax treatment of its partners will generally depend upon the status of the partners and the activities of the partnership.Entities that are classi(cid:69)ied as partnerships for U.S. federal tax purposes and persons holding Ordinary Shares or ADSsthrough such entities should consult their own tax advisors. In general, if you hold ADSs, you will be treated as the holder of the underlying Ordinary Shares represented by those ADSsfor U.S. federal income tax purposes. Accordingly, gain or loss generally will not be recognized if you exchange ADSs forthe underlying Ordinary Shares represented by those ADSs. Distributions Subject to the discussion under “Item 10. Additional Information – E. Taxation – U.S. Federal Income Tax Considerations –Passive Foreign Investment Companies” below, the gross amount of any distribution, including the amount of any Israelitaxes withheld from such distribution, see “Item 10. Additional Information – E. Taxation – Israeli Tax Considerations”,actually or constructively received by a U.S. Holder with respect to our Ordinary Shares (or, in the case of ADSs, receivedby the depositary) will be taxable to the U.S. Holder as foreign source dividend income to the extent of our current andaccumulated earnings and pro(cid:69)its as determined under U.S. federal income tax principles. The U.S. Holder will not beeligible for any dividends received deduction in respect of the dividends paid by us. Distributions in excess of earningsand pro(cid:69)its will be non-taxable to the U.S. Holder to the extent of the U.S. Holder’s adjusted tax basis in its Ordinary Sharesor ADSs. Distributions in excess of such adjusted tax basis will generally be taxable to the U.S. Holder as capital gain fromthe sale or exchange of property as described below under “Sale or Other Disposition of Ordinary Shares or ADSs”. If we donot report to a U.S. Holder the portion of a distribution that exceeds earnings and pro(cid:69)its, then the distribution willgenerally be taxable as a dividend. The amount of any distribution of property other than cash will be the fair market valueof that property on the date of distribution. Under the Code, certain dividends received by non-corporate U.S. Holders will be subject to a maximum federal income taxrate of 20%. This reduced income tax rate is only applicable to dividends paid by a “quali(cid:69)ied foreign corporation” that isnot a PFIC for the year in which the dividend is paid or for the preceding taxable year, and only with respect to OrdinaryShares or ADSs held by a quali(cid:69)ied U.S. Holder (i.e., a non-corporate holder) for a minimum holding period (generally 61days during the 121-day period beginning 60 days before the ex-dividend date). As discussed below, however, we believewe may be a “passive foreign investment company” (see “Item 10. Additional Information – E. Taxation – U.S. FederalIncome Tax Considerations – Passive Foreign Investment Companies” below) for our current taxable year and futuretaxable years. Accordingly, dividends paid by us to individual U.S. Holders may not be eligible for the reduced income taxrate applicable to quali(cid:69)ied dividends. You should consult your own tax advisor regarding the availability of thispreferential tax rate under your particular circumstances. The amount of any distribution paid in a currency other than U.S. dollars (a “foreign currency”), including the amount ofany withholding tax thereon, will be included in the gross income of a U.S. Holder in an amount equal to the U.S. dollarvalue of the foreign currency calculated by reference to the exchange rate in effect on the date of the U.S. Holder’s (or, in thecase of ADSs, the depositary’s) receipt of the dividend, regardless of whether the foreign currency is converted into U.S.dollars. If the foreign currency is converted into U.S. dollars on the date of receipt, a U.S. Holder generally should not berequired to recognize a foreign currency gain or loss in respect of the dividend. If the foreign currency received in thedistribution is not converted into U.S. dollars on the date of receipt, a U.S. Holder will have a basis in the foreign currencyequal to its U.S. dollar value on the date of receipt. Any gain or loss on a subsequent conversion or other disposition of theforeign currency will be treated as U.S. source ordinary income or loss. Subject to certain conditions and limitations, any Israeli taxes withheld on dividends may be creditable against a U.S.Holder’s U.S. federal income tax liability, subject to generally applicable limitations. The rules relating to foreign taxcredits and the timing thereof are complex. U.S. Holders should consult their own tax advisors regarding the availability ofa foreign tax credit in their particular situation.110 Table of Contents Sale or Other Disposition of Ordinary Shares or ADSs Subject to the discussion under “Item 10. Additional Information – Taxation — U.S. Federal Income Tax Considerations –Passive Foreign Investment Companies” below, if a U.S. Holder sells or otherwise disposes of its Ordinary Shares or ADSs,gain or loss will be recognized for U.S. federal income tax purposes in an amount equal to the difference between theamount realized on the sale or other disposition and such holder’s adjusted basis in the Ordinary Shares or ADSs. Such gainor loss generally will be a capital gain or loss, and will be a long-term capital gain or loss if the holder had held theOrdinary Shares or ADSs for more than one year at the time of the sale or other disposition. Long-term capital gainsrealized by non-corporate U.S. Holders are generally subject to a preferential U.S. federal income tax rate. In general, gain orloss recognized by a U.S. Holder on the sale or other disposition or our Ordinary Shares or ADSs will be U.S. source gain orloss for purposes of the foreign tax credit limitation. As discussed below in “Item 10. Additional Information – Taxation —U.S. Federal Income Tax Considerations – Passive Foreign Investment Companies,” however, we may be a PFIC for ourcurrent taxable year and future taxable years. If we are a PFIC, any such gain will be subject to the PFIC rules, as discussedbelow, rather than being taxed as a capital gain. If a U.S. Holder receives foreign currency upon a sale or exchange of Ordinary Shares or ADSs, gain or loss will berecognized in the manner described above under “Distributions”. However, if such foreign currency is converted into U.S.dollars on the date received by the U.S. Holder, the U.S. Holder generally should not be required to recognize any foreigncurrency gain or loss on such conversion. As discussed above under the heading “Item 10. Additional Information – E. Taxation – Israeli Tax Considerations –Taxation of Shareholders,” a U.S. Holder who holds Ordinary Shares or ADSs through an Israeli broker or other Israeliintermediary may be subject to Israeli withholding tax on any capital gains recognized on a sale or other disposition of theOrdinary Shares or ADSs if the U.S. Holder does not obtain approval of an exemption from the Israeli Tax Authorities orclaim any allowable refunds or reductions. U.S. Holders are advised that any Israeli tax paid under circumstances in whichan exemption from (or a refund of or a reduction in) such tax was available will not be creditable for U.S. federal incometax purposes. U.S. Holders are advised to consult their Israeli broker or intermediary regarding the procedures forobtaining an exemption or reduction. Medicare Tax on Unearned Income Certain U.S. Holders that are individuals, estates or trusts are required to pay an additional 3.8% tax on their netinvestment income, which would include dividends paid on the Ordinary Shares or ADSs and capital gains from the sale orother disposition of the Ordinary Shares or ADSs. Passive Foreign Investment Companies Based on the value and composition of our assets, we may be a PFIC for U.S. federal income tax purposes for our currenttaxable year and future taxable years. A non-U.S. corporation is considered a PFIC for any taxable year if either: ·at least 75% of its gross income for such taxable year is passive income; or·at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxableyear) is attributable to assets that produce or are held for the production of passive income. For purposes of the above calculations, if a non-U.S. corporation owns, directly or indirectly, 25% or more of the totalvalue of the outstanding shares of another corporation, it will be treated as if it (a) held a proportionate share of the assetsof such other corporation and (b) received directly a proportionate share of the income of such other corporation. Passiveincome generally includes dividends, interest, rents, royalties and capital gains, but generally excludes rents and royaltieswhich are derived in the active conduct of a trade or business and which are received from a person other than a relatedperson. A separate determination must be made each taxable year as to whether we are a PFIC (after the close of each such taxableyear). Because the value of our assets for purposes of the asset test will generally be determined by reference to the marketprice of the ADSs, our PFIC status will depend in large part on the market price of the ADSs, which may (cid:69)luctuatesigni(cid:69)icantly. Based on our retention of a signi(cid:69)icant amount of cash and cash equivalents, and depending on the marketprice of the ADSs, we may be a PFIC for the current taxable year and future taxable years.111 Table of Contents If we are a PFIC for any year during which you hold the ADSs, we generally will continue to be treated as a PFIC withrespect to you for all succeeding years during which you hold the ADSs, unless we cease to be a PFIC and you make a“deemed sale” election with respect to the ADSs you hold. If such election is made, you will be deemed to have sold theADSs you hold at their fair market value on the last day of the last taxable year in which we quali(cid:69)ied as a PFIC, and anygain from such deemed sale would be subject to the consequences described below. After the deemed sale election, theADSs with respect to which the deemed sale election was made will not be treated as shares in a PFIC unless wesubsequently become a PFIC. For each taxable year we are treated as a PFIC with respect to you, you will be subject to special tax rules with respect toany “excess distribution” you receive and any gain you realize from a sale or other disposition (including a pledge) of theADSs, unless you make a “mark-to-market” election as discussed below. Distributions you receive in a taxable year thatare greater than 125% of the average annual distributions you received during the shorter of the three preceding taxableyears or your holding period for the ADSs will be treated as an excess distribution. Under these special tax rules, if youreceive any excess distribution or realize any gain from a sale or other disposition of the ADSs: ·the excess distribution or gain will be allocated ratably over your holding period for the ADSs;·the amount of excess distribution or gain allocated to the current taxable year, and any taxable year before the (cid:69)irsttaxable year in which we were a PFIC, must be included in gross income (as ordinary income) for the current taxyear; and·the amount allocated to each other year will be subject to the highest tax rate in effect for that year and the interestcharge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to. The tax liability for amounts allocated to years before the year of disposition or “excess distribution” cannot be offset byany net operating losses for such years, and gains (but not losses) realized on the sale of the ADSs cannot be treated ascapital, even if you hold the ADSs as capital assets. If we are treated as a PFIC with respect to you for any taxable year, to the extent any of our subsidiaries are also PFICs, youwill be deemed to own your proportionate share of any such lower-tier PFIC, and you may be subject to the rules describedin the preceding two paragraphs with respect to the shares of such lower-tier PFICs you would be deemed to own. As aresult, you may incur liability for any “excess distribution” described above if we receive a distribution from such lower-tier PFICs or if any shares in such lower-tier PFICs are disposed of (or deemed disposed of). You should consult your owntax advisor regarding the application of the PFIC rules to any of our subsidiaries. Alternatively, a U.S. Holder of “marketable stock” (as de(cid:69)ined below) in a PFIC may make a mark-to-market election forsuch stock to elect out of the general tax treatment for PFICs discussed above. If you make a mark-to-market election forthe ADSs, you will include in income for each year we are a PFIC an amount equal to the excess, if any, of the fair marketvalue of the ADSs as of the close of your taxable year over your adjusted basis in such Ordinary Shares. You are allowed adeduction for the excess, if any, of the adjusted basis of the ADSs over their fair market value as of the close of the taxableyear. However, deductions are allowable only to the extent of any net mark-to-market gains on the ADSs included in yourincome for prior taxable years. Amounts included in your income under a mark-to-market election, as well as gain on theactual sale or other disposition of the ADSs, are treated as ordinary income. Ordinary loss treatment also applies to thedeductible portion of any mark-to-market loss on the ADSs, as well as to any loss realized on the actual sale or dispositionof the ADSs to the extent the amount of such loss does not exceed the net mark-to-market gains previously included for theADSs. Your basis in the ADSs will be adjusted to re(cid:69)lect any such income or loss amounts. If you make a valid mark-to-market election, the tax rules that apply to distributions by corporations which are not PFICs would apply to distributionsby us, except the lower applicable tax rate for quali(cid:69)ied dividend income would not apply. If we cease to be a PFIC whenyou have a mark-to-market election in effect, gain or loss realized by you on the sale of the ADSs will be a capital gain orloss and taxed in the manner described above under “Sale or Other Disposition of Ordinary Shares or ADSs”. The mark-to-market election is available only for “marketable stock,” which is stock that is traded in other than deminimis quantities on at least 15 days during each calendar quarter, or regularly traded, on a quali(cid:69)ied exchange or othermarket, as de(cid:69)ined in applicable U.S. Treasury regulations. Any trades that have as their principal purpose meeting thisrequirement will be disregarded. The ADSs are listed on the NASDAQ Capital Market and, accordingly, provided the ADSsare regularly traded, if you are a holder of ADSs, the mark-to-market election would be available to you if we are a PFIC.Once made, the election cannot be revoked without the consent of the IRS unless the ADSs cease to be marketable stock.112 Table of ContentsIf we are a PFIC for any year in which the U.S. Holder owns ADSs but before a mark-to-market election is made, the interestcharge rules described above will apply to any mark-to-market gain recognized in the year the election is made. If any ofour subsidiaries are or become PFICs, the mark-to-market election will not be available with respect to the shares of suchsubsidiaries that are treated as owned by you. Consequently, you could be subject to the PFIC rules with respect to incomeof the lower-tier PFICs the value of which already had been taken into account indirectly via mark-to-market adjustments.A U.S. Holder should consult its own tax advisors as to the availability and desirability of a mark-to-market election, aswell as the impact of such election on interests in any lower-tier PFICs. In certain circumstances, a U.S. Holder of stock in a PFIC can make a “quali(cid:69)ied electing fund election” to mitigate some ofthe adverse tax consequences of holding stock in a PFIC by including in income its share of the corporation’s income on acurrent basis. However, we do not currently intend to prepare or provide the information that would enable you to make aqualified electing fund election. Unless otherwise provided by the U.S. Treasury, each U.S. shareholder of a PFIC is required to (cid:69)ile an annual reportcontaining such information as the U.S. Treasury may require. A U.S. Holder’s failure to (cid:69)ile the annual report will cause thestatute of limitations for such U.S. Holder’s U.S. federal income tax return to remain open with regard to the items requiredto be included in such report until three years after the U.S. Holder (cid:69)iles the annual report, and, unless such failure is due toreasonable cause and not willful neglect, the statute of limitations for the U.S. Holder’s entire U.S. federal income tax returnwill remain open during such period. U.S. Holders should consult their own tax advisors regarding the requirements offiling such information returns under these rules, taking into account the uncertainty as to whether we are currently treatedas or may become a PFIC. YOU ARE STRONGLY URGED TO CONSULT YOUR OWN TAX ADVISOR REGARDING THE IMPACT OF OURPOTENTIAL PFIC STATUS ON YOUR INVESTMENT IN THE ADSs AS WELL AS THE APPLICATION OF THE PFICRULES TO YOUR INVESTMENT IN THE ADSs. Backup Withholding and Information Reporting Payments of dividends with respect to Ordinary Shares or ADSs and the proceeds from the sale, retirement, or otherdisposition of Ordinary Shares or ADSs made by a U.S. paying agent or other U.S. intermediary will be reported to the IRSand to the U.S. Holder as may be required under applicable U.S. Treasury regulations. We, or an agent, a broker, or anypaying agent, as the case may be, may be required to withhold tax (backup withholding), currently at the rate of 28%, if anon-corporate U.S. Holder that is not otherwise exempt fails to provide an accurate taxpayer identi(cid:69)ication number andcomply with other IRS requirements concerning information reporting. Certain U.S. Holders (including, among others,corporations and tax-exempt organizations) are not subject to backup withholding. Any amount of backup withholdingwithheld may be used as a credit against your U.S. federal income tax liability provided that the required information isfurnished to the IRS. U.S. Holders should consult their own tax advisors as to their qualification for exemption from backupwithholding and the procedure for obtaining an exemption. U.S. Holders may be required to (cid:69)ile certain U.S. information reporting returns with the IRS with respect to an investment inour Ordinary Shares or ADSs, including, among others, IRS Form 8938 (Statement of Speci(cid:69)ied Foreign Financial Assets).As described above under ‘‘Item 10. Additional Information – Taxation — U.S. Federal Income Tax Considerations –Passive Foreign Investment Companies,” each U.S. Holder who is a shareholder of a PFIC must (cid:69)ile an annual reportcontaining certain information. U.S. Holders paying more than $100,000 for our Ordinary Shares or ADSs may be requiredto (cid:69)ile IRS Form 926 (Return by a U.S. Transferor of Property to a Foreign Corporation) reporting this payment. Substantialpenalties may be imposed upon a U.S. Holder that fails to comply with the required information reporting. U.S. Holders should consult their own tax advisors regarding the backup withholding tax and information reporting rules. EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT ITS OWN TAX ADVISOR REGARDING THE TAXCONSEQUENCES OF AN INVESTMENT IN OUR ORDINARY SHARES OR ADSs IN LIGHT OF SUCH INVESTOR’SPARTICULAR CIRCUMSTANCES. F. Dividends and Paying Agents Not applicable.113 Table of Contents G. Statement by Experts Not applicable. H. Documents on Display We are subject to the information reporting requirements of the Exchange Act, applicable to foreign private issuers, andunder those requirements we (cid:69)ile reports with the SEC. Those other reports or other information may be inspected withoutcharge at the SEC’s public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Copies of the materialmay be obtained by mail from the Public Reference Branch of the SEC at such address, at prescribed rates. Please call theSEC at 1-800-SEC-0330 for further information on the public reference room. Our (cid:69)ilings with the SEC are also available tothe public through the SEC’s website at http://www.sec.gov. As a foreign private issuer, we are exempt from the rules under the Exchange Act, related to the furnishing and content ofproxy statements, and our of(cid:69)icers, directors and principal shareholders are exempt from the reporting and short-swingpro(cid:69)it recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the ExchangeAct, to (cid:69)ile annual, quarterly and current reports and (cid:69)inancial statements with the SEC as frequently or as promptly as U.S.companies whose securities are registered under the Exchange Act. However, we are required to comply with theinformational requirements of the Exchange Act, and, accordingly, (cid:69)ile current reports on Form 6-K, annual reports onForm 20-F and other information with the SEC. In addition, since our Ordinary Shares are traded on the TASE, we have (cid:69)iled Hebrew language periodic and immediatereports with, and furnish information to, the TASE and the Israeli Securities Authority, as required under Chapter Six of theIsrael Securities Law, 1968. Copies of our (cid:69)ilings with the Israeli Securities Authority can be retrieved electronicallythrough the MAGNA distribution site of the Israeli Securities Authority (www.magna.isa.gov.il) and the TASE website(www.maya.tase.co.il). We maintain a corporate website at www.redhillbio.com. Information contained on, or that can beaccessed through, our website does not constitute a part of this Annual Report. I. Subsidiary Information Not applicable. ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is the risk of loss related to changes in market prices, including interest rates and foreign exchange rates, of(cid:69)inancial instruments that may adversely impact our (cid:69)inancial position, results of operations or cash (cid:69)lows. Our overallrisk management program focuses on the unpredictability of (cid:69)inancial markets and seeks to minimize potential adverseeffects on our financial performance. Risk of Interest Rate Fluctuation and Credit Exposure Risk In the near future, we do not anticipate undertaking any signi(cid:69)icant long-term borrowings. At present, our credit andinterest risk arises from cash and cash equivalents, deposits with banks as well as accounts receivable. A substantialportion of our liquid instruments is invested in short-term deposits in highly-rated institutions. We estimate that because the liquid instruments are invested mainly for the short-term and with highly-rated institutions,the credit and interest risk associated with these balances is immaterial. The primary objective of our investmentactivities is to preserve principal while maximizing the income we receive from our investments without signi(cid:69)icantlyincreasing risk and loss. Our investments are exposed to market risk due to (cid:69)luctuations in interest rates, which may affectour interest income and the fair market value of our investments. We manage this exposure by performing ongoingevaluations of our investments. Market Price Risk We may be exposed to market price risk because of investments in tradable securities held by us and classi(cid:69)ied in ourfinancial statements on as financial assets at fair value through profit or loss. To manage the price risk arising from114 Table of Contentsinvestments in tradable securities, we invest in marketable securities with high ratings and diversify our investmentportfolio. Foreign Currency Exchange Risk Our foreign currency exposures give rise to market risk associated with exchange rate movements of the U.S. dollar, ourfunctional and reporting currency, mainly against the NIS and other currencies. Although the U.S. dollar is our functionalcurrency and reporting currency, a portion of our expenses are denominated in NIS. Our NIS expenses consist principallyof payments to employees or service providers and short term investments in currencies other than the U.S. dollar. Weanticipate that a sizable portion of our expenses will continue to be denominated in currencies other than the U.S. dollar. Ifthe U.S. dollar (cid:69)luctuates signi(cid:69)icantly against the NIS it may have a negative impact on our results of operations. Wemanage our foreign exchange risk by aligning the currencies for holding short term investments with the currencies ofexpected expenses, based on our expected cash flows. Portfolio diversi(cid:69)ication is performed based on risk level limits that we set. To date, we have not engaged in hedgingtransactions. In the future, we may enter into currency hedging transactions to decrease the risk of (cid:69)inancial exposure from(cid:69)luctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequatelyprotect us from the material adverse effects of such fluctuations. (A) Set forth below is a sensitivity test to possible changes in U.S. dollars/ NIS exchange rate as of December 31, 2016: Income (loss) from Income (loss) from change in exchange Value change in exchange rate (U.S. dollars (U.S. dollars rate (U.S. dollars Sensitive instrument in thousands) in thousands) in thousands) Down Down Up Up 2 % 5 % 5 % 2 %Cash and cash equivalents 27 68 53,786 (68) (27) Bank deposits 4 9 55 (9) (4) Accounts receivable (except prepaidexpenses) 3 7 1,541 (7) (3) Accounts payable and accrued expenses (3) (6) (3,356) 6 3 Total loss 31 78 (78) (31) 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 Each of our American Depositary Shares, or ADSs, represents 10 of our Ordinary Shares. Our ADSs trade on The NASDAQCapital Market. The form of the deposit agreement for the ADSs and the form of American Depositary Receipt (ADR) that represents an ADShave been incorporated by reference as exhibits to this Annual Report on Form 20-F. Copies of the deposit agreement areavailable for inspection at the principal office of The Bank of New York Mellon, located at 101 Barclay Street, New115 Table of ContentsYork, New York 10286, and at the principal of(cid:69)ice of our custodians, Bank Leumi Le-Israel, 34 Yehuda Halevi St., Tel Aviv65546, Israel and Bank Hapoalim B.M., 104 Hayarkon Street, Tel Aviv 63432, Israel. Fees and Expenses Persons depositing or withdrawing shares orAmerican Depositary Share holders must pay: For:$5.00 (or less) per 100 American Depositary Shares (orportion of 100 American Depositary Shares)●Issuance of American Depositary Shares, includingissuances resulting from a distribution of shares or rightsor other property ●Cancellation of American Depositary Shares for thepurpose of withdrawal, including if the deposit agreementterminates$0.05 (or less) per American Depositary Share●Any cash distribution to American Depositary ShareholdersA fee equivalent to the fee that would be payable ifsecurities distributed to you had been shares and theshares had been deposited for issuance of AmericanDepositary Shares●Distribution of securities distributed to holders ofdeposited securities which are distributed by thedepositary to American Depositary Share holders$0.05 (or less) per American Depositary Shares percalendar year●Depositary servicesRegistration or transfer fees●Transfer and registration of shares on our share register toor from the name of the depositary or its agent when youdeposit or withdraw sharesExpenses of the depositary●Cable, telex and facsimile transmissions (when expresslyprovided in the deposit agreement) ●Converting foreign currency to U.S. dollarsTaxes and other governmental charges the depositary orthe custodian have to pay on any American DepositaryShare or share underlying an American Depositary Share,for example, stock transfer taxes, stamp duty orwithholding taxes●As necessaryAny charges incurred by the depositary or its agents forservicing the deposited securities●As necessary The depositary collects its fees for delivery and surrender of American Depositary Shares directly from investorsdepositing shares or surrendering American Depositary Shares for the purpose of withdrawal or from intermediariesacting for them. The depositary collects fees for making distributions to investors by deducting those fees from theamounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annualfee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide fee-attractingservices until its fees for those services are paid. From time to time, the depositary may make payments to us to reimburse or share revenue from the fees collected fromAmerican Depositary Share holders, or waive fees and expenses for services provided, generally relating to costs andexpenses arising out of establishment and maintenance of the American Depositary Share program. In performing itsduties under the deposit agreement, the depositary may use brokers, dealers or other service providers that are af(cid:69)iliates ofthe depositary and that may earn or share fees or commissions. ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES Not applicable. ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS Not applicable. 116 Table of Contents ITEM 15. CONTROLS AND PROCEDURES (a) Disclosure Controls and Procedures We performed an evaluation of the effectiveness of our disclosure controls and procedures that are designed to ensure thatinformation required to be disclosed on Form 20-F and (cid:69)iled with the SEC is recorded, processed, summarized andreported timely within the time period speci(cid:69)ied in the SEC’s rules and forms. Disclosure controls and procedures include,without limitation, controls and procedures designed to ensure that information required to be disclosed by us in thereports that we (cid:69)ile or submit under the Exchange Act, is accumulated and communicated to our management, includingour principal executive and principal (cid:69)inancial of(cid:69)icers, or persons performing similar functions, as appropriate to allowtimely decisions regarding required disclosure. There can be no assurance that our disclosure controls and procedureswill detect or uncover all failures of persons within the company to disclose information otherwise required to be set forthin our reports. Nevertheless, our disclosure controls and procedures are designed to provide reasonable assurance ofachieving the desired control objectives. Based on our evaluation, our management, including our Chief Executive Of(cid:69)icerand Chief Financial Of(cid:69)icer, have concluded that our disclosure controls and procedures (as de(cid:69)ined in Rules 13a-15(e) and15(d) - 15(e) of the Exchange Act) as of the end of the period covered by this report are effective at such reasonableassurance level. (b) Management’s Annual Report on Internal Control over Financial Reporting Our management, under the supervision of our Chief Executive Of(cid:69)icer and Chief Financial Of(cid:69)icer, is responsible forestablishing and maintaining adequate internal control over our (cid:69)inancial reporting, as de(cid:69)ined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act of 1934, as amended. The Company’s internal control over (cid:69)inancial reporting is a processdesigned to provide reasonable assurance regarding the reliability of (cid:69)inancial reporting and the preparation of (cid:69)inancialstatements for external purposes in accordance with generally accepted accounting principles. Internal control overfinancial reporting includes policies and procedures that: ·pertain to the maintenance of records that in reasonable detail accurately and fairly re(cid:69)lect our transactions andasset dispositions;·provide reasonable assurance that transactions are recorded as necessary to permit the preparation of ourfinancial statements in accordance with generally accepted accounting principles;·provide reasonable assurance that receipts and expenditures are made only in accordance with authorizations ofour management and board of directors (as appropriate); and·provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use ordisposition of assets that could have a material effect on our financial statements. Due to its inherent limitations, internal controls over (cid:69)inancial reporting may not prevent or detect misstatements. Inaddition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may becomeinadequate because of changes in conditions, or that the degree of compliance with the policies or procedures maydeteriorate. Under the supervision and with the participation of our management, including our Chief Executive Of(cid:69)icer and ChiefFinancial Of(cid:69)icer, we assessed the effectiveness of our internal control over (cid:69)inancial reporting as of December 31, 2016based on the framework for Internal Control-Integrated Framework set forth by The Committee of SponsoringOrganizations of the Treadway Commission (COSO) (2013). Based on our assessment and this framework, our management concluded that the Company’s internal control overfinancial reporting were effective as of December 31, 2016. (c) Attestation Report of Registered Public Accounting Firm Not applicable. (d) Changes in Internal Controls over Financial Reporting There were no changes in our internal control over (cid:69)inancial reporting that occurred during the year ended December 31,2016 that have materially affected, or are reasonably likely to materially affect, our internal control over (cid:69)inancialreporting. 117 Table of Contents ITEM16. [RESERVED] ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT Our board of directors has determined that Ofer Tsimchi, Dan Suesskind and Nurit Benjamini are audit committee financialexperts. Mr. Tsimchi, Mr. Suesskind and Ms. Benjamini are independent directors for the purposes of the NASDAQ ListingRules. ITEM 16B. CODE OF ETHICS As of the date of this Annual Report, we have adopted a code of ethics that applies to our principal executive of(cid:69)icer,principal financial officer, principal accounting officer or controller, or persons performing similar functions. This code ofethics is posted on our website, http://(cid:69)iles.shareholder.com/downloads/AMDA-1C0OBF/2136056036x0x622354/AB22671F-9FAF-4EF6-8552-4F9A31E4B64F/Business-Conduct-and-Ethics.pdf . ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES Fees Paid to Independent Registered Public Accounting Firm The following table sets forth, for each of the years indicated, the aggregate fees billed by our independent registered publicaccounting firm for professional services. Year Ended December 31, Services Rendered 2016 2015 (U.S. dollars in thousands) Audit (1) 122 118 Audit related services (2) 64 110 Tax (3) — 7 Total 186 235 (1)Audit fees consist of services that would normally be provided in connection with statutory and regulatory filings orengagements, including services that generally only the independent accountant can reasonably provide.(2)Audit related services relate to work regarding prospectus supplements and ongoing consultation.(3)Tax fees relate to tax compliance, planning and advice. Audit Committee Pre-Approval Policies and Procedures Our audit committee’s speci(cid:69)ic responsibilities in carrying out its oversight of the quality and integrity of the accounting,auditing and reporting practices of the Company include the approval of audit and non-audit services to be provided by theexternal auditor. The audit committee approves in advance the particular services or categories of services to be providedto the Company during the following yearly period and also sets forth a speci(cid:69)ic budget for such audit and non-auditservices. Additional non-audit services may be pre-approved by the audit committee. 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. 118 Table of Contents ITEM 16G. CORPORATE GOVERNANCE NASDAQ Stock Listing Rules and Home Country Practices As a foreign private issuer, we are permitted to follow Israeli corporate governance practices instead of NASDAQ ListingRules, provided that we disclose which requirements we are not following and the equivalent Israeli requirement. We relyon this “foreign private issuer exemption” with respect to the following items: ·Shareholder Approval - We seek shareholder approval for all corporate actions requiring such approval inaccordance with the requirements of the Israeli Companies Law, which are different from the shareholderapproval requirements under the NASDAQ Listing Rules. The NASDAQ Listing Rules require that we obtainshareholder approval for certain dilutive events, such as for the establishment or amendment of certain equity-based compensation plans and arrangements, issuances that will result in a change of control of a company,certain transactions other than a public offering involving issuances of 20% or more of the shares or voting powerin a company, and certain acquisitions of the stock or assets of another company involving issuances of 20% ormore of the shares or voting power in a company or if any director, of(cid:69)icer or holder of 5% or more of the sharesor voting power of the company has a 5% or greater interest in the company or assets to be acquired orconsideration to be paid and the transaction could result in an increase in the outstanding common shares orvoting power by 5% or more;·Under the Israeli Companies Law, shareholder approval is required for any transaction, including any grant ofequity-based compensation, to a director or a controlling shareholder, but is not generally required to establish oramend an equity based compensation plan. Similarly, shareholder approval is required for a private placementthat is deemed an “extraordinary private placement” or that involves a director or controlling shareholder. A“extraordinary private placement” is a private placement in which a company issues securities representing 20%or more of its voting rights prior to the issuance and the consideration received pursuant to such issuance is notcomprised, in whole or in part, solely of cash or securities registered for trade on an exchange or which is notmade pursuant to market conditions, and as a result of which the shareholdings of a 5% holder of the shares orvoting rights of the company increases or as a result of which a person will become a holder of 5% of the sharesor voting rights of the company or a controlling shareholder after the issuance;·Quorum - As permitted under the Israeli Companies Law, pursuant to our articles of association, the quorumrequired for an ordinary meeting of shareholders consists of at least two shareholders present in person or byproxy who hold or represent at least 25% of the voting rights of our shares (and in an adjourned meeting, withsome exceptions, any number of shareholders), instead of 33 1/3% of the issued share capital required under theNASDAQ Listing Rules; and·Nominations Committee - As permitted under the Israeli Companies Law, our board of directors selects directornominees subject to the terms of our articles of association which provide that incumbent directors are re-nominated for additional terms. Directors are not selected, or recommended for board of director selection, byindependent directors constituting a majority of the board's independent directors or by a nominations committeecomprised solely of independent directors as required by the NASDAQ Listing Rules. Otherwise, we comply with the rules generally applicable to U.S. domestic companies listed on the NASDAQ Stock Market.We may in the future decide to use the foreign private issuer exemption with respect to some or all of the other NASDAQListing Rules related to corporate governance. We also comply with Israeli corporate governance requirements under theIsraeli Companies Law as applicable to us. ITEM 16H. MINE SAFETY DISCLOSURE Not applicable. ITEM 17. FINANCIAL STATEMENTS Not applicable. ITEM 18. FINANCIAL STATEMENTS The financial statements required by this item are found at the end of this Annual Report, beginning on page F-1. 119 Table of Contents ITEM 19. EXHIBITS See Exhibit Index on page 123. 