RedHill Biopharma Ltd.
Annual Report 2017

Plain-text annual report

Table of ContentsUNITED 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, 2017 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: 212,729,434 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 filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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 filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule12b-2 of the Exchange Act. (Check one): Large Accelerated filer ☐Accelerated filer ☒Non-accelerated filer ☐Emerging growth company ☒ If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transitionperiod for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.  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 AccountingStandards 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 defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and, as such, may elect to comply with certain reduced publiccompany reporting requirements. Table of ContentsTABLE OF CONTENTS ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS5ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE5ITEM 3. KEY INFORMATION5ITEM 4. INFORMATION ON THE COMPANY41ITEM 4A. UNRESOLVED STAFF COMMENTS79ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS79ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES91ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS110ITEM 8. FINANCIAL INFORMATION111ITEM 9. THE OFFER AND LISTING111ITEM 10. ADDITIONAL INFORMATION114ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK127ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES128ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES129ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OFPROCEEDS130ITEM 15. CONTROLS AND PROCEDURES130ITEM 16. [RESERVED]131ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT131ITEM 16B. CODE OF ETHICS131ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES131ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.132ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.132ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT.132ITEM 16G. CORPORATE GOVERNANCE132ITEM 16H. MINE SAFETY DISCLOSURE133ITEM 17. FINANCIAL STATEMENTS133ITEM 18. FINANCIAL STATEMENTS133ITEM 19. EXHIBITS133EXHIBIT INDEX 136 2 Table of ContentsUnless the context otherwise requires, all references to “RedHill,” “we,” “us,” “our,” the “Company” and similar designationsrefer to RedHill Biopharma Ltd., a limited liability company incorporated under the laws of the State of Israel, and its directand indirect subsidiaries, including RedHill Biopharma Inc., a wholly-owned subsidiary incorporated in Delaware inJanuary 2017. The term “including” means “including but not limited to”, whether or not explicitly so stated. The term“NIS” refers to New Israeli Shekels, the lawful currency of the State of Israel, the terms “dollar”, “US$”, “$” or “U.S.” refer toU.S. dollars, the lawful currency of the United States of America. Our functional and presentation currency is the U.S. dollar.Unless otherwise indicated, U.S. dollar amounts herein (other than amounts originally receivable or payable in dollars) havebeen translated for the convenience of the reader from the original NIS amounts at the representative rate of exchange as ofFebruary 21, 2018 ($1 = NIS 3.501). The dollar amounts presented should not be construed as representing amounts that arereceivable or payable in dollars or convertible into dollars, unless otherwise indicated. Foreign currency transactions incurrencies other than U.S. dollars are translated in this Annual Report into U.S. dollars using exchange rates in effect at thedate of the transactions.All references to the term “therapeutic candidates” include both pharmaceuticals and programs related to their development,such as diagnostics and devices.FORWARD-LOOKING STATEMENTSSome 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 reflect our current views with respect to future events and are based on assumptionsand subject to risks and uncertainties. In addition, the sections of this Annual Report entitled “Item 4. Information on theCompany” contain information obtained from independent industry and other sources that we may not have independentlyvalidated. You should not put undue reliance on any forward-looking statements. Unless we are required to do so under U.S.federal securities laws or other applicable laws, we do not intend to update or revise any forward-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:·estimates of our expenses, future revenues, capital requirements and our needs for additional financing;·our ability to obtain additional financing;·our receipt of regulatory clarity and approvals for our therapeutic candidates, and the timing of other regulatoryfilings and approvals;·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 we maybe required to conduct;·our ability to advance our therapeutic candidates into clinical trials or to successfully complete our preclinicalstudies or clinical trials;·our ability to establish and maintain corporate collaborations;·that products we promote or commercialize may be withdrawn from the market by regulatory authorities and ourneed to comply with continuing laws, regulations and guidelines to maintain clearances and approvals for ourproducts;·our ability to acquire products approved for marketing in the U.S. that achieve commercial success and maintain ourown marketing and commercialization capabilities;3 Table of Contents·the research, manufacturing, clinical development, commercialization, and market acceptance of our therapeuticcandidates or commercial products;·the interpretation of the properties and characteristics of our therapeutic candidates and of the results obtained withour therapeutic candidates in research, preclinical studies or clinical trials;·the implementation of our business model, strategic plans for our business, therapeutic candidates and commercialproducts;·the impact of other companies and technologies that compete with us within our industry;·our estimates of the markets, their size, characteristics and their potential for our therapeutic candidates andcommercial products and our ability to serve those markets;·the scope of protection we are able to establish and maintain for intellectual property rights covering our therapeuticcandidates and our ability to operate our business without infringing or violating the intellectual property rights ofothers;·parties from whom we license or acquire our intellectual property defaulting in their obligations towards us;·our ability to implement network systems and controls that are effective at preventing cyber-attacks, malwareintrusions, malicious viruses and ransomware threats; and·the impact of the political and security situation in Israel and in the U.S. 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 financial data, which is derived from our financial statements prepared inaccordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting StandardsBoard. We have derived the selected financial data as of December 31, 2017 and 2016 and for the years ended December 31,2017, 2016 and 2015 from our audited financial statements included elsewhere in this Annual Report on Form 20‑F. We havederived the selected financial data as of December 31, 2015, 2014 and 2013 and for the years ended December 31, 2014 and2013 from our financial statements not included in this Annual Report. You should read this selected financial data and otherinformation provided in this Annual Report in conjunction with, and is qualified in its entirety by, our historical financialinformation including “Item 5. Operating and Financial Review and Prospects” and our financial statements and relatednotes appearing elsewhere in this Annual Report. Year Ended December 31 2017 2016 2015 2014 2013 (U.S. Dollars, in thousands, except per share and weighted average shares data)Statement of Comprehensive Loss Revenues 4,007 101 3 7,014 12 Cost of revenue 2,126 — — 1,050 — Gross profit 1,881 101 3 5,964 12 Research and development expenses, net 32,969 25,241 17,771 12,700 8,100 Selling, marketing and businessdevelopment expenses 12,014 *1,555 *1,386 *900 *570General and administrative expenses 8,025 *3,848 *2,748 *3,111 *2,114Other (income) expenses 845 — 100 (100) — Operating loss 51,972 30,543 22,002 10,647 10,772 Financial income 6,505 1,548 1,124 319 158 Financial expenses 77 375 212 383 14 Financial (income) expenses, net (6,428) (1,173) (912) 64 (144)Loss and comprehensive loss 45,544 29,370 21,090 10,711 10,628 Loss per Ordinary Share (in U.S. dollars) Basic 0.26 0.23 0.19 0.12 0.17 Diluted 0.26 0.24 0.19 0.13 0.17 Weighted average number of OrdinaryShares used in computing loss per OrdinaryShare 176,578,990 128,513,729 110,813,742 86,610,126 62,379,171 Weighted average number of OrdinaryShares used in computing diluted loss pershare 176,578,990 128,808,543 111,714,566 87,222,188 62,379,171 *Reclassified to conform to the current year presentation.5 Table of Contents As of December 31 (U.S. Dollars, in thousands) 2017 2016 2015 2014 2013Balance Sheet Data Cash and short-term investments 46,205 66,154 58,138 22,945 12,113 Working capital 39,846 62,459 54,996 24,299 10,186 Total assets 57,343 74,212 66,828 28,856 14,340 Total liabilities 12,278 11,511 6,751 3,845 2,415 Accumulated deficit (132,944) (89,635) (61,944) (42,218) (33,260)Equity 45,065 62,701 60,077 25,011 11,925 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 financial 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”). The risks and uncertaintiesdescribed below in this annual report on Form 20-F for the year ended December 31, 2017 are not the only risks facing us.We may face additional risks and uncertainties not currently known to us or that we currently deem to be immaterial. Any ofthe risks described below or incorporated by reference in this Form 20-F, and any such additional risks, could materiallyadversely affect our business, financial condition or results of operations. In such case, you may lose all or part of yourinvestment. 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-clinicaldevelopment stage therapeutic candidates and more recently on the acquisition of rights to commercial products forpromotion and/or commercialization in the U.S. and we have a history of operating losses. We expect to incur additionallosses in the future and may never be profitable. Since our incorporation in 2009, we have focused primarily on the development and acquisition of late-clinical developmentstage therapeutic candidates. Most of our therapeutic candidates are in the late-clinical development stage and none of ourtherapeutic candidates are approved for sale. However, in December 2016 we obtained certain rights to promote, but not tosell or distribute, Donnatalin certain U.S. territories pursuant to an exclusive agreement with a subsidiary of ConcordiaInternational Corp. (“Concordia”). In 2017, we obtained certain rights to commercialize EnteraGam(a prescription medicalfood product) in the U.S. and certain rights to promote Esomeprazole Strontium Delayed-Release Capsules 49.3 mg in certainU.S. territories. Most of our therapeutic candidates will require additional clinical trials before we can obtain the regulatory approvals inorder to initiate commercial sales of them, if at all. We have incurred losses since inception, principally as a result of researchand development, selling, marketing and business development, and general and administrative expenses in support of ouroperations. We experienced net losses of approximately $45.5 million in 2017, $29.4 million in 2016 and $21.1 million in2015. As of December 31, 2017, we had an accumulated deficit of approximately $132.9 million. We may incur significantadditional losses as we continue to focus our resources on prioritizing, selecting and advancing our therapeutic candidates,promoting Donnatal and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg, commercializing EnteraGam, andprioritizing, selecting, and advancing other products that we may promote or commercialize in the future. Our ability togenerate sufficient revenues to sustain our business operations in accordance6 ® ® ®®Table of Contentswith our plan and achieve profitability depends mainly upon our ability, alone or with others, to successfully develop ourtherapeutic candidates, obtain the required regulatory approvals in various territories and commercialize our therapeuticcandidates, promote Donnatal and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg and commercializeEnteraGam, and products that we may acquire or for which we may acquire commercialization rights in the future. We maybe unable to achieve any or all of these goals with regard to our therapeutic candidates, our commercial products or productswe may commercialize. As a result, we may never achieve sufficient revenues to sustain our business operations inaccordance with our plan or be profitable. Our 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 and rights to promote or commercialize products in certain U.S. territories, research and development,raising capital and recruiting scientific and management personnel and third-party partners. Except with respect to RHB-106and related rights, which is out-licensed to Valeant Pharmaceuticals International, Inc. (“Valeant”) (which acquired SalixPharmaceuticals, Ltd.) and is currently subject to discussion with Valeant, including renegotiation of its terms, we have notyet demonstrated an ability to commercialize or obtain regulatory approval for our therapeutic candidates. Consequently,any predictions about our future performance may not be accurate, and you may not be able to fully assess our ability tocomplete development or commercialization of our therapeutic candidates, the success of promoting Donnatal andEsomeprazole Strontium Delayed-Release Capsules 49.3 mg, the success of EnteraGam that we commercialize, and productsthat we may promote or commercialize in the future, obtain regulatory approvals, reimbursement by third-party payors,achieve market acceptance or competitive pricing for our therapeutic candidates or our current commercial products,Donnatal, Esomeprazole Strontium Delayed-Release Capsules 49.3 mg and EnteraGam, and products that we may promoteor commercialize in the future. Our current working capital is not sufficient 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 EnteraGam, andincluding promotion of Donnatal and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg. We will need to raiseadditional capital to achieve our strategic objectives of acquiring, in-licensing, developing and commercializingtherapeutic candidates, promoting Donnataland Esomeprazole Strontium Delayed-Release Capsules 49.3 mg,commercializing EnteraGam, and products that we may promote or commercialize in the future, and our failure to raisesufficient capital or on favorable terms would significantly impair our ability to fund our operations, develop ourtherapeutic candidates, or commercialize EnteraGam or the products we may commercialize in the future, or promoteproducts such as Donnatal and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg, attract development orcommercial partners and retain key personnel. As of December 31, 2017, we had cash and short-term investments of approximately $46.2 million, and as of December 31,2016, we had cash and short-term investments of approximately $66.2 million. We have funded our operations primarilythrough public and private offerings of our securities. We plan to fund our future operations through commercialization andout-licensing of our therapeutic candidates, commercialization of in-licensed or acquired products and raising additionalcapital through the sale of equity or debt or through other financing that does not cause dilution to our shareholders. Theseamounts may not be sufficient to complete the research and development of all of our therapeutic candidates, and we are alsonot yet certain of the financial impact of our commercialization activities. Accordingly, we may need to raise additionalcapital in the future. To date, our business has generated limited revenues. As we plan to continue expending funds in research and development,including clinical trials, as well as to continue to commercialize EnteraGam, and promote Donnatal and EsomeprazoleStrontium Delayed-Release Capsules 49.3 mg, and to acquire additional products, we will need to raise additional capital inthe future through equity or debt financing or a non-dilutive financing or pursuant to development or commercializationagreements with third parties with respect to particular therapeutic candidates. However, we cannot be certain that we will beable to raise capital on commercially reasonable terms or at all, or that our actual cash requirements will not be greater thananticipated. We may have difficulty raising needed capital at all or on favorable terms, or securing a development orcommercialization partner in the future as a result of, among other factors, our limited revenues from commercialization ofthe therapeutic candidates and promoting Donnatal and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg andcommercializing EnteraGam and products that we may promote or commercialize in the future, as7 ®®®®®®®®® ®®®®®®®Table of Contentswell as the inherent business risks associated with our company, our therapeutic candidates, our current commercial products,Donnatal, EnteraGam, Esomeprazole Strontium Delayed-Release Capsules 49.3 mg and products that we may promote orcommercialize in the future, and present and future market conditions. To the extent we are able to generate sufficientrevenues to sustain our business operations in accordance with our plan, we may still need to raise capital because therevenues from Donnatal, EnteraGam and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg, may not besufficient to cover all of our operating expenses. In addition, global and local economic conditions may make it moredifficult for us to raise needed capital or secure a development or commercialization partner in the future and may impact ourliquidity. If we are unable to obtain future financing or obtain sufficient future financing, we may be forced to delay, reducethe scope of, or eliminate one or more of our research, development or commercialization programs for our therapeuticcandidates or EnteraGam or promotion of Donnatal and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg, andproducts that we may promote or commercialize in the future, any of which may have material adverse effect on our business,financial condition and results of operations. Moreover, to the extent we are able to raise capital through the issuance of debtor equity securities, it could result in substantial dilution and or cost of capital 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;·the costs, timing and outcome of regulatory review and obtaining regulatory clarity and 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 manufacturing, developing and maintaining sales, marketing and distribution channels;·our ability to successfully commercialize our therapeutic candidates, promote Donnatal and EsomeprazoleStrontium Delayed-Release Capsules 49.3 mg, commercialize EnteraGam, and products that we may promote orcommercialize in the future, including through securing commercialization agreements with third parties andfavorable pricing and market share or through securing and maintaining our own commercialization capabilities;·entrance of generics into the market that could compete with our products and erode the profitability of the productswe are promoting or commercializing;·our ability to successfully commercialize products that we develop or acquire or for which we acquirecommercialization rights; and·our consumption of available resources, especially a more rapid consumption than currently anticipated, resulting inthe need for additional 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 or products wemay promote or commercialize, we or our commercialization partners will be unable to commercialize our therapeuticcandidates or products we may promote or commercialize. To date, other than our limited experience in promoting Donnataland Esomeprazole Strontium Delayed-Release Capsules49.3 mg and commercializing EnteraGam, we have not marketed, distributed or sold any therapeutic candidate or product.In June 2017, we commenced promoting Donnatal(Phenobarbital, Hyoscyamine Sulfate, Atropine Sulfate, ScopolamineHydrobromide) in the U.S. Donnatalis an anticholinergic and barbiturate combination drug product used as an adjunctivetherapy for irritable bowel syndrome (“IBS”), a condition characterized by abdominal pain, bloating, and diarrhea orconstipation. It may also be used as an adjunctive therapy for acute enterocolitis and duodenal ulcers. See “–We or ourcommercialization partners are subject to risks related to the regulatory environment of the Drug Efficacy StudyImplementation review program with respect to Donnatal”. 8 ®®®®®®®®® ®® ® ®Table of ContentsIn June 2017, we commenced commercializing EnteraGam in certain territories in the U.S., and in September 2017, wecommenced promoting Esomeprazole Strontium DR Capsules 49.3 mg to gastroenterologists in certain U.S. territories.EnteraGam is an FDA-regulated “medical food” product intended for the dietary management of chronic diarrhea and loosestools, which must be administered under medical supervision. Esomeprazole Strontium DR Capsules 49.3 mg is an FDA-approved proton pump inhibitor (“PPI”) drug product indicated for adults for the treatment of gastroesophageal refluxdisease (“GERD”), risk reduction of NSAID-associated gastric ulcer, Helicobacter pylori (“H. pylori”) eradication to reducethe risk of duodenal ulcer recurrence and for pathological hypersecretory conditions, including Zollinger-Ellison syndrome. Currently, we have six therapeutic candidates in late-clinical development stage: TALICIA (RHB-105) for the eradication ofH. pylori infection; RHB-104 for the treatment of Crohn’s disease with an ongoing first Phase III study, a completed proof-of-concept Phase IIa study for multiple sclerosis, and a planned pivotal Phase III study for Nontuberculous Mycobacteria(“NTM”) infections; RHB-106 (out-licensed to Valeant) for bowel preparation; BEKINDA (RHB-102) for acutegastroenteritis and gastritis, irritable bowel syndrome with diarrhea (“IBS-D”), and other indications; YELIVA(ABC294640), a sphingosine kinase-2 (“SK2”) selective inhibitor targeting multiple oncology, inflammatory and GIindications; and RHB-107 (MESUPRON) for targeting GI and other solid tumor cancers. Our therapeutic candidates aresubject to extensive governmental laws, regulations and guidelines relating to development, clinical trials, manufacturingand commercialization of drugs. We may not be able to obtain marketing approval for any of our therapeutic candidates in atimely manner or at all. In addition, although we have certain rights to promote Donnatalin certain U.S. territories, which is currently included inthe FDA DESI review program, we cannot guarantee that our co-promotion partner will continue to be allowed to sell orpromote Donnatal in the U.S. without future regulatory developments that may lead to the FDA requiring Donnatal to gainan NDA approval. In addition, future regulatory developments may lead to a loss of the right to commercialize EnteraGam orthe right to promote Esomeprazole Strontium Delayed-Release Capsules 49.3 mg. 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 meaningful revenues. Any regulatoryclearance or approval to market a therapeutic candidate, Donnatal, EnteraGamand Esomeprazole Strontium Delayed-Release Capsules 49.3 mg or other products that we may promote or commercialize may be subject to limitations on theindicated uses for marketing or may impose restrictive conditions of use, including cautionary information, thereby alteringor eliminating the size of the market for the therapeutic candidate, Donnatal, EnteraGamor Esomeprazole StrontiumDelayed-Release Capsules 49.3 mg, or other products that we may promote or commercialize in the future. We also are, andwill be, subject to numerous regulatory requirements from both the FDA and other foreign regulatory authorities that governthe conduct of clinical trials, manufacturing and marketing authorization, pricing and third-party reimbursement. Moreover,clearance or approval by one regulatory authority does not ensure clearance or approval by other regulatory authorities inseparate jurisdictions. Each jurisdiction may have different approval processes and requirements and may impose additionaltesting, development and manufacturing requirements for our therapeutic candidates, our current commercial products,Donnatal, EnteraGam and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg and products that we may promoteor commercialize in the future. Additionally, the FDA or other foreign regulatory authorities may change its clearance orapproval policies or adopt new laws, regulations or guidelines in a manner that materially delays or impairs our ability toobtain the necessary regulatory clearances or approvals or our ability to commercialize our therapeutic candidates,commercialize EnteraGam, promote Donnataland Esomeprazole Strontium Delayed-Release Capsules 49.3 mg andproducts that we may promote or commercialize in the future. See “–We or our commercialization partners are subject to risksrelated to the regulatory environment of the Drug Efficacy Study Implementation review program with respect to Donnatal”. We or our commercialization partners are subject to risks related to the regulatory environment of the Drug Efficacy StudyImplementation review program with respect to Donnatal. Currently, we promote Donnatal, which is a pre-1962 drug that is not FDA-approved, but is currently cleared to be marketedand sold in the U.S. as it is included in the Drug Efficacy Study Implementation (“DESI”) review program of the FDA.Donnatal was first commercialized before Congress’s 1962 amendment to the Food Drug and Cosmetic Act. The 1962amendment required evidence of efficacy to be granted FDA approval. At that time, the FDA introduced the9 ®®®®®® ®®®®® ®® ®®®® ®®®®Table of ContentsDESI program to evaluate the efficacy of drugs approved before 1962. Under DESI, Donnatal is not an FDA-approved drug,but it is cleared to be marketed and sold until a final determination regarding efficacy is made. To our knowledge at this timeand based on our review of docketed correspondence with the FDA, the FDA has not made a final determination as to theefficacy of Donnatal. Based on our review of docketed correspondence with the FDA, our co-promotion partner, Concordia, is currently a party tothe unresolved Notice of Opportunity Hearing for anticholinergic and barbiturate combination drug products. We make noassurances that the FDA will not seek to begin a hearing process to remove Donnatalfrom the market or otherwise removeDonnatal from the market at any time. If this were to happen, it could have a material adverse effect on our reputation,business, financial condition, and results of operations. It is also the case that other manufacturers would try to takeadvantage of the regulatory uncertainty to launch illegal copies of Donnatal. Any lack of action by the FDA or otherregulatory body to remove from the market illegal copies of Donnatal will harm our ability to successfully promote thisproduct. Our offering of EnteraGam as a “medical food” in the U.S. may be challenged by regulatory authorities. EnteraGam is sold under physician supervision in the U.S. as a “medical food” on the basis of its meeting the criteria for“medical foods” in the Federal Food, Drug, and Cosmetic Act (FDCA) and FDA regulations. The term “medical food” isdefined in the FDCA as a food which is formulated to be consumed or administered entirely under the supervision of aphysician and which is intended for the specific dietary management of a disease or condition for which distinctivenutritional requirements, based on recognized scientific principles, are established by medical evaluation. “Medical foods”are not required to undergo premarket review or approval by the FDA. To our knowledge, EnteraGam meets the criteria for “medical foods” established by the FDCA, and to date, the labeling andpromoting of EnteraGam is consistent with FDA regulatory requirements. However, our offering of EnteraGam as a“medical food” could be challenged by the FDA. The FDA has previously issued warning letters to other companieschallenging the classification of their products as “medical foods.” These letters indicate that the FDA may be applying amore narrow interpretation of what qualifies as a “medical food.” Given this enhanced focus on “medical food” companies,we cannot provide any assurance that we will not also receive such a letter, and the FDA could take the position thatEnteraGam may not be lawfully sold in the U.S. as a “medical food.” If such a challenge were to occur we could incursignificant costs responding to such a claim and defending the status of EnteraGam as a “medical food” and ultimatelylitigation. If we or Entera Health Inc. (“Entera Health”) are not able to demonstrate to the FDA’s satisfaction that theEnteraGam meets the regulatory requirements for “medical foods,” we would need to suspend further commercialization ofEnteraGam in, and could be required to withdraw EnteraGam from, the U.S. market. The drug development process can belengthy and may involve the expenditure of substantial monetary and other resources. Furthermore, the process is uncertain,as there can be no assurance that EnteraGam will ultimately be approved by the FDA as a drug. The U.S. is the only territoryin which we have rights to commercialize EnteraGam, and the cessation of such sales, even for a limited period, could have amaterial adverse effect on our operations, financial situation, operating results and business prospects. Clinical trials and related non-clinical studies may involve a lengthy and expensive process with an uncertain outcome,and results of earlier studies and trials may not be predictive of future trial results. We or our development orcommercialization partners will not be able to commercialize our therapeutic candidates and products we may promote orcommercialize without completing such trials, even products that may have already been cleared or approved formarketing. We have limited experience in conducting and managing the clinical trials that are required to obtain regulatory approvalsand commence commercial sales of our therapeutic candidates. Clinical trials and related non-clinical studies are expensive,complex, can take many years and have uncertain outcomes. We cannot predict whether we, independently or through thirdparties, will encounter problems with any of the completed, ongoing or planned clinical trials that will cause delays,including suspension of a clinical trial, delay of data analysis or release of the final report. The clinical trials of ourtherapeutic candidates may take significantly longer to complete than estimated. Failure can occur at any stage of the testing,and we may experience numerous unforeseen events during, or as a result of, the clinical trial process that could materiallydelay or prevent the obtainment of a regulatory approval and commercialization of our current or future therapeuticcandidates.10 ®®® ®®®®®®®®®®®®®®®Table of Contents 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 or failure in securing clinical investigators or trial sites for the clinical trials;·delays or failure in receiving import or other government approvals to ensure appropriate drug supply;·delays or failure in obtaining institutional review board (IRB) and other regulatory approvals to commence orcontinue a clinical trial;·expiration of clinical trial material before or during our trials as a result of delays, including suspension of a clinicaltrial, degradation of, or other damage to, the clinical trial material;·negative or inconclusive results or results that are not sufficiently positive 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;·inability to retain patients;·problems with investigator or patient compliance with the trial protocols;·a therapeutic candidate may not prove safe or efficacious; 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 confirm the positive results from earlier preclinicalstudies or clinical trials;·the results may not meet the level of statistical significance 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 significant setbacks in advanced clinical trials, even after seeing promising results in earlierclinical trials. As such, despite the results reported in earlier clinical trials of our therapeutic candidates, we do not know ifthe clinical trials we conduct will demonstrate adequate safety and efficacy sufficient to obtain regulatory approval to marketour therapeutic candidates. If any of the clinical trials of any of our current or future therapeutic candidates does not producefavorable results, our ability to obtain regulatory approval for the therapeutic candidate may be adversely impacted, whichcould have a material adverse effect on our business, financial condition and results of operations. If we are unable to establish collaborations for our therapeutic candidates or products we may promote or commercialize,or otherwise not be able to 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 we maypromote or commercialize will require additional cash to fund expenses. As such, our strategy includes either selectivelypartnering or collaborating with multiple pharmaceutical and biotechnology companies to assist us in furtheringdevelopment or potential commercialization of our therapeutic candidates, promoting or commercializing products, in wholeor in part, in some or all jurisdictions or through securing our own commercialization capabilities. With respect to potentialnew third-party partners for the development or commercialization of our therapeutic candidates and development orcommercialization of products that we may promote or commercialize, we may not be successful in entering intocollaborations with third parties on acceptable terms, or at all. In addition, if we fail to negotiate and maintain11 Table of Contentssuitable development, commercialization or promotion agreements or otherwise raise substantial additional capital to secureour own commercialization capabilities, we may have to limit the size or scope of our activities or we may have to delay oneor more of our development or commercialization programs. Any failure to enter into development or commercializationagreements with respect to the development, marketing and commercialization of any therapeutic candidate or failure todevelop, market and commercialize such therapeutic candidate independently may have an adverse effect on our business,financial condition and results of operations. Any collaborative arrangements that we have established or may establish may not be successful, or we may otherwise notrealize the anticipated benefits from these collaborations, including our out-licensing of RHB-106, commercialization ofEnteraGamas well as our promotion of Donnatal and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg. Wedo not control third parties with whom we have or may have collaborative arrangements, and we rely on such third partiesto achieve results which may be significant to us. In addition, any future collaborative arrangements may place thedevelopment or commercialization of our therapeutic candidates, promotion of Donnataland Esomeprazole StrontiumDelayed-Release Capsules 49.3 mg or commercialization of EnteraGam or products that we may promote orcommercialize in the future outside our control may require us to relinquish important rights or may otherwise be on termsunfavorable 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 property andcommercialization. We do not control these third parties, but we rely on such third parties to achieve results which may besignificant to us. To date, we have out-licensed one of our therapeutic candidates, RHB-106, and related rights to Valeant.We do not control Valeant, but we rely on Valeant to clinically develop and commercialize RHB-106 and related rights. Inaddition, with respect to Donnatal, EnteraGam® and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg, we relyon Concordia, Entera Health and ParaPRO LLC (“ParaPRO”), respectively, as the party responsible for, among others, themanufacture, supply, and other operating responsibilities. Relying upon collaborative arrangements to develop and commercialize our therapeutic candidates, such as RHB-106,Donnataland Esomeprazole Strontium Delayed-Release Capsules 49.3 mg which are products that we promote, andcommercialization of EnteraGamand other products that we may promote or commercialize in the future, subjects us to anumber of risks, including but not limited to the following: ·our collaborators may default on their obligations to us and we may be forced to either terminate, litigate orrenegotiate such arrangements;·our collaborators may have claims that we breached our obligations to them which may result in termination,renegotiation, litigation or delays in performance of such arrangements;·we may not be able to control the amount and timing of resources that our collaborators may devote to ourtherapeutic candidates, our current commercial products, Donnatal and Esomeprazole Strontium Delayed-ReleaseCapsules 49.3 mg which are products that we promote, EnteraGam which is a product we commercialize, orproducts that we may promote or commercialize in the future;·should a collaborator fail to comply with applicable laws, rules, or regulations when performing services for us, wecould be held liable for such violations;·our collaborators may experience financial difficulties, making it difficult for them to fulfill their obligations to us,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 upon orafter obtaining marketing approval, if at all, for Donnatal or Esomeprazole Strontium Delayed-Release Capsules49.3 mg, EnteraGam which is a product we commercialize, or of products that we may promote or commercialize;·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 significant changes in a collaborator’s business or business strategy may adversely affect acollaborator’s willingness or ability to complete its obligations under any arrangement;·under certain circumstances, a collaborator could move forward with a competing therapeutic candidate or productdeveloped either independently or in collaboration with others, including our competitors; and12 ® ®® ®®® ® ®®®®Table of Contents·collaborative arrangements are often terminated or allowed to expire, which could delay the development and mayincrease the cost of developing our therapeutic candidates or may limit or terminate our rights to promote Donnatal,Esomeprazole Strontium Delayed-Release Capsules 49.3 mg and commercialize EnteraGamin the U.S. or productswe may promote or commercialize in the future. In addition, our reliance upon our partners in connection with promotional activities subjects us to a number of additionalrisks, including but not limited to, the following: ·we do not control our partners’ communications with the FDA, and the FDA may determine to withdraw the productsfrom the market due to any action or inaction taken by our partners (see “–Donnatal, EnteraGam and EsomeprazoleStrontium Delayed-Release Capsules 49.3 mg or products which we may promote or commercialize may bewithdrawn from the market at any time due to product withdrawal requests by the FDA or other foreign regulatoryauthorities.”);·we rely on our partners to take enforcement action to protect the IP and regulatory protections, if any, of ourcommercial products. Their failure to diligently protect these products could materially affect our commercialsuccess; in the case of Donnatal, we rely on our partner to take action to proactively prevent illegal copies of theproduct from being marketed and sold and their failure to do so could materially affect our commercial success;·we rely on our partners to be responsible for the manufacture of Donnatal, EnteraGam and Esomeprazole StrontiumDelayed-Release Capsules 49.3 mg through third-party manufacturers with the requisite quality and manufacturingstandards as required under applicable laws and regulations, and we also rely on those same partners to supply theirrespective products, which may result in us having those respective products in insufficient quantities or ontimelines insufficient to achieve adequate or successful promotion and sale of their respective products in the U.S.; ·our same partners may significantly create or change reimbursement agreements or increase or decrease the price oftheir respective products to a level that could adversely affect our sales or revenues; ·we rely on those same partners for most decisions relating to the promotion, sales and marketing of their respectiveproducts, and any action or inaction taken by those same partners may adversely affect the sales of their respectiveproducts; ·our partners may change or create new agreements with wholesalers, Pharmacy Benefit Managers or other importantstakeholders, which may significantly impact our ability to achieve commercial success, or they may fail tonegotiate reimbursement agreements with payors which could also negatively affect our commercial success;·our partners may change the price of their respective products to a level that could adversely affect our sales orrevenues;·those same partners may not be successful in maintaining or expanding reimbursement from government or third-party payors, such as insurance companies, health maintenance organizations and other health plan administrators,which may adversely affect the sales of their respective products; and·those same partners may terminate their agreements with us after an agreed upon period for reasons set forth in thosesame partners’ respective agreements with us. If any of these or other scenarios materialize, they could have an adverse effect on our business, financial condition or resultsof operations. As a result of Concordia's debt obligations, we are subject to the additional risks that Concordia may delay, reduce or ceasepayments to us under the Co-Promotion Agreement or otherwise be unable or unwilling to meet its obligations to us underthe Co-Promotion Agreement, including its manufacture, supply, and other operating responsibilities. If any of thesescenarios materialize, it could have an adverse effect on our business, financial condition or results of operations. Donnatal, EnteraGam and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg or products which we maypromote or commercialize in the future may be withdrawn from the market at any time due to product withdrawal requestsby the FDA or other foreign regulatory authorities. Products we acquire or to which we acquire certain commercialization rights may be subject to withdrawal requests by theFDA or other foreign regulatory authorities for various reasons. For instance, certain products, such as Donnatal, may13 ®® ®®®®®®®®Table of Contentsbe subject to regulatory review due to their classification 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 to theFDA’s DESI proceedings to determine its effectiveness and the right to continue to be marketed in the U.S., and there is noassurance 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, theprocess and timing of any FDA DESI proceedings with respect to Donnatal are unclear. Historically, the FDA has generallypermitted products to stay on the market during these proceedings, although there is no assurance as to the time ofcommencement of such proceedings or whether the FDA will in fact grant such permission to any future DESI-relatedproceedings, including for Donnatal. EnteraGam and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg may alsobe subject to withdrawal requests by the FDA. The status of EnteraGam as a “medical food” in the U.S. may be challengedby regulatory authorities which may result in its withdrawal from the market until additional regulatory requirements are met.Regulatory authorities in other jurisdictions may have similar procedures that may subject any product we may promote orcommercialize to limitations or withdrawal requests. In addition, the FDA or other foreign regulatory authorities maydetermine that the chemistry, manufacturing and controls (“CMC”) of marketed products that we develop, acquire or towhich we acquire commercialization rights, such as Donnatal, EnteraGam and Esomeprazole Strontium Delayed-ReleaseCapsules 49.3 mg is unsatisfactory due to the manufacturing standards of the products. If either of these or any regulatoryaction is taken, Donnatal, EnteraGam and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg or any product wepromote or commercialize could be withdrawn from the market at any time. In addition, we may suffer from delays in furthercommercialization of any product we promote or commercialize. We may not be successful in acquiring products or companies that own rights to, or otherwise acquire commercializationrights to, products cleared or approved for marketing in the U.S. or elsewhere that achieve commercial success or in furtherestablishing 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, and in particular, those with a therapeutic focus on GI or cancer. Specifically, we seek to acquire rights toproducts that are already commercialized, which would enable us to commercialize such products independently and furtherestablish our own marketing and commercialization capabilities in the U.S. We have entered into a Co-PromotionAgreement with Concordia pursuant to which we were granted certain rights to promote Donnatal in certain U.S. territorieswhich was our first agreement to commercialize a product being marketed in the U.S. We have also entered into a licenseagreement with Entera Health pursuant to which we were granted the exclusive rights to commercialize EnteraGam incertain U.S. territories, and we have entered into an agreement with ParaPRO pursuant to which we were granted the exclusiverights to promote Esomeprazole Strontium Delayed-Release Capsules 49.3 mg to gastroenterologists in certain U.S.territories. However, there can be no assurance as to our ability to identify and acquire rights to any additional products, inparticular those with a therapeutic focus on GI or cancer. If we are not successful in acquiring any additional products, or incommercializing EnteraGam, or in promoting Donnatal, and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg,we may not be able to further establish or maintain our own marketing and commercialization capabilities in the U.S. Thismay limit our ability to commercialize products on our own and may require us to contract with third-party development orcommercialization partners which may not be on commercially favorable terms. Additionally, these efforts to furtherestablish and maintain our commercial capabilities in the U.S. could be found more costly than our forecast and have anadverse 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 or cleared formarketing that will achieve commercial success or that we will be able to successfully commercialize. If we are unable to maintain, train and build an effective sales and marketing infrastructure, or establish and maintaincompliant and adequate sales and marketing capabilities, we will not be able to commercialize and grow our products andproduct candidates successfully. To further establish and maintain our own marketing and commercialization capabilities in the U.S. we may need to expand,among other things, our development, regulatory, manufacturing, marketing and sales capabilities and to increase ormaintain our personnel to accommodate sales. We may not be able to secure sales personnel or organizations that areadequate in number or expertise to successfully market and sell our products in the U.S. If we are unable to expand our14 ®®®®®®®®®®®®®®Table of Contentssales and marketing capability, train our sales force effectively or provide any other capabilities necessary to commercializeour products and therapeutic candidates, we may need to contract with third parties to market and sell our products. Our employees and sales personnel must comply with applicable regulatory requirements and restrictions, including, but notlimited to, “fair balance” promotion of our products and state and federal anti-kickback laws. If we are unable to establishand maintain compliant and adequate sales and marketing capabilities, we may not be able to increase our product revenue,may generate increased expenses and may be subject to regulatory and compliance investigation and enforcement. Expanding and maintaining our commercial infrastructure for our commercial capabilities in the U.S. is a significantundertaking that requires substantial financial and managerial resources, and we may encounter delays or may not besuccessful in our efforts. While we are currently promoting Donnatal and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg in certain U.S.territories, we have only recently begun to promote products in the U.S. and we have limited experience in promotingproducts. We are currently commercializing EnteraGam in the U.S., and we likewise have only recently begun to promoteand commercialize products in the U.S., and we have limited experience in marketing and selling products. Establishing,maintaining and/or expanding the necessary capabilities are competitive and time-consuming, and the commercialization ofEnteraGamand promotion of Donnatal and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg require asignificant expenditure of operating, financial and management resources. Even with those investments, we may not be ableto effectively promote Donnatal or Esomeprazole Strontium Delayed-Release Capsules 49.3 mg, commercializeEnteraGam, or we may incur more expenditures than anticipated in order to maximize our sales. We cannot guarantee thatwe will be able to establish, maintain and/or expand our sales, marketing, distribution and market access capabilities andenter into and maintain any agreements necessary for commercialization with payers and third-party providers on acceptableterms, if at all. If we are unable to establish, maintain and/or expand such capabilities, either on our own or by entering intoagreements with others, or are unable to do so in an efficient manner or on a timely basis, we will not be able to maximize ourcommercialization of EnteraGamor promotion of Donnatalor Esomeprazole Strontium Delayed-Release Capsules 49.3mg, which would adversely affect our business, operating results and financial condition. Even if the promotion of Donnataland Esomeprazole Strontium Delayed-Release Capsules 49.3 mg and/orcommercialization of EnteraGamare successful, we may fail to further our business strategy as anticipated or to achieveanticipated benefits and success. We may incur higher than expected costs in connection with our promotion of Donnatal orEsomeprazole Strontium Delayed-Release Capsules 49.3 mg or commercialization of EnteraGam, and we may encountergeneral economic or business conditions that adversely affect these products. In addition, if we incur higher than expected costs in connection with our promotion of Donnatal or EsomeprazoleStrontium Delayed-Release Capsules 49.3 mg, or commercialization of EnteraGam, we may need to reduce or terminate ourcommercial activities, which may have a material adverse effect on our business. We have no history of independently commercializing any of our therapeutic candidates that may be approved in the futureand may have difficulty promoting Donnatal or Esomeprazole Strontium Delayed-Release Capsules 49.3 mg,commercializing EnteraGam, or promoting or commercializing any therapeutic candidates or products to which we mayacquire the rights in the future. 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. In June 2017, we beganpromoting Donnatal and commercializing EnteraGam in the U.S., and in September 2017 we began promotingEsomeprazole Strontium Delayed-Release Capsules 49.3 mg to gastroenterologists in certain U.S. territories. There can be noassurance we will successfully commercialize our therapeutic candidates, if approved in the future, or promote Donnatal andEsomeprazole Strontium Delayed-Release Capsules 49.3 mg, or commercialize EnteraGam or any products we may promoteor commercialize in the future. 15 ®®® ®®®® ® ® ® ®®®®®®®®®®Table of ContentsIn addition, many companies, both public and private, including well-known pharmaceutical companies and smaller niche-focused companies, are currently selling, marketing and distributing drug products that directly compete with the therapeuticcandidates that we may seek to commercialize. Many of these companies have significantly greater financial capabilities,marketing and sales experience and resources than us. As a result, our competitors may be more successful than we are incommercializing products. We rely on third parties to conduct our clinical trials and related non-clinical studies and those third parties may notperform satisfactorily, including but not limited to failing to meet established deadlines for the completion of such clinicaltrials. 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 to performthese functions. Our reliance on these third parties for research and development activities reduces our control over theseactivities. Furthermore, these third parties may also have relationships with other entities, some of which may be ourcompetitors. Although we have, in the ordinary course of business, entered into agreements with such third parties, other thanwith respect to RHB-106 and related rights, which we have out-licensed to Valeant, we continue to be responsible forconfirming that each of our clinical trials and related non-clinical studies is conducted in accordance with its generalinvestigational plan and protocol. Moreover, the FDA requires us to comply with regulations and standards, commonlyreferred to as good clinical practices (“GCP”), for conducting, recording and reporting the results of clinical trials to assurethat data and reported results are credible and accurate and that the trial participants are adequately protected, and regulatoryauthorities in other jurisdictions may have similar responsibilities and requirements. Our reliance on third parties does notrelieve us of these responsibilities and requirements. If these third parties do not successfully carry out their contractualduties or meet expected deadlines, we may be required to replace them or perform such functions independently. Althoughwe believe that there are a number of other third-party contractors we could engage to continue these activities, it may resultin a delay of the affected trial and additional costs. Accordingly, we may be materially delayed in obtaining regulatoryapprovals if any, for our therapeutic candidates and may be materially delayed in our efforts to successfully commercializeour 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 maypromote or commercialize, including Donnatal, EnteraGam and Esomeprazole Strontium Delayed-Release Capsules 49.3mg, in sufficient quantities, in the required timeframe, and at an acceptable cost and quality, clinical development andcommercialization of our therapeutic candidates or promotion of products we may promote or commercialize could bedelayed and sales of any product we may promote or commercialize 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 promote orcommercialize. For Donnatal, we rely on Concordia, which has a manufacturing agreement with a third party to providesufficient quantities of Donnatal in the required timeframe. For EnteraGam we rely on Entera Health and the manufacturer,The Lauridsen Group, Inc., to provide sufficient quantities of EnteraGam in the required timeframe, and for EsomeprazoleStrontium Delayed-Release Capsules 49.3 mg we rely on ParaPRO, which has a manufacturing agreement with a third partyto provide sufficient quantities of Esomeprazole Strontium Delayed-Release Capsules 49.3 mg in the required timeframe. Ourreliance on third parties includes our reliance on them for quality assurance related to regulatory compliance. Our current andanticipated future reliance upon others for the manufacture of our therapeutic candidates and any products that we maypromote or commercialize may adversely affect our future operations and our ability to develop therapeutic candidates andcommercialize any therapeutic candidates and any products that we may promote or commercialize on a timely andcompetitive basis. 16 ®®®®®®Table of ContentsWe may not be able to maintain our existing or future third-party manufacturing arrangements on acceptable terms, if at all. Iffor some reason our manufacturers or our development or commercialization partners’ manufacturers do not perform as agreedor expected, we or our partners may be required to replace them, in which event we may incur added costs and delays inidentifying, engaging, qualifying and training any such replacements, and such additional costs and delays may adverselyimpact our ability to obtain regulatory clearances and approvals to commercialize our therapeutic candidates or any productwe may promote or commercialize, or make such commercialization or marketing economically unfeasible. We rely on third parties to manufacture and supply us with high quality active pharmaceutical ingredients (“APIs”) in thequantities 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 promote orcommercialize. If these suppliers are incapable or unwilling to meet our current or future needs on acceptable terms or at all,we could experience a delay in obtaining regulatory clearances or approvals for our therapeutic candidates or products thatwe may promote or commercialize or in conducting clinical trials of our therapeutic candidates and incur additional costs orexperience an adverse effect on our sale of any product we may promote or commercialize. While there may be several alternative suppliers of APIs on the market, we have yet to conclude extensive investigations intothe quality or availability of their APIs. As a result, we can provide no assurances that supply sources will not be interruptedfrom time to time. Changing API suppliers or finding and qualifying new API suppliers can be costly and take a significantamount of time. Many APIs require significant lead time to manufacture. There can also be challenges in maintaining similarquality or technical standards from one manufacturing batch to the next. If we are not able to find 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 promote or commercialize, which could have a materialadverse effect on our business, financial condition or results of operations. We anticipate continued reliance on third-party manufacturers if we are successful in obtaining marketing approval fromthe FDA and other regulatory agencies for any of our therapeutic candidates and reliance on third-party manufacturers forany products that we may promote or commercialize, including Donnatal, EnteraGam and Esomeprazole StrontiumDelayed-Release Capsules 49.3 mg. To date, our therapeutic candidates have been manufactured in relatively small quantities for preclinical testing and clinicaltrials as well as for other regulatory purposes by third-party manufacturers. If the FDA or other regulatory agencies approveany 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, we rely on and weexpect to continue to rely on third-party manufacturers to produce commercial quantities of Donnatal, EnteraGam andEsomeprazole Strontium Delayed-Release Capsules 49.3 mg or any product that we may gain the rights to in the future inorder to promote or commercialize. These manufacturers may not be able to successfully increase or maintain themanufacturing capacity for any of our therapeutic candidates that may be approved in the future, Donnatal, EnteraGam andEsomeprazole Strontium Delayed-Release Capsules 49.3 mg or any product we may gain the rights to in order to promote orcommercialize in the future, in a timely or economic manner, or at all. Except for current FDA regulations with respect to“medical foods,” significant scale-up of manufacturing may require additional validation studies, which the FDA mustreview and approve. Foreign regulatory agencies may also require approval of additional validation studies for scaling up themanufacturing process of any of our products including “medical foods” If the third-party manufacturers are unable tosuccessfully increase or maintain the manufacturing capacity for a therapeutic candidate or for products that we may promoteor commercialize, or if we are unable to secure replacement third-party manufacturers or unable to establish our ownmanufacturing capabilities, the commercial launch of any approved products may be delayed or there may be a shortage insupply which could have a material adverse effect on our business, financial condition or results of operations. 17 ®®®®®®Table of ContentsWe and our third-party manufacturers or our partners' manufacturers are, and will be, subject to regulations of the FDAand other foreign regulatory authorities. We and our third-party manufacturers or our partners' manufacturers are, and will be, required to adhere to laws, regulationsand guidelines of the FDA and 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 andrecordkeeping relating to our therapeutic candidates with varying cGMP rigors depending on what phase each of ourrespective therapeutic candidates is in with respect to its drug development process and any products we may promote orcommercialize, including Donnatal, EnteraGam and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg. We andour third-party manufacturers and our partners' manufacturers may not be able to comply with applicable laws, regulationsand guidelines. We and our third-party manufacturers and our partners' manufacturers are and will be subject to unannouncedinspections by the FDA, state regulators and similar foreign regulatory authorities outside the U.S. Our failure, or the failureof our third-party manufacturers or our partners' manufacturers, to comply with applicable laws, regulations and guidelinescould result in the imposition of sanctions on us, including fines, injunctions, civil penalties, failure of regulatory authoritiesto grant marketing approval of our therapeutic candidates, delays, suspension or withdrawal of approvals, license revocation,seizures or recalls of our therapeutic candidates and commercially-marketed products, operating restrictions and criminalprosecutions, any of which could significantly and adversely affect regulatory approval and supplies of our therapeuticcandidates and commercially-marketed products, and materially and adversely affect our reputation, business, financialcondition and results of operations. Our therapeutic candidates, our current commercial products, Donnatal, EnteraGam and Esomeprazole StrontiumDelayed-Release Capsules 49.3 mg, and any product we may promote or commercialize in the future, even if all regulatoryclearances and approvals are obtained, will be subject to ongoing regulatory review. If we fail to comply with continuingU.S. and applicable foreign laws, regulations and guidelines, we could lose those clearances and approvals, if required atall, and our reputation, business, financial condition and results of operations may be materially and adversely affected. We and/or our commercialization partners, as applicable, will be subject to ongoing reporting obligations with respect to ourtherapeutic candidates, even if they receive regulatory clearance or approval, and with respect to Donnatal, EnteraGam andEsomeprazole Strontium Delayed-Release Capsules 49.3 mg and any cleared or approved product that we may gain the rightsto promote or commercialize in the future, including pharmacovigilance. In addition, the manufacturing operations of ourtherapeutic candidates, our current commercial products, Donnatal, EnteraGam and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg, and any other product we may promote or commercialize, whether currently or in the future, willbe subject to continuing regulatory review, including inspections by the FDA and other foreign regulatory authorities. Theresults of any ongoing review may result in withdrawal from the market of a therapeutic candidate or of one of our currentcommercial products, Donnatal, EnteraGam and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg, or anotherproduct we may promote or commercialize, interruption of manufacturing operations or imposition of labeling or marketinglimitations for such therapeutic candidate or product. Since many more patients are exposed to drugs following theirmarketing clearance or approval, serious but infrequent adverse reactions that were not observed in clinical trials may beobserved during the commercial marketing of the therapeutic candidate or any product we may promote or commercialize,including Donnatal, EnteraGam and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg. As we develop our therapeutic candidates or commercialize our products, we may also periodically discuss with the FDA andother regulatory 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 promote or commercialize 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 drug products,we may be required to provide additional information, which may require us to conduct additional preclinical studies orclinical trials. If we and/or our commercialization partners, as applicable, are required to conduct additional clinical trials orother testing of our therapeutic candidates or of our current commercial products, Donnatal, EnteraGam and EsomeprazoleStrontium Delayed-Release Capsules 49.3 mg, or any other product we may18 ®®®®®®®®®®®®®®Table of Contentspromote or commercialize, we may face substantial additional expenses, be delayed in obtaining marketing clearance orapproval, if required by the FDA, or may never obtain marketing clearance or approval for such therapeutic candidate orproduct we may promote or commercialize, including Donnatal. In addition, Donnatal is currently subject to the FDA’sDESI proceedings to determine its effectiveness and the right to continue to be marketed in the U.S., and there is no assuranceas to the outcome of such proceedings. To our knowledge at this time and based on our review of docketed correspondencewith the FDA, the FDA has not made a final determination as to the efficacy of Donnatal. See “– Donnatal, EnteraGamand Esomeprazole Strontium Delayed-Release Capsules 49.3 mg or products which we may promote or commercialize maybe withdrawn from the market at any time due to product withdrawal requests by the FDA or other foreign regulatoryauthorities.” In addition, in 2011, the FDA granted RHB-104 orphan drug designation for the treatment of Crohn’s disease in the pediatricpopulation, and in 2017, the FDA granted YELIVA orphan drug designation for the treatment of cholangiocarcinoma andgranted RHB-107 orphan drug designation for pancreatic cancer. If we fail to maintain the orphan drug designationexclusivity, our competitors may sell products equivalent to RHB-104, YELIVA or to RHB-107 to treat the same indicationsand our revenues could be reduced. In November 2014, the FDA granted TALICIA a Qualified Infectious Disease Product (QIDP) designation. In January 2017,we announced that RHB-104 had been granted QIDP designation by the FDA for the treatment of NTM infections. IfTALICIAand/or RHB-104 fails to maintain its QIDP designation, it could significantly increase the development time forTALICIAand RHB-104 for the treatment of NTM infections, as the case may be. In addition, third-party manufacturers and the manufacturing facilities that we and our development or commercializationpartners use to manufacture any therapeutic candidate and any other products that we may promote or commercialize,including Donnatal, EnteraGam and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg, will be subject toperiodic review and inspection by the FDA and may be subject to similar review by other regulatory authorities. Laterdiscovery of previously unknown problems with any therapeutic candidate or product we may promote or commercialize,including Donnatal, EnteraGam and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg, manufacturer ormanufacturing process, or failure to comply with rules and regulatory requirements, may result in actions, including but notlimited 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 promote orcommercialize;·product seizure or detentions;·injunctions or the imposition of civil or criminal penalties; and·adverse publicity. If we or our commercialization partners, suppliers, third-party contractors or clinical investigators are slow to adapt, or areunable to adapt, to changes in existing regulatory requirements or the adoption of new regulatory requirements or policies,we and our development or commercialization partners may lose marketing clearance or approval for any of our therapeuticcandidates if any of our therapeutic candidates are approved, and we may lose marketing clearance or approval of anyproducts already cleared or approved for marketing in any jurisdiction, resulting in decreased or lost revenue from suchtherapeutic candidates and products and could also result and other civil or criminal sanctions, including fines and penalties. 19 ®®®®®®®®® ® ®®®®Table of ContentsModifications to our therapeutic candidates, or to any product that we may promote or commercialize, may require newregulatory clearances or approvals or may require us or our development or commercialization partners, as applicable, torecall or cease marketing of any of our cleared or approved products, if any, or delay further studies of our therapeuticcandidates in human subjects until clearances or approvals are obtained. Modifications to our therapeutic candidates and any products we may promote or commercialize, including Donnatal,EnteraGam and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg, after they have been cleared or approved formarketing, if at all, may require new regulatory clearance or approvals, and, if necessitated by a problem with a marketedproduct, may result in the recall or suspension of marketing of the previously approved and marketed product untilclearances or approvals of the modified 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 amodification requires a new approval, supplement or clearance. A manufacturer may determine in conformity with applicablelaws, regulations and guidelines that a modification may be implemented without pre-clearance by the FDA or otherregulatory authorities. However, the FDA or other regulatory authorities can review a manufacturer’s decision and maydisagree. The FDA or other regulatory authorities may also on their own initiative determine that a new clearance or approvalis required. If the FDA or other regulatory authorities require new clearances or approvals of any pharmaceutical product forwhich we or our partners, including development or commercialization partners previously received marketing approval, weor our partners, including development or commercialization partners, may be required to recall and stop marketing suchmarketed product, which could require us or our partners, including development or commercialization partners to redesignthe marketed product and may cause a material adverse effect on our reputation, business, financial condition and results ofoperations. We may depend on our ability to identify and in-license or acquire additional therapeutic candidates to achievecommercial success, including products approved or cleared for marketing in the U.S. or elsewhere. Our six late-clinical development stage therapeutic candidates were all acquired or licensed by us from third parties. Weevaluate internally and with external consultants each therapeutic candidate we in-license or acquire. However, there can beno assurance as to our ability to accurately or consistently identify therapeutic candidates or products that have beenapproved or cleared for marketing in the U.S. that are likely to achieve commercial success. In addition, even if we identifyadditional therapeutic candidates or products that have been approved or cleared for marketing in the U.S. or elsewhere thatare likely to achieve commercial success, there can be no assurance as to our ability to in-license or acquire such therapeuticcandidates or products 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 and products that havebeen approved or cleared for marketing in the U.S. We may compete for in-license and acquisition opportunities with othercompanies, including established and well-capitalized companies. As a result, we may be unable to in-license or acquireadditional therapeutic candidates or products that have been approved or cleared for marketing in the U.S. at all or onfavorable terms. Our failure to further in-license or acquire therapeutic candidates or products that have been approved orcleared for marketing in the U.S. in the future may materially hinder our ability to grow and could materially harm ourbusiness, financial condition and results of operations. If we or a licensor or a partner of ours cannot meet our or their respective obligations under our acquisition, in-license orother development or commercialization agreements or renegotiate the obligations under such agreements, or if otherevents occur that are not within our control, such as bankruptcy of a licensor or a partner, we could lose the rights to ourtherapeutic candidates or products we may promote or commercialize, experience delays in developing or commercializingour therapeutic candidates or products we may promote or commercialize or incur additional costs, which could have amaterial adverse effect on our business, financial condition and results of operations. We acquired our rights to three of our therapeutic candidates, TALICIA, RHB-104 and RHB-106, from a third party pursuantto an asset and purchase agreement. In addition, we in-licensed our rights to three other therapeutic candidates, BEKINDA,YELIVA and RHB-107 pursuant to license agreements in which we received exclusive perpetual licenses to certain patentrights and know-how related to these therapeutic candidates. We have also obtained certain rights to20 ®®®®®Table of Contentspromote Donnatal in certain U.S. territories under a co-promotion agreement, the exclusive U.S. rights to EnteraGamtocommercialize in certain U.S. territories pursuant to a license agreement, and exclusive rights to promote EsomeprazoleStrontium Delayed-Release Capsules 49.3 mg to gastroenterologists in certain U.S. territories pursuant to an agreement.These agreements require us to make payments and satisfy various performance obligations in order to maintain our rightsand licenses with respect to these therapeutic candidates and marketed products. If we or our collaborators do not meet our ortheir respective obligations under these agreements, or if other events occur that are not within our control, such as thebankruptcy of a licensor, we could lose the rights to our therapeutic candidates, experience delays in developing orcommercializing our therapeutic candidates or incur additional costs, any of which could have a material adverse effect onour business, financial condition and results of operations. In addition, we are responsible for the cost of filing 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 other eventsoccur that are not within our control, such as the bankruptcy of a licensor, which impact our ability to prosecute certainpatent applications and maintain certain issued patents licensed to us, we could lose the rights to our therapeutic candidateswhich could have a material adverse effect on our business, financial condition and results of operations. We manage a largeportfolio of patents and may decide to discontinue maintaining certain patents in certain territories for various reasons,including costs, 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 and operations would suffer in the event of computer system failures, cyber-attacks or deficiencies in ourcyber-security. In the ordinary course of our business, we collect and store sensitive data, including intellectual property, compliance –related data, research data, our proprietary business information and that of our suppliers, technical information about ourproducts, clinical trial plans and employee records. Similarly, our third-party providers possess certain of our sensitive dataand confidential information. The secure maintenance of this information is critical to our operations and business strategy.Despite the implementation of security measures, our internal computer systems, and those of third parties on which we rely,are vulnerable to damage from computer viruses, malware, ransomware, cyber fraud, natural disasters, terrorism, war,telecommunication and electrical failures, cyber-attacks or cyber-intrusions over the Internet, attachments to emails, personsinside our organization, or persons with access to systems inside our organization. The risk of a security breach or disruption,particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments, and cyberterrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from aroundthe world have increased. Any such breach could compromise our networks and the information stored there could beaccessed, publicly disclosed, encrypted, lost or stolen. Any such access, inappropriate disclosure of confidential orproprietary information or other loss of information, including our data being breached at third-party providers, could resultin legal claims or proceedings, liability or financial loss under laws that protect the privacy of personal information,disruption of our operations or our product development programs and damage to our reputation, which could adverselyaffect our business. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials couldresult in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Our business could suffer if we are unable to attract and retain key personnel. The loss of the services of members of senior management or other key personnel could delay or otherwise adversely impactthe successful completion of our planned clinical trials or the commercialization of our therapeutic candidates and anyproduct we may promote or commercialize, including Donnatal, EnteraGam and Esomeprazole Strontium Delayed-ReleaseCapsules 49.3 mg, or otherwise affect our ability to manage our company effectively and to carry out our business plan.These key personnel are Dror Ben-Asher, our Chief Executive Officer, Reza Fathi, Ph.D., our Senior Vice President forResearch and Development, Gilead Raday, our Chief Operating Officer, Adi Frish, our Senior Vice President for BusinessDevelopment and Licensing, Guy Goldberg, our Chief Business Officer and Micha Ben Chorin, our Chief Financial Officer.We do not maintain key-man life insurance. Although we have entered into employment or consultancy agreements with allof the members of our senior management team, members of our senior management team may resign21 ®® ®®Table of Contentsat any time. High demand exists for senior management and other key personnel in the pharmaceutical industry. There can beno 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 qualified scientific, technical,business development, marketing, sales, managerial and finance personnel. We experience intense competition for qualifiedpersonnel, and the existence of non-competition agreements between prospective employees and their former employers mayprevent us from hiring those individuals or subject us to liability from their former employers. In addition, as part of our planto promote Donnatal, EnteraGam and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg and potentially productswe may develop, we may need to expand and maintain our marketing and sales capabilities. While we attempt to providecompetitive compensation packages to attract and retain key personnel, many of our competitors are likely to have greaterresources and more experience than we have, making it difficult for us to compete successfully for key personnel. If wecannot attract and retain sufficiently qualified suitable employees on acceptable terms, we may not be able to develop andcommercialize competitive therapeutic candidates and our commercialized products. Further, any failure to effectivelyintegrate new personnel could materially prevent us from 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 maypromote or commercialize, including Donnatal, EnteraGam and Esomeprazole Strontium Delayed-Release Capsules 49.3mg, as well as by political unrest, unstable governments and legal systems and inter-governmental disputes. Any of thesechanges could have a material adverse effect on our business, financial condition and results of operations. Additionally,because our corporate headquarters are in Israel while our commercial office is in the U.S., there is additional risk in ourability as a company to control the activities occurring in the U.S., due to the geographic separation within the company. Uncertain geopolitical conditions could have a material adverse effect on our promotion of Esomeprazole StrontiumDelayed-Release Capsules 49.3 mg. We rely on ParaPRO to manage all aspects of manufacturing, including entering into agreements with third parties to providesufficient quantities of Esomeprazole Strontium Delayed-Release Capsules 49.3 mg in the required timeframe. This includesboth the API and the finished dosage. Major aspects of manufacturing have taken place in South Korea and may continue inthe foreseeable future. Accordingly, geopolitical and military conditions in South Korea and the surrounding region maydirectly affect our promotion of Esomeprazole Strontium Delayed-Release Capsules 49.3 mg. In recent months, there havebeen heightened security concerns regarding North Korea’s nuclear weapons and long-range ballistic missile programs. Thishas resulted in increased uncertainty regarding both North Korea’s actions and those of the United States. If a party will takean aggressive action, including acts of war, we may not receive sufficient quantities of Esomeprazole Strontium Delayed-Release Capsules 49.3 mg in the required timeframe, and our promotion of Esomeprazole Strontium Delayed-ReleaseCapsules 49.3 mg may be adversely affected. 22 ®®®®Table of ContentsRisks Related to Our Industry Even if our therapeutic candidates or any product we may promote or commercialize, receive, have received regulatoryclearance or approval or do not require regulatory clearance or approval, they may not become commercially viableproducts. None of our therapeutic candidates have been cleared or approved for marketing, and none of our therapeutic candidates iscurrently being marketed or commercialized in any jurisdiction. We were granted certain rights to promote Donnatal andEsomeprazole Strontium Delayed-Release Capsules 49.3 mg in certain U.S. territories and to commercialize EnteraGam, allthree of which we recently began promoting in the U.S. Even if any of our therapeutic candidates or any product we maypromote or commercialize receive, have received or do not require regulatory clearance or approval, it may not become acommercially viable product. For example, even if we or our development or commercialization partners receive regulatoryclearance or approval to market a therapeutic candidate, or receive regulatory clearance or approval to promote orcommercialize any product, the clearance or approval may be subject to limitations on the indicated uses or subject tolabeling or marketing restrictions, which could materially and adversely affect their marketability and profitability. Inaddition, a new therapeutic candidate may appear promising at an early stage of development or after clinical trials but neverreach the market, or it may reach the market but not result in sufficient product sales, if any. A therapeutic candidate or anyproduct that we may promote or commercialize, may not result in commercial success for various reasons, including but notlimited 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 efficacy compared to products, prevalence and severity of adverse side effects, orother potential disadvantages relative to alternative treatment methods;·insufficient 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 have notreceived licenses;·incompatibility with other therapeutic candidates or marketed products;·other potential advantages of alternative treatment methods and competitive forces that may make it more difficultfor 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:20)icient revenues to sustain our business operations in accordance with our plan from thesale or marketing of a product in view of the economic arrangements that we have with commercialization or otherpartners;·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 promote or commercialize 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 promote or commercialize.If we are unable, either on our own or through third parties, to manufacture, commercialize or market our proposedformulations, therapeutic candidates or any product we may promote or commercialize when planned, or to develop themcommercially, we may not achieve any market acceptance or generate meaningful revenue. 23 ®®Table of ContentsUnexpected product safety or efficacy concerns may arise and cause any product we may promote or commercialize to failto gain or lose market acceptance. Unexpected safety or efficacy concerns can arise with respect to any product we may promote or commercialize, whether ornot scientifically justified, potentially resulting in product recalls, withdrawals and/or declining sales, as well as productliability, consumer fraud and/or other claims. The market perception and reputation of any product we may promote orcommercialize and their safety and efficacy are important to our business and the continued acceptance of any product wemay promote or commercialize. Any negative publicity about any of our products, such as the pricing of any product we maypromote or commercialize, discovery of safety issues with any product we may promote or commercialize, adverse eventsinvolving any product we may promote or commercialize, or even public rumors about such events, could have a materialadverse effect on our business, financial condition and results of operation. In addition, the discovery of one or moresignificant problems with a product similar to one of any product we may promote or commercialize that implicate (or areperceived to implicate) an entire class of products or the withdrawal or recall of such similar products could have an adverseeffect on the commercialization of any product we may promote or commercialize. New data about any product we maypromote or commercialize, or products similar to any product we may promote or commercialize, could cause us reputationalharm and could negatively impact demand for any product we may promote or commercialize due to real or perceived sideeffects or uncertainty regarding safety or efficacy and, in some cases, could result in product withdrawal. Any of theforegoing could have a material adverse effect on our business, financial condition and results of operations. The market for our therapeutic candidates and for any product we may promote or commercialize is rapidly changing andcompetitive, and new drug delivery mechanisms, drug delivery technologies, new drugs, treatments and products whichmay be developed by others could impair our ability to maintain and grow our business and remain competitive. The pharmaceutical and biotechnology industry is highly competitive, and we face significant competition from manypharmaceutical, biopharmaceutical and biotechnology companies that are researching, developing and marketing productsdesigned to address the indications for which we are currently developing therapeutic candidates or may develop therapeuticcandidates in the future or for which we may promote or commercialize 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 indications ordiseases treated by our therapeutic candidates or products that we may promote or commercialize. For information regardingour competition, 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 or thatare in the process of being developed or will be developed by others may render our therapeutic candidates and products wemay promote or commercialize 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 promote orcommercialize. In addition, Donnatal, EnteraGam and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg andproducts we may promote or commercialize may compete with products of third parties for market share, and generic drugs orproducts that treat the same indications as Donnatal, EnteraGam and Esomeprazole Strontium Delayed-Release Capsules49.3 mg or products we may promote or commercialize can have an adverse effect on our revenues by reducing our marketshare or requiring us to reduce the price of the products we market. We are aware of at least two products that are, to ourunderstanding, illegal copies of Donnatalthat currently are being sold in the U.S. The FDA has not taken action againstthese products and this has had a negative effect on our commercial success. 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 have significantly greaterresearch and development capabilities, human resources and budgets than we do, as well as substantially more marketing,manufacturing, financial and managerial resources. These entities represent significant competition for us. Acquisitions of, orinvestments in, competing pharmaceutical or biotechnology companies by large corporations could increase suchcompetitors’ 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 promote or commercialize, even if commercialized. Many of our24 ®®®®® Table of Contentstargeted diseases and conditions can also be treated by other medications or drug delivery technologies. These treatmentsmay be widely 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 Donnatal, EnteraGamand Esomeprazole Strontium Delayed-Release Capsules 49.3 mg and for products we may promote or commercialize. 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 healthcare, conditions to reimbursement for healthcare services provided to Medicare andMedicaid patients, and other healthcare policy reforms. Through the law-making process, substantial changes have been andcontinue to be made to the current system for paying for healthcare in the U.S., including changes made in order to extendmedical benefits to tens of millions of Americans who lacked insurance coverage and to contain or reduce healthcare costs(such as by reducing or conditioning reimbursement amounts for healthcare services and drugs, and imposing additionaltaxes, fees, and rebate obligations on pharmaceutical and medical device companies). This legislation is one of the mostcomprehensive and significant reforms ever experienced by the U.S. in the healthcare industry and has significantly changedthe way healthcare is financed by both governmental and private insurers. This legislation has impacted the scope ofhealthcare insurance and incentives for consumers and insurance companies, among others. Additionally, the HealthcareReform Law’s provisions are designed to encourage providers to find cost savings in their clinical operations.Pharmaceuticals represent a significant portion of the cost of providing care. Through modified reimbursement rates andother incentives, the U.S. government is requiring that providers identify the most cost-effective services, supplies andpharmaceuticals. This environment has caused changes in the purchasing habits of consumers and providers and resulted inspecific attention to the pricing negotiation, product selection and utilization review surrounding pharmaceuticals. Thisattention may result in our therapeutic candidates and products we may promote or commercialize being chosen lessfrequently or the pricing being substantially lowered. Some of the provisions of the Healthcare Reform Law have not yetbeen fully implemented and regulatory guidance continues to be issued. At this stage, it is difficult to estimate the fullextent of the direct or indirect impact of the Healthcare Reform Law on us. These structural changes could entail further modifications to the existing system of private payors and governmentprograms (such as Medicare, Medicaid and the State Children’s Health Insurance Program), creation of government-sponsored healthcare 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 and ourdevelopment or commercialization partners are currently developing or those that we may promote or commercialize in thefuture. If reimbursement for approved therapeutic candidates or any product we may promote or commercialize, if any, issubstantially reduced or otherwise adversely affected in the future, or rebate obligations associated with them aresubstantially increased, it could have a material adverse effect on our business, financial condition and results of operations. Extending medical benefits to those who currently lack coverage will likely result in substantial cost to the U.S. federalgovernment, which may force significant 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 efficiencies 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 further by decreasing the level of reimbursement for medical services or products (including thosetherapeutic candidates currently being developed by us or our development or commercialization partners or any product wemay promote or commercialize, including Donnatal, EnteraGam and Esomeprazole Strontium Delayed-Release Capsules49.3 mg), or by restricting coverage (and, thereby, utilization) of medical services or products. In either case, a reduction inthe utilization of, or reimbursement for, any therapeutic candidate or any product we may promote or commercialize,including Donnatal, EnteraGam and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg, or for which we receivemarketing approval in the future, could have a material adverse effect on our business, financial condition and results ofoperations.25 ®®®®®®Table of Contents 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 states havedetermined that they will not expand their Medicaid programs and will develop other cost-saving and coverage measures toprovide care to currently uninsured individuals. Many of these efforts to date have included the institution of Medicaid-managed care programs. The manner in which these cost-saving and coverage measures are implemented could have amaterial adverse effect on our business, financial condition and results of operations. Further, the healthcare regulatoryenvironment has seen significant changes in recent years and is still in flux. Legislative initiatives to modify, limit, replace,or repeal the Healthcare Reform Law and judicial challenges continue, and may increase in light of the current administrationand legislative environment. We cannot predict the impact on our business of future legislative and legal challenges to theHealthcare Reform Law 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 are approved orcleared for marketing or for products that we may promote or commercialize, including Donnatal, EnteraGam andEsomeprazole Strontium Delayed-Release Capsules 49.3 mg, they might not be purchased or used, and our revenues andprofits will not increase and they may decrease. Our revenues and profits will depend heavily upon the availability of adequate reimbursement for the use of our approved orcleared therapeutic candidates, if any, and any products that we may promote or commercialize, from governmental or otherthird-party payors, both in the U.S. and in foreign markets. Reimbursement by a third-party payor may depend upon a numberof factors, including to the third-party payor’s determination that the use of an approved or cleared therapeutic candidate andproduct 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 promote or commercialize fromany government or other third-party payor is a time-consuming and costly process that could require us or our developmentor commercialization partners to provide supporting scientific, clinical and cost-effectiveness data for the use of ourtherapeutic candidates or any product that we may promote or commercialize to each payor. Even when a payor determinesthat a therapeutic candidate or any product that we may promote or commercialize is eligible for reimbursement, the payormay impose coverage limitations that preclude payment for some uses that are approved by the FDA or other foreignregulatory authorities. Reimbursement rates may vary according to the use of the therapeutic candidate or the use of anyproduct that we may promote or commercialize and the clinical setting in which it used, may be based on payments allowedfor lower-cost products that are already reimbursed, may be incorporated into existing payments for products or services, andmay reflect budgetary constraints or imperfections in Medicare, Medicaid or other data used to calculate these rates. Inparticular, reimbursement for our products may not be available from Medicare and Medicaid, and reimbursement from otherthird-party payors may be limited. For example, reimbursement both from government and private payors for Donnatal maybe limited or non-existent due to its status as a DESI product. Also, successful commercialization of Esomeprazole StrontiumDelayed-Release Capsules 49.3 mg requires a conducive reimbursement environment. If this product does not receiveadequate reimbursement coverage, or if reimbursement coverage is reduced or otherwise adversely affected, then itscommercial prospects could be severely limited. In addition, because EnteraGam is a “medical food” it is subject to uniqueFDA regulations and requirements that could limit its market potential, and our ability to get reimbursement coverage couldbe limited because of this 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 any productthat we may promote or commercialize in the U.S. In addition, there is a growing emphasis on comparative26 ®®®®Table of Contentseffectiveness research, both by private payors and by government agencies. To the extent other drugs or therapies are foundto be more effective than our products, payors may elect to cover such therapies in lieu of our products or reimburse ourproducts at a lower rate. Legislation that reduces reimbursement for our therapeutic candidates could adversely impact howmuch or under what circumstances healthcare providers will prescribe or administer our therapeutic candidates, if approved,or for any product that we may promote or commercialize. This could materially and adversely impact our business, financialcondition and results of operations by reducing our ability to generate meaningful revenue, raise capital, obtain additionalcollaborators and market. At this stage, we are unable to estimate the extent of the direct or indirect impact of any suchfederal 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.Price reductions or other significant coverage policies or payment limitations could materially and adversely affect ourbusiness, financial condition and results of operations. We are subject to additional U.S. federal and state laws and regulations relating to our business, and our failure to complywith those laws could have a material adverse effect on our business, financial condition and results of operations. We are subject to additional healthcare regulation and enforcement by the U.S. federal government and the states in whichwe conduct or will conduct our business. The laws that may affect our ability to operate include, but are not limited to, thefollowing: ·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 beneficiary that the person knows orshould know is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of anyitem or service for which payment may be made, in whole or in part, by Medicare or a State healthcare program;·the Ethics in Patient Referrals Act of 1989, commonly referred to as the Stark Law, which prohibits physicians fromreferring Medicare or Medicaid patients for certain designated health services where that physician or familymember has a financial 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 programs thatare false or fraudulent;·the so-called federal “Sunshine Act”, which requires certain pharmaceutical and medical device companies tomonitor and report certain financial relationships with physicians and other healthcare providers to the Centers forMedicare and 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 benefit 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 may applyto items or services reimbursed by any third-party payor, including commercial insurers.27 Table of Contents Further, 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 violation withoutactual knowledge of the statute or specific intent to violate it. In addition, the Healthcare Reform Law provides that thegovernment may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statueconstitutes a false or fraudulent claim for purposes of the False Claims Act. Possible sanctions for violation of these anti-kickback laws include monetary fines, 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, orany action against us for violation of these laws, even if we successfully defend against it, could result in a material adverseeffect 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 $150,000 peryear (or up to an aggregate of $1 million per year for “knowing failures”), for all payments, transfers of value or ownership orinvestment interests that are not reported. Manufacturers were required to begin data collection on August 1, 2013 and reportsuch data to the Centers for Medicare and Medicaid Services by March 31 of each year. The Centers for Medicare andMedicaid 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, mandateimplementation of corporate compliance programs, along with the tracking and reporting of gifts, compensation and otherremuneration 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 to discloseinformation about their production and marketing costs, and ultimately lowering costs for drug products. Several states havepassed or introduced bills that would require disclosure of certain pricing information for prescription drugs that have nothreshold amount or are above a certain annual wholesale acquisition cost, and in June 2016 Vermont became the first stateto pass legislation requiring certain drug companies to disclose information relating to justification of certain price increases.