RedHill Biopharma Ltd.
Annual Report 2018

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 20-F ☐☐REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☒☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2018 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 6473921, Israel(Address of principal executive offices) Micha Ben Chorin, Chief Financial Officer21 Ha’arba’a Street, Tel Aviv 6473921, 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 Global Market Ordinary Shares, par value NIS 0.01 per share (2) NASDAQ Global 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: 283,686,908Ordinary 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 SecuritiesExchange 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 thepreceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90days. Yes ☒☒ No ☐☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒☒ No ☐☐ Table of Contents 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 largeaccelerated filer” in Rule 12b-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 theextended transition period 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 ☒☒ Table of ContentsTABLE OF CONTENTS ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS6ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE6ITEM 3. KEY INFORMATION6ITEM 4. INFORMATION ON THE COMPANY46ITEM 4A. UNRESOLVED STAFF COMMENTS84ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS84ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES96ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS116ITEM 8. FINANCIAL INFORMATION117ITEM 9. THE OFFER AND LISTING118ITEM 10. ADDITIONAL INFORMATION118ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK132ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES133ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES134ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS134ITEM 15. CONTROLS AND PROCEDURES135ITEM 16. [RESERVED]136ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT136ITEM 16B. CODE OF ETHICS136ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES136ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.137ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS137ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT137ITEM 16G. CORPORATE GOVERNANCE137ITEM 16H. MINE SAFETY DISCLOSURE138ITEM 17. FINANCIAL STATEMENTS138ITEM 18. FINANCIAL STATEMENTS138ITEM 19. EXHIBITS138GLOSSARY OF TERMS 139EXHIBIT INDEX 141 3 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 25, 2019 ($1 = NIS 3.605). 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 and timing of regulatory clarity and approvals for our therapeutic candidates, and the timing of otherregulatory filings 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 reliance on third parties to conduct key portions of our clinical trials, including data management services, andthe potential for those third parties to not perform satisfactorily;·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;4 Table of Contents·our ability to acquire products approved for marketing in the U.S. that achieve commercial success and to maintainour own marketing and commercialization capabilities;·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;·the failure by a licensor or a partner of ours to meet their respective obligations under our acquisition, in-license orother development or commercialization agreements or renegotiate the obligations under such agreements, or ifother events occur that are not within our control, such as bankruptcy of a licensor or a partner;·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. 5 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, 2018, and 2017 and for the years ended December 31,2018, 2017, and 2016 from our audited financial statements included elsewhere in this Annual Report on Form 20‑F. Wehave derived the selected financial data as of December 31, 2016, 2015, and 2014 and for the years ended December 31,2015, and 2014 from our financial statements not included in this Annual Report. You should read this selected financialdata and other information provided in this Annual Report in conjunction with, and is qualified in its entirety by, ourhistorical financial information including “Item 5. Operating and Financial Review and Prospects” and our financialstatements and related notes appearing elsewhere in this Annual Report. Year Ended December 31 2018 2017 2016 2015 2014 Statements of Comprehensive Loss Net revenues 8,360 4,007 101 3 7,014 Cost of revenues 2,837 2,126 — — 1,050 Gross profit 5,523 1,881 101 3 5,964 Research and development expenses, net 24,862 32,969 25,241 17,771 12,700 Selling, marketing and businessdevelopment expenses 12,486 12,014 1,555 1,386 900 General and administrative expenses 7,506 8,025 3,848 2,748 3,111 Other (income) expenses — 845 — 100 (100)Operating loss 39,331 51,972 30,543 22,002 10,647 Financial income 678 6,505 1,548 1,124 319 Financial expenses 167 77 375 212 383 Financial (income) expenses, net (511) (6,428) (1,173) (912) 64 Loss and comprehensive loss 38,820 45,544 29,370 21,090 10,711 Loss per Ordinary