120 Table of Contents Glossary of Industry Terms Certain standards and other terms specific to our industry that are used in this Annual Report are defined below: API - active pharmaceutical ingredient - the ingredient in a pharmaceutical drug that is biologically active. Bioequivalence - the absence of a signi(cid:69)icant difference in the rate and extent to which the active ingredient or activemoiety in pharmaceutical equivalents or pharmaceutical alternatives becomes available at the site of drug action whenadministered at the same molar dose under similar conditions in an appropriately designed study. To be considered“bioequivalent”, certain standards specified by the FDA must be met. Bioequivalence Clinical Study - a study the data from which is submitted to the FDA in support of a marketingapplication of a test drug that is being compared to a referenced existing (already approved) drug. Suf(cid:69)icient similaritybetween the test and the reference drug is required, according to certain standards speci(cid:69)ied by the FDA, which must bemet. cGMP - Current Good Manufacturing Practice - Standards, procedures and guidelines designed for production qualitycontrol. CMC - chemistry, manufacturing and controls of pharmaceutical products. CRL - Complete Response Letter – the FDA will send the applicant of an NDA a complete response letter if theydetermine that they will not approve an application or abbreviated application in its present form. CRO - Contract Research Organization, also called a clinical research organization is a service organization thatprovides outsourced pharmaceutical research services. DESI - Drug Efficacy Study Implementation program of the FDA - the DESI program was created, in part, to require theFDA to conduct a retrospective evaluation of the effectiveness of drug products that were approved as safe between 1938and 1962 through the new drug approval process. According to the DESI program, drugs approved before October 10, 1962,were reviewed to evaluate whether there was substantial evidence of their effectiveness. Diffuse large B-cell lymphoma (DLBCL) - a B-cell type of lymphoma. With DLBCL, the cancer cells appear very large andscattered throughout (diffuse) all of the lymph node. Lymphoma is the most common blood cancer. Lymphoma occurswhen cells of the immune system called lymphocytes, a type of white blood cell, grow and multiply uncontrollably.Cancerous lymphocytes can travel to many parts of the body, including the lymph nodes, spleen, bone marrow, blood, orother organs, and form a mass called a tumor. DSMB - Data and Safety Monitoring Board - an independent group of experts that advises the study investigators. GCP - Good Clinical Practices - requirements for the conduct of research involving human subjects. H. pylori (Helicobacter pylori) - a Gram-negative bacterium found in the stomach. It was identi(cid:69)ied in 1982 by Dr. BarryMarshall and Dr. Robin Warren and is associated with peptic ulcer disease and development of gastric cancer. IND - Investigational New Drug - a status assigned by the FDA to a drug before allowing its use in humans, so thatexperimental clinical trials may be conducted. IRB - Institutional Review Board - Under FDA regulations, an IRB is an appropriately constituted group that has beenformally designated to review and monitor biomedical research involving human subjects. ITT - intention-to-treat – intention-to-treat analysis means all of the patients who were enrolled and randomized into aclinical study are included in the analysis. MAA - Marketing Authorization Application - the equivalent European Union (EU) process to the U.S. new drugapplication (NDA – see below) process. It is an application submitted by a drug sponsor seeking permission to bring anewly-developed medicinal product to the market. An MAA may be filed with the European Medicines Agency (EMA)121 Table of Contentsor one or more Member States, depending on the applicable and selected procedure: centralised, mutual recognition ordecentralised. MAP bacterium - (Mycobacterium avium subspecies paratuberculosis (MAP)) - an obligate pathogenic bacterium inthe genus Mycobacterium. Mycobacterium avium subspecies paratuberculosis (MAP) - MAP is the causative agent of Johne disease, a chronicgranulomatous ileitis occurring mainly in ruminants. MAP has been suspected as the cause of Crohn disease in humans. NDA - New Drug Application - an application by drug sponsors to the Food and Drug Administration (FDA) for approvalof a new pharmaceutical for sale and marketing in the U.S. NOOH - Notice of Opportunity Hearing - The Notice of Opportunity for Hearing provides an individual with theopportunity for a hearing on a regulatory action, including a proposed action (such as debarment), before a presidingofficer designated by the FDA Commissioner. NTM - Nontuberculous Mycobacteria – a class of Mycobacteria also known as environmental mycobacteria, atypicalmycobacteria and mycobacteria other than tuberculosis (MOTT). Ondansetron - a drug in class of medications called serotonin 5-HT 3 receptor antagonists. Ondansetron works byblocking the action of serotonin, a natural substance that may cause nausea and vomiting. Orphan Drug Status - the designation of Orphan Drug Status to drugs that are in the process of development for thetreatment of rare diseases. This status provides tax reductions and the exclusive rights to the cure for a speci(cid:69)ic conditionfor a period of seven years post-approval. PK - pharmacokinetics - the study of the absorption, distribution, metabolism, and excretion of drugs in the body. QIDP - Quali(cid:72)ied Infectious Disease Product - designation granted under the FDA’s Generating Antibiotic IncentivesNow Act, which is intended to encourage development of new antibiotic drugs for the treatment of serious or life-threatening infections that have the potential to pose a serious threat to public health. Rizatriptan™ - a serotonin 5-HT 1B/1D receptor agonist of the triptan class of drugs. Sphingosine kinase-2 (SK2) - an enzyme catalyzes the phosphorylation of sphingosine to generate sphingosine 1-phosphate. There are two isotypes of sphingosine enzyme, SK1 and SK2. Both isotypes have a key role in varietyof disease, including the development of a range of solid tumors and are promising anti-cancer therapeutic targets. Stability Testing - as part of the cGMP regulations, the FDA requires that drug products bear an expiration datedetermined by appropriate stability testing. The stability of drug products needs to be evaluated over time in the samecontainer-closure system in which the drug product is marketed. TNFα - Tumor necrosis factor alpha is a cell-signaling protein (cytokine) involved in systemic inflammation. Triptans - serotonin 5-hydroxytryptamine (5-HT) receptor agonist drugs used for the treatment of migraines. 122 Table of Contents REDHILL BIOPHARMA LTD.2016 FINANCIAL STATEMENTS TABLE OF CONTENTS PageReport of Independent Registered Public Accounting Firm F-2Statements of Comprehensive Loss F-3Statements of Financial Position F-4Statements of Changes in Equity F-5Statements of Cash Flows F-6Notes to the Financial Statements F-7 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders of REDHILL BIOPHARMA LTD. We have audited the accompanying statements of (cid:69)inancial position of RedHill Biopharma Ltd. as of December 31, 2016and 2015 and the related statements of comprehensive loss, changes in equity and cash (cid:69)lows for each of the three years inthe period ended December 31, 2016. These (cid:69)inancial statements are the responsibility of the Company’s Board ofDirectors and management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (UnitedStates). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the(cid:69)inancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the (cid:69)inancial statements. An audit also includes assessing the accounting principles usedand signi(cid:69)icant estimates made by the Company’s Board of Directors and management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the accompanying (cid:69)inancial statements referred to above present fairly, in all material respects, the(cid:69)inancial position of the Company as of December 31, 2016 and 2015 and the results of its operations, changes in equityand cash (cid:69)lows for each of the three years in the period ended December 31, 2016, in accordance with InternationalFinancial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). Tel-Aviv, Israel/s/ Kesselman & KesselmanFebruary 22, 2017Certified Public Accountants (Isr.) A member firm of PricewaterhouseCoopers InternationalLimited Kesselman & Kesselman, Trade Tower, 25 Hamered Street, Tel-Aviv 6812508, Israel,P.O Box 50005 Tel-Aviv 6150001 Telephone: +972 -3- 7954555, Fax:+972 -3- 7954556, www.pwc.com/ilF-2 Table of Contents REDHILL BIOPHARMA LTD. STATEMENTS OF COMPREHENSIVE LOSS Year ended December 31 Note 2016 2015 2014 U.S. dollars in thousands REVENUES: Licensing revenue 17 100 — 7,000 Other revenue 1 3 14 TOTAL REVENUES 101 3 7,014 COST OF REVENUE — — 1,050 RESEARCH AND DEVELOPMENT EXPENSES, net 18 25,241 17,771 12,700 GENERAL, ADMINISTRATIVE AND BUSINESSDEVELOPMENT EXPENSES 19 5,403 4,134 4,011 OTHER EXPENSES (INCOME) — 100 (100) OPERATING LOSS 30,543 22,002 10,647 FINANCIAL INCOME 1,548 1,124 319 FINANCIAL EXPENSES 375 212 383 FINANCIAL EXPENSES (INCOME), net 20 (1,173) (912) 64 LOSS AND COMPREHENSIVE LOSS FOR THE YEAR 29,370 21,090 10,711 LOSS PER ORDINARY SHARE (U.S. dollars): 21 Basic 0.23 0.19 0.12 Diluted 0.24 0.19 0.13 The accompanying notes are an integral part of these financial statements. F-3 Table of Contents REDHILL BIOPHARMA LTD. STATEMENTS OF FINANCIAL POSITION December 31 Note 2016 2015 U.S. dollars in thousands CURRENT ASSETS: Cash and cash equivalents 5 53,786 21,516 Bank deposits 55 36,622 Financial assets at fair value through profit or loss 6 12,313 — Prepaid expenses and receivables 7 1,661 2,372 67,815 60,510 NON-CURRENT ASSETS: Bank deposits 137 134 Fixed assets 8 165 124 Intangible assets 9 6,095 6,060 6,397 6,318 TOTAL ASSETS 74,212 66,828 CURRENT LIABILITIES: Accounts payable and accrued expenses 11 3,356 3,514 Payable in respect of intangible asset purchase 12a(6) 2,000 2,000 5,356 5,514 NON-CURRENT LIABILITIES: Derivative financial instruments 15 6,155 1,237 TOTAL LIABILITIES 11,511 6,751 COMMITMENTS 12 EQUITY: Ordinary shares 14 441 343 Additional paid-in capital 150,838 120,621 Warrants 1,057 1,057 Accumulated deficit (89,635) (61,944) TOTAL EQUITY 62,701 60,077 TOTAL LIABILITIES AND EQUITY 74,212 66,828 The accompanying notes are an integral part of these financial statements. F-4 Table of Contents REDHILL BIOPHARMA LTD. STATEMENTS OF CHANGES IN EQUITY Ordinaryshares Additionalpaid-incapital Warrants Accumulateddeficit Totalequity U.S. dollars in thousands BALANCE AT JANUARY 1, 2014 174 43,144 1,867 (33,260) 11,925 CHANGES DURING THE YEAR ENDED DECEMBER 31, 2014: Share-based compensation toemployees and service providers — — — 1,753 1,753 Exercise of warrants and options intoordinary shares, net 11 5,696 (702) 5,005 Issuance of ordinary shares andwarrants, net of expenses 55 15,927 1,057 — 17,039 Warrants expiration — 694 (694) — — Comprehensive loss — — — (10,711) (10,711) BALANCE AT DECEMBER 31, 2014 240 65,461 1,528 (42,218) 25,011 BALANCE AT JANUARY 1, 2015 240 65,461 1,528 (42,218) 25,011 CHANGES DURING THE YEAR ENDED DECEMBER 31, 2015: Share-based compensation toemployees and service providers — — — 1,364 1,364 Exercise of options into ordinary shares * 108 — — 108 Issuance of ordinary shares, net ofexpenses 103 54,581 — — 54,684 Warrants expiration 471 (471) — Comprehensive loss — — — (21,090) (21,090) BALANCE AT DECEMBER 31, 2015 343 120,621 1,057 (61,944) 60,077 BALANCE AT JANUARY 1, 2016 343 120,621 1,057 (61,944) 60,077 CHANGES DURING THE YEAR ENDED DECEMBER 31, 2016: Share-based compensation toemployees and service providers — — — 1,679 1,679 Issuance of ordinary shares, net ofexpenses 96 29,956 — — 30,052 Exercise of options into ordinary shares 2 261 — — 263 Comprehensive loss — — — (29,370) (29,370) BALANCE AT DECEMBER 31, 2016 441 150,838 1,057 (89,635) 62,701 *Represents amount less than $1 thousand. The accompanying notes are an integral part of these financial statements. F-5 Table of Contents REDHILL BIOPHARMA LTD. STATEMENTS OF CASH FLOWS Year ended December 31 2016 2015 2014 U.S. dollars in thousands OPERATING ACTIVITIES: Comprehensive loss (29,370) (21,090) (10,711) Adjustments in respect of income and expenses not involving cash flow: Share-based compensation to employees and service providers 1,679 1,364 1,753 Depreciation 44 36 27 Write-off of intangible assets — 100 — Cost out-licensing of intangible assets — — 50 Unrealized gains on derivative financial instruments (1,152) (888) (200) Fair value gains on financial assets at fair value through profit or loss (67) — — Revaluation of bank deposits (274) (69) (29) Issued cost in respect of warrants 368 — — Exchange differences in respect of cash and cash equivalents (39) 150 237 559 693 1,838 Changes in assets and liability items: Decrease (increase) in prepaid expenses and receivables 711 702 (2,586) Increase (decrease) in accounts payable and accrued expenses (158) 1,869 (770) 553 2,571 (3,356) Net cash used in operating activities (28,258) (17,826) (12,229) INVESTING ACTIVITIES: Purchase of fixed assets (85) (14) (70) Purchase of intangible assets (35) (1,620) (1,035) Change in investment in current bank deposits 36,838 (29,500) (7,000) Purchase of non-current bank deposit — (58) (10,000) Purchase of financial assets at fair value through profit or loss (12,246) — — Maturity of non-current bank deposits — 10,000 — Proceeds from sale of financial assets at fair value through profit or loss — — 243 Net cash provided by (used in) investing activities 24,472 (21,192) (17,862) FINANCING ACTIVITIES: Proceeds from issuance of ordinary shares and warrants, net of expenses 35,754 54,684 19,364 Exercise of warrants and options into ordinary shares, net of expenses 263 108 5,005 Net cash provided by financing activities 36,017 54,792 24,369 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 32,231 15,774 (5,722) EXCHANGE DIFFERENCES ON CASH AND CASH EQUIVALENTS 39 (150) (237) BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 21,516 5,892 11,851 BALANCE OF CASH AND CASH EQUIVALENTS AT END OF YEAR 53,786 21,516 5,892 SUPPLEMENTARY INFORMATION ON INTEREST RECEIVED IN CASH 408 236 118 Supplementary information on investing activities not involving cashflows - Purchase of intangible assets — 1,925 75 The accompanying notes are an integral part of these financial statements. F-6 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE FINANCIAL STATEMENTS NOTE 1 - GENERAL: a. General RedHill Biopharma Ltd. (the “Company”) was incorporated in Israel on August 3, 2009. The Company is aspecialty biopharmaceutical company primarily focused on the development and commercialization oflate clinical-stage, proprietary, orally-administered, small molecule drugs for the treatment ofgastrointestinal and in(cid:69)lammatory diseases and cancer. The Company also has a U.S. co-promotionagreement granting the Company certain rights to promote Donnatalin the U.S., a prescription oraladjunctive drug marketed in the U.S. for gastrointestinal conditions. In February 2011, the Company listed its securities on the Tel-Aviv Stock Exchange (“TASE”). SinceDecember 2012, the Company’s American Depositary Shares (“ADSs”) have been listed on the NASDAQCapital Market (“NASDAQ”). The Company’s registered address is at 21 Ha’arba’a St, Tel-Aviv, Israel. The Company is engaged in the research and development of most of its therapeutic candidates and todate has out-licensed on an exclusive world-wide basis only one of its therapeutic candidates and hadtwo additional regional exclusive out-licensing transactions with another therapeutic candidate.Accordingly, there is no assurance that the Company’s business will generate positive cash flow. ThroughDecember 31, 2016, the Company has an accumulated de(cid:69)icit and its activities have been funded throughpublic and private offerings of the Company’s securities. The Company plans to further fund its future operations through commercialization of its therapeuticcandidates and Donnatal, out-licensing certain programs and raising additional capital. The Company’scurrent cash resources are not suf(cid:69)icient to complete the research development and commercialization ofall of the Company’s therapeutic candidates and Donnatal. Management expects that the Company willincur more losses as it continues to focus its resources on advancing these products based on aprioritized plan that will result in negative cash (cid:69)lows from operating activities. The Company believesits existing capital resources should be suf(cid:69)icient to fund its current and planned operations for at leastthe next 12 months. If the Company is unable to commercialize or further out-license its therapeutic candidates andDonnatal, or obtain future (cid:69)inancing, the Company may be forced to delay, reduce the scope of, oreliminate one or more of its research, development programs or commercialization related to theseproducts, any of which may have a material adverse effect on the Company’s business, (cid:69)inancialcondition and results of operations. b. Approval of financial statements These financial statements were approved by the board of directors on February 22, 2017. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: a. Basis for presentation of the financial statements The (cid:69)inancial statements of the Company as of December 31, 2016 and 2015 and for each of the threeyears in the period ended on December 31, 2016 have been prepared in accordance with InternationalFinancial Reporting Standards, (“IFRS”), as issued by the International Accounting Standards Board(“IASB”). F-7 ® ®®®Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE FINANCIAL STATEMENTS (continued) The signi(cid:69)icant accounting policies described below have been applied consistently in relation to all theperiods presented, unless otherwise stated. The (cid:69)inancial statements have been prepared under the historical cost convention, subject to adjustmentsin respect of revaluation of financial assets and financial liabilities at fair value through profit or loss. The preparation of (cid:69)inancial statements in conformity with IFRS requires the use of certain criticalaccounting estimates. It also requires management to exercise its judgment in the process of applying theCompany’s accounting policies. The areas involving a higher degree of judgment or complexity, or areaswhere assumptions and estimates are signi(cid:69)icant to the (cid:69)inancial statements, are disclosed in note 3.Actual results could differ significantly from those estimates and assumptions. b. Translation of foreign currency balances and transactions: 1) Functional and presentation currency Items included in the (cid:69)inancial statements are measured using the currency of the primary economicenvironment in which the Company operates (the “Functional Currency”). The (cid:69)inancial statementsare presented in U.S. dollars (“$”), which is the Company’s functional and presentation currency. 2) Transactions and balances Foreign currency transactions in currencies different from the Functional Currency (hereafter foreigncurrency, mostly New Israeli Shekels (“NIS”)) are translated into the Functional Currency using theexchange rates at the dates of the transactions. Foreign exchange differences resulting from thesettlement of such transactions and from the translation at period-end exchange rates of monetaryassets and liabilities denominated in foreign currencies are recorded to the statement ofcomprehensive loss among financing income or expenses. c. Cash and cash equivalents Cash and cash equivalents include cash on hand and unrestricted short-term bank deposits withmaturities of three months or less. d. Fixed assets Fixed assets items are initially recognized at acquisition cost. Fixed assets items are stated at cost lessaccumulated depreciation. Depreciation is computed by the straight- line method, to reduce the cost of (cid:69)ixed assets to their residualvalue over their estimated useful lives as follows: % Computers 33 Office furniture and equipment 8-15 Leasehold improvements are depreciated by the straight-line method over the shorter of the term of thelease or the estimated useful life of the improvements. e. Research and development: 1) Research and development assets acquired by the Company, the development of which has not beencompleted yet, are stated at cost and are not amortized; these assets are tested for impairmentF-8 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE FINANCIAL STATEMENTS (continued) once a year. At the time these assets will be available for use, they will be amortized by the straightline method over their useful lives. 2) Research expenses are charged to pro(cid:69)it or loss as incurred. An intangible asset arising fromdevelopment of the Company’s therapeutic candidates is recognized if all of the following conditionsare met: ·it is technically feasible to complete the intangible assets so that it will be available for use;·management intends to complete the intangible asset and use it or sell it;·there is an ability to use or sell the intangible asset;·it can be demonstrated how the intangible asset will generate probable future economic benefits;and·adequate technical, financial and other resources to complete the development and to use or sellthe intangible asset are available and costs associated with the intangible asset duringdevelopment can be measured reliably. Other development costs that do not meet the above criteria are recognized as expenses asincurred. Development costs previously recognized as an expense are not recognized as an asset in asubsequent period. As of December 31, 2016, the Company has not yet capitalized development costs. 3) Amounts paid to purchase intellectual property of therapeutic candidates are capitalized andrecorded as intangible assets. Amounts due for future payment based on contractual agreements areaccrued upon reaching the relevant milestones. 4) Research and development costs for the performance of pre-clinical, clinical trials andmanufacturing by subcontractors are recognized as expenses when incurred. f. Impairment of non-financial assets Depreciable assets are tested for impairment if any events have occurred or changes in circumstanceshave taken place which might indicate that their carrying amounts may not be recoverable. Research anddevelopment assets, the development of which has not been completed yet, are not amortized and aretested for impairment on an annual basis. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds itsrecoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell andvalue in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for whichthere are separately identi(cid:69)iable cash (cid:69)lows (cash-generating units). Non(cid:69)inancial assets that were subjectto impairment are reviewed for possible reversal of the impairment recognized in respect thereof at eachdate of statement of financial position. F-9 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE FINANCIAL STATEMENTS (continued) g. Financial assets: 1) Classification The (cid:69)inancial assets of the Company are classi(cid:69)ied into the following categories: (cid:69)inancial assets atfair value through pro(cid:69)it or loss, loans and receivables. The classi(cid:69)ication depends on the purpose forwhich the (cid:69)inancial assets were acquired. The Company’s management determines the classi(cid:69)icationof its financial assets at initial recognition. a) Financial assets at fair value through profit or loss This category includes (cid:69)inancial assets that are managed and their performance is evaluated on afair value basis, thus, upon their initial recognition, these assets are designated by managementat fair value through pro(cid:69)it or loss. Assets in this category are classi(cid:69)ied as current assets ifexpected to be settled within 12 months, otherwise, they are classified as noncurrent. b) Loans and receivables Loans and receivables are non-derivative (cid:69)inancial assets with (cid:69)ixed or determinable paymentsthat are not quoted in an active market. They are included in current assets, except for those withmaturities greater than 12 months after the statement of (cid:69)inancial position date (for which theyare classi(cid:69)ied as noncurrent assets). The loans and receivables of the Company are comprised ofprepaid expenses and receivables, cash and cash equivalents and bank deposits in the statementof financial position. 2) Recognition and measurement Regular purchases and sales of (cid:69)inancial assets are recognized on the settlement date, which is thedate on which the asset is delivered to the Company or delivered by the Company. Investments areinitially recognized at fair value plus transaction costs, for all (cid:69)inancial assets not recorded at fairvalue through profit or loss. Financial assets measured at fair value through pro(cid:69)it or loss are initially recognized at fair value,and transaction costs are expensed into pro(cid:69)it or loss. Financial assets are derecognized when therights to receive cash (cid:69)lows from the investments have expired or have been transferred and theCompany has transferred substantially all risks and rewards of ownership. Financial assets at fairvalue through pro(cid:69)it or loss are subsequently recorded at fair value. Loans and receivables aremeasured in subsequent periods at amortized cost using the effective interest method. Gains or losses arising from changes in the fair value of financial assets at fair value through profit orloss are presented in the statement of comprehensive loss under “financial expenses (income), net”. h. Trade payables Trade payables are obligations to pay for goods or services that have been acquired from suppliers in theordinary course of business. Accounts payable are classi(cid:69)ied as current liabilities if payment is duewithin one year or less, otherwise they are presented as noncurrent liabilities. Trade payables are recognized initially at fair value and subsequently measured at amortized cost usingthe effective interest method. F-10 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE FINANCIAL STATEMENTS (continued) i. Warrants Receipts in respect of warrants are classi(cid:69)ied as equity to the extent that they confer the right to purchasea (cid:69)ixed number of shares for a (cid:69)ixed exercise price. Warrants that confer the right to net share settlementdo not qualify for equity classification and are classified as derivative liabilities (see j below). j. Derivative financial instruments The derivative financial instruments of the Company represent warrants.These derivative (cid:69)inancial instruments are carried at fair value, with changes in their fair valuerecognized in pro(cid:69)it or loss. The issuance costs of such instruments were directly charged to pro(cid:69)it orloss. k. Share capital The Company’s ordinary shares are classi(cid:69)ied as the Company’s share capital. Incremental costs directlyattributed to issuance of new shares or warrants are presented under equity as a deduction from theproceeds of issuance. l. Employee benefits: 1) Pension and retirement benefit obligations In any matter related to payment of pension and severance pay to employees in Israel to bedismissed or to retire from the Company, the Company operates in accordance with labor laws. Labor laws and agreements in Israel and the Company’s practice require the Company to payseverance pay and/or pensions to employees in Israel dismissed or retiring from their employer incertain circumstances. The Company has a severance pay plan in accordance with Section 14 of the Israeli Severance PayLaw with the plan treated as a de(cid:69)ined contribution plan. According to the plan, the Companyregularly makes payments to severance pay or pension funds without having a legal or constructiveobligation to pay further contributions if the fund does not hold suf(cid:69)icient assets to pay allemployees in Israel the bene(cid:69)its relating to employee service in the current and prior periods.Contributions for severance pay or pension are recognized as employee bene(cid:69)it expenses when theyare due commensurate with receipt of work services from the employee and no further provision isrequired in the financial statements. 2) Vacation and recreation pay Under Israeli law, each employee in Israel is entitled to vacation days and recreation pay, bothcomputed on an annual basis. The entitlement is based on the period of employment. The Companyrecords a liability and expenses vacation and recreation pay based on the bene(cid:69)it accumulated byeach employee. m. Share-based payments The Company operates a number of equity-settled, share-based compensation plans to employees (asde(cid:69)ined in IFRS 2 “Share-Based Payments”) and service providers. As part of the plans, the Companygrants employees and service providers, from time to time and at its discretion, options to purchaseCompany shares. The fair value of the employee and service provider services received in exchange forthe grant of the options is recognized as an expense in profit or loss and is recorded as accumulatedF-11 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE FINANCIAL STATEMENTS (continued) de(cid:69)icit within equity. The total amount recognized as an expense over the vesting period of the options(the period during which all vesting conditions are expected to be met) is determined by reference to thefair value of the options granted at date of grant. Vesting conditions are included in the assumptions about the number of options that are expected to vest.The total expense is recognized over the vesting period, which is the period over which all of thespecified vesting conditions are to be satisfied. At the end of each reporting period, the Company revises its estimates of the number of options that areexpected to vest based on the nonmarket vesting conditions. The Company recognizes the impact of therevision to original estimates, if any, in pro(cid:69)it or loss, with a corresponding adjustment to accumulateddeficit. When exercising options, the Company issues new shares. The proceeds, less direct-attributabletransaction costs, recognized as share capital (par value) and share premium. n. Revenue recognition Revenue incurred in connection with the out-licensing of the Company’s intellectual property isrecognized when all of the following criteria have been met as of the statement of financial position: ·the Company has transferred to the buyer the significant risks and rewards of ownership of theintellectual property;·the Company does not retain either the continuing managerial involvement to the degree usuallyassociated with ownership or the effective control over the intellectual property;·the amount of revenue can be measured reliably;·it is probable that the economic benefits associated with the transaction will flow to the Company;and·the costs incurred or to be incurred in respect of the sale can be measured reliably. Revenue from reaching additional milestones is recognized upon achievement of the speci(cid:69)ic milestone,in accordance with the relevant agreement. Revenue from royalties is recognized on an accrual basis in accordance with the substance of the relevantagreement. o. Leases Leases in which a signi(cid:69)icant portion of the risks and rewards of ownership are retained by the lessor areclassi(cid:69)ied as operating leases. Payments made under operating leases are charged to the statement ofcomprehensive loss on a straight-line basis over the period of the lease. p. Loss per ordinary share The computation of basic loss per share is based on the Company’s loss divided by the weighted averagenumber of ordinary shares outstanding during the period. In calculating the diluted loss per share, the Company adds to the average number of shares outstandingthat was used to calculate the basic loss per share, the weighted average of the number of shares to beissued assuming all shares that have a potential dilutive effect have been exercised into shares. F-12 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE FINANCIAL STATEMENTS (continued) q. Deferred taxes Deferred income tax is recognized, using the liability method, for temporary differences arising betweenthe tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantiallyenacted by the statement of (cid:69)inancial position date and are expected to apply when the related deferredincome tax asset will be realized or the deferred income tax liability will be settled. Deferred income taxassets are recognized only to the extent that it is probable that future taxable pro(cid:69)it will be availableagainst which the temporary differences can be utilized. Since the Company is unable to assess whether it will have taxable income in the foreseeable future, nodeferred tax assets were recorded in these financial statements. r. Standards and interpretations to existing standards that are not yet in effect and have not beenearly adopted by the Company: International Financial Reporting Standard No. 9 “Financial Instruments” (hereafter - IFRS IFRS 9, ‘Financial instruments’, addresses the classi(cid:69)ication, measurement and recognition of (cid:69)inancialassets and (cid:69)inancial liabilities. The complete version of IFRS 9 was issued in July 2014. It replaces theguidance in IAS 39 that relates to the classi(cid:69)ication and measurement of (cid:69)inancial instruments. IFRS 9retains but simpli(cid:69)ies the mixed measurement model and establishes three primary measurementcategories for (cid:69)inancial assets: amortized cost, fair value through other comprehensive income and fairvalue through pro(cid:69)it or loss. The basis of classi(cid:69)ication depends on the entity’s business model and thecontractual cash (cid:69)low characteristics of the (cid:69)inancial asset. Investments in equity instruments arerequired to be measured at fair value through pro(cid:69)it or loss with the irrevocable option at inception topresent changes in fair value in other comprehensive income. Further, the expected credit losses modelreplaces the incurred loss impairment model used in IAS 39. For (cid:69)inancial liabilities, there were nochanges to classi(cid:69)ication and measurement except for the recognition of changes in the Company’s owncredit risk in other comprehensive income for liabilities designated at fair value through profit or loss. The standard is effective for accounting periods beginning on or after 1 January, 2018. Early adoption ispermitted. The Company is currently assessing the impact of IFRS 9. International Financial Reporting Standard No. 15 “Revenue from Contracts with Customers”(hereafter - IFRS 15) IFRS 15 amends revenue recognition requirements and establishes principles for reporting informationabout the nature, amount, timing and uncertainty of revenue and cash (cid:69)lows arising from contracts withcustomers. The standard replaces IAS 18 Revenue and IAS 11 Construction Contracts and relatedinterpretations. The standard is effective for annual periods beginning on or after January 1, 2018. TheCompany is currently assessing the impact of adopting IFRS 15. International Financial Reporting Standard No. 16 “Leases” (hereafter - IFRS 16) IFRS 16 de(cid:69)ines a lease as a contract, or part of a contract, that conveys the right to use an asset (theunderlying asset) for a period of time in exchange for consideration. Under IFRS 16 lessees have torecognize a lease liability re(cid:69)lecting future lease payments and a ‘right-of-use asset’ for almost all leasecontracts. F-13 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE FINANCIAL STATEMENTS (continued) The standard replaces the current guidance in IAS 17. The standard is effective for annual periodsbeginning on or after January 1, 2019. The Company is currently assessing the impact of adopting IFRS16. NOTE 3 - CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS: Estimates and judgments are continually evaluated and are based on historical experience and other factors,including expectations of future events that are believed to be reasonable under the circumstances. The Company makes judgments and estimates and assumptions concerning the future. The resultingaccounting estimates will, by de(cid:69)inition, seldom equal the related actual results. The material judgments,estimates and assumptions that have a signi(cid:69)icant risk of causing a material adjustment to the carryingamounts of assets and liabilities within the following (cid:69)inancial year are in respect of impairment of intangibleassets. The Company reviews once a year or when indications of impairment are present, whether research anddevelopment assets are impaired, see also note 2f. The Company makes judgments to determine whether indications are present that require reviewingimpairment of these intangible assets. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds itsrecoverable amount. The recoverable amounts of each asset are based on the Company’s estimates as to thedevelopment of the therapeutic candidates, changes in market scope, market competition and timetables forregulatory approvals. 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 (cid:69)inancial risks: market risk (including foreignexchange risk and price risk), credit and interest risks, and liquidity risk. The Company’s overallrisk management program focuses on the unpredictability of (cid:69)inancial markets and seeks tominimize potential adverse effects on the Company’s financial performance. Risk management is performed by the Chief Financial Officer of the Company, who identifies andevaluates financial risks in close cooperation with the Company’s Chief Executive Officer. The Company’s (cid:69)inance department is responsible for carrying out risk management activities inaccordance with policies approved by its board of directors. The board of directors providesguidelines for overall risk management, as well as policies dealing with speci(cid:69)ic areas, such asexchange rate risk, interest rate risk, credit risk, use of (cid:69)inancial instruments, and investment ofexcess cash. In order to minimize the exposure to market risk and credit risk, the Companyinvested the majority of its cash balances in highly-rated bank deposits with maturities of lessthan one year. (a) Market risks Foreign exchange risk: The Company might be exposed to foreign exchange risk as a result ofmaking payments to employees or service providers and investment of some liquidity incurrencies other than the U.S. dollar (i.e. the Functional Currency). The Company manages theF-14 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE FINANCIAL STATEMENTS (continued) foreign exchange risk by aligning the currencies for holding liquidity with the currencies ofexpected expenses, based on the expected cash (cid:69)lows of the Company. Had the FunctionalCurrency of the Company been stronger by 5% against the NIS, assuming all other variablesremained constant, the Company would have recognized an additional expense of $78,000,$12,000 and $125,000 in pro(cid:69)it or loss for the years ended, December 31, 2016, 2015 and 2014,respectively, the foreign exchange risks associated with these balances are immaterial. (b) Credit and interest risks Credit and interest risks arise from cash and cash equivalents, deposits with banks, (cid:69)inancialassets at fair value through pro(cid:69)it or loss, as well as receivables. A substantial portion of liquidinstruments of the Company are invested in short-term deposits in highly-rated banks. TheCompany estimates that since the liquid instruments are mainly invested for the short term andwith highly-rated institutions, the credit and interest risks associated with these balances areimmaterial. (c) Liquidity risk Prudent liquidity risk management requires maintaining suf(cid:69)icient cash and the availability offunding through an adequate amount of committed credit facilities. Management monitorsrolling forecasts of the Company’s liquidity reserve (comprising of cash and cash equivalents,deposits, and (cid:69)inancial assets through pro(cid:69)it or loss). This is generally carried out based on theexpected cash (cid:69)lows in accordance with practice and limits set by the management of theCompany. The Company has not yet generated signi(cid:69)icant revenue from the sale of its therapeuticcandidates or Donnatal or royalties; it is therefore exposed to liquidity risk, taking intoconsideration the forecasts of cash flows required to finance its investments and other activities. As of December 31, 2016 and 2015, the Company’s non-derivative (cid:69)inancial liabilities includeaccounts payable, accrued expenses and payable in respect of intangible asset purchase for aperiod of less than 1 year. 2) Capital risk management The Company’s objectives when managing capital are to safeguard the Company’s ability tocontinue as a going concern in order to provide returns for shareholders and to maintain anoptimal capital structure and to reduce the cost of capital. 