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, financial condition and results of operations by promoting a reduction in drug prices. As such, patients may chooseto 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 healthcare reform,especially in light of the lack of applicable precedent and regulations. We cannot predict the impact on our business,financial condition nor results of operations of any changes in these laws. Federal or state regulatory authorities maychallenge our current or future activities under these laws. Any such challenge could have a material adverse effect on ourreputation, business, financial condition and results of operations. Any state or federal regulatory review of us, regardless ofthe outcome, would be costly and time-consuming. Our marketing, promotional and business practices, including with respect to pricing, as well as the manner in which salesforces interact with purchasers, prescribers and patients, are subject to extensive regulation and any material failure tocomply could result in significant sanctions against us. The marketing, promotional and business practices, including with respect to pricing, of pharmaceutical companies, as wellas the manner in which companies’ in-house or third party sales forces interact with purchasers, prescribers, and patients, aresubject to extensive regulation, enforcement of which may result in the imposition of civil and/or criminal penalties,injunctions, and/or limitations on marketing practices for some of our products and/or pricing restrictions or mandated pricereductions for some of our products. Many companies have been the subject of claims related to these practices asserted bystate or federal authorities. These claims have resulted in fines and other consequences, such as 28 stTable of Contentsentering into corporate integrity agreements with the U.S. government. Companies may not promote drugs for “off-label”uses-that is, uses that are not described in the product’s labeling and that differ from those approved by the FDA or otherapplicable regulatory agencies. A company that is found to have improperly promoted off-label uses may be subject tosignificant liability, including civil and administrative remedies, as well as criminal sanctions. In addition, management’sattention could be diverted from our business operations and our reputation could be damaged. We must comply with the U.S. Foreign Corrupt Practices Act. The U.S. Foreign Corrupt Practices Act (the “FCPA”) applies to companies, such as us, with a class of securities registeredunder the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The FCPA to which various of our operationsmay be subject generally prohibits companies and their intermediaries from engaging in bribery or making other improperpayments to officials for the purpose of obtaining or retaining business. In various jurisdictions, our operations require thatwe and third parties acting on our behalf routinely interact with government officials, including medical personnel who maybe considered government officials for purposes of these laws because they are employees of state-owned or controlledfacilities. Our policies mandate compliance with these anti-bribery laws; however, we operate in many parts of the world thathave experienced governmental and/or private corruption to some degree. As a result, the existence and implementation of arobust anti-corruption program cannot eliminate all risk that unauthorized reckless or criminal acts have been or will becommitted by our employees or agents. If our employees or other agents are found to have engaged in such practices, wecould suffer severe penalties. Violations of the FCPA, or allegations of such violations, could disrupt our business and resultin a material adverse effect on our financial condition, results of operations and cash flows. We could be exposed to significant drug product liability claims which could be time consuming and costly to defend,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 of ourtherapeutic candidates and any products we may promote or commercialize involve and will involve an inherent risk thatsignificant liability claims may be asserted against us or our development or commercial partners. Product liability claims orother claims related to our therapeutic candidates and any products we may promote or commercialize, regardless of merit ortheir outcome, could require us to spend significant time and money in litigation or to pay significant settlement amounts orjudgments. A product liability claim could also significantly harm our reputation and the market price of our shares anddelay market acceptance of our therapeutic candidates and decrease demand for any products that we promote orcommercialize, including Donnatal, EnteraGam and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg. Inaddition, regardless of merit or eventual outcome, product liability claims may result in: ·decreased demand for approved products;·impairment of our business reputation;·withdrawal of clinical trial participants;·initiation of investigations by regulators;·litigation costs;·distraction of management’s attention from our primary business;·substantial monetary awards to patients or other claimants;·loss of revenues; and·the inability to commercialize our product candidates. We currently have a product liability policy that includes coverage for our clinical trials and our commercial operationsHowever, our insurance may prove inadequate to cover claims or litigation costs, especially in the case of wrongful deathclaims. Any successful product liability or other claim may prevent us from obtaining adequate liability insurance in thefuture on commercially desirable or reasonable terms. An inability to obtain sufficient insurance coverage at an acceptablecost or otherwise to protect against potential product liability claims could prevent or inhibit the commercialization of ourtherapeutic candidates or products we may promote or commercialize. 29 ®®Table of ContentsIf serious adverse events or other undesirable side effects are identified during the use of our investigational new drugs thathave not yet received regulatory marketing approval under the Expanded Access Program (EAP), it may adversely affectour development of such therapeutic candidates. Patients who receive access to investigational new drugs that have not yet received regulatory marketing approval throughexpanded access programs may be suffering from life-threatening illnesses and poor prognosis and may have exhausted allother available therapies. The risk for serious adverse events in this patient population is high, which could have a negativeimpact on the prospects of our therapeutic candidates that are provided under EAP. Serious adverse events or other undesirable side effects in connection with the use of our therapeutic candidates providedunder EAP could cause significant delays or an inability to successfully develop or commercialize such therapeuticcandidates, which would materially harm our business. In particular, any such serious adverse events or other undesirableside effects could cause us or regulatory authorities to interrupt, delay or halt non-clinical studies and clinical trials, or couldmake it more difficult for us to enroll patients in our clinical trials. If serious adverse events or other undesirable side effects,or unexpected characteristics of our investigational new drugs that have not yet received regulatory marketing approval areobserved in patients who was granted expanded access to our investigational new drugs under the EAP, further clinicaldevelopment of such product candidate may be delayed or we may not be able to continue development of such productcandidates at all, and the occurrence of these events could have a material adverse effect on our business. Undesirable sideeffects caused by our therapeutic candidates could also result in the delay or denial of regulatory approval by the FDA orother regulatory authorities or in a more restrictive label than we expect. Global economic conditions may make it more difficult for us to commercialize our therapeutic candidates and anyproducts that we may promote or commercialize. The pharmaceutical industry, like other industries and businesses, continues to face the effects of the challenging economicenvironment. Patients experiencing the effects of the challenging economic environment, including high unemploymentlevels and increases in co-pays, may switch to generic products, delay treatments, skip doses or use other less effectivetreatments to reduce their costs. Challenging economic conditions in the U.S. include the demands by payors for substantialrebates and formulary restrictions limiting access to brand-name drugs. In addition, in Europe and in a number of emergingmarkets there are government-mandated reductions in prices for certain pharmaceutical products, as well as government-imposed access restrictions in certain countries. All of the aforesaid may make it more difficult for us to commercialize ourtherapeutic candidates and any products that we may promote or commercialize including Donnatal, EnteraGam andEsomeprazole Strontium Delayed-Release Capsules 49.3 mg. Our business involves risks related to handling regulated substances which could severely affect our ability to conductresearch 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 promote or commercialize, weand our development or commercialization partners are subject to federal, state and local laws, rules, regulations and policiesgoverning the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certainmaterials, biological specimens and waste. We and our development or commercialization partners may be required to incursignificant costs to comply with environmental and health and safety regulations in the future. Our research and clinicaldevelopment, as well as the activities of our manufacturing and commercialization partners, both now and in the future, mayinvolve the controlled use of hazardous materials, including but not limited to certain hazardous chemicals. We cannotcompletely eliminate the risk of accidental contamination or injury from these materials. In the event of such an occurrence,we could be held liable for any damages that result and any such liability could exceed our resources. Security breaches and other disruptions could compromise our information and expose us to liability, which would causeour business and reputation to suffer. In the ordinary course of our business, we may collect and store sensitive data, including intellectual property, ourproprietary business information and that of our suppliers and business partners, as well as personally identifiableinformation of patients, clinical trial participants and employees. We also have outsourced elements of our information30 ®®Table of Contentstechnology structure, and as a result, we are managing independent vendor relationships with third parties who may or couldhave access to our confidential information. Similarly, our business partners and other third-party providers possess certain ofour sensitive data. The secure maintenance of this information is critical to our operations and business strategy. Despite oursecurity measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due toemployee, vendor, or business partner error, malfeasance or other disruptions. We, our partners, vendors and other third-partyproviders could be susceptible to attacks on our, and their, information security systems, which attacks are of ever-increasinglevels of sophistication and are made by groups and individuals with a wide range of motives and expertise, includingcriminal groups. Any such breach could compromise our, and their, networks and the information stored there could beaccessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legalclaims or proceedings, liability under laws that protect the privacy of personal information, disrupt our operations, anddamage our reputation, any of which could adversely affect our business. Risks Related to Intellectual Property We may be unable to adequately protect or enforce our rights to intellectual property, causing us to lose valuable rights.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 promote or commercialize, maintain theconfidentiality of our trade secrets and know-how, operate without infringing or violating on the proprietary rights of othersand prevent others from infringing or violating on our proprietary rights. We try to protect our proprietary position by, among other things, filing U.S., European, and other patent applications relatedto our therapeutic candidates, inventions and improvements that may be important to the continuing development of ourtherapeutic candidates, and we plan to try to do the same with products we may acquire, promote or commercialize in thefuture, where this is possible. Because the patent position of pharmaceutical companies involves complex legal and factual questions, we cannot predictthe scope, validity or enforceability of patents with certainty. Our issued patents and the issued patents of our developmentor commercialization 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 from ourdevelopment or commercialization partners or the patent rights to the products already approved for marketing that weacquire or for which we acquire commercialization rights may be challenged, and as a result, the rights we in-license and therights to products we acquire may turn out not to be exclusive or we may not actually have rights under the patents despitereceiving representations from a development or commercialization partner. Our competitors may also independentlydevelop drug delivery technologies or products similar to ours or design around or otherwise circumvent patents issued to, orlicensed by, us. Thus, any patents that we own or license from others may not provide any protection against competitors.Our pending patent applications, those we may file in the future or those we may license from third parties may not result inpatents being issued. If these patents are issued, they may not provide us with proprietary protection or competitiveadvantages. The degree of future protection to be afforded by our proprietary rights is uncertain because legal means affordonly limited protection and may not adequately protect our rights or permit us to gain or keep our 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 as dothe laws of the U.S. and the European Union. Competitors may successfully challenge our patents, produce similar drugs orproducts that do not infringe our patents, or produce drugs in countries where we have not applied for patent protection orthat do not respect our patents. Furthermore, it is not possible to know the scope of claims that will be allowed in publishedapplications and it is also not possible to know which claims of granted patents, if any, will be deemed enforceable in a courtof law. After the completion of development and registration of our patents, third parties may still manufacture or market products ininfringement of our patent-protected rights. Such manufacture or market of products in infringement of our patent-protectedrights is likely to cause us damage and lead to a reduction in the prices of our therapeutic candidates or any31 Table of Contentsproduct we may promote or commercialize, including Donnatal, EnteraGam and Esomeprazole Strontium Delayed-ReleaseCapsules 49.3 mg, 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 promote or commercialize, any patents that protect our therapeutic candidate or any product we maypromote or commercialize may expire early during commercialization. This may reduce or eliminate any market advantagesthat such patents may give us. Following patent expiration, we may face increased competition through the entry of genericproducts into the market 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 patent defenseon our behalf. Therefore, our ability to ensure that these patents are properly prosecuted, maintained, or defended may belimited, which may adversely affect our rights in our therapeutic candidates and potential approval for marketing products.Any failure by our licensors or development or commercialization partners to properly conduct patent prosecution, patentmaintenance, patent enforcement, or patent defense could materially harm our ability to obtain suitable patent protectioncovering our therapeutic candidates or products or ensure freedom to commercialize the products in view of third-partypatent rights, thereby materially reducing our potential profits. We are reliant on our licensing partner, Valeant, to prosecute, maintain and defend the patents and other intellectual propertyrights of RHB-106 which we have licensed to Valeant. If Valeant does not prosecute, maintain and defend the patents andother intellectual property rights of RHB-106, it could materially harm our ability to obtain suitable patent protectioncovering RHB-106 or ensure freedom to commercialize RHB-106 in view of third-party patent rights, thereby materiallyreducing our potential profits from RHB-106. Our out-license agreement with Valeant is currently subject to discussion withValeant, including renegotiation of its terms. In addition, Donnatal, for which we were granted certain rights to promote Donnatal in certain U.S. territories, andEnteraGam, for which we were granted the exclusive U.S. rights to EnteraGam for all indications for human use, are notprotected by patents. The third GI-specialty product, Esomeprazole Strontium Delayed-Release Capsules 49.3 mg, includesthe active ingredient esomeprazole strontium, which is protected by a process patent covering methods of preparingesomeprazole salts. If the FDA proceedings related to Donnatal designed to determine its effectiveness will be ongoing, onlyproducts that receive a New Drug Application (“NDA”) from the FDA, DESI products and those actively participating in thehearing process of the FDA may be marketed. However, other competing products may freely enter the market, and we andour partners may not have sufficient intellectual property rights in Donnatal to protect it from such competition. See “–Risks Related to Our Business and Regulatory Matters – Donnatal, EnteraGam and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg or products which we may promote, sell or market may be withdrawn from the market at any timedue to product withdrawal requests by the FDA or other foreign regulatory authorities. See “Item 3. Key Information – D.Risk Factors – Risks Related to Our Business and Regulatory Matters – 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 promote or commercialize.” If we are unable to protect the confidentiality of our trade secrets or know-how, such proprietary information may be usedby others to compete against us. In addition to filing patents, we generally try to protect our trade secrets, know-how, and technology by entering intoconfidentiality or non-disclosure agreements with parties that have access to them, such as our development orcommercialization partners, employees, contractors and consultants. We also enter into agreements that purport to require thedisclosure 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, these agreementscan be difficult and costly to enforce or may not provide adequate remedies. Any of these parties may breach theconfidentiality agreements and willfully or unintentionally disclose our confidential information, or our competitors mightlearn of the information in some other way. The disclosure to, or independent development by, a competitor of any tradesecret, know-how or other technology not protected by a patent could materially adversely affect any competitive advantagewe may have over any such competitor. 32 ®®®®®®®®®®®Table of ContentsTo the extent that any of our employees, advisors, research collaborators, contractors or consultants independently develop,or use independently developed, intellectual property in connection with any of our projects, disputes may arise as to theproprietary 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 us to spendsubstantial time and money and could prevent us from developing or commercializing our therapeutic candidates and anyproducts we may promote or commercialize. The development, manufacture, use, offer for sale, sale or importation of our therapeutic candidates or any products that wemay promote or commercialize may infringe on the claims of third-party patents or other intellectual property rights. Thenature of claims contained in unpublished patent filings around the world is unknown to us and it is not possible to knowwhich countries patent holders may choose for an extension of their filings 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 the usageor disclosure of intellectual property learned at other employers. The cost to us of any intellectual property litigation or otherinfringement proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustainthe costs of such litigation or proceedings more effectively because of their substantially greater financial resources.Uncertainties resulting from the initiation and continuation or defense of intellectual property litigation or other proceedingscould have a material adverse effect on our ability to compete in the marketplace. Intellectual property litigation and otherproceedings may also absorb significant management time. Consequently, we are unable to guarantee that we will be able tomanufacture, use, offer for sale, sell or import our therapeutic candidates or any products we may promote or commercializein 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 license from athird party and would most likely be required to pay license fees or royalties or both. These licenses may not be available onacceptable terms, or at all. Even if we were able to obtain a license, the rights may be non-exclusive, which could potentiallylimit our competitive advantage. Ultimately, we could be prevented from commercializing a therapeutic candidate and anyproducts that we may promote or commercialize or be forced to cease some aspect of our business operations if, as a result ofactual or threatened patent infringement or other claims, we are unable to enter into licenses on acceptable terms. Thisinability to enter into licenses or the ability to exclude others using proprietary rights, could have a material adverse effecton our business, financial condition and results of operations. We may be subject to other patent-related litigation or proceedings that could be costly to defend and uncertain in theiroutcome. In addition to infringement claims against us, we may become a party to other patent litigation or proceedings beforeregulatory agencies, including post-grant review, inter parties review, interference or re-examination proceedings filed withthe U.S. Patent and Trademark Office or opposition proceedings in other foreign patent offices regarding intellectual propertyrights with respect to our therapeutic candidates or any products that we may promote or commercialize, as well as otherdisputes regarding intellectual property rights with development or commercialization partners, or others with whom we havecontractual or other business relationships. Post-issuance proceedings challenging patent claims validity are not uncommon,and we and/or our development or commercialization partners will be required to defend these procedures as a matter ofcourse. Such procedures may be costly, and there is a risk that we may not prevail which could harm our businesssignificantly. 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 in adverseU.S. federal income tax consequences to U.S. investors. While the determination of passive foreign investment company, or PFIC, status is fact-specific 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 PFIC forU.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)33 Table of Contentsat 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 status willdepend in large part on the market price of the ADSs. A separate determination must be made each taxable year as to whetherwe 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 (asdefined in “Item 10. Additional Information – Taxation — U.S. Federal Income Tax Considerations – Passive ForeignInvestment Companies”) holds Ordinary Shares or ADSs, the U.S. Holder may be subject to adverse tax consequences,including (i) the treatment of all or a portion of any gain on disposition as ordinary income, (ii) the application of an interestcharge with respect to such gain and certain dividends and (iii) compliance with certain reporting requirements. 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 fluctuation, which could result in substantial lossesby 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 fluctuation, 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 of ourADSs on the NASDAQ Capital Market have fluctuated 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 for marketingby us or others;·announcements by us of significant acquisitions, strategic partnerships, in-licensing, out-licensing, joint ventures orcapital 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 are coveredby analysts;·changes in government regulations or patent proceedings and decisions;·developments by our development or commercialization partners; and·general market conditions, geo-political conditions and other factors, including factors unrelated to our operatingperformance. These factors and any corresponding price fluctuations may materially and adversely affect the market price of our OrdinaryShares 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 significant price and volume fluctuations 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 could havea substantial cost and divert resources and attention of management from our business, even if we are successful.34 Table of Contents 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 December 31, 2017, wehad options to purchase 25,781,798 Ordinary Shares under our Amended and Restated Award Plan (2010) (the "2010 AwardPlan") outstanding and non-tradable warrants to purchase an aggregate of 2,025,458 ADSs (each representing 10 OrdinaryShares) outstanding. In addition, as of December 31, 2017, we had a balance of up to 3,530,951 Ordinary Shares reserved forissuance from the total number of Ordinary Shares reserved by our board of directors for issuance under our 2010 Award Plan(including Ordinary Shares subject to outstanding options under such plan). Substantial sales of our Ordinary Shares orADSs, or the perception that such sales may occur in the future, including sales of Ordinary Shares issuable upon the exerciseof options, warrants or other equity-based securities, 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. Our 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 time zones,different trading days and different public holidays in the U.S. and Israel). The trading prices of our securities on these twomarkets may differ due to these and other factors. Any decrease in the price of our securities on one of these markets couldcause a decrease in the trading price of our securities on the other market. There has been a limited market for our ADSs and our Ordinary Shares. We cannot ensure investors that an active marketwill continue or be sustained for our ADSs on the NASDAQ Capital Market and our Ordinary Shares on the TASE, and thismay limit the ability of our investors to sell our ADSs in the U.S. and our Ordinary Shares on the TASE. In the past, there was limited trading in our ADSs and our Ordinary Shares, and there is no assurance that an active tradingmarket of our ADSs or our Ordinary Shares will continue or will be sustained. Limited or minimal trading in our ADSs andour Ordinary Shares has in the past, and may in the future, lead to dramatic fluctuations in market price and investors may notbe able to liquidate their investment at all or at a price that reflects the value of the business. While our ADSs began trading on the NASDAQ Capital Market in December 2012 and our Ordinary Shares on the TASE inFebruary 2011, we cannot assure you that we will maintain compliance with all of the requirements for our ADSs and ourOrdinary Shares to remain listed. Additionally, there can be no assurance that trading of our ADSs and our Ordinary Shares onsuch 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 wemay need to devote substantial time and resources to new compliance initiatives and reporting requirements. As a public company in the U.S. and Israel, we incur additional significant accounting, legal and other expenses as a result ofthe 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 financial compliance costs, introduced new costs such asinvestor relations, travel costs, stock exchange listing fees and shareholder reporting, and made some activities more time-consuming and costly. Any future changes in the laws and regulations affecting public companies in the U.S. and Israel,including Section 404 and other provisions of the Sarbanes-Oxley Act, the rules and regulations adopted by the SEC and theNASDAQ Listing Rules, as well as applicable Israeli reporting requirements, will result in increased costs to us as we respondto such changes. These laws, rules and regulations could make it more difficult and costly for us to obtain certain types ofinsurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits andcoverage or incur substantially higher costs to obtain the same or similar coverage. The35 Table of Contentsimpact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on ourboard of directors, 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 defined 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 the auditorattestation requirements of Section 404 of the Sarbanes Oxley Act (and the rules and regulations of the SEC thereunder). Wewill remain an emerging growth company until the earliest of: (a) the last day of our fiscal year during which we have totalannual gross revenues of at least $1.07 billion; (b) the last day of our fiscal year following the fifth anniversary of the date ofthe first sale of our Ordinary Shares pursuant to an effective registration statement (in our case, December 31, 2018); (c) thedate on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (d)the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended,(the “Exchange Act”), which would occur if the market value of our Ordinary Shares held by non-affiliates is $700 million ormore as of the last business day of our most recently completed fiscal quarter. When these exemptions cease to apply, weexpect to incur additional expenses and devote increased management effort toward ensuring compliance with suchreporting requirements. We cannot predict or estimate the amount of additional costs we may incur as a result of complyingwith these additional reporting requirements. As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead ofapplicable SEC and NASDAQ Stock Market requirements, which may result in less protection than is accorded to investorsunder rules applicable to domestic issuers. As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of thoseotherwise required under the NASDAQ Listing Rules for domestic issuers. For instance, we follow home country practice inIsrael 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 obtain shareholder approvalfor certain dilutive events, such as for the establishment or amendment of certain equity-based compensation plans, anissuance that will result in a change of control of the Company, certain transactions other than a public offering involvingissuances of a 20% or more interest in the Company and certain acquisitions of the stock or assets of another company.Following our home country governance practices as opposed to the requirements that would otherwise apply to a U.S.domestic issuer listed on the NASDAQ Stock Market may provide less protection than is accorded to investors under theNASDAQ 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 officers, directors and principal shareholders are exempt from thereporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are notrequired under the Exchange Act to file annual, quarterly and current reports and financial 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 financial reporting, which may adversely affect investor confidencein 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 financial reporting. Pursuant to the JOBS Act, we are classified 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 financial reporting during a five-year transition periodcommencing in 2013. Our management report regarding our internal control over financial reporting must include, among other things, disclosureof any material weaknesses identified by our management in our internal control over financial reporting. The continuousprocess 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 the requirementsof Section 404. While our assessment of our internal control over financial reporting resulted in our36 Table of Contentsconclusion that as of December 31, 2017, our internal control over financial 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 financial reporting. Failure tomaintain effective internal control over financial reporting could result in investigation or sanctions by regulatoryauthorities, and could have a material adverse effect on our reputation, business, financial condition, results of operations,and investor confidence in the accuracy and completeness of our financial 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 in ourADSs and our Ordinary Shares for any return on their investment. We currently anticipate that we will retain future earnings, if any, for the development, operation and expansion of ourbusiness and 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. Investors in our ADSs may not receive the same distributions or dividends as those we make to the holders of our OrdinaryShares, and, in some limited circumstances, investors in our ADSs may not receive dividends or other distributions on ourOrdinary Shares and may not receive any value for them, if it is illegal or impractical to make them available to investorsin 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 a foreign currencythat was part of a dividend made in respect of deposited Ordinary Shares may require the approval or license of, or a filingwith, any government or agency thereof, which may be unobtainable. In these cases, the depositary may determine not todistribute such property and hold it as “deposited securities” or may seek to effect a substitute dividend or distribution,including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute.We have no obligation to register under U.S. securities laws any ADSs, Ordinary Shares, rights or other securities receivedthrough such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, OrdinaryShares, rights or anything else to holders of ADSs. In addition, the depositary may deduct from such dividends ordistributions its fees and may withhold amounts on account of taxes or other governmental charges to the extent thedepositary believes it is required to make such withholding. This means that investors in our ADSs may not receive the samedistributions or dividends as those we make to the holders of our Ordinary Shares, and, in some limited circumstances,investors in our ADSs may not receive any value for such distributions or dividends if it is illegal or impractical for us tomake them available to investors in our ADSs. These restrictions may cause a material decline 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 respect tothe underlying Ordinary Shares in accordance with the provisions of the deposit agreement for the ADSs. Under Israeli law,the minimum notice period required to convene a shareholders’ meeting is no less than 35 or 21 calendar days, depending onthe proposals on the agenda for the shareholders’ meeting. When a shareholders’ meeting is convened, holders of our ADSsmay not receive sufficient notice of a shareholders’ meeting to permit them to withdraw their Ordinary Shares to allow themto cast their vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send votinginstructions to holders of our ADSs or carry out their voting instructions in a timely manner. We will make all reasonableefforts to cause the depositary to extend voting rights to holders of our ADSs in a timely manner, but we cannot assureholders that they will receive the voting materials in time to ensure that they can instruct the37 Table of Contentsdepositary to vote their ADSs. Furthermore, the depositary and its agents are not responsible for any failure to carry out anyinstructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, holders of ourADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as 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 holder of ourADSs does not give voting instructions, except in limited circumstances, which could adversely affect their interests. 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. The effect of this discretionary proxy is that a holder of our ADSs cannot prevent our Ordinary Shares underlying such ADSsfrom being voted, absent the situations described above, and it may make it more difficult for holders of our ADSs toinfluence the management of our company. 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 and militaryinstability in Israel and the region. We are incorporated under the laws of the State of Israel, our principal offices are located in central Israel and some of ourofficers, 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, a numberof armed conflicts have taken place between Israel and its Arab neighbors. Any hostilities involving Israel or the interruptionor curtailment of trade within Israel or between Israel and its trading partners could adversely affect our operations and resultsof operations and could make it more difficult for us to raise capital. During the Second Lebanon War of 2006, between Israeland Hezbollah, a militant Islamic movement, thousands of rockets were fired from Lebanon up to 50 miles into Israel. Duringthe summer of 2014, Israel was engaged in an armed conflict with Hamas in Gaza, which involved missile strikes againstcivilian targets in various parts of Israel and negatively affected business conditions in Israel. In addition, recent politicaluprisings and conflicts in various countries in the Middle East, are affecting the political stability of those countries. It is notclear how this instability will develop and how it will affect the political and security situation in the Middle East. Thisinstability has raised concerns regarding security in the region and the potential for armed conflict. In addition, Iran hasthreatened to attack Israel, and is also believed to have a strong influence 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. The tension between Israel and Iran or these groups may escalate in the future andturn violent, which could affect the Israeli economy in general and us in particular. Any armed conflicts, terrorist activities orpolitical instability in the region could adversely affect business conditions and could harm our results of operations. Partieswith whom we do business have sometimes declined to travel to Israel during periods of heightened unrest or tension, forcingus to make alternative arrangements when necessary. In addition, the political and security situation in Israel may result inparties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform theircommitments under those agreements pursuant to force majeure provisions in such agreements. Our commercial insurance does not cover losses that may occur as a result of events associated with the security situation inthe Middle East. Although the Israeli government currently covers the reinstatement value of direct damages that are causedby terrorist attacks or acts of war, there is no assurance that this government coverage will be maintained, or if maintained,will be sufficient to compensate us fully for damages incurred. Any losses or damages incurred by us could38 Table of Contentshave a material adverse effect on our business. Any armed conflicts 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 may have amaterial adverse impact on our operating results, financial condition or the expansion of our business. Because a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations maybe harmed by currency fluctuations and inflation. Our reporting and functional currency is the U.S. dollar. Most of our revenues and royalty payments from our agreementswith our development or commercialization partners are in U.S. dollars, and we expect our revenues from future licensing andco-promotion agreements to be denominated mainly in U.S. dollars or in Euros. We pay a substantial portion of our expensesin U.S. dollars; however, a portion of our expenses, including salaries of the employees in Israel and payment to part of theservice providers in Israel and other territories, are paid in NIS and in other currencies. In addition, a portion of our financialassets is held in NIS and in other currencies. As a result, we are exposed to the currency fluctuation risks. For example, if theNIS strengthens against the U.S. dollar, our reported expenses in U.S. dollars may be higher. In addition, if the NIS weakensagainst 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 Award Plan, Israeli law and our articles of association may delay, preventor otherwise impede a merger with, or an acquisition of, our Company, or an acquisition of a significant portion of ourshares, which could prevent a change of control, even when the terms of such a transaction are favorable to us and ourshareholders. Our 2010 Award 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 Award Plan as an event in which any person, entity or group that wasnot an “interested party”, as defined 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 defined in the Israel Securities Law, 1968, or a“holder,” as defined in the Israeli Securities Law, 1968, of 25% or more of the voting rights in the Company or any merger orconsolidation involving the Company, in each case without a resolution by the board of directors of the Companysupporting the transaction. In addition, if a “Significant Event” occurs and following which the employment of a granteewith the Company or a related company is terminated by the Company or a related company other than for “Cause”, andunless the applicable agreement provides otherwise, all the outstanding options held by or for the benefit of any such granteewill be accelerated and immediately vested and exercisable. A “Significant Event” is defined in our 2010 Award Plan as aconsolidation or merger of the Company with or into another corporation approved by the board of directors of the Companyin which the Company is the continuing or surviving corporation or in which the continuing or surviving corporationassumes 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 acquisitions ofshares or voting rights above specified thresholds, requires special approvals for transactions involving directors, officers orsignificant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a mergermay not be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each mergingcompany with the Israel Registrar of Companies and at least 30 days from the date that the shareholders of both mergingcompanies approved the merger. In addition, a majority of each class of securities of the target company must approve amerger. Moreover, the Israeli Companies Law provides that certain purchases of securities of a public company are subject totender offer rules. As a general rule, the Israeli Companies Law prohibits any acquisition of shares or voting power in a publiccompany that would result in the purchaser holding 25% or more, or more than 45% of the voting power in the company, ifthere is no other person holding 25% or more, or more than 45% of the voting power in a company, respectively, withoutconducting a special tender offer. The Israeli Companies Law further provides that a purchase of shares or voting power of apublic company or a class of shares of a public company, which will result in the purchaser’s holding 90% or more of thecompany’s shares, class of shares or voting rights, is prohibited unless the purchaser conducts a full tender offer for all of thecompany’s shares or class of shares. The purchaser will be allowed to purchase all of the company’s shares or class of shares(including those shares held by shareholders who did not respond to the offer), if either (i) the shareholders who do not acceptthe offer hold less than 5% of the issued and outstanding share capital of the company or of the applicable class, and morethan half of the shareholders who do not have a personal interest39 Table of Contentsin 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 six monthsfollowing the completion of the tender offer, petition the court to alter the consideration for the acquisition. At the request ofan offeree of a full tender offer which was accepted, the court may determine that the consideration for the shares purchasedunder the tender offer was lower than their fair value and compel the offeror to pay to the offerees the fair value of the shares.Such application to the court may be filed as a class action. 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 five persons and no more thaneleven, including any external directors whose appointment is required under 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 (other than any director originallynominated for election by virtue of the nomination right granted to any investor who purchased, in the Company's publicoffering which closed on December 27, 2016, together with its affiliates, at least $15 million of ADSs and warrants(excluding the proceeds, if any, from the exercise of warrants, whose term of office may expire earlier depending on thebeneficial ownership by the investor of the Company's shares). This process continues indefinitely. Such provisions of ourarticles of association make it more difficult for a third party to effect a change in control or takeover attempt that ourmanagement 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 as U.S.tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferralcontingent on the fulfillment 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, with respectto certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payableeven 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 another company,or an acquisition of a significant portion of our shares, even if such an acquisition or merger would be beneficial to us or toour shareholders. See “Item 10. Additional Information – B. Memorandum and Articles of Association.” It may be difficult to enforce a U.S. judgment against us and our directors and officers in Israel or the U.S., or to serveprocess on our directors and officers. We are incorporated in Israel. Most of our directors and executive officers reside outside of the U.S., and most of our assetsand most of the assets of our directors and executive officers may be located outside of the U.S. Therefore, a judgmentobtained against us or most of our executive officers 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 a U.S. or Israelicourt. It may also be difficult to effect 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 some respectsfrom the obligations and responsibilities of shareholders of U.S. companies. Israeli law may impose obligations andresponsibilities on a shareholder of an Israeli company that are not imposed upon shareholders of corporations in the U.S. We are incorporated under Israeli law. The obligations and responsibilities of the holders of our Ordinary Shares are governedby our articles of association and Israeli law. These obligations and responsibilities differ in some respects from theobligations and responsibilities of shareholders in typical U.S.-based corporations. In particular, a shareholder of an Israelicompany has a duty to act in good faith toward the company and other shareholders and to refrain from abusing its40 Table of Contentspower 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 director orexecutive officer in the company has a duty of fairness toward the company. There is limited case law available to assist us inunderstanding the implications of these provisions that govern shareholders’ actions. These provisions may be interpreted toimpose additional obligations and responsibilities on holders of our Ordinary Shares that are not typically imposed onshareholders of U.S. corporations. Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful shareholderclaims 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 officers for acts performedby them in their capacity as directors and officers. The Israeli Companies Law provides that a company may not exempt orindemnify a director or an officer nor enter into an insurance contract, which would provide coverage for any monetaryliability incurred as a result of: (a) a breach by the director or officer of his duty of loyalty, except for insurance andindemnification where the director or officer acted in good faith and had a reasonable basis to believe that the act would notprejudice the company; (b) a breach by the director or officer of his duty of care if the breach was done intentionally orrecklessly, except if the breach was solely as a result of negligence; (c) any act or omission done with the intent to derive anillegal personal benefit; or (d) any fine, civil fine, monetary sanctions, or forfeit imposed on the officer or director. Ourarticles of association provide that the Company may exempt or indemnify a director or an officer to the maximum extentpermissible under law. See “Item 6. Directors, Senior Management and Employees – C. Board Practices - CorporateGovernance Practices - Exemption, Insurance and Indemnification of Directors and Officers.” We have issued letters of indemnification to our directors and officers, pursuant to which we have agreed to indemnify themin advance for any liability or expense imposed on or incurred by them in connection with acts they perform in their capacityas a director or officer, subject to applicable law. The amount of the advance indemnity is limited to the higher of 25% of ourthen shareholders’ equity, per our most recent annual financial statements, or $5 million. Our indemnification obligations limit the personal liability of our directors and officers for monetary damages for breach oftheir duties as directors by shifting the burden of such losses and expenses to us. Although we have obtained directors' andofficers' liability insurance, certain liabilities or expenses covered by our indemnification obligations may not be covered bysuch insurance or the coverage limitation amounts may be exceeded. As a result, we may need to use a significant amount ofour funds to satisfy our indemnification obligations, which could severely harm our business and financial condition andlimit the funds available to who may choose to bring a claim against our Company. These provisions and resultant costs mayalso discourage us from bringing a lawsuit against directors and officers for breaches of their duties, and may similarlydiscourage the filing of derivative litigation by our shareholders against the directors and 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. Our 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 offices 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 Ordinary Shares,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 same symbol "RDHL". 41 Table of ContentsOur capital expenditures for the years ended December 31, 2017, 2016 and 2015 were approximately $146,000, $85,000 and$14,000, respectively. Our current capital expenditures involve equipment and leasehold improvements. B. Business Overview We are a specialty biopharmaceutical company primarily focused on late-clinical development stage and commercializationof proprietary drugs for gastrointestinal ("GI") diseases and cancer. From inception to the end of the period covered by thisAnnual Report, we invested a total of $6.2 million on in-licensing and acquisitions of therapeutic candidates and relatedtechnologies. Depending on the specific development program, our therapeutic candidates are designed to exhibit greater efficacy andprovide improvements over existing drugs by one or more of the following: by improving their safety profile, reducing sideeffects, lowering the number of administrations, using a more convenient administration form or providing a cost advantage.Where applicable, we intend to seek FDA approval for the commercialization of certain of our therapeutic candidates throughthe alternative Section 505(b)(2) regulatory path under the Federal Food, Drug, and Cosmetic Act of 1938, as amended(“FDCA”), and in corresponding regulatory paths in other foreign jurisdictions. Our current pipeline consists of six late-clinical development stage therapeutic candidates. We generate our pipeline of therapeutic candidates by identifying, rigorously validating and in-licensing or acquiringproducts that are consistent with our product strategy and that we believe exhibit a relatively high probability of therapeuticand commercial success. Our therapeutic candidates have not yet been approved for marketing and, to date, our therapeuticcandidates have not generated meaningful sales. We intend to commercialize our therapeutic candidates through licensingand other commercialization arrangements with pharmaceutical companies on a global and territorial basis. We also evaluate,on a case by case basis, co-development and similar arrangements and the independent commercialization of our therapeuticcandidates in the U.S. In addition to our primary focus on the development of clinical-stage GI products, we have established commercial presenceand capabilities in the U.S., intended primarily to support potential future launch of our GI-related therapeutic candidatescurrently under development in the U.S. We pursue our commercial activities in the U.S. through RedHill Biopharma Inc., awholly-owned subsidiary we formed in Delaware in January 2017. Through this subsidiary, we currently commercialize inthe U.S., EnteraGamand promote Donnataland Esomeprazole Strontium Delayed-Release Capsules 49.3 mg. Our Strategy Our goal is to become a significant player in the development and commercialization of pharmaceuticals for the treatment ofGI diseases and cancer. Key elements of our strategy are to: ·identify and acquire rights to products from pharmaceutical companies that have encountered cash flow oroperational problems or that decide to divest one or more of their products for various reasons. Specifically, we seekto acquire rights to and develop products that are intended to treat pronounced clinical needs, have patent or otherprotections, and have potential target markets totaling tens of millions to billions of dollars. Additionally, we seekto acquire rights to and develop products based on different technologies designed to reduce our dependency onany specific 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.Specifically, we seek to acquire rights to products that are already commercialized in the U.S., preferably with atherapeutic focus on GI or cancer, which would enable us to commercialize such products42 ® ® Table of Contentsindependently through 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 largeknowledge base regarding existing products, the preclinical, clinical and regulatory requirements needed to obtainmarketing approval for enhanced formulations are relatively well-defined. In particular, clinical trial designs,inclusion criteria and endpoints previously accepted by regulators may sometimes be re-used. In addition toreducing costs and time to market, we believe that targeting therapeutics with proven safety and efficacy profilesprovides us a better prospect of clinical success;·where applicable, utilize the FDA’s 505(b)(2) regulatory pathway to potentially obtain more timely and efficientapproval of our formulations of previously approved products. Under the 505(b)(2) process, we are able to seek FDAapproval of a new dosage form, strength, route of administration, formulation, dosage regimen, or indication of apharmaceutical product that has previously been approved by the FDA. This process enables us to partially rely onthe FDA findings of safety or efficacy 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 Therapeutic Candidates Summary Our six late-clinical development stage therapeutic candidates include “TALICIA”, “RHB-104”, “BEKINDA”, “RHB-106”, “YELIVA” and “RHB-107” and related research and development programs, the most advanced of which aredescribed below. Name of Product Relevant Indication PotentialAdvantagesOverMost ExistingTreatments DevelopmentStage Rights to the ProductTALICIA H. pylori infection Improved efficacy; all-in-one pill First Phase III studyin the U.S.completed;confirmatory PhaseIII study in the U.S.ongoing Acquired all rights to the composition andits use for the treatment of a GI disorderassociated with H. pylori, worldwide andexclusive. We filed our own IP applicationsdirected to the proposed commercialformulation and useRHB-104 Crohn’s disease Novel mechanism ofaction and improvedclinical benefit (targetingsuspected underlyingcause of Crohn's disease) First Phase III studyin N. America, Israel,Australia, NewZealand and Europeongoing; open labelextension Phase IIIstudy ongoing Acquired all rights to the triple antibioticcombination, worldwide and exclusive. Wefiled our own IP applications directed to theproposed commercial formulation and useRHB-104 NontuberculousMycobacteria (NTM)infections Oral formulation targetingsuspected underlyingcause of NTM infections Phase III study designin planning Acquired all rights to the triple antibioticcombination, worldwide and exclusive. Wefiled our own IP applications directed to theproposed commercial formulationRHB-104 Multiple sclerosis(MS) Oral formulation andnovel mechanism ofaction Phase IIa proof ofconcept study inIsrael completed Acquired all rights to the triple antibioticcombination, worldwide and exclusive. Wefiled our own IP directed to the proposedcommercial useBEKINDA24 mg Acute gastroenteritisand gastritis No other approved 5-HT3serotonin receptorinhibitor for thisindication; once-dailydosing First Phase III studyin the U.S.completed;confirmatory PhaseIII study in planning Worldwide, exclusive license to thetechnology used in the commercialformulation. We filed our own IP directedto the proposed commercial formulationand its use43 ®®®®® Table of Contents Name of Product Relevant Indication PotentialAdvantagesOverMost ExistingTreatments DevelopmentStage Rights to the ProductBEKINDA12 mg IBS-D Potential 5-HT3 serotoninreceptor inhibitor withimproved safety, whilemaintaining efficacy Phase II in the U.S.ongoing, pendingfinal CSR; finalresults announced inJanuary 2018 Worldwide, exclusive license to thetechnology used in the commercialformulation. We filed our own IP directedto the proposed commercial formulationand its useRHB-106 Bowel preparation Oral pill, avoid severe badtaste of chemicalsolutions, no knownnephrotoxicity issues Licensed to Valeant Worldwide rights licensed to ValeantYELIVA Advancedunresectablecholangiocarcinoma Oral administration, first-in-class SK2 selectiveinhibitor, with anti-inflammatory and anti-cancer activities. Phase IIa study in theU.S. ongoing (ABC-108) Worldwide exclusive licenseYELIVA Refractory or relapsedmultiple myeloma Oral administration, first-in-class SK2 selectiveinhibitor, with anti-inflammatory and anti-cancer activities Investigator-initiatedPhase Ib/II study inthe U.S. ongoing(ABC-103) Worldwide exclusive licenseYELIVA Advanced solidtumors Oral administration, first-in-class SK2 selectiveinhibitor, with anti-inflammatory and anti-cancer activities Phase I study in theU.S. completed(ABC-101) Worldwide exclusive licenseYELIVA Advancedhepatocellularcarcinoma Oral administration, first-in-class SK2 selectiveinhibitor, with anti-inflammatory and anti-cancer activities Investigator-sponsored Phase IIstudy in the U.S.ongoing (ABC-106) Worldwide exclusive licenseYELIVA Oncology support,radioprotectant,prevention ofradiation - associatedmucositis in thetreatment of head andneck cancer Oral administration, first-in-class SK2 selectiveinhibitor, with anti-inflammatory and anti-cancer activities Phase Ib study inplanning (ABC-104) Worldwide exclusive licenseYELIVA Moderate to severeulcerative colitis Oral administration, first-in-class SK2 selectiveinhibitor, with anti-inflammatory and anti-cancer activities Phase II study inplanning (ABC-105) Worldwide exclusive licenseRHB-107(MESUPRON) Gastrointestinal andother solid tumors An orally-dosed smallmolecule compound withan established clinicalsafety profile; first-in-classspecific inhibitor of fivehuman serine proteases Completed two PhaseII studies; pre-clinicalstudies ongoing Worldwide exclusive license; excludesChina, Hong Kong, Taiwan and MacaoCombinationagainst Ebolavirus Ebola virus disease Unmet medical need The first part of apre-clinical researchcollaboration with aU.S. governmentagency completed;the second part hasnot yet been initiated We filed our own IP directed to the use of anew combination therapy for treating anindividual infected with or exposed to afilovirus TALICIA TALICIA is intended for the eradication of H. pylori bacterial infection in the GI tract. TALICIA is a combination of threeapproved drug products – omeprazole, which is a proton pump inhibitor (prevents the secretion of hydrogen ions necessaryfor digestion of food in the stomach), amoxicillin and rifabutin, which are antibiotics. TALICIA is administered to patientsorally. 44 ® ®®®®®®®®®®Table of ContentsChronic infection with H. pylori irritates the mucosal lining of the stomach and small intestine. The original discovery of theH. pylori bacteria and its association with peptic ulcer disease warranted the Nobel Prize in 2005. H. pylori infection hassince been associated with a variety of outcomes which include: dyspepsia (non-ulcer or functional), peptic ulcer disease(duodenal ulcer and gastric ulcer), primary gastric B-cell lymphoma, vitamin B12 deficiency, iron deficiency, anemia andgastric 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 significantly decreases the risk of developing cancer in infected individuals withoutpre-malignant lesions. TALICIAwas granted Qualified 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 encourage thedevelopment of new antibiotic drugs for the treatment of serious or life-threatening infections that have the potential to posea serious threat to public health. The granted QIDP designation allows us to benefit from Fast-Track development status withan expedited development pathway for TALICIA and Priority Review status which potentially provides shorter review timeby the FDA of a future potential marketing application. If approved, TALICIA will also receive an additional five years ofU.S. market exclusivity on top of the standard exclusivity period, for a total of eight years of market exclusivity. TALICIA is targeting a significantly broader indication than that of existing H. pylori therapies, as a first-line treatment ofH. pylori infection, regardless of ulcer status. We acquired the rights to TALICIA pursuant to an agreement with Giaconda Limited. See “Item 4. Information on theCompany – B. Business Overview – Acquisition, Commercialization and License Agreements – Acquisition of RHB-104,TALICIA and RHB-106.” Competition and Market The first-line therapies for H. pylori infection recommended by the American College of Gastroenterology in 2017commonly include clarithromycin or metronidazole antibiotics with amoxicillin and a proton pump inhibitor. Such currentstandard-of-care treatments fail in approximately 30% of the patients due to the development of antibiotic resistance, basedon reports by Prof. David Y. Graham, M.D., et al. published in Nature Clinical Practice Gastroenterology & Hepatology in2008 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 TALICIA over the current first-line therapies was shown in a Phase II study comprised of 130 subjects. In thestudy, a different formulation of TALICIA, using the same antibiotic ingredients and a similar proton pump inhibitor, wasshown to eradicate H. pylori in over 90% of treated patients who failed previous eradication attempts using standard-of-caretreatments. Furthermore, final results from the first Phase III study in the U.S. (the “ERADICATE Hp Study”) conducted by usdemonstrated 89.4% efficacy in eradicating H. pylori infection with TALICIA in 118 dyspepsia patients with confirmed H.pylori infection. In the U.S., we estimate that approximately three million patients per annum present with first time dyspeptic symptomscaused by an H. pylori infection, based on a 2007 report by Colin W. Howden, M.D., et. al. published in The AmericanJournal of Managed Care and a 2005 report by Nicholas J. Talley, M.D., et al. published in The American Journal ofGastroenterology. Based on this figure, combined with the price of branded treatments, we estimate the potential global andU.S. market for TALICIA 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 TALICIA, using the same antibioticingredients and a similar proton pump inhibitor. A first Phase III trial in the U.S., the ERADICATE Hp Study, which45 ® ®®®®®®®®®®Table of Contentswas completed in 2015, showed 89.4% eradication of H. pylori with TALICIAtherapy 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 confirmatory Phase III study for the treatment of H. pylori infection. In light of the feedback received from the FDA, inJanuary 2017 we entered into an agreement with ICON Clinical Research Limited to perform clinical trial services for theconfirmatory Phase III study. Pursuant to a recommendation from the FDA, we completed a successful supportivepharmacokinetic (PK) program in May 2017 prior to initiating the confirmatory Phase III study. In June 2017, we initiated aconfirmatory Phase III study with TALICIA for the treatment of H. pylori infection (the “ERADICATE Hp2 study”), which iscurrently ongoing. The ERADICATE Hp2 study is a two-arm, randomized, double-blind, active comparator clinical studycomparing TALICIA against a dual therapy amoxicillin and omeprazole regimen at equivalent doses. The study is plannedto enroll 444 non-investigated dyspepsia patients with confirmed H. pylori infection in up to 65 clinical sites in the U.S.,with a primary endpoint of eradication of H. pylori infection at 43 through 71 days after initiation of treatment. We expect toreceive top-line results from the ERADICATE Hp2 study in the second half of 2018. Subject to a successful outcome and anyadditional regulatory feedback, the ERADICATE Hp2 study is expected to complete the package required for a potentialsubmission of an NDA for TALICIA. The following chart summarizes the clinical trial history and status of TALICIA: Clinicaltrial name Developmentphase of theclinical trial Purpose of theclinical trial Clinicaltrial site Number ofsubjects ofthe trial Nature andstatus ofthe trial Schedule- Phase IIa Examining thetherapeutic candidate’seffectiveness intreating H. pyloriinfection in patients forwhom standard of carehad failed to treat theinfection Center forDigestive Disease,Australia 130 The trial wascompleted andindicated that thetreatment is effectivefor H. pylori-infectedpatients for whomstandard of care hadfailed to treat theinfection Completed in2005- ComparativeBioavailability Comparing thebioavailability ofTALICIA to thebioavailability of anequivalent dose ofcommercially availableactive ingredients AlgorithmePharma, Canada 16 Completed Completed in2013ERADICATEHp Study Phase III Examining theeffectiveness, safetyand PK of the finalformulation 13 sites in the U.S. 118 Completed Completed in2015- ComparativeBioavailability Comparing thebioavailability ofTALICIA in fed andfasted state and to thebioavailability of theactive comparator forthe confirmatory PhaseIII study AlgorithmePharma, Canada 18 Completed Completed in2017ERADICATEHp2 Phase III Assess the safety andefficacy of TALICIAas compared to activecomparator Up to 65 sites inthe U.S. 444 Ongoing Top-line resultsexpected inH2/2018 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.” 46 ® ®®®®®®®Table of ContentsRHB-104 Crohn’s Disease RHB-104 is intended to treat Crohn’s disease, which is a serious inflammatory disease of the GI system that may cause severeabdominal 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. To 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 scientific and clinical studies published in peer-reviewed journals sincea National Institute of Allergy and Infectious Diseases conference that focused on MAP in Crohn’s disease took place in1998. Specific genetic loci like NOD2 have been implicated in the pathogenesis of Crohn’s disease with mutations in NOD2suspected of leading to defective recognition of MAP and increased compensatory immune activation in patients withCrohn’s disease. Recent advances in diagnostic technology have led to increasingly higher identification of MAP, withstudies, such as Bull TJ et al. J Clin Microbiol, 2003 and Shafran I et al. Dig Dis Sci, 2002, demonstrating a high prevalenceof MAP 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, an Australian company.See “Item 4. Information on the Company – B. Business Overview – Acquisition, Commercialization and LicenseAgreements – Acquisition of RHB-104, TALICIA and RHB-106.” A diagnostic technology enabling the identification of the presence of MAP bacterial DNA in patients was developed andpatented by Professor Saleh Naser of the University of Central Florida in Orlando, a leading investigator in the field of MAPand its association with Crohn’s disease. Professor Naser published the results of his study of 52 subjects where he foundMAP via PCR in the blood in 46% of Crohn’s subjects and in 20% of subjects who did not have inflammatory bowel disease(The Lancet Vol 364 September 18, 2004). On September 15, 2011, we entered into an agreement with the University ofCentral Florida Research Foundation, Inc. (“UCF”), pursuant to which we acquired the exclusive rights in this patenteddiagnostic test. See “Item 4. Information on the Company – B. Business Overview – Acquisition, Commercialization andLicense 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 based uponthe rights we acquired from UCF. Additional intellectual property covering other aspects of MAP detection was licensed fromthe University of Minnesota in December 2014 in order to potentially enhance our ability to detect MAP. On January 29,2015, we announced that, together with Q Squared, we concluded a pre-submission meeting with the device division of theFDA regarding the development path of a commercial companion diagnostic test for the detection of MAP in Crohn’s diseasepatients. In October 2016 we reported 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. Further optimization of the processes for rapid detection of MAP is currently in progress. We believe that47 ®Table of Contentsensuring that any future commercial test is accurate and reproducible is an essential part of the RHB-104 Crohn’s diseaseprogram. Currently the development is ongoing, and we cannot assure when a commercially available diagnostic test willbe validated as accurate or reproducible, if at all. Competition and Market According to GlobalData, a provider of market intelligence for the pharmaceutical sector, there were approximately 1.5million diagnosed prevalent cases of Crohn's disease in the seven major markets in 2017. This number of prevalent cases isexpected to increase to 1.75 million by 2022. According to GlobalData, the sales of drug treatments for Crohn’s disease were estimated to exceed $7.7 billion in the sevenmajor markets in 2020. The report also estimated that the sales of therapies for Crohn’s disease in these territories wouldexceed $12 billion in 2022. Therapeutic 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 followed bymaintenance 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), integrin inhibitors (Tysabri, Entyvio) and an IL 12 and IL23antagonist (Stelara). Unlike drugs currently on the market for the treatment of Crohn’s disease which are immunosuppressive agents, RHB-104 isintended to address the suspected cause of the disease - MAP bacterial infection. To the best of our knowledge, there are nodrugs 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 biological therapies and other new therapies. Additionally, a number of clinical trials are being conducted byValeant with 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 Pfizer), with the primary endpoint of evaluating the ratio of patients with recurrent symptoms of Crohn’s diseasefollowing the initial induction of remission with 16 weeks of treatment. Subjects were subsequently assessed at 52, 104 and156 weeks. The main secondary objective was the percentage of patients who achieved clinical remission at 16 weeks. Theresults of the trial were published by Professor Warwick Selby et al. in 2007 in the medical journal Gastroenterology.Although the study did not meet the main objective of showing a difference in relapse rate with long-term treatment, therewas a statistically significant difference between the treatment groups in the percentage of subjects in remission at week 16.Professor Marcel Behr and Professor James Hanley from McGill University published a re-analysis of the study in The LancetInfectious Diseases in June 2008, based on the intent-to-treat (ITT) principle and found that there was a significant statisticaladvantage for the active therapy over the placebo throughout the period of administration that disappeared once the activetherapy was discontinued. In June 2011, we entered into an agreement with our Canadian service provider which entered into a back-to-back agreementwith PharmaNet Canada Inc. for the provision of clinical trial services for the RHB-104 adult studies in North America andEurope. PharmaNet was subsequently acquired by inVentiv Health, and our agreements were transferred to inVentiv. See “–Master Service Agreement with 7810962 Canada Inc. and see also "Clinical Services Agreement – Clinical ServicesAgreement related to RHB-104."48 ®®®®®®®Table of Contents 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. 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 filed by Giaconda with the submission of a new Phase III protocol to the FDA, and after 30 days,the IND became effective. Based upon the response from the FDA on issues relating to the clinical study, additional changeshave been made to the clinical study in North America, Israel, and other countries. Further amendments to the protocol weresubmitted to the FDA in 2014, 2016 and 2017 responding to recommendations from the investigators and in order toexpedite recruitment and conclusion of the study. We are currently conducting a randomized, double-blind, placebo-controlled first Phase III study with RHB-104 for Crohn’sdisease (the “MAP US study”) in approximately 150 clinical sites in the U.S., Canada, Israel, Australia, New Zealand andEurope. In the fourth quarter of 2017, we accelerated the timelines for the ongoing MAP US study by curtailing the numberof subjects enrolled in the study from 410 to 331 subjects, while maintaining statistical power of over 80% with a treatmenteffect of 15%. A review of the blended efficacy rate of the current blinded data, as well as additional input from experts,including statisticians and key opinion leaders, suggests that the total number of treatment successes is consistent with thepredefined expected treatment outcomes and that the study has sufficient enrollment to potentially demonstrate efficacy. Weestimate that as a result of the curtailment, the development program will be shortened by approximately one year. Thecurtailed enrollment has been completed in November 2017 with a total of 331 subjects, and top-line results are expected inmid-2018. The estimated cost saving from the curtailment was approximately $14 million. We remain blinded to the datafrom the ongoing MAP US study and cannot ascertain the potential impact of the curtailed number of subjects on the study’sfinal outcome. Additional clinical studies are likely to be required to support an NDA for RHB-104. If the MAP US studyresults are positive, we intend to meet with the FDA and key opinion leaders to present the data package and discuss thepreferred development path. Two pre-planned independent Data and Safety Monitoring Board (“DSMB") meetings have been held to review data from theMAP US study, in which unanimous recommendations to continue the study without any changes to the protocol,investigator’s brochure, study conduct or informed consent form were given. At the first DSMB meeting, held in December2016, safety data from the study was reviewed. At the second DSMB meeting, held in July 2017, safety and efficacy datafrom the first 222 subjects who had completed week 26 assessments of the study was reviewed. In addition, in an ongoing open-label extension Phase III study (the “MAP US2 study”), we continue to evaluate the safetyand efficacy of RHB-104 in subjects who remain with active Crohn’s disease (CDAI ≥ 150) after 26 weeks of blinded studytherapy in the ongoing Phase III MAP US study. These subjects may have the opportunity to receive treatment with RHB-104for a 52-week period in the open-label MAP US2 study. We expect that the data collected in the MAP US2 study will besupplemental to the MAP US study data. The MAP US2 study’s primary endpoint is disease remission at week 16, defined asCDAI of less than 150. The MAP US2 study is planned to enroll approximately 50 subjects in the U.S., Canada, Israel, NewZealand and Europe. We have conducted several supportive studies with the current formulation of RHB-104, and a long-term populationpharmacokinetic study is ongoing as part of the Phase III MAP US study. We also continue to advance the developmentprogram for a commercial companion diagnostic for the detection of MAP bacteria in Crohn’s disease patients incollaboration with several U.S. universities and with Q Squared. The following chart summarizes the clinical trial history and status of RHB-104 and its earlier individual active agents: Clinical trialauthor/designation 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 on Crohn’sdisease patients Center forDigestiveDisease, Australia 12 Performed Completed200249 Table of ContentsClinical trialauthor/designation Developmentphase of theclinical trial Purpose of theclinical trial Clinicaltrial site Plannednumber of subjects ofthe trial Nature andstatus ofthe trial ScheduleBorody 2005 Phase II Examining the effect ofthe treatment on Crohn’sdisease patients Center forDigestiveDisease, Australia 52 Performed Completed 2005Selby Phase III Examining the effect ofthe treatment with theproduct on Crohn’sdisease patients 20 clinicalcenters inAustralia 213 The trial wasperformed andindicatedpromisingimprovementrates, although itdid not meet themain trialobjective, asdefined Published in2007Biovail PK Study2007 PK Study Optimize the formulationof RHB-104 on a PKbasis Toronto, Ontario 24 Trial comparedtwo formulationsto determine theoptimumformulation forRHB-104 Completed 2007MAP US Study Phase III Assess the safety andefficacy of RHB-104 inCrohn’s disease patients U.S., Canada.Israel, Australia,New Zealand andEurope 331 Ongoing Top-line resultsexpected mid-2018Food Effect Study PK Study Determine the effectof foodon the bioavailability ofRHB-104 in healthyvolunteers AlgorithmePharma, Canada 84 Completed Completed 2014Drug-Drug InteractionStudy PK Study To assess the net PKeffect of multiple doses ofRHB-104 on CYP3A4enzymes in healthyvolunteers AlgorithmePharma, Canada 36 Ended Ended 2014MAP US2 Study Phase III Assess the safety andefficacy of RHB-104 inCrohn’s disease patients U.S., Canada,Israel, NewZealand andEurope Approximately50 Ongoing TBD 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.” Nontuberculous Mycobacteria Infections In light of recent discussions with the FDA on our design of a single pivotal Phase III study in support of a potential NDAfiling for a first-line treatment of NTM infections, we plan, subject to further input from the FDA, to initiate a pivotal Phase IIIstudy with RHB-104 for the treatment of NTM infections in mid-2018. The study is intended to assess the safety and efficacyof RHB-104 as a first-line treatment for NTM infections caused by mycobacterium avium complex (MAC). According to Ryu YJ et al. (Tuberc Respir Dis, 2016) the incidence and prevalence of NTM lung disease are increasingworldwide, while treatment options remain limited, lengthy and challenging. NTM has high levels of drug resistance andrequires long term dosing with three or more antibiotics. According to Prevots DR et al. (Am J Respir Crit Care Med, 2010),approximately 80% of pulmonary NTM cases in the U.S. are associated with MAC. RHB-104 is targeting an annual potentialU.S. market for pulmonary NTM, estimated to have exceeded $500 million in 2017, based on an analysis by FosterRosenblatt, a provider of analytic consulting and management development services for the life sciences industry. In January 2017, we announced that RHB-104 had been granted QIDP designation by the FDA for the treatment of NTMinfections. 50 Table of ContentsMultiple Sclerosis (“MS”) MS is an inflammatory, 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. In a study published in PLOSOne (April 2011 | Volume 6 | Issue 4 | e18482) by Cusso et al., among 50 MS patients and 56 healthy patients, MAP wasdetected in 42% and 12% respectively. 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 first preclinical study measuredcytokine production (biomarkers of inflammation) and demonstrated that the RHB-104 treatment led to a significantreduction of pro-inflammatory cytokine concentrations of IL-6 and TNF, which are associated with inflammation and MS,compared to the control group. The second preclinical study measured the efficacy of RHB-104 as prophylactic therapy, andthe treatment with RHB-104 demonstrated a significant reduction in the inflammatory area and level of demyelination,compared with the control group. The third preclinical study measured relapses, demonstrating RHB-104’s efficacy 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 final results (48 weeks) were announced in December 2016. The final results (48 weeks) were consistentwith the interim results (24 weeks), suggesting meaningful positive safety and clinical signals upon 24 weeks of treatmentwith RHB-104 as an add-on therapy, including an encouraging relapse-free rate, Expanded Disability Status Scale scores andMRI 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 Status ofthe trialEAE Mouse T-cellFunction Study Pre-Clinical Measure cytokineproduction as a measure ofinflammation in EAE micetreated with RHB-104 vs.negative controls - - Completed 2012EAE Prophylaxis Study Pre-Clinical Scoring EAE severity inmice treatedprophylactically with RHB-104 vs. negative controls - - Completed 2012EAE Relapse Study Pre-Clinical Scoring EAE severity inmice treated with RHB-104vs. negative and positivecontrols - - Completed 2012Lipopolysaccharide(LPS)-inducedcytokine productionstudy Pre-Clinical Measure LPS-inducedcytokine production inC57BL/6 mice treated withRHB-104 vs. negative andpositive controls - - Completed 2013CEASE-MS Phase IIa Proof of concept study toassess the safety and efficacyof RHB-104 in RRMS Israel 18 Completed 2016; Finalresults announced inDecember 2016 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.” 51 Table of ContentsBEKINDA (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 and not yet FDA-approved indications forondansetron targeting large potential markets: 1)Acute gastroenteritis and gastritis - 24 mg strength 2)Irritable Bowel Syndrome with Diarrhea (IBS-D) - 12 mg strength BEKINDA utilizes a technology called CDT that uses salts to provide an extended release of ondansetron. The CDTplatform enables extended drug release (i.e., the 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 to theCDT platform. Previously, these rights were licensed to us from SCOLR in 2010, which announced that they had ceasedbusiness operations in 2013. See “Item 4. Information on the Company – B. Business Overview – Acquisition,Commercialization and License Agreements – License Agreement for CDTTechnology used in the BEKINDAformulation”. Acute Gastroenteritis and Gastritis Acute gastroenteritis and gastritis both involve inflammation of the mucous membranes of the GI tract. Symptoms ofgastroenteritis and gastritis include nausea, vomiting, diarrhea and abdominal pain. Acute gastroenteritis and gastritis are amajor cause of emergency room visits, particularly for pediatrics. If approved, BEKINDA could potentially decrease thenumber of emergency room visits for 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. This ispotentially 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. If BEKINDA is approved for the treatment of acute gastroenteritis and gastritis, it could potentially hold substantialadvantages over existing treatments. If approved, BEKINDA could be prescribed by primary care physicians to patientsearly on, potentially preventing emergency room visits, 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 Office Pract 40 (2013) 727–741 andour analysis. To 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 often treatedprimarily in IV administration with antiemetic drugs not indicated or approved for this condition, off-label, including 5-HT3serotonin 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. completedtwo pivotal pharmacokinetic studies of EUR-1025 intended to establish the bioequivalence of EUR-1025 versus Zofran(ondansetron hydrochloride). To the best of our knowledge, EUR-1025 was being developed for the indication of52 ®®®®®®®®® ® ®®®®®®®Table of Contentspostoperative-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 of ourknowledge, the Phase III study was not initiated and there has not been further clinical development of EUR-1025 since thecompletion of the above-mentioned pharmacokinetic studies. Clinical Development We completed a randomized, double-blind, placebo-controlled, parallel group Phase III study (the “GUARD study”) withBEKINDA (RHB-102) 24 mg for acute gastroenteritis and gastritis, and positive top-line results from the GUARD study wereannounced in June 2017. The study successfully met its primary endpoint of efficacy in acute gastroenteritis and gastritis.BEKINDA 24 mg was also found to be safe and well tolerated in this indication. The GUARD study evaluated the safety andefficacy of BEKINDA 24 mg in treating acute gastroenteritis and gastritis in 321 adults and children over the age of 12 at 21clinical sites in the U.S. The primary endpoint of the study was the proportion of patients without further vomiting, withoutrescue medication, and who were not given intravenous hydration from 30 minutes post first dose of the study drug until 24hours post dose, compared to placebo. In September 2017, we met with the FDA to discuss the study results and the clinicaland regulatory path towards potential marketing approval of BEKINDA 24 mg in the U.S. Following the guidance providedat the meeting, we are currently working with the FDA to design a confirmatory Phase III study to support a potential NDAwith BEKINDA24 mg for acute gastroenteritis and gastritis and plan to meet with the FDA in the first half of 2018 todiscuss the design of this study. Final results from the GUARD study showed improvement to the primary efficacy outcome by 21% in the Intent to Treat(ITT) population; 65.6% of BEKINDAtreated patients as compared to 54.3% of placebo patients (p=0.04; n=192 in theBEKINDAgroup and n=129 in the placebo group). In the Per Protocol (PP) population, which included patients who metall protocol entry criteria and for which the diagnosis of gastroenteritis was confirmed (n=177 in the BEKINDAgroup andn=122 in the placebo group), BEKINDAimproved the efficacy outcome by 27%; 69.5% of patients in the BEKINDAgroupvs. 54.9% in the placebo group, (p=0.01). An imbalance in baseline nausea was noted, with worse nausea in the BEKINDAtreated group. In a post-hoc analysis, when results were adjusted for baseline nausea, the p-value for the ITT population was0.0152, and for the PP population was 0.0037. BEKINDA 24 mg was also shown to be safe and well tolerated;electrocardiogram results showed no adverse changes with treatment. The benefit observed with BEKINDA is evident acrossthe spectrum of severity of nausea at baseline, including in patients with very severe nausea, suggesting that the drug worksregardless of the initial severity of gastroenteritis. The lead investigator for the Phase III study was Dr. Robert A. Silverman, MD, MS, Associate Professor at the Hofstra NorthShore-LIJ School of Medicine and an emergency medicine specialist. The following chart summarizes the clinical trial history and status of BEKINDAfor Gastroenteritis and Gastritis: Clinical trialname Developmentphase of theclinical trial Purpose of theclinical trial Clinicaltrial site Plannednumber ofsubjectsof the trial Nature andstatus ofthe trial ScheduleGUARD Study Phase III Randomized double-blind placebo-controlledPhase III study in acutegastroenteritis andgastritis 21 sites in theU.S. 321 Evaluated the safety andefficacy of BEKINDA inacute gastroenteritis andgastritis Completed2017TBD ConfirmatoryPhase III Support a potential NDAwith BEKINDA24 mgfor acute gastroenteritisand gastritis TBD TBD TBD TBD 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 ContentsIrritable 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, prior gastroenteritis,and changes in the gut microbiome, bile acids and short-chain fatty acids, which may stimulate 5-HT3 serotonin release andincrease 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), ondansetronhas not been noted to cause ischemic colitis (FDA labeling for Lotronex (alosetron), 2010; FDA labeling for Zofran(ondansetron), 2014). In light of the activity of ondansetron demonstrated in the preliminary studies described above, and because of its extended-release properties and once-daily dosing, we believe BEKINDA® is a promising candidate for the treatment of IBS-D. Competition and Market IBS is one of the most common GI disorders, and IBS-D is the most prevalent diagnosed subtype of IBS in the seven majormarkets according to a report by GlobalData. According to publications by Saito YA. et al. (The American Journal of Gastroenterology, 2002) and by Lovell RM et al. (Clinical Gastroenterology and Hepatology, 2012), it is estimated that up to 30 million Americans may suffer from IBS.According to Lovell RM et al, approximately 40% of IBS cases 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 $870 million in 2018 and exceed $1 billion in 2021. 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 versions marketed byActavis plc, West-Ward and Amneal Pharmaceuticals). However, alosetron is approved only for the treatment of IBS inwomen with severe chronic IBS-D and is under a restricted prescribing program due to potential severe side effects. Theactive ingredient in BEKINDA, ondansetron, is approved by the U.S. FDA as an oncology support antiemetic and has a goodsafety profile. Therefore, we believe that BEKINDA, if approved for the treatment of IBS-D in the U.S., may provideimproved safety while maintaining efficacy and has the potential to be a preferred 5-HT3 serotonin receptor inhibitortreatment for patients suffering from IBS-D. According to EvaluatePharma, the U.S. sales of Lotronex were estimated at $105million in 2017. Ramosetron, another 5-HT3 serotonin receptor inhibitor, is marketed by Astellas Pharma Inc. under thebrand name Irribow for the treatment of IBS-D in Japan and South Korea, for chemotherapy-induced nausea and vomiting inJapan, South Korea and China, and for and postoperative nausea and vomiting in South Korea. Additionally, CadilaHealthcare Ltd. markets ramosetron under the brand name Nozia in India for both IBS-D and chemotherapy induced nauseaand vomiting. To the best of our knowledge, there is currently no clinical development of ramosetron for marketing approvalin 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 and for the reductionin risk of overt hepatic encephalopathy recurrence in adults. According to a report by GlobalData, it is believed that Xifaxanis a gut-selective, broad-spectrum antibiotic with in vitro activity against both gram-positive and gram-negative bacteria. Inthe treatment of IBS-D patients, Xifaxan is administered orally at a dose of 550 mg three times daily for two weeks.According to a GlobalData analysis, Xifaxan® is not widely prescribed due to safety concerns associated with the long-termuse of antibiotics, such as the induction of antibiotic resistance and imbalance in the intestinal flora. According to a report byEvaluatePharma, the worldwide annual sales of Xifaxan for the treatment of IBS are estimated to exceed $480 million in2020. 