Share (in U.S. dollars) Basic 0.17 0.26 0.23 0.19 0.12 Diluted 0.17 0.26 0.24 0.19 0.13 Weighted average number of OrdinaryShares used in computing loss perOrdinary Share 231,204,129 176,578,990 128,513,729 110,813,742 86,610,126 Weighted average number of OrdinaryShares used in computing diluted loss pershare 231,204,129 176,578,990 128,808,543 111,714,566 87,222,188 6 Table of Contents As of December 31 (U.S. Dollars, in thousands) 2018 2017 2016 2015 2014 Balance Sheet Data Cash and short-term investments 53,185 46,205 66,154 58,138 22,945 Working capital 46,407 39,846 62,459 54,996 24,299 Total assets 62,411 57,343 74,212 66,828 28,856 Total liabilities 11,225 12,278 11,511 6,751 3,845 Accumulated deficit (169,086) (132,944) (89,635) (61,944) (42,218) Equity 51,186 45,065 62,701 60,077 25,011 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, 2018 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 reputation, business, financial condition or results of operations. In such case, you may lose all or partof your investment. Risks Related to Our Financial Condition and Capital Requirements Since our incorporation in 2009, we have focused primarily on the development and acquisition of late-stage clinicaldevelopment therapeutic candidates and more recently on the acquisition of rights to products for promotion and/orcommercialization in the U.S. and we have a history of operating losses. We expect to incur additional losses in the futureand may never be profitable. Since our incorporation in 2009, we have focused primarily on the development and acquisition of late-stage clinicaldevelopment therapeutic candidates. Most of our therapeutic candidates are in the late-stage clinical development and noneof our therapeutic candidates is approved for sale. However, in December 2016 we obtained certain rights to promote, but notto sell or distribute, Donnatalin certain U.S. territories pursuant to an exclusive agreement with a subsidiary of ADVANZPHARMA (“ADVANZ”) (f/k/a Concordia International Corp.). In 2017, we obtained certain rights to commercializeEnteraGam(a prescription medical food product) in the U.S. and certain rights to promote Esomeprazole Strontium Delayed-Release Capsules 49.3 mg in certain U.S. territories, and in 2018 we obtained exclusive U.S. rights to co-promote Mytesi(crofelemer 125 mg delayed-release tablets) in certain U.S. territories for the approved indication in people living withHIV/AIDS with respect to certain gastroenterologists and other healthcare practitioners. 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 $38.8 million in 2018, $45.5 million in 2017, and $29.4 million in2016. As of December 31, 2018, we had an accumulated deficit of approximately $169.1 million. We are expected to incursignificant additional losses as we continue to focus our resources on prioritizing, selecting and advancing our therapeuticcandidates, promoting Donnatal, Mytesi and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg,commercializing EnteraGam, and prioritizing, selecting, and advancing other products that we may7 ® ® ®®®®Table of Contentspromote or commercialize in the future. Our ability to generate sufficient revenues to sustain our business operations inaccordance with our plan and achieve profitability depends mainly upon our ability, alone or with others, to successfullydevelop our therapeutic candidates, obtain the required regulatory approvals in various territories and commercialize ourtherapeutic candidates, promote Donnatal, Mytesi, Esomeprazole Strontium Delayed-Release Capsules 49.3 mg andcommercialize EnteraGam and products that we may acquire or for which we may acquire commercialization rights in thefuture. We may be unable to achieve any or all of these goals with regard to our therapeutic candidates, our commercialproducts or products we may commercialize. As a result, we may never achieve sufficient revenues to sustain our businessoperations in accordance 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 Bausch Health Companies Inc. (“Bausch Health”), we have not yet demonstratedan ability to commercialize or obtain regulatory approval for our therapeutic candidates. Consequently, any predictionsabout our future performance may not be accurate, and you may not be able to fully assess our ability to completedevelopment or commercialization of our therapeutic candidates, promote Donnatal, Mytesi and Esomeprazole StrontiumDelayed-Release Capsules 49.3 mg, commercialize EnteraGam and products that we may promote or commercialize in thefuture, obtain regulatory approvals, reimbursement by third-party payors, achieve market acceptance or competitive pricingfor our therapeutic candidates or our current commercial products, Donnatal, Mytesi, and Esomeprazole StrontiumDelayed-Release Capsules 49.3 mg, and EnteraGam (collectively, “our current commercial products”), and products that wemay promote or 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 the promotion ofDonnatal, Mytesiand Esomeprazole Strontium Delayed-Release Capsules 49.3 mg and commercialization