3) Fair value estimation The following is an analysis of (cid:69)inancial instruments measured at fair value using valuationmethods. The different 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 orliability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level2)Inputs for the asset or liability that are not based on observable market data (that is,unobservable inputs) (level 3) The fair value of (cid:69)inancial instruments traded in active markets is based on quoted market prices atdates of statements of financial position. A market is regarded as active if quoted prices are readilyF-15 ®Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE FINANCIAL STATEMENTS (continued) and regularly available from an exchange, dealer, broker, industry group, pricing service, orregulatory agency, and those prices represent actual and regularly occurring market transactions onan arm’s length basis. These instruments are included in level 1. The fair value of (cid:69)inancial instruments that are not traded in an active market is determined by usingvaluation techniques. These valuation techniques maximize the use of observable market data whereit is available and rely as little as possible on entity-speci(cid:69)ic estimates. If all signi(cid:69)icant inputsrequired to fair value an instrument are observable, the instrument is included in level 2. If one or more of the signi(cid:69)icant inputs is not based on observable market data, the instrument isincluded in level 3. The following table presents Company assets and liabilities measured at fair value: Level 1 Level 3 Total U.S. dollars in thousands December 31, 2016: Assets - Financial assets at fair value through profit or loss 12,313 — 12,313 Liabilities - Derivative financial instruments — 6,155 6,155 December 31, 2015: Liabilities - Derivative financial instruments — 1,237 1,237 The following table represents the change in derivative liabilities measured at level 3 for the years endedDecember 31, 2016 and 2015: Derivative financial instruments Year ended December 31 2016 2015 U.S. dollars in thousands Balance at beginning of the year 1,237 2,125 Proceeds received during the reported year 6,070 — Amounts recognized in profit or loss (1,152) (888) Balance at the end of the year 6,155 1,237 The fair value of the above-mentioned derivative (cid:69)inancial liabilities that are not traded in an activemarket is determined by using valuation techniques. The Company uses its judgment to select a varietyof methods and make assumptions that are mainly based on market conditions existing at the end of eachreporting period. For more information regarding the derivatives, see note 15. F-16 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE FINANCIAL STATEMENTS (continued) b. Classification of financial instruments by groups: Assets at fairvalue throughprofit or loss Loans andreceivables Total U.S. dollars in thousands As of December 31, 2016: Cash and cash equivalents — 53,786 53,786 Bank deposits — 55 55 Receivables (except prepaid expenses) — 1,541 1,541 Financial assets at fair value through profit orloss 12,313 — 12,313 12,313 55,382 67,695 As of December 31, 2015: Cash and cash equivalents — 21,516 21,516 Bank deposits — 36,756 36,756 Receivables (except prepaid expenses) — 2,260 2,260 — 60,532 60,532 Financial liabilities at fair value Financial through liabilities at profit or amortized loss cost Total U.S. dollars in thousands As of December 31, 2016: Accounts payable and accrued expenses — 3,356 3,356 Derivative financial instruments 6,155 — 6,155 Payable in respect of intangible asset purchase — 2,000 2,000 6,155 5,356 11,511 As of December 31, 2015: Accounts payable and accrued expenses — 3,514 3,514 Derivative financial instruments 1,237 — 1,237 Payable in respect of intangible asset purchase — 2,000 2,000 1,237 5,514 6,751 F-17 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE FINANCIAL STATEMENTS (continued) c. Composition of financial instruments by currency: Other U.S. dollar currencies Total U.S. dollars in thousands As of December 31, 2016: Assets: Cash and cash equivalents 51,936 1,850 53,786 Bank deposits — 55 55 Financial assets at fair value through profit orloss 12,313 — 12,313 Receivables (except prepaid expenses) 1,078 463 1,541 65,327 2,368 67,695 Liabilities: Accounts payable and accrued expenses 3,226 129 3,356 Payable in respect of intangible asset purchase 2,000 — 2,000 Derivative financial instruments 6,155 — 6,155 11,382 129 11,511 53,946 2,239 56,185 As of December 31, 2015: Assets: Cash and cash equivalents 20,282 1,234 21,516 Bank deposits 36,605 150 36,756 Receivables (except prepaid expenses) 2,064 196 2,260 58,951 1,580 60,532 Liabilities: Accounts payable and accrued expenses 3,465 49 3,514 Payable in respect of intangible asset purchase 2,000 — 2,000 Derivative financial instruments 1,237 — 1,237 6,702 49 6,751 52,249 1,531 53,781 NOTE 5 - CASH AND CASH EQUIVALENTS: adr December 31 2016 2015 U.S. dollars in thousands Cash in bank 53,772 5,990 Short-term bank deposits 14 15,526 53,786 21,516 The carrying amounts of the cash and cash equivalents approximate their fair values. NOTE 6 - FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS: These financial assets as of December 31, 2016 represent a portfolio of U.S. dollar denominated marketablesecurities, which is managed and valued by the Company based on the fair value of all portfolio securities.F-18 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE FINANCIAL STATEMENTS (continued) Taking into consideration the manner of management of the portfolio and the evaluation of its performances,the Company classified the entire investment in marketable securities as financial assets at fair value throughprofit or loss. The fair value of the securities is based on their exchange market price at the end of thereporting date trading day. NOTE 7 - PREPAID EXPENSES AND RECEIVABLES: December 31 2016 2015 U.S. dollars in thousands Advances to suppliers 1,049 2,040 Discount from Service Provider 230 178 Prepaid expenses 120 112 Account receivable 101 — Government institutions 161 42 1,661 2,372 The fair value of receivables, which constitute financial assets, approximates their carrying amount. NOTE 8 - FIXED ASSETS: The composition of assets and accumulated depreciation, grouped by major classifications: Cost Accumulated depreciation Depreciated balance December 31 December 31 December 31 2016 2015 2016 2015 2016 2015 U.S. dollars in thousands Office furniture andequipment(includingcomputers) 203 151 101 76 102 75 Leaseholdimprovements 132 99 69 50 63 49 335 250 170 126 165 124 NOTE 9 - INTANGIBLE ASSETS: The intangible assets represent R&D assets with respect to intellectual property rights of the therapeuticcandidates purchased by the Company under licensing agreements or under asset acquisition agreements. Thechanges in those assets are as follows: Year ended December 31 2016 2015 U.S. dollars in thousands Cost: Balance at beginning of year 6,160 2,615 Additions during the year 35 3,545 Balance at end of year 6,195 6,160 Write off charge – balance at end of year (100) (100) 6,095 6,060 F-19 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE FINANCIAL STATEMENTS (continued) In 2015, the Company recognized loss from writing off the initial $100,000 paid to a Danish company for theexclusive rights to a therapeutic candidate intended to treat congestive heart failure, left atrium dysfunctionand high blood pressure. As the Company put on hold additional investments in the therapeutic candidatedevelopment, the above-mentioned amount exceeds the forecasted recoverable amount. Consequently, theCompany decided to write off the entire amount and recorded a loss in the Statement of Comprehensive Lossunder Other Expenses. For further details regarding the intangible assets, see note 12. NOTE 10 - LIABILITY FOR EMPLOYEE RIGHTS UPON RETIREMENT: a. Labor laws and agreements in Israel require the Company to pay severance pay and/or pensions to anemployee dismissed or retiring from their employment in certain circumstances. b. The Company’s pension liability and the Company’s liability for payment of severance pay for employeesin Israel for whom the liability is within the scope of Section 14 of the Severance Pay Law is covered byongoing deposits with de(cid:69)ined contribution plans. The amounts deposited are not included in thestatements of financial position. The amounts charged as an expense in respect of de(cid:69)ined contribution plans in 2016, 2015 and 2014 were$121,000, $95,000 and $88,000, respectively. Of those amounts for 2016, approximately 68% werecharged to general administrative and business development expenses and 32% to research anddevelopment expenses. Of those amounts for 2015 and 2014, approximately 60% were chargedto general, administrative and business development expenses and 40% to research and developmentexpenses. NOTE 11 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES: December 31 2016 2015 U.S. dollars in thousands Trade payables 60 119 Accrued expenses 2,903 3,070 Employees and employees institutions 295 268 Government institutions 98 57 3,356 3,514 The fair value of the accounts payable and accrued expense balances approximates their carrying amounts. NOTE 12 - COMMITMENTS: a. Agreements to purchase intellectual property and U.S. rights to promote: 1) On May 2, 2010, the Company entered into an agreement with a U.S. publically-traded company thatgrants the Company an exclusive license to use rights relating to a therapeutic candidate intended totreat chemotherapy and radiotherapy-induced nausea and vomiting. Under the agreement, theCompany paid the U.S. company an initial amount of $100,000, and undertook to pay the U.S.company an amount of up to $500,000, based on regulatory milestones set between the parties.Under the agreement, the Company agreed to pay the U.S. company royalties equal to 8% of Companyrevenues generated from the therapeutic candidate, less certain deductible amounts as detailed in theagreement, during a period which is the shorter of: (1) expiry of the last patent granted under thelicense; (2) ten years from the beginning of marketing the therapeutic candidate by the Company orany third party; and (3) the date in which the amount of all payments to the U.S.F-20 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE FINANCIAL STATEMENTS (continued) company reach $30 million. Through December 31, 2016, the Company paid the U.S. company theinitial amount of $100,000. In 2013, the U.S. company announced that it had ceased business operations. Under the terms of thelicense agreement, the Company has the protection afforded to the licensee under the United StatesBankruptcy Code. On March 7, 2014, the Company entered into a licensing agreement with a U.S. university to securecertain patent rights related to the above mentioned therapeutic candidate. The Company thereforeterminated the agreement with the U.S. company and licensed the patents directly from a U.S.university, the original owner of the patents. Under the agreement, the Company agreed to pay theU.S. university certain future payments. 2) On August 26, 2010, the Company entered into an agreement with IntelGenx Corp, a Canadian-basedcompany which is traded in the U.S. and Canada, to co-develop RIZAPORT, a therapeutic candidatefor the treatment of acute migraines. Under the agreement, the Company paid the Canadian companyup-front and milestone payments in the aggregate amount of $800,000, and undertook under theagreement to transfer additional amounts of up to $500,000 based on achieving milestones as agreedbetween the parties. In addition, the Company undertook to participate in additional therapeuticcandidate research and development costs. Under the agreement, after recovery of certain costs andexpenses, the Company will pay 60% royalties on sublicense revenues, less certain deductibleamounts as detailed in the agreement, to the Canadian company for the (cid:69)irst $2 million of suchrevenues. For revenues beyond the $2 million, the Company will pay royalties at 20% - 40 of theCompany’s revenues from the therapeutic candidate, after recovery of certain costs and expenses asdetailed in the agreement. The 20% rate also applies until the Company recovers additional feescovered by the Company as detailed in the agreement. The agreement is for an inde(cid:69)inite period andis subject to certain termination conditions. Through December 31, 2016, the Company paid theCanadian company for the license of the therapeutic candidate under the agreement a total ofapproximately $800,000. In addition, through December 31, 2016, the Company participated in thetherapeutic candidate research and development costs in the amount of approximately $1.3 millionthat was recorded in the statement of comprehensive loss under research and development expenses. 3) On August 11, 2010, the Company entered into an agreement with an Australian company in an assetpurchase agreement to acquire intellectual property of the Australian company relating to threetherapeutic candidates for the treatment of gastrointestinal conditions. Pursuant to the purchaseagreement, the Company paid the Australian company an initial amount of $500,000 and undertookto pay future payments in the range of 7% - 20% of the Company revenues generated from thetherapeutic candidates, less certain deductible amounts as detailed in the agreement. ThroughDecember 31, 2016, the Company paid the Australian company a total of $1.5 million. See also note17 in connection with the license agreement for one of the therapeutic candidates. 4) On June 30, 2014, the Company entered into an agreement with a German publicly-traded companythat grants the Company the exclusive worldwide (excluding China, Hong Kong, Taiwan and Macao)development and commercialization rights for all indications to an oncology therapeutic candidate.Under the terms of the agreement, the Company paid to the German company an upfront payment inthe amount of $1 million and agreed to pay the German company potential tiered royalties onrevenues, less certain deductible amounts as detailed in the agreement, ranging from mid-teens up to30%. Such potential royalties are due until the later of (i) the expiration of the last to expire licensedpatent that covers the product in the relevant country; and (ii) the expiration of regulatory exclusivityin the relevant country. Through December 31, 2016, the Company paid the German company totalamount of approximately $1 million. F-21 ®Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE FINANCIAL STATEMENTS (continued) 5) On August 13, 2014, the Company entered into a binding exclusive option agreement with a privateGerman company in relation to an oncology therapeutic candidate. Under the terms of the agreement,the Company has an option to acquire the worldwide exclusive rights of an oncology therapeuticcandidate for all indications (excluding pancreatic cancer indication in South Korea). The option wasextended in August 2016 for an additional nine-month period. During the option period, the Companymay, at its discretion, conduct development activities with the therapeutic candidate. The totalpayment, for both the option and the acquisition of the rights, should the Company elect to exercisethe option, will be $100,000, as well as potential milestone payments and tiered royalties onrevenues, less certain deductible amounts as detailed in the agreement, ranging from single-digit tomid-teens. Through December 31, 2016, the Company paid a total amount of $45,000 inconsideration of the option period. In February 2017, the Company provided notice of termination ofthe exclusive option agreement. 6) On March 30, 2015, the Company entered into an agreement with a U.S.-based private company thatgranted the Company the exclusive worldwide development and commercialization rights for allindications to an oncology therapeutic candidate, and additional intellectual property rights,targeting multiple in(cid:69)lammatory-GI and oncology disease indications. Under the terms of theagreement, the Company undertook to pay the U.S. Company an upfront payment in the amount of$1.5 million and an additional amount of $2 million which will be paid on the earlier of (i) a speci(cid:69)icdate or (ii) reaching a speci(cid:69)ic development milestone. In addition, the Company undertook to pay upto $2 million in potential development milestone payments, and potential tiered royalties onrevenues, less certain deductible amounts as detailed in the agreement, starting in the low double-digits. Such potential royalties are due until the later of (i) the expiration of the last to expire licensedpatent that covers the product in the relevant country; and (ii) the expiration of regulatory exclusivityin the relevant country. Through December 31, 2016, the Company paid the U.S. Company the initialamount of $ 1.5 million and recognized an amount of $2 million as a current liability. 7) On December 30, 2016, the Company entered into an exclusive co-promotion agreement with asubsidiary of Concordia, an international specialty pharmaceutical company focused on generic andlegacy pharmaceutical products and orphan drugs. Under the exclusive commercialization agreement, the Company will be responsible for certainpromotional activities related to Donnatal in the U.S., Concordia will continue to be responsible forthe manufacturing and supply of Donnatal in all territories. The Company and Concordia will sharethe revenues generated from the promotion of Donnatal by the Company based on an agreed uponsplit between them. There are no upfront or milestone payments under the agreement. The initialterm of the agreement is three years. b. Operating lease agreement The Company entered into an operating lease agreement for the of(cid:69)ices it uses. The agreement will expireon January 31, 2020. The projected yearly rental expenses are approximately $370,000 per year, of whichwe sublease office space to a third party for approximately $86,000 per year. As of December 31, 2016, an amount of $137,000 was deposited with a bank to secure the leasepayments. F-22 ®®®Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 13 - INCOME TAX: a. Measurement of results for tax purposes The Company elected to compute its taxable income in accordance with Income Tax Regulations(Rules for Accounting for Foreign Investors Companies and Certain Partnerships and Setting their TaxableIncome), 1986. Accordingly, the Company’s taxable income or loss is calculated in U.S. dollars. The results of the Company are measured for tax purposes in accordance with Accounting PrinciplesGenerally Accepted in Israel (Israeli GAAP). These (cid:69)inancial statements are prepared in accordance withIFRS. The difference between IFRS and Israeli GAAP, both on an annual and a cumulative basis causes adifference between taxable results and the results reflected in these financial statements. b. Tax rates The income of the Company is subject to corporate tax rate. Israeli corporate tax rate for 2014 and 2015was 26.5%. In January 2016, a law was approved to reduce the corporate tax rate in 2016 to 25%. On December 22, 2016, the Israeli Budgetary Law for 2017 and 2018 was approved, among otherchanges, reduces the regular corporate tax rate from 25% to 24% in 2017 and 23% in 2018 and thereafter. c. Carryforward losses The balance of carryforward losses as of December 31, 2016 is $71 million. These tax carry- forwardlosses have no expiration date. Deferred tax assets on losses for tax purposes carried forward to subsequent years are recognized ifutilization of the related tax bene(cid:69)it against a future taxable income is expected. The Company has notcreated deferred taxes on its carryforward losses since their utilization is not expected in the foreseeablefuture. d. Deductible temporary differences The amount of cumulative deductible temporary differences, other than carryforward losses (asmentioned in c. above), for which deferred tax assets have not been recognized in the statement of(cid:69)inancial position as of December 31, 2016 and 2015, were $28 million and $21 million, respectively.These temporary differences have no expiration dates. e. Tax assessments The Company has not been assessed for tax purposes since its incorporation. The Company’s taxassessments for 2011 are hence considered final F-23 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 14 - EQUITY: a. Share capital 1) Composition Company share capital is composed of ordinary shares of NIS 0.01 par value, as follows: Number of shares December 31 2016 2015 In thousands Authorized 300,000 200,000 Issued and paid 164,974 127,114 The Company’s ordinary shares are traded on the TASE and the Company’s ADSs are traded on theNASDAQ under the symbols “RDHL”. Each ADS represents 10 ordinary shares. The last reportedmarket price for the Company’s securities on December 31, 2016 was $10.46 per ADS on the NASDAQ and $1.05 per share on the TASE (based on the exchange rate reported by theBank of Israel for such date). On February 16, 2016, a special general meeting of shareholders approved the increase of theauthorized share capital of the Company to 300,000,000 ordinary shares. 2) Exercise of options During 2015, the Company received notifications of exercise with respect to options that had beenissued to employees and a consultant of the Company. Accordingly, the Company issued 338,750ordinary shares for $108,000. During 2016, the Company received notifications of exercise with respect to options that had beenissued to employees and consultants of the Company. Accordingly, the Company issued725,790 ordinary shares for $263,000. 3) In February 2015, the Company completed an underwritten public offering in the U.S. of an aggregateof 1,150,000 ADSs at a price of $12.50 per ADS for gross proceeds to the Company of $14.4 million.Net proceeds to the Company from the offering, following discounts, commissions and expensesamounting to $1.2 million, were approximately $13.2 million. As a result of the offering, a price protection right, provided by the Company to investors whoparticipated in January 2014 private placement, was no longer valid. The change in the fair value ofthe price protection right of $542,000 was recognized as (cid:69)inancial income in the statement ofcomprehensive loss in 2015. 4) In July 2015, the Company completed an underwritten public offering in the U.S. of an aggregate of 2,739,143 ADSs at a price of $16.25 per ADS generating gross proceeds to the Company ofapproximately 44.5$ million. Net proceeds to the Company from the offering, following underwritingdiscounts and other offering expenses of approximately $3 million, were approximately $41.5million. 5) In December 2016, the Company completed an underwritten public offering and a registered directoffering in the U.S. of an aggregate of 3,713,415 ADSs and warrants to purchase 1,856,708 ADSsF-24 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE FINANCIAL STATEMENTS (continued) for gross proceeds to the Company of $38.1 million. Net proceeds to the Company from the offering,following discounts, commissions and expenses amounting to $2.3 million, were approximately$35.8 million. As part of the offering, one of the Company's directors, purchased 95,000 ADSs andwarrants to purchase 47,500 ADSs for a total consideration of $1 million, see also note 22b below. In addition, as part of the public offering, the underwriters received an option to purchase 337,500ADSs and warrants to purchase 168,750 ADSs. On December 27, 2016, the underwriters partiallyexercised their option and purchased warrants to purchase 168,750 ADSs. The warrants were classi(cid:69)ied as a (cid:69)inancial liability due to a net settlement provision. Thesederivatives were recognized and subsequently measured at fair value through pro(cid:69)it or loss. Theconsideration, net of issue expenses, was allocated to the various issued instruments. Out of thegross consideration, amount of $6.1 million was allocated to the warrants. The remainder ofapproximately $32 million was allocated to ADSs. Issuance expenses were allocated both to theliability instruments and to the equity component. Expenses allocated to the liability instruments, inamount of $0.4 million, were recorded directly to the statement of comprehensive loss, and expensesin the amount of $1.9 million allocated to the equity component were recorded against sharepremium. For information regarding the terms of the warrants, see note 15b below. For more information regarding the proceeds to the Company following the partial exercise by theunderwriters of their option, see note 23 below. b. Warrants The warrants issued under investment agreements from January 2014 were exercisable into 4,183,496ordinary shares. The warrants had a three-year term and were exercisable at an exercise price of $1.4 perordinary share. In January 2017, the warrants expired along with any right or claim of the holders. NOTE 15 - DERIVATIVE FINANCIAL INSTRUMENTS: a. Warrants issued in 2014 The warrants issued under an investment agreement from January 2014, were classi(cid:69)ied as a (cid:69)inancialliability due to a net settlement provision. These warrants were exercisable into 357,896 ADSs and had athree-year term. In January 2017, warrants exercisable into 252,632 ADSs were exercised, resulting in proceeds to theCompany of approximately $2.63, million and the remaining unexercised warrants expired along withany right or claim of the holders. For more information regarding the exercise of the warrants, see note 23below. The fair value of the warrants was computed using the Black and Scholes option pricing model. The fairvalue of the warrants as of December 31, 2015, was based on the price of an ADS on December 31, 2015and based on the following parameters: risk-free interest rate of 0.66% and an average standard deviationof 49.55%. The fair value of the warrants as of December 31, 2016, was based on the price of an ADS onDecember 31, 2016 and based on the following parameters: risk-free interest rate of 0.1% and an averagestandard deviation of 40.35%. F-25 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE FINANCIAL STATEMENTS (continued) b. Warrants issued in 2016 The warrants issued under the offering, as described in note 14a(5) above, were classi(cid:69)ied as a (cid:69)inancialliability due to a net settlement provision. These warrants are exercisable into 2,025,458 ADSs. Thewarrants have a three-year term and may be exercised either for cash or on a cashless basis at an exerciseprice of $13.33 per ADS. The fair value of the warrants is computed using the Black and Scholes option pricing model. The fairvalue of the warrants upon issuance was computed based on the price of an ADS and based on thefollowing parameters: risk-free interest rate of 1.56% and an average standard deviation of 53.13%. Thefair value of the warrants as of December 31, 2016, is based on the price of an ADS on December 31, 2016and based on the following parameters: risk-free interest rate of 1.48% and an average standard deviationof 52.94%. NOTE 16 - SHARE-BASED PAYMENTS: On May 30, 2010, a general meeting of shareholders approved the option plan of the Company for 2010 (the“Option Plan”), after being approved by the board of directors. It was resolved in 2015 to increase the OptionPlan to allow the Company to allocate 30,000,000 options to employees, consultants and directors. The termsand conditions of the grants were determined by the board of directors and are according to the Option Plan. a. Following is information on options granted in 2016: Number of options granted According to option planof the company Exerciseprice to 1ordinaryshare ($) The fair value ofoptions on date ofgrant in U.S.$thousands (2) Date of grant Other thandirectors (1) To directors (1) Total April 2016 590,000 — 590,000 1.41 400 June 2016 — 1,500,000 1,500,000 1.28 725 June 2016 (3) — 150,000 150,000 1.48 105 590,000 1,650,000 2,240,000 1,125 1)The options will vest as follows: for employees and consultants of the Company who had provided services exceedingone year to the Company as of the grant date, the options will vest in 16 equal quarterly installments over a four-yearperiod. For employees and consultants of the Company who had not provided services to the Company exceeding oneyear as of the grant date, the options will vest as follows: 1/4 of the options will vest one year following the grant dateand the rest over the following three years in 12 equal quarterly installments. The options will be exercisable, eitherin full or in part, from the vesting date until the end of 7 years from the date of grant. 2)The fair value of the options was computed using the binomial model and the underlying data used was mainly thefollowing: price of the Company’s ordinary share: $1.28 - $1.41, expected volatility: 52.52% - 53.09%, risk-freeinterest rate: 1.51% - 1.57% and expected useful life to exercise: seven years. 3)In June 2016, the Company annual general meeting of shareholders approved the acceleration of 150,000 unvestedoptions of Aliza Rotbard, of blessed memory, a former external director of the Company. Each option is exercisableinto one ordinary share at an exercise price of $1.48 per share and will expire in November 2017. The allocatedexpenses, in the amount of $105 thousand were recorded directly to the statement of comprehensive loss undergeneral and administrative expenses. F-26 $$$$$$$$$$$Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE FINANCIAL STATEMENTS (continued) b. Following is information on options granted in 2015: Number of options granted According to option planof the company Exerciseprice to 1ordinaryshare ($) The fair value ofoptions on date ofgrant in U.S.$thousands (2) Date of grant Other thandirectors (1) Total May 2015 300,000 300,000 1.61 218 September 2015 2,375,072 2,375,072 1.56 1,392 2,675,072 2,675,072 1,610 *The options were allocated to officers who also serve as directors. 1)The options will vest as follows: for employees and consultants of the Company who had provided services exceedingone year to the Company as of the grant date, the options will vest in 16 equal quarterly installments over a four-yearperiod. For employees and consultants of the Company who had not provided services to the Company exceeding oneyear as of the grant date, the options will vest as follows: 1/4 of the options will vest one year following the grant dateand the rest over the following three years in 12 equal quarterly installments. The options will be exercisable, eitherin full or in part, from the vesting date until the end of 7 years from the date of grant. 2)The fair value of the options was computed using the binomial model and the underlying data used was mainly thefollowing: price of the Company’s ordinary share: $1.3 - $1.56, expected volatility: 51.75% - 53.3%, risk-free interestrate: 1.87% - 1.92% and expected useful life to exercise: seven years. c. Changes in the number of shares and weighted averages of exercise prices are as follows: Year ended December 31 2016 2015 Number of options Weighted average ofexerciseprice Number ofoptions Weightedaverage ofexerciseprice Outstanding at beginning of year 20,511,338 0.88 18,325,016 0.78 Exercised (725,790) 0.36 (338,750) 0.32 Expired — (150,000) 1.48 Granted 2,240,000 1.33 2,675,072 1.57 Outstanding at end of year 22,025,548 0.95 20,511,338 0.88 Exercisable at end of year 15,168,938 0.85 15,493,449 0.68 d. The following is information about exercise price and remaining useful life of outstanding options atyear-end: December 31, 2016 December 31, 2015 Number ofoptionsoutstandingat end ofYear Exercise pricerange Weightedaverage ofremaininguseful life Number ofoptionsoutstandingat end ofyear Exercise pricerange Weightedaverage ofremaininguseful life 22,025,548 $0.17-$1.61 3.8 20,511,338 $0.17-$1.61 3.6 F-27 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE FINANCIAL STATEMENTS (continued) e. Expenses recognized in profit or loss for the options are as follows: Year ended December 31 2016 2015 2014 U.S. dollars in thousands 1,679 1,364 1,753 The remaining compensation expenses as of December 31, 2016 are $1.4 million and will be expensed infull by May 2020. The options granted to Company employees in Israel are governed by relevant rules in Section 102 to theIsrael Income Tax Ordinance (hereinafter the “Ordinance”). According to the treatment elected by theCompany and these rules, the Company is not entitled to claim as tax deductions the amounts charged toemployees as a bene(cid:69)it, including amounts recognized as payroll bene(cid:69)its in Company accounts for theoptions the employees received within the Option Plan. Options granted to option holders who arerelated parties of the Company are governed by Section 3(i) to the Ordinance. NOTE 17 - REVENUES: a) On February 27, 2014, the Company entered into an exclusive agreement by which SalixPharmaceuticals, Inc. (“Salix”), which was later acquired by Valeant Pharmaceuticals International, Inc., orValeant, licensed the worldwide exclusive rights to one of the Company’s therapeutic candidates, anencapsulated formulation for bowel preparation, and rights to other purgative developments. Under thelicense agreement, Salix paid an upfront payment of $7 million with subsequent potential milestonepayments up to a total of $5 million. Salix has also agreed to pay the Company tiered royalties on net sales,ranging from low single-digit up to low double-digits. As there was no continuing managerial involvementof the Company under the agreement with Salix to develop any product based on the license and relatedintellectual property granted to Salix, the upfront payment of $7 million was recognized in 2014 asrevenue in the statement of comprehensive loss. Following the agreement with Salix, and pursuant to the purchase agreement from August 11, 2010,between the Company and an Australian company from which it purchased the rights sold to Salix, theCompany paid to the Australian company $1 million in 2014. The amount paid was recognized as cost ofrevenue in the statement of comprehensive loss. b) In 2016, the Company and its co-development partner, IntelGenx Corp., entered into exclusive licenseagreements granting to third parties the right to register and commercialize RIZAPORT in two territories,and a right of (cid:69)irst refusal for additional territories. Under the license agreements, the Company andIntelGenx Corp. are entitled to receive an upfront payment and additional milestone payments upon theachievement of certain predefined regulatory and commercial targets, as well as tiered royalties. F-28 ®Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 18 - RESEARCH AND DEVELOPMENT EXPENSES, net: Year ended December 31 2016 2015 2014 U.S. dollars in thousands Payroll and related expenses 652 621 573 Professional services 1,816 1,953 1,685 Share-based payments 841 842 951 Clinical and pre-clinical trials 21,013 13,611 9,187 Intellectual property development 428 216 556 Other 772 713 382 Discount from service provider* (281) (185) (634) 25,241 17,771 12,700 *Discount provided to the Company by its Canadian service provider due to certain Canadian authorities’ incentivesprograms. NOTE 19 – GENERAL, ADMINISTRATIVE AND BUSINESS DEVELOPMENT EXPENSES: Year ended December 31 2016 2015 2014 U.S. dollars in thousands Payroll and related expenses 1,383 986 943 Share-based payments 838 522 802 Professional services 2,338 2,050 1,662 Office related expenses, net 380 173 187 Other 464 403 417 5,403 4,134 4,011 NOTE 20 - FINANCIAL EXPENSES (INCOME), net: Year ended December 31 2016 2015 2014 U.S dollars in thousands Financial income: Fair value gain on derivative financialinstruments 1,152 888 200 Fair value gain on financial assets at fair valuethrough profit or loss 80 — — Gain from changes in exchange rates 34 — — Interest from bank deposits 282 236 119 1,548 1,124 319 Financial expenses: Loss from changes in exchange rates — 200 361 Issued cost in respect of warrants 368 — — Other 7 12 22 375 212 383 Financial expenses (income) - net (1,173) (912) 64 F-29 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE FINANCIAL STATEMENTS (continued) NOTE 21 - LOSS PER ORDINARY SHARE: a. Basic The basic loss per share is calculated by dividing the loss by the weighted average number of ordinaryshares in issue during the period. Set forth below is data taken into account in the computation of loss per share: Year ended December 31 2016 2015 2014 Loss (U.S. dollars in thousands) 29,370 21,090 10,711 Weighted average number of ordinary sharesoutstanding during the period (in thousands) 128,514 110,814 86,610 Basic loss per share (U.S. dollars) 0.23 0.19 0.12 b. Diluted Diluted loss per share is calculated by adjusting the weighted average number of ordinary sharesoutstanding assuming conversion of all dilutive potential ordinary shares, which is calculated using theTreasury Method. The Company has two categories of dilutive potential ordinary shares: warrants issuedto investors and options issued to employees and service providers. The effect of options issued toemployees and service providers is anti-dilutive. Year ended December 31 2016 2015 2014 Loss (U.S. dollars in thousands) 29,370 21,090 10,711 Adjustment for financial income of warrants 1,208 346 463 Loss used to determine diluted loss per share 30,578 21,436 11,174 Weighted average number of ordinary sharesoutstanding during the period (in thousands) 128,514 110,814 86,610 Adjustment for warrants 295 901 612 Weighted average number of ordinary shares fordiluted loss per share (in thousands) 128,809 111,715 87,222 Diluted loss per share (U.S. dollars) 0.24 0.19 0.13 NOTE 22 - RELATED PARTIES: a. Key management in 2016 includes members of the Board of Directors and the Chief ExecutiveOfficer Year ended December 31 2016 2015 2014 U.S. dollars in thousands Key management compensation: Salaries and other short-term employee benefits 576 776 628 Post-employment benefits 32 58 60 Share-based payments 504 382 726 Other long-term benefits 11 27 31 F-30 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE FINANCIAL STATEMENTS (continued) b. Balances with related parties: December 31 2016 2015 U.S. dollars in thousand Current liabilities - Credit balance in “accounts payable 174 264 Non-current liabilities - Derivative financial instruments 144 - NOTE 23 - EVENTS SUBSEQUENT TO DECEMBER 31, 2016: a. In January 2017, the Company received noti(cid:69)ications of exercise with respect to share optionsthat had been issued to employees, consultants and directors of the Company. Accordingly, theCompany issued 1,750,000 ordinary shares for $605 thousand. b. On January 3, 2017, the underwriters for the Company's 2016 underwritten public offeringpartially exercised their option and purchased 133,104 ADSs. Following the partial exercise ofthe underwriters’ option, the underwritten public offering and the concurrent registered directoffering totaled 3,846,519 ADSs and warrants to purchase 2,025,458 ADSs, representingaggregate gross proceeds from both offerings combined of approximately $39.4 million beforededucting underwriting discounts and commissions, placement agent fees and other offeringexpenses. c. In January 2017, the Company received noti(cid:69)ications of exercise with respect to the exercise ofwarrants that had been issued as part of a private placement. Accordingly, the Company issued2,526,320 ordinary shares for approximately $2.63 million. The remaining unexercisedwarrants to purchase 5,236,136 ordinary shares issued as part of private placements expiredalong with any right or claim whatsoever of the holders thereof. F-31 Table of Contents EXHIBIT INDEX The exhibits filed with or incorporated into this Registration Statement are listed in the index of exhibits below. ExhibitNumber Exhibit Description 1.1 Articles of Association of the Registrant, as amended (unofficial English translation) (incorporated byreference to Exhibit 1.1 of the Annual Report on Form 20-F filed with the Securities and ExchangeCommission on February 25, 2016). 2.1 Form of Deposit Agreement among the Registrant, the Bank of New York Mellon, as Depositary, and allOwners and Holders from time to time of American Depositary Shares issued hereunder (incorporated byreference to Exhibit 1 to the Registration Statement on Form F-6 filed by The Bank of New York Mellon withthe Securities and Exchange Commission on December 6, 2012). 2.2 Form of American Depositary Receipt (incorporated by reference to Exhibit 1 to the Registration Statementon Form F-6 filed by The Bank of New York Mellon with the Securities and Exchange Commission onDecember 6, 2012). 4.1* Co- Development and Commercialization Agreement, dated August 26, 2010, by and between the Registrantand IntelGenx Corp. (incorporated by reference to Exhibit 4.3 to Draft Registration Statement on Form DRSdisseminated with the Securities and Exchange Commission, dated December 3, 2012). 4.2* Side Letter Agreement, dated January 31, 2013, by and between the Registrant and IntelGenx Corp(incorporated by reference to Exhibit 4.4 of the Annual Report on Form 20-F filed with the Securities andExchange Commission on February 25, 2014). 4.3* Asset Purchase Agreement, dated August 11, 2010, by and between the Registrant and Giaconda Limited(RHB-104, 105, 106) (incorporated by reference to Exhibit 4.4 to Draft Registration Statement on Form DRSdisseminated with the Securities and Exchange Commission, dated December 3, 2012). 