54 ®®®®®®®®®®® ®® ®®Table of ContentsViberzi (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 $320 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-Promotion Agreementwith Concordia. Clinical Development In January 2018, we announced final results of a randomized, double-blind, placebo-controlled, parallel group Phase IIclinical study of BEKINDA (RHB-102) 12 mg for the treatment of diarrhea-predominant irritable bowel syndrome (IBS-D).The study successfully met its primary endpoint of improving primary efficacy outcome of stool consistency. BEKINDA 12mg was also found to be safe and well tolerated in this indication. The randomized, double-blind, placebo-controlled Phase IIstudy evaluated the safety and efficacy of BEKINDA 12 mg in treating diarrhea-predominant irritable bowel syndrome (IBS-D) in 126 subjects over 18 years old at 16 clinical sites in the U.S. The primary endpoint of the trial was the proportion of patients in each treatment group with response in stool consistencyon study drug as compared to baseline. Response was defined as per FDA guidelines for the indication. Additional endpointswere 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 The BEKINDA 12 mg Phase II study successfully met its primary endpoint, improving the primary efficacy outcome of stoolconsistency response (in accordance with the FDA guidance definition) by an absolute difference of 20.7%, with 56.0%responders of subjects treated with BEKINDA (n=75) vs. 35.3% responders of the placebo subjects (n=51) (p=0.036). Whilenot powered for statistical significance of the secondary efficacy endpoints, the study suggested clinically meaningfulimprovement in both secondary efficacy endpoints of abdominal pain response and overall response (combined stoolconsistency and abdominal pain response). Final results from the Phase II study demonstrated that BEKINDA 12 mgimproved the overall worst abdominal pain response rate by 11.5% vs. placebo (50.7% with BEKINDA 12 mg (n=75) vs.39.2% with placebo (n=51); (p=0.278)) and the overall response improved by an absolute difference of 14.5% in favor of theBEKINDA 12 mg arm (40.0% with BEKINDA 12 mg (n=75) vs. 25.5% with placebo (n=51); (p=0.135)). BEKINDA 12 mg was also shown to be safe and well tolerated. No serious adverse events or new or unexpected safety issueswere noted in the study. We continue to analyze the data from the Phase II study with BEKINDA 12 mg, including allsecondary endpoints. We are designing one or two pivotal Phase III studies with BEKINDA 12 mg for the treatment of IBS-Dand plan to meet with the FDA in the first half of 2018 to discuss the design for these studies. 55 ®®®®®®®®®®®®®®®®®Table of ContentsThe following chart summarizes the clinical trial history and status of BEKINDA for IBS-D: Clinical trialname Developmentphase of theclinical trial Purpose of theclinical trial Clinicaltrial site Plannednumber ofsubjectsof the trial Nature andstatus ofthe trial Schedule- Phase II Randomized double-blind placebo-controlledPhase II study in IBS-D 16 sites in theU.S. 126 Evaluating the safetyand efficacy ofBEKINDA 12 mg inIBS-D Completed2018TBD Phase III Randomized double-blind placebo-controlledPhase III study in IBS-D TBD TBD TBD TBD 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-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 a 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, Commercialization and License Agreements –Acquisition of RHB-104, TALICIA 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 and otherrights, ranging from the low single-digits up to low double-digits. See “Item 4. Information on the Company – B. BusinessOverview – Acquisition, Commercialization and License Agreements – Exclusive License Agreement with ValeantPharmaceuticals International, Inc.” Competition and Market According to a report by EvaluatePharma, the worldwide market of laxative products was estimated at approximately $880million in 2017 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 2-4 litersof solution before the performance of the gastroenterological procedure. In addition to the need to drink considerableamounts of solution, a common side effect that raises difficulties with users is the accompanying harsh and unpleasant taste,leading to potential difficulties with patient compliance. RHB-106 offers the potential for improved patient compliancebecause it is tasteless and eliminates the need for drinking several liters of the ill-flavored electrolyte solution. RHB-106 alsopotentially has an advantage compared to currently available tablet products in the field in that it does not contain sodiumphosphate, 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 chemical ingredientcalled sodium picosulfate, the same active ingredient used in RHB-106. This product is intended to be used for clearing theGI system and it is given in the form of a water-soluble powder and requires drinking quantities of fluids. Clenpiq™ isanother product by Ferring Pharmaceuticals which includes the active ingredient sodium picosulfate. Clenpiq™ (sodiumpicosulfate, magnesium oxide, and anhydrous citric acid) is a ready-to-drink cranberry-flavored oral56 ®®®®®Table of Contentssolution for cleansing of the colon in adults undergoing a colonoscopy, was approved by the FDA in November 2017 and isplanned to be launched in the first quarter of 2018. Another product, called Suprep in the U.S., is marketed by BrainTreeLaboratories Inc. and received FDA approval in 2010 as an osmotic laxative indicated for cleansing of the colon inpreparation for colonoscopy in adults. Suprep’s active ingredients include sodium sulfate, potassium sulfate and magnesiumsulfate in oral solution, and it is administered as a split-dose regimen (taken in the evening before and on the day of thecolonoscopy). In August 2016 Perrigo Company Plc announced tentative FDA approval of its generic version of Suprep;however, it has not begun marketing the generic version of Suprep, and, to the best of our knowledge, no other genericversion 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 OsmoPrep(marketed by Valeant), are based on a chemical substance called sodium phosphate. In December 2008, the FDA published asevere warning against the use of these products due to rare but severe side effects linked to kidney damage. As aconsequence of this development, the FDA required in 2008 that oral sodium phosphate products carry a severe warning(black box label). As announced by Salix (now Valeant), following the black box warning received from the FDA, sales in2009 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 two 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 fall underthe black box warning against nephrotoxicity issued by the FDA in December 2008 with respect to currently marketedsodium phosphate capsule preparations. Norgine B.V. is also developing a new PEG-based bowel preparation oral solution named Plenvu, administered as a two-daysplit dose regimen. According to Norgine B.V., Plenvu is intended to provide whole bowel cleansing, with an additionalfocus on the ascending colon. Norgine B.V. licensed the U.S. and Canada rights to Plenvu to Salix Pharmaceuticals (nowValeant Pharmaceuticals International, Inc.), who announced in June 2017 that the FDA accepted the NDA submitted forPlenvu. The PDUFA action date for the Plenvu NDA is scheduled for May 2018. Plenvu also received marketing approvalin several European countries. 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 reach approximately$280 million. Clinical Development Following the acquisition of Salix by Valeant, we received confirmation, in July 2015, that Valeant is continuing thedevelopment of RHB-106. The following chart summarizes the clinical trial history and status 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 of theproduct’seffectiveness andsafety with anexisting product Center for DigestiveDisease, Australia 60 Completed Completed in2005 YELIVA (ABC294640) YELIVA is a proprietary, first-in-class, orally-administered SK2 selective inhibitor, with anti-inflammatory and anti-canceractivities, targeting multiple oncology, inflammatory and GI indications. 57 ®®®®®® ®®®®®®®®®®®Table of ContentsYELIVA inhibits SK2, a lipid kinase that catalyzes the formation of the lipid signaling molecule sphingosine 1-phosphate(“S1P”). S1P promotes cancer growth and proliferation and pathological inflammation, including TNFα signaling and otherinflammatory cytokine production. Specifically, by inhibiting the SK2 enzyme, YELIVA blocks the synthesis of S1P whichregulates fundamental biological processes such as cell proliferation, migration, immune cell trafficking and angiogenesis,and is also involved in immune-modulation and suppression of innate immune responses from T cells. On March 30, 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 terms ofthe agreement, as amended, we agreed to pay Apogee initial milestone payments of $3.5 million, of which $3 million hasalready been paid, as well as up to $2 million in potential development milestone payments, and tiered royalties starting inthe low double-digits. See “Item 4. Information on the Item 4. Information on the Company – B. Business Overview –Acquisition, Commercialization and License Agreements – License Agreement for YELIVA”. Competition and Market YELIVAis being developed for several indications, including for the treatment of cholangiocarcinoma (bile duct cancer),refractory or relapsed multiple myeloma and advanced hepatocellular carcinoma (“HCC”), ulcerative colitis and forradioprotection in head and neck cancer patients undergoing therapeutic radiotherapy. Cholangiocarcinoma (bile duct cancer) is a highly lethal malignancy. According to the American Cancer Society report fromJanuary 2016, approximately 8,000 people are diagnosed with intrahepatic and extrahepatic bile duct cancers annually inthe U.S., with recent studies showing an increased incidence of cholangiocarcinoma, mainly attributed to recentadvancements in the diagnosis of this disease (Gores GJ, Hepatology, 2003). Surgery with complete resection is currentlyknown to be the only curative therapy for cholangiocarcinoma; however, only a minority of patients is classified as having aresectable tumor at the time of diagnosis. Additional treatment options include radiation therapy and chemotherapy, but theefficacy of these treatments in cholangiocarcinoma patients is also limited and the prognosis for relapse patients who havefailed initial chemotherapy is very poor, with an overall median survival of approximately one year (Valle J, et al. New EngJ, Med 2010). The 5-year relative survival rates of intrahepatic and extrahepatic cholangiocarcinoma patients range between2% to 30%, depending on the tumor type and stage at diagnosis, according to the American Cancer Society. The American Cancer Society estimated that approximately 30,770 new cases of multiple myeloma would be diagnosed inthe U.S. in 2018 and approximately 12,770 deaths are expected to occur. The risk of multiple myeloma increases as peopleage. The total worldwide sales of multiple myeloma therapies were estimated to exceed $18 billion in 2018 according toGlobalData. There are several drugs in late-stage clinical development for multiple myeloma. Hepatocellular carcinoma is the most dominant form of liver cancer, accounting for approximately 85% of liver cancer cases,according to GlobalData. According to the World Health Organization (WHO) International Agency for Research on CancerGLOBOCAN 2012 report, liver cancer is the second and most common cause of cancer-related deaths worldwide. The annualworldwide incidence of liver cancer was estimated in such report to have reached 782,000 cases in 2012, with a mortality rateof 95%; the corresponding U.S. numbers are 30,000 and 80%, respectively. Most patients with HCC suffer from livercirrhosis, which develops following long periods of chronic liver disease. According to this report, the majority of HCC casesare associated with hepatitis B and hepatitis C virus infections. Few treatment options exist for patients diagnosed at anadvanced stage, representing the majority of HCC patients. Sorafenib (Nexavar) is a targeted drug approved for the treatmentof HCC in patients who are not candidates for surgery and do not have severe cirrhosis. According to GlobalData, the marketfor the treatment of HCC in the seven major markets is estimated to exceed $615 million in 2018 and reach approximately$780 million in 2020. There are several drugs in late-stage clinical development for HCC. 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. The American Cancer Society estimated that more than 65,000 people in the U.S.58 ®®®®® ®Table of Contentswere diagnosed with head & neck cancers in 2017. According to a 2011 publication by Peterson DE et al., the incidence ofWorld Health Organization grades 3 or 4 oral mucositis in patients receiving high-dose head and neck radiation (e.g., 60–70Gy) to the oral 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. One of these therapeutic options isMugard®, a mucoadhesive product marketed by AMAG Pharmaceuticals. To the best of our knowledge, several drugs arecurrently in development for the prevention of oral mucositis in cancer patients undergoing radiation therapy. Thesedevelopment programs include SGX942, a fully synthetic 5-amino acid peptide developed by Soligenix, Inc., currentlyundergoing a Phase III study, IZN-6N4, an oral rinse developed by Izun Pharmaceuticals Corp., which completed a positivePhase II study in 2017, Brilacidin, an oral rinse developed by Innovation Pharmaceutical, Inc., which completed a positivePhase II study in 2017, and GC-4419, a small molecule enzyme replacement developed by Galera Therapeutics, Inc., whichcompleted a positive Phase IIb study in 2017. Ulcerative Colitis (“UC”) is an inflammatory bowel disease characterized by chronic inflammation and ulcers in the lining ofthe colon. It is associated with low-grade mucosal inflammation, immune activation and altered gut permeability. Theetiology of UC remains unknown, symptoms vary depending on the severity of the disease and include diarrhea, abdominaland rectal pain, rectal bleeding, weight loss, fatigue and fever. Since the etiology of the disease is unknown, the main drugsindicated for the treatment of UC target the immune response and are not curative. There are a multitude of therapiesavailable for the treatment of ulcerative colitis, including 5 Aminosalicylates (5-ASA, such as mesalamine), corticosteroids(such as prednisone and budesonide), immunomodulators (such as methotrexate and cyclosporine) and biologic agents (suchas Remicade®, Humira®, Entyvio® and biosimilars). According to GlobalData, the number of diagnosed prevalent cases ofUC in the U.S. will reach 863,453 cases in 2018 and is expected to grow to 877,911 cases in 2021. GlobalData estimates thatthe U.S. market for UC therapies will exceed $4.7 billion on 2018, and reach $5 billion in 2021. Clinical Development ABC-108: Advanced Unresectable Cholangiocarcinoma A Phase IIa clinical study with YELIVA in patients with advanced, unresectable, intrahepatic and extrahepaticcholangiocarcinoma was initiated in December 2017. The study is being conducted at Mayo Clinic major campuses inArizona and Minnesota and at the University of Texas MD Anderson Cancer Center. The single-arm Phase IIa study willevaluate YELIVA as a single agent in patients suffering from advanced, unresectable intrahepatic, perihilar and extrahepaticcholangiocarcinoma. In April 2017, the FDA granted YELIVA orphan drug designation for the treatment of cholangiocarcinoma. The orphan drugdesignation allows us to benefit from various development incentives to develop YELIVA for this indication, including taxcredits for qualified clinical testing, the waiver of a prescription drug user fee (PDUFA fee) upon submission of a potentialmarketing application and, if approved, a seven-year marketing exclusivity period (subject to certain exceptions) for thetreatment of cholangiocarcinoma. ABC-103: Refractory or Relapsed Multiple Myeloma An investigator-initiated Phase Ib/II study with YELIVA for the treatment of refractory or relapsed multiple myeloma wasinitiated in the third quarter of in 2016. The study is being conducted at Duke University Medical Center and is planned toenroll up to 77 patients. The study is funded primarily by a grant awarded by the NCI Small Business Innovation Researchprogram, awarded to Apogee in conjunction with Duke University. The primary endpoints of the first 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 endpoints 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. 59 ®®®®®® ®Table of ContentsABC-101: Advanced Solid Tumors A Phase I study, first-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 GI cancerpatients, including pancreatic, colorectal and cholangiocarcinoma cancers. The study included the first-ever longitudinal analysis of plasma S1P levels as a potential pharmacodynamic biomarker foractivity of a sphingolipid-targeted drug. Administration of YELIVA resulted in a rapid and pronounced decrease in levelsof 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-106: Advanced Hepatocellular Carcinoma An investigator-sponsored Phase II study to evaluate the safety and efficacy of YELIVA as a second-line monotherapy inpatients with advanced hepatocellular carcinoma (“HCC”) is ongoing and will include additional collaborating clinicalsites. The study is planned to enroll up to 39 patients who have experienced tumor progression following treatment with first-line single-agent sorafenib (Nexavar). The study is supported by a grant from the National Cancer Institute (“NCI”), awarded to MUSC, which is intended to fund abroad range of studies on the feasibility of targeting sphingolipid metabolism for the treatment of a variety of solid tumorcancers, with additional support from us. ABC-104: Oncology Support, Radioprotectant: Prevention of Radiation-Associated Mucositis in the Treatment of Head andNeck Cancer A Phase Ib study is in planning to evaluate YELIVA as a radioprotectant in head and neck cancer patients undergoingtherapeutic radiotherapy. We have currently delayed the initiation of this study in order to allocate our resources for ourother therapeutic candidate development efforts. The primary endpoint of the study will be to determine a recommended Phase II dose of YELIVA in combination withcisplatin chemoradiotherapy. The secondary objectives will include determining pharmacokinetic properties of YELIVA(e.g., interaction with cisplatin) and pharmacodynamic assessments by measuring plasma levels of various markers.Furthermore, the severity of mucositis and quality of life will be assessed in the placebo and YELIVAtreated patients toplan for a randomized placebo-controlled study. In light of the results of the Phase I study with YELIVA in patients with advanced solid tumors, the compound’s novelmechanism of action, we are evaluating potential clinical studies in inflammatory indications. ABC-105: Moderate to Severe Ulcerative Colitis (“UC”) A Phase II study is in planning. The primary endpoint of this study will be to evaluate the efficacy of YELIVA in patientswith moderate to severe UC by the proportion of patients who are in remission at the end of treatment. Secondary objectiveswill include assessing pharmacodynamics and PKs of YELIVA in this study population, as well as the safety in UC patients.We have currently delayed the initiation of this study in order to allocate our resources for our other therapeutic candidatedevelopment efforts. 60 ®®®®®®®® ® ®®®Table of ContentsABC-109: Food Effect Study in Healthy Subjects A Phase I, randomized, open-label, single-dose, 3-treatment, 3-period, 6-sequence crossover study designed primarily toevaluate the effect of a standardized meal on the absorption and bioavailability of YELIVA in healthy subjects, wascompleted in the U.S. in January 2018. The study also evaluated the effect of the administration of a solution of YELIVA vianasogastric (NG) tube on the absorption and bioavailability of YELIVA. Twenty-three eligible, healthy, male and femaleadult subjects were randomized to receive YELIVA orally in a state of fast, fed or as a solution by NG tube (after tubefeeding). 17 subjects received all three treatments. All three treatments, though maximum concentration was lower when thedrug was given orally in the fed state as compared to fasted, nasogastric administration after tube feeding led to intermediateresults. Subjects experienced fewer gastrointestinal side effects when the drug was given in the fed state than fasted, but thepharmacodynamic effect, as reflected in decrease in sphingosine-1-phosphate, the product of the target enzyme, was no lowerafter fed than fasted administration. Thus, the results indicated that YELIVA may be given after eating, with improvedtolerance and no loss of pharmacodynamic effect. 61 ®®®®®Table of ContentsThe following chart summarizes the clinical trial history and status of YELIVA: Clinical trialname Developmentphase of theclinical trial Purpose ofthe clinicaltrial Clinicaltrial site Plannednumber ofsubjects ofthe trial Nature andstatus ofthe trial ScheduleABC-108 Phase IIa A study for the treatmentof advanced,unresectable intra-hepatic, perihilar andextra-hepaticcholangiocarcinoma Multicenterstudy across theU.S. Up to 39 Ongoing OngoingABC-103 Phase Ib/II Safety and efficacy studyin patients withrefractory or relapsedmultiple myeloma thathave previously beentreated with proteasomeinhibitors andimmunomodulatorydrugs DukeUniversity,North Carolina,U.S. Up to 77 Ongoing OngoingABC-101 Phase I Safety, PK andpharmacodynamic studyin patients with advancedsolid tumors MedicalUniversity ofSouth Carolina,Charleston,U.S. 22 Completed. Finalresults indicate thestudy drug is welltolerated and can besafely administeredto cancer patients Completed 2015ABC-106 Phase II Investigator-SponsoredSafety and EfficacyStudy in Patients withAdvanced HepatocellularCarcinoma Who HaveProgressed on Sorafenib MedicalUniversity ofSouth Carolina,Charleston,U.S.A. andcollaboratingsites(Multicenter,U.S.) From 12 to 39 Ongoing OngoingABC-104 Phase Ib Safety and efficacy studyin the prevention ofmucositis in combinationwith radiotherapy fortreatment of squamoushead and neck carcinoma Multicenterstudy across theU.S. Up to 32 TBD TBDABC-105 Phase II A study for the treatmentof moderate to severeulcerative colitis Multicenterstudy Up to 94 TBD TBDABC-109 Phase I Assessment of the effectof a food on theabsorption andbioavailability ofABC294640, also as asolution via nasogastric(NG) tube under fedconditions ICON EarlyPhase Services,San-Antonio,TX 23 Completed Completed 2018 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-107 (MESUPRON) RHB-107 (MESUPRON) (INN: upamostat) is a proprietary small molecule, first-in-class, potent serine protease inhibitoradministered by oral capsule. We believe that RHB-107 has a unique potency and specificity that suggests it may be a new non-cytotoxic approach tocancer therapy, as well as other indications of high unmet need such as inflammatory digestive diseases and inflammatorylung diseases. 62 ®Table of ContentsAs mentioned under “Item 4. Information on the Company – B. Business Overview – Acquisition, Commercialization andLicense Agreements – License Agreement for RHB-107”, on June 30, 2014, we signed an exclusive license agreement for thisoncology therapeutic candidate. Under this agreement, we are responsible for all development, regulatory andcommercialization of RHB-107 in the entire world, excluding China, Taiwan, Macao and Hong Kong. Competition and Market RHB-107 is an orally-administered protease inhibitor with several potential mechanisms of action to inhibit tumor invasionand metastasis and has been developed for the treatment of solid tumor cancers, including GI cancers, with the focus onlocally advanced non-metastatic pancreatic cancer. Pancreatic cancer is characterized as a disease with very high unmet need in oncology. According to data from the NationalCancer Institute, with approximately 53,000 new cases diagnosed in 2017 and approximately 43,000 deaths, pancreaticcancer is the 12th most common cancer in the U.S. and the third most common cause of cancer-related death. The overallfive-year survival rate for the disease is only 8.2% in the U.S., representing one of the poorest prognoses across the GIcancers. The total worldwide sales of pancreatic cancer therapies were 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 significant 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 classified as resectable (no regional or distant organ metastasis) are often treated by surgical intervention, dependingon the location of the tumor within the pancreas. Patients with greater than Stage IIb disease are usually deemed unresectable.Of the unresectable group, the majority of locally-advanced patients are treated in the same manner as metastatic 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 RHB-107. The first Phase II trial inlocally advanced non-metastatic pancreatic cancer and the second trial in metastatic breast cancer established the therapeuticcandidate's safety and tolerability profile. The Phase II trials with RHB-107 in both indications failed to demonstratesignificant improvement in either progression-free survival or overall survival. None 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 planning several preclinical studies, including biomarkeranalysis and mechanism of action studies. We expect that the findings from these studies can help us determine the patientpopulations to be studied in subsequent clinical trials. We are working on several oncology projects evaluating multiple clinical candidates including RHB-107 as a componentspanning oncology indications where strong unmet medical need exists. We have recently received a Notice of Allowancefrom the U.S. Patent and Trademark Office for a patent that will recite claims directed to a combination of YELIVA, RHB-107, and a known antibiotic. The claims in the patent will also be directed to methods of treating cancer, or preventingcancer, by administering YELIVA and a known antibiotic. Upon issuance, in addition to the existing intellectual propertyprotection covering the individual compounds, we believe the new patent will provide us with intellectual propertyprotection covering our combination for the potential treatment of cancer, prevention of cancer recurrence or progression andinhibition of growth and proliferation of cancer cells. 63 ®®Table of ContentsWe have also identified a new mechanism of action for RHB-107, inhibition of trypsin-3. We are currently evaluatingpotential utilization of RHB-107 in several GI indications. In October 2017, the FDA granted RHB-107 orphan drug designation for the treatment of pancreatic cancer. The orphan drugdesignation allows us to benefit from various development incentives to develop RHB-107 (MESUPRON) for this indication,including tax credits for qualified clinical testing, waiver of a prescription drug user fee (PDUFA fee) upon submission of apotential marketing application and, if approved, a seven-year marketing exclusivity period (subject to certain exceptions)for the treatment of pancreatic cancer. 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.” Ebola Virus Disease Therapy We completed the first part of a pre-clinical in-vivo study (2 out of the 3 proposed actives). The results are being evaluated inconjunction with the U.S. National Institute of Allergy and Infectious Diseases. The second part of the study (all 3 activescombined) has not yet been initiated. Termination of Co-Development and Commercialization agreement for RIZAPORT Given our increasing focus on GI diseases, in particular our two key Phase III GI programs , we terminated our co-development and commercialization agreement for the non-core migraine drug product candidate, RIZAPORT, for which arecent Incomplete Response Letter has been received from the FDA. As part of the termination, we assigned thecommercialization agreements we had with Grupo JUSTE S.A.Q.F (now Exeltis Healthcare, S.L.) and Pharmatronic Co. toIntelGenx Corp. Our Commercial Activities in the U.S. Our U.S. commercial operations are intended to set the stage for the potential launch of our proprietary, late-clinical stage GIproducts, if approved by the FDA. We have established an office for our U.S. commercial operations in Raleigh, North Carolina. Our GI-focused sales forceconsists of approximately 40 sales representatives. Initial net revenues since initiation of our promotional activities in mid-June 2017) through December 31, 2017 were approximately $4.0 million. We continue to pursue the acquisition ofadditional commercial GI products in the U.S. and are continuously working to expand U.S. managed care access andcoverage to our commercial products. By the end of 2017, we were promoting and commercializing three GI products. Donnatal In December 2016, we entered into the Co-Promotion Agreement with Concordia to promote Donnatal (Phenobarbital,Hycosamine Sulfate, Atropine Sulfate, Scopolamine Hydrobromide) in the U.S. The prescription drug product is sold in twoformulations: an immediate-release tablet and an immediate-release fast-acting liquid (tablets and elixir). Donnatal is ananticholinergic and barbiturate combination drug product used as an adjunctive therapy for irritable bowel syndrome (IBS), acondition characterized by abdominal pain, bloating, and diarrhea or constipation. It may also be used as an adjunctivetherapy for acute enterocolitis and duodenal ulcers. We commenced promotional activities for Donnatal in June 2017. Regulatory status Based on Concordia’s 2015 Annual Information Form, Concordia currently has the right to market its Donnatal products asthe owner of the conditionally approved abbreviated NDA for Donnatal and as a party to the unresolved Notice ofOpportunity Hearing for anticholinergic and barbiturate combination drug products. Donnatal is included in the FDA DESIreview program. The DESI program was created, in part, to require the FDA to conduct a retrospective evaluation of theeffectiveness of drug products that were approved as safe between 1938 and 1962 through the new drug approval64 ®®®®®®®®®Table of Contentsprocess. According to the DESI program, drugs approved before October 10, 1962, were reviewed to evaluate whether therewas substantial evidence of their effectiveness. When a review was completed, the FDA would issue a DESI notice describingthe marketing conditions for the class of drug products covered by the notice. Donnatal has been approved for safety but not for efficacy for its labeled uses. As a DESI drug, Donnatal is classified as“possibly effective” as an adjunctive therapy in the treatment of IBS (irritable colon, spastic colon, and mucous colitis) andacute enterocolitis. Donnatal may also be useful as adjunctive therapy in the treatment of duodenal ulcer. It has not beenshown conclusively whether anticholinergic/antispasmodic drugs aid in the healing of duodenal ulcers, decrease the rate ofrecurrences or prevent complications. Donnatal slows the natural movements of the gut by relaxing the mucous in thestomach 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 enforcement actionrelating to a particular drug’s effect on public safety and other factors. The FDA has used enforcement discretion concerningmany DESI drugs, particularly where there is a pending hearing on a final determination regarding efficacy that has not yetbeen made. There is a long and complicated regulatory history involving Donnatal, but currently there is an open hearingrequest for anticholinergic and barbiturate combination drug products, of which Donnatal is one. While Concordia isultimately responsible for regulatory compliance as the application holder, if the FDA convenes a hearing and concludes theproduct has not been shown to be effective, it may take enforcement action, including requiring Donnatal to be removedfrom the market. To the best of our knowledge, the FDA has not taken any enforcement action against illegal copies ofDonnatal being sold in the market. Market and Competition According to publications by Saito YA. et al. (The American Journal of Gastroenterology, 2002) and by Lovell RM et al. (Clinical Gastroenterology and Hepatology, 2012), it is estimated that up to 30 million Americans may suffer from IBS. TheU.S. potential market for IBS treatments is estimated by GlobalData to exceed $1.7 billion in 2018. To the best of our knowledge, at least two third parties are distributing unapproved generic versions of Donnatal in the U.S.Concordia International Corp. reported in its third quarter 2016 Management’s Discussion and Analysis report (datedNovember 7, 2016) that it had commenced a lawsuit against a third party and its principal owner claiming damages from suchconduct. To the best of our knowledge, the lawsuit is still ongoing. According to GlobalData, antispasmodic drugs, such as Donnatal, are commonly prescribed as first-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 in genericform and also under the brand names Levsin and Nulev (by Meda Pharmaceuticals Inc.). Another competing drug whichincludes both antispasmodic and a sedative activity, as Donnatal does, is a fixed-dose combination of chlordiazepoxide andclidinium bromid marketed in generic form and under the brand name Librax (by Valeant). An additional competinganticholinergics/antispasmodics drug is dicyclomine hydrochloride, marketed in generic form and under the brand nameBentyl (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 antidepressants andselective serotonin reuptake inhibitors, are also used as second or third-line treatments in patients with IBS. There are severaldrugs in late-stage clinical development for IBS. EnteraGam In April 2017, we entered into a license agreement with Entera Health pursuant to which we were granted exclusivecommercialization U.S. rights to EnteraGam.EnteraGam (serum-derived bovine immunoglobulin/protein isolate, SBI) is anFDA-regulated “medical food” product intended for the dietary management of chronic diarrhea and loose65 ®®®®®®®®®®®®®®®®®®®®®®® ®Table of Contentsstools. EnteraGam must be administered under medical supervision. We initiated commercialization activities forEnteraGam in June 2017. Regulatory status EnteraGam is currently sold under physician supervision in the U.S. as a “medical food,” on the basis of its meeting thecriteria for “medical foods” in the Federal Food, Drug, and Cosmetic Act (FDCA) and FDA regulations. The term “medicalfood” is defined in the FDCA as a food which is formulated to be consumed or administered entirely under the supervision ofa physician and which is intended for the specific dietary management of a disease or condition for which distinctivenutritional requirements, based on recognized scientific principles, are established by medical evaluation. “Medical foods”are not required to undergo premarket review or approval by the FDA. To our knowledge, EnteraGam meets the criteria for“medical foods” established by the FDCA, and to date, the labeling and promoting of EnteraGam is consistent with FDAregulatory requirements. The ingredients in EnteraGam are generally recognized as safe (GRAS) for use in the generalpopulation. Market and Competition EnteraGamis a medical food product that provides dietary management for patients with chronic diarrhea and loose stoolsdue to specific intestinal disorders, such as IBS-D, IBD, HIV-associated enteropathy and chronic diarrhea. EnteraGam® can be added safely to any therapy taken by patients suffering from chronic diarrhea and loose stools, includingpatients who suffer from IBS-D, Crohn’s disease and ulcerative colitis. According to a report from EvaluatePharma, the U.S.potential market for IBS-D treatments is estimated to reach approximately $870 million in 2018 and exceed $1 billion in2021. There are several competing medical foods marketed in the U.S. intended for the treatment of diarrhea or loose stoolsassociated with IBS, IBD or other conditions. One of the leading competitors is VSL#3® (marketed by Alfasigma USA Inc.), ahigh potency probiotic medical food used in addition to certain medications for the dietary management of ulcerative colitis,IBS and pouchitis. Other competing medical foods include UltraInflamX® and UltraInflamX Plus 360°® (Metagenics), amedical food formulated to provide support for patients with compromised gut function resulting from inflammatory boweldisease, Banatrol Plus® (Medtrition Inc.), a medical food formulated for patients under medical supervision experiencingdiarrhea and loose stools associated with the flu, antibiotics, tube feeding, oncology treatment, Clostridium difficile (C. diff)and aging, Tolerex® (Nestle Health Science), a medical food intended for patients suffering from severely impaired GIfunction, Modulen® (Nestle Health Science), a whole-protein, powdered formulation for the dietary management of the activephase of Crohn’s disease, and IBGard® (IM HealthScience), a medical food formulated for dietary management of IBS. Other competing products include over-the-counter (“OTC”) probiotic dietary supplements such as Culturelle, prescriptionanticholinergics such as Lomotil® (Pfizer U.S.) and Motofen® (Sebela Pharmaceuticals), prescription anti-diarrhealmedications, such as Mytesi® (Napo Pharmaceuticals Inc.), and OTC anti-diarrheal medications such as loperamide. Esomeprazole Strontium Delayed-Release Capsules 49.3 mg In August 2017, we entered into an agreement with ParaPRO, an Indiana-based specialty pharmaceutical company, grantingus the exclusive rights to promote Esomeprazole Strontium Delayed-Release Capsules 49.3 mg to gastroenterologists incertain U.S. territories. Esomeprazole Strontium Delayed-Release Capsules 49.3 mg is an FDA-approved prescription protonpump inhibitor (PPI) drug product indicated for adults for the treatment of GERD, risk reduction of NSAID-associated gastriculcer, H. pylori eradication to reduce the risk of duodenal ulcer recurrence and for pathological hypersecretory conditions,including Zollinger-Ellison syndrome. In September 2017, we initiated the promotion of Esomeprazole Strontium Delayed-Release Capsules 49.3 mg in selected U.S. territories. 66 ®®®®®®® ®Table of ContentsRegulatory status We and ParaPRO co-promote Esomeprazole Strontium Delayed-Release Capsules 49.3 mg in the U.S., which was approvedby the FDA in 2013 under the 505(b)(2) regulatory path, with Nexium as the Reference Listed Drug. Since we have notlicensed or purchased the rights to the NDA and instead only promote the product with limited rights under the agreementwith ParaPRO, we rely on ParaPRO for ensuring regulatory compliance. To the best of our knowledge, there have been twosupplements approved to the NDA, one due to safety concerns and class labeling of PPIs initiated by the FDA in 2016 andthe first supplement, again requested by the FDA in October 30, 2014, under Section 505(o)(4) of the FDCA, with new safetyinformation that the FDA believed should be included in the labeling for Esomeprazole Strontium Delayed-Release Capsules49.3 mg. This information pertains to the risk of Vitamin B12 deficiency with long-term daily treatment of PPIs and the riskof concomitant dosing of mycophenolate mofetil with PPIs resulting in reduced systemic exposure of mycophenolate mofetilas reported in current literature. Market and Competition GERD is considered to be the most common disease encountered by the gastroenterologist (Katz PO et al. Am JGastroenterol, 2013). According to GlobalData, the number of prevalent cases of GERD in the U.S. in 2018 is estimated atover 65 million and is expected to exceed 68 million by 2023. Prevalence of GERD in the U.S. remains stable at 20% in2012-2023. The American College of Gastroenterology guidelines for treatment of GERD recommend treatment with an 8-week course ofPPIs is the therapy of choice for symptom relief and healing of erosive esophagitis. Other treatments for GERD include antacids, H2-receptor blockers and other medications which are available in OTC andprescription strength. There are currently no generic formulations of Esomeprazole Strontium Delayed Release Capsules 49.3 mg available in theU.S. The main competitors of Esomeprazole Strontium Delayed-Release Capsuled 49.3 mg are numerous OTC andprescription PPIs marketed in the U.S. These include branded and generic, prescription and OTC omeprazole (Prilosec),branded and generic, prescription and OTC lansoprazole (Prevacid) and branded and generic, prescription and OTCesomeprazole magnesium (Nexium®). Prescription dexlansoprazole (Dexilant®) is the only other PPI other than EsomeprazoleStrontium Delayed Release Capsules 49.3 mg that is not generic. PPIs are one of the most commonly prescribed classes ofmedications in the U.S., with an estimated market value exceeding $20 billion in 2016 (Symphony Health (accessed August2017)). Acquisition, Commercialization and License Agreements Acquisition of RHB-104, TALICIAand 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 files, regulatoryapprovals and other data related to the “Myoconda”, “Heliconda” and “Picoconda” products to us. We renamed theseproducts RHB-104, TALICIA and RHB-106, respectively. Giaconda Limited further transferred to us products in process,product samples and raw materials, as well as certain rights of first refusal with respect to intellectual property in relation todigestive condition treatments. The agreement excluded the transfer of the rights to two products of Giaconda Limited thatare not related to RHB-104, TALICIA and RHB-106. However, to the extent that the intellectual property associated withthese 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, TALICIA and RHB-106, Giaconda Limited grantedus an exclusive worldwide assignable right to such intellectual property for such purposes. The closing of this transactionoccurred on August 26, 2010. We paid Giaconda Limited in consideration for the assets purchased by us an initial amount of $500,000. We and GiacondaLimited also agreed that until the expiration of the last patent transferred to us, we will pay to Giaconda Limited 7% of net67 ®®® ®®®Table of Contentssales from the sale of the products by us and 20% of the royalties received from sublicensees, in each case, only after werecoup the amounts and expenses exceeding an approved budget. Under the agreement, none of Giaconda Limited, the developer of the products, nor any of their respective affiliates maycompete with us or assist others to compete with us with respect to the products and acquired technology. Such non-competeundertaking will be in force for a period of time of up to 10 years from the date of the agreement. 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 allocate appropriatefinancial resources to prepare, initiate and complete the clinical development of the products (with the exception ofPicoconda) and file an application for regulatory marketing approval in accordance with industry standards. Developmentfailures, negative regulatory decisions, or other reasons beyond our control will not constitute a breach of this obligation.Should we breach this obligation with respect to the development of any of the products, and fail to cure the breach within90 days from the date that Giaconda Limited sends us a default notice, Giaconda Limited may buy back all of the intellectualproperty rights with respect to such product for the original purchase price, plus the related development costs incurred by usthrough 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 affiliate products, technology and related activities in the purgative field and excluded from suchnon-compete undertakings certain of Giaconda's affiliates. Subsequently, we recognized revenues in 2014 and paid Giacondaan additional amount of $1 million. Exclusive Co-Promotion Agreement for Donnatal On December 30, 2016, we entered into an exclusive co-promotion agreement with a subsidiary of Concordia, aninternational specialty pharmaceutical company focused on generic and legacy pharmaceutical products and orphan drugs,as part of our strategic initiative to become a revenue-generating, GI-focused, specialty pharmaceutical company with acommercial presence in the U.S. to support potential future commercialization of our therapeutic candidates. Under the agreement, we are responsible for certain promotional activities related to Donnatal in certain U.S. territories, andConcordia continues to be responsible for, among other things, the manufacturing and supply and pricing of Donnatalin allterritories. We and Concordia share the revenues generated from the promotion of Donnatal by us based upon an agreedupon split. There are no upfront or milestone payments required to be paid by us under the agreement. The initial term of theagreement is three years. We may terminate the agreement after six months from the effective date of the agreement uponthree months’ notice for reasons set forth in the agreement. Concordia may terminate the agreement after an agreed uponperiod and for reasons set forth in the agreement. Exclusive License Agreement for EnteraGam In April 2017, we entered into a license agreement with Entera Health, a U.S. privately-owned company. Under the licenseagreement, we were also granted an exclusive license to use the related EnteraGamtrademarks, URL and other relatedintellectual property for the sale and distribution of EnteraGam in the U.S. during the term of the agreement. We are requiredto pay Entera Health royalties based on net sales as provided in the agreement. The initial term of the agreement is fouryears. Each party may terminate the agreement upon an agreed prior written notice to the other party for various reasonsstipulated in the agreement. 68 ®®® ®®® ®Table of ContentsCommercialization Agreement for Esomeprazole Strontium Delayed-Release Capsules 49.3 mg In August 2017, we entered into an agreement with ParaPRO LLC granting us the exclusive rights to promote EsomeprazoleStrontium Delayed-Release Capsules 49.3 mg to gastroenterologists in certain U.S. territories. Under the agreement, weagreed on a co-promotion plan with ParaPRO, and are responsible, together with ParaPro for the promotion of the product togastroenterologists for all labeled indications for the product in certain U.S. territories. In the event of the sale into the agreedterritories of a generic equivalent for the product, we may limit or discontinue all or part of our ongoing promotionalactivities. ParaPro agreed to provide us promotional material, training and samples (or equivalents) of the product, and it isresponsible to take all actions in relation to the commercialization of the product in the territory and all aspects of managedcare, and we are responsible for the promotion of the product. The agreement provides that all regulatory matters relating tothe commercialization of the product during the term of this agreement are the responsibility of ParaPRO, subject to our rightto communicate with regulatory authorities with respect to matters relating to us and our performance under theagreement. The initial term of the agreement is four years. Each party may terminate the agreement upon prior written noticeto the other party for reasons set forth in the agreement. License Agreement for CDT Technology used in the BEKINDA formulation In March 2014, we entered into a License Agreement with Temple University to directly secure rights to patents related to theCDT platform. Previously, these rights were licensed to us from SCOLR Pharma Inc.(“SCOLR”), which announced that they had ceased business operations in 2013. The agreement with Temple Universityreplaced our previous license agreement with SCOLR. SCOLR had itself licensed those patents from Temple University, theoriginal owner of the patents. License Agreement for YELIVA On March 30, 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, worldwide development andcommercialization rights to ABC294640 (which we then renamed to YELIVA) and additional intellectual property rights.YELIVA is a proprietary, first-in-class, orally-administered SK2 inhibitor, with anti-inflammatory and anti-cancer activities,targeting multiple oncology, inflammatory and GI indications. Under the terms of the agreement, as amended, we agreed topay Apogee initial milestone payments of $3.5 million, of which $3 million has already been paid. At our sole discretion, inlieu of the remaining payment of $0.5 million, the Company may elect to revise the royalty terms. In addition, we undertookto pay up to an additional $2 million in potential development milestone payments and potential tiered royalties starting inthe low double-digits. Such potential royalties are due until the later of: (i) the expiration of the last to expire licensed patentthat covers the product in the relevant country; and (ii) the expiration of regulatory exclusivity in the relevant country.Through December 31, 2017, we paid Apogee the initial amount of $2.5 million and recognized an amount of $1 million as acurrent liability. 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 RHB-107 (MESUPRON) On June 30, 2014, we entered into an exclusive license agreement with Wilex AG (which later changed its name toHeidelberg Pharma AG, “Heidelberg”), a German biopharmaceutical company focused on oncology, under which Heidelberggranted us the exclusive worldwide (excluding China, Hong Kong, Taiwan and Macao) development and commercializationrights for all indications to RHB-107. In consideration for the license, we paid Heidelberg an upfront payment of $1 million. We have agreed to pay Heidelbergtiered royalties 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 Heidelberg. The agreement also provides right of termination for eachparty in the event of a breach.69 ®®®®®®Table of Contents License Agreement for MAP diagnostic test related to RHB-104 On September 18, 2011, we entered into a license agreement with the University of Central Florida (UCF) pursuant to whichwe were granted an exclusive license for all indications and medical uses to a patent-protected diagnostic test aimed atidentifying the presence of MAP bacterial DNA in peripheral blood through DNA testing. The license covers the futurecommercial use of the test, including its manufacture, 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 $160,000, and are required tomake additional annual minimum royalty payments of $35,000 in each subsequent year until the last patent covered by theagreement expires. These annual minimum payment amounts will be deducted from future royalty payments. In addition, we are required to make royalty payments equal to 7% of future sales, or an annual minimum amount notedabove, 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. UCFmay terminate the agreement if (i) we are in material breach; (ii) if we fail to pay royalties when due and payable followingprovision of sixty (60) days’ notice; or (iii) a bankruptcy or liquidation event occurs with respect to us. We may terminatethe 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 and Baylor College of Medicine. This is part ofour efforts to develop a validated and precise method of detecting Mycobacterium avium subspecies paratuberculosis(MAP), which we believe plays an important role in Crohn’s disease and potentially other diseases. 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 to whichSalix licensed the exclusive worldwide rights to our RHB-106 encapsulated formulation for bowel preparation and rights toother purgative developments. Pursuant to the agreement, we granted Salix the right to develop and commercialize RHB-106or the related rights. Additionally, we waived any applicable rights of first refusal granted to us by Giaconda Limited and its affiliates 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 the option,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,70 Table of Contentsroyalty-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. The agreement is currently subject to discussion with Valeant, including renegotiation of its terms. 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 provider toenter into service agreements with third parties for the relevant services. The agreement may be terminated by either partyupon 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 specific requests and upon the signing of specific 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 on 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, 2017, the estimated discount we will receive from our Canadian serviceprovider is approximately $0.5 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 PharmaNet Canada Inc., (currently a subsidiary of inVentiv Health Clinical, Inc. (“inVentiv Health”) aninternational CRO company), and other related entities, for the purpose of performing the clinical trial for RHB-104.inVentiv Health is a leading provider of global drug development services to pharmaceutical and biotechnology companies,offering therapeutically-specialized capabilities for Phase I-IV clinical development, and pursuant to the agreement, isresponsible for the performance of the clinical trial, including entering into agreements with medical centers to perform thetrial, supervision of the performance and progress of the trial and the analysis of the results, all pursuant and subject toapplicable regulatory requirements. Pursuant to this agreement and subsequent amendments, inVentiv Health is entitled to receive compensation in connectionwith the MAP US study, as well as reimbursement of investigator grant costs and pass-through costs to be paid during thetrial. The payments are spread over the period of the clinical trial based upon quarterly administration fees and milestonepayments based on patient recruitment, completion of subject dosing and report preparation, investigators’ grants paid toresearch centers that participate in the trial, as well as reimbursement of certain expenses. These fees, however, are partialcosts for the RHB-104 program and may increase in accordance with the final clinical trial protocol, length of the study andpayments to be made to third parties, such as investigator grants costs and additional service providers, including otherclinical research organizations. The agreement includes a timetable for the recruitment of patients, performance of the trial and analysis of results, includinga timetable for the performance of ongoing patient follow-up. The agreement will remain in force until all relevant services have been provided and we have made all payments thereunder,or until terminated. Either party may terminate the agreement: (i) if the other party is in material breach and does not curewithin thirty (30) days; or (ii) upon a bankruptcy or liquidation event with respect to the other party. This agreement alsoprovides that we may terminate the agreement at any time without cause upon providing forty-five (45) days written notice toour Canadian service provider.71 Table of Contents 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 the MAP US2 study. Expanded Access Program (EAP) We have adopted an Expanded Access Program (EAP), allowing patients with life-threatening diseases potential access to ourinvestigational new drugs that have not yet received regulatory marketing approval. Expanded access (sometimes referred toas “compassionate use”) is possible outside our clinical trials, under certain eligibility criteria, when a certain investigationalnew drug is needed to treat a life-threatening condition and when there is some clinical evidence suggesting that the drugmight be effective for that condition. Patients who qualify for our EAP do not meet the eligibility criteria or are incapable ofparticipating in our clinical trials for such therapeutic candidate. Following the adoption of the program, we continue toreceive patient requests to obtain access to our investigational drugs. Subject to the evaluation of eligibility and all othernecessary regulatory, reporting and other conditions and approvals required in all relevant jurisdictions, we provide certainpatients with an investigational new drug under the EAP. To date, we are not aware of any serious adverse events related tothe use of our investigational new drug under the EAP. Intellectual Property Our success depends in part on our ability to obtain and maintain proprietary protection for our technology and therapeuticcandidates, its therapeutic applications, and related technology and know-how, to operate without infringing the proprietaryrights of others and to prevent others from infringing our proprietary rights. Our policy is to seek to protect our proprietaryposition by, among other methods, filing U.S. and foreign patent applications related to our proprietary technology,inventions and improvements that are important to the development of our business. We also rely on our trade secrets, know-how and continuing technological innovation to develop and maintain our proprietary position. We vigorously defend ourintellectual property to preserve our rights and gain the benefit of our technological investments. We have rights, eitherthrough assignment, asset purchase or in-licensing, to a total of approximately 300 issued patents and 110 patentapplications. The patents and patent applications are registered in the U.S. and other key jurisdictions, the details of eachfamily of patents being provided below. In addition, we have licensed rights to various platform technologies on a non-exclusive basis. The patent positions of companies such as ours are generally uncertain and involve complex legal and factual questions. Ourability to maintain and solidify our proprietary position for our technology will depend on our success in obtaining effectiveclaims and enforcing those claims once granted. TALICIA TALICIA is protected by two patent families. The first 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 until 2019. Thisfamily includes one U.S. patent and one Australian patent. The second patent family, titled “Pharmaceutical Compositions for the Treatment of Helicobacter Pylori,” was filed by us andwill provide patent protection until 2034. This family includes three U.S. patents directed to our proprietary formulation andmethods of use, one pending U.S. patent application, and 20 pending foreign patent applications. RHB-104 – Inflammatory Bowel Disease and Nontuberculous Mycobacteria (NTM) Infections RHB-104 for Inflammatory Bowel Disease is protected by two patent families. The first patent family, titled “Methods andCompositions for Treating Inflammatory 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 25 foreignpatents. 72 ®®Table of ContentsThe second patent family was filed by us and will provide patent protection until 2029. This family includes patents directedto our proprietary formulation and methods of use, including four issued U.S. patents, two pending U.S. patent applications,seven foreign patents and one pending foreign patent application. We also have 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 is directed to a method of diagnosinginflammatory bowel disease caused by MAP using a sample of peripheral tissue. In addition, inflammatory 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 family includesone allowed U.S. patent application, 30 issued foreign patents, and 6 pending foreign patent applications. BEKINDA - Gastritis, Gastroenteritis and IBS-D 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 balanced monolithicmatrix. BEKINDA and its use in treating gastroenteritis and other conditions is protected by two patent families that were filed byus, titled “Antiemetic Extended Release Solid Dosage Forms” and “Ondansetron Extended Release Solid Dosage Forms forTreating Either Nausea, Vomiting or Diarrhea Symptoms”. These families include two issued U.S. patents, four pending U.S.patent applications, and over 35 foreign patent applications. RHB-106 - Colonic Evacuation The RHB-106 colonic formulation is protected by a patent family filed 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 exclusive worldwide rights tothe RHB-106 patent portfolio. As part of the agreement, Salix is responsible for the patent families related to RHB-106. YELIVA - Oncology, inflammatory and GI Indications This patent portfolio was in-licensed by us from Apogee Biotechnology Corp. YELIVA (ABC294640) is a first-in-class,proprietary SK2 inhibitor, administered orally, with anti-cancer and anti-inflammatory activities, targeting a number ofpotential oncology, inflammatory and GI indications. The patent portfolio covering YELIVA includes 4 U.S. patents, 17 foreign patents and 2 pending foreign patentapplications. These patents relate to sphingosine kinase inhibitors, pharmaceutical compositions, methods of preparing the inhibitors,methods of treating inflammatory diseases using the inhibitors, methods of treating cancer using the inhibitors, and methodsfor inhibiting sphingosine kinase. 73 ®®®®®Table of ContentsRHB-107 (MESUPRON) – Oncology This patent portfolio was in-licensed by us from Wilex AG, now known as Heidelberg Pharma AG. RHB-107 is a first-in-classprotease inhibitor administered by oral capsule. The RHB-107 patent portfolio includes patents directed to the new chemicalentity, WX-671, WX-UK1, the active metabolite of WX-671, pharmaceutical compositions comprising WX-671 (RHB-107),methods of synthesizing WX-671 and WX-UK1, and methods of use. The portfolio includes 15 issued U.S. patents, 60 issuedforeign patents and multiple pending foreign patent applications. 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 manufacture bothnew therapeutic drug candidates for clinical trials and approved therapeutic drugs for sale and distribution in the U.S., wemust follow the rules and regulations in accordance with current cGMP codified 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 with 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 efficacious in accordance with the current good clinical practice and codified in 21 CFR 312. If we do not complywith applicable requirements, we may be fined, the government may refuse to approve our marketing applications or notallow us to manufacture or market our products, and we may be criminally prosecuted. We and our contract manufacturersand clinical 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. Further, the U.S.government has increased its enforcement activity regarding fraud and abuse and illegal marketing practices in thehealthcare industry. As a result, pharmaceutical companies must ensure their compliance with the Foreign Corrupt PracticesAct and federal healthcare fraud 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 are manpowerintensive, usually extend over many years and require highly skilled and professional resources. U.S. Food and Drug Administration Approval Process for New Molecular Entities Our therapeutic drug candidates are classified 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 efficacy 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 the parametersto be used in monitoring safety, and the efficacy criteria to be evaluated. A protocol for each clinical study and anysubsequent 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 conducting clinicaltrials (on human subjects) is securing the preliminary approval of the competent authorities of that country to conductmedical experiments on human subjects in compliance with the other principles established by the Helsinki Declaration.74 Table of Contents 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 a subsequentclinical phase. A fourth, or post-approval phase may include additional clinical studies. The phases are generally 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, insome cases, to gain early evidence on efficacy. 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 efficacy 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 the effectiveness of the product candidate hasbeen obtained and are designed to evaluate clinical safety and efficacy further, to establish the overall benefit-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 benefit in the case of drugs approvedunder accelerated approval regulations. If the FDA approves a product while a company has ongoing clinical trials that werenot necessary for approval, a company may be able to use the data from these clinical trials to meet all or part of any Phase IVclinical trial requirement. These clinical trials are often referred to as Phase IV post-approval or post-marketing commitments.Failure to promptly conduct Phase IV clinical trials could result in the inability to deliver the product into interstatecommerce, misbranding charges, and civil monetary penalties. Clinical trials must be conducted in accordance with the FDA’s GCP requirements. The FDA may order the temporary orpermanent discontinuation of a clinical study at any time or impose other sanctions if it believes that the clinical study is notbeing conducted in accordance with FDA requirements or that the participants are being exposed to an unacceptable healthrisk. An institutional review board, or IRB, generally must approve the clinical trial design and patient informed consent atstudy sites that the IRB oversees and also may halt a study, either temporarily or permanently, for failure to comply with theIRB’s requirements, or may impose other conditions. Additionally, some clinical studies are overseen by an independentgroup of qualified experts organized by the clinical study sponsor, known as a data safety monitoring board or committee.The FDA recommends that data safety monitoring board should be used to perform regular interim analysis for long-termclinical studies where safety concerns may be unusually high. This group recommends whether or not a trial may moveforward at designated check points based on access to certain data from the study. The clinical study sponsor may alsosuspend or terminate a clinical trial based on evolving business objectives or competitive climate. As a product candidate moves through the clinical testing phases, manufacturing processes are further defined, refined,controlled and validated. The level of control and validation required by the FDA would generally increase 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 that ourthird-party excipient manufacturers conform to cGMP requirements. To comply with cGMP requirements,75 Table of Contentsmanufacturers 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, detailed informationon the product candidate is submitted to the FDA in the form of an NDA, requesting approval to market the product for one ormore indications, together with payment of a user fee, unless waived. An NDA includes all relevant data available frompertinent nonclinical and clinical studies, including negative or ambiguous results as well as positive findings, together withdetailed information on the chemistry, manufacture, control and proposed labeling, among other things. To supportmarketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and efficacy of theproduct candidate for its intended use to the satisfaction of the FDA. If an NDA submission is accepted for filing, the FDA begins 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 months of acompleted submission, unless the application relates to an unmet medical need in a serious or life-threatening indication, inwhich case the goal may be within six months of a completed NDA submission. However, PDUFA goal dates are not legalmandates, and the FDA response may occur several months beyond the original PDUFA goal date. Further, the review processand the target response date under PDUFA may be extended if the FDA requests or the NDA sponsor otherwise providesadditional information or clarification regarding information already provided in the NDA. The NDA review process can,accordingly, be very lengthy. During its review of an NDA, the FDA may refer the application to an advisory committee forreview, evaluation and recommendation as to whether the application should be approved. The FDA is not bound by therecommendation of an advisory committee, but it typically follows such recommendations. Data from clinical studies are notalways conclusive, and the FDA or any advisory committee it appoints may interpret data differently than the applicant. After the FDA evaluates the NDA and conducts a pre-approval inspection of 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 specific indications or issue a complete response letter indicating that the application is notready 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 other riskminimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling,development of adequate controls and specifications, or a commitment to conduct post-marketing testing. The FDA may alsorequest a Phase IV clinical trial to further assess and monitor the product’s safety and efficacy after approval. Regulatoryapproval of products for serious or life-threatening indications may require that participants in clinical studies be followedfor 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 efficacy 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 assess compliancewith cGMP, which imposes extensive procedural, substantive and recordkeeping requirements. If we seek to make certainchanges to an approved therapeutic drug, such as certain manufacturing changes, we may need the FDA to review andapprove before the change can be implemented. For example, if we change the manufacturer of a product or its API, the FDAmay require stability or other data from the new manufacturer, which will take time and is costly to generate, and the delayassociated with generating this data may cause interruptions in our ability to meet commercial demand, if any. At theirdiscretion, physicians may prescribe approved pharmaceutical products for indications that pharmaceutical products havenot been approved for use by the FDA. However, we may not label or promote pharmaceutical products for an indication thathas not been approved. Securing FDA approval for new indications of an approved therapeutic drug requires a Section 505(b)(2) filing, is similar to the process for approval of the original indication and requires, among other things, submitting datafrom adequate and well-controlled studies that demonstrate76 Table of Contentsthe product’s safety and efficacy in the new indication. Even if such studies are conducted, the FDA may not approve anychange in a timely fashion, or at all. We rely on, and expect to continue to rely on, third parties for the manufacture of clinical and future commercial, quantitiesof our 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 of previouslyunknown problems with a product or the failure to comply with applicable requirements may result in restrictions on aproduct, manufacturer or holder of an approved NDA, including withdrawal or recall of the product from the market or othervoluntary, FDA-initiated or judicial action that could delay or prohibit further marketing. Newly discovered or developedsafety or efficacy data may require changes to a product’s approved labeling, including the addition of new warnings andcontraindications, and also may require the implementation of other risk management measures. Many of the foregoing couldlimit the commercial value of an approved product or require us to commit substantial additional resources in connectionwith the approval of a product. Also, new government requirements, including those resulting from new legislation, may beestablished, or the FDA’s policies may change, which could delay or prevent regulatory approval of our products underdevelopment. Section 505(b)(2) New Drug Applications As an alternate path to FDA approval of new indications or new formulations of previously-approved therapeutic drugs, acompany may file 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 efficacy 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, otherwise knownas the Hatch-Waxman Amendments. Section 505(b)(2) was enacted to allow a company to avoid duplicative testing bypermitting the applicant to leverage previously performed pertinent clinical and non-clinical studies into the current NDAsubmission. Some examples of therapeutic drug candidates that may be allowed to follow a 505(b)(2) path to approval arecandidates 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 FDA maythen approve the new product for all or some of the labeled indications for which the reference product has been approved, aswell as for any new indication supported by the NDA. While references to nonclinical and clinical data not generated by theapplicant or for which the applicant does not have a right of reference are allowed, all development, process, stability,qualification and validation data related to the manufacturing and quality of the new product must be included in an NDAsubmitted 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. Specifically, the applicant must certify that: (i) the required patentinformation has not been filed; (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 by thenew 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 has expired.Thus, the Section 505(b)(2) applicant may invest a significant amount of time and expense in the development of itsproducts 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 for products intended to treat“rare diseases and conditions” with a prevalence of fewer than 200,000 patients in the U.S. or for which there is no reasonableexpectation of recovering the development costs for the product. For products that receive Orphan Drug designation by theFDA, the Orphan Drug Act provides tax credits for clinical research, FDA assistance with protocol77 Table of Contentsdesign, 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 the development of new antibioticdrug product candidates for the treatment of serious or life-threatening infections. For products that receive QIDP designationunder the Act, the Act provides Fast-Track development status with an expedited development pathway and Priority Reviewstatus which potentially provides shorter review time by the FDA of a future potential marketing application. Following FDAapproval, an additional five years of U.S. market exclusivity applies, received on top of the standard exclusivity period. Other Healthcare Laws and Compliance Requirements In the U.S., we are subject to various federal and state laws and regulations regarding fraud and abuse in the healthcareindustry, as well as industry standards and guidance, such as the codes issued by the Pharmaceutical Research andManufacturers of America (or “PhRMA Codes”), which some states reference or incorporate in their statutes and regulations.These laws, regulations, standards, and guidance may impact, among other things, our sales and marketing activities and ourrelationships with healthcare providers and patients. In addition, we may be subject to patient privacy regulation by both thefederal government and the states in which we conduct our business. The laws that may affect our ability to operate includebut are not limited to: ·the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfullysoliciting, receiving, offering or paying remuneration, directly or indirectly, in cash or in kind, to induce or reward,or in return for, either the referral of an individual for, or the purchase, order, or recommendation of, an item orservice reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;·federal civil and criminal false claims laws and civil monetary penalty laws, including the False Claim Act, whichprohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claimsfor payment from the federal government, including Medicare, Medicaid, or other third-party payors, that are false orfraudulent;·HIPAA, which imposes federal criminal and civil liability for executing, or attempting to execute, a scheme todefraud any healthcare benefit program and making false statements relating to healthcare matters;·the federal transparency laws, including the Physician Payments Sunshine Act, that requires applicablemanufacturers of covered drugs to disclose payments and other transfers of value provided to physicians andteaching hospitals and physician ownership and investment interests;·HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and itsimplementing regulations, also imposes certain requirements relating to the privacy, security and transmission ofindividually identifiable health information; and·state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may applyto items or services reimbursed by any third-party payor, including commercial insurers, state laws that requirepharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines, statelaws that require pharmaceutical manufacturers to report certain pricing or payment information, and state lawsgoverning the privacy and security of health information in certain circumstances, many of which differ from eachother in significant ways and are not preempted by HIPAA, thus complicating compliance efforts. The Healthcare Reform Law broadened the reach of the fraud and abuse laws by, among other things, amending the intentrequirement of the federal Anti-Kickback Statute and certain other criminal healthcare fraud statutes. Specifically, a person orentity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed aviolation. In addition, the Healthcare Reform Law provides that the government may assert that a claim including items orservices resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes ofthe False Claims Act or the civil monetary penalties statute. Many states have adopted laws similar to the federal Anti-Kickback Statute, some of which apply to the referral of patients for healthcare items or services reimbursed by any source,not only federal healthcare programs such as the Medicare and Medicaid programs. 78 Table of ContentsDue to the breadth of some of these laws, it is possible that some of our current or future practices might be challenged underone or more of these laws. In addition, there can be no assurance that we would not be required to alter one or more of ourpractices to be in compliance with these laws. Evolving interpretations of current laws or the adoption of new federal or statelaws or regulations could adversely affect the arrangements we may have with sales personnel, healthcare providers, andpatients. Our risk of being found in violation of these laws is increased by the fact that some of these laws are open to avariety of interpretations. If our past or present operations, practices, or activities are found to be in violation of any of thelaws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civiland criminal penalties, exclusion from participation in government healthcare programs, such as Medicare and Medicaid,imprisonment, damages, fines, disgorgement, contractual remedies, reputational harm, diminished profits and future earnings,if any, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate ourbusiness and our results of operations. C. Organizational Structure Our wholly-owned and only subsidiary, Redhill Biopharma Inc., was incorporated in Delaware on January 19, 2017. D. Property, Plant and Equipment We lease approximately 826 square meters of office space, a 27-square meter warehouse and eleven parking spaces in the“Platinum” building at 21 Ha’arba’a Street, Tel Aviv, Israel. The projected yearly gross rental expenses are approximately$410,000 per year. During 2017, the Company subleased a portion of the office space to a tenant for approximately $96,000.The term under our lease agreement will expire on January 31, 2020. These offices have served as our corporate headquarterssince April 2011. The Company also entered into an operating lease agreement for the U.S. offices it uses. The agreement will expire on March31, 2023. The projected yearly rental expenses are approximately $168,000 per year. ITEM 4A. UNRESOLVED STAFF COMMENTS Not applicable. ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS You should read the following discussion of our financial condition and results of operations in conjunction with thefinancial statements and the notes thereto included elsewhere in this Annual Report. The following discussion containsforward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially fromthose discussed 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 late-clinical development stage and commercializationof proprietary drugs for GI diseases and cancer. From inception to the end of the period covered by this Annual Report, weinvested a total of $6.2 million on in-licensing and acquisitions of therapeutic candidates and related technologies. Depending on the specific development program, our therapeutic candidates are designed to exhibit greater efficacy andprovide improvements over existing drugs by improving their safety profile, reducing side effects, lowering the number ofadministrations, using a more convenient administration form or providing a cost advantage. Where applicable, we intend toseek FDA approval for the commercialization of certain of our therapeutic candidates through the alternative Section 505(b)(2) regulatory path under the FDCA, and in corresponding regulatory paths in other foreign jurisdictions. Our currentpipeline consists six of late-clinical development stage therapeutic candidates. 79 Table of ContentsWe generate our pipeline of therapeutic candidates by identifying, rigorously validating and in-licensing or acquiringproducts that are consistent with our product strategy and that we believe exhibit a relatively reasonable probability oftherapeutic and commercial success. Our therapeutic candidates have not yet been approved for marketing and, to date, ourtherapeutic candidates have not generated meaningful sales. We intend to commercialize our therapeutic candidates throughlicensing and other commercialization arrangements with pharmaceutical companies on a global and territorial basis. Wealso evaluate, on a case by case basis, co-development and similar arrangements and the independent commercialization ofour therapeutic candidates in the U.S. In addition to our primary focus on the development of clinical-stage GI products and cancer, we have establishedcommercial presence and capabilities in the U.S., intended primarily to support potential future launch of our GI-relatedtherapeutic candidates currently under development in the U.S. We pursue our commercial activities in the U.S. throughRedHill Biopharma Inc., a wholly-owned subsidiary we formed in Delaware in January 2017. Through this subsidiary, wecurrently promote three GI products in the U.S., Donnatal, EnteraGam and Esomeprazole Strontium Delayed-ReleaseCapsules 49.3 mg under agreements with third parties. 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 have not yet generated sufficient revenues from thepromotion of Esomeprazole Strontium Delayed-Release Capsules 49.3 mg and Donnataland from commercialization ofEnteraGamwith no anticipation of profits in the near future, we cannot estimate when and if we will generate sufficientrevenues to sustain our business operations in accordance with our plan, or profits in the future from our therapeuticcandidates and commercial products. The following is a description of our six late-clinical development stage therapeutic candidates and three commercialproducts: Therapeutic Candidates TALICIA (RHB-105) is a patented combination of three drugs – omeprazole, which is a proton pump inhibitor, amoxicillinand rifabutin, both of which are antibiotics. TALICIA is intended for the treatment of H. pylori bacterial infection. Weacquired ownership rights in patents, tangible assets, production files and regulatory approvals and other data and certainthird-party agreements related to TALICIA pursuant to the Asset Purchase Agreement with Giaconda Limited describedabove. See “Item 4. Information on the Company – B. Business Overview – Acquisition, Commercialization and LicenseAgreements – Acquisition of RHB-104, TALICIA and RHB-106.” RHB-104 is a patented combination of three antibiotics (i.e., clarithromycin, clofazimine and rifabutin) in a single capsulethat is intended for the treatment Crohn’s disease and potentially other autoimmune diseases such as MS. Unlike other drugson the market for the treatment of Crohn’s disease that are immunosuppressive agents, RHB-104 is intended to directlyaddress the suspected cause of the disease. On August 11, 2010, we entered into an asset purchase agreement with GiacondaLimited, pursuant to which we acquired ownership rights in patents, tangible assets, production files and regulatoryapprovals and other data and certain third-party agreements related to RHB-104, TALICIA and RHB-106 in exchange for$500,000 and royalty payments of 7% of net sales and 20% of sublicense fees, in each case, only after we recoup the amountsand expenses exceeding the approved budget. See “Item 4. Information on the Company – B. Business Overview –Acquisition, Commercialization and License Agreements – Acquisition of RHB-104, TALICIA and RHB-106.” BEKINDA (RHB-102) is a proprietary bi-modal once-daily extended-release oral formulation of ondansetron, intended forthe prevention of nausea, vomiting and diarrhea symptoms experienced in some people suffering from acute gastroenteritis,gastritis, and IBS-D, by means of an oral formulation of ondansetron. BEKINDA is anticipated to prevent these symptomsover a time frame of approximately 24 hours. On May 2, 2010, we received a worldwide, exclusive and perpetual license touse patents and know-how relating to CDTtechnology from SCOLR Pharma, Inc. in exchange for an up-front payment of$100,000, future potential milestone payments of up to $500,000 and future royalties, for a fixed period of time asdetermined by the agreement, of 8% of our net sales or sublicense fees. SCOLR announced during 2013 that it had ceasedbusiness operations, and we entered into a License Agreement with Temple University to secure direct rights to patentsrelated to the CDT platform. See “Item 4. Information on the Company – B. Business Overview –80 ®®® ® ®®®®®®®®® ®Table of ContentsAcquisition, Commercialization and License Agreements – License Agreement for CDT Technology used in the BEKINDAformulation.” See “Item 3. Key Information – D. Risk Factors – Risk Related to Our Business and Regulatory Matters – If weare not able to secure or defend patents related to BEKINDA, our ability to commercialize BEKINDA or enter intocommercialization agreements with potential partners with respect to this product may 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 files 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, Commercialization and License Agreements – Acquisition of RHB-104, TALICIA and RHB-106.”On February 27, 2014, we entered into a licensing agreement with Salix (later acquired by Valeant) by which Salix licensedthe exclusive worldwide rights to our RHB-106 encapsulated formulation for bowel preparation, and rights to other purgativedevelopments. YELIVA (ABC294640) is a patent-protected, first-in-class, orally-administered SK2 inhibitor, with anti-inflammatory andanti-cancer activities, targeting multiple oncology, inflammatory and GI indications. On March 30, 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, as amended, we agreed to pay Apogee initial milestonepayments of $3.5 million, of which $3 million has already been paid. At our sole discretion, in lieu of the remainingpayment of $0.5 million, we may elect to revise the royalty terms. In addition, we undertook to pay up to an additional $2million in potential development milestone payments and potential tiered royalties starting in the low double-digits. Formore information regarding this agreement, see “Item 4. Information on the Company – B. Business Overview – Acquisition,Commercialization and License Agreements – License Agreement for YELIVA.” RHB-107 (MESUPRON) is a patent-protected protease inhibitor, administered by oral capsule, targeting GI and other solidtumor cancers. On June 30, 2014, we acquired from Heidelberg the exclusive development and commercialization rights toRHB-107, excluding China, Hong Kong, Taiwan and Macao, for all indications. We made an upfront payment to Heidelbergof $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 RHB-107. See “Item 4. Information on the Company – B. BusinessOverview – Acquisition, Commercialization and License Agreements – License Agreement for RHB-107.” Commercial Products Donnatalis an oral prescription drug used in the treatment of IBS. On December 30, 2016, we entered into the Co-PromotionAgreement with a subsidiary of Concordia, pursuant to which we were granted certain rights to promote Donnatalin certainU.S. territories. See “Item 4. Information on the Company – B. Business Overview – Acquisition, Commercialization andLicense Agreements – Exclusive Co-Promotion Agreement for Donnatal.” EnteraGam (a serum-derived bovine immunoglobulin/protein isolate, SBI) is a medical food product intended for the dietarymanagement of chronic diarrhea and loose stools. EnteraGam must be administered under medical supervision.EnteraGam binds microbial components, such as toxic substances released by bacteria, that upset the intestinalenvironment. This helps prevent them from penetrating the lining of the intestine, which may contribute to chronic diarrheaand loose stools in people who have specific intestinal disorders. See “Item 4. Information on the Company – B. BusinessOverview – Acquisition, Commercialization and License Agreements – License Agreement for EnteraGam.” Esomeprazole Strontium Delayed-Release Capsules 49.3 mg is a PPI indicated for adults for the treatment of GERD, riskreduction of NSAID-associated gastric ulcer, H. pylori eradication to reduce the risk of duodenal ulcer recurrence and forpathological hypersecretory conditions, including Zollinger-Ellison syndrome. Esomeprazole Strontium Delayed-ReleaseCapsules 49.3 mg is a proprietary prescription drug approved by the FDA under a NDA. See “Item 4. Information on theCompany – B. Business Overview – Acquisition, Commercialization and License Agreements – Commercialization -Agreement for Esomeprazole Strontium Delayed-Release Capsules 49.3 mg.” 81 ® ®®®®®®® ® ®®®®®Table of ContentsJOBS Act We are an emerging growth company. As an “emerging growth company”, we have elected to rely on variousexemptions. These exemptions include without limitation, not (i) providing an auditor’s attestation report on our system ofinternal controls over financial reporting pursuant to Section 404 and (ii) complying with any requirement that may beadopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to theauditor’s report providing additional information about the audit and the financial statements (auditor discussion andanalysis). These exemptions will apply until the earliest of (a) the last day of our fiscal year during which we have totalannual gross revenues of at least $1.07 billion; (b) the last day of our fiscal year following the fifth anniversary of the date ofthe first sale of our Ordinary Shares pursuant to an effective registration statement (in our case, December 31, 2018); (c) thedate on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (d)the date on which we are deemed to be a “large accelerated filer” under the Exchange Act, which would occur if the marketvalue of our Ordinary Shares held by non-affiliates 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 2017, we recorded for the first time revenues with respect to the commercialization of EnteraGam and the promotionalactivities of Donnatal and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg. In 2016, we recorded revenues withrespect to RIZAPORT. We terminated, effective January 6, 2018, the co-development agreement for RIZAPORT. In 2015,we recorded non-significant revenues in connection with royalty payments received from a third-party licensee of limitedrights to a patent that we acquired from Giaconda Limited. In 2014, for the first time, we had meaningful revenues as a resultof our licensing agreement with Salix (now Valeant) with respect to RHB-106 and related rights. Cost of Revenues Direct costs related to the revenues, such as cost of goods sold and royalties to third parties. Research and Development Expenses See “– C. Research and Development, Patents and Licenses” below. General and Administrative Expenses General and administrative expenses consist primarily of compensation for employees, directors and consultants andprofessional services. Other significant general and administrative expenses include office related expenses, travel,conferences and others. Selling, Marketing and Business Development Expenses Selling, Marketing and Business Development expenses consist primarily of compensation for employees and consultantsand professional services. Other significant selling, marketing and business development expenses include product samples,car fleet, travel, conferences, office-related expenses and others. Financial Income and Expense Financial income and expense consists of non-cash financing 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 fluctuations of the U.S. dollar against other currencies, inwhich a portion of our assets and liabilities are denominated like NIS, for example. 82 ®®®®Table of ContentsCritical Accounting Policies and Estimates The preparation of financial statements, in conformity with IFRS, requires companies to make estimates and assumptions thataffect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities atthe date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Theseestimates and judgments are subject to an inherent degree of uncertainty, and actual results may differ. Our significantaccounting policies are more fully described in Note 2 to our financial statements included elsewhere in this Annual Report.Critical accounting estimates and judgments are continually evaluated and are based on historical experience and otherfactors, including expectations of future events that are believed to be reasonable under the circumstances, and areparticularly important to the portrayal of our financial position and results of operations. Our estimates are primarily guidedby observing the following critical accounting policies: Impairment of Intangible Assets - Since the development of our therapeutic candidates has not yet been completed and theyare defined 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 are presentthat require reviewing the impairment of these intangible assets. An impairment loss is recognized for the amount by whichthe asset's carrying amount exceeds its recoverable amount. The recoverable amounts of cash generating units are based onour estimates as to the development of the therapeutic candidates, changes in market scope, market competition andtimetables for regulatory approvals. Since the above require certain judgments and the use of estimates, actual results maydiffer 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 consolidated financial statements beginning onpage F-1 of this Annual Report. A. Operating Results History of Losses Since inception in 2009, we have generated significant 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 develop our research and development programs further. As of2017, we started to accumulate losses also from our commercial operations. As of December 31, 2017, we had anaccumulated deficit of approximately $132.9 million. We expect to continue to fund our operations over the next several years through public or private equity offerings, debtfinancings, non-dilutive financings, commercialization of our therapeutic candidates, products we may promote orcommercialize, or through revenues from the promotion of Donnataland Esomeprazole Strontium Delayed-ReleaseCapsules 49.3 mg and from the commercialization of EnteraGam. Quarterly Results of Operations The following tables show our unaudited quarterly statements of operations for the periods indicated. We have prepared thisquarterly information on a basis consistent with our audited financial statements, and we believe it includes all adjustments,consisting of normal recurring adjustments necessary for a fair statement of the information shown. 83 ® ®Table of ContentsThree 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 31 2015 2016 2017Statements of operations U.S. dollars in thousandsRevenues 1 1 1 — — 1 — 100 — 483 1,523 2,001 Cost of revenue — — — — — — — — — 272 935 919 Research and development expenses,net 3,829 5,090 3,901 4,951 4,676 6,031 7,038 7,496 8,137 8,434 8,106 8,292 Selling, Marketing and BusinessDevelopment *225 *173 *116 *872 *312 *424 *402 *417 605 3,376 4,189 3,844 General and administrative expenses *702 *628 *576 *842 *915 *740 *1,014 *1,179 1,315 1,940 2,258 2,512 Other expenses — — — 100 — — — — 45 — — 800 Operating loss 4,755 5,890 4,592 6,765 5,903 7,194 8,454 8,992 10,102 13,539 13,965 14,366 Financial income 286 167 1,420 235 380 666 109 1,013 1,556 2,523 150 3,966 Financial expenses 173 873 120 30 1 24 599 371 50 7 1,697 13 Net loss 4,642 6,596 3,292 6,560 5,524 6,552 8,944 8,350 8,596 11,023 15,512 10,413 *Reclassified to conform to the current year presentation. Our 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 should notbe relied upon as indications of future performance. Comparison of the Year Ended December 31, 2017 to the Year Ended December 31, 2016 Net Revenues Net Revenues for the year ended December 31, 2017 were $4.0 million, compared to $0.1 million for the year endedDecember 31, 2016. The increase was due to the initiation of the Company’s U.S. promotional activities in mid-June 2017. Cost of Revenues Cost of Revenues for the year ended December 31, 2017 was $2.1 million, due to cost of goods sold and royalties relating tocommercialization activities. There was no cost of revenues for the year ended December 31, 2016. Gross Profit Gross Profit for the year ended December 31, 2017 was $1.9 million, compared to $0.1 million for the year ended December31, 2016. The increase was due to the initiation of the Company’s U.S. promotional activities in mid-June 2017. Research and Development Expenses Research and Development Expenses for the year ended December 31, 2017 were $33.0 million, compared to $25.2 millionfor the year ended December 31, 2016. The increase was mainly due to the ongoing Phase III study with TALICIA and fromthe Phase I/II studies with YELIVA for multiple indications. Selling, Marketing and Business Development Expenses Selling, Marketing and Business Development Expenses for the year ended December 31, 2017 were $12.0 million,compared to $1.6 million for the year ended December 31, 2016, which was comprised only of business developmentexpenses. The increase was mainly due to the establishment and advancement of the Company’s U.S. commercialoperations. The Company recognized selling and marketing expenses for the first time in 2017. General and Administrative Expenses 84 ®®Table of ContentsGeneral and Administrative Expenses for the year ended December 31, 2017 were approximately $8.0 million, compared to$3.8 million for the year ended December 31, 2016. The increase was mainly due to the establishment and advancement ofthe Company’s U.S. commercial operations in 2017. Operating Loss Operating Loss for the year ended December 31, 2017 was $52.0 million, compared to $30.5 million for the year endedDecember 31, 2016. The increase was due to an increase in the Company’s research and development activities as well asthe establishment and advancement of the Company’s U.S comercial operations in 2017, as detailed above. Financial Income, net Financial Income, net for the year ended December 31, 2017 was $6.4 million, compared to $1.2 million for the year endedDecember 31, 2016. The increase was mainly related to a fair value gain on derivative financial instruments. 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 increase of$7.4 million, or approximately 42%, compared to $17.8 million for the year ended December 31, 2015. The increase resultedprimarily from the ongoing Phase III MAP US study with RHB-104 (Crohn's disease), the ongoing Phase III and Phase IIstudies with BEKINDA (acute gastroenteritis and IBS-D, respectively) and from several Phase I/II studies with YELIVA formultiple indications. Selling, Marketing and Business Development Expenses Selling, marketing and business and development expenses for the year ended December 31, 2016 were $1.6 million, anincrease of $0.2 million compared to $1.4 million for the year ended December 31, 2015, each comprised only of businessdevelopment expenses. The increase was mainly due to enhanced business development and investor relations activities. General and Administrative Expenses General and administrative expenses for the year ended December 31, 2016 were approximately $3.8 million, an increase of$1.1 million, or approximately 41%, compared to $2.7 million for the year ended December 31, 2015. The increase wasmainly due to an increase in professional services 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 financial income, net of $1.2 million for the year ended December 31, 2016, compared to financial income,net of $0.9 million for the year ended December 31, 2015. The increase was mainly related to a fair value gain on derivativefinancial instruments. 85 ®®®Table of ContentsB. Liquidity and Capital Resources Liquidity and Capital Resources Our therapeutic candidates are in research and development stage, and therefore we do not generate significant revenues yet.In 2017, through our U.S. subsidiary, we began to commercialize or promote three GI products in the U.S., Donnatal,EnteraGam and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg under agreements with third parties. 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 (now Valeant). As of December31, 2017, we had approximately $46.2 million of cash, cash equivalents and short-term investments. On February 3, 2011, we raised gross proceeds of approximately $14 million in connection with our initial public offering onthe 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 Series 1Warrants 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 exercised foran 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 Broadfin Healthcare Master Fund, LTD. On January10, 2017, warrants to purchase an aggregate of 252,632 ADSs were exercised for aggregate proceeds of approximately $2.63million, 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. On February 27, 2014, we entered into a Worldwide Exclusive License Agreement with Salix (now Valeant), pursuant towhich Salix licensed the exclusive worldwide 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. We arealso entitled to milestone payments and royalties based on net sales of RHB-106. See "Item 4. Information on the Company– B. Business Overview – Acquisition, Commercialization and License Agreements – Exclusive License Agreement withValeant Pharmaceuticals 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 public offeringprice of $12.50 per ADS, for gross proceeds to us of $12.5 million, before underwriting discounts and commissions and otheroffering expenses. On February 18, 2015, the underwriters exercised in full their over-allotment option to purchase from us anadditional 150,000 ADSs (15% of the original offering amount) at the public offering price of $12.50 per ADS, for grossproceeds of $1.9 million. Following the exercise of the over-allotment option, our offering totaled 1,150,000 ADSsrepresenting gross proceeds of approximately $14.4 million, before underwriting discounts and commissions and otheroffering expenses. 86 ®®Table of ContentsOn 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 underwriting discountsand 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 public offeringfor gross proceeds of approximately $23 million. Concurrent with the underwritten public offering, we sold 1,463,415 ADSsand warrants to purchase 731,708 ADSs in a concurrent registered direct offering in the U.S. for gross proceeds ofapproximately $15 million. The offering price in both offerings was $10.25 for a fixed combination of one ADS and a warrantto purchase 0.5 of an ADS. The warrants in both offerings have a per ADS exercise price of $13.33 and have a term of threeyears. Following the partial exercise by the underwriters of their option, our underwritten public offering and the concurrentregistered direct offering totaled 3,846,519 ADSs and warrants to purchase 2,025,458 ADSs, representing aggregate grossproceeds from both offerings combined of approximately $39.4 million before deducting underwriting discounts andcommissions, placement agent fees and other offering expenses. On November 13, 2017, we sold 4,090,909 ADSs in an underwritten public offering of our ADSs in the U.S. at a publicoffering price of $5.50 per ADS for gross proceeds of approximately $22.5 million before underwriting discounts andcommissions and other offering expenses. Revenue generated from our U.S. commercial activities for the year ended December 31, 2017 were approximately $4.0million. We estimate that so long as sufficient revenues to sustain our business operations in accordance with our plan are notgenerated from our therapeutic candidates, out-licensing transactions or promotion or commercialization of our currentproducts or products that we may promote or commercialize in the future, we will need to raise substantial additional funds,as our current cash and short-term investments are not sufficient to complete the research and development of all of ourtherapeutic candidates and fund our operations. However, additional financing may not be available on acceptable terms, ifat all. Our future capital requirements will depend on many factors including but not limited to: ·the regulatory path of each of our therapeutic candidates;·our ability to successfully commercialize our therapeutic candidates and products we may promote orcommercialize, including securing commercialization agreements with third parties and favorable pricing andmarket 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 therapeutic candidatesand 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. If we are unable to commercialize or out-license our therapeutic candidates, obtain future financing or generate sufficientrevenues to sustain our business operations in accordance with our plan from our commercial products, 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, financial condition and results of operations. See “Item3. Key Information – D. Risk Factors – Risks Related to Our Financial Condition and Capital Requirements – Our currentworking capital is not sufficient to complete our research and development with respect to any or all of our therapeuticcandidates or to commercialize our products or products to which we have rights including EnteraGam, and includingpromotion of Donnatal and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg. We will need to raise87 ®®Table of Contentsadditional capital to achieve our strategic objectives of acquiring, in-licensing, developing and commercializing therapeuticcandidates, promoting Donnataland Esomeprazole Strontium Delayed-Release Capsules 49.3 mg, commercializingEnteraGam, and products that we may promote or commercialize in the future, and our failure to raise sufficient capitalwould significantly impair our ability to fund our operations, develop our therapeutic candidates, or commercializeEnteraGam or the products we may commercialize in the future, or promote products such as Donnatal and EsomeprazoleStrontium Delayed-Release Capsules 49.3 mg, attract development or commercial partners and retain key personnel.” We have begun implementing a cost reduction plan to gradually reduce our quarterly cash used in operating activities toapproximately $8.5 million on average which, we believe, should allow our capital resources to be sufficient to fund ouroperations for more than the next 12 months. Cash Flow Net Cash Used in Operating Activities Net Cash Used in Operating Activities for the year ended December 31, 2017 was $44.8 million, compared to $28.3 millionfor the year ended December 31, 2016. The increase in Net Cash Used in Operating Activities was a direct result of theincrease in Operating Loss, as detailed above. Net Cash Used in Investing Activities Net Cash Used in Investing Activities for the year ended December 31, 2017 was $18.6 million, compared to Net CashProvided by Investing Activities of $24.5 million for the year ended December 31, 2016. The change from the comparableperiod was mainly due to withdrawal and deposit activities in bank deposits and financial assets at fair value through profitor loss. Net Cash Provided by Financing Activities Net Cash Provided by Financing Activities for the year ended December 31, 2017 was $25.7 million, compared to $36.0million for the year ended December 31, 2016. For 2017, the Net Cash Provided by Financing Activities was mainly due tothe November 2017 underwritten public offering and an exercise of warrants and options in the (cid:20)irst quarter of 2017. Forthe year ended December 31, 2016, the Net Cash Provided by Financing Activities was mainly due to the December 2016underwritten public offering and the concurrent registered direct offering. We did not have any material commitments for capital expenditures, including any anticipated material acquisition of plantand equipment or interests in other companies, as of December 31, 2017. C. 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 our88 ® ®®®Table of Contentsresearch and development expense to remain our primary expense in the near future as we continue to develop ourtherapeutic candidates. 2017 2016 2015 U.S. dollars in millionsPayroll and related expenses 0.7 0.7 0.6 Professional services 2.2 1.8 2 Share-based payments 0.8 0.8 0.9 Clinical trials, net 27.9 20.7 13.4 Intellectual property development 0.4 0.4 0.2 Other 1.0 0.8 0.7 Total 33.0 25.2 17.8 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, the 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 U.S. Food and Drug Administration (“FDA”) or other foreignregulatory clearance and approval for our therapeutic candidates or products we may promote or commercialize, we or ourcommercialization partners will be unable to commercialize our therapeutic candidates or products we may promote orcommercialize.” 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. Completion ofclinical trials by us or our licensees may take several years or more, but the length of time generally varies according to thetype, 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 our researchand development expenses to increase and, in turn, have a material adverse effect on our operations. Due to the factors setforth above, we are not able to estimate with any certainty if and when we would recognize any substantial revenues from ourprojects. D. Trend Information We are a specialty biopharmaceutical company primarily focused on late-clinical development stage and commercializationof proprietary drugs for the treatment of GI diseases 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 is ourprimary expenditure. Increases or decreases in research and development expenditures are primarily attributable to the leveland results of our clinical trial activities and the amount of expenditure on those trials. In December 2016, we were granted certain rights to promote Donnatalin certain U.S. territories, a specialty GI productcurrently included in the FDA DESI review program, in April 2017, we entered into an exclusive license agreement with89 ® Table of ContentsEntera Health, granting us exclusive license to use the EnteraGamtrademarks, tradenames and other Entera Healthproprietary rights relating to EnteraGam for the sale and distribution of the product in the U.S., and in August 2017, weentered into a commercialization agreement with ParaPRO LLC granting us the exclusive rights to promote EsomeprazoleStrontium Delayed-Release Capsules 49.3 mg to gastroenterologists in certain U.S. territories. The foregoing agreements arepart of our goal to build our own marketing and commercialization capabilities in the U.S. 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 financialguarantees, 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 unconsolidated entitythat 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, 2017: More Less than 1-3 3-5 than 5 Total 1 year years years years (U.S. dollars in thousands) (Unaudited)Office lease obligations 1,675 551 775 349 — Vehicle lease obligations 854 388 466 — — Accounts payable, accrued expenses and other currentliabilities 10,830 10,830 — — — Payable in respect of intangible asset purchase 1,000 1,000 — — — Total 14,359 12,769 1,241 349 — The foregoing table does not include our in-license agreements with Temple University, Heidelberg, Apogee, our asset saleagreement with Giaconda Limited and our agreement with UCF or University of Minnesota, pursuant to which we areobligated to make various payments upon the achievement of agreed upon milestones or make certain royalty paymentssince we are unable to estimate the actual amount or timing of these payments currently. If all of the milestones are achievedover the life of each in-licensing agreement, we will be required to pay, in addition to the amounts in the above table androyalties on our net income, an aggregate amount of approximately $3 million for milestones achieved. 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 or timingof these payments. If all of the milestones are achieved over the life of the manufacturing agreements, we will be required topay, in addition to the above table and royalties on our net income, an aggregate amount of approximately $4.9 million. Allof 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.” 90 ® ®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 officers and directors as of the date of thisAnnual Report. Name Age Position(s) Executive Officers Dror Ben-Asher 52 Chief Executive Officer and Chairman of the Board of DirectorsMicha Ben Chorin 49 Chief Financial OfficerReza Fathi, Ph.D. 63 Senior Vice President Research and DevelopmentGilead Raday 43 Chief Operating OfficerAdi Frish 48 Senior Vice President Business Development and LicensingGuy Goldberg 42 Chief Business OfficerDirectors Dr. Shmuel Cabilly (2) 68 DirectorEric Swenden 74 DirectorDr. Kenneth Reed 64 DirectorDan Suesskind (1) 74 DirectorRick D. Scruggs 58 DirectorOfer Tsimchi (1), (2) 58 DirectorNurit Benjamini (1), (2) 51 DirectorNicolas A. Weinstein 36 Director(1)Member of our audit committee that also serves as our financial statements committee.(2)Member of our compensation committee. Executive officers Dror Ben-Asher has served as our Chief Executive Officer 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., an affiliate of ProSeed Capital Holdings CVA. Mr. Ben-Asher holds an LLB from theUniversity 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 Officer since March 1, 2016. From 2014 until 2016, Mr. Ben Chorinserved as Chief Financial Officer of Pyramid Analytics a business intelligence (BI) software company. From 2009 until 2013,he served as CFO of Starhome B.V., a leading international roaming vendor, from 2005 until 2009 as CFO of Winetworks,and from 1998 until 2005 Mr. Ben Chorin served as Chief Financial Officer at GVT (currently Telefonica Brazil). Mr. BenChorin holds a B.A. from Tel-Aviv University and is a Certified Public Accountant. Senior management includes: members of the Company's administrative, supervisory or management bodies, or nomineesfor such positions. 91 11Table of ContentsReza 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. Gilead Raday has served as our Chief Operating Officer 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 Officer 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 field of life sciences. From 2004 to 2008, Mr. Raday was a partner in Charles Street Securities Europe,LLP, an investment banking firm, where he was responsible for the field of life sciences. Mr. Raday previously served on theboards of Sepal Pharma Plc., ViDAC Limited, Morria Biopharmaceuticals Plc., Vaccine Research International Plc., TKsignalPlc., and Miras Medical Imaging Plc. He received his M.Sc. in Neurobiology from 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 2006 to2010, Mr. Frish served as the Chief Business Development at Medigus Ltd., a medical device company in the endoscopicfield, and from 1998 to 2006, Mr. Frish was an associate and a partner at the law firm of Y. Ben Dror & Co. Mr. Frish holds anLLB 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 Officer 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, ahealthcare-focused venture capital firm, 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. 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 field 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-founderand a Chief Scientist of Ethrog Biotechnology, where he invented dry buffer technologies enabling the production of aliquid 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 member atseveral 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 ExecutiveOfficer (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 of TBCS.A. and Maya Gold & Silver Ltd. 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.92 Table of Contents 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 of directorsof Minerva Biotechnologies Corporation. Dr. Reed received his B.A from Brown University in the U.S. and an M.D from theUniversity of Medicine and Dentistry of New Jersey in the U.S. Dr. Reed is a board-certified dermatologist with the over 25years of clinical experience since completing the Harvard Medical School Residency Program in Dermatology. Dr. Reed isalso a co-founder 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 FinancialOfficer of Teva Pharmaceutical Industries Ltd. Mr. Suesskind served as a director of Teva Pharmaceutical Industries Ltd. from1981 to 2001 and again from 2010 to 2014. In addition, Mr. Suesskind currently serves on the board of directors of SyneronMedical Ltd., Israel Corporation Ltd. the Jerusalem Foundation well as a member of the board of trustees of the HebrewUniversity and the Ben Gurion University. Mr. Suesskind is one of the founders and a member of the steering committee ofthe Israeli Forum of Chief Financial Officers. Mr. Suesskind holds a B.A. in Economics and Political Science from theHebrew University of Jerusalem, Israel, and an M.B.A. from the University of Massachusetts. The board of directors hasdetermined that Mr. Suesskind is a financial and accounting 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 served asExecutive Vice President of Business Development at Salix (now Valeant) until its acquisition by Valeant in March 2015.Mr. Scruggs joined Salix in 2000, after working at Oclassen Pharmaceuticals Inc. and Watson Pharmaceuticals, and helpedbuild Salix’s commercial organization, serving in various sales and commercial trade-related positions. He was appointed asExecutive Vice President in 2011 and was responsible for all business development activities as well as the worldwidedistribution of Salix innovative products and intellectual property. Mr. Scruggs also served as the Head of the board ofdirectors of Oceana Therapeutics, Salix’s European subsidiary. Mr. Scruggs holds a B.S. in Criminal Justice from theAppalachian State University in North Carolina. Ofer Tsimchi has served as a director on our board of directors since May 4, 2011 and 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 Chairman ofthe board of directors of Polysack Plastic Industries Ltd. and Polysack-Agriculture Products, and since 2006, he has served asa Partner in the Danbar Group Ltd., a holding company. Mr. Tsimchi currently serves as the Chairman of the board ofdirectors of Clal Concrete Products Ltd., and on the board of directors of Caesarstone Ltd., Amutat Zionut 2000, DanbarGroup Ltd, and Maabarot Products Ltd. Mr. Tsimchi received his BA in Economics and Agriculture from the HebrewUniversity of Jerusalem, Israel. The board of directors has determined that Mr. Tsimchi is a financial and accounting expertunder Israeli law. Nurit Benjamini has served as a director on our board of directors and a chairperson of our audit committee and a member ofour 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 Officer of TabTale Ltd. a company that developstools and platforms for creating interactive e-books, games and educational apps for mobile devices. From 2011 to 2013, Ms.Benjamini served as the Chief Financial Officer of Wix.com (NASDAQ: WIX); from 2007 through 2011, she served as theChief Financial Officer of CopperGate Communications Ltd., now Sigma Designs Israel, a subsidiary of Sigma Designs Inc.(NASDAQ: SIGM) and from 2000 through 2007, she served as the Chief Financial Officer of Compugen Ltd. (NASDAQ:CGEN). Prior to that, from 1993 through 1998, Ms. Benjamini served as the Chief Financial Officer of Aladdin KnowledgeSystems Ltd. (formerly NASDAQ: ALDN). Ms. Benjamini serves as an external director of BiolineRx Ltd. (NASDAQ/TASE:BLRX), and as the chairperson of its audit committee, and on the board of directors, and as chairperson of the auditcommittee, of Allot Communications Ltd. (NASDAQ/TASE: ALLT). Ms. Benjamini holds a B.A. in economics and businessand an M.B.A. in finance, both from Bar Ilan University, Israel. Nicolas Weinstein has served as a member of our board of directors since May 11, 2017. Mr. Weinstein served as ManagingDirector of Water Bear Investments LLC, a healthcare and real estate investment services company since January 2017. From2014 to 2015, Mr. Weinstein served as country head in Chile for Abbott Laboratories / CFR Pharmaceuticals. In 2014, Mr.Weinstein served as VP Marketing & Sales of CFR Pharmaceuticals, and from 2012 to 2013, he served as VP BusinessDevelopment of CFR Pharmaceuticals. From 2008 to 2010, Mr. Weinstein served as VP Marketing & Sales of93 Table of ContentsCFR Pharmaceuticals. Mr. Weinstein currently leads the healthcare and venture investments of EMC2 Fund Ltd. (“EMC2”)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, including Aquila Diagnostics, Medasense, Via Surgical, Harboand Selfpoint. Mr. Weinstein holds an M.Sc. in Finance from Universidad Adolfo Ibanez (Chile) and an MBA from theKellogg School of Management (2012). Mr. Weinstein has been nominated to our board of directors by EMC2 pursuant tothe right we granted to any investor that invested at least $15 million in the Company in our December 2016 public offeringto nominate one person to our board of directors, subject to various conditions described in the prospectus that we filed withthe Securities Exchange Commission. B. Compensation The aggregate compensation paid, and benefits-in-kind granted to or accrued on behalf of all of our directors and executiveofficers for their services, in all capacities, to us during the year ended December 31, 2017 was approximately $3 million. Outof that amount $1.7 million was paid as salary and consultants fees, $1 million was attributed to the value of the optionsgranted to senior management during 2017, approximately $0.1 million was attributed to retirement plans and $0.2 millionattributed to other long-term benefits. No additional amounts have been set aside or accrued by us to provide pension,retirement or similar benefits. The compensation terms for our directors and officers are derived from their employment agreements and comply with ourCompensation Policy for Executive Officers and Directors as approved by our shareholders on June 8, 2016 (the“Compensation Policy”). The table and summary below outline the compensation granted to our five highest compensated directors and officersduring the year ended December 31, 2017. The compensation detailed in the table below refers to actual compensationgranted or paid to the director or officer during the year 2017. Value of Equity Base Salary or Value of Based Other Social Compensation All Other Name and Position of director orofficer Payment (1) benefits (2) Granted (3) Compensation (4) TotalAmounts in U.S.$ dollars are based on 2017 monthly average representative U.S. dollar – NIS rate of exchangeDror Ben-Asher, Chief Executive Officerand Chairman of the Board of Directors(5) 336,180 52,176 227,204 18,787 634,347 Gilead Raday, Chief Operating Officer 320,601 47,487 120,684 15,656 504,428 Reza Fathi, Senior Vice PresidentResearch and Development 264,000 — 120,684 35,291 419,975 Micha Ben Chorin, CFO 223,722 58,335 120,684 14,784 417,525 Guy Goldberg, Chief Business Officer 229,266 44,064 120,684 12,525 406,539 (1)“Base Salary or Other Payment” means the aggregate yearly gross monthly salaries or other payments with respect to theCompany's Executive Officers and members of the board of directors for the year 2017.(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 2017 in exchange for the directors andofficers services recognized as an expense in profit or loss and is carried to the accumulated deficit 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 Officer provide that Mr. Ben-Asher is entitled to amonthly base gross salary of NIS 105,000 (approximately $29,991). Mr. Ben-Asher is further entitled to vacation days,sick days and convalescence pay in accordance with the market practice and applicable law, monthly remuneration for astudy fund, contribution by the Company to an insurance policy and pension fund, and additional benefits, includingcommunication expenses. In addition, Mr. Ben-Asher is entitled to reimbursement of car-related expenses from theCompany. Mr. Ben-Asher’s employment terms include an advance notice period of 180 days by the Company and 90days by Mr. Ben-Asher. During such advance notice period, Mr. Ben-Asher will be entitled to all of the compensationelements, and to the continuation of vesting of any options or restricted shares granted to him. Additionally, in the eventMr. Ben-Asher's employment is terminated in connection with a “hostile takeover,” he will94 Table of Contentsbe entitled to a special one-time bonus equal to his then current monthly salary and retirement benefits, includingpayments to an advanced study fund and pension arrangement and car expense reimbursement, multiplied by 12. A“hostile takeover” is defined as an occurrence where a person, entity or group that was not an interested party under theIsraeli Securities Law 1968 on the date of the initial public offering of our Ordinary Shares, becomes a “controllingshareholder,” as defined in the Israeli Securities Law 1968, or a “holder,” as defined in the Israel Securities Law 1968, of25% or more of the voting rights in the Company. In addition, in case of a “hostile takeover”, all options granted to Mr.Ben-Asher will immediately vest in full. In addition, all of our directors and executive officers are covered under our directors’ and executive officers’ 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 officers. All of these agreementscontain customary provisions regarding noncompetition, confidentiality of information and assignment ofinventions. However, the enforceability of the noncompetition provisions may be limited under applicable laws. For information on exemption and indemnification letters granted to our directors and officers, please see “Item 6 C. – BoardPractices – 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 $23,845) and a cash fee ofNIS 4,390 (approximately $1,254) 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 officers in accordance withAmendment No. 20 to the Israeli Companies Law, pursuant to which we are required to determine the compensation of ourdirectors and officers and which must be approved by our shareholders every three years. The policy was previouslyapproved by our board of directors, upon the 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 officers, in alignment with our long-term best interests and overall organizational strategy. Part of the rationale is that our Compensation Policy shouldencourage our officers to identify with our objectives, and an increase in officer satisfaction and motivation should retain theemployment 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 five persons and no more thaneleven persons, including any 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, which isrequired to be held annually, but not more than fifteen months after the prior annual general meeting, the term of one class ofdirectors expires, and the directors of such class are re-nominated to serve an additional three-year term that expires at theannual general meeting held in the third year following such election (other than any director originally nominated forelection by virtue of the nomination right granted to EMC2 for purchasing in the Company's public offering which closed onDecember 27, 2016, together with its affiliates, more than $15 million of ADSs and warrants, whose term of office as directormay expire earlier depending on the beneficial ownership of EMC2 at least 75 days prior to our annual general meeting ofshareholders for each of the years 2018 and 2019, as described below). This process continues indefinitely. A simple majorityshareholder vote may elect directors for a term of less than three years in order to ensure95 Table of Contentsthat the three groups of directors have as equal number of directors as possible as provided above. The directors of the firstclass, currently consisting of Dr. Kenneth Reed, and Eric Swenden, will hold office until our annual general meeting to beheld in the year 2018. The directors of the second class, currently consisting of Dr. Shmuel Cabilly and Dan Suesskind, willhold office until our annual general meeting to be held in the year 2019, and the directors of the third class, currentlyconsisting of Dror Ben-Asher Rick Scruggs and Nicolas Weinstein, will hold office until our annual general meeting to beheld in the year 2020. Until the next annual general meeting, the board of directors may elect new directors to fill vacancies,or increase the number of members of the board of directors up to the maximum number provided in our articles ofassociation. Any director so appointed may hold office until the first general shareholders’ meeting convened after theappointment. The foregoing notwithstanding, the term of office of Mr. Weinstein, who was nominated for election by EMC2,shall become subject to early expiration in 2018 or 2019, if EMC2 does not meet a 4% beneficial ownership of ouroutstanding shares threshold at least 75 days prior to our annual general meeting of shareholders for each of the years 2018and 2019, respectively. 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 qualifications and the ability to dedicate an appropriate amount of time for the performance ofhis duties as a director in the company, taking into consideration, among other things, the special needs and size of thecompany. In addition, a public company may convene an annual general meeting of shareholders to elect a director, and mayelect such director, only if prior to such shareholders meeting, the nominee declares, among other things, that he or shepossesses all of the required qualifications to serve as a director (and lists such qualifications in such declaration) and has theability to dedicate an appropriate amount of time for the performance of his duties as a director of the company. Under the Israeli Companies Law, entry by a public company into a contract with a non-controlling director as to the terms ofhis office, including exculpation, indemnification or insurance, requires the approval of the compensation committee, theboard 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 executiveofficer, directors or controlling shareholders (or a relative thereof) receive the approval of the compensation committee, boardof directors, and shareholders, subject to limited exceptions. The appointment and terms of office of a company's officers,other than directors and the general manager (i.e., chief executive officer) are subject to the approval by first, the company’scompensation committee; second, the company’s board of directors, in each case subject to the company's compensationpolicy, and then approved by its shareholders. However, in special circumstances, they may approve the appointment andterms of office of officers inconsistent with such policy, provided that (i) they have considered those provisions that must beincluded in the compensation policy according to the Israeli Companies Law and (ii) shareholder approval is obtained (by amajority of shareholders that does not include the controlling shareholders of the company and any shareholders interestedin the approval of the compensation). However, if the shareholders of the company do not approve a compensationarrangement with an officer inconsistent with the company’s compensation policy, in special situations the compensationcommittee and the board of directors may override the shareholders’ decision if each of the compensation committee and theboard of directors provide detailed reasons for their decision. In addition, non-material amendments to the compensation of apublic company’s officers (other than the chief executive officer and the directors) may be approved by the chief executiveofficer of the company if the company’s compensation policy establishes that non-material amendments within theparameters established in the compensation policy may be approved by the chief executive officer, so long as thecompensation is consistent with the company’s compensation policy. An amendment to the Israeli Companies Law requiresthat the board and shareholders (with approval by a “special majority” as further discussed below) adopt a compensationpolicy applicable to the company’s directors and officers which must take into account, among other things, providingproper incentives to directors and officers, the risk management of the company, the officer’s contribution to achievingcorporate objectives and increasing profits, and the function of the officer or director. Under the Israeli Companies Law, a“special majority” requires (i) the vote of at least a majority of the shares held by shareholders who are not controllingshareholders or have a personal interest in the proposal (shares held by abstaining96 Table of Contentsshareholders are not be taken into account); or (ii) that the aggregate number of shares voting against the proposal held bysuch shareholders does not exceed 2% of the company's voting shareholders. The compensation paid to a public company’s chief executive officer is required to be approved by, first, 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 discussed abovewith respect to the approval of director compensation). However, if the shareholders of the company do not approve thecompensation arrangement with the chief executive officer, the compensation committee and board of directors may overridethe shareholders’ decision if each of the compensation committee and the board of directors provide a detailed report for theirdecision. The renewal or extension of the engagement with a public company’s chief executive officer need not be approvedby the shareholders of the company if the terms and conditions of such renewal or extension are no more beneficial than theprevious engagement or there is no substantial difference in the terms and conditions under the circumstances, and the termsand conditions of such renewal or extension are in accordance with the company’s compensation policy. The compensationcommittee and board of directors approval should be in accordance with the company’s stated compensation policy;however, in special circumstances, they may approve compensation terms of a chief executive officer that are inconsistentwith such policy provided that they have considered those provisions that must be included in the compensation policyaccording to the Israeli Companies Law and that shareholder approval was obtained (by a special majority vote as discussedabove with respect to the approval of director compensation). The compensation committee may waive the shareholderapproval requirement with regards to the approval of the initial engagement terms of a candidate for the chief executiveofficer position, if they determine that the compensation arrangement is consistent with the company’s stated compensationpolicy, and that the chief executive officer did not have a prior business relationship with the company or a controllingshareholder of the company and that subjecting the approval of the engagement to a shareholder vote would impede thecompany’s ability to employ the chief executive officer candidate. The engagement with a public company’s chief executiveofficer need not be approved by the shareholders of the company with respect to the period from the commencement of theengagement until the next shareholder meeting convened by the company, if the terms and conditions of such engagementwere approved by the compensation committee and the board of directors of the company, the terms and conditions of suchengagement are in accordance with the company’s compensation policy approved in accordance with the Israeli CompaniesLaw, and if the terms and conditions of such engagement are no more beneficial than the terms and conditions of the personpreviously serving in such role or there is no substantial difference in the terms and conditions of the previous engagementversus the new one under the circumstances, including the scope of engagement. We have a service contract with one of our directors, Dror Ben-Asher, that provides for benefits 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 Companies Law. Under the Israeli Companies Law, except as provided below, companies incorporated under the laws of Israel whose sharesare either (i) listed for trading on a stock exchange or (ii) have been offered to the public in or outside of Israel, and are heldby 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 satisfies 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 requirement toappoint external directors or comply with the audit committee and compensation committee composition requirements underthe Israeli Companies Law. In accordance with our board of directors’ resolution, pursuant to the Regulation, we intend tocomply with the NASDAQ Listing Rules in connection with a majority of independent directors on the board of97 Table of Contentsdirectors and in connection with the composition of each of the audit committee and the compensation committee, in lieu ofsuch requirements of the Israeli Companies Law. 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 is subordinateddirectly or indirectly or any entity under the person’s control, has, as of the date of the person’s appointment to serve asexternal director, or had, during the two years preceding that date, any affiliation with us, our controlling shareholder, anyrelative of our controlling shareholder, as of the date of the person’s appointment to serve as external director, or any entityin which, currently or within the two years preceding the appointment date, the controlling shareholder was the company orthe company's controlling shareholder; and in a company without a controlling shareholder or without a shareholder holding25% or more of the voting rights in the company, any affiliation to the chairman of the board of directors, to the generalmanager (Chief Executive Officer), to a shareholder holding 5% or more of the company's shares or voting rights, or to thechief officer in the financial or economic field as of the date of the person’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 of acompany when such company was about to make an initial public offering. Under the Israeli Companies Law, an “officer” is defined as a general manager, chief business manager, deputy generalmanager, vice-general manager, any person filing 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, someone towhom he is subordinated directly or indirectly or any entity under the person’s control has business or professionalrelationship with an entity which an affiliation 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 “affiliation” with the public company for which he serves, or is a candidate for serving asan external director. No person can serve as an external director if the person’s positions or other businesses create, or may create, a conflict ofinterests with the person’s responsibilities as a director or may impair his ability to serve as a director. In addition, a personwho is a director of a company may not be elected as an external director of another company if, at that time, a director of theother company is acting as an external director of the first company. Except for the cessation of classification 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 office, a company, itscontrolling shareholder, or a company controlled by him may not engage an external director, his spouse, or child to serve asan officer 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 benefit 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 be engagedin such capacity. In addition, if at the time an external director is appointed all current members of the board of directors whoare neither controlling shareholders nor relatives of controlling shareholders are of the same gender, then the external directorto 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 “financial and accounting expertise,” provided that at least one of the external98 Table of Contentsdirectors must have “financial 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 financial and accounting expertise as defined in the Israeli Companies Law and applicableregulations, then neither of our external directors is required to possess financial and accounting expertise as long as bothpossess other requisite professional qualifications. The determination whether a director possesses financial and accountingexpertise is made by the board of directors. Under the Israeli Companies Law regulations, a director having financial and accounting expertise is a person who, due to hiseducation, experience and qualifications is highly skilled in respect of, and understands, business-accounting matters andfinancial reports in a manner that enables him to understand in depth the company’s financial statements and to stimulatediscussion regarding the manner in which the financial data is presented. Under the Israeli Companies Law regulations, adirector having professional expertise is a person who has an academic degree in either economics, business administration,accounting, law or public administration or another academic degree or has completed other higher education studies, all inan area relevant to the main business sector of the company or in a relevant area of the board of directors position, or has atleast five years of experience in one of the following or at least five years of aggregate experience in two or more of thefollowing: a senior management position in the business of a corporation with a substantial scope of business, in a seniorposition in the public service or a senior position in the main field of the company’s business. Under the Israeli Companies Law, each Israeli public company is required to determine the minimum number of directorswith “accounting and financial expertise” that such company believes appropriate in light of the company’s type, size, thescope and complexity of its activities and other factors. Once a company has made this determination, it must ensure that thenecessary appointments to the board of directors are made in accordance with this determination. Our board of directorsdetermined that two directors with “accounting and financial expertise” is appropriate for us. Our board of directors currentlyhas 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 defined 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 favor ofthe election of the director without taking abstentions into account; or (2) the total number of shares of the above-mentionedshareholders who voted against the election of the external director does not exceed two percent of the aggregate votingrights in the company. The initial term of an external director is three years and may be extended for two additional three-year terms under certaincircumstances and conditions. Nevertheless, regulations under the Israeli Companies Law provide that companies, whoseshares are listed for trading both on the TASE and on the NASDAQ Stock Market, may appoint an external director foradditional three-year terms, under certain circumstances and conditions. External directors may be removed only in a generalmeeting, by the same percentage of shareholders as is required for their election, or by a court, and in both cases only if theexternal directors cease to meet the statutory qualifications for their appointment or if they violate their duty of loyalty to us. Each committee authorized to exercise any of the powers of the board of directors is required to include at least one externaldirector 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 regulations promulgatedunder 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, indemnification and insurance provided by thecompany. Committees Israeli Companies Law Requirements Our board of directors has established three standing committees, the audit committee, the compensation committee and theinvestment committee. 99 Table of ContentsAudit Committee Under the Israeli Companies Law, the board of directors of a public company must appoint an audit committee. Except in thecase 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 requirements underthe Companies Law, an audit committee of a public company under the Israeli Companies Law must be comprised of at leastthree 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 defined below) and thechairman of the audit committee must be an external director. In addition, the following are disqualified from serving asmembers of the audit committee: the chairman of the board of directors, the controlling shareholder and her or his relatives,any director employed by the company or by its controlling shareholder or by an entity controlled by the controllingshareholder, a director who regularly provides services to the company or to its controlling shareholder or to an entitycontrolled by the controlling shareholder, and any director who derives most of its income from the controlling shareholder.Any persons not qualified from serving as a member of the audit committee may not be present at the audit committeemeetings during the discussion and at the time decisions are made, unless the chairman of the audit committee determinesthat the presence of such person is required to present a matter to the meeting or if such person qualifies under an availableexemption in the Israeli Companies Law. An “independent director” is defined as an external director or a director who meets the following conditions: (i) satisfiescertain conditions for appointment as an external director (as described above) and the audit committee has determined thatsuch conditions have been met and (ii) has not served as a director of the company for more than nine consecutive years, withany interruption of up to two years in service not being deemed a disruption in the continuity of such service. The role of the audit committee under the Israel Companies Law is to examine suspected flaws in our business management,in consultation with the internal auditor or our independent accountants and suggest an appropriate course of action in orderto correct such flaws. In addition, the approval of the audit committee is required to effect specified actions and related partytransactions. Additional functions to be performed by the audit committee include, among others, the following: ·the 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 flaws in the businessmanagement of the company and the protection of the rights of such employees. Our audit committee also serves as our financial statements committee. The members of our audit committee are Ms. NuritBenjamini, Mr. Ofer Tsimchi and Mr. Dan Suesskind. An amendment to the Israeli Companies Law, enacted on February 17, 2016, or Amendment 27, allows a company whoseaudit committee’s composition meets the requirements set for the composition of a compensation committee (as furtherdetailed below) to have one committee acting as both audit and compensation committees. As of the date of this AnnualReport, we have not elected to have one committee acting as both the audit and the compensation committees. 100 Table of ContentsCompensation 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 "- Independentand External Directors - Israeli Companies Law Requirements", who are exempt from the compensation committeecomposition requirements under the Companies Law, the Israeli Companies Law requires that the compensation committeemust consist of at least three directors and include all of the external directors who must constitute a majority of its members.The remaining members must be qualified to serve on the audit committee pursuant to the Israeli Companies Lawrequirements described above. The compensation committee chairman must be an external director and any persons notqualified from serving as a member of the compensation committee may not be present at the compensation committeemeetings during the discussion and at the time decisions are made, unless the chairman of the compensation committeedetermines that the presence of such person is required to present a matter to the meeting or if such person qualifies under anavailable exemption in the Israeli Companies Law. Our compensation committee, which consists of Mr. Ofer Tsimchi (chairman), Dr. Shmuel Cabilly and Ms. Nurit Benjamini,administers issues relating to our global compensation plan with respect to our employees, directors and consultants. Ourcompensation committee is responsible for making recommendations to the board of directors regarding the issuance of shareoptions and compensation terms for our directors and officers and for determining salaries and incentive compensation forour executive officers and incentive compensation for our other employees and consultants. Each of the members of thecompensation committee is “independent” as such term is defined in the NASDAQ Listing Rules. Investment Committee Our investment committee, which consists of Mr. Eric Swenden (chairman), Mr. Dan Suesskind and Ms. Nurit Benjaminiassists the board in fulfilling its responsibilities with respect to our financial and investment strategies and policies,including determining policies and guidelines on these matters and monitoring implementation. It is also authorized toapprove certain financial transactions and review risk factors associated with management of our finances and the mitigationof such risks, as well as financial controls and reporting and various other finance-related matters. NASDAQ Stock Market Requirements Under the NASDAQ Listing Rules, we are required to maintain an audit committee consisting of at least three members, all ofwhom are independent and are financially literate and one of whom has accounting or related financial 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 affiliate of the issuer, other than in the member’s capacity as a member of theboard of directors and any board committee; and·audit committee members may not be an “affiliated person” of the issuer or any subsidiary of the issuer apart fromher or his capacity as a member of the board of directors and any board committee. The SEC has defined “affiliate” 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 specified.” The term “control” isintended to be consistent with the other definitions of this term under the Exchange Act, as “the possession, direct or indirect,of the power to direct or cause the direction of the management and policies of a person, whether through the ownership ofvoting securities, by contract, or otherwise.” A safe harbor has been adopted by the SEC, under which a person who is not anexecutive officer or 10% shareholder of the issuer would be deemed not to have control of the issuer. 101 Table of ContentsIn 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 financial statements, the adequacy of ourinternal controls and our compliance with legal and regulatory requirements. The audit committee also oversees our majorfinancial risk exposures and policies for managing such potential risks, discusses with management and our independentauditor 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. Dan Suesskind,with Ms. Benjamini serving as chairman. All members of our audit committee meet the requirements for financial literacyunder the NASDAQ Listing Rules. Our board of directors has determined that each of Mr. Ofer Tsimchi and Ms. NuritBenjamini is an audit committee financial expert as defined by the SEC rules and all members of the audit committee havethe requisite financial experience as defined by the NASDAQ Listing Rules. Each of the members of the audit committee is“independent” as such term is defined in Rule 10A-3(b)(1) under the Exchange Act. 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 orderly businessprocedure. Under the Israeli Companies Law, the internal auditor may not be an interested party, an officer or a director, arelative of an interested party, or a relative of an officer or a director, nor may the internal auditor be our independentaccountant or its representative. In January 2018, Ms. Sharon Cohen, Lead Engagement Partner, Head of LS & HC Industry atDeloitte Israel, was elected to serve as our internal auditor. Duties of Directors and Officers and Approval of Specified Related Party Transactions under the Israeli Companies Law Fiduciary Duties of Officers The Israeli Companies Law imposes a duty of care and a duty of loyalty on all directors and officers of a company, includingdirectors and executive officers. The duty of care requires a director or an officer to act with the level of care, according towhich a reasonable director or officer in the same position would have acted under the same circumstances. The 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 officer’s approval or performed bysuch 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 officer to act in good faith and for the benefit of the company and includes aduty to: ·refrain from any action involving a conflict of interest between the performance of the director’s or officer’s duties inthe 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, officer orothers; and·disclose to the company any information or documents relating to a company’s affairs which the director or officerhas 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 the approvalof the compensation committee, the board of directors and the shareholders. 102 Table of ContentsThe Israeli Companies Law requires that a director or an officer of a company promptly and, in any event, not later than thefirst 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 the company.A personal interest of a director or an officer (which includes a personal interest of the director's or officer’s relative) is in acompany in which the director or officer or the director's or officer’s relative is: (i) a shareholder which holds 5% or more of acompany’s share capital or its voting rights, (ii) a director or a general manager, or (iii) in which the director or officer has theright to appoint at least one director or the general manager. A personal interest also includes a personal interest of a personwho votes according to a proxy of another person, even if the other person has no personal interest, and a personal interest ofa person who gave a proxy to another person to vote on his behalf – in each case, regardless whether discretion with respectto how to vote lies with the person voting or not. In the case of an extraordinary transaction, the director’s or the officer’sduty to disclose also applies to a personal interest of the director or officer’s relative. 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 officer complies with the above disclosure requirement, the board ofdirectors may approve an ordinary transaction between the company and a director or an officer, or a third party in which adirector or an officer has a personal interest, unless the articles of association provide otherwise. A transaction does notbenefit to the company’s interest cannot be approved. Subject to certain exceptions, the compensation committee and theboard 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 specific circumstances, shareholder approval may also be required. Whoever has a personalinterest in a matter, which is considered at a meeting of the board of directors or the audit committee, may not be present atthis meeting or vote on this matter. However, if the chairman of the board of directors or the chairman of the audit committeehas determined that the presence of such person is required to present a matter at the meeting; such officer holder may bepresent at the meeting. Notwithstanding the foregoing, if the majority of the directors have a personal interest in a matter, adirector who has the personal interest in this matter may be present at this meeting or vote on this matter, but the board ofdirectors’ 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 officer also apply to acontrolling shareholder of a public company and to a person who would become a controlling shareholder as a result of aprivate placement. A controlling shareholder includes a person who has the ability to direct the activities of a company, otherthan if this power derives solely from his/her position on the board of directors or any other position with the company. Inaddition, for such purposes, a controlling shareholder includes a shareholder that holds 25% or more of the voting rights in apublic company if no other shareholder owns more than 50% of the voting rights in the company. Extraordinary transactionswith a controlling shareholder or in which a controlling shareholder has a personal interest, including a private placement inwhich a controlling shareholder has a personal interest; and the terms of engagement of the company, directly or indirectly,with a controlling shareholder or his or her relative (including through a corporation controlled by a controllingshareholder), regarding the company’s receipt of services from the controlling shareholder, and if such controllingshareholder is also a director or an officer of the company or an employee, regarding his or her terms of office andemployment, require the approval of the audit committee, the board of directors and the shareholders of the company, in thatorder. 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.103 Table of Contents 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 officers 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 vote regardinga transaction with a controlling shareholder indicate whether or not that shareholder has a personal interest in the vote inquestion, 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 be madeby means of a tender offer if as a result of the acquisition the purchaser would become a holder of 45% of the voting rights ofthe company, unless there is a holder of more than 45% of the voting rights of the company or would become a holder of25% of the voting rights unless there is another person holding 25% of the voting rights. This restriction does not apply to: ·an acquisition of shares in a private placement, if the acquisition had been approved in a shareholders meeting undercertain 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 acquirer wouldbecome 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 and othershareholders when exercising his rights and duties and must refrain from oppressing other shareholders, including inconnection 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 shareholder approval. In addition, any controlling shareholder, any shareholder who knows that it possesses power to determine the outcome of ashareholder vote and any shareholder who, pursuant to the provisions of a company’s articles of association, has the power toappoint or prevent the appointment of a director or an officer in the company, or has any other power over the company, isunder a duty to act with fairness towards the company. Under the Israeli Companies Law, the laws that apply to a breach of acontract will generally also apply to a breach of the 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 officer or director from liability with respect to a breach ofhis duty of loyalty, but may exempt in advance an officer or director from liability to the company, in whole or in part, withrespect 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 our directorsand officers. 104 Table of ContentsDirectors’ 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 officers for any liability stemming from any act performed by an officer ordirector 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 officer’s or director’s duty of loyalty to us, provided that such officer or director acted in good faithand 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;·financial liability imposed on the officer 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 (PartyHarmed by the Breach);·expenses incurred by such officer or director in connection with an administrative proceeding conducted in thismatter, 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, provisions relatingto directors’ and officers’ liability insurance. Pursuant to the Compensation Policy, we may obtain a liability insurancepolicy, which would apply to our and/or our subsidiaries' directors and officers, as they may be, from time to time, subject tothe following terms and conditions: (a) the total insurance coverage under the insurance policy may not exceed $50 million;and (b) the annual premium payable by us for the insurance premium may not exceed $400,000 annually. In addition,pursuant to our Compensation Policy, should we sell our operations (in whole or in part) or in case of merger, spin-off or anyother significant business combination involving us or part or all of our assets, we may obtain a director’s and officers’liability insurance policy (run-off) for our directors and officers in office with regard to the relevant operations, subject tothe following terms and conditions: (a) the insurance term may not exceed seven years; (b) the coverage amount may notexceed $50 million; (c) the premium payable by us may not exceed $400,000 annually. The Compensation Policy is in effectfor 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 officers’ liability insurance policy, pursuant to which the total amount of insurancecovered under the policy would be $50 million. This insurance is renewed on an annual basis. Pursuant to the foregoingapprovals, we carry directors’ and officers’ liability insurance. Indemnification of Officers and Directors The Israeli Companies Law provides that a company may indemnify an officer or director for payments or expensesassociated with acts performed in his capacity as an officer 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 officer or director for future events with respect to a monetaryliability imposed on him in favor of another person pursuant to a judgment (including a judgment given in asettlement or an arbitrator’s award approved by the court), so long as such indemnification is limited to types ofevents which, in the board of directors’ opinion, are foreseeable at the time of granting the indemnity undertakinggiven the company’s actual business, and in such amount or standard as the board of directors deems reasonableunder the circumstances. Such undertaking must specify the events that, in the board of directors’ opinion, areforeseeable in view of the company’s actual business at the time of the undertaking and the amount or the standardsthat the board of directors deemed reasonable at the time;·a provision authorizing the company to indemnify an officer or director for future events with respect to reasonablelitigation expenses, including counsel fees, incurred by an officer or director in which he is ordered to pay by acourt, in proceedings that the company institutes against him or instituted on behalf of the company or by anotherperson, or in a criminal charge of which he was acquitted, or a criminal charge in which he was convicted of acriminal offense that does not require proof of criminal intent;105 Table of Contents·a provision authorizing the company to indemnify an officer or director for future events with respect to reasonablelitigation fees, including attorney’s fees, incurred by an officer or director due to an investigation or proceedingfiled against him by an authority that is authorized to conduct such investigation or proceeding, and that resultedwithout filing an indictment against him and without imposing on him financial obligation in lieu of a criminalproceeding, or that resulted without filing an indictment against him but with imposing on him a financialobligation as an alternative to a criminal proceeding in respect of an offense that does not require the proof ofcriminal intent or in connection with a monetary sanction;·a provision authorizing the company to indemnify an officer or director for future events with respect to a PartyHarmed by the Breach;·a provision authorizing the company to indemnify an officer or director for future events with respect to expensesincurred by such officer or director in connection with an administrative proceeding, including reasonable litigationexpenses, including legal fees; and·a provision authorizing the company to indemnify an officer or director retroactively. 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 director oran officer nor enter into an insurance contract, which would provide coverage for any monetary liability incurred as a resultof 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 officer or director of his duty of care if the breach was done intentionally or recklessly, except if thebreach 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, indemnification of, and procurement of insurance coverage for,our directors and officers must be approved by our audit committee and board of directors and, in specified circumstances, byour shareholders. Letters of Indemnification We may provide a commitment to indemnify in advance any director or officer of ours in the course of such person’s positionas our director or officer, all subject to the letter of indemnification, as approved by our shareholders from time to time and inaccordance with our articles of association. We may provide retroactive indemnification to any officer to the extent allowedby the Israeli Companies Law. As approved by our shareholders on July 18, 2013, the amount of the advance indemnity islimited to the higher of 25% of our then shareholders’ equity, per our most recent annual financial statements, or $5 million. As part of the indemnification letters, we exempted our directors and officers, in advance, to the extent permitted by law, fromany liability for any damage incurred by them, either directly or indirectly, due to the breach of an officer’s or director’s dutyof care vis-à-vis us, within his acts in his capacity as an officer or director. The letter provides that so long as not permitted bylaw, we do not exempt an officer or director in advance from his liability to us for a breach of the duty of care upondistribution, to the extent applicable to the officer or director, if any. The letter also exempts an officer or director from anyliability for any damage incurred by him, either directly or indirectly, due to the breach of the officer or director’s duty ofcare vis-à-vis us, by his acts in his capacity as an officer or director prior to the letter of exemption and indemnificationbecoming effective. 106 Table of ContentsD. Employees As of December 31, 2017, we had 74 employees, of which fourteen employees provide services in Israel and sixty in the U.S.In addition, we also received services from twenty consultants, of which three provide services in Israel, eleven in the U.S.,five in Canada and one in Belgium. As of December 31, 2015 2016 2017 Company Company Company Employees Consultants Employees Consultants Employees ConsultantsManagement and administration 11 2 11 4 12 — Research and development 1 11 2 10 2 17 Commercial operations — — — — 60 3 While none of our employees are 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 Ministry ofLabor. These provisions primarily concern the length of the workday, minimum daily wages for professional workers,pension fund benefits 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 benefits andworking conditions beyond the required minimums. We have never experienced any employment-related work stoppages and believe our relationship with our employees isgood. E. Share Ownership The following table sets forth information regarding the beneficial ownership of our outstanding Ordinary Shares as ofFebruary 21, 2018, of each of our directors and executive officers individually and as a group based on information providedto us by our directors and executive officers. The information in this table is based on 213,439,434 Ordinary Sharesoutstanding as of such date. The number of Ordinary Shares beneficially owned by a person includes Ordinary Shares subjectto options or warrants held by that person that were currently exercisable at, or exercisable within 60 days of February 21,2018. The Ordinary Shares issuable under these options and warrants are treated as if they were outstanding for purposes ofcomputing the percentage ownership of the person holding these options and warrants but not107 Table of Contentsthe 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 of Shares Beneficially Percent of Held Class Directors Dr. Kenneth Reed (1) 5,359,300 2.51 %Dr. Shmuel Cabilly (2) 5,338,268 2.50 %Dan Suesskind (3) 1,239,100 * Eric Swenden (4) 1,050,340 * Ofer Tsimchi (5) 410,000 * Nicolas A. Weinstein (6) 300,130 * Rick D. Scruggs (7) 125,000 * Nurit Benjamini (8) 125,000 * Executive officers Dror Ben-Asher (9) 5,066,280 2.35 %Reza Fathi, Ph.D. (10) 1.638,750 * Adi Frish (11) 1,148,750 * Gilead Raday (12) 880,460 * Guy Goldberg (13) 768,750 * Micha Ben Chorin (14) 212,500 * All directors and executive officers as a group (14 persons)23,662,628 10.71 %*Less than 1.0%(1)Includes options to purchase 235,000 Ordinary Shares exercisable within 60 days of February 21, 2018. The exerciseprice of these options ranges between $1.09 and $1.48 per share, and the options expire between 2020 and 2024.(2)Includes options to purchase 295,000 Ordinary Shares exercisable within 60 days of February 21, 2018. The exerciseprice of these options ranges between $1.09 and $1.48 per share, and the options expire between 2021 and 2024.(3)Includes options to purchase 235,000 Ordinary Shares exercisable within 60 days of February 21, 2018. The exerciseprice of these options ranges between $1.09 and $1.48 per share, and the options expire between 2020 and 2024.(4)Includes options to purchase 141,250 Ordinary Shares exercisable within 60 days of February 21, 2018. The exerciseprice of these options ranges between $1.09 and $1.48 per share, and the options expire between 2020 and 2024.(5)Includes options to purchase 410,000 Ordinary Shares exercisable within 60 days of February 21, 2018. The exerciseprice of these options ranges between $1.05 and $1.48 per share, and the options expire between 2018 and 2024.(6)Includes options to purchase 20,000 Ordinary Shares exercisable within 60 days of February 21, 2018. The exerciseprice of these options is $1.09 per share, and the options expire in 2024.(7)Includes options to purchase 125,000 Ordinary Shares exercisable within 60 days of February 21, 2018. The exerciseprice of these options ranges between $1.09 and $1.28 per share, and the options expire between 2023 and 2024.(8)Includes options to purchase 125,000 Ordinary Shares exercisable within 60 days of February 21, 2018. The exerciseprice of these options ranges between $1.09 and $1.28 per share, and the options expire between 2023 and 2024.(9)Includes options to purchase 1,781,250 Ordinary Shares exercisable within 60 days of February 21, 2018. The exerciseprice of these options ranges between $0.72 and $1.48 per share, and the options expire between 2019 and 2024. Doesnot include options to purchase 1,540,000 Ordinary Shares at an exercise price of $0.75 per Ordinary Share, theallocation of which is subject to approval of our shareholders, which would replace options to acquire the same numberof Ordinary Shares previously held by Mr. Ben-Asher which had an exercise price of $0.5 per Ordinary Share and anexpiration date in February 2018. This allocation of options has been approved by our compensation committee andboard of directors which also approved the extension of options held by other optionees whose options were expiring inFebruary 2018 and whose extended options will have the same terms as Mr. Ben-Asher’s options. See "Item 5. Operatingand Financial Review and Prospects – B. Liquidity and Capital Resources" for more information regarding the warrants.(10)Includes options to purchase 1,368,750 Ordinary exercisable within 60 days of February 21, 2018. The exercise price ofthese options ranges between $0.75 and $1.56 per share, and the options expire between 2019 and 2024. See "Item108 Table of Contents5. Operating and Financial Review and Prospects – B. Liquidity and Capital Resources" for more information regardingthe warrants.(11)Includes options to purchase 968,750 Ordinary Shares exercisable within 60 days of February 21, 2018. The exerciseprice of these options ranges between $0.75 and $1.56 per share, and the options expire between 2019 and 2024.(12)Includes options to purchase 880,460 Ordinary Shares exercisable within 60 days of February 21, 2018. The exerciseprice of these options ranges between $0.75 and $1.56 per share, and the options expire between 2019 and 2024.(13)Includes options to purchase 768,750 Ordinary Shares exercisable within 60 days of February 21, 2018. The exerciseprice of these options ranges between $0.7 and $1.56 per share, and the options expire between 2019 and 2024.(14)Includes options to purchase 212,500 Ordinary Shares exercisable within 60 days of February 21, 2018. The exerciseprice of these options ranges between $1.08 and $1.41 per share, and the options expire between 2023 and 2024. Award Plans 2010 Award PlanIn 2010, we adopted the RedHill Biopharma Ltd. 2010 Option Plan (later amended and restated as the 2010 Award Plan). The2010 Award Plan provides for the granting of ordinary shares, ADSs, stock options under various tax regimes in Israel and theU.S., restricted shares, and other share-based awards to our directors, officers, employees, consultants and service providersand individuals who are their employees, and to the directors, officers, employees, consultants and service providers of oursubsidiaries and affiliates. The 2010 Award Plan provides for awards to be issued at the determination of our board ofdirectors in accordance with applicable laws. As of February 21, 2018, there were 25,101,798 Ordinary Shares issuable uponthe exercise of outstanding awards under the 2010 Award Plan. See footnote (6) to “- E. Share Ownership” above fordescription of an allocation of options to Mr. Ben Asher which is subject to shareholder approval. Administration of Our 2010 Award Plan Our 2010 Award Plan is administered by our compensation committee regarding the granting of awards and the terms ofawards grants, including the exercise price, method of payment, vesting schedule, acceleration of vesting and the othermatters necessary in the administration of these plans. Options granted under the 2010 Award Plan to eligible Israeliemployees, directors and officers are granted under Section 102 of the Israel Income Tax Ordinance pursuant to which theoptions or the Ordinary Shares issued upon their exercise must be allocated or issued to a trustee and be held in trust for twoyears from the date upon which such options were granted in order to benefit from the provisions of Section 102. UnderSection 102, any tax payable by an employee from the grant or exercise of the options is deferred until the transfer of theoptions or Ordinary Shares by the trustee to the employee or upon the sale of the options or Ordinary Shares, and gains mayqualify to be taxed as capital gains at a rate equal to 25%, subject to compliance with specified conditions. See “Item 10.Additional Information – E. Taxation – Israeli Tax Considerations.” Options granted under 2010 Award Plan as amended generally vest over a period of 4 years and expire seven (7) years afterthe grant date. The 2010 Award Plan, however, permits options to have a term of up to 10 years. If we terminate a grantee forcause (as such term is defined in the 2010 Award Plan) the right to exercise all the options granted to the grantee, thegrantee’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 age of60, a merger or other change of control approved by the board of directors, or for cause, all unvested options will expire andall vested options will generally be exercisable for 90 days following termination, or such other period as determined by theplan administrator, subject to the terms of the 2010 Award Plan and the governing option agreement. Upon termination in the event of a merger or other change of control approved by the board of directors, the grantee will beentitled at the time of termination to full acceleration of all the options granted prior to the event. Under our 2010 Award Plan, as amended, in the event any person, entity or group that was not an interested party at the timeof our initial public offering on the TASE becoming a controlling shareholder, all options granted by us under the109 Table of Contentsplan will be accelerated, so that the grantee will be entitled to exercise all of those options. A “controlling shareholder” inthis paragraph is a controlling shareholder, as defined in the Israel Securities Law, 1968. An “interested party” is defined inthe Securities 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, or isentitled 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 of directors’approval, all the vested options at the time of termination will be exercisable for 24 months, or such other period asdetermined by the plan administrator, subject to the terms of the 2010 Award Plan and the governing option agreement. ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A. Major Shareholders The following table sets forth certain information regarding the beneficial ownership of our outstanding Ordinary Shares asof February 21, 2018, by each person or entity known to beneficially own 5.0% or more of our outstanding Ordinary Shares.The information with respect to beneficial ownership of the Ordinary Shares is given based on information reported in suchshareholder's Schedule 13G, and if no Schedule 13G was filed, based on the information provided to us by the shareholders. The information in this table is based on 213,439,494 Ordinary Shares outstanding as of such date. In determining thenumber of Ordinary Shares beneficially owned by a person, we include any shares as to which the person has sole or sharedvoting power or investment power, as well as any Ordinary Shares subject to options or warrants held by that person that werecurrently exercisable at, or exercisable within 60 days of February 21, 2018. The Ordinary Shares issuable under theseoptions and warrants are treated as if they were outstanding for purposes of computing the percentage ownership of theperson holding these options and warrants but not the percentage ownership of any other person. None of the holders of theOrdinary Shares listed in this table have voting rights different from other holders of Ordinary Shares. Number ofSharesBeneficiallyHeld Percent ofOutstanding Equity EMC2 Fund Ltd. (1) 22,223,950 (2) 10.41 %683 Capital Partners, LP (3) 14,090,370 6.60 %(1)EMC2 holds the ADSs and warrants to purchase ADSs. The address of EMC2 is Bayside Executive Park, Building No. 1,West Bay Street, PO Box SP-63131, Nassau, the Bahamas. Based on information provided to us, EMC2 is controlled byBanque 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 EMC2 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.(3)683 Capital Partners, LP, a Delaware limited partnership, holds ADSs. Based on information filed with the SEC, 683Capital Management, LLC, a Delaware limited liability company, is the investment manager of 683 Capital Partners, LP.The principal business address of each of 683 Capital Partners, LP and 683 Capital Management, LLC is 3 ColumbusCircle, Suite 2205, New York, NY 10019. On February 8, 2018, 14,579,925 ADSs (equivalent to 145,799,250 Ordinary Shares, or approximately 68% 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 21, 2018, there was one shareholder of record of our Ordinary Shares who was located in110 Table of ContentsIsrael. The number of record holders is not representative of the number of beneficial holders of our ADSs or Ordinary Sharesat all because many of the ADSs and Ordinary Shares are held by brokers or other nominees. B. Related Party Transactions November 2017 Public Offering In our underwritten public offering which closed on November 13, 2017, (i) Mr. Eric Swenden, one of our directors,purchased 90,909 ADSs, (ii) Dr. Shmuel Cabilly, one of our directors, purchased 90,909 ADSs, and (iii) Mr. NicolasWeinstein, one of our directors, purchased 27,272 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. For more information on the underwritten publicoffering, please see "Item 5. Operating and Financial Review and Prospects – B. Liquidity and Capital Resources". 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 a concurrent registered direct offering, EMC2purchased 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 a 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, if any, 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, if any, our financial 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, 2017. 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. 111 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 Data High Low High Low2017 4.16 1.59 1.08 0.45 2016 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 Quarterly Data 2018 First quarter (through February 21, 2018) 2.27 1.76 0.66 0.51 2017 Fourth quarter 3.80 1.59 1.07 0.45 Third quarter 3.75 2.85 1.05 0.81 Second quarter 3.79 3.00 1.04 0.86 First quarter 4.16 3.38 1.08 0.92 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 Most Recent Six Months Data February 2018 (through February 21, 2018) 2.11 1.94 0.61 0.56 January 2018 2.27 1.76 0.66 0.51 December 2017 1.80 1.59 0.52 0.45 November 2017 3.16 1.76 0.90 0.50 October 2017 3.80 3.04 1.07 0.87 September 2017 3.33 2.85 0.94 0.81 August 2017 3.27 3.00 0.9 0.83 On February 21, 2018, the last reported closing price of our Ordinary Shares on the TASE was NIS 2.11 per share, or $0.60 pershare (based on the exchange rate reported by the Bank of Israel for such date). On February 21, 2018, the exchange rate ofthe NIS to the U.S. dollar was $1.00 = NIS 3.501, as reported by the Bank of Israel. ADSs Our ADSs have been trading on the NASDAQ Capital Market under the symbol “RDHL” since December 27, 2012. 112 Table of ContentsThe following table sets forth, for the periods indicated, the reported high and low closing prices of our ADSs on theNASDAQ Capital Market in U.S. dollars. U.S.$ Price per ADS High LowAnnual Data 2017 10.88 4.58 2016 16.29 8.21 2015 19.79 11.05 2014 19.20 8.03 2013 13.60 8.31 Quarterly Data 2018 First quarter (through February 21, 2018) 6.84 5.13 2017 Fourth quarter 10.81 4.58 Third quarter 10.81 8.18 Second quarter 10.38 8.44 First quarter 10.88 9.30 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 Most Recent Six Months Data February 2018 (through February 21, 2018) 6.26 5.57 January 2018 6.84 5.13 December 2017 5.14 4.58 November 2017 8.90 4.95 October 2017 10.81 8.71 September 2017 10.81 8.25 August 2017 9.30 8.36 On February 21, 2018, the last reported price of our ADSs on the NASDAQ Capital Market was 6.26 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”. TheADRs were issued pursuant to a Depositary Agreement entered into with The Bank of New York. D. Selling Shareholders Not applicable. 113 Table of ContentsE. Dilution Not applicable. F. Expenses of the Issue Not applicable. ITEM 10. ADDITIONAL INFORMATION A. Share Capital Not applicable. B. Memorandum and Articles of Association Securities Registers The transfer agent and registrar for our ADSs is The Bank of New York Mellon, and its address is 101 Barclay Street, NewYork, 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 shareholder or(ii) a private placement will entitle investors to receive 20% or more of the voting rights of a company as calculated beforethe private placement, and all or part of the private placement consideration is not in cash or in public traded securities or isnot in market terms and if as a result of the private placement the holdings of a substantial shareholder will increase or as aresult of it a person will become a substantial shareholder, then, in either case, the allotment must be approved by the boardof directors and by the shareholders of the company. A “substantial shareholder” is defined as a shareholder who holds fivepercent or more of the company’s outstanding share capital, assuming the exercise of all of the securities convertible intoshares held by that person. In order for the private placement to be on “market terms” the board of directors has to determine,on the basis of detailed explanation, that the private placement is on market terms, unless proven 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 as providedfor in a company’s articles of association and in certain circumstances by the compensation or audit committee and by theboard of directors itself. Those transactions that require such approval pursuant to a company’s articles of association must beapproved by its board of directors. In certain circumstances, compensation or audit committee and shareholder approval arealso 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 company promptlyand, in any event, not later than the first board meeting at which the transaction is discussed, disclose any personal interestthat he or she may have, either directly or by way of any corporation in which he or she is, directly or indirectly, a 5% orgreater shareholder, director or general manager or in which he or she has the right to appoint at least one director114 Table of Contentsor the general manager, as well as all related material information known to him or her, in connection with any existing orproposed transaction by the company. In addition, if the transaction is an extraordinary transaction, (that is, a transactionother than in the ordinary course of business, otherwise than on market terms, or is likely to have a material impact on thecompany’s profitability, assets or liabilities), the member of the board of directors or senior management must also discloseany personal interest held by his or her spouse, siblings, parents, grandparents, descendants, spouse’s descendants, siblingsand 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, a companymay approve the transaction in accordance with the provisions of its articles of association. Under the provisions of theIsraeli Companies Law, whoever has a personal interest in a matter, which is considered at a meeting of the board of directorsor the audit committee, may not be present at this meeting or vote on this matter, unless it is not an extraordinary transactionas defined in the Israeli Companies Law. However, if the chairman of the board of directors or the chairman of the auditcommittee has determined that the presence of a director or an officer with a personal interest is required for the presentationof a matter, such officer holder may be present at the meeting. Notwithstanding the foregoing, if the majority of the directorshave a personal interest in a matter, they will be allowed to participate and vote on this matter, but an approval of thetransaction 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 the boardof directors or by a committee thereof or by any person acting as a director or a member of a committee of the board ofdirectors, will be deemed to be valid even if, after their execution, it is discovered that there was a flaw in the appointment ofthese persons or that any one of these persons was disqualified from serving in 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 may cancelthe resolution of a committee that has been appointed by it; however, such cancellation will not affect the validity of anyresolution of a committee, pursuant to which we acted, vis-à-vis another person, who was not aware of the cancellationthereof. Decisions or recommendations of the committee of the board which require the approval of the board of directors willbe 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 indemnification 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, par valueNIS 0.01 per share. The Ordinary Shares do not have preemptive rights, preferred rights or any other right to purchase our securities. Neither ourarticles of association nor the laws of the State of Israel restrict the ownership or voting of Ordinary Shares by non-residentsof 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 two Hebrew-language daily newspapers or our website at least 21 calendar days’ prior notice of a shareholders’ meeting. However, underregulations promulgated under the Israeli Companies Law, we are required to publish a notice in two daily newspapers atleast 35 calendar days prior any shareholders’ meeting in which the agenda includes matters which may be voted on byvoting instruments. Regulations under the Israeli Companies Law exempt companies whose shares115 Table of Contentsare listed for trading both on a stock exchange in and outside of Israel, from some provisions of the Israeli Companies Law.An amendment 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 fix 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 five and no more than eleven,including any external directors whose appointment is required by law. The general meeting is entitled, at any time and fromtime to time, in a resolution approved by a majority of 75% or more of the votes cast by those shareholders present andvoting 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 under ourArticles. A simple majority shareholder vote is required to elect a director for a term of less than three years. For moreinformation, please see “Item 6. Directors, Senior Management and Employees – C. Board Practices – Appointment ofDirectors and Terms of Office”. Dividend and Liquidation Rights. Our profits, in respect of which a resolution was passed to distribute them as a 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 held bythe shareholders. In the event of our liquidation, the liquidator may, with the general meeting’s approval, distribute parts ofour property in specie among the shareholders and he may, with similar approval, deposit any part of our property withtrustees 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 shareholders consistsof at least two shareholders present, in person or by proxy, or who has sent us a voting instrument indicating the way inwhich he is voting, who hold or represent, in the aggregate, at least 25% of the voting rights of our outstanding share capital.A meeting adjourned for lack of a quorum is adjourned to the following day at the same time and place or any time and placeas prescribed by the board of directors in the notice to the shareholders. At the reconvened meeting one shareholder at least,present in person or by proxy constitutes a quorum except where such meeting was called at the demand of shareholders.With the agreement of a meeting at which a quorum is present, the chairman may, and on the demand of the meeting he must,adjourn the meeting from time to time and from place to place, as the meeting resolves. Annual general meetings ofshareholders are held once every year within a period of not more than 15 months after the last preceding annual generalshareholders’ meeting. The board of directors may call special general meetings of shareholders. The Israeli Companies Lawprovides that a special general meeting of shareholders may be called by the board of directors or by a request of twodirectors or 25% of the directors in office, whichever is the lower, or by shareholders holding at least 5% of our issued sharecapital and at least 1% of the voting rights, or of shareholders holding at least 5% of our voting 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 of thecompany’s shareholders for the purchase of all of the issued and outstanding shares of the company. 116 Table of ContentsA person wishing to acquire shares of an Israeli public company and who would as a result hold over 90% of the issued andoutstanding share capital of a certain class of shares is required to make a tender offer to all of the shareholders who holdshares 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 capital ofthe 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 acquirer byoperation of law. However, a tender offer will be accepted if the shareholders who do not accept it hold less than 2% of theissued 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 tender offerthat 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 share capitalof the company or of the applicable class, the acquirer may not acquire shares of the company that will increase its holdingsto more than 90% of the company’s issued and outstanding share capital or of the applicable class from shareholders whoaccepted 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 of aspecial tender offer if as a result of the acquisition the purchaser would become a holder of at least 25% of the voting rights inthe company. This rule does not apply if there is already another holder of at least 25% of the voting rights in the company. Similarly, the Israeli Companies Law provides that an acquisition of shares of a public company must be made by means of aspecial tender offer if as a result of the acquisition the purchaser would become a holder of more than 45% of the votingrights in the company, if there is no other shareholder of the company who holds more than 45% of the voting rights in thecompany. 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% of thevoting rights in the company if there is no person who holds at least 25% of the voting rights in the company, or as a privateoffering whose purpose is to give the acquirer 45% of the voting rights in the company, if there is no person who holds 45%of the voting rights in the company; (ii) was from a shareholder holding at least 25% of the voting rights in the company andresulted in the acquirer becoming a holder of at least 25% of the voting rights in the company; or (iii) was from a holder ofmore than 45% of the voting rights in the company and resulted in the acquirer becoming a holder of more than 45% of thevoting 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 a holderin control of the offeror, a person who has personal interest in acceptance of the special tender offer, a holder of at least 25%of the voting rights in the company, or any person acting on their or on the offeror’s behalf, including their relatives orcompanies under their control, are not taken into account. 117 Table of ContentsIn 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 the reasonsfor its abstention. An officer in a target company who, in his or her capacity as an officer, 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 officer acted in good faith and hadreasonable grounds to believe he or she was acting for the benefit of the company. However, officers of the target companymay negotiate with the potential purchaser in order to improve the terms of the special tender offer, and may further negotiatewith 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 offer withinfour days of the last day set for the acceptance of the offer. In the event that a special tender offer is accepted, then thepurchaser 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 to effectsuch an offer or merger in the initial special tender offer. Merger 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 will notbe able to satisfy its obligations towards its creditors, taking into account the financial condition of the merging companies.If the board of directors has determined that such a concern exists, it may not approve a proposed merger. Following theapproval of the board of directors of each of the merging companies, the boards of directors must jointly prepare a mergerproposal 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 majority ofthe shares voting at the shareholders meeting (excluding abstentions) that are held by parties other than the other party to themerger, any person who holds 25% or more of the means of control (See “Management – Audit Committee – Approval ofTransactions with Related Parties” for a definition of means of control) of the other party to the merger or anyone on theirbehalf including their relatives (See “Management – External Directors – Qualifications of External Directors” for adefinition 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 by eachclass of shareholders. If the transaction would have been approved but for the separate approval of each class of shares or theexclusion of the votes of certain shareholders as provided above, a court may still rule that the company has approved themerger upon the request of holders of at least 25% of the voting rights of a company, if the court holds that the merger is fairand reasonable, taking into account the appraisal of the merging companies’ value and the consideration offered to theshareholders. 