4.4* Amendment to Asset Purchase Agreement by and between the Registrant and Giaconda Limited (RHB-104,105, 106) dated February 27, 2014 (incorporated by reference to Exhibit 4.4 of the Annual Report on Form20-F filed with the Securities and Exchange Commission on February 26, 2015). 4.5* License Agreement, dated September 15, 2011, by and between the Registrant and University of CentralFlorida Research Foundation (incorporated by reference to Exhibit 4.5 to Draft Registration Statement onForm DRS disseminated with the Securities and Exchange Commission, dated October 26, 2012). 4.6* License Agreement, dated February 27, 2014, by and between the Registrant and Salix Pharmaceuticals, Inc.(later acquired by Valeant Pharmaceuticals International, Inc.) (incorporated by reference to Exhibit 4.6 ofthe Annual Report on Form 20-F filed with the Securities and Exchange Commission on February 26, 2015). 4.7* Exclusive License Agreement, dated March 30, 2015, by and between the Registrant and ApogeeBiotechnology Corp (incorporated by reference to Exhibit 4.7 of the Annual Report on Form 20-F filed withthe Securities and Exchange Commission on February 25, 2016).4.8* Clinical Services Agreement, dated June 15, 2011, by and between the Registrant and 7810962 Canada Inc.and amendment (regarding RHB-104) (incorporated by reference to Exhibit 4.15 to Draft RegistrationStatement on Form DRS disseminated with the Securities and Exchange Commission, dated December 3,2012). 4.9 Change Order #4.1 dated August 9, 2015 to the Clinical Services Agreement, dated June 15, 2011 by andbetween the Registrant and 7810962 Canada Inc. (incorporated by reference to Exhibit 4.12 of the AnnualReport on Form 20-F filed with the Securities and Exchange Commission on February 25, 2016). 123 Table of Contents 4.10* Change Order #5 dated May 21, 2015 to the Clinical Services Agreement, dated June 15, 2011 by andbetween the Registrant and 7810962 Canada Inc. (incorporated by reference to Exhibit 4.13 of the AnnualReport on Form 20-F filed with the Securities and Exchange Commission on February 25, 2016). 4.11† Change Order #5.1 dated March 3, 2016 to the Clinical Services Agreement, dated June 15, 2011 by andbetween the Registrant and 7810962 Canada Inc. 4.12† Change Order #6 dated June 22, 2016 to the Clinical Services Agreement, dated June 15, 2011 by andbetween the Registrant and 7810962 Canada Inc. 4.13† Change Order #6.1 dated August 31, 2016 to the Clinical Services Agreement, dated June 15, 2011 by andbetween the Registrant and 7810962 Canada Inc. 4.14† Change Order #7 dated November 16, 2016 to the Clinical Services Agreement, dated June 15, 2011 by andbetween the Registrant and 7810962 Canada Inc. 4.15* Second Amendment to Clinical Services Agreement, dated January 19, 2014, by and between the Registrantand 7810962 Canada Inc. (incorporated by reference to Exhibit 4.13 of the Annual Report on Form 20-F/Afiled with the Securities and Exchange Commission on July 7, 2014). 4.16* Third Amendment to Clinical Services Agreement, dated December 7, 2014, by and between the Registrantand 7810962 Canada Inc. (incorporated by reference to Exhibit 4.14 of the Annual Report on Form 20-F filedwith the Securities and Exchange Commission on February 26, 2015). 4.17* Fourth Amendment to Clinical Services Agreement, dated December 17, 2014, by and between theRegistrant and 7810962 Canada Inc. (incorporated by reference to Exhibit 4.15 of the Annual Report onForm 20-F filed with the Securities and Exchange Commission on February 26, 2015). 4.18* Clinical Trials Global Master Service Agreement, dated December 27, 2012 by and between the Registrantand Q Squared Solutions LLC (f/k/a Quest Diagnostics) (regarding RHB-104) (incorporated by reference toExhibit 4.22 of the Annual Report on Form 20-F filed with the Securities and Exchange Commission onFebruary 26, 2015). 4.19 Global Master Service Agreement amendment, dated June 20, 2014 by and between the Registrant and QSquared Solutions LLC (f/k/a Quest Diagnostics) (regarding RHB-104) (incorporated by reference to Exhibit4.23 of the Annual Report on Form 20-F filed with the Securities and Exchange Commission on February 26,2015). 4.20 Amendment No. 2 dated May 13, 2015 to the Clinical Trials Global Master Service Agreement, datedDecember 27, 2012 by and between the Registrant and Q Squared Solutions LLC (f/k/a Quest Diagnostics)(regarding RHB-104) (incorporated by reference to Exhibit 4.19 of the Annual Report on Form 20-F filedwith the Securities and Exchange Commission on February 25, 2016). 4.21* Master Agreement Work Order, dated May 13, 2014, by and between the Registrant and Q Squared SolutionsLLC (f/k/a Quest Diagnostics) (regarding RHB-104) (incorporated by reference to Exhibit 4.24 of the AnnualReport on Form 20-F filed with the Securities and Exchange Commission on February 26, 2015). 4.22* Amendment No. 1 dated December 30, 2015 to the Master Agreement Work Order, dated May 13, 2014, byand between the Registrant and Q Squared Solutions LLC (f/k/a Quest Diagnostics) (regarding RHB-104).(incorporated by reference to Exhibit 4.21 of the Annual Report on Form 20-F filed with the Securities andExchange Commission on February 25, 2016). 4.23*Change Specification Form by and between Registrant and Q Squared Solutions LLC (f/k/a QuestDiagnostics) (regarding RHB-104) dated June 6, 2015. (incorporated by reference to Exhibit 4.22 of theAnnual Report on Form 20-F filed with the Securities and Exchange Commission on February 25, 2016).124 Table of Contents4.24†Exclusive Commercialization Agreement, dated December 30, 2016, by and between Registrant andConcordia Pharmaceuticals Inc. 4.25 Form of Letter of Exemption and Indemnity adopted on July 2013 (unofficial English translation)(incorporated by reference to Exhibit B to Exhibit 99.1 to Form 6-K disseminated with the Securities andExchange Commission, dated June 26, 2013). 4.26 2010 Stock Option Plan, as amended (incorporated by reference to Exhibit 4.27 of the Annual Report onForm 20-F filed with the Securities and Exchange Commission on February 26, 2015). 4.27 Securities Purchase Agreement, dated December 30, 2013 by and between the Registrant and OrbiMed IsraelPartners Limited Partnership (together with Form of Warrant attached as Exhibit A) (incorporated byreference to Exhibit 4.17 of the Annual Report on Form 20-F filed with the Securities and ExchangeCommission on February 25, 2014). 4.28 Securities Purchase Agreement, dated December 31, 2013 by and between the Registrant and BroadfinHealthcare Master Fund, LTD (together with Form of Warrant attached as Exhibit A) (unofficial Englishtranslation) (incorporated by reference to Exhibit 4.18 of the Annual Report on Form 20-F filed with theSecurities and Exchange Commission on February 25, 2014). 12.1 Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 12.2 Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 13 Certification by Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 15.1 Consent of Independent Registered Public Accounting Firm. * Confidential treatment granted with respect to certain portions of this Exhibit. † Portions of this exhibit have been omitted and filed separately with the Securities and ExchangeCommission pursuant to a confidential treatment request. 125 Table of Contents SIGNATURE The Registrant hereby certi(cid:69)ies that it meets all of the requirements for (cid:69)iling on Form 20-F and that it has duly caused andauthorized the undersigned to sign this annual report on its behalf. REDHILL BIOPHARMA LTD By:/s/ Dror Ben-Asher Name:Dror Ben-Asher Title:Chief Executive Officer and Chairman of the Boardof Directors By:/s/ Micha Ben Chorin Name:Micha Ben Chorin Title:Chief Financial Officer Date: February 23, 2017 126Exhibit 4.11 Confidential THE SYMBOL "[****]" DENOTES PLACES WHERE PORTIONS OF THIS DOCUMENT HAVE BEEN OMIITTEDPURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. SUCH MATERIAL HAS BEEN FILEDSEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION Change Order 5.1 to Clinical Services Agreement Client’s study drug RHB-104 This Change Order 5.1 (“Change Order”) to the Clinical Services Agreement signed 15 June 2011 (“Clinical ServicesAgreement”), is by and among: (1)RedHill Biopharma Ltd., having its principle place of business at 21 Ha’arba’a St., Tel Aviv 64739, Israel(hereafter “SPONSOR”); (2)7810962 Canada Inc., a Canadian corporation, having its principal office at 5320 13th Avenue, Montreal,Quebec, H1X 2X8, Canada ((hereinafter "MANAGER"); WHEREAS, “SPONSOR” mandated "MANAGER" to enter into a subcontract with inVentiv Health Clinical to act as a CROfor its Study (as defined in the Clinical Services Agreement); Is hereby made effective as of February 26, 2016 (“Effective Date”) and the parties hereby agree as follows: 1.Change Order 5.1 to Clinical Services Agreement. This Change Order constitutes an amendment to the Clinical Services Agreement pursuant to section 3.0 therein. Assuch, this Change Order is subject in all respects to the terms and provisions of the Clinical Services Agreement. 2.Scope of Work In addition to the Services to be provided in the above-referenced Clinical Services Agreement, the pass throughexpenses will be modified in accordance with the Summary of Changes attached hereto and incorporated herein asExhibit A. 3.Compensation Under this Change Order, inVentiv Health Clinical’s Pass-through Costs have increased by the amount of USD[****]. The total costs of the Clinical Services Agreement have increased to USD [****]. 1 Confidential Payment due to inVentiv Health Clinical for the Change Order shall be made pursuant to the Agreement. 4.Project Period The term of this Change Order shall commence on the date of its execution and shall continue until the Services asdescribed in the Clinical Services Agreement are completed, unless this Change Order or corresponding ClinicalServices Agreement are terminated early in accordance with the Clinical Services Agreement. By their signatures below, the parties hereto agree to the terms of this Change Order and represent that they are authorized toenter into this Change Order on behalf of their respective companies. ACCEPTED AND AGREED TO: RedHill Biopharma Ltd. For 7810962 Canada /s/ Micha Ben Chorin /s/ Alain GuimondName: Micha Ben Chorin Name: Alain GuimondTitle: CFO Title: V-P R&D Date:March 3, 2016 Date:01-March-2016 /s/ Dror Ben-Asher Name: Dror Ben-Asher Title: CEO Date:March 3, 2016 2 Confidential Exhibit A Summary of Changes Study Assumption Changes Changes to the parameters and assumptions for the study are defined below. Unless otherwise noted, activities will beperformed according to the original contract. Change Order 5.1 for 7810962 Canada Inc. /Red Hill Biopharma Ltd. 1.1 Revised Costs Costs for this study are presented below in two categories, pass-through costs and professional fees. 1.1.1 Pass-Through Costs Pass-through costs are in US dollars and include those expenses listed below. inVentiv Health Clinical will invoiceClient for actual costs in these areas, it being understood that any pass-through costs in excess of the amounts set outbelow will require the Client’s prior written approval. inVentiv Health Clinical will use its best efforts to keep actualcosts to reasonable levels through adherence to inVentiv Health Clinical’s travel policy and prudent negotiationwith outside providers. Pass-through costs are presented in the table below: 3 Confidential TaskCurrent(USD)ChangeOrder #5.1Assumption Changesinfluencing the changein the budgetAdditionalcommentsSite Visit Travel$[****]$[****]No changeInvestigators' MeetingOrganisation$[****]$[****]No changeKick-off MeetingTravel/Attendance$[****]$[****]No changeShipping/Photocopying$[****]$[****]No changeTranslation$[****]$[****]No changeRegulatory Fees$[****]$[****]No changeEthics Committee Fees$[****]$[****]No changeEDC Studies/3G Cards$[****]$[****]No changeDSMB member fees$[****]$[****]No changeEDC Fees (Oracle)$[****]$[****]Oracle has quoted $[****]toimplement and execute the QuestData integration to Inform DB andthe Oracle Contract is beingextended by [****] months for a costof $[****]CRA Face to Face MeetingTravel expenses$[****]$[****]No changePass Through Costs$[****]$[****] 4 Confidential 1.1.2 Investigator Grants Costs InvestigatorGrantsCurrent(NA USD)NA(USD)Assumption Changesinfluencing the changein the budgetAdditionalComments $[****]$[****]No Change 1.1.3 Professional Fees Based on the parameters and assumptions outlined in the original proposal, inVentiv Health Clinical fees arecategorised by major activity in the table below and in USD: TaskCurrent(US Dollars)ChangeOrder #5.1Assumption Changesinfluencing the changein the budgetAdditionalcommentsPre-study ActivitiesCase Report FormPreparation/Review$[****]$[****]No ChangeData Management PlanPreparation/Review$[****]$[****]No ChangeInformed ConsentPreparation/Review$[****]$[****]No ChangeIRB/Ethics CommitteeInteractions$[****]$[****]No ChangeInvestigators' Meetings$[****]$[****]No ChangeInvestigator Site Contract$[****]$[****]No ChangeInvestigator Recruitment$[****]$[****]No changeProject Feasibility$[****]$[****]No changeProject PlanPreparation/Review$[****]$[****]No ChangeProtocol Preparation/Review$[****]$[****]No ChangeRandomization SchedulePreparation$[****]$[****]No ChangeStudy-Specific FormPreparation$[****]$[****]No ChangeTraining - Project-Specific$[****]$[****]No ChangeTranslations$[****]$[****]No ChangePROMIS$[****]$[****]No ChangeMonitoring/Site ManagementData Clean-up$[****]$[****]No ChangeInvestigator GrantAdministration$[****]$[****]No Change5 Confidential TaskCurrent(US Dollars)ChangeOrder #5.1Assumption Changesinfluencing the changein the budgetAdditionalcommentsLaboratory Report Review$[****]$[****]No ChangeSerious/Significant AdverseEvent Management$[****]$[****]No ChangeSite Management $[****]$[****]No ChangeRemote Monitoring of SiteData$[****]$[****]No ChangeSite Visits - Pre-study Visits$[****]$[****]No ChangeSite Visits - Initiation Visits$[****]$[****]No ChangeSite Visits - Routine Visitsconducted on site$[****]$[****]No ChangeSite Visits - Close-out Visits ateach site at Study End$[****]$[****]No ChangeStudy Master File/Project FileSet-up and Maintenance$[****]$[****]No ChangePatient/Site Recruitment$[****]$[****]No ChangeClient/CRO meeting$[****]$[****]No ChangeRegulatoryRegulatory DocumentationPreparation/Review$[****]$[****]No ChangeProject Management /ProjectTrackingFinancial Project Management$[****]$[****]No ChangeProject Management$ [****]$ [****]No ChangeProject Tracking /Communications$[****]$[****]No ChangeVendor Management$[****]$[****]No Change.Data ManagementDatabase Archiving$[****]$[****]No changeData Cleanup (DM)$[****]$[****]No ChangeData Management: DatabaseQuality Control Inspection$[****]$[****]No ChangeDatabase Design$[****]$[****]No ChangeDictionary Coding$[****]$[****]No ChangeEdit Check Programming$[****]$[****]No Change6 Confidential TaskCurrent(US Dollars)ChangeOrder #5.1Assumption Changesinfluencing the changein the budgetAdditionalcommentsElectronic Data Import$[****]$[****]No ChangeCase Report FormData/Document Transfers$[****]$[****]No ChangeEDC Fees$[****]$[****]No ChangeStatistical Analysis and TableGenerationElectronic Data Transfer$[****]$[****]No ChangeInterim Analysis/ReportPreparation and Review$[****]$[****]No ChangeStatistical Analysis PlanPreparation/Review$[****]$[****]No ChangeTable Generation$[****]$[****]No ChangeTable/Listings Review$[****]$[****]No ChangeClinical Study ReportClinical Study ReportPreparation/Review$[****]$[****]No ChangeTeam MeetingsProject Team Meetings -Internal Meetings$ [****]$ [****]No ChangeProject Team Meetings - ClientTeleconferences$[****]$[****]No ChangeProject Team Meetings - Kick-off Meeting$[****]$[****]No ChangeTotal Direct Costs$[****]$[****] 7 Confidential Total Costs CategoryTotal Costs($)Current Contract(USD)Change in Scope # 5.1(USD)Revised Total(USD)Pass-Through Costs$[****]$[****]$[****]Investigator Grants Costs$[****]$[****]$[****]Professional Fees$[****]$[****]$[****]Discount-$[****]$[****]-$[****]Revised Professional Fees$[****]$[****]$[****]Grand Total$[****]$[****]$[****] 8 Confidential Exhibit B Payment Schedule 1.PAYMENT TERMS A.Service Fees: Exhibit BinVentiv Health ClinicalMilestone Payment Schedule7810962 Canada Inc. (11ISB001) MilestoneOriginalAgreementCO#2 withDiscountCO#3 withDiscountCO#4 withDiscountCO#5Total (USD)with DiscountInvoice #InvoiceAmountPaid AmountUpon Execution of Contract250,249 250,24911ISB001-001250,249250,249Upon Execution of CO#3 904,042 904,04211ISB001-064904,042904,042Upon Execution of CO#4 119,480 119,48011ISB001-065119,480119,480Upon Execution of CO#5 349,419349,419 Completion of Investigator Meeting 0 50% of Site Initiation Visits completed 0 Last Site Initiation Visits completed 0 Database Release (eCRF release) to Production 0 First Patient In US Trial250,249-250,249 0 First Patient In European Trial250,249-250,249 0 Last Patient In US Trial344,865-344,865 0 Last Patient In European Trial344,865-344,865 0 First Patient In 421,712 421,71211ISB001-034/11ISB001-042421,712421,712Last Patient in 576,327300,000 876,327 1,440,477-192,1891,204,042119,480349,4192,921,229 26-week Subject Treatment Period Ends: 0 DBL for all patients completing 26-weeks completed 412,620280,000 692,620 Study Unblinded after analysis of efficacy part completed 0 Delivery of Draft Tables, Listings and Graphs 0 Delivery of Final Tables, Listings and Graphs 0 Delivery of Final 26 CSR US Trial750,746-750,746 0 Delivery of Final 26 CSR European Trial750,746-750,746 0 1,501,492-1,088,872280,000 692,620 52-week Subject Treatment Period ends: 0 DBL for all patients completed 232,364200,000 432,364 Delivery of Draft Tables, Listings and Graphs 0 Delivery of Final Tables, Listings and Graphs 0 Delivery of Final 52 CSR US Trial261,441-261,441 0 Delivery of Final 52 CSR European Trial261,442-261,441 1 Delivery of Final CSR 124,981 124,981 Database Lock 0 Delivery of Draft CRF US Trial261,4320 261,43211ISB001-023261,432261,432Delivery of Draft CRF European Trial261,432-261,432 0 1,045,747-426,969200,000 818,778 Total Milestones3,987,716-1,708,0301,684,042 4,432,627 1,956,9151,956,915 9 Confidential Quarterly Project Management Fee (10 Quarters starting June16, 2011, ending December 15, 2013: 183,590 USD per quarter) OnlyInvoiced for 7 quarters1,835,894-598,157 1,237,737See below1,237,7371,054,147Monthly Fees for Hold Period: (9 Monthlies starting April2012, ending December 2012: 15,000 USD per month) Only Invoicedfor 6 months 90,000 90,00011ISB001-01790,00090,000Quarterly Project Management Fee: (8 Quarterly Payments startingJanuary 2014: $173,477.50 USD per quarter) Only invoiced for 4quarters 1,387,820-693,909 693,911See below693,911 Quarterly Project Management Fee: (4 Quarterly Payments startingJanuary 2015: $244,147.50 USD per quarter) 976,590 976,590See below732,443 Total Milestone Payments5,823,610-828,3671,966,723 7,430,865 3,978,5633,101,062 - Professional fees are net of the 5% discount applied to Original Agreement and CO#1-#4 Quarterly Payments 3rd Quarter 2011 11ISB001-002183,590.00183,5904th Quarter 2011 11ISB001-006183,590.00183,5901st Quarter 2012 11ISB001-008183,590.00183,5901st Quarter 2012 (Reconciled for Amendment #1) 11ISB001-017 & 19(47,393.00)(47,393)1st Quarter 2013 11ISB001-022183,590.00183,5902nd Quarter 2013 11ISB001-027183,590.00183,5903rd Quarter 2013 11ISB001-032183,590.00183,5904th Quarter 2013 11ISB001-032183,590.00183,5901st Quarter 2014 11ISB001-042173,477.50173,4782nd Quarter 2014 11ISB001-045173,477.50173,4783rd Quarter 2014 11ISB001-053173,477.50173,4784th Quarter 2014 11ISB001-058173,478.00173,4781st Quarter 2015 11ISB001-064244,147.50244,1482nd Quarter 2015 0030014002244,147.50 3rd Quarter 2015 244,147.50 4th Quarter 2015 10 11Confidential 2.Pass Through Costs: (a)CO#2: Twenty percent (20%) of the average estimated expenses as set forth in the Expenses Estimate (exclusive offunds for investigator grants), totaling $[****], will be due and payable upon execution of this Agreement.Prepayment for Out of Pocket Expenses (to be drawn down once paid and replenished once 75% depleted). Thisprocess to continue until the end of the study.(b)CO#3: Twenty percent (20%) of the average estimated expenses as set forth in the Expenses Estimate (exclusive offunds for investigator grants), totaling $[****], will be due and payable upon execution of this Agreement.Prepayment for Out of Pocket Expenses (to be drawn down once paid and replenished once 75% depleted). Thisprocess to continue until the end of the study.(c)CO#4: This is a one-time payment of $[****] (exclusive of funds for investigator grants), that will be due andpayable upon execution of this Agreement.(d)CO#5: This is a one-time payment of $[****] (exclusive of funds for investigator grants), that will be due andpayable upon execution of this Agreement.(e)Actual pass-through expenses, as provided in the expenses estimate, will be billed as incurred by inVentiv HealthClinical(f)Any unused funds will be returned within ninety (90) days from the date of the final reconciliation 3.Investigator Grants: (a)Twenty percent (20%) of the estimated total of the grant payments of the study, totaling $[****], will be invoicedupon commencement of services. Prepayment for Investigator Grants (to be drawn down once paid and replenishedonce 75% depleted). This process to continue until the end of the study.(b)inVentiv Health Clinical will submit invoices in advance for estimated amounts to be paid to investigators duringthe next quarter to ensure that adequate funds are available to pay investigator grants(c)inVentiv Health Clinical will not make payments to investigators without having sufficient funds available inadvance.(d)Any unused funds will be returned within ninety (90) days from the date of the final reconciliation 4.Payment Conditions: (a)For all Services, pass through expenses and investigator grants invoiced, payments are due net thirty (30) days frominvoice date as set forth in Terms, Item 2 of the Agreement. In the event of a dispute, all undisputed portions of theinvoice(s) are due within the above stated terms(b)Payments shall be made in the currency identified above and shall be made free of any applicable local withholdingtaxes, charges or remittance fees. Invoices will be inclusive of applicable taxes as determined by local laws andregulations(c)inVentiv Health Clinical reserves the right to charge interest against any unpaid overdue balance at the rate of oneand a half percent (0.5%) per month(d)All services and pass-through payments should be sent via wire or ACH 11Exhibit 4.12 ConfidentialTHE SYMBOL "[****]" DENOTES PLACES WHERE PORTIONS OF THIS DOCUMENT HAVE BEEN OMIITTEDPURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. SUCH MATERIAL HAS BEEN FILEDSEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION Change Order 6.1 to Clinical Services Agreement Client’s study drug RHB-104 This Change Order 6.1 (“Change Order”) to the Clinical Services Agreement signed 15 June 2011 (“Clinical ServicesAgreement”), is by and among: (1) RedHill Biopharma Ltd., having its principle place of business at 21 Ha’arba’a St., Tel Aviv 64739,Israel (hereafter “SPONSOR”); (2) 7810962 Canada Inc., a Canadian corporation, having its principal office at 5320 13th Avenue,Montreal, Quebec, H1X 2X8, Canada ((hereinafter "MANAGER"); WHEREAS, “SPONSOR” mandated "MANAGER" to enter into a subcontract with inVentiv Health Clinicalto act as a CRO for its Study (as defined in the Clinical Services Agreement); Is hereby made effective as of July 28, 2016 (“Effective Date”) and the parties hereby agree as follows: 1. Change Order 6.1 to Clinical Services Agreement. This Change Order constitutes an amendment to the Clinical Services Agreement pursuant to section 3.0 therein. Assuch, this Change Order is subject in all respects to the terms and provisions of the Clinical Services Agreement. 2. Scope of Work In addition to the Services to be provided in the above-referenced Clinical Services Agreement, inVentiv HealthClinical will perform additional Services for Client’s study drug RHB-104, in accordance with the Summary ofChanges attached hereto and incorporated herein as Exhibit A. 3. Compensation Under this Change Order, inVentiv Health Clinical’s Professional Fees have increased by the amount of USD[****]. The total costs of the Clinical Services Agreement have increased to USD [****]. 1 ConfidentialPayment due to inVentiv Health Clinical for the Services provided under this Change Order shall be made pursuantto the Agreement and the revised unit Payment Schedule attached hereto and incorporated herein as Exhibit B. 4. Project Period The term of this Change Order shall commence on the date of its execution and shall continue until the Services asdescribed in the Clinical Services Agreement are completed, unless this Change Order or corresponding ClinicalServices Agreement are terminated early in accordance with the Clinical Services Agreement. By their signatures below, the parties hereto agree to the terms of this Change Order and represent that they are authorized toenter into this Change Order on behalf of their respective companies. ACCEPTED AND AGREED TO: RedHill Biopharma Ltd. For 7810962 Canada /s/ Dror Ben-Asher/s/ Micha Ben Chorin /s/ Alain GuimondName: Dror Ben-AsherMicha Ben Chorin Name: Alain GuimondTitle: CEOCFO Title: V-P R&D Date: August 31, 2016__________________ Date: 30-August-2016 2 ConfidentialinVentivHealthclinical.com Exhibit A Summary of Changes Study Assumption Changes Changes to the parameters and assumptions for the study are defined below. Unless otherwise noted, activities will beperformed according to the original contract. Change Order 6.1 for 7810962 Canada Inc. /Red Hill Biopharma Ltd. Overview of major level changes ·The fee to add [****]to the DCRA team is $[****]- There are [****]hrs in the [****]month period from [****]through to [****]. The hourly rate is $[****]/hr.·Number of DCRAs changed from [****] to [****]. 1.1 Revised Costs Costs for this study are presented below in two categories, pass-through costs and professional fees. 1.1.1 Pass-Through Costs Pass-through costs are in US dollars and include those expenses listed below. inVentiv Health Clinical will invoiceClient for actual costs in these areas, it being understood that any pass-through costs in excess of the amounts setout below will require the Client’s prior written approval. inVentiv Health Clinical will use its best efforts to keepactual costs to reasonable levels through adherence to inVentiv Health Clinical’s travel policy and prudentnegotiation with outside providers. Pass-through costs are presented in the table below: 11ISB0017810962 Canada Inc., /RedHill Biopharma Ltd.28 July 2016 © inVentiv Health. All Rights Reserved. ConfidentialinVentivHealthclinical.com TaskCurrent(USD)ChangeOrder #6.1Assumption Changesinfluencing thechange in the budgetAdditionalcommentsSite Visit Travel$[****]$[****]No changeInvestigators' MeetingOrganization$[****]$[****]No changeKick-off MeetingTravel/Attendance$[****]$[****]No changeShipping/Photocopying$[****]$[****]No changeTranslation$[****]$[****]No changeRegulatory Fees$[****]$[****]No changeEthics Committee Fees$[****]$[****]No changeEDC Studies/3G Cards$[****]$[****]No changeDSMB member fees$[****]$[****]No changeEDC Fees (Oracle)$[****]$[****]No changeCRA Face to Face MeetingTravel expenses$[****]$[****]No changePass Through Costs$[****]$[****] 11ISB0017810962 Canada Inc., /RedHill Biopharma Ltd.28 July 2016 © inVentiv Health. All Rights Reserved. ConfidentialinVentivHealthclinical.com 1.1.2 Investigator Grants Costs InvestigatorGrantsCurrent(USD)ChangeOrder #6.1AssumptionChangesinfluencing thechange in thebudgetAdditionalComments $[****]$[****]No ChangeEstimate only. Will bepaid based on actual costsas approved by the Client. 1.1.3 Professional Fees Based on the parameters and assumptions outlined in the original proposal, inVentiv Health Clinical fees arecategorised by major activity in the table below and in USD: TaskCurrent(US Dollars)ChangeOrder #6.1AssumptionChangesinfluencing thechange in thebudgetAdditional commentsPre-study Activities Case Report FormPreparation/Review$[****]$[****]No changeNo changeData Management PlanPreparation/Review$[****]$[****]No changeNo changeInformed ConsentPreparation/Review$[****]$[****]No changeNo changeIRB/Ethics Committee Interactions$[****]$[****]No changeNo changeInvestigators' Meetings$[****]$[****]No changeNo changeInvestigator Site Contract$[****]$[****]No changeNo changeInvestigator Recruitment$[****]$[****]No changeNo changeProject Feasibility$[****]$[****]No changeNo changeProject Plan Preparation/Review$[****]$[****]No ChangeNo change 11ISB0017810962 Canada Inc., /RedHill Biopharma Ltd.28 July 2016 © inVentiv Health. All Rights Reserved. ConfidentialinVentivHealthclinical.com TaskCurrent(US Dollars)ChangeOrder #6.1AssumptionChangesinfluencing thechange in thebudgetAdditional commentsProtocol Preparation/Review$[****]$[****]No changeNo changeRandomization SchedulePreparation$[****]$[****]No changeNo changeStudy-Specific Form Preparation$[****]$[****]No changeNo changeTraining - Project-Specific$[****]$[****]No changeNo changeTranslations$[****]$[****]No changeNo changePROMIS$[****]$[****]No changeNo changeMonitoring/Site Management Data Clean-up$[****]$[****]No changeNo changeInvestigator Grant Administration$[****]$[****]No changeNo changeLaboratory Report Review$[****]$[****]No changeNo changeSerious/Significant Adverse EventManagement$[****]$[****]No changeNo changeSite Management $[****]$[****]No changeNo changeRemote Monitoring of Site Data$[****]$[****]No changeNo changeSite Visits - Pre-study Visits$[****]$[****]No changeNo changeSite Visits - Initiation Visits$[****]$[****]No changeNo changeSite Visits - Routine Visitsconducted on site$[****]$[****]No changeNo changeSite Visits - Routine Visitsconducted on site – Dedicated NACRA Program-[****]CRAs$[****]$[****]No changeNo changeSite Visits - Routine Visitsconducted on site-Dedicated NACRA Program-[****] CRA$[****]$[****]Dedicated NA CRAProgramAdding [****] Dedicated Sr.CRA- $[****]/hr X [****]hrs([****] hrs over a year X[****] months)Site Visits - Close-out Visits at eachsite at Study End$[****]$[****]No changeNo changeStudy Master File/Project File Set-upand Maintenance$[****]$[****]No changeNo change 11ISB0017810962 Canada Inc., /RedHill Biopharma Ltd.28 July 2016 © inVentiv Health. All Rights Reserved. ConfidentialinVentivHealthclinical.com TaskCurrent(US Dollars)ChangeOrder #6.1AssumptionChangesinfluencing thechange in thebudgetAdditional commentsPatient/Site Recruitment$[****]$[****]No changeNo changeClient/CRO meeting$[****]$[****]No changeNo changeRegulatory Regulatory DocumentationPreparation/Review$[****]$[****]No changeNo changeProject Management /ProjectTracking Financial Project Management$[****]$[****]No changeNo changeProject Management$ [****]$ [****]No changeNo changeProject Tracking / Communications$[****]$[****]No changeNo changeVendor Management$[****]$[****]No changeNo changeData Management Database Archiving$[****]$[****]No changeNo changeData Cleanup (DM)$[****]$[****]No changeNo changeData Management: Database QualityControl Inspection$[****]$[****]No changeNo changeDatabase Design$[****]$[****]No changeNo changeDictionary Coding$[****]$[****]No changeNo changeEdit Check Programming$[****]$[****]No changeNo changeElectronic Data Import$[****]$[****]No changeNo changeCase Report Form Data/DocumentTransfers$[****]$[****]No changeNo changeEDC Fees$[****]$[****]No changeNo changeStatistical Analysis and TableGeneration Electronic Data Transfer$[****]$[****]No changeNo change 11ISB0017810962 Canada Inc., /RedHill Biopharma Ltd.28 July 2016 © inVentiv Health. All Rights Reserved. ConfidentialinVentivHealthclinical.com TaskCurrent(US Dollars)ChangeOrder #6.1AssumptionChangesinfluencing thechange in thebudgetAdditional commentsInterim Analysis/Report Preparationand Review$[****]$[****]No changeNo changeStatistical Analysis PlanPreparation/Review$[****]$[****]No changeNo changeTable Generation$[****]$[****]No changeNo changeTable/Listings Review$[****]$[****]No changeNo changeClinical Study Report Clinical Study ReportPreparation/Review$[****]$[****]No changeNo changeTeam Meetings Project Team Meetings - InternalMeetings$ [****]$ [****]No changeNo changeProject Team Meetings - ClientTeleconferences$[****]$[****]No changeNo changeProject Team Meetings - Kick-offMeeting$[****]$[****]No changeNo changeTotal Direct Costs$[****]$[****] Total Costs CategoryTotal Costs($)Current Contract(USD)Change in Scope # 6.1(USD)Revised Total(USD)Pass-Through Costs$[****]$[****]$[****]Investigator Grants Costs$[****]$[****]$[****]Professional Fees$[****]$[****]$Discount-$[****]$[****]-$[****]Revised Professional Fees$[****]$[****]$[****]Grand Total$[****]$[****]$[****] 11ISB0017810962 Canada Inc., /RedHill Biopharma Ltd.28 July 2016 © inVentiv Health. All Rights Reserved. ConfidentialinVentivHealthclinical.com Exhibit B Payment Schedule1. PAYMENT TERMS A. Service Fees: Exhibit BinVentiv Health ClinicalMilestone Payment Schedule7810962 Canada Inc. (11ISB001) MilestoneOriginalAgreementCO#2 withDiscountCO#3 withDiscountCO#4 withDiscountCO#5CO#6CO#6.1Total (USD)with DiscountInvoice #InvoiceAmountPaid AmountUpon Execution of Contract250,249 250,249 11ISB001-001250,249 250,249 Upon Execution of CO#3 904,042 904,042 11ISB001-064904,042 904,042 Upon Execution of CO#4 119,480 119,480 11ISB001-065119,480 119,480 Upon Execution of CO#5 349,419 349,419 0030018998349,419 349,419 Upon Execution of CO#6 424,093 424,093 Completion of Investigator Meeting 0 50% of Site Initiation Visits completed 0 Last Site Initiation Visits completed 0 Database Release (eCRF release) to Production 0 First Patient In US Trial250,249 -250,249 0 First Patient In European Trial250,249 -250,249 0 Last Patient In US Trial344,865 -344,865 0 Last Patient In European Trial344,865 -344,865 0 First Patient In 421,712 421,712 11ISB001-034/11ISB001-042421,712 421,712 Last Patient in 576,327 300,000 876,327 1,440,477 -192,1891,204,042 119,480 349,419 424,093 0 3,345,322 26-week Subject Treatment Period Ends: 0 DBL for all patients completing 26-weeks completed 412,620 280,000 692,620 Study Unblinded after analysis of efficacy partcompleted 0 Delivery of Draft Tables, Listings and Graphs 0 Delivery of Final Tables, Listings and Graphs 0 Delivery of Final 26 CSR US Trial750,746 -750,746 0 Delivery of Final 26 CSR European Trial750,746 -750,746 0 1,501,492 -1,088,872280,000 692,620 52-week Subject Treatment Period ends: 0 DBL for all patients completed 232,364 200,000 432,364 Delivery of Draft Tables, Listings and Graphs 0 Delivery of Final Tables, Listings and Graphs 0 Delivery of Final 52 CSR US Trial261,441 -261,441 0 Delivery of Final 52 CSR European Trial261,442 -261,441 1 Delivery of Final CSR 124,981 124,981 Database Lock 0 Delivery of Draft CRF US Trial261,432 0 261,432 11ISB001-023261,432 261,432 Delivery of Draft CRF European Trial261,432 -261,432 0 1,045,747 -426,969200,000 0 0 0 0 818,778 Total Milestones3,987,716 -1,708,0301,684,042 119,480 349,419 424,093 0 4,856,720 2,306,334 2,306,334 Page 9 of 13 ConfidentialinVentivHealthclinical.com Quarterly Project Management Fee (10 Quarters startingJune 16, 2011, ending December 15, 2013: 183,590USD per quarter) Only Invoiced for 7 quarters1,835,894 -598,157 1,237,737 See below1,237,737 1,237,737 Monthly Fees for Hold Period: (9 Monthlies startingApril 2012, ending December 2012: 15,000 USD permonth) Only Invoiced for 6 months 90,000 90,000 11ISB001-01790,000 90,000 Quarterly Project Management Fee: (8 QuarterlyPayments starting January 2014: $173,477.50 USD perquarter) Only invoiced for 4 quarters 1,387,820 -693,909 693,911 See below693,911 693,911 Quarterly Project Management Fee: (4 QuarterlyPayments starting January 2015: $244,147.50 USD perquarter) 976,590 976,590 See below976,590 976,590 Quarterly Fees for Dedicated CRA Program (4 QuartersStarting July 2016: $141,364.29 USD per quarter) 565,457 565,457 Quarterly Fees for Dedicated CRA Program (3 QuartersStarting July 2016: $59,985 USD per quarter) 179,955 179,955 Total Milestone Payments5,823,610 -828,3671,966,723 119,480 349,419 989,550 179,955 8,600,370 5,304,572 5,304,572 - Professional fees are net of the 5% discount applied to Original Agreement and CO#1-#4 Quarterly Payments 3rd Quarter 201111ISB001-002183,590.00 183,590 4th Quarter 201111ISB001-006183,590.00 183,590 1st Quarter 201211ISB001-008183,590.00 183,590 1st Quarter 2012 (Reconciled for Amendment #1)11ISB001-017 & 19(47,393.00)(47,393)1st Quarter 201311ISB001-022183,590.00 183,590 2nd Quarter 201311ISB001-027183,590.00 183,590 3rd Quarter 201311ISB001-032183,590.00 183,590 4th Quarter 201311ISB001-032183,590.00 183,590 1st Quarter 201411ISB001-042173,477.50 173,478 2nd Quarter 201411ISB001-045173,477.50 173,478 3rd Quarter 201411ISB001-053173,477.50 173,478 4th Quarter 201411ISB001-058173,478.00 173,478 1st Quarter 201511ISB001-064244,147.50 244,148 2nd Quarter 20150030014002244,147.50 244,148 3rd Quarter 20150030017725244,147.50 244,148 4th Quarter 20150030017726244,147.50 244,148 3rd Quarter 2016 141,364.29 4rd Quarter 2016 201,349.29 1st Quarter 2017 201,349.29 2nd Quarter 2017 201,349.29 Page 10 of 13 11 ConfidentialinVentivHealthclinical.com 2. Pass Through Costs: (a)CO#2: Twenty percent (20%) of the average estimated expenses as set forth in the Expenses Estimate (exclusive offunds for investigator grants), totaling $[****], was invoiced upon execution of this Agreement. Prepayment for Out ofPocket Expenses (to be drawn down once paid and replenished once 75% depleted). This process to continue until theend of the study. (b)CO#3: Twenty percent (20%) of the average estimated expenses as set forth in the Expenses Estimate (exclusive offunds for investigator grants), totaling $[****], was invoiced upon execution of this Agreement. Prepayment for Out ofPocket Expenses (to be drawn down once paid and replenished once 75% depleted). This process to continue until theend of the study. (c)CO#4: This is a one-time payment of $[****] (exclusive of funds for investigator grants), that was invoiced uponexecution of this Agreement. (d)CO#5: This is a one-time payment of $[****] (exclusive of funds for investigator grants), that was invoiced uponexecution of this Agreement. (e)CO#6: This is a quarterly payment of [****]for ([****]) Quarters beginning with 1 payment invoiced on orafter [****]. First payment invoiced on [****]. (f)CO#6.1: This is a Quarterly payment of [****]for ([****]) Quarters beginning with 1 payment to be invoiced on[****]or upon execution of this Agreement if the executed date is later than [****]. (g)Actual pass-through expenses, as provided in the expenses estimate, will be billed as incurred by inVentiv HealthClinical (h)Any unused funds will be returned within ninety (90) days from the date of the final reconciliation 3. Investigator Grants: (a)Twenty percent (20%) of the estimated total of the grant payments of the study, totaling $[****], was invoiced uponcommencement of services. Prepayment for Investigator Grants (to be drawn down once paid and replenished once 75%depleted). This process to continue until the end of the study. (b)inVentiv Health Clinical will submit invoices in advance for estimated amounts to be paid to investigators during thenext quarter to ensure that adequate funds are available to pay investigator grants (c)inVentiv Health Clinical will not make payments to investigators without having sufficient funds available in advance. (d)Any unused funds will be returned within ninety (90) days from the date of the final reconciliation 4. Payment Conditions: (a)For all Services, pass through expenses and investigator grants invoiced, payments are due net thirty (30) days frominvoice date as set forth in Terms, Item 2 of the Agreement. In the event of a dispute, all undisputed portions of theinvoice(s) are due within the above stated terms (b)Payments shall be made in the currency identified above and shall be made free of any applicable local withholdingtaxes, charges or remittance fees. Invoices will be inclusive of applicable taxes as determined by local laws andregulations (c)inVentiv Health Clinical reserves the right to charge interest against any unpaid overdue balance at the rate of one and ahalf percent (1.5%) per month (d)All services and pass-through payments should be sent via wire or ACHPage 11 of 13ststExhibit 4.13 ConfidentialTHE SYMBOL "[****]" DENOTES PLACES WHERE PORTIONS OF THIS DOCUMENT HAVE BEEN OMIITTEDPURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. SUCH MATERIAL HAS BEEN FILEDSEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION Change Order 6 to Clinical Services Agreement Client’s study drug RHB-104 This Change Order 6 (“Change Order”) to the Clinical Services Agreement signed 15 June 2011 (“Clinical ServicesAgreement”), is by and among: (1) RedHill Biopharma Ltd., having its principle place of business at 21 Ha’arba’a St., Tel Aviv 64739, Israel(hereafter “SPONSOR”); (2) 7810962 Canada Inc., a Canadian corporation, having its principal office at 507 Place D’Armes , Suite 1101,Montreal, Quebec, H2Y 2W8, Canada (hereinafter "MANAGER"); WHEREAS, “SPONSOR” mandated "MANAGER" to enter into a subcontract with inVentiv Health Clinical to act as a CROfor its Study (as defined in the Clinical Services Agreement); Is hereby made effective as of May 25, 2016 (“Effective Date”) and the parties hereby agree as follows: 1. Change Order 6 to Clinical Services Agreement. This Change Order constitutes an amendment to the Clinical Services Agreement pursuant to section 3.0 therein. Assuch, this Change Order is subject in all respects to the terms and provisions of the Clinical Services Agreement. 