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 promulgated underthe Israeli Companies Law. Upon the request of a creditor of either party to the proposed merger, the court may delay orprevent the merger if it concludes that there exists a reasonable concern that, as a result of the merger, the surviving companywill be unable to satisfy the obligations of the target company. The court may also give instructions in order to secure therights of creditors. 118 Table of ContentsIn addition, a merger may not be completed unless at least 50 days have passed from the date that a proposal for approval ofthe merger was filed 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 and shareshaving preemptive rights. We do not have any authorized or issued shares other than Ordinary Shares. In the future, if we docreate and issue a class of shares other than Ordinary Shares, such class of shares, depending on the specific rights that may beattached to them, may delay or prevent a takeover or otherwise prevent our shareholders from realizing a potential premiumover the market value of their Ordinary Shares. The authorization of a new class of shares will require an amendment to ourarticles of association which requires the prior approval of a majority of our shares represented and voting at a generalmeeting. Shareholders voting at such a meeting will be subject to the restrictions under the Israeli Companies Law describedin “– Voting”. In addition, provisions of our articles of our association relating to the election of our directors for terms ofthree years make it more difficult for a third party to effect a change in control or takeover attempt that our management andboard of directors oppose. See “Item 6. Directors, Senior Management and Employees – C. Board Practices – Appointmentof Directors and Terms of Officers”. C. Material Contracts For a description of other material agreements, please see "Item 4. Information on the Company – B. Business Overview. D. 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, liquidationor winding up, as well as the proceeds of any sale in Israel of our Ordinary Shares to an Israeli resident, may be paid in non-Israeli currency or, if paid in Israeli currency, may be converted into U.S. dollars at the rate of exchange prevailing at the timeof 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 to investorsupon purchasing, owning or disposing of our Shares. In particular, this discussion does not take into account the specificcircumstances of any particular investor (such as tax-exempt entities, financial institutions, certain financial companies,broker-dealers, investors that own, directly or indirectly, 10% or more of our outstanding voting rights, all of whom aresubject to special tax regimes not covered under this discussion). To the extent that issues discussed herein are based onlegislation which has yet to be subject to judicial or administrative interpretation, there can be no assurance that the viewsexpressed 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. 119 Table of ContentsGeneral Corporate Tax Structure in Israel Israeli companies are generally subject to corporate tax on their taxable income at the rate of 24% for the 2017 tax year (to bereduced 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 assets bya non-Israeli resident if those assets are either (i) located in Israel; (ii) are shares or a right to a share in an Israeli residentcorporation, or (iii) represent, directly or indirectly, rights to assets located in Israel, unless an exemption is available orunless an applicable double tax treaty between Israel and the seller’s country of residence provides otherwise. The IsraeliIncome Tax Ordinance distinguishes between “Real Gain” and the “Inflationary Surplus”. Real Gain is the excess of the totalcapital gain over Inflationary Surplus generally computed on the basis of the increase in the Israeli Consumer Price Indexbetween 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 the preceding12-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 business income(24% in 2017, to be reduced to 23% in 2018 and thereafter), and a marginal tax rate of up to 50% in 2017 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 will not applyto shares purchased on or after January 1, 2009) and (ii) the seller does not have a permanent establishment in Israel to whichthe generated capital gain is attributed. However, non-Israeli resident corporations will not be entitled to the foregoingexemption if Israeli residents: (i) have a 25% or more interest in such non-Israeli corporation or (ii) are the beneficiaries of, orare entitled to, 25% or more of the income or profits of such non-Israeli corporation, whether directly or indirectly. Inaddition, such exemption would not be available to a person whose gains from selling or otherwise disposing of thesecurities 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 against the U.S.federal income tax imposed with respect to such sale, exchange or disposition, subject to the limitations under U.S. lawapplicable 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 financial 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 filed 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 traded120 Table of Contentssecurities 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 filed, and noadvance 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 generally be subject to incometax at a rate of 25%. However, a 30% tax rate will apply if the dividend recipient is a Controlling Shareholder, as definedabove, at the time of distribution or at any time during the preceding 12-month period. If the recipient of the dividend is anIsraeli resident corporation, such dividend will generally be exempt from Israeli income tax provided that the income fromwhich 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 dividend recipientis a Controlling Shareholder at the time of distribution or at any time during the preceding 12-month period). These ratesmay be reduced under the provisions of an applicable double tax treaty. For example, under the U.S.-Israel Double TaxTreaty, the following tax rates will apply in respect of dividends distributed by an Israeli resident company to a U.S. resident:(i) if the U.S. resident is a corporation which holds during that portion of the taxable year which precedes the date of paymentof the dividend and during the whole of its prior taxable year (if any), at least 10% of the outstanding shares of the votingstock of the Israeli resident paying corporation and not more than 25% of the gross income of the Israeli resident payingcorporation for such prior taxable year (if any) consists of certain types of interest or dividends the tax rate is 12.5%; (ii) ifboth the conditions mentioned in clause (i) above are met and the dividend is paid from an Israeli resident company’s incomewhich was entitled to a reduced tax rate under The Law for the Encouragement of Capital Investments, 1959, the tax rate is15%; and (iii) in all other cases, the tax rate is 25%. The aforementioned rates under the U.S.-Israel Double Tax Treaty willnot 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-Israeli resident)and who have taxable income that exceeds a certain threshold in a tax year ((NIS 640,000 for 2017 and thereafter linked tothe Israeli Consumer Price Index) will be subject to an additional tax at the rate of 3% in 2017 and thereafter on his or hertaxable income for such tax year that is in excess of such amount. For this purpose, taxable income includes taxable capitalgains from the sale of securities and taxable income from interest and dividends, subject to the provisions of an applicabledouble 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 prevailing atthe time of conversion. However, Israeli income tax is generally required to have been paid or withheld on these amounts. Inaddition, the statutory framework for the potential imposition of currency exchange control has not been eliminated and maybe 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 disposition ofour Ordinary Shares and ADSs by U.S. Holders, as defined below. This summary addresses solely U.S. Holders who acquireADSs pursuant to this offering and who hold Ordinary Shares or ADSs, as applicable, as capital assets for tax purposes. Thissummary is based on current provisions of the Internal Revenue Code of 1986, as amended (Code), current and proposedTreasury regulations promulgated thereunder, and administrative and judicial decisions as of the date hereof, all of which aresubject to change, possibly on a retroactive basis. In addition, this section is based in part upon representations of thedepositary and the assumption that each obligation in the deposit agreement and any related agreement will be performed inaccordance with its terms. This summary does not address all U.S. federal income tax121 Table of Contentsmatters that may be relevant to a particular holder or all tax considerations that may be relevant with respect to an investmentin our Ordinary Shares or ADSs. This summary does not address tax considerations applicable to a holder of our Ordinary Shares or ADSs that may be subjectto 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” with otherinvestments;·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 and personswho 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 Ordinary Sharesor ADSs. You are urged to consult your own tax advisor regarding the foreign and U.S. federal, state, and local and other taxconsequences of an investment in Ordinary Shares or ADSs. For purposes of this summary, a “U.S. Holder” means a beneficial 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.;·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 trust and(b) one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) that has a validelection in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. If an entity that is classified as a partnership for U.S. federal tax purposes holds Ordinary Shares or ADSs, the U.S. federal taxtreatment of its partners will generally depend upon the status of the partners and the activities of the partnership. Entitiesthat are classified as partnerships for U.S. federal tax purposes and persons holding Ordinary Shares or ADSs through suchentities 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 for theunderlying 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 Israeli122 Table of Contentstaxes 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, received bythe depositary) will be taxable to the U.S. Holder as foreign source dividend income to the extent of our current andaccumulated earnings and profits as determined under U.S. federal income tax principles. The U.S. Holder will not be eligiblefor any dividends received deduction in respect of the dividends paid by us. Distributions in excess of earnings and profitswill be non-taxable to the U.S. Holder to the extent of the U.S. Holder’s adjusted tax basis in its Ordinary Shares or ADSs.Distributions in excess of such adjusted tax basis will generally be taxable to the U.S. Holder as capital gain from the sale orexchange of property as described below under “Sale or Other Disposition of Ordinary Shares or ADSs”. If we do not report toa U.S. Holder the portion of a distribution that exceeds earnings and profits, then the distribution will generally be taxable asa dividend. The amount of any distribution of property other than cash will be the fair market value of that property on thedate 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 “qualified 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 qualified 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 believe wemay be a “passive foreign investment company” (see “Item 10. Additional Information – E. Taxation – U.S. Federal IncomeTax Considerations – Passive Foreign Investment Companies” below) for our current taxable year and future taxable years.Accordingly, dividends paid by us to individual U.S. Holders may not be eligible for the reduced income tax rate applicableto qualified dividends. You should consult your own tax advisor regarding the availability of this preferential tax rate underyour particular circumstances. The amount of any distribution paid in a currency other than U.S. dollars (a “foreign currency”), including the amount of anywithholding tax thereon, will be included in the gross income of a U.S. Holder in an amount equal to the U.S. dollar value ofthe foreign currency calculated by reference to the exchange rate in effect on the date of the U.S. Holder’s (or, in the case ofADSs, the depositary’s) receipt of the dividend, regardless of whether the foreign currency is converted into U.S. dollars. Ifthe foreign currency is converted into U.S. dollars on the date of receipt, a U.S. Holder generally should not be required torecognize a foreign currency gain or loss in respect of the dividend. If the foreign currency received in the distribution is notconverted into U.S. dollars on the date of receipt, a U.S. Holder will have a basis in the foreign currency equal to its U.S.dollar value on the date of receipt. Any gain or loss on a subsequent conversion or other disposition of the foreign currencywill 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 tax creditsand the timing thereof are complex. U.S. Holders should consult their own tax advisors regarding the availability of a foreigntax credit in their particular situation. 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 the amountrealized on the sale or other disposition and such holder’s adjusted basis in the Ordinary Shares or ADSs. Such gain or lossgenerally will be a capital gain or loss, and will be a long-term capital gain or loss if the holder had held the Ordinary Sharesor ADSs for more than one year at the time of the sale or other disposition. Long-term capital gains realized by non-corporateU.S. Holders are generally subject to a preferential U.S. federal income tax rate. In general, gain or loss recognized by a U.S.Holder on the sale or other disposition or our Ordinary Shares or ADSs will be U.S. source gain or loss for purposes of theforeign tax credit limitation. As discussed below in “Item 10. Additional Information – Taxation — U.S. Federal Income TaxConsiderations – Passive Foreign Investment Companies,” however, we may be a PFIC for our current taxable year and futuretaxable years. If we are a PFIC, any such gain will be subject to the PFIC rules, as discussed below, rather than being taxed asa capital gain. 123 Table of ContentsIf a U.S. Holder receives foreign currency upon a sale or exchange of Ordinary Shares or ADSs, gain or loss will be recognizedin the manner described above under “Distributions”. However, if such foreign currency is converted into U.S. dollars on thedate received by the U.S. Holder, the U.S. Holder generally should not be required to recognize any foreign currency gain orloss 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 which anexemption from (or a refund of or a reduction in) such tax was available will not be creditable for U.S. federal income taxpurposes. U.S. Holders are advised to consult their Israeli broker or intermediary regarding the procedures for obtaining anexemption 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 net investmentincome, which would include dividends paid on the Ordinary Shares or ADSs and capital gains from the sale or otherdisposition 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 taxable year)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 total valueof the outstanding shares of another corporation, it will be treated as if it (a) held a proportionate share of the assets of suchother corporation and (b) received a proportionate share of the income of such other corporation directly. Passive incomegenerally includes dividends, interest, rents, royalties and capital gains, but generally excludes rents and royalties which arederived in the active conduct of a trade or business and which are received from a person other than a related person. 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 fluctuatesignificantly. Based on our retention of a significant 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. If we are a PFIC for any year during which you hold the ADSs, we generally will continue to be treated as a PFIC with respectto 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 the ADSs you hold attheir fair market value on the last day of the last taxable year in which we qualified as a PFIC, and any gain from such deemedsale would be subject to the consequences described below. After the deemed sale election, the ADSs with respect to whichthe deemed sale election was made will not be treated as shares in a PFIC unless we subsequently 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 to any“excess distribution” you receive and any gain you realize from a sale or other disposition (including a pledge) of the ADSs,unless you make a “mark-to-market” election as discussed below. Distributions you receive in a taxable year that are greaterthan 125% of the average annual distributions you received during the shorter of the three preceding taxable124 Table of Contentsyears 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 firsttaxable 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 by anynet operating losses for such years, and gains (but not losses) realized on the sale of the ADSs cannot be treated as capital,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 described inthe preceding two paragraphs with respect to the shares of such lower-tier PFICs you would be deemed to own. As a result,you may incur liability for any “excess distribution” described above if we receive a distribution from such lower-tier PFICsor if any shares in such lower-tier PFICs are disposed of (or deemed disposed of). You should consult your own tax advisorregarding the application of the PFIC rules to any of our subsidiaries. Alternatively, a U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election for suchstock to elect out of the general tax treatment for PFICs discussed above. If you make a mark-to-market election for the ADSs,you will include in income for each year we are a PFIC an amount equal to the excess, if any, of the fair market value of theADSs as of the close of your taxable year over your adjusted basis in such Ordinary Shares. You are allowed a deduction forthe excess, if any, of the adjusted basis of the ADSs over their fair market value as of the close of the taxable year. However,deductions are allowable only to the extent of any net mark-to-market gains on the ADSs included in your income for priortaxable years. Amounts included in your income under a mark-to-market election, as well as gain on the actual sale or otherdisposition of the ADSs, are treated as ordinary income. Ordinary loss treatment also applies to the deductible portion of anymark-to-market loss on the ADSs, as well as to any loss realized on the actual sale or disposition of the ADSs to the extent theamount of such loss does not exceed the net mark-to-market gains previously included for the ADSs. Your basis in the ADSswill be adjusted to reflect any such income or loss amounts. If you make a valid mark-to-market election, the tax rules thatapply to distributions by corporations which are not PFICs would apply to distributions by us, except the lower applicabletax rate for qualified dividend income would not apply. If we cease to be a PFIC when you have a mark-to-market election ineffect, gain or loss realized by you on the sale of the ADSs will be a capital gain or loss and taxed in the manner describedabove under “Sale or Other Disposition of Ordinary Shares or ADSs”. The mark-to-market election is available only for “marketable stock,” which is a stock that is traded in other than de minimisquantities on at least 15 days during each calendar quarter, or regularly traded, on a qualified exchange or another market, asdefined in applicable U.S. Treasury regulations. Any trades that have as their principal purpose meeting this requirement willbe disregarded. The ADSs are listed on the NASDAQ Capital Market and, accordingly, provided the ADSs are regularlytraded, if you are a holder of ADSs, the mark-to-market election would be available to you if we are a PFIC. Once made, theelection cannot be revoked without the consent of the IRS unless the ADSs cease to be marketable stock. If we are a PFIC forany year in which the U.S. Holder owns ADSs but before a mark-to-market election is made, the interest charge rulesdescribed above will apply to any mark-to-market gain recognized in the year the election is made. If any of our subsidiariesare or become PFICs, the mark-to-market election will not be available with respect to the shares of such subsidiaries that aretreated as owned by you. Consequently, you could be subject to the PFIC rules with respect to income of the lower-tier PFICsthe value of which already had been taken into account indirectly via mark-to-market adjustments. A U.S. Holder shouldconsult its own tax advisors as to the availability and desirability of a mark-to-market election, as well as the impact of suchelection on interests in any lower-tier PFICs. In certain circumstances, a U.S. Holder of stock in a PFIC can make a “qualified 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 income125 Table of Contentson a current basis. However, we do not currently intend to prepare or provide the information that would enable you to makea qualified electing fund election. Unless otherwise provided by the U.S. Treasury, each U.S. shareholder of a PFIC is required to file an annual reportcontaining such information as the U.S. Treasury may require. A U.S. Holder’s failure to file 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 required tobe included in such report until three years after the U.S. Holder files 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 of filingsuch information returns under these rules, taking into account the uncertainty as to whether we are currently treated as ormay 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 THEPFIC RULES 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 identification 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 file 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 Specified Foreign Financial Assets). Asdescribed above under ‘‘Item 10. Additional Information – Taxation — U.S. Federal Income Tax Considerations – PassiveForeign Investment Companies,” each U.S. Holder who is a shareholder of a PFIC must file an annual report containingcertain information. U.S. Holders paying more than $100,000 for our Ordinary Shares or ADSs may be required to file IRSForm 926 (Return by a U.S. Transferor of Property to a Foreign Corporation) reporting this payment. Substantial penaltiesmay 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. G. Statement by Experts Not applicable. 126 Table of ContentsH. Documents on Display We are subject to the information reporting requirements of the Exchange Act, applicable to foreign private issuers, andunder those requirements, we file 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 filings 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 officers, directors and principal shareholders are exempt from the reporting and short-swing profitrecovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act,to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S.companies whose securities are registered under the Exchange Act. However, we are required to comply with theinformational requirements of the Exchange Act, and, accordingly, file current reports on Form 6-K, annual reports on Form20-F and other information with the SEC. In addition, since our Ordinary Shares are traded on the TASE, we have filed 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 filings with the Israeli Securities Authority can be retrieved electronically throughthe 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, offinancial instruments that may adversely impact our financial position, results of operations or cash flows. Our overall riskmanagement program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects onour financial performance. Risk of Interest Rate Fluctuation and Credit Exposure Risk At present, our credit and interest risk arise from cash and cash equivalents, deposits with banks and a portfolio of corporatebonds as well as accounts receivable. A substantial portion of our liquid instruments is invested in short-term deposits andcorporate bonds in highly-rated institutions. We estimate that because the liquid instruments are invested mainly for the short-term and with highly-rated institutions, thecredit and interest risk associated with these balances is low. The primary objective of our investment activities is to preserveprincipal while maximizing the income we receive from our investments without significantly increasing risk and loss. Ourinvestments are exposed to market risk due to fluctuations in interest rates, which may affect our interest income and the fairmarket value of our investments. We manage this exposure by performing ongoing evaluations of our investments. Market Price Risk We may be exposed to market price risk because of investments in tradable securities, mainly corporate bonds, held by usand classified in our financial statements on as financial assets at fair value through profit or loss. To manage the price riskarising from investments in tradable securities, we invest in marketable securities with high ratings and diversify ourinvestment portfolio.127 Table of Contents 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 is denominated in NIS and in Euro. Our NIS expenses consistprincipally of payments to employees or service providers and office-related expenses in Israel. Our Euro expenses consistprimarily of payments to vendors related to our therapeutic candidates. We also hold short-term investments in currenciesother than the U.S. dollar. We anticipate that a sizable portion of our expenses will continue to be denominated in currenciesother than the U.S. dollar. If the U.S. dollar fluctuates significantly against the NIS, it may have a negative impact on ourresults of operations. We manage our foreign exchange risk by aligning the currencies for holding short-term investmentswith the currencies of expected expenses, based on our expected cash flows. Portfolio diversification 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 financial exposure fromfluctuations 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 on our assets and liabilitiesas of December 31, 2017: 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 15 39 16,455 (39) (15) Bank deposits 4 11 13,163 (11) (4) Accounts receivable (except prepaid expenses) 4 10 3,290 (10) (4) Accounts payable and accrued expenses (1) (3) (10,830) 3 1 Total loss 22 56 (56) (22) 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 the American Depositary Shares, or ADSs, represents 10 Ordinary Shares. The ADSs trade on The NASDAQ CapitalMarket. 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, New128 Table of ContentsYork, New York 10286, and at the principal office 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 Shareholders 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 rights orother 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 DepositaryShareholdersA fee equivalent to the fee that would be payable ifsecurities distributed to you had been shares and the shareshad been deposited for issuance of American DepositaryShares·Distribution of securities distributed to holders ofdeposited securities which are distributed by thedepositary to American Depositary Shareholders$0.05 (or less) per American Depositary Shares per calendaryear·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 investors depositingshares or surrendering American Depositary Shares for the purpose of withdrawal or from intermediaries acting for them. Thedepositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or byselling a portion of the distributable property to pay the fees. The depositary may collect its annual fee for depositaryservices by deduction from cash distributions or by directly billing investors or by charging the book-entry system accountsof participants acting for them. The depositary may generally refuse to provide fee-attracting services until its fees for thoseservices are paid. From time to time, the depositary may make payments to us to reimburse us or share its revenue with us from the feescollected from American Depositary Shareholders, or waive fees and expenses for services provided, generally relating tocosts and expenses arising out of establishment and maintenance of the American Depositary Share program. In performingits duties under the deposit agreement, the depositary may use brokers, dealers or other service providers that are affiliates ofthe depositary and that may earn or share fees or commissions. ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES Not applicable. 129 Table of Contents ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OFPROCEEDS Not applicable. 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 filed with the SEC is recorded, processed, summarized and reportedtimely within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures include, withoutlimitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that wefile or submit under the Exchange Act, is accumulated and communicated to our management, including our principalexecutive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisionsregarding required disclosure. There can be no assurance that our disclosure controls and procedures will detect or uncoverall failures of persons within the company to disclose information otherwise required to be set forth in our reports.Nevertheless, our disclosure controls and procedures are designed to provide reasonable assurance of achieving the desiredcontrol objectives. Based on our evaluation, our management, including our Chief Executive Officer and Chief FinancialOfficer, have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of theExchange Act) as of the end of the period covered by this report are effective at such reasonable assurance level. (b) Management’s Annual Report on Internal Control over Financial Reporting Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, is responsible forestablishing and maintaining adequate internal control over our financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act of 1934, as amended. The Company’s internal control over financial reporting is a processdesigned to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles. Internal control over financialreporting includes policies and procedures that: ·pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and assetdispositions;·provide reasonable assurance that transactions are recorded as necessary to permit the preparation of our financialstatements in accordance with generally accepted accounting principles;·provide reasonable assurance that receipts and expenditures are made only in accordance with authorizations of ourmanagement 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 financial 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 Officer and ChiefFinancial Officer, we assessed the effectiveness of our internal control over financial reporting as of December 31, 2017 basedon the framework for Internal Control-Integrated Framework set forth by The Committee of Sponsoring Organizations of theTreadway Commission (COSO) (2013). Based on our assessment and this framework, our management concluded that the Company’s internal control over financialreporting was effective as of December 31, 2017. 130 Table of Contents(c) Attestation Report of Registered Public Accounting Firm Not applicable. (d) Changes in Internal Control Over Financial Reporting During 2017, the Company established a new subsidiary, RedHill Biopharma Inc. in the U.S. Our management also assessedthe effectiveness of our internal control over the processes in RedHill Biopharma Inc. There were no changes in our internalcontrol over financial reporting that occurred during the year ended December 31, 2017 that have materially affected or arereasonably likely to materially affect our internal control over financial reporting. ITEM 16. [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 officer,principal financial officer, principal accounting officer or controller, or persons performing similar functions. This code ofethics is posted on our website, http://files.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 2017 2016 (U.S. dollars in thousands)Audit (1) 115 122 Audit-related services (2) 47 64 Tax (3) 33 — Total 195 186 (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 related 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 specific 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 provided tothe Company during the following yearly period and also sets forth a specific budget for such audit and non-audit services.Additional non-audit services may be pre-approved by the audit committee. 131 Table of Contents ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES Not applicable. ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS Not applicable. ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT Not applicable. ITEM 16G. CORPORATE GOVERNANCE 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 rely onthis “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 shareholder approvalrequirements of the NASDAQ Listing Rules. The NASDAQ Listing Rules require that we obtain shareholderapproval for certain dilutive events, such as for the establishment or amendment of certain equity-basedcompensation plans and arrangements, issuances that will result in a change of control of a company, certaintransactions other than a public offering involving issuances of 20% or more of the shares or voting power in acompany, and certain acquisitions of the stock or assets of another company involving issuances of 20% or more ofthe shares or voting power in a company or if any director, officer or holder of 5% or more of the shares or votingpower of the company has a 5% or greater interest in the company or assets to be acquired or consideration to bepaid and the transaction could result in an increase in the outstanding common shares or voting power by 5% ormore;·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 placement thatis 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% ormore 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 not madepursuant to market conditions, and as a result of which the shareholdings of a 5% holder of the shares or votingrights of the company increases or as a result of which a person will become a holder of 5% of the shares or votingrights 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 quorum requiredfor an ordinary meeting of shareholders consists of at least two shareholders present in person or by proxy who holdor represent at least 25% of the voting rights of our shares (and at an adjourned meeting, with some exceptions, anynumber of shareholders), instead of 33 1/3% of the issued share capital required under the NASDAQ Listing Rules;and·Nominations Committee - As permitted by 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-nominatedfor additional terms. Directors are not selected, or recommended for board of director selection, by independentdirectors constituting a majority of the board's independent directors or by a nominations committee comprisedsolely of independent directors as required by the NASDAQ Listing Rules. 132 Table of ContentsOtherwise, 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. ITEM 19. EXHIBITS See Exhibit Index on page 136. 133 Table of ContentsGlossary of Terms Certain standards and other terms 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 significant difference in the rate and extent to which the active ingredient or active moietyin pharmaceutical equivalents or pharmaceutical alternatives becomes available at the site of drug action when administeredat 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 marketing applicationof a test drug that is being compared to a referenced existing (already approved) drug. Sufficient similarity between the testand the reference drug is required, according to certain standards specified by the FDA, which must be met. cGMP - Current Good Manufacturing Practice - Standards, procedures and guidelines designed for production qualitycontrol. CMC - chemistry, manufacturing and controls of pharmaceutical products. CRO - Contract Research Organization, also called a clinical research organization is a service organization that providesoutsourced 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 1938 and1962 through the new drug approval process. According to the DESI program, drugs approved before October 10, 1962, werereviewed to evaluate whether there was substantial evidence of their effectiveness. DSMB - Data and Safety Monitoring Board - an independent group of experts that advises the study investigators. FDA – United States Food and Drug Administration. FDCA – Federal Food, Drug, and Cosmetic Act of 1938, as amended. GCP - Good Clinical Practices - requirements for the conduct of research involving human subjects. GERD - gastroesophageal reflux disease. H. pylori (Helicobacter pylori) - a Gram-negative bacterium found in the stomach. It was identified 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 a newly-developed medicinal product to the market. An MAA may be filed with the European Medicines Agency (EMA)134 Table of Contentsor one or more Member States, depending on the applicable and selected procedure: centralized, mutual recognition ordecentralized. Mycobacterium avium subspecies paratuberculosis (MAP) - an obligate pathogenic bacterium in the genus Mycobacterium.MAP is the causative agent of Johne’s disease, a chronic granulomatous ileitis occurring mainly in ruminants. MAP has beensuspected 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 approval of anew pharmaceutical for sale and marketing in the U.S. NTM - Nontuberculous Mycobacteria– a class of Mycobacteria also known as environmental mycobacteria, atypicalmycobacteria and mycobacteria other than tuberculosis (MOTT). Ondansetron - a drug in a class of medications called serotonin 5-HT3 receptor antagonists. Ondansetron works by blockingthe action of serotonin, a natural substance that may cause nausea and vomiting. Orphan Drug Designation - the designation of Orphan Drug Designation to drugs that are in the process of development forthe treatment of rare diseases, affecting fewer than 200,000 people in the United States. This status provides tax reductionsand the exclusive rights to the cure for a specific condition for a period of seven years post-approval. PK - pharmacokinetics - the study of the absorption, distribution, metabolism, and excretion of drugs in the body. QIDP - Qualified Infectious Disease Product - designation granted under the FDA’s Generating Antibiotic Incentives NowAct, which is intended to encourage the development of new antibiotic drugs for the treatment of serious or life-threateninginfections that have the potential to pose a serious threat to public health. 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 a variety ofdisease, 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 date determinedby appropriate stability testing. The stability of drug products needs to be evaluated over time in the same container-closuresystem in which the drug product is marketed. TNFα - Tumor necrosis factor alpha is a cell-signaling protein (cytokine) involved in systemic inflammation. 135 Table of ContentsREDHILL BIOPHARMA LTD.2017 CONSOLIDATED FINANCIAL STATEMENTS TABLE OF CONTENTS PageReport of Independent Registered Public Accounting Firm F-1Consolidated Statements of Comprehensive Loss F-2Consolidated Statements of Financial Position F-3Consolidated Statements of Changes in Equity F-4Consolidated Statements of Cash Flows F-5Notes to the Consolidated Financial Statements F-6 Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders ofREDHILL BIOPHARMA LTD. Opinion on the Financial Statements We have audited the accompanying consolidated statements of financial position of RedHill Biopharma Ltd. and itssubsidiary (the "Company") as of December 31, 2017 and 2016, and the related consolidated statements of comprehensiveloss, changes in equity and cash flows for each of the three years in the period ended December 31, 2017, including therelated notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financialstatements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016,and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017 inconformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management and board of directors. Ourresponsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are apublic accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and arerequired to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financialstatements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were weengaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain anunderstanding of internal control over financial reporting but not for the purpose of expressing an opinion on theeffectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financialstatements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures includedexamining, on a test basis, evidence regarding the amounts and disclosures in consolidated financial statements. Our auditsalso included evaluating the accounting principles used and significant estimates made by management, as well asevaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonablebasis for our opinion. /s/ Kesselman & Kesselman Certified Public Accountants (Isr.) A member firm of PricewaterhouseCoopers InternationalLimitedWe have served as the Company's auditor since 2010.Tel-Aviv, Israel February 21, 2018 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-1 Table of ContentsREDHILL BIOPHARMA LTD. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Year Ended December 31 Note 2017 2016 2015 U.S. dollars in thousands NET REVENUES 17 4,007 101 3 COST OF REVENUES 2,126 — — GROSS PROFIT 1,881 101 3 RESEARCH AND DEVELOPMENT EXPENSES, net 18 32,969 25,241 17,771 SELLING, MARKETING AND BUSINESS DEVELOPMENTEXPENSES 19 12,014 *1,555 *1,386 GENERAL AND ADMINISTRATIVE EXPENSES 20 8,025 *3,848 *2,748 OTHER EXPENSES 9 845 — 100 OPERATING LOSS 51,972 30,543 22,002 FINANCIAL INCOME 6,505 1,548 1,124 FINANCIAL EXPENSES 77 375 212 FINANCIAL INCOME, net 21 (6,428) (1,173) (912) LOSS AND COMPREHENSIVE LOSS FOR THE YEAR 45,544 29,370 21,090 LOSS PER ORDINARY SHARE (U.S. dollars): 23 Basic 0.26 0.23 0.19 Diluted 0.26 0.24 0.19 *Reclassified to conform to the current year presentation. The accompanying notes are an integral part of these financial statements. F-2 Table of ContentsREDHILL BIOPHARMA LTD. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION December 31 Note 2017 2016 U.S. dollars in thousands CURRENT ASSETS: Cash and cash equivalents 5 16,455 53,786 Bank deposits 5 13,163 55 Financial assets at fair value through profit or loss 6 16,587 12,313 Trade receivables 1,528 *99 Prepaid expenses and other receivables 7 3,290 *1,562 Inventory 653 — 51,676 67,815 NON-CURRENT ASSETS: Bank deposits 152 137 Fixed assets 8 230 165 Intangible assets 9 5,285 6,095 5,667 6,397 TOTAL ASSETS 57,343 74,212 CURRENT LIABILITIES: Accounts payable 4,805 *60 Accrued expenses and other current liabilities 11 6,025 *3,296 Payable in respect of intangible asset purchase 12a(5) 1,000 2,000 11,830 5,356 NON-CURRENT LIABILITIES: Derivative financial instruments 15 448 6,155 TOTAL LIABILITIES 12,278 11,511 COMMITMENTS 12 EQUITY: 14 Ordinary shares 575 441 Additional paid-in capital 177,434 150,838 Warrants — 1,057 Accumulated deficit (132,944) (89,635) TOTAL EQUITY 45,065 62,701 TOTAL LIABILITIES AND EQUITY 57,343 74,212 *Reclassified to conform to the current year presentation. The accompanying notes are an integral part of these financial statements.F-3 Table of ContentsREDHILL BIOPHARMA LTD. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Ordinaryshares Additionalpaid-incapital Warrants Accumulateddeficit Total equity U.S. dollars in thousands BALANCE AT JANUARY 1, 2015 240 65,461 1,528 (42,218) 25,011 CHANGES DURING THE YEAR ENDEDDECEMBER 31, 2015: Share-based compensation to employees and serviceproviders — — — 1,364 1,364 Exercise of options into ordinary shares * 108 — — 108 Issuance of ordinary shares, net of expenses 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 ENDEDDECEMBER 31, 2016: Share-based compensation to employees and serviceproviders — — — 1,679 1,679 Issuance of ordinary shares, net of expenses 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 BALANCE AT JANUARY 1, 2017 441 150,838 1,057 (89,635) 62,701 CHANGES DURING THE YEAR ENDEDDECEMBER 31, 2017: Share-based compensation to employees and serviceproviders — — — 2,235 2,235 Issuance of ordinary shares, net of expenses 119 22,097 — 22,216 Exercise of warrants and options into ordinary shares 15 3,442 — — 3,457 Warrants expiration — 1,057 (1,057) — — Comprehensive loss — — — (45,544) (45,544) BALANCE AT DECEMBER 31, 2017 575 177,434 — (132,944) 45,065 *Represents amounts of less than $1 thousand. The accompanying notes are an integral part of these financial statements. F-4 Table of ContentsREDHILL BIOPHARMA LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31 2017 2016 2015 U.S. dollars in thousands OPERATING ACTIVITIES: Comprehensive loss (45,544) (29,370) (21,090) Adjustments in respect of income and expenses not involving cash flow: Share-based compensation to employees and service providers 2,235 1,679 1,364 Depreciation 81 44 36 Write-off of intangible assets 845 — 100 Fair value adjustments on derivative financial instruments (5,687) (1,152) (888) Fair value losses (gains) on financial assets at fair value through profit or loss 127 (67) — Revaluation of bank deposits (123) (274) (69) Issuance costs in respect of warrants — 368 — Exchange differences in respect of cash and cash equivalents (367) (39) 150 (2,889) 559 693 Changes in assets and liability items: Decrease (increase) in trade receivables (1,429) *99 — Decrease (increase) in prepaid expenses and other receivables (1,728) *612 702 Increase in inventory (653) — — Increase (decrease) in accounts payable 4,745 *(60) *153 Increase (decrease) in accrued expenses 2,729 *(98) *1,716 3,664 553 2,571 Net cash used in operating activities (44,769) (28,258) (17,826) INVESTING ACTIVITIES: Purchase of fixed assets (146) (85) (14) Purchase of intangible assets (1,035) (35) (1,620) Change in investment in current bank deposits (13,000) 36,838 (29,500) Purchase of non-current bank deposits — — (58) Purchase of financial assets at fair value through profit or loss (21,923) (12,246) — Proceeds from sale of financial assets at fair value through profit or loss 17,522 — — Maturity of non-current bank deposits — — 10,000 Net cash provided by (used in) investing activities (18,582) 24,472 (21,192) FINANCING ACTIVITIES: Proceeds from issuance of ordinary shares and warrants, net of expenses 22,216 35,754 54,684 Exercise of warrants and options into ordinary shares, net of expenses 3,437 263 108 Net cash provided by financing activities 25,653 36,017 54,792 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (37,698) 32,231 15,774 EXCHANGE DIFFERENCES ON CASH AND CASH EQUIVALENTS 367 39 (150) BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 53,786 21,516 5,892 BALANCE OF CASH AND CASH EQUIVALENTS AT END OF PERIOD 16,455 53,786 21,516 SUPPLEMENTARY INFORMATION ON INTEREST RECEIVED IN CASH 469 408 236 Supplementary information on investing activities not involving cashflows - Purchase of intangible assets — — 1,925 *Reclassified to conform to the current year presentation. The accompanying notes are an integral part of these financial statements. F-5 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE CONDESED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - GENERAL: a. General RedHill Biopharma Ltd. (the “Company”), incorporated in Israel on August 3, 2009, together with itsrecently established wholly-owned subsidiary RedHill Biopharma Inc. incorporated in Delaware onJanuary 19, 2017, is a specialty biopharmaceutical company, primarily focused on late clinical-stagedevelopment and commercialization of proprietary and in-licensed or acquired drugs for gastrointestinal(“GI”) diseases and cancer. In February 2011, the Company listed its securities on the Tel-Aviv Stock Exchange (“TASE”) and sinceDecember 2012, the Company’s American Depositary Shares (“ADSs”) have been listed on the NASDAQCapital Market (“NASDAQ”). The Company’s registered address is 21 Ha’arba’a St, Tel-Aviv, Israel. The Company is primarily engaged in the research and development of its therapeutic candidates and,since January 2017, has pursued its commercial activities in the U.S. through RedHill Biopharma Inc. Todate the Company has out-licensed on an exclusive worldwide basis only one of its therapeutic candidatesand has generated only approximately $4 million revenues from its commercial operations. Accordingly,there is no assurance that the Company’s business will generate sustainable positive cash flows. ThroughDecember 31, 2017, the Company has an accumulated deficit and its activities have been funded primarilythrough public and private offerings of the Company’s securities. The Company plans to further fund its future operations through commercialization and out-licensing orselling and marketing of its therapeutic candidates, commercialization of in-licensed or acquired productsand raising additional capital through the sale of equity, debt or through other financing that does notcause dilution to our shareholders. The Company’s current cash resources are not sufficient to complete theresearch and development of all of the Company’s therapeutic candidates and to fully support itscommercial operations until generation of sustainable positive cash flows. Management expects that theCompany will incur additional losses as it continues to focus its resources on advancing the developmentof its therapeutic candidates, as well as advancing its commercial operations, based on a prioritized planthat will result in negative cash flows from operating activities. The Company believes its existing capitalresources should be sufficient to fund its current and planned operations for at least the next 12 months. If the Company is unable to out-license, sell or commercialize its therapeutic candidates, generatesufficient and sustainable revenues from its commercial operations, or obtain future financing, theCompany may be forced to delay, reduce the scope of, or eliminate one or more of its research anddevelopment or commercialization programs, any of which may have a material adverse effect on theCompany’s business, financial condition and results of operations. b. Approval of financial statements These financial statements were approved by the Board of Directors on February 21, 2018. F-6 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: a. Basis for presentation of the financial statements The consolidated financial statements of the Company as of December 31, 2017 and 2016 and for each ofthe three years for the period ended on December 31, 2017 have been prepared in accordance withInternational Financial Reporting Standards (“IFRS”), as issued by the International Accounting StandardsBoard (“IASB”). The significant accounting policies described below have been applied consistently in relation to all theperiods presented, unless otherwise stated. The consolidated financial statements have been prepared under the historical cost convention, subject toadjustments in respect of revaluation of financial assets and financial liabilities at fair value through profitor loss. The preparation of financial statements in conformity with IFRS requires the use of certain criticalaccounting estimates. It also requires management to exercise its judgment in applying the Company’saccounting policies. The areas involving a higher degree of judgment or complexity, or areas whereassumptions and estimates are significant to the financial statements, are disclosed in Note 3. Actual resultscould differ significantly from those estimates and assumptions. b. Translation of foreign currency balances and transactions 1) Functional and presentation currency Items included in the consolidated financial statements are measured using the currency of the primaryeconomic environment in which the Company operates (the “Functional Currency”). The consolidatedfinancial statements are presented in U.S. dollars (“$”), which is the Company’s functional andpresentation 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 of period-end exchange rates of monetaryassets and liabilities denominated in foreign currencies are recorded in the Statements ofComprehensive Loss under Financing Income or Financial Expenses. c. Principles of consolidation Commencing 2017, the Company’s consolidated financial statements include the accounts of theCompany and its subsidiary. All material intercompany balances and transactions have been eliminatedupon consolidation. d. Cash and cash equivalents Cash and cash equivalents include cash on hand and unrestricted short-term bank deposits with maturitiesof three months or less. F-7 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) e. Trade receivables Trade receivables are recognized initially at fair value. Subsequent to the initial recognition, they aremeasured at amortized cost using the effective interest rate method, less any impairment loss. f. Inventory The Company’s inventory represents items that are available for commercial sale. The inventory is stated atthe lower of cost or net realizable value with cost determined using the first-in, first-out method. TheCompany recognized an amount of $0.8 million in inventory cost as part of cost of revenues during theyear ended December 31, 2017. The Company continually evaluates inventory for potential loss due to excess quantity or obsolete or slow-moving inventory by comparing sales history and sales projections to the inventory on hand. Whenevidence indicates that the carrying value of a product may not be recoverable, a charge is recorded toreduce the inventory to its current net realizable value. g. 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 fixed assets to their residualvalue over their estimated useful lives as follows:%Computers equipment33 Office furniture and equipment8-15 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. h. Research and development 1) Research and development assets acquired by the Company, the development of which has not yetbeen completed, are stated at cost and are not amortized. These assets are tested for impairment once ayear. At the time these assets will be available for use, they will be amortized by the straight-linemethod over their useful lives. 2) Research and development expenses are charged to profit or loss as incurred. An intangible assetarising from the development of the Company’s therapeutic candidates is recognized if all of thefollowing conditions are met: ·it is technically feasible to complete the intangible asset so that it will be available for use;·management intends to complete the intangible asset and use it or sell it;·there is an ability to use or sell the intangible asset;·it can be demonstrated how the intangible asset will generate probable future economic benefits;andF-8 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) ·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, 2017, the Company had not yet capitalized any development costs. 3) Amounts paid to purchase intellectual property of therapeutic candidates are capitalized and recordedas intangible assets. Amounts due for future payment based on contractual agreements are accruedupon reaching the relevant milestones. 4) Research and development costs for the performance of pre-clinical trials, clinical trials andmanufacturing by subcontractors are recognized as expenses when incurred. i. Impairment of non-financial assets Depreciable assets are tested for impairment if any events have occurred or changes in circumstances havetaken place which might indicate that their carrying amounts may not be recoverable. Research anddevelopment assets, the development of which has not yet been completed, are not amortized and are testedfor 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 purposes of assessing impairment, assets are grouped at the lowest levels for which thereare separately identifiable cash flows (cash-generating units). Nonfinancial assets that were subject toimpairment are reviewed for possible reversal of the impairment recognized in respect thereof at each dateof the Statements of Financial Position. j. Financial assets 1) Classification The financial assets of the Company are classified into the following categories: financial assets at fairvalue through profit or loss, and loans and receivables. The classification depends on the purpose forwhich the financial assets were acquired. The Company’s management determines the classification ofits financial assets at initial recognition. a) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss includes financial assets that are managed andtheir performance is evaluated on a fair value basis; thus, upon their initial recognition, theseassets are designated by management at fair value through profit or loss. Assets in this category areclassified as current assets if they are expected to be settled within 12 months; otherwise, they areclassified as noncurrent. b) Loans and receivables F-9 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Loans and receivables are non-derivative financial assets with fixed or determinable payments thatare not quoted in an active market. They are included in current assets, except for those withmaturities greater than 12 months after the statements of financial position date (for which they areclassified as noncurrent assets). The loans and receivables of the Company are included in tradereceivables, prepaid expenses and other receivables, cash and cash equivalents and bank depositsin the Statements of Financial Position. 2) Recognition and measurement Regular purchases and sales of financial assets are recognized on the settlement date, which is the dateon which the asset is delivered to the Company or delivered by the Company. Investments are initiallyrecognized at fair value plus transaction costs for all financial assets not recorded at fair value throughprofit or loss. Financial assets measured at fair value through profit or loss are initially recognized at fair value, andtransaction costs are expensed to profit or loss. Financial assets are derecognized when the rights toreceive cash flow from the investments have expired or have been transferred and the Company hastransferred substantially all risks and rewards of ownership. Financial assets at fair value through profitor loss are subsequently recorded at fair value. Loans and receivables are measured in subsequentperiods 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”. k. Accounts payable Accounts payable are obligations to pay for goods or services that have been acquired from suppliers in theordinary course of business. Accounts payable are classified as current liabilities if payment is due withinone year or less; otherwise they are presented as noncurrent liabilities. Accounts payable are recognized initially at fair value and subsequently measured at amortized cost usingthe effective interest method. l. Warrants Receipts in respect of warrants are classified as equity to the extent that they confer the right to purchase afixed number of shares for a fixed exercise price. Warrants that confer the right to net share settlement donot qualify for equity classification and are classified as derivative liabilities. See m below. m. Derivative financial instruments The derivative financial instruments of the Company represent warrants.These derivative financial instruments are carried at fair value, with changes in their fair value recognizedin profit or loss. The issuance costs of such instruments are directly charged to profit or loss. n. Share capital The Company’s ordinary shares are classified as the Company’s share capital. Incremental costs directlyattributed to the issuance of new shares or warrants are presented under equity as a deduction from theproceeds of issuance.F-10 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) o. Employee benefits 1) Pension and retirement benefit obligations In any matter related to payment of pension and severance pay to employees in Israel to be dismissedor 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 pay severancepay and/or pensions to employees dismissed or retiring, in certain circumstances. The Company has a severance pay plan in accordance with Section 14 of the Israeli Severance Pay Lawwith the plan treated as a defined contribution plan. According to the plan, the Company regularlymakes payments to severance pay or pension funds without having a legal or constructive obligationto pay further contributions if the fund does not hold sufficient assets to pay all employees in the planthe benefits relating to employee service in the current and prior periods. Contributions for severancepay or pension are recognized as employee benefit expenses when they are due commensurate withreceipt of work services from the employee and no further provision is required in the financialstatements. The Company’s subsidiary provides, at will, benefit contributions for its employees. 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. This entitlement is based on the period of employment. The Companyrecords a liability and expenses vacation and recreation pay based on the benefit accumulated by eachemployee. p. Share-based payments The Company operates a number of equity-settled, share-based compensation plans to employees (asdefined in IFRS 2 “Share-Based Payments”) and service providers. As part of the plans, the Company grantsemployees and service providers, from time to time and at its discretion, options to purchase Companyshares. The fair value of the employee and service provider services received in exchange for the grant ofthe options is recognized as an expense in profit or loss and is recorded as accumulated deficit withinequity. The total amount recognized as an expense over the vesting period of the options (the periodduring which all vesting conditions are expected to be met) is determined by reference to the fair value ofthe options granted at the 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 the specifiedvesting 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 nonmarket vesting conditions. The Company recognizes the impact of therevision to original estimates, if any, in profit or loss, with a corresponding adjustment to accumulateddeficit. When exercising options, the Company issues new shares. The proceeds, less direct attributable transactioncosts, are recognized as share capital (par value) and share premium. F-11 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) q. Revenue from contracts with customers As of January 1, 2017, the Company early adopted IFRS 15, with full retrospective application. Theadoption of IFRS 15 did not have an effect on either revenue recognized in prior periods, nor toaccumulated deficits as of January 1, 2015. IFRS 15 introduces a five-step model for recognizing revenue from contracts with customers, as follows:·identify the contract with a customer;·identify the performance obligations in the contract;·determine the transaction price;·allocate the transaction price to the performance obligations in the contract; and·recognize revenue when (or as) the entity satisfies a performance obligation. 1) Revenues from promotional services The Company recognizes revenue from promotional services related to Donnatal and EsomeprazoleStrontium Delayed-Release Capsules 49.3 mg as it satisfies its performance obligation over time, in anamount equal to the consideration it expects to be entitled to, taking into consideration the constraint onvariable considerations stipulated in IFRS 15. 2) Revenues from the sale of products Principal versus agent considerations When another party is involved in providing goods or services to a customer, the Company analyzeswhether the Company acts as a principal or an agent in the transaction, based on whether the Companyobtains control of the product before it is transferred to the customer, using the indicators provided in IFRS15. In the commercialization of EnteraGam, the Company is determined to be the principal in the arrangement(rather than an agent of Entera Health), and therefore, revenue in the amount the Company is entitled tofrom its customers is recognized on a gross basis, from which royalties to Entera Health Inc. (“EnteraHealth”) are being accounted for in cost of revenues. The Company recognizes revenues from the sale of EnteraGam at a point in time when control over theproduct is transferred to customers. The transaction price in these arrangements is the consideration the Company expects to be entitled to fromthe customer, reduced by estimates of rebates, discounts, allowances and provision for product returns,given or expected to be given, which vary by product arrangement and buying groups. These estimateshave been based on actual in-market data received pre- and post- end of the accounting periodF-12 ®®®Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) and have been applied to inventory held at wholesalers and pharmacies. The Company will continue torefine these estimates and methodologies over time as the breadth of in-market data increases. 3) Revenues from out-licensing of the Company's therapeutic candidates Revenue incurred in connection with the out-licensing of a right to use the Company’s intellectualproperty is recognized at a point in time when control over the license is transferred to the licensee. The transaction price contains variable considerations contingent upon the licensee achieving certainmilestones, as well as sales-based royalties, in accordance with the relevant agreement. Revenue from achieving additional milestones is recognized only when it is highly probable that asignificant reversal of cumulative revenues will not occur, usually upon achievement of the specificmilestone, in accordance with the relevant agreement. Sales-based royalties are not included in the transaction price; rather they are recognized as incurred, due tothe specific exception for sales-based royalties in licensing of intellectual property. 4) Practical expedients and exemptions The Company expenses sales commissions when incurred. These costs are recorded as selling andmarketing expenses. r. Advertising and promotional expenses Advertising and promotional costs include distribution of free products’ samples. These costs arerecognized as an expense when incurred. s. Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor areclassified as operating leases. Payments made under operating leases are charged to the Statements ofComprehensive Loss on a straight-line basis over the period of the lease. t. 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 the weighted average of the number of shares tobe issued to the average number of shares outstanding used to calculate the basic loss per share, assumingall shares that have a potentially dilutive effect have been exercised into shares. u. Deferred taxes Deferred income tax is recognized using the liability method for temporary differences arising between thetax 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 Statements of Financial 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 taxF-13 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) assets are recognized only to the extent that it is probable that future taxable profit will be available againstwhich the temporary differences can be utilized. Since the Company is unable to assess whether it will have taxable income in the foreseeable future, nodeferred tax assets were recorded in these financial statements. v. Standards and interpretations to existing standards that are not yet in effect and have not been earlyadopted by the Company International Financial Reporting Standard No. 9 “Financial Instruments” (hereafter - IFRS 9) IFRS 9 “Financial instruments” addresses the classification, measurement and recognition of financialassets and financial liabilities. The complete version of IFRS 9 was issued in July 2014. It replaces theguidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9retains but simplifies the mixed measurement model and establishes three primary measurement categoriesfor financial assets: amortized cost, fair value through other comprehensive income, and fair value throughprofit or loss. The basis of classification depends on the entity’s business model and the contractual cashflow characteristics of the financial asset. Investments in equity instruments are required to be measured atfair value through profit or loss with the irrevocable option at inception to present changes in fair value inother comprehensive income. Furthermore, the expected credit losses model replaces the incurred lossimpairment model used in IAS 39. For financial liabilities, there were no changes to classification andmeasurement except for the recognition of changes in the Company’s own credit risk in othercomprehensive income for liabilities designated at fair value through profit or loss. The standard is effective for accounting periods beginning on or after January 1, 2018. The Companyassessed the impact of IFRS 9 to be immaterial. International Financial Reporting Standard No. 16 “Leases” (hereafter - IFRS 16) IFRS 16 defines 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 reflecting future lease payments and a ‘right-of-use asset’ for almost all leasecontracts. The standard replaces the current guidance in IAS 17. The standard is effective for annual periods beginning on or after January 1, 2019. The Company iscurrently assessing the impact of adopting IFRS 16. The Company expects to adopt the standard using thecumulative effect approach and applying for additional reliefs as allowed by the standard’s transitionprovisions. See operating lease agreements on note 12b. 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 resulting accountingestimates will, by definition, seldom equal the related actual results. The material judgments, estimates andassumptions that have a significant risk of causing a material adjustment to the carryingF-14 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) amounts of assets and liabilities within the following financial 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 to be impaired. See note 2i. The Company makes judgments to determine whether indications are present that require reviewing impairmentof these intangible assets. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverableamount. The recoverable amounts of each asset are based on the Company’s estimates as to the development ofthe therapeutic candidates, changes in market scope, market competition and timetables for regulatoryapprovals. NOTE 4 - FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT: a. Financial risk management: 1) Financial risk factors The Company’s activities expose it to a variety of financial risks: market risk (including foreignexchange risk and price risks), credit and interest risks, and liquidity risk. The Company’s overallrisk management program focuses on the unpredictability of financial markets and seeks tominimize potential adverse effects on the Company’s results of operations and financial position. 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 finance department is responsible for carrying out financial risk managementactivities in accordance with policies approved by its board of directors. The board of directorsprovides general guidelines for overall financial risk management as well as policies dealing withspecific areas, such as exchange rate risk, interest rate risk, credit risk, use of financial instrumentsand investment of excess cash. In order to minimize market risk and credit risk, the Company hasinvested the majority of its cash balances in low-risk investments, such as (i) highly-rated bankdeposits with terms of up to one-year term with exit points and (ii) a managed portfolio of selectedcorporate bonds, comprised of a diversified mix of highly-rated bonds. No more than 10% of thetotal value of the Company’s portfolio is invested in a single bond issuer. (a) Market risks The Company might be exposed to foreign exchange risk as a result of making payments toemployees or service providers and investment of some liquidity in currencies other than the U.S.dollar (i.e., the Functional Currency). The Company manages the foreign exchange risk byaligning the currencies for holding liquidity with the currencies of expected expenses, based onthe expected cash flows of the Company. Had the Functional Currency of the Company beenstronger by 5% against the NIS, assuming all other variables remained constant, the Companywould have recognized an additional expense of $56,,000 $78,000 and $12,000 in profit or lossfor the years ended, December 31, 2017, 2016 and 2015, respectively. The foreign exchange risksassociated with these balances are immaterial. F-15 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) (b) Credit and interest risks Credit and interest risks arise from cash and cash equivalents, deposits with banks, financial assetsat fair value through profit or loss, as well as receivables. A substantial portion of liquidinstruments of the Company is invested in short-term deposits or corporate bonds in highly-ratedbanks. The Company estimates that since the liquid instruments are mainly invested for the shortterm and with highly-rated institutions, the credit and interest risks associated with these balancesare low. Credit risk is the risk that customers may fail to pay their debts. The Company manages credit riskby setting credit limits, performing controls and monitoring qualitative and quantitativeindicators of trade receivable balances such as the period of credit taken and overdue payments.Customer credit risk also arises as a result of the concentration of the Company’s revenues with itslargest customers. See also note 22b. (c) Liquidity risk Prudent liquidity risk management requires maintaining sufficient cash and the availability offunding through an adequate amount of committed credit facilities. Management monitors rollingforecasts of the Company’s liquidity reserve (comprising of cash and cash equivalents, depositsand financial assets through profit or loss). This is generally carried out based on the expectedcash flow in accordance with practice and limits set by the management of the Company. As of December 31, 2017, the Company has generated revenues from commercialization andpromotional activities; however, and as no sufficient revenue from the commercial operations wasgenerated to compensate for operating expenses and as sales, royalties or commercializationrevenues from the therapeutic candidates have not been generated, it is exposed to liquidity risk. As of December 31, 2017 and 2016, the Company’s non-derivative financial 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, maintain optimal capitalstructure and to reduce the cost of capital. 3) Fair value estimation The following is an analysis of financial 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) (level 2)·inputs for the asset or liability that are not based on observable market data (that is,unobservable inputs) (level 3)F-16 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) The fair value of financial 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 readilyand regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatoryagency, and those prices represent actual and regularly occurring market transactions on an arm’slength basis. These instruments are included in level 1. The fair value of financial instruments that are not traded in an active market is determined by usingvaluation techniques. These valuation techniques maximize the use of observable market data where itis available and rely as little as possible on entity-specific estimates. If all significant inputs required todetermine the fair value an instrument are observable, the instrument is included in level 2. If one or more of the significant inputs is not based on observable market data, the instrument 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 thousandsDecember 31, 2017: Assets - Financial assets at fair value through profit or loss 16,587 — 16,587Liabilities - Derivative financial instruments — 448 448December 31, 2016: Assets - Financial assets at fair value through profit or loss 12,313 — 12,313Liabilities - Derivative financial instruments — 6,155 6,155 The following table presents the change in derivative liabilities measured at level 3 for the years endedDecember 31, 2017 and 2016: Derivative financial instruments Year ended December 31 2017 2016 U.S. dollars in thousands Balance at beginning of the year 6,155 1,237 Proceeds received during the reported year — 6,070 Exercise of derivative into shares (20) — Fair value adjustments recognized in profit or loss (5,687) (1,152) Balance at the end of the year 448 6,155 The fair value of the above-mentioned derivative financial liabilities that are not traded in an active marketis determined by using valuation techniques. The Company uses its judgment to select a variety ofmethods and make assumptions that are mainly based on market conditions existing at the end of eachreporting period. F-17 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For more information regarding the derivatives, see note 15. b. Classification of financial instruments by groups: Assets atfair valuethroughprofit or loss Loans andreceivables Total U.S. dollars in thousandsAs of December 31, 2017: Cash and cash equivalents — 16,455 16,455Bank deposits — 13,315 13,315Trade receivables — 1,528 1,528Other receivables (except prepaidexpenses) — 3,160 3,160Financial assets at fair value throughprofit or loss 16,587 — 16,587 16,587 34,458 51,045As of December 31, 2016: Cash and cash equivalents — 53,786 53,786Bank deposits — 192 192Trade receivables — *99 99Other receivables (except prepaidexpenses) — *1,442 1,442Financial assets at fair value throughprofit or loss 12,313 — 12,313 12,313 55,519 67,832 F-18 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Financial liabilities at fair value Financial through liabilities at profit or amortized loss cost Total U.S. dollars in thousandsAs of December 31, 2017: Accounts payable — 4,805 4,805Accrued expenses and other currentliabilities — 6,025 6,025Derivative financial instruments 448 — 448Payable in respect of intangible assetpurchase — 1,000 1,000 448 11,830 12,278As of December 31, 2016: Accounts payable — *60 60Accrued expenses and other currentliabilities — *3,296 3,296Derivative financial instruments 6,155 — 6,155Payable in respect of intangible assetpurchase — 2,000 2,000 6,155 5,356 11,511 *Reclassified to conform to the current year presentation. F-19 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) c. Composition of financial instruments by currency: Other U.S. dollar currencies Total U.S. dollars in thousandsAs of December 31, 2017: Assets: Cash and cash equivalents 15,319 1,136 16,455Bank deposits 13,101 214 13,315Financial assets at fair value through profit orloss 16,587 — 16,587Trade receivable 1,528 — 1,528Other receivables (except prepaid expenses) 2,426 734 3,160 48,961 2,084 51,045Liabilities: Accounts payable 4,333 472 4,805Accrued expenses and other currents liabilities 6,005 20 6,025Payable in respect of intangible asset purchase 1,000 — 1,000Derivative financial instruments 448 — 448 11,786 492 12,278 37,175 1,592 38,767 As of December 31, 2016: Assets: Cash and cash equivalents 51,936 1,850 53,786Bank deposits — 192 192Financial assets at fair value through profit orloss 12,313 — 12,313Receivables (except prepaid expenses) 1,078 463 1,541 65,327 2,505 67,832Liabilities: Accounts payable and accrued expenses 3,227 129 3,356Payable in respect of intangible asset purchase 2,000 — 2,000Derivative financial instruments 6,155 — 6,155 11,382 129 11,511 53,945 2,376 56,321 F-20 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 5 – CASH, CASH EQUIVALENTS AND BANK DEPOSITS: a. Cash and cash equivalents December 31 2017 2016 U.S. dollars in thousandsCash in bank8,30553,772Short-term bank deposits8,1501416,45553,786 The carrying amounts of the cash and cash equivalents approximate their fair values. b. Bank deposits The bank deposits include deposits invested for terms of three months to one year and bear interest at anaverage annual rate of 1.1%. NOTE 6 - FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS: These financial assets as of December 31, 2017 represent a portfolio of U.S. dollar-denominated marketablesecurities managed and valued by the Company based on the fair value of all portfolio securities. 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 each tradingday and reporting period. NOTE 7 - PREPAID EXPENSES AND OTHER RECEIVABLES: December 31 2017 2016 U.S. dollars in thousandsAdvance to suppliers 2,426 1,049Discount from service provider 537 230Prepaid expenses 130 120Government institutions 197 163 3,290 1,562 The fair value of other receivables, which constitute of financial assets, approximates their carrying amount. NOTE 8 - FIXED ASSETS: The composition of assets and accumulated depreciation, grouped by major classifications: F-21 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Cost Accumulated depreciation Depreciated balance December 31 December 31 December 31 2017 2016 2017 2016 2017 2016 U.S. dollars in thousandsOffice furniture andequipment (includingcomputers) 349 203 163 101 186 102Leasehold improvements 132 132 88 69 44 63 481 335 251 170 230 165 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 2017 2016 U.S. dollars in thousandsCost: Balance at beginning of year 6,195 6,160Additions during the year 35 35Deductions during the year (945) —Balance at end of year 5,285 6,195Write-off charge — (100) 5,285 6,095 In February 2017, the Company deducted from the intangible assets cost an amount of $100,000, written off inprior years, due to final termination notice provided to a Danish company for the exclusive rights to a DrugCandidate intended to treat congestive heart failure, left atrium dysfunction and high blood pressure. In February 2017, the Company recognized loss in an amount of $45,000, paid to a private German companyfor the exclusive option for acquiring rights to an oncology therapeutic candidate. As the Company did notexercise or extend its option, the entire amount was deducted from the intangible assets cost and recorded asa loss in the Consolidated Statement of Comprehensive Loss under Other Expenses. In December 2017, the Company recognized loss in an amount of $800,000, paid to a Canadian company forthe exclusive rights to a non-core migraine therapeutic candidate. Given the Company’s increasing focus on GIdiseases, in particular its two key Phase III GI programs, a termination notice was issued to the Canadiancompany and the entire amount was deducted from the intangible assets cost and recorded as a loss in theConsolidated Statement of Comprehensive Loss under 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 LawF-22 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) is covered by ongoing deposits with defined contribution plans. The amounts deposited are not included inthe Statements of Financial Position. The amounts charged as an expense with respect to defined contribution plans in 2017, 2016 and 2015were $155,000, $121,000 and $95,000, respectively. NOTE 11 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES: December 31 2017 2016 U.S. dollars in thousandsAccrued expenses 4,969 2,903Employees and related liabilities 1,045 295Government institutions 11 98 6,025 3,296 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 SCOLR Pharma Inc. (“SCOLR”), a U.S.company that granted the Company an exclusive license to use its rights relating to a therapeuticcandidate. According to the agreement, the Company paid the U.S. company an initial amount of$100,000, and undertook to pay the U.S. company potential royalties on future sales of this therapeuticcandidate and milestone payments. Through December 31, 2017, the Company paid the U.S. companyonly the above-mentioned initial amount. In 2013, SCOLR announced that it had ceased business operations. Under the terms of the licenseagreement, the Company had protection granted to the licensee under the United States BankruptcyCode. 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, therefore,terminated the agreement with the U.S. company and licensed the patents directly from the U.S.university, the original owner of the patents. Under the agreement, the Company agreed to pay the U.S.university certain future royalties. 2) On August 26, 2010, the Company entered into an agreement with IntelGenx Corp, a Canadian-basedcompany (“IntelGenx”) which is traded in the U.S. and Canada, to co-develop RIZAPORT, atherapeutic candidate for the treatment of acute migraines. Pursuant to the agreement, the Companypaid IntelGenx milestone payments in the aggregate amount of $800,000. In addition, in accordancewith the agreement, through December 31, 2017, the Company participated in the research anddevelopment costs in the amount of approximately $1.3 million that was recorded in the Statements ofComprehensive Loss under Research and Development Expenses. Given the Company’s increasingfocus on GI diseases, in particular the Company’s two key Phase III GI programs, the Companyprovided IntelGenx on December 5, 2017 a notice of termination for the agreement with IntelGenx. Seealso note 9. F-23 ®Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 3) On August 11, 2010, the Company entered into an agreement with an Australian company in an assetpurchase agreement to acquire intellectual property relating to three therapeutic candidates for thetreatment of gastrointestinal conditions. Pursuant to the asset purchase agreement, the Company paidthe Australian company an initial amount of $500,000 and undertook to pay future payments in therange of 7% - 20% from the Company’s revenues may be generated from the sale and license of thetherapeutic candidates, less certain deductible amounts, as detailed in the agreement. ThroughDecember 31, 2017, the Company paid the Australian company the above-mentioned initial amount. In 2014, the Company entered into a licensing agreement with Salix Pharmaceuticals, Ltd. (“Salix”),which was later acquired by Valeant Pharmaceuticals International, Inc., pursuant to which Salixlicensed the exclusive worldwide rights to one of the above-mentioned therapeutic candidates. Underthe license agreement, Salix paid an upfront payment of $7 million with subsequent potentialmilestone payments up to a total of $5 million. Salix also agreed to pay the Company tiered royaltieson net sales, ranging from low single-digits up to low double-digits. Following the execution of thelicensing agreement, the Company paid the Australian company an additional amount of $1 million.In 2014, the upfront payment of $7 million was recognized as revenue in the Statement ofComprehensive Loss and the additional amount paid was recognized as cost of revenues in theStatements of Comprehensive Loss. 4) On June 30, 2014, the Company entered into an agreement with a German publicly-traded companythat granted the Company the exclusive worldwide (excluding China, Hong Kong, Taiwan and Macao)development and commercialization rights to all indications to an oncology therapeutic candidate.Under the terms of the agreement, the Company paid the German company an initial amount of $1million and agreed to pay the German company potential tiered royalties, less certain deductibleamounts as detailed in the agreement, ranging from mid-teens up to 30%. Such potential royalties aredue until the later of (i) the expiration of the last to expire licensed patent that covers the product inthe relevant country; and (ii) the expiration of regulatory exclusivity in the relevant country. ThroughDecember 31, 2017, the Company has paid the German company only the initial amount mentionedabove. 5) 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, targetingmultiple oncology, inflammatory and GI indications. Under the terms of the agreement, the Companyundertook to pay the U.S. company an initial amount of $1.5 million and an additional amount of $2million to be paid on the earlier of (i) a specific date or (ii) reaching a specific development milestone.In addition, the Company undertook to pay up to $2 million in potential development milestonepayments, and potential tiered royalties on revenues, less certain deductible amounts as detailed in theagreement, starting in the low double-digits. Such potential royalties are due until the later of (i) theexpiration of the last to expire licensed patent that covers the product in the relevant country; and(ii) the expiration of regulatory exclusivity in the relevant country. Through December 31, 2017, theCompany paid the U.S. company a total of $2.5 million and recognized an amount of $1 million as acurrent liability. In February 2018, the Company has signed an amendment to the agreement,consequently $0.5 million was paid and the Company may in its sole discretion choose whether to paythe remaining $0.5 million in 2019 or to change the royalty terms. 6) 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.F-24 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Under the exclusive co-promotion agreement, the Company is responsible for certain promotionalactivities related to Donnatal (Phenobarbital, Hycosamine Sulfate, Atropine Sulfate, ScopolamineHydrobromide) in certain U.S. territories. The companies share the revenues generated from thepromotion of Donnatal based on agreed upon split. There are no upfront or milestone paymentsrequired under the agreement. The initial term of the agreement is three years. The parties mayterminate the agreement upon prior written notice for reasons set forth in the agreement. 7) On April 4, 2017, the Company signed an exclusive license agreement with Entera Health, a privatelyheld U.S. company focused on the research, manufacturing, and commercialization of value-addedproteins and protein co-products, granting the Company the exclusive U.S. rights to EnteraGam, acommercially-available medical food intended for the dietary management of chronic diarrhea andloose stools which must be administered under medical supervision. Under the license agreement, the Company is required to pay Entera Health royalties based on netsales, as detailed in the agreement. The initial term of the agreement is four years. The parties mayterminate the agreement upon prior written notice for the reasons set forth in the agreement. 8) On August 16, 2017, the Company signed an agreement with ParaPRO LLC. (“ParaPro”), an Indiana-based specialty pharmacy company focused on on acquiring, developing and commercializingproprietary products, granting the Company the exclusive right to co-promote EsomeprazoleStrontium Delayed-Release Capsules 49.3 mg to gastroenterologists in certain U.S territories accordingto an agreed co-promotion plan. Esomeprazole Strontium Delayed-Release Capsules 49.3 mg is anFDA-approved prescription proton pump inhibitor (PPI). The initial term of the agreement is fouryears. Each party may terminate the agreement upon prior written notice to the other party for reasonsset forth in the agreement. b. Operating lease agreements The Company entered into an operating lease agreement for the Israeli offices it uses. The agreement willexpire on January 31, 2020. The projected yearly rental expenses are approximately $410,000 per year.During 2017 the Company subleases a portion of the office space to a tenant for approximately $96,000. The Company also entered into an operating lease agreement for the U.S. offices it uses. The agreement willexpire on March 31, 2023. The projected yearly rental expenses are approximately $168,000 per year. As of December 31, 2017, an amount of $152,000 was deposited with a bank to secure the leaseobligations. NOTE 13 - INCOME TAX: a. Taxation of the Company in Israel 1) 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.F-25 ®®®Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) The results of the Company are measured for tax purposes in accordance with Accounting PrinciplesGenerally Accepted in Israel (Israeli GAAP). These financial statements are prepared in accordance withIFRS. The differences between IFRS and Israeli GAAP, both on an annual and a cumulative basis causedifferences between taxable results and the results reflected in these financial statements. 2) Tax rates The net income of the Company is subject to the Israeli corporate tax rate. Israeli corporate tax rates for2016 and 2015 were 25% and 26.5%, respectively. On December 22, 2016, the Israeli Budgetary Law for 2017 and 2018 was approved to, among otherchanges, reduce the corporate tax rate to 24% for 2017 and 23% for 2018 and thereafter. b. U.S. subsidiary The subsidiary incorporated in the U.S is taxed under U.S. tax laws. Accordingly, the applicable corporatetax rate in 2017 is 34%. On December 22, 2017, the Tax Cuts and Jobs Act (the “2017 Act”) was enactedand the applicable tax rate was reduced to 21% from 2018 and thereafter. As a general rule, inter-company transactions between the Israel-resident Company and its U.S-residentsubsidiary are subject to the reporting provisions of the Income Tax Regulations, section 85-A, 2006. c. Carry forward losses As of December 31, 2017, the Company had net operating losses carried forward (“NOLs”) ofapproximately $76 million. Under Israeli tax laws, carry forward tax losses have no expiration date. As ofDecember 31, 2017, the U.S. subsidiary had net operating losses carried forward of approximately $10million. Under U.S. tax laws, for NOLs arising after December 31, 2017, the 2017 Act limits a taxpayer’s ability toutilize NOL carryforwards to 80% of taxable income. In addition, NOLs arising after 2017 can be carriedforward indefinitely, but carryback is generally prohibited. NOLs generated in tax years beginning beforeJanuary 1, 2018 will not be subject to the foregoing taxable income limitation and will continue to have atwo-year carryback and twenty-year carryforward period. Deferred tax assets on losses for tax purposes carried forward to subsequent years are recognized ifutilization of the related tax benefit 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 (as mentionedin c. above), for which deferred tax assets have not been recognized in the Statements of Financial Positionas of December 31, 2017 and 2016, were $28 million and $29 million, respectively. These temporarydifferences have no expiration dates. F-26 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) e. Tax assessments The Company has not been assessed for tax purposes since its incorporation. The Company’s taxassessments for 2012 are therefore considered final. 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 2017 2016 In thousandsAuthorized 300,000 300,000Issued and paid 212,729 164,974 The Company’s ordinary shares are traded on the TASE and the Company’s ADSs are traded on theNASDAQ under the symbol “RDHL”. Each ADS represents 10 ordinary shares. The last reported marketprice for the Company’s securities on December 31, 2017 was $5.14 per ADS on the NASDAQ and$0.50 per share on the TASE (based on the exchange rate reported by the Bank of Israel for that 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 warrants and options 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. During 2017 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 2,988,750ordinary shares for $809,000. In January 2017, the Company received notification of exercise with respect to non-tradable warrantsthat had been issued in 2014 to investors in the form of private placements. Accordingly, the Companyissued 2,526,320 ordinary shares for approximately $2.63 million. 3) 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 ADSs forgross 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 $35.8million. As part of the offering, one of the Company's directors, purchased 95,000 ADSs and warrantsto purchase 47,500 ADSs for a total consideration of $1 million. F-27 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 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. On January 3, 2017, the underwriters partially exercised their option and purchased 133,104 ADSs forapproximately $1.28 million. Following the partial exercise of the underwriters’ option, theunderwritten public offering and the concurrent registered direct offering (total of 3,846,519 ADSs andwarrants to purchase 2,025,458 ADSs, representing aggregate gross proceeds from both offerings ofapproximately $39.4 million before deducting underwriting discounts and commissions, placementagent fees and other offering expenses) were closed. The warrants were classified as a financial liability due to a net settlement provision. These derivativeswere recognized and subsequently measured at fair value through profit or loss. The consideration, net of issuance expenses, was allocated to the various issued instruments. Out of thegross consideration, an 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,an amount of $0.4 million, were recorded directly to the Statements of Comprehensive Loss, andexpenses in the amount of $1.9 million allocated to the equity component were recorded against sharepremium. 4) In November 2017, the Company completed an underwritten public offering in the U.S. of an aggregateof 4,090,909 ADSs for gross proceeds to the Company of approximately $22.5 million. Net proceeds tothe Company from the offering, following underwriting discounts and other offering expenses ofapproximately $1.5 million, were approximately $21 million. 