2. Scope of Work In addition to the Services to be provided in the above-referenced Clinical Services Agreement, Manager will causeinVentiv Health Clinical to perform additional Services for Sponsor’s study drug RHB-104, in accordance with theSummary of Changes attached hereto and incorporated herein as Exhibit A. 3. Compensation Under this Change Order, inVentiv Health Clinical’s Professional Fees have increased by the amount of USD[****]. The total costs of the Clinical Services Agreement have increased to USD [****]. 1 ConfidentialPayment due to inVentiv Health Clinical for the Services provided under this Change Order shall be made pursuantto the Agreement and the revised unit Payment Schedule attached hereto and incorporated herein as Exhibit B. 4. Project Period The term of this Change Order shall commence on the date of its execution and shall continue until the Services asdescribed in the Clinical Services Agreement are completed, unless this Change Order or corresponding ClinicalServices Agreement are terminated early in accordance with the Clinical Services Agreement. By their signatures below, the parties hereto agree to the terms of this Change Order and represent that they are authorized toenter into this Change Order on behalf of their respective companies. ACCEPTED AND AGREED TO: RedHill Biopharma Ltd. 7810962 Canada Inc. /s/ Dror Ben-Asher/s/ Micha Ben Chorin /s/Alain GuimondName: Dror Ben-AsherMicha Ben Chorin Name: Alain GuimondTitle: CEOCFO Title: V-P R&D Date: June 22,2016 Date: 20-June-2016 2  Exhibit A Summary of Changes Study Assumption Changes Changes to the parameters and assumptions for the study are defined below. Unless otherwise noted, activities will beperformed according to the original contract. Change Order 6 for 7810962 Canada Inc. /Red Hill Biopharma Ltd. Overview of major level changes ·[****]: [****] Dedicated CRAs starts [****] = $[****]/hour * [****] hours X [****] CRAs = $[****] ([****] hours comes from the [****]hours/year / 12mths * [****]mths) ; [****] Dedicated CRA starts [****]=$[****]/hour* [****] hours X [****] CRA=$[****] ([****] hours comes from the [****] hours/year / 12 months * [****] month) [****]= $[****]/hour *[****] hours *[****] CRAs = $[****][****]= $[****]/hour * [****] hours ([****] hours comes from [****] hours/year/ 12 months * [****] months([****])) * [****] CRAs= $[****]·The flat rate of $[****] used in the above costing represents a discount to normal and customary rates for thepurpose of offsetting inflation costs paid by 7810962 Canada Inc. for the period of [****]through [****]. Futurechange orders are subject to prevailing rates. 1.1 Revised Costs Costs for this study are presented below in two categories, pass-through costs and professional fees. 1.1.1 Pass-Through Costs Pass-through costs are in US dollars and include those expenses listed below. inVentiv Health Clinical will invoiceClient for actual costs in these areas, it being understood that any pass-through costs in excess of the amounts setout below will require the Client’s prior written approval. inVentiv Health Clinical will use its best efforts to keepactual costs to reasonable levels through adherence to inVentiv Health Clinical’s travel policy and prudentnegotiation with outside providers. Pass-through costs are presented in the table below:3  TaskCurrent(USD)ChangeOrder #6AssumptionChangesinfluencing thechange in thebudgetAdditional commentsSite Visit Travel$[****]$[****]No changeInvestigators' Meeting Organization$[****]$[****]No changeKick-off Meeting Travel/Attendance$[****]$[****]No changeShipping/Photocopying$[****]$[****]No changeTranslation$[****]$[****]No changeRegulatory Fees$[****]$[****]No changeEthics Committee Fees$[****]$[****]No changeEDC Studies/3G Cards$[****]$[****]No changeDSMB member fees$[****]$[****]No changeEDC Fees (Oracle)$[****]$[****]No changeCRA Face to Face Meeting Travel expenses$[****]$[****]No change Pass Through Costs$[****]$[****] 4  1.1.2 Investigator Grants Costs InvestigatorGrantsCurrent(NA USD)NA(USD)AssumptionChangesinfluencing thechange in thebudgetAdditional Comments $[****]$[****]No ChangeEstimate only. Will be paidbased on actual costs asapproved by the Client. 1.1.3 Professional Fees Based on the parameters and assumptions outlined in the original proposal, inVentiv Health Clinical fees arecategorised by major activity in the table below and in USD: TaskCurrent(US Dollars)ChangeOrder #6AssumptionChangesinfluencing thechange in thebudgetAdditional commentsPre-study ActivitiesCase Report FormPreparation/Review$[****]$[****]No changeNo changeData Management PlanPreparation/Review$[****]$[****]No changeNo changeInformed ConsentPreparation/Review$[****]$[****]No changeNo changeIRB/Ethics CommitteeInteractions$[****]$[****]No changeNo changeInvestigators' Meetings$[****]$[****]No changeNo changeInvestigator SiteContract$[****]$[****]No changeNo changeInvestigator Recruitment$[****]$[****]No changeNo changeProject Feasibility$[****]$[****]No changeNo changeProject PlanPreparation/Review$[****]$[****]No ChangeNo changeProtocolPreparation/Review$[****]$[****].No changeNo changeRandomizationSchedule Preparation$[****]$[****]No changeNo changeStudy-Specific FormPreparation$[****]$[****]No changeNo changeTraining - Project-Specific$[****]$[****]No changeNo changeTranslations$[****]$[****]No changeNo change5  TaskCurrent(US Dollars)ChangeOrder #6AssumptionChangesinfluencing thechange in thebudgetAdditional commentsPROMIS$[****]$[****]No changeNo changeMonitoring/SiteManagementData Clean-up$[****]$[****]No changeNo changeInvestigator GrantAdministration$[****]$[****]No changeNo changeLaboratory ReportReview$[****]$[****]No changeNo changeSerious/SignificantAdverse EventManagement$[****]$[****]No changeNo changeSite Management $[****]$[****]No changeNo changeRemote Monitoring ofSite Data$[****]$[****]No changeNo changeSite Visits - Pre-studyVisits$[****]$[****]No changeNo changeSite Visits - InitiationVisits$[****]$[****]No changeNo changeSite Visits - RoutineVisits conducted on site$[****]$[****]No changeNo changeSite Visits - RoutineVisits conducted on site$[****]$[****]Dedicated NACRA Program[****]: [****] Dedicated CRAs starts [****] =$[****]/hr * [****]hrs X [****] CRAs = $[****] ([****]hrs comes from the [****]hrs/year / 12mths *[****]mths) ; [****] Dedicated CRA starts[****]=$[****]/hr * [****] hrs X [****]CRA=$[****] ([****] hrs comes from the [****]hrs/year / 12 mths * [****] mth) [****] = $[****]/hr *[****]hrs *[****] CRAs =$[****][****] = $[****]/hr * [****]hrs * [****] CRAs=$[****]Site Visits - Close-outVisits at each site atStudy End$[****]$[****]No changeNo changeStudy MasterFile/Project File Set-upand Maintenance$[****]$[****]No changeNo changePatient/Site Recruitment$[****]$[****]No changeNo change6  TaskCurrent(US Dollars)ChangeOrder #6AssumptionChangesinfluencing thechange in thebudgetAdditional commentsClient/CRO meeting$[****]$[****] No changeNo changeRegulatoryNo changeNo changeRegulatoryDocumentationPreparation/Review$[****]$[****]No changeNo changeProject Management/Project TrackingNo changeNo changeFinancial ProjectManagement$[****]$[****]No changeNo changeProject Management$ [****]$ [****]No changeNo changeProject Tracking /Communications$[****]$[****]No changeNo changeVendor Management$[****]$[****]No changeNo changeData ManagementDatabase Archiving$[****]$[****]No changeNo changeData Cleanup (DM)$[****]$[****]No changeNo changeData Management:Database QualityControl Inspection$[****]$[****]No changeNo changeDatabase Design$[****]$[****]No changeNo changeDictionary Coding$[****]$[****]No changeNo changeEdit CheckProgramming$[****]$[****]No changeNo changeElectronic Data Import$[****]$[****]No changeNo changeCase Report FormData/DocumentTransfers$[****]$[****]No changeNo changeEDC Fees$[****]$[****]No changeNo changeStatistical Analysis andTable GenerationNo changeNo change 7  TaskCurrent(US Dollars)ChangeOrder #6AssumptionChangesInfluencing thechange in thebudgetAdditional commentsTaskCurrent(US Dollars)ChangeOrder #6AssumptionChangesinfluencing thechange in thebudgetAdditional commentsElectronic Data Transfer$[****]$[****]No changeNo changeInterim Analysis/ReportPreparation and Review$[****]$[****]No changeNo changeStatistical Analysis PlanPreparation/Review$[****]$[****]No changeNo changeTable Generation$[****]$[****]No changeNo changeTable/Listings Review$[****]$[****]No changeNo changeClinical Study ReportNo changeNo changeClinical Study ReportPreparation/Review$[****]$[****]No changeNo changeTeam MeetingsNo changeNo changeProject Team Meetings -Internal Meetings$[****]$ [****]No changeNo changeProject Team Meetings -Client Teleconferences$[****]$[****]No changeNo changeProject Team Meetings -Kick-off Meeting$[****]$[****]No changeNo changeTotal Direct Costs$[****]$[****] Total Costs CategoryTotal Costs($)Current Contract(USD)Change in Scope # 6(USD)Revised Total(USD)Pass-Through Costs $[****]$[****]$[****]Investigator Grants Costs$[****]$[****]$[****]Professional Fees$[****]$[****]$[****]Discount -$[****] $[****]-$[****] Revised Professional Fees$[****]$[****]$[****]Grand Total$[****]$[****]$[****]1Subsequent to the execution of CO#5.1 between 7810962 Canada Inc. and RedHill Biopharma Ltd., additional EDCFees in the amount of $[****]were included in CO#5.1 between inVentiv Health and 7810962 Canada Inc, therefore thecurrent actual contracted amount for pass-through is $[****] 8 1 Exhibit B Payment Schedule 1. PAYMENT TERMS A. Service Fees:Exhibit BinVentiv Health ClinicalMilestone Payment Schedule7810962 Canada Inc. (11ISB001) MilestoneOriginalAgreementCO#2 withDiscountCO#3 withDiscountCO#4 withDiscountCO#5CO#6Total (USD)with DiscountInvoice #InvoiceAmountPaidAmountUpon Execution of Contract250,249 250,249 11ISB001-001250,249 250,249 Upon Execution of CO#3 904,042 904,042 11ISB001-064904,042 904,042 Upon Execution of CO#4 119,480 119,480 11ISB001-065119,480 119,480 Upon Execution of CO#5 349,419 349,419 0030018998349,419 349,419 Upon Execution of CO#6 424,093 424,093 Completion of Investigator Meeting 0 50% of Site Initiation Visits completed 0 Last Site Initiation Visits completed 0 Database Release (eCRF release) to Production 0 First Patient In US Trial250,249 -250,249 0 First Patient In European Trial250,249 -250,249 0 Last Patient In US Trial344,865 -344,865 0 Last Patient In European Trial344,865 -344,865 0 First Patient In 421,712 421,712 11ISB001-034/11ISB001-042421,712 421,712 Last Patient in 576,327 300,000 876,327 1,440,477 -192,1891,204,042 119,480 349,419 424,093 3,345,322 26-week Subject Treatment Period Ends: 0 DBL for all patients completing 26-weekscompleted 412,620 280,000 692,620 Study Unblinded after analysis of efficacy partcompleted 0 Delivery of Draft Tables, Listings and Graphs 0 Delivery of Final Tables, Listings and Graphs 0 Delivery of Final 26 CSR US Trial750,746 -750,746 0 Delivery of Final 26 CSR European Trial750,746 -750,746 0 1,501,492 -1,088,872280,000 692,620 52-week Subject Treatment Period ends: 0 DBL for all patients completed 232,364 200,000 432,364 Delivery of Draft Tables, Listings and Graphs 0 Delivery of Final Tables, Listings and Graphs 0 Delivery of Final 52 CSR US Trial261,441 -261,441 0 Delivery of Final 52 CSR European Trial261,442 -261,441 1 Delivery of Final CSR 124,981 124,981 Database Lock 0 Delivery of Draft CRF US Trial261,432 0 261,432 11ISB001-023261,432 261,432 Delivery of Draft CRF European Trial261,432 -261,432 0 1,045,747 -426,969200,000 0 0 0 818,778 Total Milestones3,987,716 -1,708,0301,684,042 119,480 349,419 424,093 4,856,720 2,306,334 2,306,334 9  Quarterly Project Management Fee (10 Quartersstarting June 16, 2011, ending December 15, 2013:183,590 USD per quarter)Only Invoiced for 7 quarters1,835,894 -598,157 1,237,737 See below1,237,737 1,237,737 Monthly Fees for Hold Period: (9 Monthlies startingApril 2012, ending December 2012: 15,000 USD permonth)Only Invoiced for 6 months 90,000 90,000 11ISB001-01790,000 90,000 Quarterly Project Management Fee: (8 QuarterlyPayments starting January 2014: $173,477.50 USDper quarter) Only invoiced for 4 quarters 1,387,820 -693,909 693,911 See below693,911 693,911 Quarterly Project Management Fee: (4 QuarterlyPayments starting January 2015: $244,147.50 USDper quarter) 976,590 976,590 See below976,590 976,590 Quarterly Fees for Dedicated CRA Program (4Quarters Starting July 2016: $141,364.29 USD perquarter) 565,457 565,457 Total Milestone Payments5,823,610 -828,3671,966,723 119,480 349,419 989,550 8,420,415 5,304,572 5,304,572 - Professional fees are net of the 5% discount applied to Original Agreement and CO#1-#4 Quarterly Payments 3rd Quarter 201111ISB001-002183,590.00 183,590 4th Quarter 201111ISB001-006183,590.00 183,590 1st Quarter 201211ISB001-008183,590.00 183,590 1st Quarter 2012 (Reconciled for Amendment #1)11ISB001-017 & 19(47,393.00)(47,393)1st Quarter 201311ISB001-022183,590.00 183,590 2nd Quarter 201311ISB001-027183,590.00 183,590 3rd Quarter 201311ISB001-032183,590.00 183,590 4th Quarter 201311ISB001-032183,590.00 183,590 1st Quarter 201411ISB001-042173,477.50 173,478 2nd Quarter 201411ISB001-045173,477.50 173,478 3rd Quarter 201411ISB001-053173,477.50 173,478 4th Quarter 201411ISB001-058173,478.00 173,478 1st Quarter 201511ISB001-064244,147.50 244,148 2nd Quarter 20150030014002244,147.50 244,148 3rd Quarter 20150030017725244,147.50 244,148 4th Quarter 20150030017726244,147.50 244,148 10 11 2. Pass Through Costs: (a) CO#2: Twenty percent (20%) of the average estimated expenses as set forth in the Expenses Estimate (exclusive offunds for investigator grants), totaling $[****], will be due and payable upon execution of this Agreement.Prepayment for Out of Pocket Expenses (to be drawn down once paid and replenished once 75% depleted). Thisprocess to continue until the end of the study. (b) CO#3: Twenty percent (20%) of the average estimated expenses as set forth in the Expenses Estimate (exclusive offunds for investigator grants), totaling $[****], will be due and payable upon execution of this Agreement.Prepayment for Out of Pocket Expenses (to be drawn down once paid and replenished once 75% depleted). Thisprocess to continue until the end of the study. (c) CO#4: This is a one-time payment of $[****] (exclusive of funds for investigator grants), that will be due andpayable upon execution of this Agreement. (d) CO#5: This is a one-time payment of $[****] (exclusive of funds for investigator grants), that will be due andpayable upon execution of this Agreement. (e) Actual pass-through expenses, as provided in the expenses estimate, will be billed as incurred by inVentiv HealthClinical (f) Any unused funds will be returned within ninety (90) days from the date of the final reconciliation 3. Investigator Grants: (a) Twenty percent (20%) of the estimated total of the grant payments of the study, totaling $[****], will be invoicedupon commencement of services. Prepayment for Investigator Grants (to be drawn down once paid and replenishedonce 75% depleted). This process to continue until the end of the study. (b) inVentiv Health Clinical will submit invoices in advance for estimated amounts to be paid to investigators duringthe next quarter to ensure that adequate funds are available to pay investigator grants (c) inVentiv Health Clinical will not make payments to investigators without having sufficient funds available inadvance. (d) Any unused funds will be returned within ninety (90) days from the date of the final reconciliation 4. Payment Conditions: (a) For all Services, pass through expenses and investigator grants invoiced, payments are due net thirty (30) days frominvoice date as set forth in Terms, Item 2 of the Agreement. In the event of a dispute, all undisputed portions of theinvoice(s) are due within the above stated terms (b) Payments shall be made in the currency identified above and shall be made free of any applicable local withholdingtaxes, charges or remittance fees. Invoices will be inclusive of applicable taxes as determined by local laws andregulations (c) inVentiv Health Clinical reserves the right to charge interest against any unpaid overdue balance at the rate of one-half percent (0.5%) per month (d) All services and pass-through payments should be sent via wire or ACH11Exhibit 4.14 Confidential THE SYMBOL "[****]" DENOTES PLACES WHERE PORTIONS OF THIS DOCUMENT HAVE BEEN OMIITTED PURSUANT TO AREQUEST FOR CONFIDENTIAL TREATMENT. SUCH MATERIAL HAS BEEN FILED SEPARATELY WITH THE SECURITIESAND EXCHANGE COMMISSION Change Order 7 to Clinical Services Agreement Client’s study drug RHB-104 This Change Order 7 (“Change Order”) to the Clinical Services Agreement signed 15 June 2011 (“Clinical Services Agreement”), is by andamong: (1) RedHill Biopharma Ltd., having its principal place of business at 21 Ha’arba’a St., Tel Aviv 64739, Israel (hereafter“SPONSOR”); (2) 7810962 Canada Inc., a Canadian corporation, having its principal office at 5320 13th Avenue, Montreal, Quebec, H1X 2X8,Canada (hereinafter "MANAGER") WHEREAS, “SPONSOR” mandated "MANAGER" to enter into a subcontract with inVentiv Health Clinical to act as a CROfor its Study (as defined in the Clinical Services Agreement); Is hereby made effective as of October 7, 2016 (“Effective Date”) and the parties hereby agree as follows: 1. Change Order 7 to Clinical Services Agreement. This Change Order constitutes an amendment to the Clinical Services Agreement pursuant to section [****] therein. As such, thisChange Order is subject in all respects to the terms and provisions of the Clinical Services Agreement. 2. Scope of Work In addition to the Services to be provided in the above-referenced Clinical Services Agreement, Manager will cause inVentiv HealthClinical to perform additional Services for Client’s study drug RHB-104, in accordance with the Summary of Changes attached heretoand incorporated herein as Exhibit A. 3. Compensation Under this Change Order, inVentiv Health Clinical’s Professional Fees have increased by the amount of USD $[****][****] and pass-through expenses have increased by the amount of USD $[****]. The total costs of the Clinical Services Agreement have increased toUSD $[****]. 1 Confidential Payment due to inVentiv Health Clinical for the Services provided under this Change Order shall be made pursuant to the ClinicalServices Agreement and the revised unit Payment Schedule attached hereto and incorporated herein as Exhibit B. 4. Project Period The term of this Change Order shall commence on the date of its execution and shall continue until the Services as described in theClinical Services Agreement are completed, unless this Change Order or corresponding Clinical Services Agreement are terminatedearly in accordance with the Clinical Services Agreement. In the event that the Study is completed in advance of the timelines set forth in this Agreement as amended and in the event that sitesare closed or put on administrative hold due to inactivity and the amount of sites is reduced (along with other management activitiesdriven by the number of sites), the parties will engage in good faith discussions to determine whether there were any costs incurred forwhich Manager was compensated in advance requiring a reimbursement from Manager to Client. By their signatures below, the parties hereto agree to the terms of this Change Order and represent that they are authorized to enter into thisChange Order on behalf of their respective companies. ACCEPTED AND AGREED TO: RedHill Biopharma Ltd For 7810962 Canada /s/ Micha Ben Chorin/s/ Dror Ben-Asher /s/ Alain GuimondName: Micha Ben ChorinDror Ben-Asher Name: Alain GuimondTitle: CFOCEO Title: VP of Research and Development Date: November 16, 2016 Date: 11-Nov-2016 2 ConfidentialExhibit A Summary of ChangesStudy Assumption Changes Changes to the parameters and assumptions for the study are defined below. Unless otherwise noted, activities will be performed according tothe original contract. Change Order 7 for 7810962 Canada Inc. /Red Hill Biopharma Ltd. Overview of major level changes Study Timelines increased with LPI on [****][****]Monthly InForm Data Transfers to BioForum through to [****]DSMB Member Replacement and Contract RevisionsData Management, Medical Monitoring, and Pharmacovigilance for [****] sites in [****]CDAI eCRF revisions and Report GenerationAddition of [****] North American SitesAdding Vendors Bioforum and MWB ConsultingDCRA Program Start-up and Conference Calls through to [****]CRA Vendor Teleconferences with CSSi, Quest, iCardiac, Spectrum, IWRS, & ALGO,Investigator Contract Amendments for PKs, PI and site name changes, extended patient safety follow-upSAE increase from [****] to [****]Israeli Site Transfer to Cato_IsraelStudy Coordinator Turnover - InForm Set-UpPre DDW NA Investigator MeetingProtocol Amendment #9F2F Sponsor Meetings 10-11SEP2015, 25-26Feb2016Oracle Vendor Contract Extension to [****] [****]Sponsor AuditAdvertising Initiatives with Study Kik, CSSi Retention Materials, Quebec Recruitment MaterialsInvestigator Brochures and Confirmation LettersDSUR listing - [****] updatesVendor Management - Spectrum IP replacement and Quest lab manual follow-upIncrease Clinical and Data Managers to [****]from [****]Increase CMPL to [****]from [****] 11ISB0017810962 Canada Inc., /RedHill Biopharma Ltd.07 November 20163 ConfidentialCategoryCurrentContractCO7Rationale for changeStudy Start- Up period[****] months +[****] month[****][****]months +[****]month[****]Investigator Recruitment extended to [****]as per clientEnrolment period[****] months[****]Recruitment extended to [****]as per clientStats Timeline[****] weeks[****] weeksno change# of countries[****][****]Addition of [****]# of sites[****][****]Per client add [****]NA sites and [****]sites in [****]. [****]sites for Data Management, Medical Monitoring, andPharmacovigilance. [****]sites for iVH clinical to open and[****] to maintain open# Subjects Randomized[****][****]Per client request# of subjects for DM, MM &PVG[****][****]No change# of CRF pages/book[****][****]eCRF pages added and revised as per client direction# of unique CRF pages[****][****]eCRF pages added and revised as per client direction# of PSVs[****][****]Additional sites, therefore additional PSVs,# of SIVs[****][****]Added [****] sites to NA# of RMVs[****][****]Removed [****]RMVs for Israeli sites# of COVs[****][****]Removed [****]COVs for Israel; Added [****]sites to NA# of internal meetings[****][****]Increased timelines lead to increased number of internal meetings.# of client telecons[****][****]Increased timelines lead to increased number of clientteleconferences. Also includes teleconferences for 1:1 callsbetween iVH Sr. Director & RHB Product Manager; weekly TouchBase calls; DCRA calls with RHB, Vendor teleconferences. Pleasesee details in Professional Fees table.Client Meetings[****][****]North American CRA Meeting in Montreal on [****]September2015; PM-Sr. Director Meeting on 25 February 2016; CRAMeeting on 26 February 2016Investigator Meeting[****][****]Investigator Meeting on 21 May 2016# of vendors[****][****]iCardiac, Quest, AST, CDEIS central reader, EDC, DSMB (5DSMB members considered equivalent to 1 vendor); Novotech,CATO, Bioforum, MWB# of edit checks[****][****]eCRF pages added and revised as per client direction requires moreedit check# of imports[****][****][****]Increased timelines mean there are increased monthly imports# of SAEs[****][****]Timeline extension means more SAEs. Currently [****]SAEs todate# of SAE Narratives[****][****]Timeline extension means more SAEs. Currently [****]SAEs todateIVRSNot IncludedNot Included eCRF ChangesIncluded for ProtocolAmendment 8Requested by sponsorfor CDAI and StudyMedication eCRFsPlease see Professional Fees tableClinical and Data ManagerAllocation[****]FTE[****]FTEManager at [****]for 2013 and then at [****]FTE for 2014 and2015. Remainder of the study at [****]FTECMPL Allocation[****]FTE[****]FTECMPL at [****]FTE for 2014 and 2015. Remainder of the study at[****]FTE 1.1Revised Costs Costs for this study are presented below in two categories, pass-through costs and professional fees.11ISB0017810962 Canada Inc., /RedHill Biopharma Ltd.07 November 20164 Confidential 1.1.1 Pass-Through Costs Pass-through costs are in US dollars and include those expenses listed below. inVentiv Health Clinical will invoice Client for actualcosts in these areas, it being understood that any pass-through costs in excess of the amounts set out below will require the Client’s priorwritten approval. inVentiv Health Clinical will use its best efforts to keep actual costs to reasonable levels through adherence to inVentivHealth Clinical’s travel policy and prudent negotiation with outside providers. Pass-through costs are presented in the table below: TaskCurrent(USD)ChangeOrder #7Assumption Changesinfluencing the changein the budgetAdditionalcommentsSite Visit Travel$[****][****]$[****][****]No change Investigators' MeetingOrganization$[****]$[****]No change Kick-off MeetingTravel/Attendance$[****]$[****]No change Shipping/Photocopying$[****]$[****]No change Translation$[****]$[****]No change Regulatory Fees$[****]$[****]No change Ethics Committee Fees$[****]$[****]No change EDC Studies/3G Cards$[****]$[****]No change DSMB member fees$[****]$[****]Increased DSMB member hourly rate to$[****] from $[****] EDC Fees (Oracle)$[****]$[****]No change CRA Face to Face Meeting Travelexpenses$[****]$[****]No change Pass Through Costs$[****]$[****] 11ISB0017810962 Canada Inc., /RedHill Biopharma Ltd.07 November 20165 Confidential1.1.2 Investigator Grants Costs InvestigatorGrantsCurrent(USD)Change Order #7Assumption Changesinfluencing the changein the budgetAdditionalComments $[****]$[****]No ChangeEstimate only. Will bepaid based on actual costsas approved by the Client. 11ISB0017810962 Canada Inc., /RedHill Biopharma Ltd.07 November 20166 Confidential1.1.3 Professional Fees Based on the parameters and assumptions outlined in the original proposal, inVentiv Health Clinical fees are categorised by majoractivity in the table below and in USD: TaskCurrent(USDollars)ChangeOrder 7Assumption Changesinfluencing the changein the budgetAdditionalcommentsPre-study ActivitiesCase Report FormPreparation/Review$[****]$[****]Updated the CDAI eCRF andadded diary eCRF pageManager (DM) (NA) [****]hours at [****][****]Manager (DM) (NA) [****] hours at [****]Manager (DM) (NA) [****] hours at [****]Data Analyst (API[****]hrs @ [****]Data Analyst (API) [****] hrs @ [****]Manager (PM) (NA) [****]hr @[****]Manager (DM) NA - [****] hrs @[****]Data Management PlanPreparation/Review$[****]$[****]Changes to the eCRF as aboveand at least yearly updates for2016, 2017, and 2018Manager (DM & PM) (NA) [****] hours for [****]Manager (DM & PM) (NA) [****] hours for [****]Manager (DM & PM)(NA) [****]hours for [****]Manager (DM & PM) (NA[****] hours for [****]Manager (DSPM) NA [****] hours @ [****]Manager (DM) (NA) - [****][****]hour @ [****]DM Manager (NA) = [****] hrs @ [****]Manager (NA) (DSPM) - [****] hr @ [****]Manager (NA) (PM) [****][****]hr @ [****]Informed ConsentPreparation/Review$[****]$[****]Started up [****]additional sites in NA andIsrael and Protocol v9 willrequire updated site consents.Regulatory Associate II (NA) [****]hrs at [****]Regulatory Associate II (NA)10 hours at [****]GSSU Mgr (NA)= [****] hrs @ [****] for Master ICFand country-specific consents for USA, Canada,Attention to local site ICF review as neededManager (NA)(PM[****]hrs @ [****]GSSU SS Specialist = [****] hrs @ [****] for[****][****] ICFs11ISB0017810962 Canada Inc., /RedHill Biopharma Ltd.07 November 20167 Confidential TaskCurrent(USDollars)ChangeOrder 7Assumption Changesinfluencing the changein the budgetAdditionalcommentsIRB/Ethics CommitteeInteractions$[****]$[****][****]Added [****]sites in NA and [****] sites inIsrael; Protocol v9 will requireupdated site consent; Annualand other periodic reviews in2016, 2017, 2018;Submissions for InvestigatorBrochures in 2016, 2017,2018 and protocolclarification letters dated[****]; DSURs in 2016, 2017,2018.[****] hrs for Regulatory Associate II (GSSUSpecialist) (API) for work in [****]at [****][****] hrs for Regulatory Associate II (GSSUSpecialist) at [****] ([****] hrs/site for [****] sitesadded in 2015)Regulatory Associate II (GSSU Specialist)(NA)[****]hrs at [****],Regulatory Associate II (GSSU Specialist)(NA)[****]hrs at [****]Regulatory Associate II (GSSU Specialist)(NA)[****][****]hrs at [****]Regulatory Associate II (GSSU Specialist) 6 hrs at[****] for ([****] new sites added in 2015)Regulatory Associate II (GSSU Specialist) [****]hrsat [****] for [****] new sites in 2016GSSU SS specialist (NA) = [****] hrs @ [****];averages two hours/site for [****][****] sitesRegulatory Associate (NA) [****] hrs @ [****]Regulatory Associate II (API) - [****] hrs @ [****]Regulatory Associate II (NA) - [****][****] hrs @[****]Regulatory Associate II (NA) - [****] hrs @ [****]Safety Associate I (NA) [****] hrs @ [****]Safety Associate I (NA) [****] hrs @ [****]Safety Associate I (NA) [****] hrs @ [****]Investigators' Meetings$[****]$[****]Pre DDW NA InvestigatorMeeting on [****]May2016Sr. CRAs (NA) - [****] hrs @ [****] (Non- DCRAs) -travelCMPL (LCRA) (NA)- [****] hrs @ [****] - travelManager (NA)(PM[****]hrs @ [****] - travelManager (NA) (DM) - [****] hrs @ [****] – travelSr. CRAs (NA) - [****] hrs @ [****] (Non- DCRAs)attendance and prepCMPL (LCRA) (NA)- [****]hrs @ [****]attendance and prepManager (NA)(PM) [****]hrs @ [****]attendance and prepManager (NA) (DM) - [****] hrs @ [****]attendance and prepInvestigator SiteContract$[****][****]$[****]Additional contracts for[****]more NA sites;Investigator contractamendments for PI turnover,site name changes, PI safetyfollow-up, CDAI rework, andpatient imbursement for PKsamples; Protocol v9 changeswill require site contractamendments.Sr. Contract Associate (NA) [****] - [****] hrs (3 sitecontracts)Sr. Contract Associate (NA) [****] [****] hrs (10contracts)Sr. Grant & Contract Associate (NA) [****] hours([****]contract amendments at [****] hrs each) at[****]Manager (PM) (NA) [****][****]hrs@ [****]Paralegal (NA) [****] hrs @ [****]Sr. Grants and Contracts Associate (NA) [****] hours@ [****]Paralegal (NA) [****) hour @ [****]11ISB0017810962 Canada Inc., /RedHill Biopharma Ltd.07 November 20168 Confidential TaskCurrent(USDollars)ChangeOrder 7Assumption Changesinfluencing the changein the budgetAdditionalcommentsParalegal (NA) [****][****]hrs @ [****]Sr. Grants Associate (NA) [****] hours @ [****]Sr.Grants & Contract Associate (NA) - [****] hrs @[****]Sr. Grants & Contract Associate (NA) [****] hrs @[****]Sr. Contracts Associate (NA) = [****] hours @ [****]averages [****]hours/ contract for [****][****]contracts and includes tracking; filing; updating theGrants Profiles Manager, Clinical Research [****]hours @ [****]Sr. Grants Associate (NA) [****][****] hrs @ [****]([****] hr/site)Contracts Associate (NA) [****] hr @ [****]Paralegal (NA) - [****][****]hr @ [****]Manager (NA[****][****]hr @ [****]Sr. Grant & Contracts Associate (NA) - [****] hrs @[****]Paralegal (NA) - v hr @ [****]Project Manager (NA) [****][****][****]hrs @[****]Investigator Recruitment$[****]$[****]Outreach to [****]sites in NA in 2014 and 2015.Manager (PM) (NA) [****] hrs at [****]Manager (PM) (NA) [****] hrs at [****] Project Feasibility$[****]$[****]No changeNo changeProject PlanPreparation/Review$[****]$[****]Project plans yearly updatesfor 2016, 2017, 2018 andreview by the team.Sr. CRA (NA) [****] hr at [****]Sr. CRA (NA) [****] hr at [****]Sr. CRA (NA) [****] hr at [****]CRA I (NA) [****] hr at [****]CRA I (NA) [****] hr at [****]CRA I (NA) [****] hr at [****]Manager (PM) (NA) - [****]hrs at [****]Manager (PM) (NA) [****]hrs at [****]Manager (PM) (NA) [****][****] hrs at [****]CMPL (LCRA) (NA) [****] hrs at [****]CMPL (LCRA) (NA) [****]hrs at [****]CMPL (LCRA) (NA) [****]hrs at [****]Safety Associate (NA) [****]hrs at [****]Safety Associate (NA) [****]hrs at [****]Safety Associate (NA) [****]hrs at [****]Sr. Medical Director (NA) [****] hours at [****]Sr. Medical Director (NA) [****] hours at [****]Sr. Medical Director (NA) [****] hours at [****]11ISB0017810962 Canada Inc., /RedHill Biopharma Ltd.07 November 20169 Confidential TaskCurrent(USDollars)ChangeOrder 7Assumption Changesinfluencing the changein the budgetAdditionalcommentsProtocolPreparation/Review$[****]$[****][****][****]Protocol v9 will need inputfrom the Project Manager andMedical Director, with teamreview of the finalized versionData Analyst (API) [****] hr @ [****] Sr. Data Analyst (API) [****] hr @ [****]Manager (DM) (NA) [****] hours @ [****]Manager (DSPM) (NA) [****] hours @ [****]Manager (PM) (NA) -[****]hours @ [****]Medical Director (NA) [****] hrs @ [****]Medical Director (WE) [****] hrs @ [****]CMPL (LCRA) (NA) [****][****][****]hours @[****]Sr. CRA (NA) [****] hrs @ [****]CRA I (NA) 2 hrs @ [****]Sr Regulatory Associate (NA) [****] hr @ [****]Reg Affairs Associate (NA) [****] hr @ [****]Director Reg Affairs (NA) [****] hr @ [****]Safety Associate (NA) [****] hr @ [****]Principal Statistician (NA) [****] hr @ [****]Principal Statistician (API) [****] hr @ [****]RandomizationSchedule Preparation$[****]$[****]No changeNo changeStudy-Specific FormPreparation$[****]$[****]Preparation and revision ofthe CDAI calculation toolManager (PM) (NA) [****],[****][****]hoursManager (PM) (NA) [****],[****]hoursTraining - Project-Specific$[****]$[****]CDAI Training to sites; non-dCRAs, and CRO teams;Study Rationale PresentationTraining for non-dCRAs andattendance by CMPL and PM;Study training by CMPL,Medical Director, and PM forCRA hired in 2015 speciallyfor the dCRA program; F2Ftraining session atInSymbiosis office for CRA Ion 26Feb2016; Training forProtocol v9DM Manager (NA) [****] hours @ [****] (7 1-hrsessions ([****] CRA Sessions (NA, Novotech, Cato)+ [****] Site Sessions) + [****]hr prep)Sr. CRA NA - [****] hours @ [****] (Attend 1-hrsession X [****] CRAs);Manager (PM) (NA) [****]hours @ [****] ([****] hrprep, [****] X [****]-hr sessions, [****] hrs follow-up)CMPL (LCRA) (NA)- [****]hours @ [****]([****]hrs presentation and [****] hrs prep) Training CRAsand Site TeleconferencesSr. CRA (API) [****] hrs @ [****]Manager (PM) (NA) [****]hrs @ [****]CMPL (LCRA (NA) [****]hr hrs @ [****]Sr. CRA (NA) [****]hrs @ [****]CMPL (LCRA (NA[****][****]hours @ [****]PM (NA) [****]hours @ [****]Medical Director (WE) [****] hours @ [****][****]hrs Manager (PM) (NA) @ [****][****] hrs CMPL (LCRA) (NA) @[****][****] hrs CRA I (NA) @ [****][****] hrs Sr. CRA (NA) @ [****][****]hrs Manager (NA)(DM) @ [****]PM (NA) [****] hrs @ [****]CRA I (NA) [****] hrs @ [****]11ISB0017810962 Canada Inc., /RedHill Biopharma Ltd.07 November 201610 Confidential TaskCurrent(USDollars)ChangeOrder 7Assumption Changesinfluencing the changein the budgetAdditionalcommentsTranslations$[****]$[****]Protocol v9 ConsenttranslationManager (NA) (PM) [****] hr @ [****]PROMIS/CTMS$[****]$[****]Increase in project timelinesincreases the time for ClinicalTrial Management Systemsoversight by DataManagementManager DM (NA) - [****] [****] hrsManager DM (NA) - [****] [****] hrsManager DM (NA) - [****] [****] hrsManager DM (NA) - [****] [****][****] hrs Monitoring/SiteManagementData Clean-up$[****]$[****]Increased the number of eCRFpages from [****]to [****]byadding more unique pagesand randomizing[****]subjects for iVH to[****]from [****]. Extensiveclean-up of reworked CDAIentries;Sr. CRA (NA) - [****] [****] hrsSr. CRA (NA) - [****] - [****] hrsSr. CRA (NA) [****] - [****][****] hrs;CRA I (NA) [****] - [****] hrsCRA I (NA) [****] - [****] hrsCRA I (NA) [****] - [****] hrs Investigator GrantAdministration$[****]$[****]Removal of [****]paymentsto Israeli PIs from currentagreement amount of [****]= [****][****]. AddedInvestigator grant payments in2016, 2017, and 2018 andadding 14 more sites in NA fortotal of [****]payments; Alsoincludes processing[****]retroactive patient PKstipends; and CDAI rework.Sr. CRA, API - [****] Subtract ([****]) hrsSr. CRA, API - [****] Subtract ([****]) hrsSr. CRA, API - [****] Subtract ([****]) hrsTechnical Assistant, API - [****] Subtract ([****]) hrsTechnical Assistant, API - [****] Subtract ([****]) hrsTechnical Assistant, API - [****] Subtract([****][****]) hrsManager (Investigator Grants) (NA) [****]hrs at [****]Manager (Investigator Grants) (NA) [****]hrs at [****]Manager (Investigator Grants) (NA) [****]hrs at [****]Sr Grant &Contracts Associate (NA) [****]hrs at [****]Sr Grant &Contracts Associate (NA) [****]hrs at [****]Sr Grant &Contracts Associate (NA) [****]hrs at [****]Grant &Contracts Associate II (NA) [****]hrs at [****]Grant &Contracts Associate II (NA) [****] hrs at[****]11ISB0017810962 Canada Inc., /RedHill Biopharma Ltd.07 November 201611 Confidential TaskCurrent(USDollars)ChangeOrder 7Assumption Changesinfluencing the changein the budgetAdditionalcommentsGrant &Contracts Associate II (NA) [****] hrs at[****]Grant &Contracts Associate I (NA) [****] hrs at[****]Grant &Contracts Associate I (NA) [****] hrs at[****]Grant &Contracts Associate I (NA) [****] hrs at[****]Technical Assistant (Investigator Grants) (NA) [****]hrs at [****]Technical Assistant (Investigator Grants) (NA)[****][****] hrs at [****]Technical Assistant (Investigator Grants) (NA)[****][****][****] hrs at [****]Manager (PM) (NA) [****] hrs at [****]Manager (PM) (NA) [****][****] hrs at [****]Manager (PM) (NA) [****] hrs at [****]Sr. Grants Associate (NA) - [****] hours at [****]Sr. Grants Associate (NA) [****] hrs @ [****]Manager (Grants) (NA) [****] hrs @ [****]Manager (PM) (NA) [****] hrs @ [****]Laboratory ReportReview$[****][****]$[****]Review of laboratory resultsfor an additional [****] yearsMedical Monitor (WE) [****] hrs at [****]Medical Monitor (WE) [****][****] hrs at [****]Medical Monitor (WE) [****][****] hrs at [****]Serious/SignificantAdverse EventManagement$[****]$[****][****]Increase from [****]to[****]SAEs over the course ofthe study. The number ofSAEs increases with increasedstudy duration.Sr. Medical Director (NA) [****][****][****] hrsSr. Medical Director (NA) [****][****] hrsSr. Medical Director (NA) [****][****] hrsSr. Medical Director (NA) [****][****] hrsManager (PV) (NA) [****] hrs @ [****]Manager (PV) (NA) [****] hrs @ [****]Manager (PV) (NA) [****][****] hrs@ [****]Manager (PV) (NA) [****][****] hrs @ [****]Manager (PM) (NA) [****][****] hrsManager (PM) (NA) [****] [****][****] hrsManager (PM) (NA) [****][****] hrsManager (PM) (NA) [****][****] hrsSafety Associate II (NA) [****][****] hrsSafety Associate II (NA) [****] [****] hrsSafety Associate II (NA) [****] [****] hrsSafety Associate II (NA) [****][****] hrsSr. CRA(NA) [****][****] hrs (Reflects Non-DCRAs)Sr. CRA(NA) [****][****] hrs (Reflects Non-DCRAs)Sr. CRA(NA) [****][****] hrs (Reflects Non-DCRAs)Sr. CRA(NA) [****][****][****] hrsTechnical Assistant (NA) [****] [****] hrsTechnical Assistant (NA) [****] [****] hrsTechnical Assistant (NA) [****] [****] hrsTechnical Assistant (NA) [****] [****] hrs11ISB0017810962 Canada Inc., /RedHill Biopharma Ltd.07 November 201612 Confidential TaskCurrent(USDollars)ChangeOrder 7Assumption Changesinfluencing the changein the budgetAdditionalcommentsSite Management $[****]$[****][****]Site management in previouscontract expired [****]. Thenumber of site managementmonths has increased from[****]in previous contract to[****]in CO7 with a revisedcompletion date of[****]based on database lockof [****]. This is based on[****] sites for iVH clinicalover the [****]period.Sr. Med Director (APA) [****], [****][****] sites for[****]wks. - [****]hoursSr. Med Director (APA) [****] - [****] sites for 12.69wks. - [****]hrsCRA I (NA) [****][****] hrs @ [****]CRA I (NA) [****] hrs @ [****]CRA I (NA) [****] hrs @ [****]Sr. CRA (NA) = [****] sites for 46 hrs @ [****]Sr. CRA (NA) = [****]hrs @ [****]Sr. CRA (NA) [****] hrs @[****]Sr. CRA (NA) = [****] hrs @ [****]CMPL (LCRA) (NA) - [****]hrs @ [****]CMPL (LCRA) (NA) - [****][****]hrs @ [****]CMPL (LCRA) - [****]hrs @ [****]CMPL (LCRA) - [****]hrs @ [****]Sr. Med Director (NA) [****]hrs @ [****]Sr. Med Director (NA) [****]hrs @ [****]Sr. Med Director (NA) [****]hrs @ [****]Sr. Med Director (NA) [****]hrs @ [****]Manager (PM) (NA) [****]hrs @ [****]Manager (PM) (NA) [****]hrs @ [****]Manager (PM) (NA) [****]hrs @ [****]Manager (PM)(NA) [****]hrs @ [****]Technical Assistant (NA) - [****]- [****] sites for[****]wks-[****] hrs;Technical Assistant (NA) - [****]-[****] sites for[****][****] wks. [****] hrs;Technical Assistant (NA) - [****]-[****] sites for[****][****] wks. [****] hrs;Technical Assistant (NA) - [****]-[****] sites for[****] wks. [****][****]hrs;Sr. Med Director (WE) [****]hrs at [****]Sr. Med Director (WE) [****][****]hrs at [****]Sr. Med Director (WE) [****]hrs at [****]Sr. Med Director (WE) [****]hrs at [****]Remote Monitoring ofSite Data$[****]$[****]The number of remotemonitoring weeks increasedfrom [**** to [****) byextending the study. Remotemonitoring is [****][****]hrs/subject/ week. iVH willreconcile at the end of thestudy for subject weeksactually usedRemote Monitoring Sr. CRA (NA) = [****]hrs @[****]Remote Monitoring Sr. CRA (NA) = [****][****]hrs@ [****]Remote Monitoring Sr. CRA (NA) = [****] hrs @[****]Remote Monitoring Sr. CRA (NA) [****] hrs @[****]Remote Monitoring CRA I (NA) [****]hrs @ [****]Remote Monitoring CRA I (NA) [****]hrs @ [****]Remote Monitoring CRA I (NA) [****] hrs @ [****]([****][****] hr/site/week)11ISB0017810962 Canada Inc., /RedHill Biopharma Ltd.07 November 201613 Confidential TaskCurrent(USDollars)ChangeOrder 7Assumption Changesinfluencing the changein the budgetAdditionalcommentsSite Visits - Pre-studyVisits$[****]$[****]Increased the number of PSVsfrom [****] to [****]. Two PSVs were performed in2015 and one PSV wasperformed in 2016 by non-dCRAs. dCRAs will performadditional PSVs if required in2016. Unused visits will becredited to the client at theend of patient enrolmentSr. CRA NA [****] hrs @ [****]Sr. CRA NA [****] hours @ [****]Site Visits - InitiationVisits$[****]$[****]Increased the number of SIVsfrom [****] to [****]. Non-dCRA would perform [****]SIVs. dCRAs would perform[****] SIVs. Unused visitswill be credited to the client atthe end of patient enrolmentSr. CRA (NA) [****] hrs @ [****]( Non-DCRA)Site Visits - RoutineVisits conducted on site$[****]$[****]Removed [****] visits for theSr. CRA API and SDV CDAIWorksheet revisions for Sr.CRAs X2 and CRA I. TotalRMVs tor NA = [****].Sr. CRA, API - [****] Subtract ([****][****]) hrsSr. CRA, API -[****] Subtract ([****]) hrsSr. CRA, API - [****] Subtract ([****]) hrsSr. CRA (NA) [****] hours @ [****]CRA I (NA) [****] hours @ [****]CMPL (LCRA) (NA) [****] hrs @[****] CDAI Diaryreview and worksheet revisionsSite Visits - RoutineVisits conducted on site– Dedicated NA CRAProgram-3 CRAs$[****]$[****]No changeNo changeSite Visits - RoutineVisits conducted on site-Dedicated NA CRAProgram-1 CRA$[****]$[****]Dedicated NA CRA ProgramNo changeSite Visits - Close-outVisits at each site atStudy End$[****]$[****]Removed [****] close-outvisits for Sr. CRA in Israel.Adding [****]more NA sitesincreases the number of close-out visits from [****]to[****]. Unused visits will becredited to the client at theend of the study.Remove [****]visits for API CRA Subtract ([****]hrs) @ [****]Add [****]NA sites at [****]s - RS CRA (NA) -[****] - [****] hrs – Initiated sites increased from[****]to [****] Study MasterFile/Project File Set-upand Maintenance$[****]$[****]Study Master File/Project FileSet-up and Maintenance inprevious contract expired[****]. The number of StudyMaster File/Project File Set-upand Maintenance months hasincreased from [****] inprevious contract to [****] Sr. CRA (NA) [****] hrs @ [****]Sr. CRA (NA) [****][****] hrs @ [****]Sr. CRA (NA) [****] hrs @ [****]Sr. CRA (NA) [****][****] hrs @ [****]CRA I (NA) [****][****] hrs @ [****]CRA I (NA) [****] hrs @ [****]CRA I (NA) [****] hrs @ [****]CMPL (LCRA) [****][****] hrs @ [****]11ISB0017810962 Canada Inc., /RedHill Biopharma Ltd.07 November 201614 Confidential TaskCurrent(USDollars)ChangeOrder 7Assumption Changesinfluencing the changein the budgetAdditionalcommentsin CO7 with a revisedcompletion date of[****]based on database lockof [****]. Also includes filingdocuments for additional IRBsubmissions and approvals,site correspondence,acknowledgement forms for[****]additional NA sites,Protocol v9, InvestigatorBrochures, patient recruitmentmaterials, protocolclarification letters, andinvestigator turnoverdocuments. CMPL (LCRA) [****] hrs @ [****]CMPL (LCRA) [****][****] hrs @ [****]CMPL (LCRA) [****] hrs @ [****]Manager (PM) (NA) [****] hrs @ [****]Manager (PM) (NA) [****] hrs @ [****]Manager (PM) (NA) [****] hrs @ [****]Manager (PM) (NA) [****]hrs @ [****]Regulatory Associate II (NA) [****]hrs @ [****]Regulatory Associate II (NA) [****] hrs @ [****]([****] site start-up ( [****]hrs 2016) + IBv11 filing([****]5hr in 2016)Regulatory Associate II (NA) [****] hrs @ [****] (IBv12)Regulatory Associate II (NA) [****] hrs @ [****] (IBv13)Technical Assistant (NA) [****] hrs @ [****]Technical Assistant (NA) [****][****] hrs @ [****]Technical Assistant (NA) [****][****] hrs @ [****]Technical Assistant (NA) [****] hrs @ [****]LCRA (NA) [****] hrs @ [****]LCRA (NA) [****] hrs @ [****]TA (NA) hours @ [****]GSSU Specialist (NA) [****] hrs @ [****][****]hrs/site X [****]sites filing of submission forms; IRBprotocol v9 approvals; approved Protocol v9 ICFs:CMPL (LCRA) (NA) - [****] hrs @ [****]Patient/Site Recruitment$[****]$[****]No changeNo changeClient/CRO meeting$[****]$[****]F2F meeting on 25Feb2016 todiscuss CO 6.0 and CO 7.0and meet new CRA I.F2F CRA meeting in Montrealon 10-11 Sep2015 for dCRAProgram Kick-off[****] hr PM (NA) @ [****] [****] hrs Sr. Director (NA) @ [****][****] hrs PM (NA) @ [****][****] Sr. Director (NA) @ [****] [****] hrs CRA I (NA) @ [****]Sr. CRA (API) - [****] hrs @ [****]Sr. CRA (NA) - [****] hrs @ [****] for [****]CRAsin Sep2015.CRA II (NA) - [****][****]hrs @ [****]CMPL (LCRA) (NA) - [****] hrs @ [****]Manager (PM) (NA) [****] hrs @ [****]Sponsor Audit[****]$[****]RHB contracted with 3 partyto audit to investigator sitesLead CRA (NA) [****][****] hrsManager,(PM) (NA) - [****][****] hrsSr. CRA (NA)- [****] [****][****] hrsRegulatory RegulatoryDocumentationPreparation/Review$[****][****]$[****]Four new site start-ups inIsrael and [****] site start-upsin NA in 2015. [****] NA sitestart-ups in 2016.Add [****]hrs for Regulatory Associate II (API)(GSSU Specialist) for [****] more site start-ups @[****] 11ISB0017810962 Canada Inc., /RedHill Biopharma Ltd.07 November 201615 rdConfidential TaskCurrent(USDollars)ChangeOrder 7Assumption Changesinfluencing the changein the budgetAdditionalcommentsUnused site start-ups will becredited to the client at theend of recruitment. Alsoincludes submission of oneupdated InvestigatorBrochure/year in 2016, 2017,2018. Also includessubmission of Protocol v9 tocentral and local NAIRBs. Also includes updateddocuments for PI turnoversuch as IRB notification, FDAForm 1[****]2, FinancialDisclosure, clinicaltrial.govconsents, etc.Regulatory Associate II (NA) [****] hrs @[****] ([****] hrs for [****] site start-up in 2012; )Regulatory Associate II (NA) [****] hrs @ [****];([****] hrs ([****] site startups in 2013 + [****] hrsIBv[****] docs) )Regulatory Associate II (NA) [****] hours @[****]for IBv12Regulatory Associate II (NA) [****] hrs @ [****] forIBv13LCRA (NA) [****] hours @ [****]Regulatory Associate II (NA) [****] hrs @ [****] forProtocol v9Investigator BrochurePrep/Rev[****]$[****]Medical Director review oftwo Investigator Brochuresreleased in 2014; oneInvestigator Brochures releasein each of 2015, 2016Sr. Medical Director (NA) = [****] hours @[****]Sr. Medical Director (WE) = [****] hours @ [****]Sr. Medical Director (NA) = [****] hours @ [****]Sr. Medical Director (WE) = [****] hours @[****]Medical Director (APA) = [****] hrs @ [****]Sr. Medical Director (NA) = [****] hours @ [****]Sr. Medical Director (WE) = [****] hours @ [****]Medical Director (APA) = [****] hrs @ [****]Project Management/Project TrackingFinancial ProjectManagement$[****]$[****]Financial ProjectManagement in previouscontract expired [****]. Thenumber of Financial ProjectManagement months hasincreased from [****][****]in previous contract to[****][****] in CO7 with arevised completion date of[****]based on the CSRfinalized by [****]Manager (NA) (PM) [****] hrs at [****]Manager (NA) (PM) [****][****] hrs at [****];Manager (NA) (PM) [****] hrs at [****];Manager (NA) (PM) [****] hrs at [****];Project Budget Analyst (NA) [****] hrs at [****]Project Budget Analyst (NA) [****] hrs at [****]Project Budget Analyst (NA) [****] hrs at [****]Project Budget Analyst (NA) [****] hrs at [****]Director (DM) (NA) - [****] - [****] hrsDirector (DM) (NA) - [****] - [****][****] hrsDirector (DM) (NA) - [****] - [****][****] hrsDirector (DM) (NA) - [****] - [****][****] hrsManager (DSPM) (NA) - [****] - [****] hrsManager (DSPM) (NA) - [****] - [****][****] hrsManager (DSPM) (NA) - [****] - [****][****] hrsManager (DSPM) (NA) - [****] - [****][****] hrsDirector (Biostats) (NA) - [****] - [****] hrsDirector (Biostats) (NA) - [****] - [****] hrsDirector (Biostats) (NA) - [****] - [****] hrsDirector (Biostats) (NA) - [****] - [****] hrs11ISB0017810962 Canada Inc., /RedHill Biopharma Ltd.07 November 201616 Confidential TaskCurrent(USDollars)ChangeOrder 7Assumption Changesinfluencing the changein the budgetAdditionalcommentsProject Management$ [****]$[****]Project Management inprevious contract expired[****]. The number of ProjectManagement months hasincreased from [****][****]inprevious contract to[****][****]in CO7 with arevised completion date of[****]based on the CSRfinalized by [****]. Alsoincludes oversight for theCDAI listing and CDAI eCRFpages updates; oversight forthe central lab resultsintegration into the eCRF;oversight for the DSUR;updating the Oracleagreements to provide theInForm database platform Sr. Med Director (NA) [****] - [****] hrsSr. Med Director (NA) [****] - [****] hrsSr. Med Director (NA) [****] - [****] hrsSr. Med Director (NA) [****] - [****] hrsSr. Director (NA) [****] - [****][****][****] hrsSr. Director (NA) [****] - [****]hrsSr. Director (NA) [****] - [****] hrsManager (PM) (NA) - [****][****] hrsManager (PM) (NA) - [****] [****] hrsManager (PM) (NA) - [****] [****] hrsManager (PM) (NA) - [****][****] hrsCMPL (LCRA) (NA) - [****] [****][****] hrsCMPL (LCRA) (NA) - [****] –[****] hrsCMPL (LCRA) (NA) - [****] -[****] hrsCMPL (LCRA) (NA) - [****] -[****]hrsDirector (DM) (NA) - [****] [****] hrsDirector (DM) (NA) - [****] - [****][****] hrsDirector (DM) (NA) - [****] - [****][****] hrsDirector (DM) (NA) - [****] - [****] hrsManagers X 2 (DSPM and DM) (NA) - [****] for[****] hrsManagers X 2 (DSPM and DM) (NA) - [****] for[****] hrsManagers X 2 (DSPM and DM) (NA) - [****] for[****] hrsManagers X 2 (DSPM and DM) (NA) - [****] for[****] hrsPrincipal Statistician (NA) - [****] [****] hrsPrincipal Statistician (NA) - [****] [****][****] hrsPrincipal Statistician (NA) - [****] [****][****] hrsPrincipal Statistician (NA) - [****] [****][****] hrsManager (DSPM) = [****][****] hr @ [****]Manager (NA) (DSPM II) [****] hr @ [****]Manager (NA) (DSPM) = [****]hr @ [****]Manager (NA) (PM) [****] hrs @ [****]CMPL (NA) - [****][****] hrs @ [****]Manager (PM) (NA) [****] hrs @ [****]Manager, Medical Coding (NA) = [****] hrs @[****]Manager (DSPM)(NA) = [****] hrs @ [****]GSSU Specialist (NA) = [****] hr @ [****] ([****]hr/ site X [****] sitesManager (NA)(PM) [****][****] hrs @ [****]Manager (NA) (DSPM) = [****] hrs @ [****]Manager (NA) (DM) = [****] hrs @ [****]Manager (DSPM) (NA) = [****] hr @ [****]Project Tracking /Communications$[****]$[****]Project Tracking/Communications in previouscontract expired [****]. TheSr. Data Analyst (API) - [****] for [****] hrsSr. Data Analyst (API) - [****] for [****] hrsSr. Data Analyst (API) - [****] for [****] hrs11ISB0017810962 Canada Inc., /RedHill Biopharma Ltd.07 November 201617 Confidential TaskCurrent(USDollars)ChangeOrder 7Assumption Changesinfluencing the changein the budgetAdditionalcommentsnumber of Project Tracking/Communications months hasincreased from [****] inprevious contract to [****] inCO7 with a revisedcompletion date of[****]based on the CSRfinalized by [****]Sr. Data Analyst (API) - [****] for [****][****][****] hrsDatabase Programmer (API) - [****] for [****] hrsDatabase Programmer (API) - [****] for [****] hrsDatabase Programmer (API) - [****] for [****] hrsDatabase Programmer (API) - [****] for [****][****]hrsManager (NA) (PM) [****] hrs at [****]Manager (NA) (PM) [****][****] hrs at [****]Manager (NA) (PM) [****] hrs at [****]Manager (NA) (PM) [****] hrs at [****]Technical Assistant (NA) - [****]Technical Assistant (NA) - [****] hrs @[****]Technical Assistant (NA) - [****] hrs @[****]Technical Assistant (NA) - [****] hrs @[****]CRA I (NA) [****] sites for [****] wks.; [****]hrs @[****]CRA I (NA) [****] hrs @ [****]CRA I (NA) [****] sites for [****] wks. in2015;[****]hrs @ [****]CMPL (LCRA) (NA) [****] hrs at [****]CMPL (LCRA) (NA) [****] hrs at [****]CMPL (LCRA) (NA) [****] hrs at [****]CMPL (LCRA) (NA) .[****] hrs at [****]Sr. CRA (NA) [****] sites for [****][****] wks.;[****]hrs @ [****];Sr. CRA (NA) [****] hrs @ [****]Sr. CRA (NA) [****] hrs @ [****]Sr. CRA (NA) [****] hrs @ [****]Manager (DSPM) (NA) [****] hrs @ [****]Manager (DSPM) (NA) [****] hrs @ [****] Manager (DSPM) (NA) [****][****] hrs @ [****] Manager (DSPM) (NA) [****] hrs @ [****] CMPL (LCRA) (NA) [****] hrs @ [****]CMPL (LCRA) (NA) [****][****] hrs @ [****][****][****] hrs PM (NA) @ [****][****] hrs CMPL (LCRA) (NA) @ [****][****] hrs Regulatory Associate II (NA) @ [****]CMPL (LCRA) (NA) - [****] hrs @ [****]Vendor Management$[****]$[****]Vendor Management inprevious contract expired[****]. The number of VendorManagement months hasincreased from [****] inprevious contract to [****] inCO7 with a revisedcompletion date of [****]. Includes [****]a monthInForm Data Transfers toBioForum from [****]toManager (PM) (NA) [****] hrs at [****]Manager (PM) (NA) [****] hrs at [****]Manager (PM) (NA) [****] hrs at [****]Manager (PM )(NA) [****] hrs at [****]Manager (DM) (NA)= [****] hr @ [****]Manager (DM) (NA)= [****] hr @ [****]Manager (DM) (NA)= [****] hr @ [****]Manager (PM ) (NA) [****] hours @[****] ([****][****] hrs per replacement siteX[****] and end RRD; [****] min/ amendment X[****] )11ISB0017810962 Canada Inc., /RedHill Biopharma Ltd.07 November 201618 Confidential TaskCurrent(USDollars)ChangeOrder 7Assumption Changesinfluencing the changein the budgetAdditionalcomments[****]; Replacement of[****]DSMB membersrequiring contracts and onecontract amendment:; Printorders for hard-copydocuments related to Protocolv9 revisions: CRA and CMPLsite follow-up on behalf of thevendors in December2014/January 2015 for studymedication replacement andreceipt of the updatedlaboratory manual andsupplies.Manager (PM ) (NA) [****][****] hours @ [****]([****]and end [****] agreement)Paralegal (NA) [****] hours @ [****] (end RRD,[****] new agreements, [****] amendments)Paralegal (NA) [****] hours @ [****]Sr. Grants & Contract Associate [****] hours @[****]Sr. Grants & Contract Associate [****] hours @[****]TA (NA) [****] hrs @ [****]TA (NA) [****] hrs @ [****]TA (NA) [****] hrs @ [****]TA (NA) [****] hrs @ [****]Manager, (PM) (NA) [****] hours @ [****]Manager, (PM) (NA) [****]hours @ [****]Manager, (PM) (NA) [****][****]hours @ [****]Manager, (PM) (NA) [****]hours @ [****]Manager, DM (NA) - [****]hours @ [****]Manager, DM (NA) - [****][****]hours @ [****]Manager, DM (NA) - [****] hours @ [****][****] hours PM NA @ [****] - Obtaining quotes toprint of hard copy protocols, mini-protocols, IWRSManuals Protocol v9, mini-protocols, received bysitesSr CRA (API) hours ([****] hr for IP replacement @[****]Sr CRA (API) hours ([****] hr for IP contingencyreplacement @ [****]Sr CRA (NA) [****] hours ([****] hrs for IPreplacement @ [****]Sr CRA (NA) [****] hour IP contingency at [****]CMPL (LCRA) (NA) [****] hrs ([****] hrs for labmanual and replacement kits FUP & [****] Hours forIP replacement @ [****]CMPL (LCRA) (NA) [****] hr for IP contingencyreplacement @ [****]Manager (PM) (NA) [****] hours @[****]Manager (PM) (NA) [****][****] hours @[****]Data ManagementDatabase Archiving$[****]$[****]No changeNo changeData Cleanup (DM)$[****]$[****]Increased the number of totaleCRF pages from[****] to[****]by increasing thenumber of unique pages from[****]to [****]. Alsoincludes extensive clean-up ofreworked CDAI entries relatedto new eCRF CDAI pages;Sr. Database Programmer (API) - [****] for [****] hrsSr. Database Programmer (API) - [****] for [****] hrsSr. Database Programmer (API) - [****] - [****] hrsManager DM (NA) - [****] - [****] hrsManager DM (NA) - [****] - [****] hrsManager DM (NA) - [****] - [****] hrsSr. Database Programmer - [****] - [****] hrsSr. Database Programmer - [****]- [****] hrs11ISB0017810962 Canada Inc., /RedHill Biopharma Ltd.07 November 201619 Confidential TaskCurrent(USDollars)ChangeOrder 7Assumption Changesinfluencing the changein the budgetAdditionalcommentsSr. Database Programmer - [****] - [****] hrsData Analyst (API) [****] hrs @ [****]Data Analyst (API) [****] hrs @ [****]Data Analyst (API) [****][****] hrs @ [****]Data Management:Database QualityControl Inspection$[****]$[****]Revisions to the CDAI eCRFand addition of new eCRF,increasing the number ofpages from [****]to[****][****]in 2015 requiredQC.Data Analyst (API) [****]hrs @ [****]Database Design$[****]$[****]Adding [****]NA and[****] [****]sites. Unusedsite additions to the databasewill be credited to the client atthe end of recruitment.Updating the CDAI eCRF andadding another eCRFpage. Israeli Site Transfer toCato-Israel. Study site updatesfor Study Coordinatorturnover in 2014, 2015, 2016,2017, and 2018. Programmingupdates for central lab resultsintegration into the databasefor CDAI calculations in2016, 2017, & 2018. Annualreviews by Data Manager andDatabase ProgrammerSr. Database Programmer (API) - [****] hours at[****]Sr. Database Programmer (API) - [****] hours for[****]Sr. Database Programmer (API) - [****] hours for[****]Sr. Database Programmer (NA) [****] hrs to add[****] NA sites at [****]DM Manager (NA) [****] hours at [****]DM Manager (NA) [****] hours at [****]DM Manager (NA) [****] hours at [****]Sr. Database Programmer (API) [****] hours @ [****]Manager (DM) - [****] hour @ [****]Database Programmer API - [****] hours @ [****]Sr. D/B Programmer (NA) [****] hrs - Unique Pages@ [****]Sr. D/B Programmer (NA)- [****] hrs @ [****]Sr. Database Programmer (API) - [****] hrs @ [****]Manager (DM)(NA)- [****][****] hour @ [****]Sr. DB Programmer (API)- [****] hrs @ [****]Sr. DB Programmer (API)- [****] hrs @ [****]Sr. DB Programmer (API)- [****] hrs @ [****]Sr. DB Programmer (API)- [****] hrs @ [****]Sr. DB Programmer (API)- [****] hrs @ [****]CMPL (LCRA) (NA) [****] hrs @ [****]CMPL (LCRA) (NA) [****][****] hrs @ [****]CMPL (LCRA) (NA) [****] hrs @ [****]CMPL (LCRA) (NA) [****] hrs @ [****]CMPL (LCRA) (NA) [****] hrs @ [****]Manager (DM) = [****] hrs @ [****]Manager (DM) = [****] hrs @ [****]Manager (DM) = [****] hrs @ [****]Sr DB Programmer (API) [****][****] hrs @ [****]Sr DB Programmer (API) .[****] hrs @ [****]Sr DB Programmer (API) [****] hrs @ [****]Dictionary Coding$[****][****]$[****]Increased number of termsfrom [****] to [****][****]Sr Medical Director [****] hrs at [****]Sr Medical Director [****] hrs at [****]Sr Medical Director [****] hrs at [****]11ISB0017810962 Canada Inc., /RedHill Biopharma Ltd.07 November 201620 Confidential TaskCurrent(USDollars)ChangeOrder 7Assumption Changesinfluencing the changein the budgetAdditionalcommentsManager, DM (NA) - [****][****] hrsManager, DM (NA) - [****] [****] hrsManager, DM (NA) - [****][****] hrsSr. Database Programmer (API) [****] hrs @ [****]Sr. Database Programmer (API) [****] hrs @ [****]Sr. Database Programmer (API) [****] hrs @ [****]Sr. Data Analyst (API) - [****][****] hrs;Sr. Data Analyst (API) [****][****] hrsSr. Data Analyst (API) [****][****] hrsSr. Database Programmer (API) [****] hrs @ [****]Sr. Database Programmer (API) [****] hrs @ [****]Sr. Database Programmer (API) [****][****] hrs @[****]Manager, Medical Coding (NA) [****] hours @[****]Manager, Medical Coding (NA) [****] hours @[****]Manager, Medical Coding (NA) [****] hours @[****]D/B Programmer (NA) - [****] [****] hrsD/B Programmer (NA) [****],[****][****] hrsSr. Medical Coding Specialist (NA) - [****], [****]hrsSr. Medical Coding Specialist (NA) [****], [****] hrsSr. Medical Coding Specialist(NA) [****],[****][****] hrsEdit CheckProgramming$[****]$[****]Edit checks to generate CDAIlistings; for updates to theCDAI eCRF page andadditional page; andintegration of central lab datato the clinical databaseManager (NA) DM = [****] hr @ [****]Sr Database Programmer (NA) [****] hrs @ [****]Sr Database Programmer (NA) [****] hrs @ [****]Sr. Data Analyst (API) - [****][****] hrsSr. Data Analyst (API) - [****] - [****] hrsDatabase Programmer API - [****] hours @[****]Sr. D/B Programmer (NA) - [****] hours @ [****]Sr. D/B Programmer (NA) - [****][****] hours @[****]Principal Statistician (NA) - [****] hours @ [****]Principal Statistician (NA) - [****] hours @ [****]Manager, (PM) (NA) [****] hours @ [****]Manager, (PM) (NA) [****] hours @ [****]Lead Statistical Programmer (NA) [****] hrs @[****]DM Stats Programmer, (NA) [****] hrs @[****]Lead Statistical Programmer (NA( = [****] hrs @[****]11ISB0017810962 Canada Inc., /RedHill Biopharma Ltd.07 November 201621 Confidential TaskCurrent(USDollars)ChangeOrder 7Assumption Changesinfluencing the changein the budgetAdditionalcommentsPrincipal Stats programmer (NA) = [****] hrs @[****]Principal Stats programmer (NA) = [****]hrs @[****]Principal Stats programmer (NA) = [****]hrs @[****]Lead Stats programmer (NA) [****] hrs @ [****]Lead Stats programmer (NA) [****] hrs @ [****]Lead Stats programmer (NA) [****] hrs @ [****]Principal Statistical Programmer (NA) = [****] hrs @[****]Manager-DM (NA) = [****] hrs @ [****]Electronic Data Import$[****]$[****]Increasing the length of thestudy will increase the numberof monthly imports fromvendorsSr Database Programmer (API) [****] hrs at [****]Sr Data Analyst (API) [****] hrs at [****] Case Report FormData/DocumentTransfers$[****]$[****]No changeStatistical Analysis andTable GenerationElectronic Data Transfer$[****]$[****]Database transfers toBioforum from [****]to[****], occurring [****]amonth; [****] transfers intotal and includes the testtransfer in [****]Sr Data Programmer (NA) [****] hrs @ [****]Sr Data Programmer (NA) [****] hrs @ [****]Sr Data Programmer (NA) [****] hrs @ [****]Sr Med Coding Specialist (NA) [****] hrs @ [****]Sr Med Coding Specialist (NA) [****] hrs @ [****]Manager (PM) (NA) [****] hr @ [****]Manager (PM) (NA) [****][****] hr @ [****]Manager (PM) (NA) [****] hr @ [****]Interim Analysis/ReportPreparation and Review$[****]$[****]No changePending finalized Protocol v9Statistical Analysis PlanPreparation/Review$[****]$[****]No changePending finalized Protocol v9Table Generation$[****]$[****]No changePending finalized Protocol v9Table/Listings Review$[****]$[****]No changePending finalized Protocol v9Clinical Study ReportClinical Study ReportPreparation/Review$[****]$[****]Increased timelines increasethe possibility for more SAEsfrom [****]to [****]. MedicalWriting will need to prepare[****]more narratives.Director (NA), Pharmacovigilance - [****] hrs @[****]Safety Associate II - [****] hrs @ [****]Medical Writer II (NA) - [****] hrs @ [****]Manager, Medical Writing (NA) - [****] hrs @ [****]11ISB0017810962 Canada Inc., /RedHill Biopharma Ltd.07 November 201622 Confidential TaskCurrent(USDollars)ChangeOrder 7Assumption Changesinfluencing the changein the budgetAdditionalcommentsTeam MeetingsProject Team Meetings -Internal Meetings$ [****]$[****]Protocol v9 and increasedtimelines lead to increases inthe number of meetings from[****]to [****]Sr. Medical Director (APA) [****][****] hrs at [****]Sr. Grant & Contracts Associate (NA) [****] hrs @[****]Manager (NA)(PM) [****] hrs @ [****]Sr. Medical Director (NA) [****] hrs @ [****]Sr. Medical Director (NA) [****] hrs @ [****]Sr. Medical Director (NA) [****] hrs @ [****]Sr. Medical Director (NA) [****] hrs @ [****]Sr. Director (NA)[****] hrs @ [****]Sr. Director (NA)[****] hrs @ [****]Sr. Director (NA)[****] hrs @ [****]Sr. Director (NA)[****] hrs @ [****]Manager(NA)(PM) [****] hrs @ [****]Manager(NA)(PM) [****][****] hrs @ [****]Manager(NA)(PM) [****] hrs @ [****]Manager(NA)(PM) [****] hrs @ [****]CMPL (LCRA) (NA) [****] hrs @ [****]CMPL (LCRA) (NA) [****] hrs @ [****]CMPL (LCRA) (NA) [****] hrs @ [****]CMPL (LCRA) (NA) [****][****] hrs @ [****]SR.CRA (NA) [****] hrs @ [****]SR.CRA (NA) [****] hrs @ [****]SR.CRA (NA) [****] hrs @ [****]SR.CRA (NA) [****][****] hrs @ [****]CRA II (NA) [****] hrs @ [****]CRA I (NA) [****] hrs @ [****]CRA I (NA) [****] hrs @ [****]CRA I (NA) [****] hrs @ [****]TA (NA) [****] hrs @ [****]TA (NA) [****] hrs @ [****]TA (NA) [****] hrs @ [****]TA (NA) [****] hrs @ [****]Sr. Medical Director (WE) [****] hrs @ [****]Sr. Medical Director (WE) [****] hrs @ [****]Sr. Medical Director (WE) [****] hrs @ [****]Sr. Medical Director (WE) [****] hrs @ [****]GSSU Manager (NA) [****] hrs @ [****]Manager (NA) PM [****][****] hrs @ [****]sManager (NA)(DM) [****]hrs @ [****]Manager (NA)(DSPM) [****] hrs @ [****]11ISB0017810962 Canada Inc., /RedHill Biopharma Ltd.07 November 201623 Confidential TaskCurrent(USDollars)ChangeOrder 7Assumption Changesinfluencing the changein the budgetAdditionalcommentsProject Team Meetings -Client Teleconferences$[****]$[****]Protocol v9, dCRAteleconferences, CRA –Vendor teleconferences; CROand site trainingteleconferences, monthlyMedical Monitorteleconferences; Patrick andRandy’s (iVH Sr. Director)Weekly conferencecalls; DSUR conference calls;Bioforum conference calls,and increased timelines leadto increases in the number ofmeetings from [****]to[****] ([****]clientteleconferences completed asof 21Aug2016)[****] hrs for Medical Director (NA) @ [****][****] hrs Manager (N/A) (PM) @ [****][****] hrs Manager (NA) (DSPM & DM) @ [****][****] hrs LCRA (NA) @ [****][****]hrs Sr. Director (NA)(Weekly team call and Thursdaycall with RHB) @ [****][****] hrs for TA (NA) @ [****][****][****]hrs Regulatory Associate (NA) @ [****][****] hrs Safety Associate (NA) @ [****]Sr. Medical Director (NA) [****] hrs@ [****]Sr. Medical Director (NA) [****] hrs@ [****]Sr. Medical Director (NA) [****] hrs@ [****][****]hrs Manager (N/A) (PM) @ [****][****] hrs Manager (N/A) (PM) @ [****][****]hrs Manager (N/A) (PM) @ [****]CMPL (LCRA)(NA) [****] hrs@ [****]CMPL (LCRA)(NA) [****] hrs@ [****]CMPL (LCRA)(NA) [****] hrs@ [****] [****]hrs Sr. Director (NA) (Weekly team call and Thursdaycall with RHB) @ [****] [****]hrs Sr. Director (NA) (Weekly team call and Thursdaycall with RHB) @ [****] [****]hrs Sr. Director (NA) (Weekly team call and Thursdaycall with RHB) @ [****] [****][****]hrs TA (NA) @ [****][****][****]hrs TA (NA) @ [****][****][****]hrs TA (NA) @ [****][****]hrs Regulatory Director (NA) @[****][****]hrs Regulatory Director (NA) @[****][****]hrs Regulatory Director (NA) @[****][****]hrs Regulatory Associate (NA) @ [****][****]hrs Regulatory Associate (NA) @ [****][****]hrs Regulatory Associate (NA) @ [****][****]hrs Safety Associate (NA) @ [****][****]hrs Safety Associate (NA) @ [****][****]hrs Safety Associate (NA) @ [****]Sr Medical Director (WE) [****] hrs @ [****]11ISB0017810962 Canada Inc., /RedHill Biopharma Ltd.07 November 201624 Confidential TaskCurrent(USDollars)ChangeOrder 7Assumption Changesinfluencing the changein the budgetAdditionalcomments Sr Medical Director (WE) [****]hrs @ [****]Sr Medical Director (WE) [****]hrs @ [****]Sr Medical Director (WE) [****]hrs @ [****]Manager (PM) (NA) [****]hr @ [****]Manager (PM) (NA) [****] hr @ [****]Manager (PM) (NA) [****] hr @ [****]TA (NA) [****]hrs @ [****]TA (NA) [****] hrs @ [****]TA (NA) [****] hrs @ [****]Sr. Safety Associate (NA) [****] hrs @ [****]Sr. Safety Associate (NA) [****] hrs @ [****]Sr. Safety Associate (NA) [****] hrs @ [****]CMPL (LCRA) (NA) [****]hours @ [****]Sr. CRAs (NA) [****] hours @ [****]Sr. CRA (API) - [****] hrs @ [****]Manager (PM) (NA) [****] hours @ [****](CMPL) LCRA (NA) [****] hours @ [****]Sr. CRA (NA) [****]hrs @ [****]Manager (PM)(NA) [****] hrs @[****]CMPL (LCRA) (NA) [****] hrs @[****] (DCRAcalls)CMPL (LCRA) (NA) [****] hrs @ [****](DCRAcalls)CMPL (LCRA) (NA) [****] hrs@ [****]CMPL (LCRA (NA) [****] hrs @ [****]Manager (PM) (NA) [****] hrs@ [****]Manager (PM) (NA) [****] hrs @ [****]Project Team Meetings -Kick-off Meeting$[****]$[****]No changeNo changeTotal Direct Costs$[****][****] Total Costs Total Costs($)CategoryCurrent Contract(USD)Change in Scope #7(USD)Revised Total(USD)Pass-Through Costs$[****]$[****]$[****]Investigator Grants Costs$[****]$[****]$[****]Professional Fees$[****]$[****]$[****]Fee Discount($v)$[****]($[****])Revised Professional Fees$[****]$[****]$[****]DCRA Overpayment Credit$[****]($[****])($[****])Grand Total$[****]$[****][****]$[****] 11ISB0017810962 Canada Inc., /RedHill Biopharma Ltd.07 November 201625 ConfidentialExhibit B Payment Schedule7810962 Canada Inc. (11ISB001) MilestoneOriginalAgreementCO#2 withDiscountCO#3 withDiscountCO#4 withDiscountCO#5CO#6CO#6.1CO#7Total (USD)withDiscountInvoice #InvoiceAmountPaidAmountUpon Execution of Contract250,249 250,249 11ISB001-001250,249 250,249 Upon Execution of CO#3 904,042 904,042 11ISB001-064904,042 904,042 Upon Execution of CO#4 119,480 119,480 11ISB001-065119,480 119,480 Upon Execution of CO#5 349,419 349,419 0030018998349,419 349,419 Upon Execution of CO#6 424,093 424,093 0030025408424,093 424,093 Upon Execution of CO#7 2,205,858 2,205,858 00300287501,000,000 1,000,000 Completion of Investigator Meeting 0 50% of Site Initiation Visits completed 0 Last Site Initiation Visits completed 0 Database Release (eCRF release) toProduction 0 First Patient In US Trial250,249 -250,249 0 First Patient In European Trial250,249 -250,249 0 Last Patient In US Trial344,865 -344,865 0 Last Patient In European Trial344,865 -344,865 0 First Patient In 421,712 421,712 11ISB001-034/11421,712 421,712 Last Patient in 576,327 300,000 876,327 0030022105876,327 876,327 1,440,477 -192,1891,204,042 119,480 349,419 424,093 0 2,205,858 5,551,180 26-week Subject Treatment PeriodEnds: 0 DBL for all patients completing 26-weeks completed 412,620 280,000 692,620 Study Unblinded after analysis ofefficacy part completed 0 Delivery of Draft Tables, Listings andGraphs 0 Delivery of Final Tables, Listings andGraphs 0 Delivery of Final 26 CSR US Trial750,746 -750,746 0 Delivery of Final 26 CSR EuropeanTrial750,746 -750,746 0 1,501,492 -1,088,872280,000 692,620 52-week Subject Treatment Periodends: 0 DBL for all patients completed 232,364 200,000 432,364 Delivery of Draft Tables, Listings andGraphs 0 Delivery of Final Tables, Listings andGraphs 0 Delivery of Final 52 CSR US Trial261,441 -261,441 0 Delivery of Final 52 CSR EuropeanTrial261,442 -261,441 1 Delivery of Final CSR 124,981 124,981 Database Lock 0 Delivery of Draft CRF US Trial261,432 0 261,432 11ISB001-023261,432 261,432 Delivery of Draft CRF European Trial261,432 -261,432 0 1,045,747 -426,969200,000 0 0 0 0 0 818,778 Total Milestones3,987,716 -1,708,0301,684,042 119,480 349,419 424,093 0 2,205,858 7,062,578 4,606,754 4,606,754 Page 26 of 29 ConfidentialQuarterly Project Management Fee (10Quarters starting June 16, 2011, endingDecember 15, 2013: 183,590 USD perquarter) Only Invoiced for 7 quarters1,835,894 -598,157 1,237,737 See below1,237,737 1,237,737 Monthly Fees for Hold Period: (9Monthlies starting April 2012, endingDecember 2012: 15,000 USD permonth) Only Invoiced for 6 months 90,000 90,000 11ISB001-01790,000 90,000 Quarterly Project Management Fee: (8Quarterly Payments starting January2014: $173,477.50 USD per quarter)Only invoiced for 4 quarters 1,387,820 -693,909 693,911 See below693,911 693,911 Quarterly Project Management Fee: (4Quarterly Payments starting January2015: $244,147.50 USD per quarter) 976,590 976,590 See below976,590 976,590 Quarterly Project Management Fee: (8Quarterly Payments starting January2017: $295,633.24 USD per quarter) 2,365,066 2,365,066 Monthly Site Management Fee:($910.35 USD per active site monthstarting November 2016 throughSeptember 2018; estimated 1049 activesite months 954,957 954,957 Quarterly Fees for Dedicated CRAProgram (4 Quarters Starting July 2016:$141,364.29 USD per quarter) 565,457 565,457 See below342,714 342,714 Quarterly Fees for Dedicated CRAProgram (3 Quarters Starting July 2016:$59,985 USD per quarter) 179,955 179,955 See below59,985 59,985 Credit for double payment of DCRAtime -113,582-113,582 Total Milestone Payments5,823,610 -828,3671,966,723 119,480 349,419 989,550 179,955 5,412,299 14,012,669 7,947,705 7,947,705 - Professional fees are net of the 5% discount applied to Original Agreement and CO#1-#4 - Quarterly Project Management Fees will be invoiced at the beginning of each quarter - Site Management fee will vary from month to month as it is based on the number of sites active for the month. Quarterly Payments 3rd Quarter 201111ISB001-002183,590.00 183,590 4th Quarter 201111ISB001-006183,590.00 183,590 1st Quarter 201211ISB001-008183,590.00 183,590 1st Quarter 2012(Reconciled for Amendment #1)11ISB001-017 &(47,393.00)(47,393)1st Quarter 201311ISB001-022183,590.00 183,590 2nd Quarter 201311ISB001-027183,590.00 183,590 3rd Quarter 201311ISB001-032183,590.00 183,590 4th Quarter 201311ISB001-032183,590.00 183,590 1st Quarter 201411ISB001-042173,477.50 173,478 2nd Quarter 201411ISB001-045173,477.50 173,478 3rd Quarter 201411ISB001-053173,477.50 173,478 4th Quarter 201411ISB001-058173,478.00 173,478 1st Quarter 201511ISB001-064244,147.50 244,148 2nd Quarter 20150030014002244,147.50 244,148 3rd Quarter 20150030017725244,147.50 244,148 4th Quarter 20150030017726244,147.50 244,148 2nd Quarter 20160030025949201,349.29 201,349 2nd Quarter 20160030026160141,364.29 141,364 3rd Quarter 2016003002760959,985.00 59,985 4th Quarter 2016 1st Quarter 2017 Page 27 of 29 23)1123ConfidentialPass Through Costs: (a) CO#2: Twenty percent (20%) of the average estimated expenses as set forth in the Expenses Estimate (exclusive of funds forinvestigator grants), totaling $[****], will be due and payable upon execution of this Agreement. Prepayment for Out of Pocket Expenses (to be drawn down once paid andreplenished once 75% depleted). This process to continue until the end of the study. (b) CO#3: Twenty percent (20%) of the average estimated expenses as set forth in the Expenses Estimate (exclusive of funds forinvestigator grants), totaling $[****], will be due and payable upon execution of this Agreement. Prepayment for Out of Pocket Expenses (to be drawn down once paid andreplenished once 75% depleted). This process to continue until the end of the study. (c) CO#4: This is a one-time payment of $[****] (exclusive of funds for investigator grants), that will be due and payable upon execution of this Agreement. (d) CO#5: This is a one-time payment of $[****] (exclusive of funds for investigator grants), that will be due and payable upon execution of this Agreement. (e) CO#6: This is a quarterly payment of $[****][****]for (4) Quarters beginning with 1 payment invoiced on or after [****]. First payment invoiced on [****]. (f) CO#6.1: This is a quarterly payment of $[****]for (3) Quarters beginning with 1 payment invoiced on or after [****]or upon execution of this Agreement if the executed date is later than[****](f) CO#7: This is a one-time payment of $[****](exclusive of funds for investigator grants), that will be due and payable upon execution of this Agreement. (g) Actual pass-through expenses, as provided in the expenses estimate, will be billed as incurred by inVentiv Health Clinical (g) Any unused funds will be returned within ninety ([****)) days from the date of the final reconciliation Investigator Grants: (a) Twenty percent (20%) of the estimated total of the grant payments of the study, totaling $[****], will be invoiced upon commencement of services. Prepayment for Investigator Grants (to be drawn down once paid and replenished once 75%depleted). This process to continue until the end of the study. (b) inVentiv Health Clinical will submit invoices in advance for estimated amounts to be paid to investigators during the next quarter toensure that adequate funds are available to pay investigator grants Page 28 of 29 ststConfidential(c) inVentiv Health Clinical will not make payments to investigators without having sufficient funds available in advance. (d) Any unused funds will be returned within ninety (90) days from the date of the final reconciliation 4. Payment Conditions: (a) For all Services, pass through expenses and investigator grants invoiced, payments are due net thirty (30) days from invoice date as setforth in Terms, Item 2 of the Clinical Services Agreement. In the event of a dispute, all undisputed portions of the invoice(s) are due within theabove stated terms (b) Payments shall be made in the currency identified above and shall be made free of any applicable local withholding taxes, charges orremittance fees. Invoices will be inclusive of applicable taxes as determined by local laws and regulations (c) inVentiv Health Clinical reserves the right to charge interest against any unpaid overdue balance at the rate of one and a half percent(1.5%) per month (d) All services and pass-through payments should be sent via wire or ACHPage 29 of 29Exhibit 4.24 STRICTLY CONFIDENTIAL - EXECUTION VERSIONTHE SYMBOL "[****]" DENOTES PLACES WHERE PORTIONS OF THIS DOCUMENTHAVE BEEN OMIITTED PURSUANT TO A REQUEST FOR CONFIDENTIALTREATMENT. SUCH MATERIAL HAS BEEN FILED SEPARATELY WITH THESECURITIES AND EXCHANGE COMMISSIONEXCLUSIVE COMMERCIALIZATION AGREEMENTTHIS EXCLUSIVE COMMERCIALIZATION AGREEMENT (the “Agreement”) is madeand entered into as of December 30, 2016 (the “Effective Date”), by and between CONCORDIAPHARMACEUTICALS INC., a société à responsabilité limitée (private limited liability company) dulycontinued and validly existing under the laws of the Grand-Duchy of Luxembourg, having its registeredoffice at 8-10 Avenue de la Gare – L-1610 Luxembourg, Grand-Duchy of Luxembourg, and registeredwith the Registre de commerce et des sociétés, Luxembourg (register of trade and companies) undernumber B 200 344, by way of its Barbados branch, carrying on business at 5 Canewood Business Centre,St. Michael, Barbados, BB 11005 (“Concordia”) and REDHILL BIOPHARMA LTD., an Israelicompany, having a place of business at 21 Ha'arba'a Street, Tel-Aviv, Israel (“RedHill”). RedHill andConcordia each may be referred to herein individually as a “Party,” or collectively as the “Parties”.WHEREAS, Concordia owns, develops, markets and manufactures Donnatal® and wishes toappoint RedHill, and RedHill wishes to accept such appointment, as the exclusive Promoter of the Productfor the Field of Use in the Territory (as those terms are defined below); NOW THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:1. DEFINITIONSFor purposes of this Agreement, the following terms shall have the following meanings:1.1 “Act” means the Federal Food, Drug and Cosmetic Act, as amended from time to time, and therules, regulations, guidelines and requirements of the FDA as may be in effect from time to time.1.2 “Affiliate” of a person means any other person that, directly or indirectly, through one or moreintermediaries, controls, is controlled by, or is under common control with such first person. For purposesof this definition only, “control” and, with correlative meanings, the terms “controlled by” and “undercommon control with” will mean the possession, directly or indirectly, of the power to direct themanagement or policies of an entity, whether through the ownership of fifty percent or more of the votingsecurities or other ownership interest of a business entity (or, with respect to a limited partnership or STRICTLY CONFIDENTIAL other similar entity, its general partner or controlling entity) of the other organization or entity or by contractrelating to voting rights or corporate governance, or otherwise. 1.3 “Applicable Laws” means all federal, state and local laws, and the rules, regulations, guidance,guidelines and requirements of Governmental Authorities (as hereinafter defined) in effect from time totime, including those relating to the manufacture, marketing, promotion (including, but not limited to theTelephone Consumer Protection Act), distribution (including storage, handling and transportation) and saleof the Product in the Territory including the Act, the FDA Guidance for Industry – Supported Scientificand Educational Activities, “fraud and abuse”, anti-kickback, consumer protection and false claims statutesand regulations.1.4 “Applicable Percentage” means [****] percent ([****]%). Notwithstanding the foregoing, theApplicable Percentage for [****] shall, in all cases, decrease [****] percent ([****]%) to [****]([****]%) at such time when the [****].1.5 Bankruptcy Event” means a company: (i) becomes insolvent or admits its inability to pay itsdebts generally as they become due; (ii) becomes subject, voluntarily or involuntarily, to any proceedingunder any domestic or foreign bankruptcy or insolvency law, which is not fully stayed within [****] or isnot dismissed or vacated within [****] after filing; (iii) is dissolved or liquidated or takes any corporateaction for such purpose; (iv) makes a general assignment for the benefit of creditors; or has a receiver,trustee, custodian or similar agent appointed by order of any court of competent jurisdiction to take chargeof or sell any material portion of its property or business.1.6 [****]. 