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 $1.40 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 classified as a financialliability due to a net settlement provision. These warrants were exercisable into 357,896 ADSs and had athree-year term. In January 2017, the Company received notification of exercise with respect to these non-tradable warrants that had been issued in 2014 to investors in the form of private placements. Accordingly,the Company issued 2,526,320 ordinary shares for approximately $2.63 million. The remainingunexercised warrants to purchase 1,052,640 ordinary shares expired along with any right or claimwhatsoever of the holders. b. Warrants issued in 2016 The warrants issued under the offering, as described in note 14a(3) above, were classified as a financialliability due to a net settlement provision. These warrants are exercisable into 2,025,458 ADSs. TheF-28 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) warrants have a three-year term and may be exercised either for cash or on a cashless basis at an exerciseprice of $13.33 per ADS. The fair value of the warrants is computed using the Black and Scholes option pricing model. The fairvalue of the warrants upon issuance was computed based on the price of an ADS and based on thefollowing parameters: risk-free interest rate of 1.56% and an average standard deviation of 53.13%. Thefair value of the warrants as of December 31, 2017, is based on the price of an ADS as of December 31, 2017and its based on the following parameters: risk-free interest rate of 1.89% and an average standarddeviation of 48.59%. NOTE 16 - SHARE-BASED PAYMENTS: On May 30, 2010, a general meeting of shareholders approved the option plan of the Company (the “OptionPlan”), after being approved by the Board of Directors. In 2017 the Option Plan was amended and restated as the2010 Award Plan (the “Award Plan”). As of December 31, 2017, the Award Plan allow the Company to allocateup to 33,646,039 options to employees, consultants and directors reserved by the Board of Directors forissuance under the Award Plan. The terms and conditions of the grants were determined by the board ofdirectors and are according to the Award Plan. a. The following is information on options granted in 2017: Number of options granted According to the award plan Exercise Fair value of of the Company pricefor 1 options on date of Other than ordinary grant in U.S.$Date of grant directors (1) To directors Total share ($) thousands (2)March 2017 3,650,000 — 3,650,000 1.08 1,777May 2017 — 640,000 640,000 1.08 290May 2017 — 500,000 500,000 1.09 227July 2017 2,445,000 — 2,445,000 0.98 1,205 6,095,000 1,140,000 7,235,000 3,4991)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. During the contractual term the optionswill be exercisable, either in full or in part, from the vesting date until the end of 7 years from the date of grant. 2017 grants include both options exercisable into the Company’s ordinary shares and options exercisable to theCompany’s ADSs. 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: $0.98 - $1.09, expected volatility: 49.48% - 58.09%, risk-free interestrate: 2.05% - 2.23% and the expected term was derived based on the contractual term of the options, the expectedexercise behavior and expected post-vesting forfeiture rates. The expected volatility assumption used is based on thehistorical volatility of the Company’s share.F-29 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) b. The following is information on options granted in 2016: Number of options granted According to the award plan Exercise Fair value of of the Company pricefor 1 options on date of Other than ordinary grant in U.S.$Date of grant directors (1) To directors (1) Total share ($) thousands (2)April 2016 590,000 — 590,000 1.41 400June 2016 — 1,500,000 1,500,000 1.28 725June 2016 (3) — 150,000 150,000 1.48 105 590,000 1,650,000 2,240,000 1,230 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. During the contractual term the optionswill be exercisable, either in 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-free interestrate: 1.51% - 1.57% and the expected term was derived based on the contractual term of the options, the expectedexercise behavior and expected post-vesting forfeiture rates. The expected volatility assumption used is based on thehistorical volatility of the Company’s share. 3)In June 2016, the Company’s annual general meeting of shareholders approved the acceleration of 150,000 unvestedoptions of Alicia Rotbard, of blessed memory, a former external director of the Company. Each option was exercisableinto one ordinary share at an exercise price of $1.48 per share. These options expired in November 2017. The allocatedexpenses, in the amount of $105 thousand were recorded directly to the Statements of Comprehensive Loss underGeneral and Administrative Expenses. c. Changes in the number of options and weighted averages of exercise prices are as follows: Year Ended December 31 2017 2016 Weighted Weighted average of average of Number of exercise Number of exercise options price ($) options price ($)Outstanding at beginning of year 22,025,548 0.95 20,511,338 0.88Exercised (2,988,750) 0.27 (725,790) 0.36Expired and forfeited (490,000) 1.37 — —Granted 7,235,000 1.05 2,240,000 1.33Outstanding at end of year 25,781,798 1.05 22,025,548 0.95Exercisable at end of year 16,842,697 0.99 15,168,938 0.85 F-30 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) d. The following is information about exercise price and remaining useful life of outstanding options atyear-end: December 31, 2017 December 31, 2016Number of Number of options Weighted options Weightedoutstanding average of outstanding average ofat end of Exercise price remaining at end of Exercise price remainingyear range useful life year range useful life25,781,798 $0.5-$1.61 3.5 22,025,548 $0.17-$1.61 3.8 e. Expenses recognized in profit or loss for the options are as follows: Year Ended December 312017 2016 2015U.S. dollars in thousands2,235 1,679 1,364 The remaining compensation expenses as of December 31, 2017 are $2.7 million and will be expensed infull by July 2021. 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 benefit, including amounts recognized as payroll benefits in Company accounts for theoptions the employees received within the Award Plan. Options granted to option holders who are relatedparties of the Company are governed by Section 3(i) to the Ordinance. NOTE 17 – NET REVENUES: Year Ended December 31 2017 2016 2015 U.S dollars in thousandsLicensing — 100 —Commercialization of product 3,240 — —Promotional services 767 — —Other Revenues — 1 3 4,007 101 3 a)In 2016 the Company recorded revenues with respect to RIZAPORT. b)In 2017 the Company recorded revenues with respect to the commercialization of EnteraGam® initiated inJune 2017 and promotional activities of Donnatalinitiated in June 2017 and Esomeprazole StrontiumDelayed-Release Capsules 49.3 mg initiated in September 2017. F-31 ®® Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 18 - RESEARCH AND DEVELOPMENT EXPENSES, net: Year Ended December 31 2017 2016 2015 U.S. dollars in thousandsPayroll and related expenses 653 652 621Professional services 2,218 1,816 1,953Share-based payments 793 841 842Clinical and pre-clinical trials 28,221 21,013 13,611Intellectual property development 401 428 216Other 964 772 713Discount from service provider* (281) (281) (185) 32,969 25,241 17,771*Discount provided to the Company by its Canadian service provider due to certain Canadian authorities’ incentivesprograms. NOTE 19 – SELLING, MARKETING AND BUSINESS DEVELOPMENT EXPENSES: Year Ended December 31 2017 *2016 *2015 U.S. dollars in thousandsPayroll and related expenses 5,012 301 334Share-based payments 387 65 20Professional services 1,778 947 883Samples 1,569 — —Travel and related expenses 2,236 81 23Office-related expenses 395 86 53Other 637 75 73 12,014 1,555 1,386 *Reclassified to conform to the current year presentation. NOTE 20 – GENERAL AND ADMINISTRATIVE EXPENSES: Year Ended December 31 2017 *2016 *2015 U.S. dollars in thousandsPayroll and related expenses 3,311 1,082 652Share-based payments 1,054 773 502Professional services 2,246 1,391 1,167Office-related expenses 567 300 120Other 847 302 307 8,025 3,848 2,748F-32 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) *Reclassified to conform to the current year presentation. NOTE 21 - FINANCIAL INCOME, net: Year Ended December 31 2017 2016 2015 U.S dollars in thousandsFinancial income: Fair value gains on derivative financial instruments 5,687 1,152 888Gains on financial assets at fair value through profit or loss 189 80 —Gains from changes in exchange rates 332 34 —Interest from bank deposits 297 282 236 6,505 1,548 1,124Financial expenses: Loss from changes in exchange rates — — 200Issuance cost with respect of warrants — 368 —Other 77 7 12 77 375 212Financial income, net (6,428) (1,173) (912) NOTE 22 – SEGMENT INFORMATION All of the activity of the Company in 2015 and 2016 related to the Research & Development segment.Commencing 2017, the Company has two segments, Commercial Operations and Research & Development. Inline with the reporting to the Chief Executive Officer, the performance of these segments is reviewed at sales,revenues and operating loss levels. The Commercial Operations segment covers all areas relating to thecommercial sales and operating expenses directly related to that activity and is being performed by theCompany’s U.S. subsidiary. The Research and Development segment includes all activities related to theresearch and development of therapeutic candidates and is being performed by the Company. There is noF-33 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) segmentation of the Statements of Financial Position. Charges such as depreciation, impairment and other non-cash expenses are charged to the relevant segment. a. Segment information Year Ended December 31 2017 CommercialOperation ResearchAndDevelopment Consolidated U.S. dollars in thousandsNet revenues 4,007 — 4,007Cost of revenues 2,126 — 2,126Gross profit 1,881 — 1,881Research and development expenses, net — 32,969 32,969Selling, marketing, and business developmentexpenses 10,520 1,494 12,014General and administrative expenses 2,680 5,345 8,025Other expenses — 845 845Operating loss 11,319 40,653 51,972 b. Major customers The percentages of total net revenues for the year ended December 31, 2017 from one customer were 59% andfrom another customer were 19%. The Company’s revenues were entirely in the U.S. and the payment termsfor all customers are 30 to 60 days. NOTE 23 - 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. The following is data taken into account in the computation of loss per share: Year Ended December 31 2017 2016 2015Loss (U.S. dollars in thousands) 45,544 29,370 21,090Weighted average number of ordinary sharesoutstanding during the period (in thousands) 176,579 128,514 110,814Basic loss per share (U.S. dollars) 0.26 0.23 0.19 b. Diluted Diluted loss per share is calculated by adjusting the weighted average number of ordinary sharesoutstanding, assuming conversion of all potential dilutive ordinary shares, using the treasury stock method.The Company has two categories of dilutive potential ordinary shares: warrants issued to investors andoptions issued to employees and service providers. The effect of options issued toF-34 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) employees and service providers, for all reporting years, is anti-dilutive. In 2017, the effect of warrants isanti-dilutive. Year Ended December 31 2017 2016 2015Loss (U.S. dollars in thousands) 45,544 29,370 21,090Adjustment for financial income of warrants — 1,208 346Loss used to determine diluted loss per share 45,544 30,578 21,436Weighted average number of ordinary sharesoutstanding during the period (in thousands) 176,579 128,514 110,814Adjustment for warrants — 295 901Weighted average number of ordinary shares fordiluted loss per share (in thousands) 176,579 128,809 111,715Diluted loss per share (U.S. dollars) 0.26 0.24 0.19NOTE 24 - RELATED PARTIES: a. Key management in 2017 includes members of the Board of Directors and the Chief Executive Officer Year Ended December 31 2017 2016 2015 U.S. dollars in thousandsKey management compensation: Salaries and other short-term employee benefits 677 576 776Post-employment benefits 35 32 58Share-based payments 557 504 382Other long-term benefits 7 11 27 b. Balances with related parties: December 31 2017 2016 U.S. dollars in thousandCurrent liabilities - Credit balance in “accrued expenses and other currentliabilities” 199 174Non-current liabilities - Derivative financial instruments 11 144 NOTE 25 - EVENTS SUBSEQUENT TO DECEMBER 31, 2017: a.In January 2018, the Company received noti(cid:20)ications of exercise with respect to share options that hadbeen issued to directors of the Company. Accordingly, the Company issued 710,000 ordinary shares for$0.4 million.b.On January 24, 2018, the Board of Directors of the Company approved an extension of the exercise periodof options granted to employees and consultants who are not directors in February 2011 with originalmaturity on February 2018, to February 3, 2021. Accordingly, 2,844,210 options were extended with theF-35 Table of ContentsREDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) new terms, the exercise price will be increased from $0.50 to $0.75 per ordinary share and the 3 yearsextension period will contain prohibition on exercising the options in the (cid:20)irst year until February 3, 2019.The estimated fair value of the options on the extension date was $0.2 million. The Board of Directors ofthe Company also approved the extension of the exercise period of 1,540,000 options to the Company'sChief Executive Of(cid:20)icer granted in February 2011, under the same terms detailed above, subject to theapproval of the Company’s shareholders.c.On January 24, 2018, the Board of Directors of the Company granted 165,000 options to purchase ADSs toemployees of the Company’s subsidiary, under the Company’s stock options plan. The estimated fairvalue of the options on the grant date was $0.5 million.d.On February 2018, the Company has signed an amendment to the agreement signed on March 30, 2015with a U.S.-based private company. See note 12a(5). F-36 Table of ContentsEXHIBIT 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). 2.1 Form of Deposit Agreement among the Registrant, the Bank of New York Mellon, as Depositary, and all Owners andHolders from time to time of American Depositary Shares issued hereunder (incorporated by reference to Exhibit 1to the Registration Statement on Form F-6 filed by The Bank of New York Mellon with the Securities and ExchangeCommission on December 6, 2012). 2.2 Form of American Depositary Receipt (incorporated by reference to Exhibit 1 to the Registration Statement onForm F-6 filed by The Bank of New York Mellon with the Securities and Exchange Commission on December 6,2012). 4.1* 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 DRS disseminatedwith the Securities and Exchange Commission, dated December 3, 2012). 4.2* 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 Form 20-F filedwith the Securities and Exchange Commission on February 26, 2015). 4.3* License Agreement, dated February 27, 2014, by and between the Registrant and Salix Pharmaceuticals, Inc. (lateracquired by Valeant Pharmaceuticals International, Inc.) (incorporated by reference to Exhibit 4.6 of the AnnualReport on Form 20-F filed with the Securities and Exchange Commission on February 26, 2015). 4.4* Exclusive License Agreement, dated March 30, 2015, by and between the Registrant and Apogee BiotechnologyCorp (incorporated by reference to Exhibit 4.7 of the Annual Report on Form 20-F filed with the Securities andExchange Commission on February 25, 2016). 4.5† Amendment #2 dated June 22, 2017 to the Exclusive License Agreement dated March 30, 2015, by and betweenthe Registrant and Apogee Biotechnology Corp. 4.6† Amendment #3 dated February 6, 2018 to the Exclusive License Agreement dated March 30, 2015, by and betweenthe Registrant and Apogee Biotechnology Corp. 4.7* Clinical Services Agreement, dated June 15, 2011, by and between the Registrant and 7810962 Canada Inc. andamendment (regarding RHB-104) (incorporated by reference to Exhibit 4.15 to Draft Registration Statement onForm DRS disseminated with the Securities and Exchange Commission, dated December 3, 2012). 4.8 Change Order #4.1 dated August 9, 2015 to the Clinical Services Agreement, dated June 15, 2011 by and betweenthe Registrant and 7810962 Canada Inc. (incorporated by reference to Exhibit 4.12 of the Annual Report on Form20-F filed with the Securities and Exchange Commission on February 25, 2016). 4.9* Change Order #5 dated May 21, 2015 to the Clinical Services Agreement, dated June 15, 2011 by and between theRegistrant and 7810962 Canada Inc. (incorporated by reference to Exhibit 4.13 of the Annual Report on Form 20-Ffiled with the Securities and Exchange Commission on February 25, 2016). 136 Table of Contents 4.10* Change Order #5.1 dated March 3, 2016 to the Clinical Services Agreement, dated June 15, 2011 by and betweenthe Registrant and 7810962 Canada Inc. (incorporated by reference to Exhibit 4.11 of the Annual Report on Form20-F filed with the Securities and Exchange Commission on February 23, 2017). 4.11* Change Order #6 dated June 22, 2016 to the Clinical Services Agreement, dated June 15, 2011 by and between theRegistrant and 7810962 Canada Inc. (incorporated by reference to Exhibit 4.12 of the Annual Report on Form 20-Ffiled with the Securities and Exchange Commission on February 23, 2017). 4.12* Change Order #6.1 dated August 31, 2016 to the Clinical Services Agreement, dated June 15, 2011 by and betweenthe Registrant and 7810962 Canada Inc. (incorporated by reference to Exhibit 4.13 of the Annual Report on Form20-F filed with the Securities and Exchange Commission on February 23, 2017). 4.13* Change Order #7 dated November 16, 2016 to the Clinical Services Agreement, dated June 15, 2011 by andbetween the Registrant and 7810962 Canada Inc. (incorporated by reference to Exhibit 4.14 of the Annual Reporton Form 20-F filed with the Securities and Exchange Commission on February 23, 2017). 4.14† Change Order #8 dated July 25, 2017 to the Clinical Services Agreement, dated June 15, 2011 by and between theRegistrant and 7810962 Canada Inc. 4.15* Second Amendment to Clinical Services Agreement, dated January 19, 2014, by and between the Registrant and7810962 Canada Inc. (incorporated by reference to Exhibit 4.13 of the Annual Report on Form 20-F/A filed withthe Securities and Exchange Commission on July 7, 2014). 4.16* Third Amendment to Clinical Services Agreement, dated December 7, 2014, by and between the Registrant and7810962 Canada Inc. (incorporated by reference to Exhibit 4.14 of the Annual Report on Form 20-F filed with theSecurities and Exchange Commission on February 26, 2015). 4.17* Fourth Amendment to Clinical Services Agreement, dated December 17, 2014, by and between the Registrant and7810962 Canada Inc. (incorporated by reference to Exhibit 4.15 of the Annual Report on Form 20-F filed with theSecurities and Exchange Commission on February 26, 2015). 4.18* Exclusive Commercialization Agreement, dated December 30, 2016, by and between Registrant and ConcordiaPharmaceuticals Inc. (incorporated by reference to Exhibit 4.24 of the Annual Report on Form 20-F filed with theSecurities and Exchange Commission on February 23, 2017). 4.19† Exclusive License Agreement, dated April 5, 2017, by and between Registrant and Entera Health Inc. 4.20† Exclusive Commercialization Agreement, dated August 17, 2017, by and between Registrant and ParaPRO LLC. 4.21 Form of Letter of Exemption and Indemnity adopted on July 2013 (unofficial English translation) (incorporated byreference to Exhibit B to Exhibit 99.1 to Form 6-K disseminated with the Securities and Exchange Commission,dated June 26, 2013). 4.22 Amended and Restated Award Plan (2010) (incorporated by reference to Appendix B of the 6-K filed with theSecurities and Exchange Commission on April 3, 2017). 8.1 Subsidiary List 12.1 Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 137 Table of Contents12.2 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-OxleyAct of 2002. 15.1 Consent of Independent Registered Public Accounting Firm. 101 The following financial statements from the Company’s 20-F for the fiscal year ended December 31, 2017 formattedin XBRL: (i) Consolidated Statements of Comprehensive Loss, (ii) Consolidated Statements of Financial Position,(iii) Consolidated Statements of Changes in Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes tothe Consolidated Financial Statements.*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 Exchange Commission pursuant to aconfidential treatment request. 138 Table of Contents SIGNATURE The Registrant hereby certifies that it meets all of the requirements for filing 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 theBoard of Directors By:/s/ Micha Ben Chorin Name:Micha Ben Chorin Title:Chief Financial Officer Date: February 21, 2018 139Exhibit 1.1 These Articles of Association are an unofficial translation of the Articles of Association in Hebrewadopted by the Company. The Articles of Association will take effect upon the public issuance of the Company Articles of Association of Redhill Biopharma Ltd.(“Company”) As approved by in the annual general meeting of shareholders on May 11, 2017 Table of Contents 1.Introduction32.A Public Company43.Donations44.Company's Objectives45.Limitation of Liability46.Amendments to the Articles of Association57.Share Capital58.Issuance of Shares and Other Securities59.The Register of Shareholders of the Company and Issue of Share Certificates610.Transfer of the Company's Shares711.Bearer Share Warrant913.Alteration of Share Capital1014.Powers of the General Meeting1115.Annual and Special General Meetings1116.Proceedings at General Meetings1217.Votes of Shareholders1318.Appointment of a Voting Proxy1319.Appointment of Directors and Termination of Their Office1520.Chairman of the Board of Directors1821.Directors’ Actions1822.Validity of Actions and Approval of Transactions1923.General Manager2024.Internal Auditor2126.Auditor2127.Distribution and Allocation of Bonus Shares2128.Dividends and Bonus Shares2129.Acquisition of Company Shares2430.Exemption of Officeholders2431.Indemnification of Officeholders2432.Officeholders’ Insurance2533.Exemption, Indemnification and Insurance - General2634.Merger2635.Liquidation2636.Reorganization of the Company2737.Notices27 1. Introduction1.1 In these Articles, each of the terms set forth below shall have the meaning set forth opposite it:Law -The provisions of any law applicable in the State of Israel.AdministrativeProceeding -A proceeding pursuant to Chapter H3 (Imposing Monetary Sanction bythe ISA), H4 (Imposing Administrative Enforcement Measures by theAdministrative Enforcement Committee) and/or I1 (ConditionedArrangement for Avoidance of Taking Action of for Stopping Action) of theSecurities Law, as amended from time to time The Companies Law -The Companies Law, 5759 – 1999; or any provision of lawsuperseding same.The Securities Law -The Securities Law, 5728 – 1968; or any provision of lawsuperseding same. Business Day -A day on which most of the banks in Israel are open for theperformance of transactions.Writing - Print and any other form of imprinting words including documentstransmitted in writing via facsimile, by telegraph, telex, email,computer or in any other electronic means of communication,creating or allowing the creation of any copy and/or printed outputof the document.Securities -As defined in Section 1 of the Securities Law.Incapacitated - A person declared incapacitated pursuant to the Legal Capacityand Guardianship Law, 5722 – 1962. Companies Ordinance -The Companies Ordinance [New Version], 5743 – 1983, or anyprovision of law superseding same.Simple Majority -A majority of over one half of the votes of the shareholders entitledto vote who have voted in person or by proxy or by means of avoting paper, other than abstainees.A majority of 75% -A majority of 75% or more of the votes of the shareholders entitledto vote who have voted in person or by proxy or by means of avoting paper, other than abstainees.Articles of Association - The Company's articles of association as per the wording herein oras duly modified, from time to time, either expressly or under anylaw.The CompaniesRegulations -Regulations enacted by virtue of the Companies Law and/or byvirtue of the Companies Ordinance.Securities Regulations -Regulations enacted by virtue of the Securities Law. Related Corporation - A corporation controlling the Company directly and/or indirectlyand/or any corporation directly and/or indirectly controlled by suchcorporation and/or any corporation controlled by the Company,directly and/or indirectly.1.2 In these Articles, reference to any organ or officeholder is to organs or officeholders of the company.1.3 The provisions of sections 3-10 of the Interpretation Law, 5741 – 1981, shall also apply, mutatismutandis, to the interpretation of these Articles, where there is no other provision in respect of suchmatter and where such matter or the context thereof, contain nothing which does not comply withsuch applicability. Save for the provisions of this Article, any word or term in these Articles shall have the meaningimparted to them in the Companies Law, and where there is no such meaning in the CompaniesLaw, then the meaning imparted to them in the Companies Regulations, and where there is nosuch meaning, then the meaning imparted to them in the Securities Law, and where there is nosuch meaning, then the meaning imparted to them in the Securities Regulations and where there isno such meaning, then the meaning imparted to them in any other law, all where the meaningimparted as aforesaid is not in conflict with the context where such word or expression appears orwith the purpose of the relevant provision in these Articles.In case of reference in these Articles to a provision of law, and such provision has been revised orrevoked, such provision shall be deemed valid and as though it were part of the Articles, unless inconsequence of such revision or cancellation, such provision has no effect.The provisions of these Articles are designed to add to and contract out the provisions stipulated inthe Companies Law. In the event that any of the provisions of these Articles is in contravention ofthat permitted under law, the provisions of these Articles shall be interpreted to the extent possiblein accordance with the provisions of the law.2. A Public CompanyThe Company is a public company.3. DonationsThe Company may make donations, even if the donation is not made as part of commercialconsiderations.4. Company's Objectives The Company shall engage in any lawful business.5. Limitation of LiabilityThe liability of the shareholders of the Company is limited, each of them to full payment of theamount that he has undertaken to pay for the shares allocated to him at the time of the allocation. 6. Amendments to the Articles of AssociationThe Company may amend any of the provisions of these Articles or substitute these Articles for otherArticles, by means of a resolution passed by the a simple majority at a general meeting, apart fromthe provisions of Sub-Articles 14.1, 14.2, 19.1 and 19.2 herein, the amendment or replacement ofwhich is subject to a resolution to be passed by a majority of 75% at a general meeting. Chapter Two - The Share Capital of the Company7. Share Capital.7.1 The Company's registered share capital is NIS 3,000,000, divided into 300,000,000 registeredOrdinary Shares of NIS 0.01 par value each (hereinafter: "share", "ordinary share","shares" or "ordinary shares", as the case may be). Each share confers a right to receiveinvitations to participate in and vote at the general meetings. A shareholder shall have onevote for every fully paid up share that he holds. All Shares have equal rights inter se withrespect to dividend, distribution of bonus shares or any other distribution, capital refund andparticipation in distribution of surplus of Company assets upon liquidation.7.2 The provisions of these Articles in relation to shares, shall also apply, mutatis mutandis, toother securities to be issued by the Company.8. Issuance of Shares and Other Securities8.1 No Priority Right - the existing shareholders of the Company shall not have a priority right, aright of preference, or any other right whatsoever to acquire the Company's securities. Theboard of directors may, at its exclusive discretion, first offer the Company's securities to all orany of the current shareholders. 8.2 Redeemable SecuritiesThe Company may issue redeemable securities, with rights attached to them and subject tosuch terms and conditions as shall be prescribed by the board of directors.8.3 Commissions - the Company may pay any person a commission (including underwriting fees)in consideration of underwriting services, marketing or distribution of the Company'ssecurities, either conditionally or unconditionally, on such terms and conditions as shall beprescribed by the board of directors. Payment as aforementioned in this Article can be madeeither in cash or in securities of the Company, or some of them in one way and some of themin another way.8.4 The board of directors may introduce distinctions between holders of the Company's securitiesin relation to the terms and conditions of allocation of the Company’s securities and the rightsattached to such securities and may also vary such terms and conditions, including waivingsome of them. The board of directors 1 Subject to the provisions of Section 46.B. of the Securities Law, pursuant to which so long as the Company's shares are listed for trading on the StockExchange, the Company's share capital will consist of one class of shares. 1may further issue calls to the holders of securities for payment of the money that has not yetbeen paid for the securities held by them.8.5 Any payment on account of a share shall be credited initially on account of the nominal valueand only then on account of the premium for each share, unless otherwise prescribed in theterms of the allocation.8.6 A shareholder will not be entitled to his rights as a shareholder, including to a dividend, unlesshe has paid the amounts in full in accordance with the terms of the allocation, with the additionof interest, linkage and expenses, if there were any, and all if not otherwise prescribed in theterms of the allocation.8.7 The board of directors may forfeit as well as sell, re-allocate or otherwise transfer any securityas it shall decide, in respect of which the full consideration has not been paid, including for nilconsideration.8.8 The forfeiture of a security shall result, at the time of such forfeiture, in the revocation of anyright in the Company and any claim or demand against it in relation to such security, exceptfor such rights and obligations as are excluded from this rule in accordance with these Articlesor which the law confers on or imposes on a former shareholder. 9. The Register of Shareholders of the Company and Issue of Share Certificates9.1 The secretary of the Company or whoever is appointed for such purpose by the board ofdirectors of the Company shall be responsible for keeping a Register of the Company'sShareholders. A shareholder is entitled to receive from the Company, free of charge, withintwo months after the allocation or the registration of the transfer (unless the terms of the issuestipulate another period of time), one certificate or a number of certificates, at the Company'sdiscretion, in respect of all the shares that are registered in his name, which shall specify thenumber of shares, and any other detail that is important in the opinion of the board ofdirectors. In the event of a jointly held share, the Company shall not be required to issue morethan one certificate to all the joint holders, and delivery of such a certificate to one of the jointholders shall be deemed to be delivery to all of them.9.2 The board of directors may close the register of shareholders for a total period of up to 30 daysannually.9.3 Every certificate shall bear the seal or stamp of the Company or its printed name and shall bearthe signature of one director and the Company secretary, or of two directors or of any otherperson who has been appointed by the board of directors for such purpose.9.4 The Company may issue a new certificate in lieu of a certificate that was issued and was lost,defaced, or destroyed, on the basis of such proof and guarantees as the Company mayrequire, and after payment of an amount that shall be prescribed by the board of directors andthe Company may also, in accordance with a resolution of the board of directors, replaceexisting certificates with new certificates free of charge subject to such conditions as the boardof directors shall stipulate. 9.5 Where two or more persons are registered as the joint holders of a share, each of them mayconfirm receipt of a dividend or other payments for such share and his confirmation will bindall holders of such share.9.6 The Company is entitled to recognize a holder of a share as a trustee and to issue a sharecertificate in the name of the trustee provided that the trustee has notified the Company of theidentity of the beneficiary of the trust. The Company will not be bound to or be required to,recognize a right that is based on the rules of equity or a right that is subject to a condition, ora future right or a partial right to a share, or any other right in relation to a share, other than theabsolute right of the registered holder in respect of any share, unless this is done on the basisof a judicial decision or in accordance with the requirements of any law.10. Transfer of the Company's Shares10.1 The Company shares are transferable. 10.2 No transfer will be registered of shares that are registered in the register of shareholders in thename of a registered shareholder, unless an original, signed deed of transfer of the shareshas been submitted to the Company (hereinafter: "deed of transfer"), unless otherwisestipulated by the board of directors of the Company. The deed of transfer shall be drawn up inthe form set out hereunder or in such other format as is as similar as possible to it or in anotherformat which shall be approved by the board of directors.=============================================================================Deed of TransferI, _______________ Identity Card No. / Corporate No. ____________________ (hereinafter: "thetransferor") of _______________ hereby transfer to _________________ Identity Card No. / CorporateNo. ____________________ (hereinafter: "the transferee") of _________________ in consideration ofthe sum of NIS __________________ that he has paid to me, ________ shares, each having a nominalvalue of NIS _________, which are marked by the numbers ______ to ___________ inclusive, of_____________Ltd. (hereinafter: "the Company"), and they shall be in the possession of the transferee,his estate administrators, guardians, and his duly authorized representatives, in accordance with theconditions under which I personally held the shares at the time of signature of this deed, and I, thetransferee, agree to accept the said shares in accordance with the conditions set out above and subject tothe Company 's Articles, such as they are from time to time.In Witness Whereof we have signed, this __ day of the month of _____, in the year _____Transferor - TransfereeName: ______________ Name: ______________Signature: ______________ Signature: ______________ Witness to the Transferor's Signature: Witness to the Transferee's Signature:Name: ________, Advocate Name: ________, AdvocateSignature: ____________ Signature: ____________ 2 So long as the Company shares are listed for trading on the stock exchange, the Company shares will be registered in the name of the nominee companyand the share transfer will be carried out via the nominee company and not as prescribed in Sub-Articles 10.1-10.4 of these Articles. 2=============================================================================Neither a transfer of non-fully paid up shares or of shares over which the Company has a lienor a charge shall be valid unless it has been approved by the board of directors, which may, atits absolute discretion and without giving any reasons, refuse to register such a transfer.The board of directors may refuse a transfer of shares as aforesaid and the board of directorsmay also make such a transfer of shares conditional on an undertaking by the transferee, insuch scope and in such manner as the board of directors shall stipulate, or settle thetransferor's liabilities in respect of such shares or the liabilities in respect of which theCompany has a lien or a charge over such shares.10.3 The transferor shall continue to be deemed to be the holder of the shares being transferreduntil such time as the name of the transferee is registered in the Company's register ofshareholders. 10.4 A deed of transfer shall be submitted to the registered office of the Company for registrationtogether with the certificates of registration of the shares that are about to be transferred (ifsuch certificates have been issued) and any other proof which the Company shall require asto the title of the transferor to such shares or his right to transfer them. 10.5 A joint shareholder who wishes to transfer his right in a share but is not in possession of theshare certificate, will not be bound to attach the share certificate to the transfer deed providedthat in the transfer deed it is stated that the transferor is not in possession of the sharecertificate in respect of the share in which his right is being transferred and that the sharebeing transferred is held jointly with others, together with their particulars.10.6 The Company may require payment of a fee for registration of the transfer of such an amount orat such rate as the board of directors shall determine from time to time.10.7 Upon the death of a holder of shares in the Company, the Company will recognize guardians,estate administrators or executors, and if there are no such persons, the lawful heirs of theshareholder, as parties with the sole right to the shares of the shareholder, after theentitlement thereto is substantiated in such manner as shall be determined by the board ofdirectors.10.8 In the event that a deceased shareholder held shares jointly with others, the Company willrecognize the survivor as a shareholder in respect of the said shares, unless all the jointholders of the share have notified the Company in writing prior to the death of one of them, oftheir wish that the provisions of this Article shall not apply, provided that this shall not absolvethe estate of a joint holder of a share from any obligation whatsoever that the joint holderwould have had in respect of such share had he not passed away.10.9 A person who acquires a right to shares by virtue of being a guardian, estate administrator, heirof a shareholder, a receiver, liquidator or trustee in bankruptcy of a shareholder or inaccordance with any other legal provision, may, if and when he proves his right as such maybe required by the board of directors, be registered as the shareholder or may transfer such shares to another person, subject to the provisions ofthe Articles in relation to a transfer.10.10 A person who acquires a right to a Share as a result of a transfer thereof by operation of law,will be entitled to a dividend and to the other rights in respect of such share and he may alsoaccept and give receipts for a dividend or for other payments payable in respect of suchshare; however, he will not be entitled to receive notices regarding the general meetings ofthe Company (insofar as such a right exists), and to participate at or vote at such meetings inconnection with such share or to exercise any right whatsoever, which the share confers,except as aforesaid, until after he is registered in the register of shareholders.11. Bearer Share WarrantThe Company will not issue bearer share warrants.12. Lien on Shares 12.1 The Company shall have a first charge and a lien over all the shares that are not fully paidup, which are registered in the name of any shareholder, and over the proceeds of salethereof, in relation to monies (whether or not the time for payment thereof has fallen due),payment of which has already been called or which are to be paid at a fixed time in respectof such shares. The Company shall also have a first charge over all the shares (except fullypaid up shares) that are registered in the name of any shareholder as security for moniesthat are due from him or from his assets, whether his liability is individual or jointly withothers. The said charge shall also apply over such dividends as have been declared fromtime to time in respect of such shares.12.2 The board of directors may sell the shares to which the charge applies for the purpose ofrealizing the charge and lien, or any part thereof, in any manner as it sees fit. No such saleshall proceed until after written notification has been given to such shareholder as to theintention of the Company to sell them, and the amounts have not been paid within fourteendays after such notification. The net proceeds of any such sale, after payment of the saleexpenses, shall be utilized in discharging the debts or obligations of such shareholder andthe balance (if any remains) shall be paid to him.12.3 Where a sale of shares has occurred in order to realize a charge or a lien by the prima facieexercise of the powers vested as aforesaid, the board of directors may register such sharesin the register of shareholders, in the name of the purchaser, and the purchaser will be underno obligation to examine the propriety of the transaction or the way in which the purchaseprice is used. Following registration of the said shares in the register of shareholders in thename of the purchaser, no person shall have the right to challenge the validity of the sale. 13. Alteration of Share CapitalThe general meeting may resolve at any time to take one of the following actions, provided that aresolution of the general meeting as aforesaid has been adopted by a simple majority.3 Subject to the provisions of Section 46.B. of the Securities Law, pursuant to which so long as the Company's shares are listed for trading on the Stock Exchange, theCompany's share capital will consist of one class of shares. 313.1 Increase of the Registered Share CapitalTo increase the registered share capital of the Company, irrespective of whether or not allthe shares registered at that time have been issued. The increased capital will be dividedinto ordinary shares with equal rights. 13.2 Consolidation and Division of Share CapitalTo consolidate and re-divide some or all of its share capital into shares of a greater orsmaller nominal value than that which is specified in the Articles. In a case in which, as aresult of such consolidation, shareholders whose shares have been consolidated are leftwith fractions of shares, the board of directors may, if it receives approval thereto from thegeneral meeting in the resolution as to consolidation of capital as aforesaid:A. Sell the aggregate of all the fractions, and for this purpose appoint a trustee in whosename the share certificates containing the fractions shall be issued, and the trusteeshall sell the said fractions, and the proceeds received less commissions andexpenses shall be distributed to eligible shareholders. The board of directors will beentitled to decide that shareholders who are entitled to the consideration, which is lessthan an amount that it shall stipulate, will not receive a consideration from the sale ofthe said fractions, and their share in the sale proceeds shall be distributed among suchshareholders who are entitled to a consideration that exceeds the stipulated amount,pro rata to the consideration to which they are entitled; B. To allocate to all holders of shares in respect of whom the consolidation and the re-division leaves them with a fraction of a share, shares of the class of shares which,before such consolidation, are fully paid up, in such a number that their consolidationwith the fraction will be sufficient for one complete consolidated share, and such anallocation shall be deemed as being effective immediately prior to such consolidation;C. Determine that shareholders shall not be entitled to receive a consolidated share inrespect of a fraction of a consolidated share, which derives from the consolidation ofhalf or less of the number of shares whose consolidation creates one consolidatedshare, and they shall be entitled to receive a consolidated share in respect of a fractionof a consolidated share which derives from the consolidation of more than half of thenumber of shares whose consolidation creates one consolidated share.In the event that an action taken in accordance with sub-paragraphs (b) or (c) above requiresthe issue of additional shares, payment therefor shall be made in the manner in which bonusshares may be repaid. Consolidation and division as aforesaid shall not be deemed to be avariation of the rights of the shares forming the subject of the consolidation and division.13.3 Cancellation of Un-allocated Registered Share CapitalTo cancel registered share capital which has not yet been allocated provided that theCompany is under no obligation to allocate such shares. 13.4 Split of Share CapitalTo split some or all of the Company's share capital, into shares with a smaller nominal valuethan that which is prescribed in the articles of association by division of some or all of theCompany shares, at that time.Chapter Three - General Meetings14. Powers of the General Meeting14.1 Subjects within the authority of the General MeetingResolutions of the Company in respect of the following matters shall be passed by thegeneral meeting: 14.1.1 Changes to the Articles. 14.1.2 Exercise of the powers of the board of directors, provided that the general meetinghas decided by a majority of 75% of the votes of shareholders who are entitled tovote and have voted either in person or by proxy, that the board of directors isincapable of exercising its powers and further that the exercise of its powers isessential for the proper management of the Company. 14.1.3 Approval of actions or transactions requiring approval of the general meetingpursuant to the provisions of Sections 255 and 268 to 275 of the Companies Law.14.1.4 Any decision that, by law or under the Articles, must be passed by a resolution of ageneral meeting.14.1.5 Any power which, by law, is vested in the general meeting.14.2 Power of the General Meeting to Transfer Powers between the Company's OrgansThe general meeting may by a majority of 75% of the votes of shareholders who are entitledto vote and have voted either in person or by proxy, assume such powers as are vested inanother organ and may also transfer powers that are vested in the general manager to theauthority of the board of directors, and all either in respect of a particular matter or for aparticular period of time which shall not exceed the period of time required under thecircumstances. 15. Annual and Special General Meetings15.1 Notice of a General MeetingThe Company is not obliged to give notice of a general meeting to shareholders except in sofar as this is mandatory by law.The notice of a general meeting shall specify the place and the time for the convening of themeeting, its agenda, a summary of the proposed resolutions and any other detail as may berequired under law. 16. Proceedings at General Meetings16.1 QuorumNo general meeting may proceed unless a quorum is present at the time of thedeliberation. Two shareholders who are present in person or by proxy and who hold orrepresent at least twenty five percent (25%) of the voting rights in the Company shallconstitute a quorum. For the purpose of a quorum, a shareholder or his proxy, who also actsas proxy for other shareholders, shall be deemed to be two or more shareholders, dependingon the number of shareholders that he represents. 16.2 Postponement of the General Meeting in the Absence of a QuorumWhere half an hour has elapsed from the time designated for the meeting and no quorum ispresent, the meeting shall be postponed to the business day following the day of themeeting, at the same time and at the same place or to such other day, time and place asshall be prescribed by the board of directors in a notification to the shareholders. TheCompany shall give notice, via an immediate report, of postponement of the meeting and thetime of the holding of the adjourned meeting. Where no quorum is present at such adjourned meeting as aforesaid, at least oneshareholder, who is present either in person or by a proxy, shall be deemed as a quorum,except where such meeting has been called at the demand of shareholders. 16.3 Chairman of the General MeetingThe Chairman of the board of directors shall chair any general meeting, and, in his absence,it shall be chaired by whoever is appointed for such purpose by the board of directors. In theabsence of a chairman, or if he has not appeared at the meeting after 15 minutes from thetime designated for the meeting, the shareholders present at the meeting shall, in person orby proxy, elect one of the directors or the officeholders of the Company present at themeeting as chairman, or if no director or officeholder is present, or where all of them refuse tochair the meeting, one of the shareholders present, or one of the officeholders present, shallbe elected to chair the meeting. The chairman of the meeting shall not have an additional or casting vote.The decision by the chairman that a resolution at the general meeting was passedunanimously or by a specific majority or was rejected and the minutes of the general meetingsigned by the chairman shall serve as prima facie evidence of that stated therein.17. Votes of Shareholders17.1 Majority - resolutions at the general meeting shall be passed by a simple majority unlessanother majority is required by law or in accordance with the provisions of Articles 6, 14.1.2,14.2, 19.1, 19.2.5 and 19.2.6 of these Articles. Checking the majority will be carried out bymeans of counting of votes, where each shareholder will have one vote per each share heldby him. 17.2 Confirmation of title - a shareholder must furnish the Company with confirmation of title atleast two business days prior to the date of the general meeting. The Company may waivesuch requirement. 17.3 Vote of a legally incapacitated party - a legally incapacitated party may only vote by atrustee, natural guardian or other legal guardian. Such persons may vote either in person orby proxy.17.4 Vote of joint holders of a share - where two or more shareholders are the joint holders of ashare, one of them shall vote, either in person or by proxy. Where more than one joint holderwish to participate in a vote, only the first of the joint holders will be able to vote. For suchpurpose the first of the joint holders shall be deemed to be the person whose name isrecorded first in the register of shareholders.17.5 The manner of voting and the counting of votes shall be done in accordance with theprovisions of the Companies Law. A resolution at a general meeting shall be passed if it hasreceived such majority as it is required to receive under law or in accordance with theprovisions of these Articles. 18. Appointment of a Voting Proxy18.1 Voting by ProxyA shareholder may appoint a proxy to participate in and vote in his place, either at aparticular general meeting or generally at the general meetings of the Company, providedthat the written document authorizing the appointment of a proxy has been delivered to theCompany at least 48 hours prior to the date of the general meeting, unless the Company haswaived such requirement. A proxy need not be a shareholder of the Company. If such proxy is not for a particular general meeting, a proxy that has been deposited prior toone general meeting shall also hold good for other subsequent general meetings.The foregoing shall also apply to a shareholder that is a corporation and which appoints aperson to participate in and vote in its place at the general meeting.18.2 Format of the ProxyThe proxy shall be signed by the shareholder or by the person who is duly authorized inwriting for such purpose, and where the appointing party is a corporation it shall be signed insuch manner as binds such corporation. The Company may require that it be furnished withwritten confirmation to its satisfaction as to the fact of the due authority of the signatories tobind such corporation. A proxy shall be drawn up in the form specified hereunder. TheCompany secretary or the board of directors of the Company may, at their discretion, accepta proxy in a different form, including in the English language, provided that the variations arenot fundamental. The Company will only accept an original proxy or a copy of the proxy,provided that the same is duly authenticated by a notary or by an attorney at law holding anIsraeli license.=====================================================================Proxy To: ____________________ Date:_____________________[Name of CompanyCorporate address:]Dear Sir or Madam; Re: Annual / special general meeting of _______________ (the "Company")to be held on (The "Meeting")I the undersigned ____________________, Identity Card/Registration No. _______, of_____________Street ________________ being the registered holder of _____________(*)ordinary shares of NIS____ par value each, hereby empower _________________ Identity Card No.(**)_________________ and/or _________ Identity Card No. _____________and/or______________Identity Card No. __________to participate in and vote on my behalf and insteadof me at the aforementioned meeting and at any adjourned meeting of the aforesaid meeting of theCompany/at any general meeting of the Company, until I notify you otherwise. Signature(*)A registered shareholder may issue a number of proxies, each of them in reference to another quantity of shares ofthe Company held by him, provided that he shall not issue proxies for a quantity of shares that is greater than thequantity of shares held by him.(**)In the event that the proxy does not hold an Israeli Identity Card, both the passport number and the country of itsissue shall be stated instead.==========================================================18.3Validity of ProxyA vote in accordance with a proxy shall be lawful even if the appointing party has previouslydied or has become legally incapacitated or has become bankrupt or, in the event of acorporation - has been wound up, or has cancelled the proxy, or transferred the share inrespect of which it was given, other than if notification in writing that such an event hasoccurred has been received at the registered office of the Company prior to the meeting. 18.4Disqualification of ProxiesSubject to the provisions of any law, the Company secretary will be entitled at his discretion,to disqualify proxies if a reasonable concern exists that they are forged or that they havebeen furnished in respect of shares for which other proxies have been issued. 18.5Voting by Voting PapersIn accordance with these Articles and the provisions of the Companies Law and theregulations enacted thereunder, the Company shareholders shall be given the option to voteat general meetings of the Company by means of voting papers, on all such matters as areobligatory by law as well as on such matters in respect of which the board of directors shalldecide from time to time to allow a vote by means of voting papers. Chapter Four - The Board of Directors19. Appointment of Directors and Termination of Their Office 19.1 The number of directors - the number of directors of the Company shall not be less than five(5) and not more than eleven (11) (including anyoutside directors whose appointment isrequired under law), unless otherwise decided by the general meeting by a majority of 75%. 19.2 Appointment of Directors at an Annual Meeting and their Replacement19.2.1 The Company directors serving in office (who are not outside directors), will bedivided into three groups, one third each, which will hereinafter be referred to as: the"First third to the Third Third"). If the number of directors is not a multiplication ofthree, each of the two groups - the first third to the second third - will include anothernumber, being a number which is closest to and more than a third, while the group ofthe third third will consist of the remaining directors (who are not outsidedirectors). The initial division into thirds will be carried out pursuant to the board ofdirectors' resolution with respect to such division, and the rule that will apply is thatthe division be carried out in accordance with the director's seniority on the board ofdirectors, the most senior directors being included in the first third, and soforth. Should the number of directors vary, the number of directors in each group willvary in accordance with the aforesaid rule.19.2.2 At the first annual meeting of the Company shareholders to be held after theCompany has become a public company (in 2011), the office of the directorsincluded in the first third will terminate and they will be put up for re-appointment atthat meeting.At the second annual meeting of the Company shareholders to be held after theCompany has become a public company (in 2012), the office of the directorsincluded in the second third will terminate and they will be put up for re-appointmentat that meeting.At the third annual meeting of the Company shareholders to be held after theCompany has become a public company (in 2013), the office of the directorsincluded in the third third will terminate and they will be put up for re-appointment atthat meeting.At the three subsequent annual general meetings the aforesaid mechanism willreapply, and so on and so forth.Any director elected as aforesaid, will be elected for a three-year term (unless hisoffice is terminated in accordance with the provisions of these Articles), so that everyyear the office of a group of one third of the board of directors will terminate, asaforesaid.Directors may be elected for a term of less than three years in order to ensure thatthe three groups of directors have as equal number of directors as possible asprovided in Sub-Article 19.2.1 above.Notwithstanding the foregoing, the term of office of any director elected to theCompany's board of directors, and originally nominated for election by virtue of thenomination right granted to any investor who purchased, in the Company's publicoffering which closed on December 27, 2016, together with its affiliates (as such term is defined in Rule 405 of the Securities Act of 1933,as amended), at least $15 million of ADSs and warrants (excluding the proceeds, ifany, from the exercise of warrants), shall automatically expire at the first annualmeeting of the Company shareholders following the annual meeting of the Companyshareholders held in May 2017 unless such investor, at least 75 days prior to suchfirst following annual meeting of shareholders evidences to the Company itsbeneficial ownership, together with its affiliates, of at least 4% of the Company'soutstanding shares. If not so expired at the first annual meeting of the Companyshareholders following the annual meeting held in May 2017, the term of office ofsuch director shall automatically expire at the second annual meeting of theCompany shareholders following the annual meeting of the Company shareholdersheld in May 2017 unless such investor, at least 75 days prior to such secondfollowing annual meeting of shareholders, evidences to the Company its beneficialownership, together with its affiliates, of at least 4% of the Company's outstandingshares. In any event, the term of office of such director shall automatically expire atthe third annual meeting of the Company shareholders following the annual meetingheld in May 2017 unless re-elected by the Company's shareholders.The elected directors shall assume their office commencing from the end of themeeting at which they were elected unless a later date is stipulated in the resolutionon their appointment. 19.2.3 The appointment of members of the board of directors (who are not outsidedirectors), will be carried out by the shareholders present at the meeting, in personor by proxy, or by means of a voting paper, by a simple majority of the votes of theshareholders as aforesaid. 19.2.4 If a director who was put up for re-appointment at the general meeting convened todeliberate same is not re-elected, the Company will convene another generalmeeting, at which another proposed director will be put up for the approval of themeeting. Notwithstanding the foregoing, the office of the director who has not beenre-appointed or his alternate (insofar as he has appointed an alternate inaccordance with the provisions of these Articles), will expire on the earlier of: (1)The additional general meeting as aforesaid; or (2) seventy days from the date of theannual general meeting as aforesaid in Sub-Article 19.2.2 above. It shall further beclarified that a director appointed as aforesaid will belong to the group of the third towhich the director he replaced belonged, so that his office will expire on the date ofthe general meeting at which the office of the other directors of that third group willexpire. 19.2.5 The general meeting may, at any time, by a majority of 75%, dismiss a director and itmay decide at that time to appoint another person in his place by a majority of75%. A director whose dismissal is on the agenda of the meeting will be given areasonable opportunity to present his position before such meeting. 19.2.6 A special meeting of the Company may appoint directors for the Company in lieu ofdirectors whose office has terminated and also in any case in which the number ofmembers of the board of directors falls below the minimum that has been stipulatedin these Articles or by the general meeting by a majority of 75% of the shareholders' votes. It should be clarified that adirector appointed as aforesaid will belong to the group of the third to which thedirector he replaced belonged, so that his office will expire on the date of the generalmeeting at which the office of the other directors of that third group will expire.19.2.7 The foregoing provisions of Sub-Articles 19.2.1 - 19.2.6 shall not apply to theappointment and term in office of outside directors, in respect of whom the provisionsof the Companies Law shall apply.19.2.8 Subject to the provisions of the law in relation to the expiry of the office of a director,but notwithstanding the provisions of Section 230 of the Companies Law, the officeof a director shall not be terminated, other than as provided in this Article. 19.3 Appointment of Directors by the Board of Directors The board of directors may appoint a director or additional directors for the Company,whether in order to fill an office that has become vacant for any reason whatsoever orwhether in the capacity of a director or additional directors, provided that the number ofdirectors shall not exceed the maximum number of members of the board of directors. Anydirector so appointed shall serve up to the first annual meeting held subsequent to hisappointment. In the event that the number of directors has fallen below the minimum numberof directors, as prescribed in Sub-Article 19.1 above, the remaining directors may only act toconvene a general meeting of the Company for the purpose of appointing the vacantpositions of directors and up to the date of such meeting, act to conduct the Company'saffairs in connection with matters that are pressing.19.4 Date of Commencement of the Office of a Director - the elected directors shall assume theiroffices commencing at the end of the general meeting at which they were elected or on thedate of their appointment by the board of directors as provided above in Sub-Article 19.3, asthe case may be, unless a later date is prescribed in the resolution on their appointment.19.5 Alternate Director - subject to the provisions of the law, a director may from time to timeappoint an alternate director for himself (hereinafter: "alternate director"), dismiss such analternate director, and may also appoint another alternate director in lieu of any alternatedirector whose office has been vacated for any reason, either for a specific meeting orpermanently. 19.6 A Director's Proxy - any director and any alternate director may appoint a proxy who shallparticipate and vote in their name at, any meeting of the board of directors or of a board ofdirectors’ committee. Such an appointment may be general or for the purpose of one or anumber of meetings. Where a director or an alternate director is present at such a meetingthe proxy may not vote in lieu of the director who appointed him. Such an appointment shallbe valid in accordance with the contents thereof or until its revocation by the appointor. Adirector or an alternate director of the Company may serve as a proxy as aforesaid. 19.7 Termination of the Office of a Director - in the event of a director's position becoming vacant,the remaining directors may continue acting for as long as the number of remaining directorsdoes not fall below the minimum number of directors that has been determined in these Articles or prescribed by the general meeting. If the number ofdirectors has fallen below the foregoing, the remaining directors may only act in order toconvene a general meeting of the Company.19.8 Holding a Meeting by means of Communication and Without ConveningAt a meeting that has been held by the use of any means of communication, it is sufficientthat all of the directors who are entitled to participate in the proceedings and in a vote, shallbe able to hear each other.The board of directors may also pass resolutions without actually convening, provided thatall of the directors who are entitled to participate in the discussion and to vote on the matterput forward for resolution have agreed not to meet to discuss such matter. Where resolutionshave been passed as aforesaid, minutes of such resolutions shall be prepared, including theresolution not to convene and shall be signed by the chairman of the board of directors. Theprovisions of these Articles shall apply mutatis mutandis to such a resolution. A resolutionthat has been passed in accordance with this Article shall be valid in all respects as thoughit had been passed at a duly convened and conducted meeting of the board of directors.19.9 Remuneration of Members of the Board of Directors - subject to the provisions of theCompanies Law the Company may remunerate the Directors for fulfilling their functions asdirectors.20. Chairman of the Board of Directors20.1 Appointment - the board of directors shall elect one of its members to serve as chairman ofthe board of directors and will also designate the term in which he is to serve in his office, inthe appointing resolution. If not stipulated otherwise in the resolution as to his appointment,the chairman of the board of directors shall serve in such capacity until another person isappointed in his place or until he ceases serving as a director, whichever is theearlier.Where the chairman of the board of directors has ceased serving in office as adirector of the Company, the board of directors, at the first board of directors meeting heldsubsequently, shall elect a new chairman. 20.2 No Casting Vote - In the event of a tie of votes in a resolution of the board of directors, neitherthe chairman of the board of directors nor any person that has been elected to conduct themeeting, shall have an additional vote.21. Directors’ Actions21.1 Convening a Meeting of the Board of DirectorsAny notification of a meeting of the board of directors may be given verbally or in writingprovided that such notification is given at least three business days prior to the datedesignated for the meeting, unless at least 75% of the members of the board of directors,their alternates or their proxies have agreed to shorten the said period of time. The aforesaidnotwithstanding, the board of directors may convene for a meeting without notice only inurgent cases and with the consent of a majority of the directors. Notification as aforesaid shall be given in writing, by facsimile, by electronic mail or by othermeans of communication and all to such address or the facsimile number, electronic mailaddress or the address to which notifications can be sent by other means of communication,as the case may be, which the Director furnished to the Company upon his appointment, orin a subsequent written notification to the Company and shall include reasonable detailsregarding the issues brought up for discussion at the meetingWhere an alternate or a proxy has been appointed, notification shall be given to suchalternate or proxy unless the director has given notice that he wishes that notice shall alsobe given to him.21.2 Quorum - the quorum for meetings shall be a majority of members of the board of directorswho are not precluded by law from participating in a meeting, or any other quorum as will beprescribed by a majority of the members of the board of directors from time to time. 21.3 Validity of Actions of the Directors in the case of a Disqualified Director - All such actions ashave been taken in good faith at a meeting of the board of directors or by a committee of theboard of directors or by any person acting as a director shall be valid, even if it issubsequently discovered that there was a flaw in the appointment of a director or of such aperson acting as aforesaid, or that they or one of them was disqualified, as though such aperson had actually been duly appointed and was qualified to be a director.21.4 Committees of the Board of DirectorsSubject to the provisions of the Companies Law, the board of directors may appoint board ofdirectors’ committees. The committees of the board of directors shall report to the board of directors theirresolutions or recommendations on a regular basis, as shall be prescribed by the board ofdirectors. The board of directors may cancel the resolution of a committee that has beenappointed by it; however, such cancellation shall not affect the validity of any resolution of acommittee, pursuant to which the Company acted, vis-à-vis another person, who was notaware of the cancellation thereof. Decisions or recommendations of the committee of theboard of directors which require the approval of the board of directors will be brought to thedirectors' attention a reasonable time prior to the discussion at the board of directors. 22. Validity of Actions and Approval of Transactions22.1 Subject to the provisions of any law, all such actions as have been taken by the board ofdirectors or by a committee of the board of directors or by any person acting as a director, oras a member of a committee of the board of directors, or by the general manager, as the casemay be, shall be valid even if it is subsequently discovered that there was any flaw in theappointment of the board of directors, a committee of the board of directors, the director whowas a member of the committee or the general manager, as the case may be, or that any ofthe aforesaid officeholders was disqualified from serving in his position. 22.2 Subject to the provisions of the Companies Law: 22.2.1 If a person holds shares in the Company and if a person is an officeholder of theCompany, a stakeholder, or an officeholder of any other corporation, including acorporation in which the Company is a stakeholder, or which is a shareholder of theCompany, it shall not disqualify the officeholder from serving as an officeholder ofthe Company. Likewise, an officeholder shall not be disqualified from serving as anofficeholder of the Company due to his contractual engagement or due to thecontractual engagement of any corporation as aforesaid with the Company in anymatter whatsoever and in any manner whatsoever. 22.2.2 The office of a person as an officeholder in the Company shall not disqualify himand/or a relative of his and/or another corporation in which he is a stakeholder fromentering into transactions in which the officeholder has a personal interest in anyway with the Company. 22.2.3 An officeholder may participate in and vote at discussions in respect of the approvalof transactions or acts in which he has a prima facie personal interest, as prescribedin Sub-Articles 22.2.1 and 22.2.2. 22.3Subject to the provisions of the Companies Law, a general notice that is given to the boardof directors by an officeholder or a controlling shareholder of the Company with regard to hispersonal interest in a particular entity, while giving details of his personal interest, shallamount to disclosure on the part of the officeholder or the controlling shareholder to theCompany with regard to his personal interest as aforesaid, for the purpose of the enteringinto any transaction which is not exceptional, with such an entity. Chapter Five – Officeholders, Secretary, Internal Auditor and Auditor23. General Manager23.1 The board of directors may, from time to time, appoint a general manager for the Companyand may further appoint more than one general manager. The board of directors may furtherdismiss the general manager or replace him at any time it deems fit, subject to the provisionsof any agreement between him and the Company. The general manager will be responsiblefor the day-to-day management of the Company's affairs within the framework of the policydetermined by the board of directors and subject to its directives.23.2 The general manager will have all the powers of management and performance that werevested, pursuant to the Law or these Articles, or by virtue thereof, in another organ of theCompany, apart from such powers as have been transferred from him to the board ofdirectors. The general manager will be supervised by the board of directors.23.3 The general manager may, subject to the approval of the board of directors, delegate some ofhis powers to another, who is his subordinate; the approval may be general and in advance.23.4 Without derogating from the provisions of the Companies Law and any law, the generalmanager will submit to the board of directors, reports on such issues, on such dates and insuch scope as shall be determined by the board of directors, either by means of a specific resolution or within the ambit of the board of directors'procedures.23.5 The general manager will give notice to the chairman of the board of directors, without delay,of any exceptional matter that is material to the Company. If the Company has no chairmanof the board of directors or if the chairman of the board of directors is unable to fulfill hisfunction, the general manager will give a notice to that effect to all members of the board ofdirectors.23.6 The general manager may from time to time appoint officeholders for the Company (apartfrom directors and general manager), for permanent, temporary or special functions, as thegeneral manager finds fit and the general manager may further terminate the services of oneor more of the foregoing at any time.24. Internal Auditor24.1 The Company's board of directors will appoint an internal auditor, at the recommendation ofthe audit committee.24.2 The officer in charge of the internal auditor at the organization will be the chairman of theboard of directors.24.3 The internal auditor will submit for the approval of the audit committee a proposed annual orperiodic work plan and the audit committee will approve it with such amendments as it findsfit.25. SecretaryThe board of directors may appoint a Company secretary, on such terms as it shall deemappropriate, and appoint a deputy secretary and determine the scope of their functions and theirauthorities. Where a Company secretary has not been appointed, the general manager, or whoeverhe designates to this end, and in the absence of a general manager, whoever is empowered forsuch purpose by the board of directors, shall perform the secretary's functions that are prescribedunder any law, in accordance with these Articles and in accordance with a resolution of the boardof directors.The Company secretary will be responsible for all the documents that are kept at the registeredoffice of the Company and for maintaining all the registers that the Company maintains by law.26. Auditor26.1 Subject to the provisions of the Companies Law, the general meeting may appoint an auditorfor a period that exceeds one year, as the general meeting shall decide.26.2 The board of directors, following receipt of the audit committee's or the financial statementcommittee's (as determined by the board of directors) recommendations shall determine theremuneration of the Company's auditor for audit work as well as his remuneration for otherservices that are not audit work, unless otherwise determined by the general meeting of theCompany.Chapter Six - Preservation of the Capital of the Company and its Distribution 27. Distribution and Allocation of Bonus SharesThe Company's resolution on distribution of dividend, bonus shares or any other distribution,including any distribution that does not comply with the profit test prescribed in the Companies Lawand the terms thereof, shall be passed by the board of directors of the Company.28. Dividends and Bonus Shares28.1 Right to a Dividend or to Bonus Shares28.1.1 A dividend or bonus shares shall be distributed to whoever is registered in theregister of shareholders of the Company on the date of the resolution as to suchdistribution or on such other date as shall be prescribed in such resolution. 28.2 Payment of the Dividend28.2.1 The board of directors may resolve that the dividend be paid, in whole or in part, incash or by means of distribution of assets in kind, including in securities or in anyother manner, at its discretion. The Company’s board of directors may, before resolving to distribute any dividend,allocate out of the profits, any amounts as it shall deem fit for a general fund or areserve fund for the distribution of dividend, distribution of bonus shares or for anyother purpose whatsoever, as the board of directors shall resolve at its discretion.Pending the realization of the said funds, the board of directors may invest any sumsso allocated and the monies in the funds in any investment whatsoever, as it shalldeem fit, deal with such investments, alter them or make any other use thereof, andit may subdivide the reserve fund into special funds and use any fund or any partthereof for the Company's affairs, without holding it separately from the other assetsof the Company, all at the discretion of the board of directors and under such termsas it shall determine.28.2.2 The Method of PaymentIf no other provisions have been prescribed in the resolution as to distribution of thedividend it will be permissible to pay any dividend, after deduction of the requisite taxunder any law, by check to the beneficiary only, which shall be sent by registered mailto the registered address of the shareholder that is entitled to it, or by bank transfer. Any such check shall be drawn in favor of the person to whom it has been sent. Adividend in kind shall be distributed as stipulated in the distribution resolution.4 It shall be clarified that so long as the Company shares are listed for trading on the Stock Exchange, any dividend or bonus shares will be distributed towhoever is registered in the register of shareholders of the Company on the effective date determined on the date of the resolution.5 It should be clarified that so long as the Company shares are listed for trading on the Stock Exchange the provisions of this Sub-Article 28.2.2 shall notapply. 45In the event of joint registered shareholders, the check shall be sent to theshareholder whose name is recorded first in the register of shareholders in relationto the joint ownership. Sending of a check to a person whose name, on the effective date, is registered inthe register of shareholders as the holder of a share, or in the event of joint holders -of one of the joint holders, shall constitute discharge in respect of all the paymentsmade in relation to such share.The Company may resolve that a check below a certain amount, shall not be sentand amounts of the dividend that should have been paid as aforesaid shall betreated as unclaimed dividend.The Company may offset against the dividend to which a shareholder is entitled, anydebt of such shareholder to the Company, whether or not the time for paymentthereof has fallen due. 28.2.3 Unclaimed DividendThe board of directors may invest any amount of dividend that has not been claimedfor a period of one year after having been declared, or use it otherwise for the benefitof the Company until it is claimed. The Company will not be compelled to payinterest or linkage in respect of an unclaimed dividend.After one year has elapsed from the due date of any unclaimed dividend, theCompany may use the unclaimed dividend as aforesaid for any purpose whatsoeverand the shareholder who is entitled to such unclaimed dividend will have no claimand/or demand in relation thereto. 28.3 Method of Capitalization of Profits into Capital Funds and Distribution of Bonus Shares28.3.1 FundsThe board of directors may, at its discretion, set aside into special capital funds, anyamount out of the Company’s profits, or arising from a revaluation of its assets, or itspro rata stake in the revaluation of assets of its affiliated companies and determinethe designation of such funds. The board of directors may also cancel such funds.28.3.2 Distribution of Bonus Shares – Subject to the provisions of the Companies Law, theboard of directors may resolve to allocate bonus shares and render share capital aspart of the Company's profits, within the meaning thereof in Section 302 (b) of theCompanies Law, from premium on shares or from any other source contained in itsequity, referred to in its last financial statements, in such sum as shall be determinedby the board of directors and which shall not fall below the nominal value of thebonus shares. Allocated bonus shares shall be deemed as fully repaid.The board of directors resolving to allocate bonus shares may resolve that theCompany will transfer to a special fund designated for future distribution of bonus shares, such amount as the rendering thereof into share capital will besufficient to allocate to whoever, at that time, for any reason whatsoever, has a rightto purchase shares in the Company (including a right exercisable only on asubsequent date), bonus shares which would have been due to him had heexercised the right to purchase the shares on the eve of the effective date for theright to receive the bonus shares (hereinafter, in this Article: the "effective date"). Ifafter the effective date, the holder of the said right should exercise his right topurchase all or any of the shares, the Company will allocate bonus shares to him,having a par value and to which he would have been entitled had he exercised theright to purchase the shares which he actually purchased, on the eve of the effectivedate. The bonus shares will entitle their owners to participate in distribution ofdividends as of the date designated by the board of directors. For the purpose ofdetermining the amount to be transferred to the said special fund, any amounttransferred to this fund for previous distributions of bonus shares shall be treated ashaving already been capitalized, where shares entitling the holders of the right topurchase shares, have been allocated therefrom, for bonus shares.For the purpose of distribution of bonus shares, the board of directors may, as it seesfit, resolve any difficulty that might arise and make adjustments, such as decidingthat fractions of a share shall not be distributed, issue certificates in respect of anaggregate quantity of share fractions, sell such fractions and pay the proceeds fromthe sale thereof to those entitled to receive the fractions of the bonus shares andmay also decide that cash payments shall be made to the shareholders, or thatfractions of a lesser value than a stipulated amount (and if not stipulated thenamounts which are less than NIS 50) shall not be brought into account in makingsuch adjustments. Notwithstanding the foregoing, a shareholder will be entitled toapply to the Company and ask that such payment be made to him at the Company'soffices.29. Acquisition of Company SharesThe Company may acquire its own securities. Where the Company has acquired securities asaforesaid it may cancel them. Chapter Seven - Exemption, Indemnification and Insurance of Officeholders30. Exemption of OfficeholdersThe Company may exempt an officeholder therein, in advance or post factum, from some or all ofhis liability for damage as a result of breach of a duty of care vis-à-vis the Company, to themaximum extent that is permissible under any law.31. Indemnification of Officeholders The Company may indemnify its officeholders to the maximum extent permissible under anylaw. Without derogating from the generality of the foregoing, the following provisions shall apply: 31.1 The Company may indemnify an officeholder therein in respect of a liability, payment orexpense imposed on him or that he has incurred as a result of an action, which he took byvirtue of his being an officeholder of the Company, as follows:31.1.1 Any financial liability imposed on him in favor of another person under a judgment,including a judgment entered under a settlement or an award approved by a court.31.1.2 Reasonable litigation fees, including lawyer’s fee, incurred by the officeholder due toany investigation or proceeding conducted against him by any authority competent toconduct an investigation or proceeding, at the end of which no indictment was filedagainst him and no financial liability was levied on him as an alternative for acriminal proceeding, or at the end of which no indictment was filed against him but afinancial liability was levied as an alternative for a criminal proceeding in an offensenot requiring proof of mens rea or in connection with a monetary sanction.31.1.3 Reasonable litigation expenses, including lawyer's fees paid by the officeholder, orwith which he was charged by the Court, in a proceeding filed against him by theCompany or on its behalf or by any other person, or in criminal charges from whichhe was acquitted, or in criminal charges in which he was convicted of an offensewhich does not require proof of mens rea.31.1.4 A payment for the party harmed by the breach, as aforesaid in Section 52(54)(a)(1)(a)of the Securities Law (the "Party Harmed by the Breach").31.1.5 Expenses incurred by an officer in connection with an Administrative Proceedingconducted in his matter, including reasonable litigation expenses, including legalfees.31.1.6 Any other liability or expense for which it is permitted and/or will be permitted by lawto indemnify an officeholder.31.2 Advance IndemnificationThe Company may give an undertaking in advance to indemnify an officeholder for aliability, payment or expense as specified above in Sub-Article 31.1.1., provided that suchadvance indemnity undertaking shall be limited to such events as, in the opinion of the boardof directors, are anticipated in view of the Company's actual activity at the time of giving theindemnity undertaking, and to such amount or criterion as the board of directors havedetermined to be reasonable under the circumstances of the case, and further provided thatsuch undertaking shall state the events that in the opinion of the board of directors areanticipated in view of the Company's actual activity at the time of giving such undertaking aswell as the amount or criterion that the board of directors have determined to be reasonablein the circumstances of the case. And the Company may also give an indemnity undertakingin advance to an officeholder in respect of liabilities or an expense as specified in Articles31.1.2, 31.1.3, 31.1.4, and 31.1.5 above. 31.3 Retroactive IndemnificationThe Company may indemnify an officeholder therein ex post facto. 32. Officeholders’ Insurance32.1 The Company may insure its officeholders to the maximum extent permitted under anylaw. Without derogating from the generality of the foregoing, the Company may enter into acontract for insuring the liability of an officeholder in the Company in respect of a liability or apayment that may be imposed on him as a result of an action that he has taken in hiscapacity as officeholder in the Company, in any of the following cases:32.1.1 Breach of the duty of care to the Company or to any other person;32.1.2 Breach of a fiduciary duty vis-à-vis the Company, provided that the Officeholderacted in good faith and had reasonable grounds to assume that his act would notcompromise the Company's best interests;32.1.3 Financial liability imposed on him in favor of another person;32.1.4 Payment to the Party Harmed by the Breach;32.1.5 Expenses incurred by an officer in connection with an Administrative Proceedingconducted in his matter, including reasonable litigation expenses, including legalfees;32.1.6 Any other event for which it is permitted and/or will be permitted pursuant to the lawto insure the liability of an officeholder.33. Exemption, Indemnification and Insurance - General33.1 It is neither the intention of the foregoing provisions in relation to exemption, indemnificationand insurance, nor will there be any future intention, to restrict the Company in any way fromentering into a contract in relation to exemption, insurance or indemnification of the partiesspecified hereunder:33.1.1 A person who is not an officeholder of the Company, including employees,contractors or consultants of the Company who are not officeholders of the Company;33.1.2 Officeholders in other companies. The Company may enter into a contract in relationto exemption, indemnification and insurance of officeholders in companies under itscontrol, related companies and other companies in which it has any interest, to themaximum extent permitted under any law, and in this context the foregoing provisionsin relation to exemption, indemnification and insurance of officeholders in theCompany shall apply, mutatis mutandis. 33.2 It should be clarified that in this Chapter, an undertaking in relation to exemption,indemnification and insurance of an officeholder as aforesaid may also be valid after theoffice of such officeholder in the Company has terminated. Chapter Eight - Merger, Winding Up and Reorganization of the Company34. Merger 34.1 The requisite majority for approval of a merger by the general meeting shall be a simplemajority.35. Liquidation35.1 If the Company is wound up, whether voluntarily or otherwise, the liquidator may, with theapproval of a general meeting, distribute in specie parts of the Company's assets among theshareholders, and he may, with like approval, deposit such part of the Company's assetswith trustees for the benefit of the shareholders, as the liquidator, with such approval, shalldeem appropriate.35.2 Subject to special rights of shares, where shares have been issued with special rights, theCompany's shares shall have equal rights inter se in relation to the amounts of capital thathave been paid or that have been credited as paid in respect of the nominal value of theshares, in connection with the surrender of capital and participation in a distribution ofsurplus assets of the Company upon liquidation.36. Reorganization of the Company36.1 Upon the sale of assets of the Company, the board of directors, or the liquidators (in the caseof liquidation) may, if they have been duly authorized to do so in a resolution that has beenpassed by a simple majority at the general meeting of the Company, accept shares that areeither fully or partially paid up, debentures or securities of another company, either Israeli orforeign, whether it has been incorporated or is about to be incorporated, for the purchase ofall or any of the Company's assets, and the directors (if the Company's profits so allow) orthe liquidators (in case of a liquidation), may distribute, among the shareholders, the sharesor securities as aforesaid or any other assets of the Company without realizing them, ordeposit them with trustees on behalf of the shareholders.36.2 The general meeting may, by a resolution to be passed by the general meeting of theCompany by a simple majority, decide as to a valuation of the securities or assets asaforesaid at such price and in such manner as the general meeting shall decide, and all theshareholders will be bound to accept any valuation or distribution that has been authorizedas aforesaid and to waive their rights in this context, except, in the event that the Company isabout to be wound-up or is in the process of winding-up, for such legal rights (if any) which,under the provisions of the law, cannot be amended, revised, or contracted out.Chapter Nine - Notifications37. Notices37.1 A notification or any other document may be delivered by the Company to any shareholderwho appears in the register of shareholders of the Company, either personally or by sendingby registered mail addressed in accordance with the registered address of such shareholderin the register of shareholders or to such address as the shareholder has notified in writing tothe Company as his address for the delivery of notifications, or by publication of notices intwo newspapers in Israel, or by means of publishing an immediate report on the Magnasystem. 37.2 All notices to be given to the shareholders shall, in relation to shares that are jointly held, begiven to such person whose name appears first in the register of shareholders and anynotification that is given in such manner shall be sufficient notification to all the jointshareholders.37.3 Any notification or other document which is delivered or sent to a shareholder in accordancewith these Articles shall be deemed to have been duly delivered and sent in respect of allthe shares held by him (whether as regards Shares held by him alone or by him jointly withothers), even where such shareholder has passed away at that time or became insolvent, oran order has been issued for its winding up, or a trustee or liquidator or receiver has beenappointed for his shares (whether or not the Company was aware of the occurrence of suchevent), until another person is registered in the register of shareholders instead of him as theholder thereof, and delivery or sending of a notification or document as aforesaid shall bedeemed to be sufficient delivery or dispatch to any person who has a right to such shares.37.4 Any notification or other document that has been sent by the Company in the mail to anaddress in Israel shall be deemed to have been delivered within 48 hours from the day onwhich the letter containing such notification or document was dispatched at the post office orwithin 96 hours in the event that the address is overseas, and for the purpose of provingdelivery, it shall be sufficient to prove that the letter containing the notification or thedocument was duly addressed and was dispatched at the post office. Any notice ordocument delivered by means of notifications in newspapers or via an immediate report onthe Magna system, will be deemed to have been delivered on the date of publishing thenotice or on the date of publishing the immediate report as aforesaid.37.5 The Company is not obliged to give notice of a general meeting to shareholders except in sofar as this is mandatory by law. The notice of a general meeting shall specify the place andthe time for the convening of the meeting, its agenda, a summary of the proposed resolutionsand any other specification as is required under law. 37.6 Accidental omission in giving notice of a general meeting to any shareholder or non-receiptof a notification as to a meeting or other notification by any shareholder shall not invalidate aresolution that has been passed at such meeting, or cause the invalidation of processesbased on such notification.37.7 Notices to directors may be given in any manner to be determined by the board of directors.37.8 Any shareholder and any member of the board of directors may waive his right to receivenotification, or his right to receive notification within a specific period of time, and may agreethat a general meeting of the Company or a meeting of the board of directors, as the casemay be, shall convene and be held despite his not having received notification or despitesuch notification not having been received by him within the required time.* * * 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 8 to Clinical Services Agreement Client’s study RHB-104-01 This Change Order 8 (“Change Order”) to the Clinical Services Agreement signed 15 June 2011 (“Clinical Services Agreement”), is by andamong: (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 13 Avenue, Montreal, Quebec, H1X2X8, Canada(hereinafter "MANAGER"); WHEREAS, “SPONSOR” mandated "MANAGER" to enter into a subcontract with inVentiv Health Clinical to act as a CRO for its Study (asdefined in the Clinical Services Agreement); This Change Order hereby amends the Study Agreement strictly as set forth herein. Except as amended hereby, the original terms andconditions of the Study Agreement shall remain in full force and effect. Is hereby made effective as of May 24, 2017 (“Effective Date”) and the parties hereby agree as follows: Changes in the scope of Services and/or timelines are set forth in Attachment A and Appendix A. Changes to the budget are summarized in theBudget/Payment Schedule in Attachment B. Summary of Fees and/or Expenses associated with this Change Order Study AgreementValue prior to thisChange OrderVariance(CO#8 Value)Revised StudyAgreement ValueIncluding this Change OrderProfessional Fees (Gross)[****][****][****]Discount[****][****][****]Professional Fees (Net)[****][****][****]Pass Through Expenses [****][****][****]Investigator Grants[****][****][****]DCRA Overpayment[****][****][****]TOTAL [****][****][****] 1 eConfidential 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. 7810962 Canada Inc. /s/ Micha Ben Chorin Name: [****]/s/ Uri Hananel Aharon Title: [****]Name: Uri Hananel Aharon Date: 24-July-2017Title: CAO Date: July 25, 2017 2  ConfidentialinVentivHealthclinical.com Attachment A- Summary of Changes/Budget Study 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. See Appendix A Total Costs CategoryCurrent Contract(USD)Change inScope#8(USD)Revised Total(USD)Pass-Through Costs[****][****][****]Investigator Grants Costs[****][****][****]Professional Fees[****][****][****]Discount [****][****][****]Revised Professional Fees[****][****][****]DCRA Overpayment[****][****][****]Grand Total[****][****][****] 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’sprior written approval. inVentiv Health Clinical will use its best efforts to keep actual costs to reasonable levels through adherence toinVentiv Health Clinical’s travel policy and prudent negotiation with outside providers. Pass-through costs are presented in the tablebelow: 11ISB001 7810962 Canada Inc., /RedHill Biopharma Ltd. 24 May 2017 © inVentiv Health. All Rights Reserved 3  ConfidentialinVentivHealthclinical.com TaskCurrent(USD)ChangeOrder #8Assumption Changesinfluencing thechange in the budgetSite Visit Travel[****][****]No changeProject Meeting Travel[****][****]All Hands Meeting – [****]eCRF Changes[****][****]Investigators' 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)[****][****]Extend agreement to [****]CRA Face to Face MeetingTravel expenses[****][****]No changePass Through Costs[****][****] Investigator Grants Costs InvestigatorGrantsCurrent(USD)Change Order #8AssumptionChangesinfluencing thechange in thebudgetAdditionalComments [****][****]No ChangeEstimate only.Will be paid basedon actual costs asapproved by theClient. 11ISB001 7810962 Canada Inc., /RedHill Biopharma Ltd. 24 May 2017 © inVentiv Health. All Rights Reserved 4  ConfidentialinVentivHealthclinical.com 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: Budget-CO7Budget-CO8Budget-NetCO8Pre-study Activities[****][****][****]Case Report Form Preparation / Review[****][****][****]Data Management Plan Preparation / Review[****][****][****]EDC Training[****][****][****]Informed Consent Preparation / Review[****][****][****]IRB/Ethics Committee Interactions[****][****][****]Investigator Meetings[****][****][****]Investigator Site Contract[****][****][****]Investigator Recruitment[****][****][****]Investigator Brochure Preparation and Review[****][****][****]Project Feasibility[****][****][****]Project Plan Preparation / Review[****][****][****]Protocol Preparation / Review[****][****][****]Randomization Schedule Preparation[****][****][****]Study-Specific Form Preparation[****][****][****]Training-Project Specific[****][****][****]Translations[****][****][****]PROMIS[****][****][****]Monitoring / Site Management[****][****][****]Clinical Supplies Management[****][****][****]Data Cleanup[****][****][****]Investigator Grant Administration[****][****][****]Laboratory Report Review[****][****][****]Serious / Significant Adverse Event Management[****][****][****]Site Management[****][****][****]Site Visits-Prestudy Visits[****][****][****]Site Visits-Initiation Visits[****][****][****]Site Visits-Routine Visits[****][****][****]Site Visits-Close-Out Visits[****][****][****]Study Master File / Project File Set-Up and Maintenance[****][****][****]Patient or Site Recruitment[****][****][****]Endpoint Management Routine Activities[****][****][****] 11ISB001 7810962 Canada Inc., /RedHill Biopharma Ltd. 24 May 2017 © inVentiv Health. All Rights Reserved 5  ConfidentialinVentivHealthclinical.com Budget-CO7Budget-CO8Budget-NetCO8Regulatory[****][****][****]IND/CTA/DMF Preparation And Maintenance[****][****][****]NDA/MAA/BLA/ENDA Assembly[****][****][****]NDA/MAA/BLA/ENDA Preparation[****][****][****]NDA/ISE Preparation / Review[****][****][****]NDA/ISS Preparation[****][****][****]Regulatory Documentation Preparation / Review[****][****][****][****][****][****]Project Management / Project Tracking[****][****][****]Financial Project Management[****][****][****]Project Management[****][****][****]Project Tracking / Communications[****][****][****]Vendor Management[****][****][****][****][****][****]Data Management[****][****][****]Case Report Form Scanning and Indexing[****][****][****]Database Archiving[****][****][****]Data Cleanup (DM)[****][****][****]Data Management - Database Quality Control Inspection[****][****][****]Database Design[****][****][****]Data Entry and Verification[****][****][****]Dictionary Coding[****][****][****]Edit Check Programming[****][****][****]Electronic Data Import[****][****][****]Case Report Form Data / Document Transfers[****][****][****][****][****][****]EDC Fees[****][****][****]EDC Fees[****][****][****][****][****][****]Statistical Analysis and Table Generation[****][****][****]Electronic Data Transfer[****][****][****]Interim Analysis / Report Preparation and Review[****][****][****]Statistical Analysis Plan Prep \ Review[****][****][****]Table Generation[****][****][****]Table / Listings Review[****][****][****]Statistical Analysis Report[****][****][****][****][****][****]Clinical Study Report[****][****][****]Clinical Study Report Preparation / Review[****][****][****]Manuscript Preparation / Review[****][****][****][****][****][****] 11ISB001 7810962 Canada Inc., /RedHill Biopharma Ltd. 24 May 2017 © inVentiv Health. All Rights Reserved 6  ConfidentialinVentivHealthclinical.com Budget-CO7Budget-CO8Budget-NetCO8Quality Assurance / GCP Site Audits[****][****][****]QA Audits of CSRs and Investigator Files[****][****][****]QA Audits of Databases[****][****][****]QA Audits of Investigative Sites[****][****][****]QA Audits of TLGs Generation Process[****][****][****]Team Meetings[****][****][****]Project Team Meetings - Internal Mtgs[****][****][****]Project Team Meetings - Client Tcons[****][****][****]Project Team Meetings - Client Mtgs[****][****][****]Project Team Meetings - Kick Off Mtg[****][****][****]Project Team Meetings - Misc. Mtg(s)[****][****][****]IVRS[****][****][****]IVRS Project Specs and Doc[****][****][****]IVRS Development[****][****][****]IVRS Project Validation[****][****][****]IVRS Site Set-up, Technical Support, Close-Out[****][****][****]Total Professional Fees[****][****][****] 11ISB001 7810962 Canada Inc., /RedHill Biopharma Ltd. 24 May 2017 © inVentiv Health. All Rights Reserved 7  ConfidentialinVentivHealthclinical.com Attachment B- Payment Schedule [****] Pass Through Costs: (a)CO#2: [****] of the average estimated expenses as set forth in the Expenses Estimate (exclusive of funds for investigator grants),totaling [****], will be due and payable upon execution of this Agreement. Prepayment for Out of Pocket Expenses (to be drawn downonce paid and replenished once 75% depleted). This process to continue until the end of the study. (b)CO#3: [****] of the average estimated expenses as set forth in the Expenses Estimate (exclusive of funds for investigator grants),totaling [****], will be due and payable upon execution of this Agreement. Prepayment for Out of Pocket Expenses (to be drawn downonce paid and replenished 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 executionof 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 executionof this Agreement. (e)CO#6: This is a quarterly payment of [****] for (4) Quarters beginning with the 1 payment invoiced on or after [****]. Firstpayment invoiced on [****]. (f)CO#6.1: This is a quarterly payment of [****] for (3) Quarters beginning with the 1 payment invoiced on or after [****]. (g)CO#7: This is a one-time payment of [****] (exclusive of funds for investigator grants), that will be due and payable upon executionof this Agreement. (h)CO#8: This is a one-time payment of [****] (exclusive of funds for investigator grants), that will be due and payable upon executionof this Agreement. (i)Actual pass-through expenses, as provided in the expenses estimate, will be billed as incurred by inVentiv Health Clinical (j)Any unused funds will be returned within [****] days from the date of the final reconciliation 3. Investigator Grants:(a)[****] 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 untilthe 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 (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 [****] days from the date of the final reconciliation Page 8 of 9 stst ConfidentialinVentivHealthclinical.com 4. Payment Conditions: (a)For all Services, pass through expenses and investigator grants invoiced, payments are due net [****]days from invoice date as setforth in Terms, Item 2 of the Agreement. In the event of a dispute, all undisputed portions of the invoice(s) are due within the abovestated 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 [****] per month (d)All services and pass-through payments should be sent via wire or ACH Appendix A – Breakdown of CO8 Page 9 of 9Exhibit 4.19 Confidential THE SYMBOL "[****]" DENOTES PLACES WHERE PORTIONS OF THIS DOCUMENT HAVE BEENOMIITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. SUCH MATERIALHAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION EXCLUSIVE LICENSE AGREEMENT This Exclusive License Agreement (“Agreement”) made and entered into as of April 4, 2017 (the “Effective Date”),by and between Entera Health, Inc., an Iowa corporation, having its principal place of business at 2425 SE Oak TreeCourt, Ankeny, Iowa 50021 (“Licensor”), and [RedHill Biopharma, Inc. a Delaware corporation, having an address at8045 Arco Corporate Drive, Suite 120, Raleigh, North Carolina 27617, along with all Affiliates thereof (as definedbelow) (“Licensee”). RECITALS WHEREAS, Licensor is the sole and exclusive owner of the well-known ENTERAGAM® trademark andother trademarks attached to this Agreement as Exhibit A, attached hereto and incorporated herein by reference, andrights pertaining to them (the “EnteraGam Marks”), the uniform resource locator (URL) www.enteragam.com (the“EnteraGam URL”), and related intellectual-property rights. Licensor has the exclusive right to grant to any third partyrights to, including the right to use, the EnteraGam URL and ENTERAGAM® trademark and related intellectual-property rights in various countries, including the Territory (as defined below). WHEREAS, Licensee, through this Agreement, desires to obtain the exclusive right to use the EnteraGamURL, the EnteraGam Marks, and the related intellectual‑property rights within the Territory in connection with the use,offer for sale and sale of Licensed Products (as defined below). WHEREAS, Licensor is willing to grant such an exclusive license to Licensee, upon the terms and conditionsset forth in this Agreement. AGREEMENT NOW, THEREFORE, in consideration of the mutual promises and conditions contained in this Agreement,and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, theparties agree as follows: I. DEFINITIONS 1.1. “Affiliate” shall mean, for any Person, its shareholders, officers, directors, parents corporations,subsidiary corporations, partnerships, joint ventures or other entities (whether incorporated or not) under the direct orindirect control or direction of the Person or its parent and, with respect to Licensee, shall include any and allSublicensee(s). 1.2. “[****]” shall mean those [****] on Exhibit B, attached hereto and incorporated herein by reference.1 Confidential 1.3. “Competing Event” shall mean any event by which Licensee, Sublicensee, or any Licensee Affiliateshall [****] pursuant to the terms of this License Agreement, [****], for any entity other than Licensor, whether byacquisition, internal development or otherwise.. 1.4. “Confidential Information” shall mean secret or proprietary information of, or data maintained asconfidential by, either party. It shall include, without limitation, the terms and conditions of this Agreement (except tothe extent that such terms and conditions must be disclosed pursuant to the U.S. Securities and Exchange Commission,or other similar authority in any jurisdiction, requirements or the Tel Aviv Stock Exchange or other applicable stockexchange or automated quotation system rules, and if so, the parties will use commercially reasonable efforts to forgodisclosing sensitive financial information and to obtain any available confidentiality treatment from such securitiesregulators), information concerning products, techniques, developments, product plans, equipment, inventions, patentapplications, ideas, designs, processes, methods, research, sales, licensing, customers, operations and work product ofLicensor, Licensee or their respective Affiliates. Nothing shall be considered Confidential Information which (i) eitherparty learns from other sources which have a right to that information free from confidentiality restrictions; (ii) isavailable to the public or readily discernible from information available to the public; (iii) enters the public domainother than through the actions or inactions of either party or any of their Affiliates or Sublicensee(s) in breach of theterms of this Agreement; or (iv) is independently developed by either party without reference to, or reliance on, theConfidential Information. In the event any item of Confidential Information is subject to required disclosure pursuant toany order, judgment, ruling or degree, despite the terms of this Agreement, the involved party shall immediately notifythe other party, which shall have the right to seek a protective order or similar relief and shall reasonably cooperatewith such other party in its efforts to seek such relief. 1.5. “Contract Term” shall mean the term of this Agreement, as set forth on Exhibit C, attached hereto andincorporated herein by reference, unless sooner terminated in accordance with the terms of this Agreement. Anyrenewal or extension that may be granted in the future shall be deemed included in the Contract Term. 1.6. “Contract Year” shall mean a period of twelve (12) successive months commencing on the RedHillLaunch Date (as defined below). 1.7. “Expiration Date” shall mean the date upon which the Agreement ends because of the end of theContract Term. 1.8. “Field” shall mean human use for any indication, in compliance with all applicable laws. 1.9. “Licensed Product” shall mean any product, as specified in Exhibit B, attached hereto and incorporatedherein by reference, for which rights are granted to Licensee under this Agreement, and which [****]. For theavoidance of doubt, [****] shall not be deemed to constitute “Licensed Product”.2 Confidential 1.10. “Minimum Net Sales” for any Contract Year shall mean [****] of Licensed Product [****] (in respectof all of which Licensor expects to receive the Royalty payment stipulated in this Agreement) excluding [****].Minimum Net Sales calculations in the [****] shall not include the first fiscal quarter after RedHill Launch Date[****]. 1.11. “Net Sales” shall mean [****]. 1.12. “Other Licensor Rights” shall mean any and all [****]. 1.13 “Person” shall mean any individual or any corporation, limited liability company, partnership, trust,association or other entity of any kind. 1.14 “Prime Rate” shall mean the prime rate of interest charged by J.P. Morgan Chase Bank, New York City,New York, or any successor institution, as published in the Wall Street Journal for the applicable period. 1.15. “Product Samples” shall mean samples of the Licensed Product, and expressly excludes [****]. 1.16. “RedHill Launch Date” shall mean the first date, following the Effective Date of this Agreement, onwhich [****]. 1.17. “Regulatory Compliance Obligations” shall have the meaning set forth in Exhibit E, attached heretoand incorporated herein by reference. 1.18. “Retained Licensor Rights” shall mean any and all rights to [****], and shall also mean any and allrights of any kind, type, or nature whatsoever [****]. 1.19. “Royalty” shall mean, for [****], the amount of money Licensee (including any Sublicensee(s)) shallpay to Licensor in consideration for the grant of this license. Such amount is calculated as a percentage of Net Sales,specified in Exhibit D, attached hereto and incorporated herein by reference. 1.20. A “Sale” in respect of any unit of Licensed Product shall occur when [****]. 1.21. [****]. 1.22. “Sublicensee” shall mean any and all Person(s) to which Licensee has granted a valid sublicense inaccordance with the terms and conditions of this Agreement. The granting of any sublicense(s) to any Person not incompliance with the provisions of this Agreement is prohibited and all invalid sublicense(s) shall be void ab initio. 1.23. “Termination Date” shall mean the date upon which the Agreement ends due to any other cause exceptexpiration of the Contract Term. 1.24. “Territory” shall mean the United States of America. 1.25. “Transaction Documents” shall mean [****] and that certain [****] entered into by and between theLicensee and Licensor dated even herewith.3 Confidential II. APPOINTMENT; GRANT OF LICENSE 2.1 Subject to all of the terms and conditions of this Agreement, Licensor hereby grants to Licensee aroyalty-bearing, nontransferable (except as set forth in this Agreement), non-assignable (except as set forth in thisAgreement), non-divisible, and exclusive license, without the right to grant sublicense(s) subject to the conditions setforth in this Agreement, to use the EnteraGam Marks, the EnteraGam URL, and Other Licensor Rights, solely in theTerritory and solely on or in connection with the [****] that are useful or necessary for the sale or distribution ofLicensed Products and related promotional and packaging material in compliance with all applicable laws andregulations, solely in the Field, solely through the [****], during the Contract Term (such license, the “License”). Inaddition to all other terms and conditions set forth in this Agreement, the License herein granted shall be subject to thefollowing terms and conditions: (a) This grant of the License shall be exclusive as to third parties, and even as to Entera, except as otherwiseprovided in this Agreement, during the Contract Term and in the Territory; provided, however, nothingcontained in this Agreement shall prevent Licensor or any Licensor Affiliate from exercising any: (i)Retained Licensor Rights; and (ii) any and all other rights, either directly or through other LicensorAffiliates or other licensees or assignees, at any time, outside the Territory, outside the [****], and/oroutside the Field; provided that Licensor does not, directly or indirectly, offer for sale, sell or assist any thirdparty to offer for sale or sell the Licensed Product in the Field in the Territory. Licensor agrees that duringthe Contract Term it will not [****]. Notwithstanding the foregoing, until the RedHill Launch Date,[****]. (b) All Licensed Products shall bear at least one of the EnteraGam Marks, and no Licensed Products shall besold or otherwise distributed under any marks other than the EnteraGam Marks. Licensee shall not modifyor change any [****] containing the Licensed Products provided by Licensor. Licensor reserves all rightsto the EnteraGam Marks except as specifically granted herein to Licensee and Licensor may exercise suchreserved rights at any time. (c) Licensee shall [****] the Net Sales of the Licensed Product pursuant to this Agreement while [****] bythe EnteraGam Marks. (d) During the Contract Term, Licensee may not sublicense any rights licensed to the Licensee under thisAgreement without the Licensor’s prior written consent. As a condition to any such sublicense,[****]. For the avoidance of doubt, the Licensee may not assign any rights or delegate any duties arisingunder this Agreement without the Licensor’s prior written consent; provided, that [****]. (e) To the maximum extent permitted by applicable law, during the Contract Term and for a period of [****]years thereafter, Licensee or any Licensee Affiliate and any Sublicensee may not [****] without the priorwritten approval of Licensor. As a material inducement to induce Licensor to enter into this Agreement andgrant the License contemplated hereunder, Licensee hereby acknowledges, covenants, and agrees that therestrictions set forth in this provision are necessary to protect the4 Confidential reasonable economic expectations and interests of Licensor, and that Licensee will not engage in,participate in, and initiate any challenge to the prohibitions set forth herein, whether during the ContractTerm or otherwise. (f) Licensee: (i) shall not contest, raise any objections to the validity of, or attack Licensor’s title to, or rights in,the EnteraGam Marks, the EnteraGam URL, or any Other Licensor Rights, (ii) shall not file any applicationfor, or obtain or attempt to obtain ownership of, the EnteraGam Marks, the EnteraGam URL or any OtherLicensor Rights, (iii) shall promptly notify Licensor if Licensee becomes aware of any attempts to do so, orany use of any material covered by any EnteraGam Marks, the EnteraGam URL, or Other Licensor Rights,by any third party, and (iv) shall take appropriate actions, and, [****], all actions reasonably requested byLicensor to prevent or avoid any misuse of the material covered by any EnteraGam Marks, the EnteraGamURL, or Other Licensor Rights or Licensed Products by any of its customers, contractors, Sublicensee(s),or suppliers. (g) Licensee shall use the EnteraGam URL solely for the commercialization activities contemplated within thescope of the License. (h) Licensee shall [****] in accordance with generally accepted accounting principles, and Licensee shall beresponsible for [****] any financial accounting, recording, or reporting not in compliance with generallyaccepted accounting principles. III. SALE OF LICENSED PRODUCTS 3.1 Licensee agrees that it will use [****] to [****] that Licensed Products, shall be distributed for sale onlyin compliance with the Regulatory Compliance Obligations set forth in Exhibit E, and [****]. 3.3. Licensee shall not show, distribute or sell any Licensed Product contained within any packaging andcontaining any labeling which has not been approved in advance by Licensor or which is, at any time, disapproved byLicensor; provided that Licensor shall not disapprove of any packaging or labeling provided by Licensor except forgood reason. IV. COMMERCIALIZATION EFFORTS; MINIMUM NET SALES 4.1 Licensee shall use commercially reasonable efforts to promote the sale of Licensed Products in theTerritory. 4.2 Licensee shall use good-faith commercially reasonable efforts to provide marketing support for theLicensed Products in the Territory. 4.3 Licensee shall promote, market, and sell the Licensed Product during the Contract Term as [****].5 Confidential V. ROYALTY PAYMENTS 5.1 Licensee shall pay to Licensor a Royalty on Net Sales for all Sales of all Licensed Products sold byLicensee (and any and all Sublicensee(s)) during [****] based on the rates set forth on Exhibit D. Undisputed past duepayments over [****] beyond due date shall bear interest at a per annum rate of interest equal to (a) the Prime Rate[****] per annum, or (b) the maximum interest rate permissible under law, whichever is less. All payments toLicensee will be paid in USD. 5.2 Immediately upon the occurrence of the RedHill Launch, all Royalties due to Licensor in respect of allNet Sales of Licensed Product shall begin to accrue upon the time of the Sale of such Licensed Product by Licenseeand Licensee’s obligation to compute and pay Royalties to the Licensor shall commence. Royalties shall be computedand paid on a quarterly calendar basis during the Contract Term in respect of all Net Sales occurring within eachcalendar quarter during the Contract Term. The Licensee’s obligation to prepare Quarterly Statements (as definedbelow) will commence during [****]. All such Royalty payments shall be due and payable [****] during the ContractTerm. Reporting for and payment of the Royalties due and payable as a result of the Net Sales occurring from the timeof the RedHill Launch to the end of the first calendar quarter for which a Quarterly Statement will be prepared shall beincluded within the first Quarterly Statement. 5.3. Taxes. Licensee may deduct from any amounts it is required to pay Licensor pursuant to thisAgreement an amount equal to that required by applicable United States law to be withheld by Licensee for or due onaccount of any taxes (including VAT to the extent applicable, but other than taxes imposed on or measured by netincome of Licensee) or similar governmental charge imposed by the United States based on such payments to Licensor(“Withholding Taxes”) and such payment shall be deemed as payment to Licensor in accordance with thisAgreement. Licensee will provide Licensor a certificate evidencing payment of any Withholding Taxes. VI. SALES AND ROYALTY REPORTS 6.1. Licensee shall supply Licensor, with a quarterly statement summarizing in reasonable detail all Sales ofLicensed Products sold during each calendar quarter by the Licensee, along with and including any and allSublicensee(s) (each, a “Quarterly Statement”). Each Quarterly Statement shall be delivered to the Licensor [****]. 6.2 Quarterly Statements for the final quarter of [****] shall include, without limitation, an annual report ofthe foregoing for the entire Contract Year. [****]. 6 Confidential VII. ADVERTISING, MARKETING, PROMOTIONS & PACKAGING 7.1 Licensor shall be responsible for packaging, labeling, and supply of all Licensed Products pursuant tothe Supply Agreement, and as may otherwise be agreed between the parties pursuant to action of the JCC. Licenseeshall not modify, change, or alter any packaging or labeling of the Licensed Product without the prior written consentof the Licensor. For the avoidance of doubt, co-branding is not permitted without Licensor’s prior written approval. 7.2 Licensee agrees that each medium of advertising through which Licensee promotes Licensed Productsand each individual media vehicle through which Licensee publishes or distributes marketing materials relating toLicensed Products shall be consistent with the [****] and no less than consistent with the [****]. 7.3 Except for the [****] distribution of Product Samples, Licensed Products shall not be sold or givenaway by Licensee free of charge or sold or exchanged for nominal value, or authorized by Licensee to be so givenaway, sold or exchanged, unless written approval is granted by Licensor for a specific amount. If Licensee desires togive away or sell for nominal value Licensed Products for the promotion of the products, services or business of anyindividual or entity other than Licensee, Licensee shall obtain Licensor’s written approval prior to any sucharrangement and such approval shall not be unreasonably withheld. Licensor shall have [****] in which to approve ordisapprove any such plan. It is understood between the parties that if Licensee does not receive [****], the Licensorhas [****] such request. VIII. JOINT COMMERCIALIZATION COMMITTEE 8.1 Within [****] following the Effective Date, the parties shall establish a Joint CommercializationCommittee (“JCC”) that shall be comprised of up to [****] representatives of each of Licensee and Licensor, whichrepresentatives shall be members of the parties’ senior management or other such senior persons responsible for theapplicable functional area within each party (each, a “JCC Member”). The initial JCC Members of each of the partiesare set forth in Exhibit F, attached hereto and incorporated herein by reference. Each party may replace its JCCMembers (including the chairperson) at any time on prior written notice to the other party. Each party will have theright from time to time to invite to JCC meetings other representatives for the purpose of addressing specific issues tobe discussed at such JCC meetings. The chairperson of the JCC shall be appointed for a [****] term by one partyfollowed up with a [****] term by the other party and will be replaced again [****] accordingly by the parties untiltermination of the Agreement, it being agreed that during the [****] of the Agreement the chairperson shall beappointed by [****], and shall initially be [****]. For the avoidance of doubt, the chairperson shall not have a greatercasting or deciding vote or more authority than any other JCC Member on any matter related to the JCC or thisAgreement. In addition to the foregoing, the parties shall each have the right to appoint non-voting observers to theJCC. 8.2 In connection with the transactions contemplated in this Agreement and in the other TransactionDocuments, Licensee shall be responsible for the [****] (the “Licensee Responsibilities”). 7 Confidential 8.3. In connection with the transactions contemplated in this Agreement and in the other TransactionDocuments, Licensor shall be responsible for the [****] (collectively, the “Licensor Responsibilities”). The specificobligations of the Licensor Responsibilities shall be further enumerated and determined pursuant to the[****]. Licensee shall not modify, change, or alter any packaging, labeling, or package inserts provided by Licensor.Licensor shall comply with all applicable laws and regulations in performing its obligations under the TransactionDocuments. 8.4 The JCC shall act as a consultative and, to the extent expressly granted authority hereunder, a decision-making body for the purpose of designing and monitoring the implementation of, and the parties’ compliance with, theTransaction Documents in accordance with the terms thereof, and generally shall act as the forum for information-sharing between the parties with respect to the commercialization, manufacture and supply of the Licensed Product. Inparticular, the JCC shall: (a) Exchange information (including manufacture, registration, supply, marketing and commercializationinformation) related to the Licensed Product and facilitate cooperation and coordination between the partiesas they exercise their respective rights and fulfill their respective obligations under this Agreement; (b) Discuss the Licensee’s commercial plans with respect to the sales, marketing, and promotion of theLicensed Product and the manner in which the Licensed Product is to be commercialized in the Territory tothe extent not set forth in such commercialization plans; (c) Monitor and discuss the inventory of Licensed Product in the Licensee’s distribution channels; (d) Discuss strategy and proper quantities surrounding distribution of Product Samples, which the partiesmutually agree is a critical part of the commercialization strategy for the Licensed Product; (e) Monitor Licensee’s implementation, monitoring and coordination of all activities, including scheduling andprioritization thereof, contemplated in the Transaction Documents in conformance with the TransactionDocuments; (f) Appoint working sub-groups, as necessary, whose duties and powers shall be determined by the JCC andwho shall meet as necessary to provide relevant information for the JCC to carry out its duties under theTransaction Documents; (g) Promptly following the Effective Date, itself or through an appointed sub-group, become the forum for thediscussion and analysis of Licensee’s handling of all regulatory matters in the Territory; (h) In addition, the JCC shall act as a consultative body with respect to all matters concerning intellectualproperty, including trademarks 8 Confidential 8.5 In the [****] calendar quarter of each calendar year during the Contract Term, Licensee will submit tothe Licensor a [****] for the next Contract Year. 8.6 Before producing, publishing or distributing any market advertising related to the transactionscontemplated by the Transaction Documents or Licensed Products that is not substantially similar to materialspreviously approved, Licensee shall submit to the JCC for its examination and approval or disapproval, a[****]. Licensor shall have [****] in which to approve or disapprove any such materials. It is understood between theparties that if Licensee does not receive a response from Licensor within [****] after the period detailed above,Licensor has [****] such request. 8.7 The JCC shall meet at least [****] per Contract Year, which meetings may be through teleconference orother virtual means. All meetings shall be scheduled and confirmed at least [****] in advance of the date of suchmeeting where feasible. No meeting of the JCC may occur without all JCC Members present, unless waiver or proxyis given in writing by the absent JCC Members. 8.8 The JCC Members designated by Licensee shall be responsible for preparing the minutes setting forthdiscussions held at each JCC meeting; provided, however, that such minutes will not become official until agreed uponby the JCC representatives designated by [****]. The JCC Members shall provide comments on such draftminutes. [****] shall incorporate timely received agreed comments and distribute finalized minutes to all JCCMembers. 8.9 Decisions of the JCC shall be taken unanimously. In the event of a disagreement or a deadlock, thematter shall be referred to the senior executives of the parties. In connection with any disagreement, the parties eachagree that they shall participate, in good faith, in at least one (1) teleconference/virtual meeting which includes everyJCC Member in an attempt to expeditiously and amicably resolve any such dispute. If the disagreement or deadlockpersists and is not resolved within [****], the parties shall have the right to cast the tie-breaking vote with respect toeach matter within their respective responsibilities under the Transaction Documents, as set forth below: (a) Licensor shall have the right to cast a tie-breaking vote to be exercised in its reasonable judgment withrespect to matters pertaining to Licensor Responsibilities. For the avoidance of doubt, the Licensor shallhave absolute control pertaining to the Licensor’s [****], except as expressly set forth in this Agreement. (b) Licensee shall have the right to cast a tie-breaking vote to be exercised in its reasonable judgment withrespect to matters pertaining to Licensee Responsibilities. 8.10 The JCC shall not have any authority to contravene, override, or nullify any provision of the TransactionDocuments or bind or incur liability on behalf of either party hereto without such party’s express prior writtenauthorization, and shall have only such powers as are specifically delegated to them hereunder. The JCC shall not beconstrued as a statutory board of directors, or as the “governing authority” of either party or both parties pursuant to theUnited9 Confidential States Sentencing Commission Guidelines, or give rise to the existence of fiduciary duties, either in respect of eachJCC Member or in respect of the parties to this Agreement. Neither party will be required to act in accordance withdecisions of the other party that contradict relevant laws or government guidelines. 8.11 Within [****] after the Effective Date, Licensor shall provide Licensee with copies of all the readily-available information in Licensor’s possession pertaining to the Licensed Product that is or in Licensor’s good faithreasonable judgment may be relevant for the commercialization of the Product; thereafter Licensor will use reasonableefforts to provide any additional relevant information pertaining to the Licensed Product within a commerciallyreasonable time, provided that, Licensor makes no warranty or guarantee and hereby disclaims all warranties andguarantees as to the completeness of any information provided pursuant to this Section. In each case, such informationshall be initially provided in electronic format to expedite the transition thereof, to be promptly followed up withdelivery of hard copies. During the Contract Term, Licensor shall also provide Licensee details of ongoing studies andupcoming and anticipated publications to the extent relevant to the Licensed Product and Licensee shall ensure that allsuch information is subject to the confidentiality provisions of this Agreement and ensure that such information is usedonly in compliance with applicable laws and regulations. IX. RESEARCH & DEVELOPMENT COMMITTEE 9.1 Within [****] after the Effective Date, Licensee will establish a research & development committeecomprising members of both Licensor and Licensee with a goal of exploring [****] (the “R&D Committee”). 9.2 Within [****] after the Effective Date, Licensee will present to Licensor a [****] for consideration bythe parties (the “[****]”). Notwithstanding the foregoing, either party may, at any time, for any reason, withoutliability, inform the other party that it does not wish to pursue [****]. Following presentation of the [****], the partieswill discuss, in good faith, the plan and potential collaboration arrangements in relation to the [****]. Neither partyshall commit or undertake, or be committed to undertake, or accept and/or execute any proposed [****] unless anduntil a [****] reached between the parties (“[****]”). For the avoidance of doubt, neither party will be under anyobligation to enter into the [****]. Terms of ownership of any intellectual property rights and/or FDA or governmentalfilings and approvals created by the [****] and the related work or outputs thereof shall be dictated by the [****], ifapplicable. In the absence of any [****], Licensor would own all such intellectual property rights andFDA/governmental filings and approvals. Licensee will not at any time pursue FDA marketing approval of theLicensed Product without Licensor’s prior written consent. 9.3 Notwithstanding any other provision in this Agreement, Licensor retains the sole and absolute discretionto develop, determine and pursue a drug development plan for the Licensed Product at any time, on any terms and withany partner of its choosing, including during the Contract Term of this Agreement. Licensor shall promptly informLicensee in writing of any such development plan and following such notification, Licensee shall be entitled toimmediately terminate the License Agreement with no additional liability to Licensor except as otherwise10 Confidential incidental to or arising pursuant to or as a result of this Agreement, provided that the preceding clause shall not bedeemed to abrogate, cancel, or waive any provision of this Agreement. X. ENTERAGAM MARKS & ENTERAGAM URL 10.1 During the Contract Term, Licensor shall not within the Territory grant or sanction any other party touse any mark identical with, or substantially similar to, the EnteraGam Marks, and EnteraGam URL in a manner whichis in conflict with the rights granted to Licensee under this Agreement. 10.2 Licensee shall have no right, title or interest in the EnteraGam Marks, and EnteraGam URL except thelicensed rights in accordance with this Agreement. Each and every part of the EnteraGam Marks, and the EnteraGamURL is, and shall remain, the sole property of Licensor. Any use by Licensee of any part of the EnteraGam Marks,and the EnteraGam URL, and the goodwill arising from them, shall inure to the benefit of Licensor. 10.3 During the Contract Term, and at any time thereafter, Licensee shall not contest, raise any objections tothe validity of, or attack Licensor’s title to, or rights in, the EnteraGam Marks, or the EnteraGam URL. 10.4 During the Contract Term, and at any time thereafter, Licensee shall not file any application for anymark, or obtain or attempt to obtain ownership of any mark or trade name, in any country of the world, which refers to,or is substantially similar to, any of the EnteraGam Marks, and the EnteraGam URL, and shall promptly notifyLicensor if Licensee becomes aware of any attempts to do so by third parties. 10.5 In the event that any Person (other than Licensee, or any Affiliate(s) or Sublicensee(s) thereof, or anyother Person acting in cooperation or concert with any of them) asserts that the EnteraGam Marks, the EnteraGamURL, or the sale of Licensed Products (collectively, the “Rights”) infringe upon such third party’s rights in theTerritory, Licensor, at its sole expense, shall take what are in Licensor’s sole discretion commercially reasonableactions to protect and validate the Rights including, without limitation, arbitration, mediation and litigation, atLicensor’s discretion. Licensor shall have the right at any time, and in its sole discretion, to reach a settlement in anyaction to protect and validate the Rights. If a settlement is reached, or it is determined that the Rights do infringe onsuch third party’s rights, then Licensor may, if it is not commercially reasonable to obtain rights for Licensee tocontinue to exercise its rights under this Agreement, terminate this Agreement immediately. Without derogating fromany other representation and warranty provided by Licensor, Licensor represents and warrants that the Rights [****]. 10.6 The parties shall promptly notify the other party in writing of any learned use that may be aninfringement or imitation of the EnteraGam Marks on articles similar to the Licensed Products, and of any use whichmay be an infringement or imitation of any applicable related designs, design patents and copyrights in the Territory. Inthe event a third party is allegedly infringing or threatens to infringe the Rights in the Territory, as determined byLicensor or Licensee, Licensor shall have the first right, but not the obligation, to bring an infringement action11 Confidential against any actual or alleged infringer with respect to the EnteraGam Marks, or the EnteraGam URL. Licensor may, inits sole judgment and at its own expense, institute, control, settle, and defend such action and recover any damages,awards, or settlements resulting therefrom. Licensee shall reasonably cooperate and use commercially reasonableefforts to assist Licensor in any such litigation. Licensor shall reimburse Licensee for its out-of-pocket expensesincurred as a result of such cooperation. In the event that Licensor elects not to bring any such infringement action,during the Contract Term, Licensee shall have the option, but not the obligation, to bring an infringement action againstany such third party and recover any damages, awards, or settlements resulting therefrom subject to the allocationsbelow. Licensor shall reasonably cooperate and use commercially reasonable efforts to assist Licensee in any suchlitigation. Licensee shall reimburse Licensor for its out-of-pocket expenses incurred as a result of such cooperation. 10.7 Any damages, award, or settlement recovered by either party in connection with enforcement ofLicensor rights against third-party infringement in the Territory shall first be used to reimburse Licensor and Licenseefor all reasonable expenses incurred during said litigation. The remainder of the damages, award or settlement that isattributable to any infringement or alleged infringement in the Territory shall be divided as follows [****]. Theforegoing allocation of proceeds shall only apply to actions relating to infringement that occurs during the ContractTerm. 10.8 Licensee shall take appropriate actions and, at Licensor’s expense (unless necessary to cure actions ofLicensee or its Affiliate(s), in which case at Licensee’s expense), all commercially reasonable actions reasonablyrequested by Licensor, to prevent or avoid any misuse of the EnteraGam Marks, the EnteraGam URL, or LicensedProducts by any of its customers, contractors, Sublicensee(s), suppliers, or other resources. 10.9 Licensee shall reasonably assist and cooperate with Licensor, at Licensor’s expense, in any other effortsto obtain, perfect and protect its rights to the EnteraGam Marks, and the EnteraGam URL in the Territory. Licenseeshall execute any documents reasonably required by Licensor in connection with the foregoing. 10.10 Following the termination of the rights granted under this Agreement with respect to the EnteraGamMarks, or the EnteraGam URL, Licensee shall cease absolutely, and Licensee shall not thereafter offer, sell, market,promote, or utilize for any purpose whatsoever, any item branded under, or making reference to, the EnteraGamMarks, nor shall Licensee publish or display, or authorize or permit the publication or display of, further or additionalquantities of any advertising or marketing materials which incorporate the EnteraGam Marks, and Licensee shallimmediately cease all use of the EnteraGam URL and shall transfer all control of the EnteraGam URL back to Entera. 10.11 Licensee hereby assigns to Licensor, without the payment of additional compensation, the entire right,title and interest in and to all writing(s), formula(s), design(s), model(s), drawing(s), photograph(s), design(s) and anyother invention(s) made, conceived or reduced to practice or authored by Licensee, either solely or jointly with others,during or in connection with this Agreement or which relates to, incorporates, relies upon, or is a derivative,modification, improvement or change of or to the EnteraGam Marks, the Licensed Product, and12 Confidential the EnteraGam URL, whether occurring prior to or after the Effective Date of this Agreement. Licensee shall promptlydisclose to Licensor all work(s), writing(s), formula(s), design(s), model(s), photograph(s), drawing(s), design(s) andother invention(s) made, conceived or reduced to practice or authored by Licensor, either solely or jointly with others,during or in connection with the performance of or related to this Agreement. Licensee shall sign, execute andacknowledge or cause to be signed, executed and acknowledged without cost, but at the expense of Licensor, any andall documents and perform any acts as may be necessary, useful or convenient for the purpose of securing to Licensoror its nominees, patent, trademark or copyright protection throughout the world upon and for all such work(s),writing(s), formula(s), design(s), model(s), drawing(s), photograph(s), design(s) and other invention(s), title to whichLicensor may acquire under the terms of this Agreement. All of the foregoing inventions, developments, and otherintellectual property rights shall, once vested in the Licensor, automatically and without further action of the parties beincluded within the scope of the License, subject to the terms, conditions, and limitations thereof. XI. CONFIDENTIAL & PROPRIETARY INFORMATION 11.1 During the Contract Term, either party may provide the other with access to and/or allow them tobecome familiar with various aspects of their Confidential Information. Both parties shall hold all revealed ConfidentialInformation which has been provided in strict confidence, shall not use in any way or disclose any ConfidentialInformation directly or indirectly to any other party and such information shall be used by Licensor only in thosefacilities where Licensed Products are manufactured and only in connection with the manufacture, use and sale ofLicensed Products. All records, files, documents, information, data and other similar items relating to either party’sbusiness operations, regardless of who prepared them and which are not otherwise in the public domain, shall remainthe exclusive property of the owning party. 11.2 Apart from the license granted herein to use the EnteraGam Marks, and the EnteraGam URL inconnection with the advertising, promotion, sale, offering for sale and distribution of Licensed Products, thisAgreement does not grant Licensee any rights whatsoever in the Confidential Information of Licensor under any ofLicensor’s patent(s), patent application(s), trademark(s), trademark application(s), copyrights, copyright application(s),service mark(s), URL(s), website(s), or proprietary technology or any other rights in the EnteraGam Marks, orEnteraGam URL not granted herein. The use of any proprietary information outside the scope of this grant of license isconsidered a material breach of this Agreement. LICENSEE SHALL NOT USE ANY PROPRIETARYINFORMATION OUTSIDE THE SCOPE OF THIS GRANT OF LICENSE. LICENSOR DOES NOT GRANTLICENSEE ANY RIGHTS WHATSOEVER IN THE CONFIDENTIAL INFORMATION OF LICENSOR BYVIRTUE OF THIS AGREEMENT OR OTHERWISE. LICENSEE DOES NOT GRANT LICENSOR ANYRIGHTS WHATSOEVER IN THE CONFIDENTIAL INFORMATION OF LICENSEE BY VIRTUE OF THISAGREEMENT OR OTHERWISE. XII. PAYMENTS All royalty payments required under the provisions of this Agreement are payable by wire transfer as follows: 13 Confidential Payment Address:[****] XIII. NOTICES & OTHER COMMUNICATIONS 13.1 All reports, approvals, requests, demands, notices and other communications required or permitted bythis Agreement shall be in writing and signed by a duly authorized officer of or such other individual designated inwriting by a party. 13.2 Communications shall be duly given if delivered personally, if mailed (by certified or registered mail (airmail if sent internationally), return receipt requested) or if delivered by nationally-recognized overnight courier or mailservice that requires the addressee to acknowledge, in writing, the receipt thereof, to the party concerned. Notice mayalso be sent by facsimile or electronic transmission, with written confirmation of receipt. 14 Confidential 13.3 All Communications to Licensor shall be sent to: Entera Health, Inc.2425 SE Oak Tree CourtAnkeny, Iowa 50021[****] 13.4 All communications to Licensee shall be sent to: RedHill Biopharma, Inc.8045 Arco Corporate DriveSuite 120Raleigh, North Carolina 27617[****] with a copy to: RedHill Biopharma Ltd.21 Ha'arba'a StreetTel-Aviv 64739IsraelFax: +972 (3) 541 3144[****] or to such other address as the party to who notice is to be given may have furnished to the other party in writing inaccordance herewith. Any such communication will be deemed to have been given: (i) when delivered, if personallydelivered; (ii) on the business day (on the receiving end) after dispatch, if sent by nationally-recognized overnightcourier or mail service (third business day if sent internationally); (iii) on the [****] day following the date of mailing,if sent by mail ([****] day if sent internationally); and (iv) on [****] day (on the receiving end) after being sent byfacsimile or electronic mail. It is understood and agreed that this Section 13 is not intended to govern the day-to-daybusiness communications necessary between the parties in performing their duties, in due course, under the terms ofthis Agreement. XIV. RECORDS & INSPECTION 14.1 Licensee shall maintain in the United States invoices and books of account for the sale of LicensedProducts relating to this Agreement during the Contract Term for a period of [****] following the period to which theyrelate, with respect to inventory levels of Licensed Product within the Licensee’s distribution channels, call data (e.g.physicians which have been called on by Licensee’s sales force and prescriptions dispensed thereunder, etc.) and Salesof Licensed Product made by Licensee and by any and all Sublicensee(s). Such books of account shall be completeand accurate in accordance with generally accepted accounting practices. Licensor will have the right, at its own cost, to have a mutually agreeable independent certified public accounting firm of internationally recognized standing andwho agrees to be bound by a customary undertaking of confidentiality at least as restrictive as those in this Agreement,have15 Confidential access during Licensee's normal business hours, and upon reasonable prior coordination, to Licensee’s records as maybe reasonably necessary to verify the accuracy of Licensee’s Quarterly Statements, during the Contract Term and for aperiod of up to [****] after the termination or expiration thereof; provided, however, that Licensor will not have theright to conduct more than [****] in any Contract Year, unless any audit or examination or Quarterly Statement revealsor contains any significant or material miscalculation, misstatement, or error, in which case Licensor may conductadditional audits or examinations until such miscalculations, misstatements, or errors are resolved. The accounting firmshall not in any way be compensated (in whole or in part) contingent on the outcome of the audit. Any such audit shallnot unreasonably interfere with the business of Licensee. Licensor shall provide to Licensee a copy of the audit reportand any applicable audit work papers (unless such auditor will not consent to the disclosure of its audit work papersafter reasonable efforts to obtain the consent of such auditor) within [****] of its receipt thereof. Without derogatingfrom the foregoing, Licensor’s audit rights shall be conducted no later than [****] following the termination orexpiration of the Contract Term. The costs of the audit are the responsibility of Licensor provided that in the event thatthere is a shortfall of more than [****] in the payment due, the audit costs and all related travel costs will be covered byRedHill within [****] following billing. 14.2 If, upon any examination of Licensee’s books and records pursuant to Section 14.1 hereof, Licensorshall discover any royalty overpayment by Licensee, Licensor will make all payments required to be made to correctand eliminate such overpayment within [****] of Licensee’s demand. If, upon any examination of Licensee’s booksand records pursuant to Section 14.1 hereof, Licensor shall discover any royalty underpayment by Licensee, Licenseewill make all payments required to be made to correct and eliminate such underpayment within [****] after the date onwhich such accounting firm’s written report is delivered to [****]. 14.3 In addition to any other remedy available to either party, if any payment not under dispute in good faithdue under this Agreement is delayed for any reason beyond [****], interest shall accrue and be payable, to the extentlegally enforceable, on such unpaid principal amounts from and after the date on which the same became due, at a perannum amount equal to the Prime Rate [****] or the highest amount otherwise permitted by law. XV. COMPLIANCE; REPRESENTATIONS AND WARRANTIES 15.1 Licensee shall not, in any manner, authorize or purport to authorize another, including, withoutlimitation, any Affiliate(s), including any Sublicensee(s) of Licensee, to use the EnteraGam Marks, or the EnteraGamURL, except to the extent specifically provided herein. 15.2 Licensee and Licensor shall comply with all Regulatory Compliance Obligations set forth on Exhibit E. 15.3 As a material inducement to induce the Licensor to enter into this Agreement, Licensee herebyrepresents and warrants, to the Licensor, on its own behalf and, where applicable, on behalf of all of its Affiliate(s),and its and their respective heirs, successors, and assigns (provided that the Licensee makes no representations andwarranties with respect to the EnteraGam16 Confidential Marks, the EnteraGam URL, or the Licensed Product) that the following shall be true and correct with respect to all ofthem: (a) the Licensee enters into this Agreement and all of the Transaction Documents freely, knowingly,voluntarily, without duress, and with the advice of counsel. (b) the Licensor has made no commitment, promise, or guarantee, whether verbal or written, of any amounts,revenues, or proceeds that would or may be obtained by Licensee as a result of this Agreement. (c) Licensee has the authority to enter into this Agreement and the other Transaction Documents, and theexecution, delivery, and performance of this Agreement and all of the Transaction Documents does notconflict with any policy to which Licensee is subject or any contractual or legal obligation of Licensee, andthis Agreement and the other Transaction Documents shall constitute binding obligations of the Licensee,enforceable against Licensee in accordance with its and their respective terms, subject to the effects ofbankruptcy, insolvency or other laws of general application affecting the enforcement of creditor rights andjudicial principles affecting the availability of specific performance and general principles of equity,whether enforceability is considered a proceeding at law or equity. (d) Licensee’s execution, delivery, and performance of this Agreement and all of the Transaction Documentswill not violate: (i) any applicable law, rule, ordinance, regulation or order; (ii) any contracts between theLicensee and any third parties; or (iii) to Licensee’s knowledge, the rights of any Person in or to any patent,trademark, trade name, copyright, trade secret, license or other proprietary right, intellectual property rightor similar right. (e) Licensee’s execution, delivery, and performance of this Agreement and the other Transaction Documentswill not violate or infringe the rights of any Person in or to any patent, trademark, trade name, copyright,trade secret, license or other proprietary right, intellectual property right, or similar right. (f) Except with respect to the rights being licensed to Licensee hereunder, Licensee is the lawful owner orlicensee of any software programs or other rights or material to be used by Licensee in its performance ofthis Agreement, and Licensee has all rights necessary to convey to the Licensor, the complete andunencumbered ownership of any and all Royalties and other deliverables contemplated hereunder. (g) Licensee has obtained any and all necessary approvals to enter into this Agreement including, to the extentnecessary the approval of Licensee’s board of directors and shareholders. (h) To the best of its knowledge, Licensee and all of its personnel who will or may be used in any manner inconnection with the performance of this Agreement and the other Transaction Documents has never beendebarred or suspended, is not debarred or17 Confidential suspended, and is not under investigation for any fact or circumstance which could result in the debarmentor suspension of Licensee or any of them under any state or federal healthcare, procurement, or otherprograms. (i) To the best of its knowledge and with reasonable efforts customary in the industry, Licensee, and all of itspersonnel who will or may be used in any manner in connection with the performance of this Agreementand the other Transaction Documents, has not made or offered to make, and shall not improperly make,offer to make, or agree to make any loan, gift, donation or payment, or transfer of any other thing of valuedirectly or indirectly, whether in cash or in kind, to or for the benefit of any private entities, government andpublic bodies, political parties, party officials, candidates for political office, local councils, judicial officers,public international organizations and their employees, institutions and officials in connection with anybusiness activity of Licensee or any of its wholly or partially owned Affiliate. (j) If Licensee learns of any of the prohibited activities described above, Licensee shall promptly notify theLicensor. (k) Licensee is not a foreign or domestic government official nor is Licensee related to a foreign or domesticgovernment official (as such terms are contemplated in the Foreign Corrupt Practices Act and the UKBribery Act). (l) To the best of its knowledge, Licensee, and all of its personnel, have not been debarred and is not underinvestigation for debarment under the provisions of the Generic Drug Enforcement Act of 1992, 21 U.S.C.§335a(a) and (b), or disqualified under any laws or regulations. If during the term of this Agreement,Licensee (i) becomes debarred or disqualified; (ii) receives notice of an action or threat of an action withrespect to its debarment or disqualification; or (iii) engages in any conduct or activity which could lead toany of the above-mentioned disqualification or debarment actions, Licensee shall notify Licensorimmediately. (m) Licensee has not and will not use in any capacity the services of any individual, corporation, partnership orassociation or other Person which it is aware has been debarred under 21 U.S.C. §335a(a) or (b), ordisqualified under the provisions of 21 C.F.R. §312.70, and if Licensee becomes aware of the debarment,threatened debarment, disqualification or threatened disqualification of any individual, corporation,partnership, or association providing services to Licensee which directly or indirectly relate to activitiesunder this Agreement and the other Transaction Documents, Licensee shall notify the Licensorimmediately. (n) To the best of its knowledge, neither Licensee nor any Person affiliated with Licensee has been sanctionedby or excluded from participation in any federal health care program, including Medicare and Medicaid,and Licensee agrees that if it or any such individual associated with it should become the subject of aninvestigation relating to health care fraud, abuse or misconduct, or should be sanctioned by or excludedfrom18 Confidential participation in any federal health care program, including Medicare and Medicaid, it will immediatelynotify Licensor. (o) To the best of its knowledge, Licensee is in compliance with any and all other applicable local, state,national, and international laws and regulations including, without limitation, the laws of any applicablesecurities exchange (including any applicable anti-retaliation and whistleblower programs) and is not underinvestigation for any violation of any such laws or regulations. (p) Licensee has in place a current and comprehensive code of conduct and ethics and maintains a corporatecompliance and ethics program which is designed to detect and prevent criminal conduct in accordancewith Chapter 8 of the most recent United States Sentencing Commission Guidelines. (q) Licensee shall conduct reasonable and adequate regulatory compliance-related due diligence of any and allthird-party vendors or suppliers used in any manner in connection with the activities contemplated by theAgreement and the other Transaction Documents. (r) Licensee has had sufficient time to conduct due diligence of Licensor and of the Licensed Product to itssatisfaction, has had unrestricted access to the management and board of the Licensor and an opportunity toask any and all questions desired by the Licensee, and all inquiries and questions desired to be submitted orasked have been answered by the Licensor to the Licensee’s satisfaction. (s) Licensee and it Affiliate(s) and its Subcontractor(s) is and are Solvent (as defined below) and, afterconsummation of the transactions contemplated in this Agreement, will be Solvent. “Solvent” means, as toany Person, that such Person (a) owns property whose fair salable value is greater than the amount requiredto pay all of its debts (including contingent, subordinated, unmatured and unliquidated liabilities); (b) ownsproperty whose present fair salable value is greater than the probable total liabilities (including contingent,subordinated, unmatured and unliquidated liabilities) of such Person as they become absolute and matured;(c) is able to pay all of its debts as they mature; (d) has capital that is not unreasonably small for its businessand is sufficient to carry on its business and the business in which it is about to engage; and (e) is not“insolvent” within the meaning of Section 101(32) of Title 11 of the United States Code. (t) To Licensee’s knowledge, neither this Agreement nor any certificates made or delivered in connectionherewith contains any untrue statement of a material fact or omits to state a material fact necessary to makethe statements herein or therein not misleading, in view of the circumstances in which they were made. 15.4 All of Licensee’s sublicense agreement(s) must comply with this Agreement including, withoutlimitation, the provisions of this Section 15.4, provided that the preceding sentence shall not be construed to authorizethe Licensee to enter into any sublicense without the19 Confidential Licensor’s prior written consent. In the event Licensee has knowledge of, has reason to believe, or should have reasonto know that any Sublicensee(s) or any third-party vendors or supplier used by Licensee in connection with theactivities contemplated by this Agreement or the other Transaction Documents is in breach of any provision of thisAgreement, Licensee must immediately notify Licensor and Licensee shall, at its sole expense, take immediate actionto rectify such breach, including, where Licensor deems it necessary, immediate termination of its relationship withsuch Sublicensee(s) or third-party vendor(s) or supplier(s). If Licensee fails to take immediate action or such action isnot successful, Licensee will assign its rights to proceed against any such Person to Licensor and Licensor will, atLicensee’s sole expense, have the right to pursue all available remedies to protect its rights. Further, such Licenseefailure shall be grounds for termination of this Agreement by Licensor. 15.5 In addition to all other reports required by this Agreement, in order to maintain Licensor’s high standardof quality control and to ensure that appropriate measures are taken to ensure regulatory compliance, upon request byLicensor, Licensee shall provide a report to Licensor on a quarterly basis with any other relevant information regardingall Sublicensee(s) or third-party suppliers or vendors, as requested by Licensor. 15.6 As a material inducement to induce Licensee to enter into this Agreement, Licensor hereby representsand warrants, to Licensor, that the following shall be true and correct with respect as of the Effective Date: (a) Licensor enters into this Agreement and all of the Transaction Documents freely, knowingly, voluntarily,without duress, and with the advice of counsel. (b) Licensor has the authority to enter into this Agreement and the other Transaction Documents, and theexecution, delivery, and performance of this Agreement and all of the Transaction Documents does notconflict with any policy to which Licensor is subject or any contractual or legal obligation of Licensor, andthis Agreement and the other Transaction Documents shall constitute binding obligations of the Licensor,enforceable against Licensor in accordance with its and their respective terms, subject to the effects ofbankruptcy, insolvency or other laws of general application affecting the enforcement of creditor rights andjudicial principles affecting the availability of specific performance and general principles of equity,whether enforceability is considered a proceeding at law or equity. (c) Licensor’s execution, delivery, and performance of this Agreement and all of the Transaction Documentswill not violate: (i) any applicable law, rule, ordinance, regulation or order; (ii) any contracts between theLicensor and any third parties; or (iii) to Licensor’s knowledge, the rights of any Person in or to any patent,trademark, trade name, copyright, trade secret, license or other proprietary right, intellectual property rightor similar right. (d) Licensor’s execution, delivery, and performance of this Agreement and the other Transaction Documentsand the exercise by Licensee of its rights granted under this Agreement in accordance with its terms, willnot violate or infringe the rights of any20 Confidential Person in or to any patent, trademark, trade name, copyright, trade secret, license or other proprietary right,intellectual property right, or similar right. (e) To the knowledge of Licensor, Licensor has the valid and unrestricted right to license the Licensed Productpursuant to the License. (f) Licensor has obtained any and all necessary approvals to enter into this Agreement including, to the extentnecessary the approval of Licensor’s board of directors and shareholders. (g) It has and shall maintain throughout the Contract Term, all regulatory approvals necessary for theperformance of its obligations hereunder. (h) It has not received any written notice asserting or alleging that any research or development of the LicensedProduct infringed or misappropriated the intellectual property rights of any third party. (i) There are no pending, and to Licensor’s knowledge, no threatened, adverse actions, suits or proceedingsagainst Licensor or its Affiliates involving the Licensed Product. (j) The ENTERGAM® trademark has been properly filed and registered with the U.S. Patent and TrademarkOffice and is valid and in full force and effect, and, Licensor has the right to use and license theENTERA® trademark, free and clear of any liens or encumbrances. (k) There are no pending legal suits or proceedings involving the Licensed Product; and there are nothreatened legal suits or proceedings in the Territory involving the Product. (l) To the best of its knowledge, Licensor and all of its personnel who will or may be used in any manner inconnection with the performance of this Agreement and the other Transaction Documents has never beendebarred or suspended, is not debarred or suspended, and is not under investigation for any fact orcircumstance which could result in the debarment or suspension of Licensee or any of them under any stateor federal healthcare, procurement, or other programs. (m) To the best of its knowledge and with reasonable efforts customary in the industry, Licensor, and all of itspersonnel who will or may be used in any manner in connection with the performance of this Agreementand the other Transaction Documents, has not made or offered to make, and shall not improperly make,offer to make, or agree to make any loan, gift, donation or payment, or transfer of any other thing of valuedirectly or indirectly, whether in cash or in kind, to or for the benefit of any private entities, government andpublic bodies, political parties, party officials, candidates for political office, local councils, judicial officers,public international organizations and their employees, institutions and officials in connection with anybusiness activity of Licensor or any of its wholly or partially owned Affiliate. 21 Confidential (n) If Licensor learns of any of the prohibited activities described above, Licensor shall promptly notify theLicensee. (o) Licensor is not a foreign or domestic government official nor is Licensor related to a foreign or domesticgovernment official (as such terms are contemplated in the Foreign Corrupt Practices Act and the UKBribery Act). (p) To the best of its knowledge, Licensor, and all of its personnel, have not been debarred and is not underinvestigation for debarment under the provisions of the Generic Drug Enforcement Act of 1992, 21 U.S.C.§335a(a) and (b), or disqualified under any laws or regulations. If during the term of this Agreement,Licensor (i) becomes debarred or disqualified; (ii) receives notice of an action or threat of an action withrespect to its debarment or disqualification; or (iii) engages in any conduct or activity which could lead toany of the above-mentioned disqualification or debarment actions, Licensor shall notify Licenseeimmediately. (q) Licensor has not and will not use in any capacity the services of any individual, corporation, partnership orassociation or other Person which it is aware has been debarred under 21 U.S.C. §335a(a) or (b), ordisqualified under the provisions of 21 C.F.R. §312.70, and if Licensor becomes aware of the debarment,threatened debarment, disqualification or threatened disqualification of any individual, corporation,partnership, or association providing services to Licensor which directly or indirectly relate to activitiesunder this Agreement and the other Transaction Documents, Licensor shall notify the Licenseeimmediately. (r) To Licensor’s knowledge, neither Licensor nor any Person affiliated with Licensor has been sanctioned byor excluded from participation in any federal health care program, including Medicare and Medicaid, andLicensor agrees that if it or any such individual associated with it should become the subject of aninvestigation relating to health care fraud, abuse or misconduct, or should be sanctioned by or excludedfrom participation in any federal health care program, including Medicare and Medicaid, it will immediatelynotify Licensee. (s) To Licensor’s knowledge, Licensor is in compliance with any and all other applicable local, state, national,and international laws and regulations including, without limitation, the laws of any applicable securitiesexchange (including any applicable anti-retaliation and whistleblower programs) and is not underinvestigation for any violation of any such laws or regulations. (t) To Licensor’s knowledge, Exhibit G attached hereto and incorporated herein by reference lists all paststudies and publications (including name, date, author/investigator) conducted/published in the past relatingto the Licensed Product. (u) Licensor shall conduct reasonable and adequate regulatory compliance-related due diligence of any and allthird-party vendors or suppliers used in any manner in22 Confidential connection with the activities contemplated by the Agreement and the other Transaction Documents. (v) Licensor is Solvent and, assuming the proper performance of the Transaction Documents, afterconsummation of the transactions contemplated in Transaction Documents, will be Solvent. (w) Licensor has, to Licensor’s knowledge, provided Licensee with all information Licensee has requested. ToLicensor’s knowledge, neither this Agreement nor any certificates made or delivered in connectionherewith contains any untrue statement of a material fact or omits to state a material fact necessary to makethe statements herein or therein not misleading, in view of the circumstances in which they were made. XVI. ASSIGNMENT; SUBLICENSE 16.1 Licensee may not and shall not sublicense or assign this Agreement or its rights and interest hereunder,or any part hereof, whether by operation of law or otherwise, except in strict compliance with the provisions of thisAgreement and, as required by this Agreement, with the Licensor’s prior written consent. Any attempted or purportedsale, transfer, lease, sublicense or assignment which is not in compliance with this provisions of this Agreement shallbe null and void ab initio and shall, in Licensor’s sole discretion, result in the immediate termination of thisAgreement. Each and every sublicense or assignment shall require a written undertaking by each such Sublicenseeand assignee that such party acknowledges and agrees to be bound by all terms and conditions of this Agreement as ifsuch party were an original signatory to this Agreement. No sublicense shall relieve Licensee of any of its obligationsarising hereunder. For the avoidance of doubt, all Sublicensee(s) shall be bound to and shall perform all obligations ofthe Licensee arising pursuant to this Agreement, notwithstanding any failure to specifically mention suchSublicensee(s) in any provisions in this Agreement giving rise to such obligations. 16.2 Licensor shall have a complete and unrestricted right to sell, transfer, lease or assign its rights andinterests in this Agreement to any domestic or foreign corporation or other business entity, provided that such transfereeagrees to be bound by all of the terms hereof. In the event that Licensor shall sell, transfer, lease or assign its rights andinterests in this Agreement, Licensor shall notify Licensee of such event. 23 Confidential XVII. TERMINATION 17.1 This Agreement may be terminated by Licensor by written notice, immediately upon the occurrence ofany of the following events: (a) If Licensee makes any unauthorized assertion of rights in the EnteraGam Marks, the EnteraGam URL, orthe Licensed Products, which is inconsistent with the Licensor’s interest therein and fails to cure samewithin [****] after the written notice thereof from Licensor. (b) If Licensee attempts to or actually sells, transfers, leases, pledges, sublicenses, assigns or otherwiseencumbers or disposes of this Agreement or any of Licensee’s rights or obligations hereunder not in strictcompliance with the provisions of this Agreement and fails to cure same within [****] after the writtennotice thereof from Licensor. (c) If Licensee ceases to engage in its business for more than [****]. (d) If Licensee fails to offer Licensed Products for sale for a period of [****] following the RedHill Launch,other than as a result of a breach of any Transaction Document by Licensor or compliance with anyapplicable law or regulatory directive. (e) If the insurance coverage required by this Agreement should be canceled for any reason and Licensee orLicensor, as appropriate, fails to cure same within [****] after the insurer’s notice thereof to Licensee orLicensor, respectively, provided that for purposes of this provision, in order to be deemed “cured”, theremay be no lapse in insurance coverage for any period during the Contract Term or thereafter as requiredpursuant to this Agreement. In the event that either party is at risk of a lapse in any insurance coveragerequired by this Agreement, such party shall immediately notify the other party upon the discovery thereofand update such other party continuously in efforts to cure such breach. In the event that any lapse incoverage occurs and is not curable, such breach shall be immediately deemed incurable and the non-breaching party may immediately terminate this Agreement. (f) If Licensee terminates the Supply Agreement for any reason, the Licensor may immediately terminate thisAgreement. 17.2 This Agreement may be terminated by either party as follows: If either party fails to perform or fulfill any other material obligation required to be performed or fulfilled by it in thetime and manner herein provided, or any representation and warranty made by either party shall any time cease to betrue and correct in all respects, whether as applicable to a party or to any other Person covered thereby and if suchdefault shall continue for [****] after receipt of written notice thereof from the non-defaulting party, then the non-defaulting party shall have the right to terminate this Agreement immediately by written notice of termination to thedefaulting party, provided that, in the event that either party violates any applicable anti-corruption or anti-briberyrelated laws and regulations, then the other party may terminate this Agreement24 Confidential immediately. Such right to terminate this Agreement shall be in addition to and shall not be prejudicial to any right orremedies, at law or in equity, which said non-defaulting party may have on account of such default. 17.3 This Agreement may be terminated at any time for any reason or no reason upon [****] prior writtennotice by Licensee without any additional liability except as otherwise incidental to or arising pursuant to or as a resultof this Agreement, provided that the preceding clause shall not be deemed to abrogate, cancel, or waive any provisionof this Agreement. Any notice of termination given by Licensee pursuant to this Section 17.3 shall be irrevocableunless such requirement is waived in writing by Licensor. In the event Licensee terminates this Agreement pursuant tothis Section 17.3, Licensor may immediately enter into negotiations and, upon notice to Licensee, execute definitiveagreements with any Person with respect to a license of any of the Licensor’s intellectual property rights, including,without limitation, those intellectual property rights subject to this License, subject only to the condition that suchdefinitive agreements may not take effect until the effective date of termination specified on the Licensee’s notice oftermination. 17.4 Licensor may terminate this Agreement if Licensee fails to (i) meet the Minimum Net Sales target in anyContract Year or (ii) if the RedHill Launch does not occur within [****] after the Effective Date of this Agreement,provided Licensor delivers termination notice to Licensee within [****] from the date Licensee notifies Licensor of anapplicable failure. Licensor may terminate this Agreement in the event of each and every such failure, and any failureto provide notice of termination within the timelines stipulated above in respect of any particular failure shall notpreclude Licensor from later terminating such Agreement in respect of a later breach. Termination of this Agreementshall constitute the only remedy Licensor is entitled to for such failures described in this Section 17.4, with no furtherliability by Licensee whatsoever. 17.5 Licensor may terminate this Agreement pursuant to Section 17.2 if Licensee fails to meet its obligationsunder Sections 2.1(c) or Section 4. Termination of this Agreement as aforesaid shall constitute the only remedyLicensor is entitled to for the failure described in this Section 17.5 (except with respect to a breach of Section 4.3) withno further liability by Licensee whatsoever. 17.6 Upon expiration or termination of this Agreement for any reason, the License granted hereunder shallimmediately terminate and be of no further force and effect, Licensee shall immediately cease all activities with respectto or in connection with the Licensed Products, and shall not thereafter use EnteraGam Marks on the LicensedProducts or on any promotional and packaging materials, labels, literature, stationary or other items bearing theEnteraGam Marks, and shall immediately cease using the EnteraGam URL and shall immediately transfer controlthereof to the Licensor. The following terms and conditions shall also apply in the event of every expiration ortermination of this Agreement: (a) Within [****] before the Expiration Date or within [****] after the Termination Date, Licensee shallprovide Licensor with a statement indicating the number and description of Licensed Products which it hason hand as of the date of expiration or termination25 Confidential and the amount of such inventory necessary to fill Licensee’s existing customer orders with suchdocumentation provided to Licensor. (b) Licensor shall have the option of conducting during Licensee’s regular business hours and upon priorcoordination with Licensee a physical inventory, either itself or through one or more agents, in order toascertain or verify such inventory. (c) The Licensor may itself use or license the use of EnteraGam Marks in any manner; and (d) The other Transaction Documents shall immediately terminate and be of no further force and effect exceptas otherwise set forth therein. 17.7 Upon expiration or termination of this Agreement for any reason, Licensor shall be entitled to allRoyalties due as of the date of expiration or termination. 17.8 Within [****] after expiration or termination, Licensee shall deliver and return to Licensor any and alldocuments embodying Licensor’s Confidential Information. In the event that this Agreement is terminated by Licensorpursuant to Section 17.4 and Section 17.5, Licensee shall also provide all physician-level prescription informationpertaining to all Sales of Licensed Product during the [****] during the Contract Term, along with all clinicalinformation and information relating to case studies and case series to the extent pertaining to the Licensed Product. 17.9 Neither the expiration nor earlier termination of this Agreement due to causes imputable to either partyshall relieve the other party from its duty of nondisclosure provided herein, or from obligations for payments then dueor accrued hereunder, or for any damage caused to either party. 17.10 Upon termination or expiration of this Agreement, all rights granted herein shall revert to Licensor,which may grant a license to others to use the EnteraGam Marks, the EnteraGam URL, and the Licensed Product inany way whatsoever. Licensee shall, thereafter, refrain from all further use of all of the foregoing. 17.11 Licensor shall have and hereby reserves all rights and remedies which it has, or which are granted to itby operation of law, to enjoin the unlawful or unauthorized use of the EnteraGam Marks, the EnteraGam URL, andthe Licensed Products, to collect royalties payable by Licensee pursuant to this Agreement. 26 Confidential 17.12 Bankruptcy: (a) If either party shall become insolvent under either the U.S. Bankruptcy Code or the Uniform CommercialCode of the State of New York, or shall make an assignment for the benefit of creditors, or files for anyrelief under any bankruptcy law or regulation in any jurisdiction or place, including, without limitation, theBankruptcy Code, or shall make an assignment for the benefit of creditors, or if either party shall be made adefendant in any proceeding under bankruptcy, insolvency, reorganization or receivership law, other thanan involuntary bankruptcy which is not stayed or discharged within [****] or if either party shall beadjudged bankrupt, or if a receiver or trustee for the property of either party shall be appointed, thisAgreement shall hereupon terminate at the option of the other party. (b) The parties hereby agree and intend that this Agreement is an executory contract governed by Section 365of the Bankruptcy Code and, in the event of the Licensor’s bankruptcy, Licensee shall have the protectionafforded to a licensee, upon rejection of the license agreement by the debtor-licensor or its representative,the option to either retain Licensee’s rights in the intellectual-property under the existing contract whilecontinuing to pay royalties, or to treat the executory contract as terminated. (c) In the event of Licensee’s bankruptcy, the parties intend that all Royalties payable under this Agreementfollowing the commencement of a bankruptcy case shall be deemed administrative priority claims under theBankruptcy Code because the parties recognize and agree that the bankruptcy estate’s enjoyment of thisAgreement will (i) provide a material benefit to the bankruptcy estate during its reorganization and (ii) denyLicensor the benefit of the exploitation of the rights through alternate means during the bankruptcyreorganization. (d) The parties acknowledge and agree that any delay in the decision of a debtor-in-possession or trustee of thebankruptcy estate to assume or reject the Agreement (the “Decision Period”) materially harms Licensor byinterfering with Licensor’s ability to alternatively exploit the rights granted under this Agreement during aDecision Period of uncertain duration. The parties recognize that arranging appropriate alternativeexploitation of the EnteraGam Marks, and the Licensed Product is a time-consuming and expensive processand that it is unreasonable for Licensor to endure a Decision Period of extended uncertainty. Therefore, theparties agree that the Decision Period shall not exceed [****]. (e) Licensor, in its interest to safeguard its valuable interests (including, without limitation, its intellectualproperty rights in the EnteraGam Marks and the EnteraGam URL), has relied on the particular skill andknowledge base of Licensee. Therefore, the parties acknowledge and agree that in a bankruptcy contextthis Agreement is a license of the type described by Section 365(c)(1) of the Bankruptcy Code and may notbe assigned without the prior written consent of Licensor in the event of any bankruptcy-related event, theactual or pending insolvency of the Licensee, or if the Licensee should enter, or during the time that theLicensee would be reasonably likely to enter, the zone of insolvency. 27 Confidential XVIII. INDEMNITY AND DISCLAIMER 18.1 Licensor hereby agrees to indemnify and hold the Licensee, it Affiliates (including its Sublicensee(s))and/or any of their related entities, officers, directors, employees, and/or agents (“Licensee Indemnitees”) harmlessagainst any and all legitimate bona fide claims, demands, causes of action, damages and judgments, solely in each andevery case of any third parties, to the extent arising out of: (a) the use of the EnteraGam Marks, the EnteraGam URLby the Licensee in compliance with all applicable laws and regulations and in accordance with this Agreement; (b) anymaterial breach by Licensor of this Agreement which results in a material adverse effect on the Licensee Indemnitees,including any breach of any representation or warranty made by Licensor in this Agreement, which results in a materialadverse effect on the Licensee Indemnities; or (c) Licensor’s negligence, recklessness, or willful misconduct, providedthat in each case Licensee shall give notice to Licensor within [****] after notification of each such claim, demand,cause of action or judgment and shall not, without the written consent of the Licensor (which written consent shall notbe unreasonably withheld), pay, compromise or settle any such claim, demand, cause of action or judgment. Licensee’sfailure to provide notice as aforesaid shall not relieve Licensor of its obligation under this Section 18 except to theextent that it can demonstrate that it has been materially prejudiced as a result of the failure. With respect to theforegoing indemnity, the Licensor agrees to indemnify and hold the Licensee Indemnitees harmless from and againstreasonable attorney’s fees, expert fees and court costs. The Licensor shall have the right to undertake and conduct thedefense of any claim or cause of action so brought and handle any such claim or cause of action with attorneys of itsown selection and in such case the indemnified party may participate in (but not control) the defense thereof at its solecost and expense. The provisions of this paragraph and Licensor’s obligations hereunder shall survive the expiration ortermination of this Agreement for a period of [****] after the termination or expiration of this Agreement, except withrespect to matters pertaining to regulatory violations, which shall survive until the expiration of all applicable statutes oflimitation. Notwithstanding anything stated in this paragraph, Licensor has no duty to indemnify or otherwise holdharmless the parties provided for herein to the extent the claims, demands, causes of action and judgments of any thirdparties are caused by Licensee’s (including any of Licensee’s Affiliates, any and all Sublicensee(s), and/or any of theLicensee Indemnitees’) breach of this Agreement, violation of applicable laws, or any negligence, recklessness, orwillful misconduct on the part of any of them. 18.2 Licensee hereby agrees to defend, indemnify and hold the Licensor, its Affiliates, and/or any of its theirrelated entities, officers, directors, attorneys, employees and/or agents (“Licensor Indemnitees”) harmless against fromand against any and all legitimate bona fide claims, demands, causes of action and judgments of any third parties to theextent arising out of: (a) Licensee’s (and any and all Affiliate(s’)) use, import, export, distribution, shipment,advertising, promotion, offering for sale and/or sale of Licensed Products and/or the promotional and packagingmaterial depicting such EnteraGam Marks not provided by Licensor; (b) Licensee’s negligence, recklessness, or willfulmisconduct; (c) any material breach by Licensee of this Agreement which results in a material adverse effect on theLicensor Indemnitees, including any breach of any representation and warranty of this Agreement which results in amaterial adverse effect on the Licensor Indemnitees; or (d) any claims or causes of action arising from or relating to theLicensee Responsibilities, provided that the Licensor shall give notice to the Licensee within [****] after notificationof each such claim, demand, cause of action or judgment and shall not,28 Confidential without the written consent of the Licensor (which written consent shall not be unreasonably withheld), pay,compromise or settle any such claim, demand, cause of action or judgment. Licensor’s failure to provide notice asaforesaid shall not relieve Licensee of its obligation under this Section 18 except to the extent that it can demonstratethat it has been materially prejudiced as a result of the failure. With respect to the foregoing indemnity, the Licenseeagrees to defend and hold the Licensor Indemnitees harmless at no cost or expense to the Licensor Indemniteeswhatsoever, including, but not limited to, reasonable attorney’s fees, expert fees and court costs. The Licensee shallhave the right to undertake and conduct the defense of any cause of action so brought and handle any such claim ordemand with attorneys of its own selection and in such case the indemnified party may participate in (but not control)the defense thereof at its sole cost and expense. The provisions of this section and Licensee’s obligations hereundershall survive for a period of [****] after the expiration or termination of this Agreement, except with respect to matterspertaining to regulatory violations, which shall survive until the expiration of all applicable statutes of limitation.Notwithstanding anything stated in this paragraph, Licensee has no duty to indemnify or otherwise hold harmless theLicensor Indemnitees as provided for herein to the extent the claims, demands, causes of action and judgments of anythird parties are caused by Licensor’s (including any of Licensor’s Affiliates, and/or any of the Licensor Indemnitees’)breach of this Agreement, violation of applicable laws, or any negligence, recklessness, or willful misconduct on thepart of any of them. 18.3 The expressed warranties, if any, contained in this Agreement are in lieu of all other warranties,guarantees, promises, affirmations or representations, express or implied, which could be deemed applicable to theLicense and to the Licensed Products manufactured, used or sold hereunder. NO EXPRESSED WARRANTIESAND NO IMPLIED WARRANTIES AS TO THE MERCHANTABILITY, FITNESS FOR ANY PARTICULARPURPOSE OR USE OR OTHERWISE, OF THE LICENSED PRODUCTS OTHER THAN THOSE WHICHMAY BE EXPRESSLY SET FORTH IN THIS AGREEMENT SHALL APPLY. THE PARTIES HEREBYDISCLAIM, AND HEREBY WAIVE, ALL OTHER WARRANTIES, GUARANTEES, CONDITIONS ANDLIABILITIES, EXPRESSED OR IMPLIED, ARISING BY LAW OR OTHERWISE. XIX. INSURANCE & LOSS 19.1 Licensee shall maintain, at its sole expense, and shall ensure that any and all of its Sublicensee(s)maintain, at their sole expense, the following insurance coverage, with a financially sound insurance company havingan [****], throughout the term of this Agreement [****]: (i) [****]. 19.2 Licensee shall, within [****] after execution of this Agreement, deliver to Licensor a certificate of suchinsurance from the insurance carriers, describing the scope of coverage and the limits of liability required by thisSection 19 and providing that the policy may not be canceled or amended without [****] prior written notice toLicensor. 19.3 Licensor shall maintain, at its sole expense, the following insurance coverage, with a financially soundinsurance company having [****], throughout the Contract Term [****]: [****].29 Confidential 19.4 Licensor shall, within [****] after execution of this Agreement, deliver to Licensee a certificate of suchinsurance from the insurance carriers, describing the scope of coverage and the limits of liability required by thisSection 19 and providing that the policy may not be canceled or amended without at least [****] prior written notice toLicensee. XX. NO JOINT VENTURE This Agreement does not create an agency, partnership, franchise, or joint venture. Nothing herein contained shall beso construed as constituting either party an agent of or authorizing either party to incur financial or any otherobligations on the other party’s behalf without authorization in writing. Nothing herein shall impose any fiduciaryduties on either party with respect to the other party hereto. In all respect the relationship of the parties is that ofindependent contractors. 30 Confidential XXI. FORCE MAJEURE Neither party shall be liable to the other for any loss, injury, delay or damage whatsoever suffered or incurred by theother party due to causes beyond such party’s control and which are not reasonably avoidable, including but notlimited to, acts of God, strikes or other labor disturbances, actions of third parties, war, act of terror, sabotage, animaldisease, regulatory changes or regulatory prohibitions, and any other cause or causes, whether similar or dissimilar tothose herein specified, which cannot be controlled or avoided by such party. XXII. CHOICE OF LAW & FORUM 22.1 This Agreement has been negotiated, prepared, executed and delivered in several jurisdictions, includingthe State of New York, United States of America. Accordingly, in order to establish with certainty that this Agreementwill be governed by one body of well-developed commercial law, the parties hereto have expressly agreed that thisAgreement shall be governed by, and construed in accordance with, the laws of the State of New York, applicable tocontracts executed and fully to be performed therein, to the exclusion of any other applicable body of governing lawincluding, without limitation, the United Nations Convention on Contracts for the International Sale of Goods. 22.2 The parties hereby consent to the jurisdiction of the United States District Court for the Southern Districtof New York in any dispute arising under this Agreement and agree further that service of process or notice in anysuch action, suit or proceeding will be effective if in writing and issued as provided in Article XIII of this Agreement. XXIII. WAIVER The failure of either party at any time or times to demand strict performance by the other of any of the terms, covenantsor conditions set forth herein shall not be construed as a continuing waiver or relinquishment of said rights or of anyother right hereunder, and each party may at any time demand strict and complete performance by the other of any ofthe terms, covenants or conditions set forth herein. XXIV. VALIDITY In the event that any one or more provisions or terms contained in this Agreement are found invalid or unenforceable,the validity or enforceability of this Agreement as a whole or of any remaining provisions or terms contained hereinshall not in any way be affected or impaired. If any clause, term, or provision of this Agreement should be found byany court or other finder of fact or of law to be legally unenforceable, or unreasonable with respect to scope, territory,duration, or otherwise, each party hereby requests and authorizes any such court or other finder of fact or of law toreform and redraft any such provision in a manner most closely approximating the original intent of the parties, so as torender such provision legally enforceable. 31 Confidential XXV. ENTIRE AGREEMENT 25.1 This Agreement, along with the other Transaction Documents, is the entire agreement between theparties hereto with respect to the subject matter hereof. This Agreement and the License granted herein shall be bindingupon and inure to the benefit of the parties and their respective successors, permitted assignees, heirs, executors andpersonal representatives. 