1.7 “Business Day” means a day that is not a Saturday or Sunday or any other day on which banks inNew York, NY, Barbados and/or Israel are authorized or required by law to be closed.1.8 “Calendar Year” means each one-year period beginning January 1 and ending on December 31. 1.9 “ Calendar Quarter” means each period of three consecutive months starting on January 1, April1, July 1 or October 1.1.10 Commercialization Fee” has the meaning set forth in Section 9.1 of this Agreement.1.11 “Commercialization Plan” means the Commercialization Plan to be annexed hereto as Annex A-1, as may be amended from time to time by the Parties. The Commercialization Plan shall include [****].1.12 “Detail” means any in-person sales presentation of the Product to physicians in a manner that is incompliance with Applicable Laws and customary in the industry for promoting a prescriptionpharmaceutical product. When used as a verb, “Detail” shall mean to engage in a Detail, also known as“Detailing”.1.13 “Excess Units Sold” in any period means: [****].2 ststststststSTRICTLY CONFIDENTIAL 1.14 “FDA” means the United States Department of Health Food and Drug Administration.1.15 “Field of Use” means all labeled indications for the Product.1.16 “Governmental Authorities” has the meaning set forth in Section 2.3 of this Agreement.1.17 “Net Sales Price” shall mean, with respect to the Product, [****].1.18 “PIRs” means, collectively, Product Labels and Inserts and Promotional Materials.1.19 “Product” means Donnatal® (phenobarbital and belladonna alkaloids) in all formulations, includingthe currently available bottles of 100 and 1,000 tablets and 4oz and one pint bottles of elixir, and/or anyother additional product(s) determined by the Parties to be subject to this Agreement following theEffective Date. Any reference to “Product” shall mean and be deemed to refer to each Product subject tothis Agreement at any time.1.20 “Product Copyright” shall mean all copyrightable subject matter included in the PIRs and theProduct training programs and materials developed and produced in accordance with this Agreement,whether or not such copyright has been registered and whether or not such materials have been published.1.21 “Product Label and Insert” means (a) all labels and other written, printed or graphic matter affixedto any container, packaging or wrapper utilized with the Product or (b) any written material physicallyaccompanying the Product, including Product package inserts. 1.22 “Product Trademarks” means the (a) Trademark “Donnatal” and the registrations thereof, (b) anyother Trademarks relating to the Product and the registrations thereof, (c) any pending or future Trademarkregistration applications relating to the Product, (d) any unregistered Trademark rights relating solely to theProduct as may exist through use prior to or as of the date hereof, (e) any current or future modifications orvariants of any of the foregoing Trademarks, and (f) any future Trademarks adopted by Concordia for usesolely in connection with the Product, in each case excluding the Concordia Trademark and tradename.1.23 “Promotion” and “Promotional Activities” means those activities conducted in compliance withApplicable Laws and customary in the industry by a pharmaceutical company’s sales force to implementmarketing plans and strategies aimed at encouraging the use of a prescription pharmaceutical product,including Detailing. When used as a verb, “Promote” or “Promoting” means engagement in such activities.When used as a noun, “Promoter” means a person or entity engaged in such activities. 1.24 “Promotional Materials” has the meaning set forth in Section 3.3 of this Agreement.1.25 “Regulatory Approval” means the obtaining of all necessary regulatory approvals (including theobtainment of pricing and reimbursement approval) required from all applicable Regulatory Authorities inthe Territory in order to commercially sell or market3 STRICTLY CONFIDENTIAL the Product for human consumption in such Territory, and satisfaction of any related applicable regulatoryand notification requirements (if any).1.26 “Regulatory Authority” means any applicable Governmental Authority regulating or otherwiseexercising authority with respect to the manufacture, development and commercialization of the Product inthe Territory.1.27 “Sample” means a standard sample unit of Product consistent with industry practices, subject to theprovisions of Section 3.6.1.28 “Tax” means, except as otherwise addressed herein, all federal, state, local, foreign and otherincome, gross receipts, sales, use, value added, production ad valorem, transfer, franchise, registration,profits, license, lease, service, service use, withholding, payroll, employment, unemployment, estimated,excise, severance, environmental, stamp, occupation, premium, property (real or personal), real propertygains, or windfall profits, together with any interest, additions or penalties with respect thereto and anyinterest in respect of such interest, additions or penalties determined or assessed by a GovernmentalAuthority.1.29 “Term” shall be as defined in Section 19.1.1.30 “Territory” shall mean the geographical territories [****] within the United States as set out in theCommercialization Plan.1.31 “Third Party(ies)” means any party other than Concordia, RedHill and their respective Affiliates.1.32 “Trademarks” means any trademark, servicemark, trade dress, brand mark, certification marks,internet domain names, trade name, brand name, corporate name, logo, business symbol, and other indiciaof source, whether or not registered, and all registrations and applications therefor including all extensions,modifications, divisions and renewals of the foregoing.1.33 “Unit” means a base unit of measure such as tablet, milliliter, or other individual dosage of Product.1.34 Interpretation. As used in this Agreement, any reference to gender shall include all genders andany reference to the plural shall include the singular, and the singular shall include the plural. When areference is made in this Agreement to a section, such reference shall be to a section of this Agreement,unless otherwise clearly indicated to the contrary. Whenever the words “include,” “includes” or“including” are used in this Agreement they shall be deemed to be followed by the words “withoutlimitation.” The words “hereof,” “herein” and “herewith” and words of similar import shall, unlessotherwise stated, be construed to refer to in this Agreement as a whole and not to any particular provisionof this Agreement, and annex, article, section, paragraph, exhibit, annex and schedule references arereferences to the annex, articles, sections, paragraphs, exhibits, annexes, and schedules of this Agreement,unless otherwise specified. The captions contained in this Agreement are for convenience only and shallnot be deemed a part hereof or affect the interpretation or construction of any provision hereof. 4 STRICTLY CONFIDENTIAL 2. APPOINTMENT AND GRANT OF RIGHTS2.1 Appointment; Grant of Rights. Subject to the terms and conditions hereinafter set forth,Concordia hereby appoints RedHill, together with its Affiliates, as the exclusive (including as toConcordia) Promoter of, and grants to RedHill and its Affiliates, the exclusive (including as to Concordia)right to Promote and commercialize the Product for the Field of Use in the Territory. To the extent that anAffiliate of RedHill performs any of the responsibilities and obligations of RedHill hereunder, RedHill shallremain liable for such performance as if RedHill performed the responsibilities and obligations itself subjectto the terms and conditions set forth in this Agreement.2.2 Limitations on Grant of Other Rights. Concordia shall not permit or authorize any Third Party tomarket, commercialize or otherwise Promote the Product in the Territory. The foregoing notwithstanding,Concordia or its Affiliates may: [****].2.3 Governmental Authorities. As between the Parties, all regulatory matters regarding the Product,including without limitation, all filings in connection therewith, shall be the obligation and responsibilitysolely of [****], subject to the participation by [****] as requested by the [****].[****] shall not withoutthe consent of [****] or unless so required by Applicable Laws (and then only pursuant to the terms of thisSection 2.3), correspond or communicate with any applicable governmental and Regulatory Authorities(including the FDA) (collectively, “Governmental Authorities”), whether within the Territory orotherwise, concerning the Product or otherwise take any action concerning any authorization or permissionunder which the Products are sold or any application for the same. Furthermore, [****] shall, immediatelyupon receipt of any communication from any Governmental Authority relating to the Product, forward acopy or description of the same to [****] and respond to all inquiries by [****] relating thereto. If [****] isadvised by its counsel that it must communicate with any Governmental Authority, then [****] shall soadvise [****] immediately and, unless prohibited by Applicable Laws, provide [****] in advance with acopy of any proposed written communication with any Governmental Authority and comply with any andall reasonable direction of [****] and the [****] concerning any meeting or written or oral communicationwith any Governmental Authority. Notwithstanding the foregoing, [****] shall promptly provide [****]with copies of all communications received from any Governmental Authority concerning the Product andshall promptly submit to [****] copies of all communications and filings concerning the Product made toany Governmental Authority during the Term.2.4 Additional Products. The Parties shall discuss in good faith the addition of other existing or futureproducts of Concordia to be included in the definition of “Product” under this Agreement.3. COMMERCIALIZATION PLAN; PROMOTIONAL ACTIVITIES3.1 Commercialization Plan. The Parties have developed the initial outline of a commercializationplan annexed hereto as Annex A (the “Initial Commercialization Outline”). [****]. 5 STRICTLY CONFIDENTIAL 3.2 Promotional Activities. During the Term of the Agreement, RedHill accepts the appointment inSection 2.1 and shall be responsible at all times during the Term for the Promotion and commercializationof the Product for the Field of Use in the Territory and shall use its commercially reasonable efforts toPromote the Products for the Field of Use in the Territory. RedHill shall recruit and deploy salesprofessionals in the Territory in accordance with the Commercialization Plan. RedHill shall not beprohibited from undertaking Promotional Activities with respect to the Product that are in excess of thosefor which RedHill is responsible under the then current Commercialization Plan, provided that such excessPromotional Activities are consistent with the Commercialization Plan, are in compliance with ApplicableLaws and prior notice of such excess Promotional Activities is provided to Concordia. In implementing theCommercialization Plan, Promoting the Product in the Territory and otherwise exercising its rights andfulfilling its obligations under this Agreement, [****].3.3 Promotional Materials. Concordia shall, at its own expense, provide RedHill in a timely mannerwith the necessary quantities of electronic and physical advertising, promotional, educational, training andcommunication materials for marketing, advertising and Promotion of the Product to Third Parties(“Promotional Materials”) that are consistent with the then current Commercialization Plan and that areconsistent with any such materials provided to Concordia sales personnel. Concordia shall own all rights,including copyrights in such Promotional Materials. Concordia shall ensure that all Promotional Materialsare in strict compliance with all Applicable Laws. The Parties may mutually agree on the transfer toRedHill of responsibilities related to Promotional Materials.3.4 Statements. Each Party shall make, and shall permit its representatives to make, only suchstatements and claims regarding the Product, including as to efficacy and safety, as are consistent with thePIRs. Without limitation to the foregoing, each Party shall not, and shall not permit its representatives, tomake any untrue or misleading statements or comments about the Product, and/or take any action thatjeopardizes or could reasonably be expected to jeopardize the goodwill or reputation of the other Party orits products, including the Product.3.5 Training. Concordia shall train RedHill’s sales managers and trainers to assist RedHill in thefulfillment of its obligations under this Agreement. Such training provided by Concordia shall comply withall Applicable Laws. In connection therewith, Concordia shall provide such trainers and lecturers asRedHill may deem reasonably necessary. RedHill shall have the right to review and comment on trainingmaterials from medical, legal and regulatory perspectives. Concordia shall, in addition to theaforementioned training of RedHill’s sales managers and trainers, designate and make available duringregular business hours at least one (1) individual to respond to inquiries from RedHill's sales managers andtrainers. Concordia shall provide RedHill with such training materials as is reasonably required toadequately train RedHill’s sales managers and trainers to Promote the Product and in such quantities asRedHill shall reasonably require and request.6 STRICTLY CONFIDENTIAL 3.6 Samples. Concordia shall initially supply RedHill with types and quantities of Samples of theProduct consistent with its supply of Samples to representatives in the Territory prior to the Effective Dateand in territories other than the Territory. Thereafter, Concordia shall supply Samples to RedHill inaccordance with the Commercialization Plan. RedHill shall store, secure, handle, transport, distribute,destroy and account for Samples in accordance with the Commercialization Plan and with ApplicableLaws.3.7 Transparency Reporting/Compliance.3.7.1 RedHill shall provide Concordia or its designee with the following information in amutually acceptable format on a monthly basis to enable Concordia to comply with federal and stateaggregate spend reporting obligations: [****].3.7.2 RedHill shall provide Concordia or its designee with the following information in amutually acceptable format on a monthly basis to enable Concordia to comply with the Prescription DrugMarketing Act of 1987 and applicable state accountability obligations: [****]. 3.8 Neither Party shall be required to perform any obligation under this Agreement or theCommercialization Plan, or use any Promotional Materials or otherwise engage in any activity, to the extentthat such Party believes, in its reasonable judgment and in good faith, that such obligation, use ofPromotional Materials or other activity: (i) violates any Applicable Law; (ii) violates a written corporatepolicy of such Party; or (iii) would have a material adverse effect on the business, assets, properties,liabilities (actual or contingent), operations, condition (financial or otherwise) or prospects, of such Party.Each Party shall promptly notify the other Party if and when it formulates such a belief and the Parties shalldiscuss, in good faith, how best to alter the relevant obligation, Promotional Material or other activity sothat it does not have the effect described in item (i), (ii) or (iii) above.4. Trademark License.4.1 Concordia hereby grants RedHill the royalty-free right to use the Product Trademarks and ProductCopyrights in the Territory solely in connection with the Promotion of the Product, subject to theprovisions of this Agreement. RedHill shall, subject to relevant laws and regulations, market the Productthroughout the Territory under the Product Trademarks.4.2 Whenever RedHill uses the Trademarks in advertising or in any other manner in connection withthe Product, RedHill shall, subject to relevant laws and regulations, clearly indicate Concordia's ownershipof the Trademarks. When using the Trademarks under this Agreement, RedHill undertakes to comply withall laws and regulations pertaining to trademarks in force at any time in the Territory. RedHill shall not atany time do, cause to be done, or permit any act or thing inconsistent with, contesting or in any wayimpairing such ownership. RedHill agrees that all use of the Trademarks shall inure to the benefit of and beon behalf of Concordia. RedHill acknowledges that nothing in this Agreement shall give RedHill any right,title or interest in or to the Product Trademarks or Concordia7 STRICTLY CONFIDENTIAL Trademarks other than the right to use the Product Trademarks in accordance with Section 4.1 hereof.4.3 RedHill shall, to the extent permitted by Applicable Law, ensure that the Product Trademarksappear in marketing materials, in such manner as is reasonably determined by the Parties. 4.4 RedHill shall not use any Trademark other than the Product Trademarks to identify the Product inconnection with its activities under this Agreement.5. JOINT COMMERCIALIZATION COMMITTEE5.1 Within [****] following the Effective Date, the Parties shall establish a joint commercializationcommittee (the “JCC”) comprised of up to [****] with up to [****] being appointed by Concordia, ofwhich [****] shall be the “Concordia Project Leader” based in Barbados, and up to [****] beingappointed by RedHill, of which one shall be the “RedHill Project Leader”. All such representatives shallbe individuals of suitable authority and seniority with significant and relevant experience and expertise.Each Party may remove any member appointed by it for any reason or no reason and appoint anothermember in his or her stead. Any appointment or removal shall be notified to the other Party in writing.5.2 The JCC shall be responsible for ensuring full cooperation between the Parties in implementing thisAgreement and for [****] . 5.3 The Concordia Project Leader and the RedHill Project Leader (collectively, the “ProjectLeaders”) shall facilitate the flow of information and otherwise promote communications and collaborationwithin and among the Parties, the JCC, and any other sub-committees or teams that the JCC may appoint orconstitute.5.4 The JCC shall hold meetings at such times and places as agreed between the members of the JCC,but in no event less frequently than following every [****] to examine the [****]. The JCC may conductmeetings in person or by teleconference or videoconference or other means. Meetings shall be chaired bythe [****] Project Leader in [****]. Each Party shall only be responsible for its own costs related to theJCC and meetings. The Project Leader conducting the meeting also will be responsible for taking anddistributing the minutes. At and between meetings of the JCC, each Party shall keep the other fully andregularly informed as to its progress with its respective tasks and obligations under the Agreement and shallmake themselves available to the other members of the JCC for communication purposes.5.5 At each JCC meeting, at least [****] appointed by RedHill and [****] based in [****] forConcordia present in person, by teleconference or videoconference or by other means shall constitute aquorum. Each Party shall have equal voting power, whether represented by one or two committeemembers, on all matters before the JCC and, unless specifically determined otherwise herein, with [****]having a final vote; provided, however, that in the case of a tie-vote on [****] issues as described inAnnex C hereto, such matter shall, at the request of either Party, be referred to a designated seniorexecutive8 STRICTLY CONFIDENTIAL of each Party for resolution. In the event that such senior executives are unable to reach agreement withinthirty (30) days of the date of referral, then the matter shall, upon written notice of either Party to the otherParty, be resolved by final, binding arbitration in accordance with Section 20.4. 5.6 Each Party shall be entitled to appoint up to [****] non-voting observers to the JCC. Furthermore,by mutual consent of the members appointed by both Parties, such consent not to be unreasonablywithheld, conditioned or delayed, either Party may invite other personnel to attend appropriate meetings ofthe JCC.5.7 The JCC may act without a meeting if prior to such action the JCC members agree regarding suchaction and a written consent thereto is signed by all members of the JCC.5.8 The JCC may amend or expand upon the foregoing procedures for its internal operations byunanimous written consent.5.9 The JCC shall not have any power to amend this Agreement or bind or incur liability on behalf ofeither Party hereto without such Party’s express prior written authorization, and shall have only suchpowers as are specifically delegated to them hereunder.5.10 Notwithstanding the regular meeting schedule of the JCC, a meeting of the JCC may be called byeither Party on ten (10) days written notice to the other, unless such notice is waived by the other Party. Inthe event of any meeting called pursuant to a notice under this Section 5.10, the Party calling the meetingshall provide with the notice an agenda for the meeting together with the information that such Partybelieves is relevant for the items to be discussed. Neither Party shall call more than [****] additionalmeetings per Calendar Year for the JCC under this Section 5.10 without the other Party’s consent.5.11 The JCC shall, among its other authorities, have the authority to establish and appoint sub-committees, as the JCC deems necessary. All decisions of a subcommittee are subject to approval by theJCC. The JCC may prescribe rules of procedure for the foregoing subcommittees. In the event that anysuch other subcommittees fail to reach agreement on an issue within its respective area of oversight, thematter shall be referred to the JCC.5.12 Unless otherwise expressly stated, nothing contained in this Agreement may be deemed to makeany member of the JCC a partner, agent or legal representative of the other, or to create any fiduciaryrelationship for any purpose whatsoever. No member of the JCC shall have any authority to act for, or toassume any obligation or responsibility on behalf of, any other member of the JCC, or the other Party.6. SALE, MANUFACTURE AND SUPPLY OF PRODUCT6.1 During the Term, Concordia shall continue to be responsible for:6.1.1 Manufacturing, packaging, labeling, warehousing and distributing the Product in theTerritory.6.1.2 Accepting orders, invoicing customers, compliance with reimbursement systems, andcollecting receivables.9 STRICTLY CONFIDENTIAL 6.1.3 Preparing training materials, Territory sales reports and Promotional Materials for RedHill'sfield sales force.6.1.4 Providing customer service activities, pharmacovigilance services, medical informationservices and regulatory filings and activities.6.2 [****].6.3 All terms of sale, including policies concerning pricing, credit terms, cash discounts and returns andallowances shall be set by Concordia consistent with its normal internal selling and past practices; providedthat [****]. Without derogating from the foregoing, Concordia will not, without RedHill's prior writtenconsent, [****].6.4 RedHill shall not [****]. All [****] for the Product shall be received and executed by Concordia orits designee. If RedHill receives [****], it shall promptly refer such to Concordia.6.5 Concordia shall supply the Product during the Term in sufficient quantities to timely satisfy ordersfor the Product in the Territory. Concordia shall maintain reasonable inventory levels of the Product inorder to ensure its ability to fulfill its obligations hereunder. All orders for Product shall be subject toacceptance by Concordia, which acceptance shall not be unreasonably withheld. [****]. Any such requestreceived by RedHill shall be forwarded by RedHill to Concordia for consideration, and in Concordia’s solediscretion, processing.6.6 In the event that Concordia fails to supply the Product as required pursuant to this Agreement forany reason or no reason, which failure results in lost sales in the Territory, the Parties shall meet andattempt to negotiate a mutually agreeable and commercially reasonable solution. If the Parties cannot reachsuch an agreement within a reasonable period, the issue will be dealt with as contemplated in respect ofmajor issues under Section 5.5 of this Agreement.6.7 Concordia shall have the sole responsibility and right to accept any returned Product in accordancewith Concordia’s returns policy. RedHill shall not solicit the return of any Product and shall not receive oraccept any returned Product. In the event that any such Product is inadvertently returned to RedHill,RedHill shall promptly ship such Product to Concordia, along with any documentation or explanationRedHill receives regarding the reason for the return, at Concordia’s cost and expense.6.8 Concordia shall be responsible for all aspects of [****] in connection with the Product, including[****]. Concordia shall communicate with RedHill sales management on a Calendar Quarterly basisregarding such [****] activities.6.9 For the avoidance of doubt, and unless otherwise set forth herein, each Party shall be responsiblefor all costs and expenses of its performance under this Agreement. 6.10 If there is a change in market conditions, which materially affects the economics of this Agreement,the Parties will discuss modifications to this Agreement in good faith to address such changed marketconditions. [****].10 STRICTLY CONFIDENTIAL 7. INFORMATION; REPORTING; RECALLS7.1 Information. Each Party shall promptly notify the other Party of receipt of information from aGovernmental Authority that: (i) raises any material concern regarding the safety or efficacy of the Product,or would affect the Product Label and Insert, Promotion and/or sale of the Product; (ii) indicates a potentialmaterial liability for either Party relating to the Product; (iii) is reasonably likely to lead to a recall or marketwithdrawal of the Product; or (iv) is reasonably likely to impact the manner in which a Party satisfies itsobligations hereunder. Concordia shall promptly provide RedHill with copies of all materialcommunications received from any Governmental Authority concerning the Product.7.2 Adverse Experience Reporting. RedHill shall give Concordia notice of any Product complaint itreceives, including but not limited to any adverse drug experience (as defined in 21 CFR 314.80 or anysuccessor provision thereto) of which RedHill obtains information in accordance with the followingprocedure:7.2.1 Information concerning any adverse drug experience associated with the Product shall bereported to Concordia’s call center which can be reached at medicalinformation@concordiarx.com or (877)370-1142 within one (1) Business Day after initial receipt of such information;7.2.2 RedHill's report to Concordia shall contain: (i) the date the report was received by RedHill;(ii) the name of the reporter; (iii) the address and telephone number of the reporter; and (iv) an indication ofthe adverse drug experience; and7.2.3 All other Product complaints not covered by 7.2.1 above shall be reported to Concordia inwriting within [****] Business Days after initial receipt of such information.7.3 Concordia shall be responsible for all activities relating to [****]within the Territory, including[****], preparation and filing of [****] reports, conducting [****],[****]. Without derogating from theforegoing, Concordia shall investigate all [****] and [****] associated with the Product, including thosereported to Concordia by RedHill, and, as appropriate, report such information to [****]. In addition,Concordia shall provide RedHill with a summary of all [****] and [****] received by Concordia, duringeach Calendar Quarter and all material comments [****] with respect thereto within thirty (30) days afterthe end of such Calendar Quarter; provided, however, that Concordia shall provide RedHill prompt writtennotice of any [****] experienced in response to the use of the Product.7.4 Product Recall and Withdrawal. Concordia shall have the sole responsibility with respect to anyrecall or withdrawal of the Product, and shall bear all costs and expenses relating thereto, except to theextent such recall or withdrawal is as a result of a breach by RedHill of the terms of this Agreement, or bythe gross negligence, willful misconduct, bad faith or fraud of Redhill. At Concordia’s request, where theProduct has been recalled or withdrawn from the market, RedHill shall, as soon as reasonably practical andin accordance with Applicable Law, assist Concordia in obtaining the return of any Product11 STRICTLY CONFIDENTIAL not in the direct possession or control of Concordia by notifying physicians who have received Samplesfrom RedHill and by returning to Concordia Samples still in the possession of RedHill, and Concordia shallreimburse RedHill for all documented costs and expenses incurred in taking such actions.7.5 Product Medical Inquiries. Concordia shall have the exclusive right and obligation, consistentwith Applicable Law, to [****] for information about the Product made by any [****] or any other [****]to RedHill's representatives that warrant a response beyond the information included in the PIRs (all suchquestions or requests being referred to as “Product Medical Inquiries”). RedHill shall direct itsrepresentatives to direct all Product Medical Inquiries to Concordia’s call center which can be reachedat medicalinformation@concordiarx.com or (877) 370-1142.7.6 Third Party Actions and Communications. Concordia shall be solely responsible for: (i) takingall actions and conducting all communication with all Third Parties in respect of the Product (other thanPromotional Activities performed by RedHill in accordance with the terms hereof), including responding toall Product quality complaints in respect thereof, including complaints related to tampering orcontamination; and (ii) investigating all Product quality complaints, adverse events, and field alerts inrespect of the Product. Moreover, Concordia shall timely, and in good faith, respond to all Productcomplaints and investigate any such Product quality complaints, adverse events, and field alerts in respectof the Product.8. REPORTS8.1 Reports. On a [****] basis, within five (5) days following the end of each of [****], Concordiashall deliver to RedHill a report in the English language with respect to the relevant [****] (each, a“[****]”) showing: (i) [****]. 8.2 Final Report and Payment. Upon termination of this Agreement for any reason, Concordia shalldeliver a final report, in the English language and the associated [****] after the end of the then currentCalendar Quarter. 9. FINANCIAL PROVISIONS 9.1 Commercialization Fee Payments. In respect of each [****], or part thereof, during the Term,[****] shall pay [****] an amount equal to the product of: (i) [****] multiplied by (ii) [****] multiplied by(iii) [****] (the “Commercialization Fee”). To the extent any measuring period is less than a [****], theCommercialization Fee shall be based on the [****].9.2 Quarterly Reports and Payments. All payments due pursuant to the provisions of this Section 9shall be due and payable [****] on a [****] basis within [****] following the date for submission of therelevant [****], all against the receipt of an appropriate invoice from [****] for same. [****].9.3 Payment Method. Any amounts due to [****] under this Agreement will be paid in US Dollars,by wire transfer in immediately available funds to an account designated in writing in an appropriateinvoice at least [****]in advance by [****], as the case may be. 12 STRICTLY CONFIDENTIAL 9.4 Currency; Foreign Payments. If any currency conversion will be required in connection withthe calculation of any payment hereunder, such conversion will be made by using the average exchangerate for the purchase of the relevant currency as published in The Wall Street Journal, Eastern Edition, onthe date of the payment.9.5 Taxes. Any Tax in respect of the payments due hereunder shall be the sole responsibility of andpaid by [****]. Notwithstanding the foregoing, [****] shall be responsible for and shall pay to [****] anysales, value-added or similar tax determined by a U.S. Governmental Authority (“Sales Tax”) in respect ofthe Commercialization Fee. Unless required by Applicable Law, any Sales Tax shall be paid directly by[****]. To the extent that [****] has an obligation under Applicable Law to collect and remit any suchSales Tax (in which case [****] shall invoice [****] for such amount), any penalties and interestdetermined or assessed by a Governmental Authority for the failure or late withholding, collection orremittance of such Sales Tax by [****] is the sole responsibility of [****]. For greater certainty, except forSales Tax and Tax in respect of the Commercialization Fee, [****] will not be responsible for collection orpayment of any Tax in connection with [****] receipts or earnings arising from [****] interest in theProduct. 10. RECORDS RETENTION AND AUDIT10.1 Record Retention. Throughout the Term and for a term of [****]thereafter, Concordia willmaintain (and will ensure that its Affiliates maintain) complete and accurate books, records and accountsthat fairly reflect sales of the Product in the Territory, in sufficient detail to confirm the accuracy ofQuarterly Reports and Commercialization Fee payments made hereunder, which books, records andaccounts will be retained [****] after the end of the period to which such books, records and accountspertain. 10.2 Audit. RedHill will have the right to have an independent certified public accounting firm ofnationally recognized standing, reasonably acceptable to Concordia and who agrees to be bound by acustomary undertaking of confidentiality, have access during Concordia's normal business hours, and uponreasonable prior written notice, to Concordia’s records as may be reasonably necessary to verify theaccuracy of Concordia's Quarterly Reports in respect of any period; provided, however, that except as setforth in Section 10.3, RedHill will not have the right to conduct more [****] in any Calendar Year. Theaccounting firm shall not in any way be compensated (in whole or in part) contingent on the outcome of theaudit. Any such audit shall be completed within a reasonable time. The costs of the audit are theresponsibility of RedHill provided that in the event that there is a shortfall of more than [****] in thepayment due, the audit costs and all related travel costs will be covered by Concordia within [****]ofbilling.10.3 Payment of Additional Amounts. If the audit report shows that additional payments are owed by[****] under this Agreement, [****] shall make such additional payments plus interest at the rateprescribed in Section 10.4 hereof within thirty ([****] after [****] demand. [****] shall have the right toconduct additional follow-up audits in the same Calendar Year to ensure that there are no further shortfalls. 13 STRICTLY CONFIDENTIAL 10.4 Interest. All late payments under this Agreement shall bear interest from the date due until paid ata rate equal to [****] per month as of the date that such payment was due, or, if lower, the highest ratepermitted under Applicable Law, calculated on the number of days such payment is delinquent.10.5 Confidentiality. RedHill will treat all information subject to review under this Section 10 inaccordance with the confidentiality provisions of Sections 15 and 16 below.11. REPRESENTATIONS AND WARRANTIES11.1 By the Parties. Each Party hereby represents, warrants and covenants to the other Parties as ofthe Effective Date as follows:11.1.1 Such Party (a) has the power and authority and the legal right to enter into this Agreementand perform its obligations hereunder, and (b) has taken all necessary action on its part required toauthorize the execution and delivery of this Agreement and the performance of its obligations hereunder.This Agreement has been duly executed and delivered on behalf of such Party and constitutes a legal, validand binding obligation of such Party and is enforceable against it in accordance with its terms subject to theeffects of bankruptcy, insolvency or other laws of general application affecting the enforcement of creditorrights and judicial principles affecting the availability of specific performance and general principles ofequity, whether enforceability is considered a proceeding at law or equity.11.1.2 Such Party has obtained all necessary consents, approvals and authorizations of allGovernmental Authorities and other parties required to be obtained by such Party in connection with theexecution and delivery of this Agreement and the performance of its obligations hereunder, except to theextent that the failure to have such consents, approvals and authorizations would not materially impair ordelay the ability of the applicable Party to perform its obligations hereunder.11.1.3 The execution and delivery of this Agreement and the performance of such Party’sobligations hereunder (a) do not conflict with or violate any requirement of Applicable Law or anyprovision of the articles of incorporation, bylaws or any similar instrument of such Party, as applicable, inany material way and (b) do not conflict with, violate, or breach or constitute a default or require anyconsent not already obtained under, any contractual obligation or court or administrative order by whichsuch Party is bound, except in the case of (b), such matters that would not reasonably be expected tomaterially impair or delay the ability of the applicable Party to perform its obligations hereunder.11.2 By Concordia. Concordia hereby further represents, warrants, and covenants to RedHill asfollows:11.2.1 It has the sole legal and/or beneficial title to and ownership of the Product, all as isnecessary to fulfill its obligations under this Agreement and to grant all rights granted to RedHill pursuantto this Agreement. Other than as disclosed in Concordia’s public filings on the System for ElectronicDocument Analysis and Retrieval (“SEDAR”), Concordia is not aware of any FDA communication oraction suggesting its ability to14 STRICTLY CONFIDENTIAL market or sell the Product in the Territory can or will be diminished or compromised or eliminated.11.2.2 Other than as set forth in Annex B, it has not and during the Term shall not grant any newrights to Third Parties, or renew any existing rights that expire or terminate in the Field of Use in theTerritory (and those [****] territories occupied by RedHill or stated in the Commercialization Plan as beingassigned to RedHill) that conflict with the rights granted to RedHill hereunder.11.2.3 The manufacture, use and sale of the Product by Concordia, and the exercise by RedHillof its rights granted under this Agreement, do not, and during the Term, will not infringe or otherwiseviolate any patent, trademark, copyright, trade secret or other intellectual property right of a Third Party inany material respect.11.2.4 It has and shall maintain throughout the Term, all Regulatory Approvals necessary for theperformance of its obligations hereunder.11.2.5 Product: (i) shall be manufactured in conformance with all applicable federal, state andlocal statutes, ordinances and regulations, (including the Act), as the same may be amended from time totime; (ii) at the time of shipment by Concordia shall not be adulterated or misbranded within the meaning ofthe Act; and (iii) at the time of shipment by Concordia shall not be a product which would violate in anymaterial respect any section of the Act if introduced into interstate commerce.11.2.6 It has not received any written notice from any Third Party asserting or alleging that anyresearch or development of the Product prior to the Effective Date infringed or misappropriated theintellectual property rights of such Third Party.11.2.7 There are no pending, and to Concordia’s knowledge, no threatened, adverse actions, suitsor proceedings against Concordia or its Affiliates involving the Product other than as disclosed inConcordia’s public filings on SEDAR.11.2.8 The Product Trademarks have been properly filed and registered with the U.S. Patent andTrademark Office and are valid and in full force and effect, and Concordia has the right to use and licensethe Product Trademarks, free and clear of any liens or encumbrances (other than such liens andencumbrances provided to Concordia’s and/or its Affiliates’ lenders).11.2.9 To Concordia’s knowledge, there are no pending legal suits or proceedings involving theProduct; and to there are no threatened legal suits or proceedings in the Territory involving the Productother than as disclosed in Concordia’s public filings on SEDAR.11.2.10 There are no current pending, or to Concordia’s knowledge, threatened in writing, materialproduct liability, warranty or other similar claims by any Third Party (whether based in contract or tort andwhether relating to personal injury, including death, property damage or economic loss) arising from themarketing or sale of the Product.11.2.11 It will not act in a manner that is intended to and has the effect of materially anddetrimentally affecting the operations, prospects, or reputation of RedHill.15 STRICTLY CONFIDENTIAL 11.3 By RedHill. RedHill hereby further represents, warrants, and covenants to Concordia that:11.3.1 RedHill will conduct any activities under this Agreement in compliance with allApplicable Laws.11.3.2 RedHill and any RedHill personnel performing RedHill's obligations hereunder will beprofessionally trained and duly qualified and have the experience and expertise to perform RedHill’sobligations hereunder in a manner commensurate with professional standards generally applicable in thisindustry.11.3.3 RedHill and any RedHill personnel have not been, and will not knowingly use in anycapacity in the performance of this Agreement, the services of any person or entity, currently or everdebarred under 21 U.S.C. § 335a or convicted of a felony for conduct relating to the regulation or handlingof any drug product.11.3.4 It shall notify Concordia promptly if, during the term of this Agreement, it becomes awarethat RedHill or any RedHill personnel comes under investigation by the FDA for debarment ordisqualification or is debarred or disqualified.11.3.5 It will not act in a manner that is intended to and has the effect of materially anddetrimentally affecting the operations, prospects, or reputation of Concordia.11.4 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHERPARTY MAKES ANY REPRESENTATIONS OR EXTENDS ANY WARRANTIES OF ANYKIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIESOF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.12. [****]; MUTUAL COLLABORATION12.1 Sale of Product. [****].12.2 Mutual Collaboration. Throughout the Term, the Parties shall discuss in good faith potentialcollaboration with respect to [****]. 13. LIMITATION OF LIABILITYEXCEPT IN THE CASE OF A FRAUD OR WILLFUL MISREPRESENTATION, BREACH OFAPPLICABLE LAWS, BREACH OF CONFIDENTIALITY, INTELLECTUAL PROPERTYINFRINGEMENT, PRODUCT LIABILITY, RECALL, CONTAMINATION OR EXTORTION ASWELL AS ANY CRIMINAL, CIVIL OR ADMINISTRATIVE PROCEEDING INVOLVING THEPRODUCT, NEITHER PARTY SHALL BE LIABLE TO THE OTHER OR ANY OF ITSAFFILIATES FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, SPECIAL, PUNITIVEOR EXEMPLARY DAMAGES (INCLUDING LOST PROFITS, BUSINESS OR GOODWILL)SUFFERED OR INCURRED BY SUCH OTHER PARTY OR ITS AFFILIATES, WHETHERBASED UPON A CLAIM OR ACTION OF CONTRACT,16 STRICTLY CONFIDENTIAL WARRANTY, NEGLIGENCE OR TORT, OR OTHERWISE, ARISING OUT OF THISAGREEMENT.14. Intellectual Property14.1 The Product. RedHill shall Promote the Product under the trademark “Donnatal”, or such otherProduct Trademark as Concordia may direct in writing. RedHill may include its name on PromotionalMaterials in coordination with Concordia.14.2 No Rights or License. Nothing in this Agreement shall give RedHill a license to any right, title orinterest in or to the Product, the Product Trademarks, Product Copyrights, or other intellectual property ofConcordia, its Affiliates or licensors related to any other property of Concordia, its Affiliates or licensors,except for the rights granted to RedHill in connection with Product sales under this Agreement as specifiedherein.14.3 Ownership of Intellectual Property Rights. 14.3.1 RedHill acknowledges and agrees that Concordia or its Affiliates, as the case may be, arethe owners of all rights, title and interest in and to the Product Trademarks and the Product Copyrights andall other intellectual property relating to the Product, including any form or embodiment thereof, and thegoodwill now and hereafter associated therewith.14.3.2 RedHill shall not, or knowingly cause another Person to, contest or dispute or otherwiseimpair or endanger the validity of, or the rights of Concordia, or any of its Affiliates, as the case may be, inand to, the Product Trademarks, the Product Copyrights, or, any other intellectual property rights relating tothe Product, any part thereof, or the registrations thereof.14.3.3 RedHill (upon written request of Concordia) shall assist Concordia in safeguarding its fullrights, title and interest in and to the Product Trademarks, Product Copyrights and all other intellectualproperty relating to the Product.14.3.4 RedHill shall not undertake any action to register or renew any of the Product Trademarks(or any Trademark similar thereto) or Product Copyrights. RedHill shall not use or adopt any Trademarkthat is confusingly similar to or a colorable imitation of, or that dilutes, any Product Trademark. 14.4 Enforcement14.4.1 Infringement Notice. If either Party determines that a Third Party is wrongfullymarketing, promoting or selling the Product or infringing any intellectual property of Concordia or itsAffiliates or licensors relating to the Product, including actual, potential or suspected wrongful marketing,promoting or selling of the Product or infringement, and that such activities could affect the exercise of therights granted under this Agreement by the other Party, it will notify the other Party in writing withoutundue delay.14.4.2 Enforcement. Concordia will have the sole, exclusive and first right, but not theobligation, to remove such wrongful marketing, promotion, selling, infringement17 STRICTLY CONFIDENTIAL and/or misappropriation and to control all litigation to remove such wrongful marketing, promotion, selling,infringement and/or misappropriation, all as it shall deem appropriate in its sole discretion, and to settle orcompromise any such possible infringement by taking such action as Concordia or its Affiliates maydetermine in their sole and absolute discretion; provided, however, that Concordia shall not settle any suchpotential infringement in a manner that materially adversely affects the rights granted to RedHill hereunder,except with RedHill's prior written consent (which consent shall not be unreasonably withheld). Concordiashall be solely responsible for all costs and expenses of such litigation. In the event Concordia does takeany action to remove such wrongful marketing, promotion, selling, infringement or misappropriationactivity, Concordia will keep RedHill informed of the progress of such action. If Concordia decides not totake any action to remove such wrongful marketing, promotion, selling, infringement or misappropriationactivity, it shall notify RedHill in writing and RedHill shall be entitled to do so at its own cost and expenseupon giving written notice to Concordia within [****] days of the date of Concordia's notice. In the eventRedHill does, at its discretion, undertake any action to remove such wrongful marketing, promotion,selling, infringement or misappropriation activity, RedHill will provide Concordia with copies of allrelevant documentation so that Concordia will be informed of the continuing action and may commentupon such documentation sufficiently in advance of any initial deadline for filing a response, provided,however, that if Concordia has not commented upon such documentation in a reasonable time for RedHillto sufficiently consider Concordia’s comments prior to a deadline, or RedHill must act to preserve theaction, RedHill will be free to act without consideration of Concordia’s comments, if any.14.4.3 Co-operation. The Parties will provide reasonable assistance to each other (at no chargeor expense, other than with respect to reasonable out-of-pocket expenses), including providing access torelevant documents and other evidence, making its employees available at reasonable business hours, andjoining the action to the extent necessary to allow the prosecuting Party to maintain the action.14.4.4 Recovery. Any amounts recovered in connection with or as a result of any actioncontemplated by Section 14.4.2, whether by settlement or judgment, will be used to reimburse the Partiesfor their reasonable documented costs and expenses in such action (which amounts will be allocated prorata in accordance with the respective costs and expenses if insufficient to cover the totality of suchexpenses), [****]. 14.5 Infringement of Third Party Rights. In the event that either Party is sued by a Third Partyalleging that the Promotion, manufacture, marketing, use or offer to sell of the Product in the Territoryinfringes upon any intellectual property rights of such Third Party, the Party being so sued shallimmediately give the other Party notice of same and the Parties shall thereafter proceed as provided inSection 17.15. CONFIDENTIALITY15.1 Disclosure and Use Restriction. The Parties agree that, during the Term and thereafter, eachParty will keep completely confidential and will not publish, submit for18 STRICTLY CONFIDENTIAL publication or otherwise disclose, and will not use for any purpose except for the purposes contemplated bythis Agreement, any Confidential Information (as such term is defined below) received from the otherParty. This Article 15 replaces and supersedes the Confidentiality Agreement entered into by the Partiesdated [****].15.2 Confidential Information. “Confidential Information” shall mean all information, intellectualproperty and know-how and any tangible embodiments thereof provided by or on behalf of one Party toanother Party either in connection with the discussions and negotiations pertaining to this Agreement or inthe course of performing this Agreement, which may include data; knowledge; practices; processes; ideas;research plans; engineering designs and drawings; research data; manufacturing processes and techniques;scientific, manufacturing, marketing and business plans; and financial and personnel matters relating to thedisclosing Party or to its present or future products, sales, suppliers, customers, employees, investors orbusiness. Notwithstanding the foregoing, Confidential Information shall not include information that:(i)was already known to the receiving Party as evidenced by written records, other than under anobligation of confidentiality or non-use, at the time of disclosure to such receiving Party;(ii) was part of the public domain, at the time of its disclosure to such receiving Party;(iii)became part of the public domain, after its disclosure to such receiving Party through no fault ofthe receiving Party;(iv)was disclosed to such receiving Party, other than under an obligation of confidentiality or non-use, by a Third Party who had no obligation not to disclose such information or know-how toothers; or(v)was independently discovered or developed by such receiving Party, as evidenced by theirwritten records, without the use of Confidential Information belonging to the disclosing Partyand prior to any subsequent disclosure by the receiving Party.15.3 Authorized Disclosure. Notwithstanding the provisions of Section 15.1 above, a Party shall beentitled to disclose the Confidential Information of another Party hereto to the extent that such disclosure is:(i)made in response to a valid order of a court of competent jurisdiction; provided, however, thatsuch Party will first (to the extent practicably possible and permitted by such order) have givennotice to such other Party and given such other Party a reasonable opportunity to quash suchorder, at such Party’s sole cost and expense, and to obtain a protective order, at such Party’ssole cost and expense, requiring that the Confidential Information and documents that are thesubject of such order be held in confidence by such court or agency or, if disclosed, be usedonly for the purposes for which the order was issued; and provided further that if a disclosureorder is not quashed or a protective order19 STRICTLY CONFIDENTIAL is not obtained, the Confidential Information disclosed in response to such court orgovernmental order will be limited to that information which is legally required to be disclosedin response to such court or governmental order;(ii)otherwise required by Applicable Law or the rules of a stock exchange on which such Party orsuch Party’s parent company’s securities are listed or traded; provided, however, that thereceiving Party will provide the disclosing Party with notice of such disclosure in advancethereof to the extent practicably possible, and to the extent permitted seeks confidentialtreatment of the information disclosed and reasonably cooperates with any efforts of disclosingParty to seek confidential treatment of the information disclosed and discloses only that portionof the Confidential Information required;(iii)made by such Party, in connection with the performance of this Agreement and on a need toknow basis only in connection therewith, to Affiliates, directors, officers, employees,consultants, representatives or agents, each of whom prior to disclosure must be bound byobligations of confidentiality and non-use at least equivalent in scope to those set forth in thisAgreement; or(iv)made by such Party in the course of submitting financial accounts to relevant GovernmentalAuthorities as per local statutory requirements or to existing or potential acquirers; existing orpotential investment bankers; existing or potential investors, merger candidates, venture capitalor private equity firms or other financial institutions or investors for purposes of obtainingfinancing; or, bona fide strategic potential partners; each of whom prior to disclosure must bebound by obligations of confidentiality and non-use at least equivalent in scope to those setforth in this Agreement.16. PRESS RELEASESPress releases or other similar public communication by any Party relating to the terms of this Agreement(but not, for the avoidance of doubt, unless reference is made to any of the other Parties or the terms of thisAgreement, with respect to activities in exercise of its rights under this Agreement) will be approved inadvance by the other Party, which approval will not be unreasonably withheld, conditioned or delayed,except for those communications required by Applicable Law, regulation or securities exchange rules onwhich such Party or such Party’s parent company’s securities are listed or traded, disclosures of informationfor which consent has previously been obtained, and information of a similar nature to that which has beenpreviously disclosed publicly with respect to this Agreement, each of which will not require advanceapproval but will be provided to the other Party as soon as practicable after the release or communicationthereof. For the avoidance of doubt, the Parties may issue press releases regarding the fact that thisAgreement has been signed and the nature of the agreement so long as they do not describe the specificeconomic provisions hereof without approval from the other Party, unless required under Applicable Law,regulation or securities exchange rules on which such Party or such Party’s parent company’s securities arelisted or traded, as aforesaid.20 STRICTLY CONFIDENTIAL 17. INDEMNIFICATION17.1 Indemnification Concordia. Concordia will defend and hold RedHill, its respective Affiliates,and their respective directors, officers, employees and agents (“RedHill’s Indemnified Persons”)harmless, from and against any and all liability, damages, suits, investigations, claims, demands, actions,judgments, costs and expenses (including reasonable and documented attorneys’ fees and expenses)(“Losses”) to which the RedHill Indemnified Persons may become subject arising from any third partyclaim, demand, suit, action or proceeding to the extent arising out of or in connection with this Agreementor otherwise in connection with any actions taken by RedHill hereunder after the date of this Agreement;except that Concordia shall not be required to indemnify RedHill to the extent any Loss arises from oroccurs as a result of the: (i) relevant negligence, willful misconduct, bad faith or fraud on the part of a RedHill Indemnified Person; or (ii) breach by a RedHill Indemnified Person of any relevantrepresentations, warranties or covenants set forth in this Agreement. Without derogating from theforegoing, Concordia shall be responsible for all the costs, fees, expenses and control in connection withany litigation instituted by a Third Party relating to a claim or claims of infringement of intellectual propertyagainst either of the Parties, relating to or arising from the manufacturing, marketing, use, sale or offer tosell of the Product in the Territory and shall indemnify RedHill and its Indemnified Persons in respect of allLosses in connection therewith, subject to the foregoing clauses (i) and (ii). 17.2 Indemnification RedHill. RedHill will defend and hold Concordia, its respective Affiliates, andtheir respective directors, officers, employees and agents (“Concordia’s Indemnified Persons”, and,together with “RedHill Indemnified Persons”, “Indemnified Persons” ) harmless, from and against anyand all Losses to which the Concordia Indemnified Persons may become subject arising from any thirdparty claim, demand, suit, action or proceeding to the extent arising out of or in connection with thisAgreement or otherwise in connection with any actions taken by Concordia hereunder after the date of thisAgreement to the extent arising from or occurring as a result of or in connection with: (a) the negligence,willful misconduct, fraud or bad faith on the part of RedHill in performing any activity contemplated bythis Agreement; and/or (b) any breach by a RedHill Indemnified Person of any representations, warranties,or covenants set forth in this Agreement.17.3 Conditions to Indemnity. Each Party’s agreement to indemnify and hold the other harmless isconditioned upon the Indemnified Person: (i) providing written notice to the indemnifying Party of anyclaim, demand or action arising out of the indemnified activities within [****] days after the IndemnifiedPerson has knowledge of such claim, demand or action; (ii) permitting the indemnifying Party to assumefull responsibility to investigate, prepare for and defend against any such claim or demand; and (iii)assisting the indemnifying Party, at the indemnifying Party’s reasonable expense, in the investigation of,preparation of and defense of any such claim or demand. The indemnifying Party shall not compromise orsettle such claim or demand without the indemnified Party’s prior written consent, unless such settlementincludes as an unconditional term thereof the giving21 STRICTLY CONFIDENTIAL by the claimant or plaintiff to such indemnified Party a complete release from all liability in respect of suchclaim or litigation. If the Party entitled to indemnification fails to notify the indemnifying Party withoutundue delay pursuant to the foregoing clause (i), the indemnifying Party shall only be relieved of itsindemnification obligation to the extent it is materially prejudiced by such failure and provided further thatthe indemnified Party is not obligated to notify the indemnifying Party of claims, demands and/or actionsmade directly against the indemnifying Party only. Notwithstanding the foregoing, if in the reasonablejudgment of the indemnified Party, such suit or claim involves an issue or matter which could have amaterially adverse effect on the business, operations or assets of the indemnified Party, the indemnifiedParty may waive its rights to indemnity under this Agreement and control the defense or settlement thereof,but in no event shall any such waiver be construed as a waiver of any indemnification rights suchindemnified party may have at law or in equity.17.4 Participation in Defense. If the indemnifying Party defends the suit or claim, the indemnifiedParty may participate in (but not control) the defense thereof at its sole cost and expense; provided,however, that the indemnifying Party shall pay the reasonable and documented fees and costs of anyseparate counsel to the extent such separate representation is due to a conflict of interest between theParties.17.5 Settlement. No Party shall, without the consent of the other Party, which shall not be unreasonablywithheld, conditioned or delayed, enter into any settlement or compromise or consent to any judgment inrespect of any claim related to the rights and liabilities under this Agreement, unless such settlement,compromise or consent includes an unconditional release of the other Party from all liability arising out ofthe claim and does not otherwise limit or impair the other Party’s rights.18. INSURANCE18.1 Each Party hereto shall maintain, for the Term and thereafter, insurance sufficient to cover itsobligations under this Agreement and under law as it customarily maintains for similar activities in theregular course of its business.18.2 Without derogating from the generality of the aforesaid, [****].19. TERM AND TERMINATION19.1 Term. Unless earlier terminated in accordance with the provisions of this Article 19, the term ofthis Agreement (the “Term”) shall be for the period of three (3) years commencing upon the EffectiveDate, following which the Term shall be renewed for an additional [****] upon mutual agreement betweenthe Parties. 19.2 Termination for Cause. Without derogating from any other remedies that either Partymay have under the terms of this Agreement or at law, each Party hereto shall have the right upon [****]prior written notice to terminate this Agreement forthwith upon the occurrence of any of the following:22 STRICTLY CONFIDENTIAL 19.2.1 the commission of a material breach by any other Party hereto of its obligations hereunder,and such other Party’s failure to remedy such breach to the reasonable satisfaction of the other Party within[****] after being requested in writing to do so; or19.2.2 the occurrence of a Bankruptcy Event in respect of another Party. 19.3 Termination for [****].19.3.1 After [****] (the “RedHill Initial Term”), RedHill shall be entitled, in its sole discretion,to terminate this Agreement in its entirety [****] if, in RedHill’s good faith judgment, [****] . RedHillmay effect such termination at any time after the RedHill Initial Term by providing [****] prior writtennotice to Concordia. Furthermore, RedHill shall be entitled, at any time, in its sole discretion, to terminatethis Agreement [****] if, Concordia has [****]. 19.3.2 After [****] (the “Concordia Initial Term”), Concordia shall be entitled, in its solediscretion, to terminate this Agreement [****] if RedHill is not, in Concordia’s good faith judgment, [****]in accordance with the terms of this Agreement.19.3.3 The terminating Party shall not incur any liability and shall not be required to pay anycompensation in respect of such termination for convenience, other than for any amounts properly owing tothe effective date of termination.19.4 Continuation following Concordia’s Bankruptcy. The Parties agree that in the event thatConcordia becomes insolvent or makes a filing under bankruptcy or similar laws in any jurisdiction,RedHill shall have the protection afforded to the licensee under the United States Bankruptcy Code,including but not limited to, the protections set forth in 11 U.S.C §365(n) or its equivalent in any otherjurisdiction which allows the licensee, upon rejection of the license agreement by the debtor-licensor or itsrepresentative, the option to either retain the licensee’s rights in the intellectual property under the existingcontract while continuing to pay royalties, or to treat the executory contract as terminated.19.5 Consequences of Termination19.5.1 License. Upon termination of this Agreement, all rights granted to RedHill under Section2 will automatically terminate and all such rights shall automatically revert to Concordia. 19.5.2 Return of Information and Materials. Upon termination of this Agreement, each Partywill return to the other all Confidential Information of the other Party (except one copy of which may beretained for archival and compliance purposes), provided that any such retained copy shall continue to besubject to the confidentiality provisions of this Agreement.19.5.3 Accrued Rights. Termination or expiration of this Agreement for any reason will bewithout prejudice to any rights or financial compensation that will have accrued to the benefit of a Partyprior to such termination or expiration. Such termination or expiration will not relieve a Party fromobligations that are expressly indicated to survive23 STRICTLY CONFIDENTIAL the termination or expiration of this Agreement, whereas “accrued” shall mean the creation and/or maturityof a claim.19.5.4 Survival. Sections 1, 8.2, 10, 13, 14.3, 15, 16, 17, 18, 19 and 20 of this Agreement willsurvive expiration or termination of this Agreement for any reason.20. MISCELLANEOUS 20.1 Assignment. Without the prior written consent of the other Party, neither Party shall sell, transfer,assign, delegate, pledge or otherwise dispose of, whether voluntarily, involuntarily, by operation of law orotherwise, this Agreement or any of its rights or duties hereunder; provided, however, that a Party mayassign or transfer this Agreement and its rights or obligations hereunder without the consent of the otherParty to any Affiliate and to any Third Party successor in interest with which it has merged or consolidated,or to which it has transferred all or a substantial part of its assets or stock to which this Agreement relates;provided such Third Party assumes and agrees, in advance, to assume the obligations of the transferringparty under this Agreement. 20.2 Severability. Should any term or provision of this Agreement be or become invalid orunenforceable or should this Agreement contain an omission, the validity or enforceability of the remainingterms or provisions shall not be affected. In such case, subject to the next following sentence, the Partiesshall immediately commence to negotiate in good faith in order to replace the invalid or unenforceable termor provision by such other valid or enforceable term or provision which comes as close as possible to theoriginal intent and effect of the invalid or unenforceable term or provision, or respectively, to fill theomission by inserting such term or provision which the Parties would have reasonably agreed to, if theyhad considered the omission at the date hereof. In the event that any term or provision as aforesaid isinvalid, void or unenforceable by reason of its scope, duration or area of applicability or some similarlimitation as aforesaid, then the court making such determination shall have the power to reduce the scope,duration, area or applicability of the term or provision so that they shall be enforceable to the maximumscope, duration, area or applicability permitted by Applicable Law which shall not exceed those specifiedin this Agreement or to replace such term or provision with a term or provision that comes closest toexpressing the intention of the invalid or unenforceable term or provision.20.3 Governing Law. This Agreement will be governed by and construed in accordance with thesubstantive laws of the State of New York, USA, without reference to any rules of conflicts of laws.20.4 Dispute Resolution. Subject to Section 5.5 with regard to JCC disputes, all disputes regarding thisAgreement shall be finally settled by arbitration conducted under the Rules of Arbitration of theInternational Chamber of Commerce by one arbitrator appointed in accordance with the said Rules. Theplace of arbitration shall be New York City. The language of the arbitration shall be English and allcorrespondence between the Parties related to the arbitration shall also be in English. The arbitration awardshall be final and binding on both parties. The arbitrator shall be liable to give written grounds for its24 STRICTLY CONFIDENTIAL decision. The arbitrator shall determine what discovery will be permitted, consistent with the goal ofreasonably controlling the cost and time that the Parties must expend for discovery, provided that thearbitrator shall permit such discovery as he or she deems necessary to permit an equitable resolution of thedispute. The arbitration proceedings and the decision of the arbitrator shall be deemed ConfidentialInformation of both Parties. Judgment upon any award rendered may be entered in any court havingjurisdiction, or application may be made to such court for a judicial acceptance of the award and an order ofenforcement, as the case may be. Each Party shall pay its own expenses of arbitration, and the expenses ofthe arbitrator shall be equally shared between the Parties, unless the arbitrator assesses as part of his or heraward all or any part of the arbitration expenses of a Party (including reasonable and documentedattorneys’ fees) against the other Party. Notwithstanding the foregoing, any Party may apply to any court ofcompetent jurisdiction and seek interim, provisional, injunctive or other equitable relief until the award isrendered or the controversy is otherwise resolved.20.5 Notices. All notices or other communications that are required or permitted hereunder will be inwriting and delivered personally with acknowledgement of receipt, sent by electronic mail (providedreceipt is acknowledged), facsimile (and promptly confirmed by personal delivery, registered or certifiedmail or overnight/express courier as provided herein), sent by nationally-recognized overnight courier orsent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows:If to Concordia, to: Concordia Pharmaceuticals Inc., S.à.r.l. Barbados Branch, Canewood Business Centre 5 Canewood Industrial Park St. Michael, Barbados, BB11005 Attention: [****] Telephone: [****] Fax: 246-621-1860 [****] With a copy to [****] If to RedHill, to: RedHill Biopharma Ltd. 21 Ha'arba'a Street Tel-Aviv 64739 Israel Fax: +972 (3) 541 3144 Email: [****] or to such other address as the Party to who notice is to be given may have furnished to the other Party inwriting in accordance herewith. Any such communication will be deemed to have been given: (i) whendelivered, if personally delivered; (ii) on the Business Day (on the receiving end) after dispatch, if sent bynationally-recognized overnight/express courier (third Business Day if sent internationally); (iii) on the thirdBusiness Day25 STRICTLY CONFIDENTIAL following the date of mailing, if sent by mail (fifth Business Day if sent internationally); and (iv) on the firstBusiness Day (on the receiving end) after being sent by facsimile or electronic mail. It is understood andagreed that this Section 20.5 is not intended to govern the day-to-day business communications necessarybetween the Parties in performing their duties, in due course, under the terms of this Agreement.20.6 Entire Agreement; Modifications. This Agreement sets forth and constitutes the entireagreement and understanding between the Parties with respect to the subject matter hereof and all prioragreements, understanding, promises and representations, whether written or oral, with respect thereto aresuperseded hereby, including the [****]. Each Party confirms that it is not relying on any representationsor warranties of the other Party except as specifically set forth herein. No amendment, modification, releaseor discharge will be binding upon the Parties unless in writing and duly executed by authorizedrepresentatives of both Parties; this shall also apply to any change of this clause.20.7 Relationship of the Parties. It is expressly agreed that the Parties will be independent contractorsof one another and that the relationship between the Parties will not constitute a partnership, joint venture oragency. 20.8 Waiver. Any term or condition of this Agreement may be waived at any time by the Party that isentitled to the benefit thereof, but no such waiver will be effective unless set forth in a written instrumentduly executed by or on behalf of the Party waiving such term or condition. Any such waiver will not bedeemed a waiver of any other right or breach hereunder.20.9 Counterparts. This Agreement may be executed in two (2) or more counterparts, each of whichwill be deemed an original, but all of which together will constitute one and the same instrument, and shallbecome effective when counterparts have been signed by each of the Parties and delivered to the otherParties; it being understood that all Parties need not sign the same counterparts. The exchange of copies ofthis Agreement and of signature pages by facsimile transmission, by electronic mail in “portable documentformat” (“.pdf”) form, or by any other electronic means intended to preserve the original graphic andpictorial appearance of a document, or by combination of such means, shall constitute effective executionand delivery of this Agreement as to the Parties and may be used in lieu of the original Agreement for allpurposes. Signatures of the Parties transmitted by facsimile shall be deemed to be their original signaturesfor all purposes.20.10 No Third Party Beneficiaries. The representations, warranties, covenants and agreements setforth in this Agreement are for the sole benefit of the Parties hereto and their successors and permittedassigns, and they will not be construed as conferring any rights on any other parties. 20.11 Expenses. Except as expressly provided herein, each party shall each bear its own legal,accounting, brokerage and other costs and expenses in connection with this Agreement and the transactionscontemplated hereby.20.12 Further Assurances. Each Party will duly execute and deliver, or cause to be duly executed anddelivered, such further instruments and do and cause to be done such further26 STRICTLY CONFIDENTIAL acts and things, including the filing of such assignments, agreements, documents and instruments, as maybe necessary to carry out the provisions and purposes of this Agreement.20.13 Force Majeure. No party shall be responsible to the other for failure or delay in performing anyof its obligations under this Agreement or for other non-performance hereof but only to the extent that suchdelay or non-performance is occasioned by a cause beyond the reasonable control and without fault ornegligence of such party, including earthquake, fire, flood, explosion, discontinuity in the supply of power,court order, or governmental interference, act of God, general strike or other general labor trouble, act ofwar or terrorism and provided that such party will inform the other party as soon as is reasonablypracticable and that it will entirely perform its obligations immediately after the relevant cause has ceased itseffect. If any such force majeure event continues for a continuous period of three (3) months, a Partywhose performance is not prevented by such event may terminate this Agreement thereafter so long as theforce majeure event continues, with immediate effect by providing the other Parties with written notice. [Signature Page Follows]27 STRICTLY CONFIDENTIAL IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by their dulyauthorized representatives as of the Effective Date. RedHill Biopharma Ltd. Concordia Pharmaceuticals Inc., S.à.r.l., Barbados Branch By:/s/ Dror Ben-Asher By:/s/ [****]Name: Dror Ben-Asher [****]Title: CEO Title: [****]Date: Dec. 30, 2016 By:/s/ Adi Frish Name: Adi Frish Title: Senior VP Bus. Dev. and Licensing Date: Dec. 30, 2016 28 STRICTLY CONFIDENTIAL ANNEX ACOMMERCIALIZATION PLAN[****]29 STRICTLY CONFIDENTIAL ANNEX B[****]30 STRICTLY CONFIDENTIAL ANNEX C[****][****]31Exhibit 12.1 CERTIFICATION BY CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEYACT OF 2002 I, Dror Ben-Asher, certify that: 1.I have reviewed this annual report on Form 20-F of RedHill Biopharma Ltd.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of the circumstances under which such statementswere made, not misleading with respect to the period covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operations and cash flows of the company as of,and for, the periods presented in this report; 4.The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controlsand procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financialreporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the company, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during the period inwhich this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting tobe designed under our supervision, to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples; c)Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period coveredby this report based on such evaluation; and d)Disclosed in this report any change in the company’s internal control over financial reporting that occurred duringthe period covered by the annual report that has materially affected, or is reasonably likely to materially affect, thecompany’s internal control over financial reporting; 5.The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internalcontrol over financial reporting, to the company’s auditors and the audit committee of the company’s board ofdirectors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financialreporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize andreport financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role inthe company’s internal control over financial reporting. Date: February 23, 2017 /s/ Dror Ben-AsherDror Ben-AsherChief Executive Officer  Exhibit 12.2 CERTIFICATION BY CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES‑OXLEYACT OF 2002 I, Micha Ben Chorin certify that: 1.I have reviewed this annual report on Form 20-F of RedHill Biopharma Ltd.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operations and cash flows of the company as of, andfor, the periods presented in this report; 4.The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controlsand procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financialreporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designedunder our supervision, to ensure that material information relating to the company, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularly during the period in which this reportis being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting tobe designed under our supervision, to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples; c)Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered bythis report based on such evaluation; and d)Disclosed in this report any change in the company’s internal control over financial reporting that occurred duringthe period covered by the annual report that has materially affected, or is reasonably likely to materially affect, thecompany’s internal control over financial reporting; 5.The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internalcontrol over financial reporting, to the company’s auditors and the audit committee of the company’s board ofdirectors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financialreporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize andreport financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in thecompany’s internal control over financial reporting. Date: February 23, 2017 /s/ Micha Ben ChorinMicha Ben ChorinChief Financial Officer Exhibit 13 CERTIFICATION BY CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUAN TO SECTION906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of RedHill Biopharma Ltd. (the “Company”) on Form 20-F for the period endedDecember 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of theundersigned officers of the Company certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to such officer's knowledge: (1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934;and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and resultsof operations of the Company. Dated: February 23, 2017 /s/ Dror Ben-AsherDror Ben-AsherChief Executive Officer /s/ Micha Ben ChorinMicha Ben ChorinChief 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 F-3 (file No. 333-209702), andthe Registration Statements on Form S-8 (file No. 333-207654 and file No. 333-188286) of RedHill Biopharma Ltd. of ourreport dated February 22, 2017, relating to the financial statements which appears in this Form 20-F. Tel-Aviv, Israel/s/ Kesselman & KesselmanFebruary 22, 2017Certified Public Accountants (Isr.) A member firm of PricewaterhouseCoopers International Limited Kesselman & Kesselman, Trade Tower, 25 Hamered Street, Tel-Aviv 68125, Israel,P.O Box 50005 Tel-Aviv 61500 Telephone: +972 -3- 7954555, Fax:+972 -3- 7954556, www.pwc.com/il

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