25.2 The making, execution, and delivery of this Agreement has not been induced by any representations,statements or warranties, other than those expressly set forth herein. All the terms of this Agreement are herein set forthand neither this Agreement or any part hereof may be waived, modified, supplemented, or otherwise altered, unless bya writing signed by an officer of each party. XXVI. RESERVATION OF RIGHTS Any right not specifically granted herein to Licensee is expressly reserved by Licensor. For the avoidance of doubt,and without limiting anything to the contrary set forth in this Agreement, this Agreement imposes no restrictionswhatsoever of any kind on the Licensor or Licensee outside the Territory, and outside the Field except as expressly setforth herein in connection with a Competing Event. XXVII. SURVIVAL The obligations contained in I, X, XI, XIII, XIV, XVII, XVIII, XIX, XXII, XXV, XXVII, XXIX, XXX, XXXI, andXXXVI herein shall survive any termination of this Agreement. XXVIII. NONCIRCUMVENTION 28.1 Licensee shall engage in no activity which is designed or intended to result in the evasion orcircumvention of any of Licensor’s rights arising pursuant to this Agreement. This prohibition includes, withoutlimitation, the use of any one or more Sublicensee(s) to reduce the amount of any Royalty that would otherwise be paidto Licensor in the absence of any applicable sublicense(s), and any scheme or artifice designed to result in any delay,deferment, or reduction of the amounts actually received by Licensee upon any sale or transfer of the LicensedProduct. 28.2 Licensor shall engage in no activity which is designed, intended to, or which would result in the evasionor circumvention of any of the prohibitions imposed on Licensor pursuant to this Agreement. This prohibitionincludes, without limitation, the use of any one or more Affiliate(s) to engage in any commercial or competitive activitywhich the Licensor is prohibited from engaging in pursuant to the terms of this Agreement. XXIX. INTERPRETATION The headings of the sections of this Agreement are for convenience only and in no way limit or affect the terms orconditions of this Agreement. As used in this Agreement, any reference to gender shall include all genders and anyreference to the plural shall include the singular, and the32 Confidential singular shall include the plural. The word “or” is not exclusive. When a reference is made in this Agreement to asection, such reference shall be to a section of this Agreement, unless otherwise clearly indicated to thecontrary. Whenever the words “include,” “includes” or “including” are used in this Agreement they shall be deemedto be followed by the words “without limitation.” The words “hereof,” “herein” and “herewith” and words of similarimport shall, unless otherwise stated, be construed to refer to in this Agreement as a whole and not to any particularprovision of 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, unlessotherwise specified. XXX. LIMITATION OF LIABILITY IT IS THE EXPRESS INTENT OF THE PARTIES THAT NEITHER PARTY WILL BE LIABLE TO THEOTHER PARTY WHETHER IN CONTRACT, IN TORT OR OTHERWISE FOR INCIDENTAL ORCONSEQUENTIAL DAMAGES OR LOST PROFITS, LOST INCOME, OR LOST REVENUE, HOWSOEVERARISING, UNDER ANY THEORY, WHETHER IN LAW, EQUITY, OR CONTRACT, FOR ANY CLAIM ORCAUSE OF ACTION BROUGHT UNDER THIS CONTRACT, OR OTHERWISE, EVEN IF ADVISED OFTHE POSSIBILITY OF SUCH DAMAGES. THE PARTIES HEREBY AGREE TO DO ANY AND ALLTHINGS AND EXECUTE ANY AND ALL DOCUMENTS NECESSARY TO EFFECUATE THE INTENTAND PURPOSES OF THIS PROVISION. XXXI. NO THIRD-PARTY BENEFICIARIES; PARTIES IN INTEREST No provision of this Agreement will in any way inure to the benefit of any third person so as to constitute any suchperson a third-party beneficiary of this Agreement or otherwise give rise to any cause of action in any person not aparty hereto. The provisions of this Agreement shall inure solely to the benefit of the named undersigned partieshereto, and shall be binding in their successors, heirs, and assigns. XXXII. ADVERTISING; PUBLICITY Each party hereby agrees it will not use the name, insignia, symbol, logo or other identifying information of the otherparty hereto orally, writing or in electronic format in any advertising, press release, promotional materials or otherwisewithout the prior written consent of the other party. Neither party shall make any press release or make any publicstatement pertaining to the subject matter of this Agreement (but not, for the avoidance of doubt, unless reference ismade to the other party or the terms of this Agreement, with respect to activities in exercise of its rights under thisAgreement) without the prior written consent of the other party, which approval will not be unreasonably withheld ordelayed, except solely to the minimum extent required by the applicable law, regulations or rules governing anyapplicable public securities exchange or automated quotation system (including a public offering prospectus),disclosures of information for which consent has previously been obtained, and information of a similar nature to thatwhich has been previously 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 communication thereof. Forthe avoidance of doubt, the parties may issue press releases regarding33 Confidential the fact that this Agreement has been signed and the nature of the agreement so long as they do not describe thespecific provisions hereof without approval from the other party XXXIII. [****] [****]. XXXIV. [****] TRANSFER Immediately following the Effective Date, Licensor shall take all steps necessary to assign to Licensee, Licensor/srights and obligations (with respect to the period following the assignment) the [****]. Until assignment of theaforesaid agreement to Licensee, to the maximum extent permitted by applicable law, during the Contract Term of theLicense Agreement, at Licensee’s request, Licensor shall transfer, at Licensor’s cost, [****] to Licensee, and to theextent necessary grant and/or assign Licensee with a license to [****]. Licensee will reasonably cooperate withLicensee’s efforts to obtain and/or maintain a [****] to permit Licensee to competitively [****]. XXXV. COUNTERPARTS This Agreement may be executed in any number of counterparts, each of which will be an original, but all of whichtogether will constitute one instrument. XXXVI. FURTHER ASSURANCES Each party will use its commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause tobe done, all things necessary to consummate the transactions contemplated by this Agreement and the TransactionDocuments and cure all defects in the drafting hereof and thereof. 34 Confidential IN WITNESS WHEREOF, the parties hereto have caused this License Agreement to be executed as of theEffective Date. LICENSOR LICENSEE ENTERA HEALTH, INC. REDHILL BIOPHARMA, INC. By:/s/ [****] By:/s/ Dror Ben-Asher; /s/ Micha Ben ChorinDate:4/11/17 Name:Dror Ben-Asher; Micha Ben ChorinTitle:[****] Title:CEO; CFO 35 Confidential Exhibit A[****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] 36 Confidential Exhibit BAuthorized Licensed Products and [****] · [****] 37 Confidential Exhibit CContract Term The initial Contract Term shall be four (4) years from the Effective Date, and shall expire on the [****] of the EffectiveDate, unless renewed by action of the parties as set forth herein. At least [****] days, but no more than [****], before the expiration of the Contract Term, Licensee may requestrenewal of this Agreement for [****] period, and such renewal may be granted by Licensor in its sole discretion.Licensor shall notify Licensee [****] from the receipt of the request for renewal of its decision to renew or not renewthis Agreement. If the parties do not mutually agree to renew this Agreement, this Agreement shall expire [****] unless earlierterminated in accordance with this Agreement. 38 Confidential Exhibit DRoyalty Rate In consideration of the License of the EnteraGam Marks, and the EnteraGam URL and all other rights grantedhereunder, Licensee (including any and all Affiliate(s)) shall pay to Licensor the following [****] (and any and allAffiliate(s)) during [****] during the Contract Term as follows: [****] The royalties that will be payable in connection with any sublicense of the License will be determined with the mutualagreement of the parties at the time that the Licensor grants consent to such sublicense. 39 Confidential Exhibit ERegulatory Compliance Obligations At all times and with respect to all matters pertaining to this Agreement and the other Transaction Documents and thetransactions contemplated hereunder and thereunder, each party and any and all of its Affiliate(s), and third-partyvendor(s) and supplier(s) shall comply with: (a) Any and all applicable local, state, national, and international laws, regulations, requirements, and rules,including, without limitation, all applicable anti-trust, anti-bribery, anti-fraud and abuse, anti-kickback, anti-retaliation, unfair and deceptive trade practices, books-and-record, securities, tax, and import/export lawsand regulations, and the listing requirements of any applicable securities exchanges. (b) Without limiting the generality of the foregoing, in carrying out its responsibilities under this Agreement,each party shall comply with all applicable anti-bribery laws, including, without limitation, the U.S. ForeignCorrupt Practices Act of 1977, as amended, and the UK Bribery Act. (c) Without limiting the generality of the foregoing, each party represents to the other party that, in carrying outits responsibilities under this Agreement, neither the representing party nor any of its officers, directors,employees, agents or other representatives will pay, offer or promise to pay, or authorize the payment of,any money, or give or promise to give, or authorize the giving of, any services or anything else of value,either directly or through a third party, to any official or employee of any governmental authority orinstrumentality, or of a public international organization, or of any agency or subdivision thereof, or to anypolitical party or official thereof or to any candidate for political office corruptly for the purpose of: (i)influencing any act or decision of that person in his official capacity, including a decision to fail to performhis/her official functions with such governmental agency or instrumentality or such public internationalorganization or such political party; (ii) inducing such person to use his/her influence with suchgovernmental agency or instrumentality or such public international organization or such political party toaffect or influence any act or decision thereof; or (iii) securing any improper advantage. (d) No Person herein named shall, will, or may discriminate against any employee or applicant for employmentbecause of age, race, color, creed, national origin or sex, and all Persons herein named shall comply with allapplicable federal, state and local fair employment practices laws, including, without limitation, allprovisions of Executive Order 11246 of September 24, 1965, the Rehabilitation Act of 1973, and theVietnam Era Veterans Readjustment Assistance Act of 1974 and any amendments thereto. (e) Each party shall ensure that all activities undertaken by all Persons herein named complies with, and that allactions to be performed by such party and any and all Persons acting on its behalf in connection with thetransactions contemplated herein40 Confidential shall in all respects comply with, the Federal False Claims Act, Federal Anti-Kickback Laws, the FederalStark I-III Laws, and Section 1128G of the Social Security Act (which was added by Section 6002 of theAffordable Care Act). Without limiting the foregoing, each party shall immediately notify the other party upon learning that any of theforegoing covenants are breached by either such party or any of their Affiliate(s), third-party vendor(s) or supplier(s),and if any of the representations and warranties set forth in this Agreement shall at any time cease to be true and correctwith respect to any of them. 41 Confidential Exhibit FInitial JCC Members · [****] 42 Confidential Exhibit GStudies and Publications [****] 43Exhibit 4.20ConfidentialTHE SYMBOL "[****]" DENOTES PLACES WHERE PORTIONS OF THIS DOCUMENT HAVE BEEN OMIITTED PURSUANTTO A REQUEST FOR CONFIDENTIAL TREATMENT. SUCH MATERIAL HAS BEEN FILED SEPARATELY WITH THESECURITIES AND EXCHANGE COMMISSIONEXCLUSIVE COMMERCIALIZATION AGREEMENTTHIS EXCLUSIVE COMMERCIALIZATION AGREEMENT is made and entered into as of August16, 2017 (the “Effective Date”), by and between ParaPRO LLC, an Indiana company, having a place of business at11550 North Meridian Street, Suite 290, Carmel, Indiana 46032, USA and all Affiliates thereof (“ParaPRO”) andRedHill Biopharma, Inc. a Delaware corporation, having an address at 8045 Arco Corporate Drive, Suite 120,Raleigh, North Carolina 27617 and all Affiliates thereof (“RedHill”). RedHill and ParaPRO each may be referred toherein individually as a “Party,” or collectively as the “Parties”.WHEREAS, ParaPRO owns, develops, markets and manufactures Esomeprazole Strontium delayed releasecapsules (49.3mg) and wishes to appoint RedHill, and RedHill wishes to accept such appointment, as the exclusivePromoter of the Product for 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 the rules,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 more intermediaries,controls, is controlled by, or is under common control with such first person. For purposes of this definition only,“control” and, with correlative meanings, the terms “controlled by” and “under common control with” will mean thepossession, directly or indirectly, of the power to direct the management or policies of an entity, whether through theownership of fifty percent or more of the voting securities or other ownership interest of a business entity (or, withrespect to a limited partnership or other similar entity, its general partner or controlling entity) of the other organizationor entity or by contract relating 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 andrequirements of governmental authorities in effect from time to time, including those relating to the manufacture,marketing, promotion, distribution (including storage, handling and transportation) and sale of the Product in the Execution VersionSTRICTLY CONFIDENTIALTerritory including the Act, the FDA Guidance for Industry – Supported Scientific and Educational Activities, “fraudand abuse”, anti-kickback, consumer protection and false claims statutes and regulations.1.4 “Bankruptcy Event” means a company: (i) becomes insolvent or admits its inability to pay its debts generallyas they become due; (ii) becomes subject, voluntarily or involuntarily, to any proceeding under any domestic or foreignbankruptcy or insolvency law, which is not fully stayed within [****] days or is not dismissed or vacated within[****] days after filing; (iii) is dissolved or liquidated or takes any corporate action for such purpose; (iv) makes ageneral assignment for the benefit of creditors; or has a receiver, trustee, custodian or similar agent appointed by orderof any court of competent jurisdiction to take charge of or sell any material portion of its property or business.1.5 “Business Day” means a day that is not a Saturday or Sunday or any other day on which banks in New York,NY and/or Israel are authorized or required by law to be closed.1.6 “Calendar Year” means each one-year period beginning January 1 and ending on December 31.1.7 “Calendar Quarter” means each period of three consecutive months starting on January 1, April 1, July 1or October 1.1.8 “Commercialization Fee” has the meaning set forth in Section 9.1 of this Agreement.1.9 “Commercialization Plan” means the Commercialization Plan annexed hereto as Annex A, as may beamended from time to time by the Parties which shall include the geographical territories [****] and other plansrelating to commercialization of the Products as the JCC deems appropriate.1.10 “Detail” means any in-person sales presentation of the Product to physicians in a manner that is customary inthe industry for promoting a prescription pharmaceutical product. When used as a verb, “Detail” shall mean to engagein a Detail, also known as “Detailing”.1.11 “FDA” means the United States Department of Health Food and Drug Administration.1.12 “Field of Use” means all labeled indications for the Product.1.13 “Generic Equivalent” means receipt by a third-party of an approval for marketing by the FDA pursuant to anabbreviated new drug application of a generic delayed-release esomeprazole strontium drug product in a strength of49.3 milligrams referencing as bio-equivalent the Product as approved pursuant to New Drug Application 20-2342 (i.e.such drug product is approved as an “AB” therapeutic equivalent to the Product in the Approved Drug Products withTherapeutic Equivalence Evaluations published by the FDC Center for Drug Evaluation and Research)1.14 “JCC” shall have the meaning set forth in Section 5.1.2 ststststststExecution VersionSTRICTLY CONFIDENTIAL1.15 “PIRs” means, collectively, Product Labels and Inserts and Promotional Materials.1.16 “Product” means Esomeprazole Strontium delayed release capsules in all formulations and strengths, and/orany other additional product(s) determined by the Parties to be subject to this Agreement following the Effective Date.Any reference to “Product” shall mean and be deemed to refer to each Product subject to this Agreement at any time.1.17 “Product Copyright” shall mean all copyrightable subject matter included in the PIRs and the Product trainingprograms and materials developed and produced in accordance with this Agreement, whether or not such copyright hasbeen registered and whether or not such materials have been published.1.18 “Product Label and Insert” means (a) all labels and other written, printed or graphic matter affixed to anycontainer, packaging or wrapper utilized with the Product or (b) any written material physically accompanying theProduct, including Product package inserts.1.19 “Product Trademarks” means (a) any Trademarks relating to the Product and the registrations thereof, (b)any pending or future Trademark registration applications relating to the Product, (c) any unregistered Trademark rightsrelating to the Product as may exist through use prior to or as of the date hereof, (d) any current or future modificationsor variants of any of the foregoing Trademarks, and (e) any future Trademarks adopted by ParaPRO for use inconnection with the Product, in each case excluding the ParaPRO Trademark and trade name.1.20 “Promotion” and “Promotional Activities” means those activities customary in the industry by apharmaceutical company’s sales force to implement marketing plans and strategies aimed at encouraging the use of aprescription pharmaceutical product, including Detailing. When used as a verb, “Promote” or “Promoting” meansengagement in such activities. When used as a noun, “Promoter” means a person or entity engaged in such activities.1.21 “Promotional Materials” has the meaning set forth in Section 3.4.1.22 “Regulatory Approval” means the obtaining of all necessary regulatory approvals (including the obtainmentof pricing and reimbursement approval) required from all applicable Regulatory Authorities in the Territory in order tocommercially sell or market the Product for human consumption in such Territory, and satisfaction of any relatedapplicable regulatory registration and notification requirements (if any).1.23 “Regulatory Authority” means any applicable governmental authority regulating or otherwise exercisingauthority with respect to the manufacture, development and commercialization of the Product in the Territory.1.24 “Sample” means a standard sample unit of Product consistent with industry practices, subject to the provisionsof Section 3.7.3 Execution VersionSTRICTLY CONFIDENTIAL1.25 “Specialty” means gastroenterologists.1.26 “Tax” means, except as otherwise addressed herein, all federal, state, local, foreign and other income, grossreceipts, 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 property gains, or windfall profits, together with any interest,additions or penalties with respect thereto and any interest in respect of such interest, additions or penalties determinedor assessed by a governmental authority.1.27 “Term” shall be as defined in Section 18.1.1.28 “Territory” shall mean the [****] geographical territories within the United States and a designated exclusivephysician call plan for physicians in the Specialty, as well as additional geographical territories and [****] mutuallyagreed by the Parties as set out in the Commercialization Plan. RedHill shall, subject to the terms of this Agreement,implement its rights and obligations with respect to the geographical territories [****], provided it commencesimplementation with respect to [****] following the Effective Date.1.29 On ParaPRO’s written request given not more than [****], RedHill shall provide, a report detailing the [****].Without derogating from the foregoing, the Parties may mutually agree to expand the Territory to other territoriesand/or to expand the reach to [****], as shall mutually be determined in the Commercialization Plan and/or through theJCC. Final approval for expansion will be provided by both Parties.1.30 “Third Party(ies)” means any party other than ParaPRO, RedHill and their respective Affiliates.1.31 “Trademarks” means any trademark, servicemark, trade dress, brand mark, certification marks, internetdomain names, trade name, brand name, corporate name, logo, business symbol, and other indicia of source, whetheror not registered, and all registrations and applications therefor including all extensions, modifications, divisions andrenewals of the foregoing.1.32 “[****]” means a [****]. For the avoidance of doubt, each [****], will be considered a “[****]” for thepurpose of this Agreement. [****].1.33 [****](collectively, the "Data Source").1.34 Interpretation. As used in this Agreement, any reference to gender shall include all genders and any referenceto the plural shall include the singular, and the singular shall include the plural. When a reference is made in thisAgreement to a section, such reference shall be to a section of this Agreement, unless otherwise clearly indicated to thecontrary. Whenever the words “include,” “includes” or “including” are used in this Agreement they shall be deemedto be followed by the words “without limitation.” The words “hereof,” “herein” and “herewith” and words of similarimport shall, unless otherwise stated, be4 Execution VersionSTRICTLY CONFIDENTIALconstrued to refer to in this Agreement as a whole and not to any particular provision of this Agreement, and annex,article, section, paragraph, exhibit, annex and schedule references are references to the annex, articles, sections,paragraphs, exhibits, annexes, and schedules of this Agreement, unless otherwise specified. The captions contained inthis Agreement are for convenience only and shall not be deemed a part hereof or affect the interpretation orconstruction of any provision hereof.2. APPOINTMENT AND GRANT OF RIGHTS2.1 Appointment; Grant of Rights. ParaPRO hereby appoints RedHill, together with its Affiliates, and grants toRedHill and its Affiliates, the exclusive (including as to ParaPRO) right and license to Promote and commercialize theProduct to physicians in the Specialty in the Territory and the non-exclusive right and license to promote and marketthe Product in the Field of Use.2.2 Limitations on Grant of Other Rights. ParaPRO shall not, and shall not permit or authorize any Third Partyto market, commercialize or otherwise Promote the Product (and/or Esomeprazole Strontium delayed release capsulesin any other dosage) in the Specialty in the Territory. ParaPRO shall have the right to Promote and otherwise marketthe Product within the Specialty and outside the Territory (i.e., in geographic territories [****] not included in theTerritory) or outside the Specialty. Furthermore, throughout the Term, ParaPRO will continue to supply Product to[****] and other customers in the ordinary course of business according to orders received.2.3 Continued Development; Regulatory Authorities. ParaPRO shall (i) use commercially reasonable efforts tocontinue development of the Product and (ii) contact and communicate with applicable Regulatory Authoritiesregarding the Product (including market authorization). All regulatory matters regarding the Product, that relates to thecommercialization of the Product during the term of this Agreement, as well as all filings in connection therewith, shallbe the obligation and responsibility solely of ParaPRO, subject to the participation by RedHill as requested by the JCCand RedHill’s right to contact and communicate directly with Regulatory Authorities with respect to matters relating toRedHill and its performance under this Agreement. Each Party shall promptly provide the other Party with copies or adescription of all communications received from any Regulatory Authority concerning the Product and shall promptlysubmit to the other Party copies of all communications and filings concerning the Product made to any RegulatoryAuthority during the Term. Without derogating from the foregoing, ParaPRO shall keep RedHill informed of theregulatory status of the Product and all developments related thereto, by periodic written reports as well as additionalreports provided promptly following any material changes in regulatory status and material occurrences regardingdevelopment of the Product and shall authorize RedHill to access all regulatory data/correspondence relevant to theProduct.5 Execution VersionSTRICTLY CONFIDENTIAL3 COMMERCIALIZATION PLAN; PROMOTIONAL ACTIVITIES3.1 Commercialization Plan. The Parties have developed the initial commercialization plan annexed hereto asAnnex A (the “Commercialization Plan”). For the avoidance of doubt, RedHill’s undertakings in relation to thenumber of territories and related promotion activities pursuant to the Commercialization Plan are subject to availabilityof, among other things, [****], as provided herein, as well as availability of [****] and adequate [****] to supportsuch activities.3.2 Promotional Activities. During the Term, RedHill shall be responsible for the Promotion andcommercialization of the Product for the Field of Use in the Specialty in the Territory and RedHill shall utilize itscommercially reasonable efforts to aggressively market the Product [****]. In the event [****], the Parties, through theJCC, will discuss such situation to arrive at a mutually agreeable course of action. RedHill shall deploy salesprofessionals in the Territory in accordance with the Commercialization Plan and shall be responsible for allPromotional activities in relation to its own sales professionals. RedHill shall not be prohibited from undertakingPromotional Activities with respect to the Product that are in excess of those for which RedHill is responsible under thethen current Commercialization Plan, provided that such excess Promotional Activities are not inconsistent with theCommercialization Plan and are in compliance with Applicable Laws. In implementing the Commercialization Plan,Promoting the Product in the Territory and otherwise exercising its rights and fulfilling its obligations under thisAgreement, RedHill shall have full discretion with respect to [****] (including with respect to [****]). RedHill mayengage Third Parties for the performance of all or any of RedHill's obligations hereunder provided that RedHill shallprovide ParaPRO with at least [****] prior notice thereof and RedHill shall remain liable to ParaPRO for performanceof its obligations hereunder. RedHill may provide RedHill’s sales representatives with sales bonuses as incentives formeeting performance goals, all as determined by RedHill in its sole discretion.3.3 Generic Equivalent. Notwithstanding anything in this Agreement to the contrary, in the event of the sale intothe Territory of a Generic Equivalent for the Product, RedHill shall may, in its sole discretion, limit or discontinue all orany part of its ongoing Promotional activities.3.4 Promotional Materials. ParaPRO shall, at its own expense, provide RedHill in a timely manner with thenecessary promotional materials and quantities thereof as outlined in the Commercialization Plan that may include:[****] (“Promotional Materials”) that are consistent with the then current Commercialization Plan and that areconsistent with any such materials provided to ParaPRO sales personnel. ParaPRO shall own all rights, includingcopyrights in such Promotional Materials. ParaPRO shall ensure that all Promotional Materials are in strict compliancewith all Applicable Laws. The Parties may mutually agree on the transfer to RedHill of responsibilities related toPromotional Materials.6 Execution VersionSTRICTLY CONFIDENTIAL3.5 Statements. Each Party shall make, and shall permit its representatives to make, only such statements andclaims regarding the Product, including as to efficacy and safety, as are consistent with the PIRs. Without limitation tothe foregoing, each Party shall not, and shall not permit its representatives, to make any untrue or misleading statementsor comments about the Product, and/or take any action that jeopardizes or could reasonably be expected to jeopardizethe goodwill or reputation of the other Party or its products, including the Product.3.6 Training. ParaPRO shall train RedHill’s sales managers and trainers to assist RedHill in the fulfillment of itsobligations under this Agreement. Such training provided by ParaPRO shall comply with all Applicable Laws. Inconnection therewith, ParaPRO shall provide such trainers and lecturers as RedHill may deem reasonably necessary.RedHill shall have the right to review and comment on training materials from medical, legal and regulatoryperspectives. ParaPRO shall, in addition to the aforementioned training of RedHill’s sales managers and trainers,designate and make available during regular business hours at least [****] to respond to inquiries from RedHill's salesmanagers and trainers. ParaPRO 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 as RedHill shallreasonably require and request.All RedHill employees engaged in the promotion of the Product within the Territorywill be trained to meet competency standards relating to their knowledge of the Product and all promotional materialsand receive reasonable additional training from ParaPRO to maintain said competence to Promote the Product.3.7 Samples. ParaPRO shall make available to RedHill any sampling program it utilizes in the Promotion of theProduct. Initially, such sampling program is anticipated to provide a [****] of the Product to [****]. If any alterationsto the sampling program are enacted, RedHill will be consulted and must approve alterations that impact the Specialtyin the Territory.3.8 Savings Clause. 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 promotional activity, to theextent that such Party believes, in its reasonable judgment and in good faith, that such obligation, use of PromotionalMaterials or other promotional activity: (i) violates any Applicable Law; (ii) violates a written corporate policy of suchParty; 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 otherParty if and when it formulates such a belief and the Parties shall discuss, in good faith, how best to alter the relevantobligation, Promotional Material or other promotional activity so that it does not have the effect described in item (i),(ii) or (iii) above.7 Execution VersionSTRICTLY CONFIDENTIAL4. Trademark License.4.1 ParaPRO hereby grants RedHill the [****] to use any Product Trademarks and Product Copyrights in theTerritory in connection with the Promotion of the Product, subject to the provisions of this Agreement. RedHill mayinclude its name on Promotional Materials in coordination with ParaPRO.4.2 Whenever RedHill uses any Product Trademarks in promotion or in any other manner in connection with theProduct, RedHill shall provide ParaPRO adequate time to review and approve promotional materials, subject torelevant laws and regulations, and to ensure that they clearly indicate ParaPRO's ownership of such ProductTrademarks and future Product Trademarks. When using any Product Trademarks under this Agreement, RedHillundertakes to comply with all laws and regulations pertaining to trademarks in force at any time in the Territory.RedHill shall not at any time do, cause to be done, or permit any act or thing inconsistent with, contesting or in anyway impairing such ownership. RedHill acknowledges and agrees that ParaPRO or its Affiliates, as the case may be,are the owners of all rights, title and interest in and to any Product Trademarks and the goodwill now and hereafterassociated therewith and RedHill agrees that all use of any Product Trademarks shall inure to the benefit of and be onbehalf of ParaPRO. RedHill acknowledges that nothing in this Agreement shall give RedHill any right, title or interestin or to any Product Trademarks other than the right to use such Product Trademarks in accordance with Section 4.1hereof.4.3 RedHill (upon written request of ParaPRO) shall assist ParaPRO in safeguarding its full rights, title and interestin and to any Product Trademarks, Product Copyrights and all other intellectual property relating to the Product.4.4 RedHill shall not undertake any action to register or renew any of the Product Trademarks (or any Trademarksimilar thereto).5. JOINT COMMERCIALIZATION COMMITTEE5.1 Within [****] following the Effective Date, the Parties shall establish a joint commercialization committee(“JCC”), with up to [****] members being appointed by ParaPRO, of which one shall be designated the “ParaPROProject Leader”, and up to [****] members being appointed by RedHill, of which one shall be designated the“RedHill Project Leader”. All such representatives shall be individuals of suitable authority and seniority withsignificant and relevant experience and expertise. Each Party may remove any member appointed by it for any reasonor no reason and appoint another member in his or her stead. Any appointment or removal shall be notified to the otherParty in writing.5.2 The JCC shall be responsible for ensuring full cooperation between the Parties in implementing this Agreementand for monitoring compliance with the Agreement and the Commercialization Plan. The JCC shall discuss, inter alia,marketing, promotion and sales strategy for the Promotion of the Product in the Territory.8 Execution VersionSTRICTLY CONFIDENTIAL5.3 The ParaPRO Project Leader and the RedHill Project Leader shall facilitate the flow of information andotherwise promote communications and collaboration within and among the Parties, the JCC, and any other sub-committees or teams that the JCC may appoint or constitute.5.4 The JCC shall hold meetings at such times and places as agreed between the members of the JCC, but in noevent less frequently than following every Calendar Quarter to examine the number of [****] and theCommercialization Fee payable. The JCC may conduct meetings in person or by teleconference or videoconference orother means. Meetings shall be chaired alternatively by the ParaPRO Project Leader and the RedHill Project Leader.Each Party shall only be responsible for its own costs related to the JCC and meetings. The Project Leader conductingthe meeting also will be responsible for taking and distributing the minutes. At and between meetings of the JCC, eachParty shall keep the other fully and regularly informed as to its progress with its respective tasks and obligations underthe Agreement and shall make themselves available to the other members of the JCC for communication purposes.5.5 At each JCC meeting, at least [****] appointed by RedHill and [****] appointed by ParaPRO present inperson, by teleconference or videoconference or by other means shall constitute a quorum. Each Party shall have equalvoting power, whether represented by [****] committee members, on all matters before the JCC and, unlessspecifically determined otherwise, ParaPRO will have the final tie breaking vote on all topics and activities under itsresponsibility and RedHill will have a final tie breaking vote on all topics and activities under its responsibility.5.6 By mutual consent of the members appointed by both Parties, such consent not to be unreasonably withheld,conditioned or delayed, either Party may invite other, non-voting, persons to attend appropriate meetings of the JCC.5.7 The JCC may act without a meeting if prior to such action the JCC members agree regarding such action and awritten consent thereto is signed by both Project Leaders.5.8 The JCC may amend or expand upon the foregoing procedures for its internal operations by unanimous writtenconsent.5.9 The JCC shall not have any power to amend this Agreement or bind or incur liability on behalf of either Partyhereto without such Party’s express prior written authorization, and shall have only such powers as are specificallydelegated to them hereunder.5.10 Notwithstanding the regular meeting schedule of the JCC, a meeting of the JCC may be called by either Partyon [****] written notice to the other, unless such notice is waived by the other Party. In the event of any meeting calledpursuant to a notice under this Section 5.10, the Party calling the meeting shall provide with the notice an agenda forthe meeting together with the information that such Party believes is relevant for the items to be discussed. NeitherParty shall call more than [****] additional meetings per Calendar Year for the JCC under this Section 5.10 withoutthe other Party’s consent.9 Execution VersionSTRICTLY CONFIDENTIAL5.11 The JCC shall, among its other authorities, have the authority to establish and appoint sub-committees, as theJCC deems necessary. All decisions of a subcommittee are subject to approval by the JCC. The JCC may prescriberules of procedure for the foregoing subcommittees. In the event that any such other subcommittees fail to reachagreement on an issue within its respective area of oversight, the matter shall be referred to the JCC.5.12 Unless otherwise expressly stated, nothing contained in this Agreement may be deemed to make any memberof the JCC a partner, agent or legal representative of the other, or to create any fiduciary relationship for any purposewhatsoever. No member of the JCC shall have any authority to act for, or to assume any obligation or responsibility onbehalf of, any other member of the JCC, or the other Party.6. SALE, MANUFACTURE AND SUPPLY OF PRODUCT6.1 During the Term, ParaPRO shall continue to be responsible to take all actions in relation to thecommercialization of the Product in the Territory (other than Promotion of the Product which is RedHill’sresponsibility pursuant to this Agreement), including:6.1.1 [****].6.1.2 [****].6.1.3 [****].6.1.4 [****].6.2 All sales of the Product in the Territory shall be invoiced by [****].6.3 All terms of sale, including policies concerning pricing, credit terms, cash discounts and returns andallowances, shall be set by [****] consistent with its normal internal selling and past practices [****]. Withoutderogating from the foregoing, [****] ParaPRO shall inform RedHill of [****] at approximately the same time.6.4 [****] shall not accept any customer orders for the Product. All customer orders for the Product shall bereceived and executed by [****] or its designee. If [****] receives any orders, it shall promptly refer such to [****].6.5 [****] shall supply the Product during the Term in sufficient quantities to timely satisfy orders for the Productin the Territory. [****] shall maintain reasonable inventory levels of the Product in order to ensure its ability to fulfillits obligations hereunder. All orders for Product shall be subject to acceptance by [****], which acceptance shall notbe unreasonably withheld.6.6 In the event that [****] fails to supply the Product through the wholesaler channel and available for retailordering, as required pursuant to this Agreement for any reason or no reason, which failure results in lost sales in theTerritory, the Parties shall meet and attempt to negotiate a mutually agreeable and commercially reasonable solution. Ifthe Parties cannot reach such an agreement within a reasonable period, the matter shall, at the request of either Party, bereferred to a designated senior executive of each Party for10 Execution VersionSTRICTLY CONFIDENTIALresolution. In the event that such senior executives are unable to reach agreement within [****] of the date of referral,the matter shall be resolved, at the request of either Party, by a third party acceptable to both Parties or some othermechanism agreed by both Parties.6.7 [****] shall have the sole responsibility and right to accept any returned Product in accordance with [****]returns policy. [****] shall not solicit the return of any Product and shall not receive or accept any returned Product. Inthe event that any such Product is inadvertently returned to [****], [****] shall promptly ship such Product to [****],along with any documentation or explanation [****] receives regarding the reason for the return, at [****] cost andexpense.6.8 ParaPRO shall be responsible for all aspects of managed care in connection with the Product, including [****].ParaPRO shall communicate with RedHill sales management on a Calendar Quarterly basis regarding such managedcare activities.6.9 For the avoidance of doubt, ParaPRO shall be responsible for all costs and expenses of its performance underthis Agreement. For the avoidance of doubt, RedHill shall be responsible for all costs and expenses of its performanceunder this Agreement.6.10 If there is a change in market conditions, which materially affects the economics of this Agreement, the Partieswill discuss modifications to this Agreement in good faith to address such changed market conditions. For theavoidance of doubt, the discussions will not be held in the framework of the JCC and neither Party is required to agreeto any modifications to the terms of this Agreement.7. INFORMATION; REPORTING; RECALLS7.1 Information. Each Party shall promptly notify the other Party of receipt of information from a RegulatoryAuthority that: (i) raises any material concern regarding the safety or efficacy of the Product, or would affect theProduct Label and Insert, Promotion and/or sale of the Product; (ii) indicates a potential material liability for eitherParty relating to the Product; (iii) is reasonably likely to lead to a recall or market withdrawal of the Product; or (iv) isreasonably likely to impact the manner in which a Party satisfies its obligations hereunder.7.2 Adverse Experience Reporting. RedHill shall give ParaPRO notice of any Product complaint it receives,including but not limited to any adverse drug experience (as defined in 21 CFR 314.80 or any successor provisionthereto) of which RedHill obtains information in accordance with the following procedure:7.2.1 Information concerning any adverse drug experience associated with the Product shall be reported toParaPRO’s designated medical liaison within [****] Business Days after initial receipt of such information by callingthe Adverse Event number (855-628-7622) or completing the MKT-010-FRM1-003 form;7.2.2 RedHill's report to ParaPRO shall contain: (i) the date the report was received by RedHill; (ii) the nameof the reporter; (iii) the address and telephone number11 Execution VersionSTRICTLY CONFIDENTIALof the reporter; (iv) occupation; (v) patient information including identifier, age or date of birth at the time of event, sexand weight; (vi) product information and (vii) an indication of the adverse drug experience; and7.2.3 All other Product complaints not covered by 7.2.1 above shall be reported to ParaPRO by calling theProduct complaint number (855-628-7622) within [****] Business Days after initial receipt of such complaint.7.3 ParaPRO shall be responsible for all activities relating to medical surveillance within the Territory, including[****]. Without derogating from the foregoing, ParaPRO shall investigate all adverse drug experiences and non-clinical complaints associated with the Product, including those reported to ParaPRO by RedHill, and, as appropriate,report such information to the FDA. In addition, ParaPRO shall provide RedHill with a summary of all adverse drugexperiences and clinical complaints received by ParaPRO, during each Calendar Quarter and all material comments ofthe FDA with respect thereto within [****] days after the end of such Calendar Quarter; provided, however, thatParaPRO shall provide RedHill prompt written notice of any adverse side effect experienced in response to the use ofthe Product.7.4 Product Recall and Withdrawal. ParaPRO shall have the sole responsibility with respect to any recall orwithdrawal of the Product, and shall bear all costs and expenses relating thereto, except to the extent such recall orwithdrawal is as a result of a breach by RedHill of the terms of this Agreement, or the gross negligence, willfulmisconduct, bad faith or fraud of RedHill. At ParaPRO’s request, where the Product has been recalled or withdrawnfrom the market, RedHill shall, as soon as reasonably practical and in accordance with Applicable Law, assistParaPRO in obtaining the return of any Product not in the direct possession or control of ParaPRO by notifyingphysicians who have received Samples from RedHill and by returning to ParaPRO Samples still in the possession ofRedHill, and ParaPRO shall reimburse RedHill for all costs and expenses incurred in taking such actions.7.5 Product Medical Inquiries. ParaPRO shall have the exclusive right and obligation, consistent withApplicable Law, to respond to all questions or requests for information about the Product made by any medicalprofessionals or any other person to RedHill's representatives that warrant a response beyond the information includedin the PIRs (all such questions or requests being referred to as “Product Medical Inquiries”). RedHill shall direct itsrepresentatives to direct all Product Medical Inquiries to ParaPRO’s Medical Call Center (855-628-7622) or provideParaPRO’s Medical Information request form KA-001-FRM1-006 to be completed and emailed toparapro@medcomsol.com or Faxed to (510) 595-8183.7.6 Third Party Actions and Communications. ParaPRO shall be solely responsible for: (i) taking all actionsand conducting all communication with all Third Parties in respect of the Product (other than Promotional Activitiesperformed by RedHill in accordance with the terms hereof), including responding to all [****]. Moreover, ParaPROshall timely, and in good faith, [****].12 Execution VersionSTRICTLY CONFIDENTIAL8. REPORTS8.1 Reports. On a [****] basis, within [****] days following the publishing of data by the Data Source for theend of each of [****], ParaPRO shall deliver to RedHill a report in the English language with respect to the relevantCalendar Month (each, a “Monthly Report”) showing: [****].8.2 Additional Information. In addition, to allow RedHill to execute and monitor its Promotional activities,ParaPRO shall, at its expense, provide RedHill, on the earlier of [****], depending on availability of information,access to its Data Source information. RedHill will allow ParaPRO access to its [****] (if from another source/tool) tovalidate accurate data is in use. The Parties acknowledge that at the Effective Date both Parties are using [****]. Inaddition, ParaPRO shall provide RedHill with [****] in a timely manner. Should any discrepancies of data arise, theJCC will look to provide a remedy. All final payments related to Product [****] will be governed based on ParaPRO’sData Source data reports.8.3 Final Report and Payment. Upon termination of this Agreement for any reason, ParaPRO shall deliver a finalreport, in the English language and the associated Commercialization Fee payment to RedHill within [****] days afterthe end of the then current Calendar Month.9. FINANCIAL PROVISIONS9.1 Commercialization Fee Payments. In respect of each Calendar Month, or part thereof, during the Term,ParaPRO shall pay RedHill an amount equal to [****] less any [****] for (ii) (a) [****] (or similar programimplemented by the JCC), if RedHill participates in such Sampling Program, attributable to [****] in the Field of Usein the Specialty in the Territory and (b) any [****] costs, such costs including but not limited to [****] in the Field ofUse in the Specialty in the Territory (the “Commercialization Fee”). ParaPRO will make all reasonable efforts toallocate costs to RedHill only for those [****] subject to [****] in the Field of Use in the Specialty in the Territory.Furthermore, allocation of costs between the Parties pursuant to (a) and (b) above, if any, will be mutually and openlydiscussed in good faith between the Parties. To the extent any measuring period is less than a [****], theCommercialization Fee shall be based on the number of [****] during the Calendar Month in question.Notwithstanding the foregoing, in the event that the net selling price of the Product shall increase by [****] on theEffective Date, [****] shall be [****] by [****] of any such increase above [****].9.2 The Parties acknowledge that ParaPRO anticipates that RedHill will participate in the [****] Program for aminimum of [****] to establish the Product in the Territory in the Field, provided that RedHill is not obligated toparticipate in such program. RedHill shall have the right to provide input on the business terms of the SamplingProgram.9.3 ParaPRO represents that it is currently not a party to any [****] or other [****] with third-party [****] tomaintain the Product on the [****] and it has no plans to pursue13 Execution VersionSTRICTLY CONFIDENTIALany such agreement. Prior to entering into a [****], ParaPRO will seek input from RedHill’s [****] to negotiate themost effective agreement.9.4 Monthly Reports and Payments. All payments due pursuant to the provisions of this Section 9 shall be dueand payable to RedHill on [****] following the date for submission of the relevant Monthly Report, all against thereceipt of an appropriate invoice from RedHill for same. If ParaPRO fails to provide the respective Monthly Report ina timely fashion as set forth in Section 9.1, RedHill shall be entitled to invoice its best estimate of the amount due not toexceed the amount of the preceding Monthly period with payment of such invoice to serve as a down payment beingsubject to the specific calculation under the Monthly Report yet to be provided by ParaPRO. ParaPRO shall make anyadditional payments (if any) in accordance with the Monthly Report, following its submission. RedHill shall promptlyreimburse ParaPRO for any down payment made by ParaPRO in excess of the actual amount owing.9.5 Payment Method. Any amounts due to RedHill under this Agreement will be paid in US Dollars, by wiretransfer in immediately available funds to an account designated in writing in an appropriate invoice at least [****] inadvance by RedHill, as the case may be.9.6 Currency; Foreign Payments. If any currency conversion will be required in connection with the calculationof any payment hereunder, such conversion will be made by using the average exchange rate for the purchase of therelevant currency as published in The Wall Street Journal, Eastern Edition, on the date of the payment.9.7 Taxes. All payments shall be net of all Taxes other than taxes imposed on or measured by net income ofRedHill or similar governmental charge imposed by any jurisdiction.9.8 Exclusivity. During the term of this Agreement, without prior consent from ParaPRO which shall not beunreasonably withheld, delayed or conditioned, RedHill will exclusively promote the Product and will [****]. Inaddition, for a period of [****] following [****] for any reason [****], without prior consent from ParaPRO whichshall not be unreasonably withheld, delayed or conditioned, RedHill will not engage in [****].10. RECORDS RETENTION AND AUDIT10.1 Record Retention. Throughout the Term and for a term of [****], ParaPRO will maintain (and will ensurethat its Affiliates maintain) complete and accurate books, records and accounts that fairly reflect sales of the Product inthe Territory, in sufficient detail to confirm the accuracy of Monthly Reports and Commercialization Fee paymentsmade hereunder, which books, records and accounts will be retained for [****] the end of the period to which suchbooks, records and accounts pertain.10.2 Audit. RedHill will have the right, for a period of [****] following the expiration or termination of thisAgreement for any reason to have an independent certified public accounting firm of nationally recognized standing,reasonably acceptable to ParaPRO and who agrees to be bound by a customary undertaking of confidentiality, haveaccess during14 Execution VersionSTRICTLY CONFIDENTIALParaPRO's normal business hours, and upon reasonable prior written notice, to ParaPRO’s records as may bereasonably necessary to verify the accuracy of ParaPRO's Monthly Reports in respect of any period; provided,however, that except as set forth in Section 10.3, RedHill will not have the right to conduct more than [****] in anyCalendar Year. The accounting firm shall not in any way be compensated (in whole or in part) contingent on theoutcome of the audit. 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 the payment due, theaudit costs and all related travel costs will be covered by ParaPRO within [****] of billing. In the event there is ashortfall of more than [****], RedHill shall be permitted, at its sole discretion and with due notice to ParaPRO, toconduct a subsequent audit in the same Calendar Year.10.3 Payment of Additional Amounts. If the audit report shows that additional payments are owed by ParaPROunder this Agreement, ParaPRO shall make such additional payments plus interest at the rate prescribed in Section 10.4hereof within [****] following RedHill's demand. RedHill shall have the right to conduct additional follow-up auditsin the same Calendar Year to ensure that there are no further shortfalls.10.4 Interest. All late payments under this Agreement shall bear interest from the date due until paid at a rate equalto [****] as of the date that such payment was due, or, if lower, the highest rate permitted 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 in accordance withthe confidentiality provisions of Section 14 below.11. REPRESENTATIONS AND WARRANTIES11.1 By the Parties. Each Party hereby represents, warrants and covenants to the other Parties as of the EffectiveDate as follows:11.1.1 Such Party (a) has the power and authority and the legal right to enter into this Agreement and performits obligations hereunder, and (b) has taken all necessary action on its part required to authorize the execution anddelivery of this Agreement and the performance of its obligations hereunder. This Agreement has been duly executedand delivered on behalf of such Party and constitutes a legal, valid and binding obligation of such Party and isenforceable against it in accordance with its terms subject to the effects of bankruptcy, insolvency or other laws ofgeneral application affecting the enforcement of creditor rights and judicial principles affecting the availability ofspecific performance and general principles of equity, whether enforceability is considered a proceeding at law orequity.11.1.2 Such Party has obtained all necessary consents, approvals and authorizations of all RegulatoryAuthorities and other authorities and parties required to be obtained by such Party in connection with the execution anddelivery of this Agreement and the performance of its obligations hereunder.15 Execution VersionSTRICTLY CONFIDENTIAL11.1.3 The execution and delivery of this Agreement and the performance of such Party’s obligationshereunder (a) do not conflict with or violate any requirement of Applicable Law or any provision of the articles ofincorporation, bylaws or any similar instrument of such Party, as applicable, in any material way and (b) do not conflictwith, violate, or breach or constitute a default or require any consent not already obtained under, any contractualobligation or court or administrative order by which such Party is bound.11.2 By ParaPRO. ParaPRO hereby further represents, warrants, and covenants to RedHill as follows:11.2.1 It has the sole legal and/or beneficial title to and ownership of the Product, all as is necessary to fulfill itsobligations under this Agreement and to grant all rights granted to RedHill pursuant to this Agreement. ParaPRO is notaware of any FDA communication or action suggesting its ability to market or sell the Product in the Territory can orwill be diminished or compromised or eliminated.11.2.2 It has not and during the Term shall not grant any rights to Third Parties in the Field of Use in theSpecialty in the Territory (and those geographic territories occupied by RedHill or stated in the Commercialization Planas being assigned to RedHill) that conflict with the rights granted to RedHill hereunder.11.2.3 The manufacture, use and sale of the Product by ParaPRO, and the exercise by RedHill of its rightsgranted under this Agreement, do not, and during the Term, will not infringe or otherwise violate any patent,trademark, copyright, trade secret or other intellectual property right of a Third Party.11.2.4 It has and shall maintain throughout the Term, all Regulatory Approvals necessary for the performanceof its obligations hereunder.11.2.5 Product: (i) shall be manufactured in conformance with all applicable federal, state and local statutes,ordinances and regulations, (including the Act), as the same may be amended from time to time; (ii) at the time ofshipment by ParaPRO shall not be adulterated or misbranded within the meaning of the Act; and (iii) at the time ofshipment by ParaPRO shall not be a product which would violate any section of the Act if introduced into interstatecommerce.11.2.6 It has not received any written notice from any Third Party asserting or alleging that any research ordevelopment of the Product prior to the Effective Date infringed or misappropriated the intellectual property rights ofsuch Third Party.11.2.7 There are no pending, and to ParaPRO’s knowledge, no threatened, adverse actions, suits orproceedings against ParaPRO or its Affiliates involving the Product.11.2.8 The Product Trademarks have been properly filed and registered with the U.S. Patent and TrademarkOffice and are valid and in full force and effect, and ParaPRO has the right to use and license the Product Trademarks,free and clear of any liens or encumbrances.16 Execution VersionSTRICTLY CONFIDENTIAL11.2.9 To ParaPRO’s knowledge, there are no pending legal suits or proceedings involving the Product; and tothere are no threatened legal suits or proceedings in the Territory involving the Product.11.2.10 There are no current pending, or to ParaPRO’s knowledge, threatened in writing, product liability,warranty or other similar claims by any Third Party (whether based in contract or tort and whether relating to personalinjury, including death, property damage or economic loss) arising from the marketing 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 and detrimentally affectingthe operations, prospects, or reputation of RedHill.11.3 By RedHill. RedHill hereby further represents, warrants, and covenants to ParaPRO that:11.3.1 RedHill will conduct any activities under this Agreement in compliance with all federal, state and localstatutes, ordinances and regulations (including the Act), as the same may be amended from time to time. Additionally,RedHill will comply with any law, regulations, rules or requirements of the Laws of Israel that may impact theperformance of RedHill under this Agreement.11.3.2 RedHill and any RedHill personnel have not been, and will not knowingly use in any capacity in theperformance of this Agreement, the services of any person or entity, currently or ever debarred under 21 U.S.C. § 335aor convicted of a felony for conduct relating to the regulation or handling of any drug product. RedHill shall insureadequate staffing and training of all personnel assigned to the territories, including continuing training and instructionor certification with regard to ParaPRO products.11.3.3 It shall notify ParaPRO promptly if, during the term of this Agreement, it becomes aware that RedHillor any RedHill personnel comes under investigation by the FDA for debarment or disqualification or is debarred ordisqualified.11.3.4 It will not act in a manner that is intended to and has the effect of materially and detrimentally affectingthe operations, prospects, or reputation of ParaPRO.11.3.5 RedHill shall, in good faith, assure compliance with any applicable statutory or regulatory requirementsof a foreign entity to do business in the United States, including payment of all taxes, license fees and otherrequirements that may be levied on a foreign based entity doing business in the United States or through a subsidiary.11.4 Except as otherwise expressly set forth in this Agreement, neither Party MAKES ANYREPRESENTATIONS OR EXTENDS ANY WARRANTIES OF ANY KIND, EITHER EXPRESS ORIMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY OR FITNESSFOR A PARTICULAR PURPOSE.17 Execution VersionSTRICTLY CONFIDENTIAL12. LIMITATION OF LIABILITYEXCEPT IN THE CASE OF A FRAUD OR WILLFUL MISREPRESENTATION, BREACH OF APPLICABLELAWS, BREACH OF CONFIDENTIALITY, INTELLECTUAL PROPERTY INFRINGEMENT, PRODUCTLIABILITY, RECALL, CONTAMINATION OR EXTORTION AS WELL AS ANY CRIMINAL, CIVIL ORADMINISTRATIVE PROCEEDING INVOLVING THE PRODUCT, NEITHER PARTY SHALL BE LIABLETO THE OTHER OR ANY OF ITS AFFILIATES FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT,SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES (INCLUDING LOST PROFITS, BUSINESS ORGOODWILL) SUFFERED OR INCURRED BY SUCH OTHER PARTY OR ITS AFFILIATES, WHETHERBASED UPON A CLAIM OR ACTION OF CONTRACT, WARRANTY, NEGLIGENCE OR TORT, OROTHERWISE, ARISING OUT OF THIS AGREEMENT.13. Intellectual Property- Enforcement13.1 Infringement Notice. If either Party determines that a Third Party is wrongfully marketing, Promoting orselling the Product or infringing any intellectual property of ParaPRO or its Affiliates or licensors relating to theProduct, including actual, potential or suspected wrongful marketing, Promoting or selling the Product or infringement,and that such activities could affect the exercise of the rights granted under this Agreement by the other Party, it willnotify the other Party in writing without undue delay.13.2 Enforcement. ParaPRO will have the sole, exclusive and first right, but not the obligation, to remove suchwrongful marketing, Promotion, selling, infringement and/or misappropriation and to control all litigation to removesuch wrongful marketing, Promotion, selling, infringement and/or misappropriation, all as it shall deem appropriate inits sole discretion, and to settle or compromise any such possible infringement by taking such action as ParaPRO or itsAffiliates may determine in their sole and absolute discretion; provided, however, that ParaPRO shall not settle anysuch potential infringement in a manner that materially adversely affects the rights granted to RedHill hereunder, exceptwith RedHill's prior written consent (which consent shall not be unreasonably withheld). ParaPRO shall be solelyresponsible for all costs and expenses of such litigation. In the event ParaPRO does take any action to remove suchwrongful marketing, Promotion, selling, infringement or misappropriation activity, ParaPRO will keep RedHillinformed of the progress of such action and consider any comments made by RedHill. Furthermore, RedHill shall havethe right to participate in (but not control) such proceedings with counsel of its choice at its own cost and expense. IfParaPRO decides not to take any action to remove such wrongful marketing, Promotion, selling, infringement ormisappropriation activity, it shall notify RedHill in writing and RedHill shall be entitled to do so at its own cost andexpense upon giving written notice to ParaPRO within [****] of the date of ParaPRO's notice. In the event RedHilldoes, at its discretion, undertake any action to remove such wrongful marketing, Promotion, selling, infringement ormisappropriation activity, RedHill will provide ParaPRO with copies of all relevant documentation so that18 Execution VersionSTRICTLY CONFIDENTIALParaPRO will be informed of the continuing action and may comment upon such documentation sufficiently inadvance of any initial deadline for filing a response, provided, however, that if ParaPRO has not commented uponsuch documentation in a reasonable time for RedHill to sufficiently consider ParaPRO’s comments prior to a deadline,or RedHill must act to preserve the action, RedHill will be free to act without consideration of ParaPRO’s comments, ifany.13.3 Co-operation. The Parties will provide reasonable assistance to each other (at no charge or expense, other thanwith respect to reasonable out-of-pocket expenses), including providing access to relevant documents and otherevidence, making its employees available at reasonable business hours, and joining the action to the extent necessary toallow the prosecuting Party to maintain the action.13.4 Recovery. Any amounts recovered in connection with or as a result of any action contemplated by Section13.2, whether by settlement or judgment, will be used to reimburse the Parties for their reasonable documented costsand expenses in such action (which amounts will be allocated pro rata in accordance with the respective costs andexpenses if insufficient to cover the totality of such expenses), and any remainder will be the property of [****].13.5 Infringement of Third Party Rights. In the event that either Party is sued by a Third Party alleging that thePromotion, manufacture, marketing, use or offer to sell of the Product in the Territory infringes upon any intellectualproperty rights of such Third Party, the Party being so sued shall immediately give the other Party notice of same andthe Parties shall thereafter proceed as provided in Section 16.14. CONFIDENTIALITY14.1 Disclosure and Use Restriction. The Parties agree that, during the Term and thereafter, each Party will keepcompletely confidential and will not publish, submit for publication or otherwise disclose, and will not use for anypurpose except for the purposes contemplated by this Agreement, any Confidential Information (as such term isdefined below) received from the other Party. This Article 14 replaces and supersedes the Confidentiality Agreemententered into by the Parties dated July 7, 2017.14.2 Confidential Information. “Confidential Information” shall mean all information and know-how and anytangible embodiments thereof provided by or on behalf of one Party to another Party either in connection with thediscussions and negotiations pertaining to this Agreement or in the course of performing this Agreement, which mayinclude 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 andpersonnel matters relating to the disclosing Party or to its present or future products, sales, suppliers, customers,employees, investors or business. Notwithstanding the foregoing, information or know-how of a Party shall not bedeemed Confidential Information of such Party for purposes of this Agreement if such information or know-how:19 Execution VersionSTRICTLY CONFIDENTIAL(i) was already known to the receiving Party, other than under an obligation of confidentiality or non-use, atthe time of disclosure to such receiving Party;(i) was generally available or known to parties reasonably skilled in the field to which such information orknow-how pertains, or was otherwise part of the public domain, at the time of its disclosure to suchreceiving Party;(ii) became generally available or known to parties reasonably skilled in the field to which such information orknow-how pertains, or otherwise became part of the public domain, after its disclosure to such receivingParty through no breach of this Agreement by the receiving Party;(iii) was disclosed to such receiving Party, other than under an obligation of confidentiality or non-use, by aThird Party who had no obligation not to disclose such information or know-how to others; or(iv) was independently discovered or developed by such receiving Party, as evidenced by their written records,without the use of Confidential Information belonging to the disclosing Party and prior to any subsequentdisclosure by the receiving Party.14.3 Authorized Disclosure. Notwithstanding the provisions of Section 14.1 above, a Party shall be entitled todisclose 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, that such Partywill first (to the extent practicably possible and permitted by such order) have given notice to such otherParty and given such other Party a reasonable opportunity to quash such order, at such Party’s sole costand expense, and to obtain a protective order, at such Party’s sole cost and expense, requiring that theConfidential Information and documents that are the subject of such order be held in confidence by suchcourt or agency or, if disclosed, be used only for the purposes for which the order was issued; and providedfurther that if a disclosure order is not quashed or a protective order is not obtained, the ConfidentialInformation disclosed in response to such court or governmental order will be limited to that informationwhich is legally required to be disclosed in response to such court or governmental order;(ii) otherwise required by Applicable Law or the rules of a stock exchange; provided, however, that thereceiving Party will provide the disclosing Party with notice of such disclosure in advance thereof to theextent practicably possible, and to the extent permitted seeks confidential treatment of the informationdisclosed and reasonably cooperates with any efforts of disclosing Party to seek confidential treatment ofthe information disclosed and discloses only that portion of the Confidential Information required;20 Execution VersionSTRICTLY CONFIDENTIAL(iii) made by such Party to a Regulatory Authority as necessary for the development or commercialization of amedicinal product, including the Product, in a country, as required in connection with any filing,application or request for Regulatory Approval or as required by applicable securities laws and regulations,subject to the limitations in Section 14.3(ii);(iv) made by such Party, in connection with the performance of this Agreement and on a need to know basisonly in connection therewith, to Affiliates, directors, officers, employees, consultants, representatives oragents, each of whom prior to disclosure must be bound by obligations of confidentiality and non-use atleast equivalent in scope to those set forth in this Agreement; or(v) made by such Party in the course of submitting financial accounts to relevant authorities as per localstatutory requirements or to existing or potential acquirers; existing or potential collaborators; investmentbankers; existing or potential investors, merger candidates, venture capital or private equity firms or otherfinancial institutions or investors for purposes of obtaining financing; or, bona fide strategic potentialpartners; each of whom prior to disclosure must be bound by obligations of confidentiality and non-use atleast equivalent in scope to those set forth in this Agreement.15. PRESS RELEASESPress releases or other similar public communication by any Party during the Term and until [****] following theexpiration or termination of this Agreement for any reason relating to the terms of this Agreement (but not, for theavoidance of doubt, unless reference is made to any of the other Parties or the terms of this Agreement, with respect toactivities in exercise of its rights under this Agreement) will be shared in advance with the other Party, and subject tosuch other Party’s approval which approval will not be unreasonably withheld, conditioned or delayed, except forthose communications required by Applicable Law, regulation or securities exchange rules, disclosures of informationfor which consent has previously been obtained, and information of a similar nature to that which has been previouslydisclosed publicly with respect to this Agreement, each of which will not require advance approval but will beprovided to the other Party as soon as practicable after the release or communication thereof. For the avoidance ofdoubt, the Parties may issue press releases regarding the fact that this Agreement has been signed and the nature of theagreement so long as they do not describe the specific economic provisions hereof without approval from the otherParty, unless required under Applicable Law, regulation or securities exchange rules, as aforesaid.16. INDEMNIFICATION16.1 Indemnification ParaPRO. ParaPRO will defend and hold RedHill, its respective Affiliates, and theirrespective directors, officers, employees and agents (“RedHill’s Indemnified Persons”) harmless, from and againstany and all liability, damages, suits,21 Execution VersionSTRICTLY CONFIDENTIALinvestigations, claims, demands, actions, judgments, costs and expenses (including reasonable and documentedattorneys’ fees and expenses) (“Losses”) to which the RedHill Indemnified Persons may become subject arising fromany Third Party 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 RedHill hereunder; except that ParaPRO shall not berequired to indemnify RedHill to the extent any Loss arises from or occurs 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 RedHillIndemnified Person of any relevant representations, warranties or covenants set forth in this Agreement. Withoutderogating from the foregoing, ParaPRO shall be responsible for all the costs, fees, expenses and control in connectionwith any 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 to sell of theProduct in the Territory and shall indemnify RedHill and its Indemnified Persons in respect of all Losses in connectiontherewith, subject to the foregoing clauses (i) and (ii).16.2 Indemnification RedHill. RedHill will defend and hold ParaPRO, its respective Affiliates, and their respectivedirectors, officers, employees and agents (“ParaPRO’s Indemnified Persons”, and, together with “RedHillIndemnified Persons”, “Indemnified Persons” ) harmless, from and against any and all Losses to which theParaPRO Indemnified Persons may become subject arising from any third party claim, demand, suit, action orproceeding to the extent arising out of or in connection with this Agreement or otherwise in connection with anyactions taken by ParaPRO hereunder to the extent arising from or occurring as a result of or in connection with: (a) thenegligence, 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 ParaPRO Indemnified Person of any representations, warranties, orcovenants set forth in this Agreement.16.3 Conditions to Indemnity. Each Party’s agreement to indemnify and hold the other harmless is conditionedupon the Indemnified Person: (i) providing written notice to the indemnifying Party of any claim, demand or actionarising out of the indemnified activities within [****] after the Indemnified Person has knowledge of such claim,demand or action; (ii) permitting the indemnifying Party to assume full responsibility to investigate, prepare for anddefend against any such claim or demand; and (iii) assisting the indemnifying Party, at the indemnifying Party’sreasonable expense, in the investigation of, preparation of and defense of any such claim or demand. The indemnifyingParty shall not compromise or settle such claim or demand without the indemnified Party’s prior written consent, unlesssuch settlement includes as an unconditional term thereof the giving by the claimant or plaintiff to such indemnifiedParty a complete release from all liability in respect of such claim or litigation. If the Party entitled to indemnificationfails to notify the indemnifying Party without undue delay pursuant to the foregoing clause (i), the indemnifying Partyshall only be relieved of its indemnification obligation to the extent it is materially prejudiced by such failure andprovided further that the indemnified Party is not obligated to notify the indemnifying Party of claims, demands and/oractions made directly against the22 Execution VersionSTRICTLY CONFIDENTIALindemnifying Party only. Notwithstanding the foregoing, if in the reasonable judgment of the indemnified Party, suchsuit or claim involves an issue or matter which could have a materially adverse effect on the business, operations orassets of the indemnified Party, the indemnified Party may waive its rights to indemnity under this Agreement andcontrol the defense or settlement thereof, but in no event shall any such waiver be construed as a waiver of anyindemnification rights such indemnified party may have at law or in equity.16.4 Participation in Defense. If the indemnifying Party defends the suit or claim, the indemnified Party mayparticipate in (but not control) the defense thereof at its sole cost and expense; provided, however, that theindemnifying Party shall pay the reasonable and documented fees and costs of any separate counsel to the extent suchseparate representation is due to a conflict of interest between the Parties.16.5 Settlement. No Party shall, without the consent of the other Party, which shall not be unreasonably withheld,conditioned or delayed, enter into any settlement or compromise or consent to any judgment in respect of any claimrelated to the rights and liabilities under this Agreement, unless such settlement, compromise or consent includes anunconditional release of the other Party from all liability arising out of the claim and does not otherwise limit or impairthe other Party’s rights.17. INSURANCE17.1 Each Party hereto shall maintain, for the Term and thereafter, insurance sufficient to cover its obligations underthis Agreement and under law as it customarily maintains for similar activities in the regular course of its business.17.2 Without derogating from the generality of the aforesaid, ParaPRO shall effect and maintain for the duration ofthis Agreement and thereafter for [****]. RedHill and its respective directors, officers, employees and shareholdersshall be added to the policy as additional insured. The policies shall apply retroactively at least as of the Effective Dateand will contain [****] reporting period and cross-suits coverage. The products liability policy shall be primary andnon-contributory to any insurance effected by RedHill and will contain [****] provision in favor of RedHill. ParaPROwill provide RedHill with a certificate of insurance on the Effective Date and every 12 months thereafter.17.3 Each party waives its rights against the other for all claims to the extent covered by the insurance of each partyand each party shall require their insurers to waive subrogation consistent with the above with regard to general thirdparty products and automobile liability insurance policies.18. TERM AND TERMINATION18.1 Term. Unless earlier terminated in accordance with the provisions of this Article 18, the term of thisAgreement (the “Term”) shall be for the period of four (4) years commencing upon the Effective Date, followingwhich the Term shall be renewed for additional [****]23 Execution VersionSTRICTLY CONFIDENTIALperiods upon mutual agreement between the Parties with such agreement to be reached no later than [****] prior to theexpiration of the contract term, or any renewal term, then in effect after which time the Contract shall terminate.18.2 Termination for Cause. Without derogating from any other remedies that either Party may have under theterms of this Agreement or at law, each Party hereto shall have the right upon [****] prior written notice to terminatethis Agreement forthwith upon the occurrence of any of the following:18.2.1 the commission of a material breach by any other Party hereto of its obligations hereunder, and suchother Party’s failure to remedy such breach to the reasonable satisfaction of the other Party within [****] after beingrequested in writing to do so;18.2.2 the commission by the other Party of a violation of Applicable Law in connection with such Party’sactions in connection with this Agreement; or18.2.2 the occurrence of a Bankruptcy Event in respect of another Party.18.3 Termination for Convenience.18.3.1 Without derogating from the foregoing, RedHill shall be entitled, to terminate this Agreement in itsentirety or [****] by providing [****] prior written notice to ParaPRO. Upon ParaPRO’s written request, Territoriesterminated as aforesaid for a period of [****] or longer will be reassigned back to ParaPRO for active promotion bythe ParaPRO Sales team unless within [****] following such request RedHill notifies ParaPRO of RedHill’s decisionto reinstate such Territory and to continue promotional activities therein. [****].18.3.2 After the initial [****] Term of this Agreement, ParaPRO shall be entitled, in its sole discretion, toterminate this Agreement with respect to [****] at any time by providing [****] days prior written notice to theRedHill.18.3.3 The Party terminating for convenience shall not incur any liability and shall not be required to pay anycompensation by reason of exercise of the rights of termination of this Agreement described above; provided, however,that such termination shall not act as a waiver of any breach of this Agreement and shall not act as a release of eitherParty from any liability for past or future obligations under this Agreement.18.4 Continuation following ParaPRO’s Bankruptcy. The Parties agree that in the event that ParaPRO becomesinsolvent or makes a filing under bankruptcy or similar laws in any jurisdiction, RedHill shall have the protectionafforded to the licensee under the United States Bankruptcy Code, including but not limited to, the protections set forthin 11 U.S.C §365(n) or its equivalent in any other jurisdiction which allows the licensee, upon rejection of the licenseagreement by the debtor-licensor or its representative, the option to either retain the licensee’s rights in the intellectualproperty under the existing contract for the balance of the term thereof while continuing to pay royalties, or to treat theexecutory contract as terminated.24 Execution VersionSTRICTLY CONFIDENTIAL18.5 Consequences of Termination18.6.1 License. Upon termination of this Agreement, all rights granted to RedHill under Section 2 willautomatically terminate and all such rights shall automatically revert to ParaPRO.18.6.2 Return of Information and Materials. Upon termination of this Agreement, each Party will return tothe other all Confidential Information of the other Party (except one copy of which may be retained for archival andcompliance purposes), provided that any such retained copy shall continue to be subject to the confidentialityprovisions of this Agreement.18.6.3 Accrued Rights. Termination or expiration of this Agreement for any reason will be without prejudiceto any rights or financial compensation that will have accrued to the benefit of a Party prior to such termination orexpiration. Such termination or expiration will not relieve a Party from obligations that are expressly indicated tosurvive the termination or expiration of this Agreement, whereas “accrued” shall mean the creation and/or maturity of aclaim.18.6.4 Survival. Sections 1, 8.3, 10, 12, 13.5, 14, 15, 16, 17, 18 and 19 of this Agreement will surviveexpiration or termination of this Agreement for any reason.19. MISCELLANEOUS19.1 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 or otherwise, thisAgreement or any of its rights or duties hereunder; provided, however, that a Party may assign or transfer thisAgreement and its rights or obligations hereunder without the consent of the other Party to any Affiliate and to anyThird Party successor in interest with which it has merged or consolidated, or to which it has transferred all or asubstantial part of its assets or stock to which this Agreement relates; provided such Third Party assumes and agrees, inadvance, to assume the obligations of the transferring party under this Agreement.19.2 Severability. Should any term or provision of this Agreement be or become invalid or unenforceable or shouldthis Agreement contain an omission, the validity or enforceability of the remaining terms or provisions shall not beaffected. In such case, subject to the next following sentence, the Parties shall immediately commence to negotiate ingood faith in order to replace the invalid or unenforceable term or provision by such other valid or enforceable term orprovision which comes as close as possible to the original intent and effect of the invalid or unenforceable term orprovision, or respectively, to fill the omission by inserting such term or provision which the Parties would havereasonably agreed to, if they had considered the omission at the date hereof. In the event that any term or provision asaforesaid is invalid, 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 of25 Execution VersionSTRICTLY CONFIDENTIALthe term or provision so that they shall be enforceable to the maximum scope, duration, area or applicability permittedby Applicable Law which shall not exceed those specified in this Agreement or to replace such term or provision witha term or provision that comes closest to expressing the intention of the invalid or unenforceable term or provision.19.3 Governing Law. This Agreement and all matters arising out of or relating to this Agreement, are governed by,and construed in accordance with, the substantive laws of the State of Delaware, USA, without reference to any rulesof conflicts of laws the extent such rules would require or permit the application of the laws of any jurisdiction otherthan those of the State of Delaware.19.4 Jurisdiction.19.4.1 Subject to Section 6.6, any legal suit, action or proceeding arising out of or related to this Agreementshall be instituted exclusively in the United States District Court for the District of Delaware, and each partyirrevocably submits to the exclusive jurisdiction of such court in any such suit, action or proceeding. Service ofprocess, summons, notice or other document by mail to such party’s address set forth herein shall be effective serviceof process for any suit, action or other proceeding brought in any such court.19.4.2 Each party irrevocably and unconditionally waives any right it may have to a trial by jury in respect ofany legal action arising out of or relating to this Agreement or the transactions contemplated hereby.19.4.3 Notwithstanding the foregoing, the Parties agree prior to the filing of any action pursuant to Subsection1 hereof, to submit, within [****] of notice by one Party to the other of a dispute, to mediation of the dispute in Dover,Delaware with a certified mediator experienced in commercial disputes. The Parties shall endeavour, in good faith, toreach settlement of the dispute prior to filing any legal proceeding. If agreement is not reached within [****] ofmediation of the dispute, this condition precedent to litigation shall be deemed to be satisfied. Notwithstanding theforegoing, and anything in this Section 19 to the contrary, either party may bring an action for interim, provisional,injunctive or other equitable relief in connection with any alleged breach of a material nature in the United StatesDistrict Court for the District of Delaware, however neither party shall have waived its rights to mediation as herein setforth.19.5 Notices. All notices or other communications that are required or permitted hereunder will be in writing anddelivered personally with acknowledgement of receipt, sent by electronic mail (provided receipt is acknowledged),facsimile (and promptly confirmed by personal delivery, registered or certified mail or overnight/express courier asprovided herein), sent by nationally-recognized overnight courier or sent by registered or certified mail, postageprepaid, return receipt requested, addressed as follows:26 Execution VersionSTRICTLY CONFIDENTIALIf to ParaPRO, to:ParaPRO LLC.11550 North Meridian Street,Suite 290Carmel Indiana 46032 USAAttention: [****]Telephone: [****]Fax: 317-810-0216Email: [****]If to RedHill, to:RedHill Biopharma, Inc.,c/o RedHill Biopharma Ltd.21 Ha'arba'a StreetTel-Aviv 64739IsraelAttention: [****]Fax: +972 (3) 541 3144Email:[****]or to such other address as the Party to who notice is to be given may have furnished to the other Party in writing inaccordance herewith. Any such communication will be deemed to have been given: (i) when delivered, if personallydelivered; (ii) on the Business Day (on the receiving end) after dispatch, if sent by nationally-recognizedovernight/express courier ([****] Business Day if sent internationally); (iii) on the [****] Business Day following thedate of mailing, if sent by mail (fifth Business Day if sent internationally); and (iv) on the [****] Business Day (on thereceiving end) after being sent by facsimile or electronic mail. It is understood and agreed that this Section 19.5 is notintended to govern the day-to-day business communications necessary between the Parties in performing their duties,in due course, under the terms of this Agreement.19.6 Entire Agreement; Modifications. This Agreement sets forth and constitutes the entire agreement andunderstanding between the Parties with respect to the subject matter hereof and all prior agreements, understanding,promises and representations, whether written or oral, with respect thereto are superseded hereby, including the TermSheet between the Parties dated August 7, 2017. Each Party confirms that it is not relying on any representations orwarranties of the other Party except as specifically set forth herein. No amendment, modification, release or dischargewill be binding upon the Parties unless in writing and duly executed by authorized representatives of both Parties; thisshall also apply to any change of this clause.27 Execution VersionSTRICTLY CONFIDENTIAL19.7 Relationship of the Parties. It is expressly agreed that the Parties will be independent contractors of oneanother and that the relationship between the Parties will not constitute a partnership, joint venture or agency.19.8 Waiver. Any term or condition of this Agreement may be waived at any time by the Party that is entitled to thebenefit thereof, but no such waiver will be effective unless set forth in a written instrument duly executed by or onbehalf of the Party waiving such term or condition. Any such waiver will not be deemed a waiver of any other right orbreach hereunder.19.9 Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which will bedeemed an original, but all of which together will constitute one and the same instrument, and shall become effectivewhen counterparts have been signed by each of the Parties and delivered to the other Parties; it being understood thatall Parties need not sign the same counterparts. The exchange of copies of this Agreement and of signature pages byfacsimile transmission, by electronic mail in “portable document format” (“.pdf”) form, or by any other electronicmeans intended to preserve the original graphic and pictorial appearance of a document, or by combination of suchmeans, shall constitute effective execution and delivery of this Agreement as to the Parties and may be used in lieu ofthe original Agreement for all purposes. Signatures of the Parties transmitted by facsimile shall be deemed to be theiroriginal signatures for all purposes.19.10 No Third Party Beneficiaries. The representations, warranties, covenants and agreements set forth in thisAgreement are for the sole benefit of the Parties hereto and their successors and permitted assigns, and they will not beconstrued as conferring any rights on any other parties.19.11 Expenses. Except as expressly provided herein, each party shall each bear its own legal, accounting, brokerageand other costs and expenses in connection with this Agreement and the transactions contemplated hereby.19.12 Further Assurances. Each Party will duly execute and deliver, or cause to be duly executed and delivered,such further instruments and do and cause to be done such further acts and things, including the filing of suchassignments, agreements, documents and instruments, as may be necessary to carry out the provisions and purposes ofthis Agreement.19.13 Force Majeure. No party shall be responsible to the other for failure or delay in performing any of itsobligations under this Agreement or for other non-performance hereof but only to the extent that such delay or non-performance is occasioned by a cause beyond the reasonable control and without fault or negligence of such party,including earthquake, fire, flood, explosion, discontinuity in the supply of power, court order, or governmentalinterference, act of God, general strike or other general labor trouble, act of war or terrorism and provided that suchparty will inform the other party as soon as is reasonably practicable and that it will entirely perform its obligationsimmediately after the relevant cause has ceased its effect. If any such force majeure event continues for a28 Execution VersionSTRICTLY CONFIDENTIALcontinuous period of three (3) months, a Party whose performance is not prevented by such event may terminate thisAgreement thereafter so long as the force majeure event continues, with immediate effect by providing the other Partieswith written notice.[Signature Page Follows]29 Execution VersionSTRICTLY CONFIDENTIALIN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by their duly authorizedrepresentatives as of the Effective Date.RedHill Biopharma, Inc.ParaPRO LLC By: /s/ Dror Ben-AsherBy: /s/ : [****]Name: Dror Ben-AsherName: [****]Title: CEOTitle: [****]By: /s/ Micha Ben Chorin Name: Micha Ben Chorin Title: CFO 30 Execution VersionSTRICTLY CONFIDENTIALANNEX ACOMMERCIALIZATION PLAN[****]31Exhibit 4.5ConfidentialTHE 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 COMMISSIONAmendment #2ToEXCLUSIVE LICENSE AGREEMENTApogee Biotechnology CorporationandRedHill Biopharma LtdThis Amendment is entered into effective as of the date of the last signature below (the “Effective Date”) by and betweenRedHill Biopharma Ltd (“RedHill”) and Apogee Biotechnology Corporation (“Apogee”) to amend the terms of thatExclusive License Agreement entered into by the parties effective March 30, 2015 (“Agreement”).NOW, THEREFORE, the mutual covenants set forth herein, the parties agree to amend the terms of the Agreement asfollows:1.Clause 6.2.1 is hereby modified to: [****] days following [****]: One Million US Dollars($1,000,000). Additionally, [****] days following [****]: One Million US Dollars ($1,000,000).2.All other terms of the Agreement are unchanged and remain in full force and effect.WHEREFORE, the parties hereunto have caused this Amendment to be executed by their duly authorizedrepresentatives as of the date of the last party to sign to be effective and in agreement. RedHill Biopharma Ltd Apogee Biotechnology Corporation /s/ Micha Ben Chorin By:/s/ Adi Frish By:/s/ [****] Printed Name:Adi Frish Micha Ben Chorin Printed Name:[****] Title:SVP BD & L CFO Title:[****] Date:June 22, 2017 June 22, 2017 Date:06/22/2017 Exhibit 4.6ConfidentialTHE 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 COMMISSIONAmendment #3ToEXCLUSIVE LICENSE AGREEMENTApogee Biotechnology CorporationandRedHill Biopharma LtdThis Amendment is entered into effective as of the date of the last signature below (the “Effective Date”) by and betweenRedHill Biopharma Ltd (“RedHill”) and Apogee Biotechnology Corporation (“Apogee”) to amend the terms of thatExclusive License Agreement entered into by the parties effective March 30, 2015 (“Agreement”).NOW, THEREFORE, the mutual covenants set forth herein, the parties agree to amend the terms of the Agreement asfollows:1.Clause 6.2.1 is hereby modified to: [****] days following [****]: One Million US Dollars($1,000,000). Additionally, [****] days following [****]: Five hundred thousand US Dollars ($500,000).Additionally, [****] days following [****]: Five hundred thousand US Dollars ($500,000).Notwithstanding the foregoing amendment to Clause 6.2.1, the parties hereby agree that RedHill shall have the solediscretion to notify Apogee in writing, no later than December 31, 2018), of its request to replace the requirement forpayment of the last milestone payment under Clause 6.2.1 in the amount of five hundred thousand US Dollars ($500,000),with revised royalty terms as follows, in which case, upon such notice from RedHill, the following amendments to theAgreement will enter into effect:1.Clause 6.2.1 will be modified to: [****] days following [****]: One Million US Dollars($1,000,000). Additionally, [****] days following [****]: Five hundred thousand US Dollars ($500,000).2.Clause 6.3.1.1 will be modified to: A Royalty equal to [****] of the first [****].3.Clause 6.3.1.2 will be modified to: A Royalty equal to [****] of [****]. Confidential4.Clause 6.3.2.1 will be modified to: A Royalty equal to [****] of [****].5.Clause 6.3.2.2 will be modified to: A Royalty equal to [****] of [****].6.Clause 6.3.3 will be modified to: A royalty equal to [****] of [****].All other terms of the Agreement are unchanged and remain in full force and effect.WHEREFORE, the parties hereunto have caused this Amendment to be executed by their duly authorizedrepresentatives as of the date of the last party to sign to be effective and in agreement. RedHill Biopharma Ltd Apogee Biotechnology Corporation /s/ Micha Ben Chorin By:/s/ Adi Frish By:/s/ [****] Printed Name:Micha Ben Chorin Adi Frish Printed Name:[****] Title:CFO SVP BD Title:[****] Date:February 6, 2018 Date:February 6, 2018 Exhibit 8.1 RedHill Biopharma Ltd. – List of Subsidiaries Name of Subsidiary Country of Incorporation Ownership Interest (direct or indirect) RedHill Biopharma Inc. Delaware (U.S.A) 100% 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 21, 2018 /s/ Dror Ben-Asher Dror Ben-Asher Chief 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 21, 2018 /s/ Micha Ben Chorin Micha Ben Chorin Chief 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, 2017 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 21, 2018 /s/ Dror Ben-Asher Dror Ben-Asher Chief Executive Officer /s/ Micha Ben Chorin Micha Ben Chorin Chief Financial Officer Exhibit 15.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statements on Form F-3 (file No. 209702) and theRegistration Statements on Form S-8 (file No. 333-219441, file No. 333-207654 and file No. 333-188286) of RedHillBiopharma Ltd. of our report dated February 21, 2018 relating to the financial statements, which appears in this Form 20‑F. Tel-Aviv, Israel/s/ Kesselman & KesselmanFebruary 21, 2018Certified 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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