ofEnteraGam. We will need to raise additional capital to achieve our strategic objectives of acquiring, in-licensing,developing and commercializing therapeutic candidates, promoting Donnatal, Mytesi and Esomeprazole StrontiumDelayed-Release Capsules 49.3 mg and commercializing EnteraGam and other products that we may promote orcommercialize in the future, and our failure to raise sufficient capital or on favorable terms would significantly impair ourability to fund our operations, develop our therapeutic candidates, promote products such as Donnatal, MytesiandEsomeprazole Strontium Delayed-Release Capsules 49.3 mg or other products that we may promote in the future,commercialize EnteraGam or the products we may commercialize in the future, attract development or commercialpartners or retain key personnel. As of December 31, 2018, we had cash and short-term investments of approximately $53.2 million, and as of December 31,2017, we had cash and short-term investments of approximately $46.2 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 we will also need toraise additional capital through equity or debt financing or non-dilutive financing. These amounts may not be sufficient tocomplete the research and development of all of our therapeutic candidates, and we are also not yet certain of the financialimpact of our commercialization activities. To date, our business has generated limited revenues and is not profitable. As we plan to continue expending funds inresearch and development, including clinical trials, as well as to continue to promote Donnatal, Mytesi, and EsomeprazoleStrontium Delayed-Release Capsules 49.3 mg, commercialize EnteraGam and acquire additional products, we will need toraise additional capital in the future through equity or debt financing or a non-dilutive financing or pursuant to developmentor commercialization agreements with third parties with respect to particular therapeutic candidates. However, we cannot becertain that we will be able to raise capital on commercially reasonable terms or at all, or that our actual cash requirementswill not be greater than anticipated. We may have difficulty raising needed capital at all or on favorable terms, or securing adevelopment or commercialization partner in the future as a result of, among other factors, our limited revenues fromcommercialization of the therapeutic candidates and promoting Donnatal, Mytesi and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg and commercializing EnteraGam and products that we may8 ®®®®®®®®®®® ®®®®®® ®®®®®®®Table of Contentspromote or commercialize in the future, as well as the inherent business risks associated with our company, our therapeuticcandidates, our current commercial products and products that we may promote or commercialize in the future, and presentand future market conditions. To the extent we are able to generate meaningful revenues from our current commercialproducts, we may still need to raise capital because the revenues from our current commercial products may not be sufficientto cover all of our operating expenses and may not be sufficient to cover our commercial operations expenses. In addition,global and local economic conditions may make it more difficult for us to raise needed capital or secure a development orcommercialization partner in the future and may impact our liquidity. If we are unable to obtain sufficient future financing,we may be forced to delay, reduce the scope of, or eliminate one or more of our research, development or commercializationprograms for our therapeutic candidates or EnteraGam or the promotion of Donnatal, Mytesi, and Esomeprazole StrontiumDelayed-Release Capsules 49.3 mg and products that we may promote or commercialize in the future, any of which may havean adverse effect on our reputation, business, financial condition or results of operations. Moreover, to the extent we are ableto raise capital through the issuance of debt or equity securities, it could result in substantial dilution to existingshareholders. 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;·our ability to successfully complete our clinical trials and research and development programs since the veryadvanced disease state and poor prognosis of the oncology patients in our oncology studies, including our ongoingPhase 2 cholangiocarcinoma study, make it particularly difficult to successfully treat the patients and tosuccessfully complete the studies;·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, Mytesiand EsomeprazoleStrontium Delayed-Release Capsules 49.3 mg and 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;·the existence and entrance of generics into the market that could compete with our products and erode theprofitability of the products we 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, co-promotional or commercialization partners are unable to obtain or maintain the U.S. Foodand Drug Administration (“FDA”) or other foreign regulatory clearance and approval for our therapeutic candidates orproducts we may promote or commercialize, we or our co-promotional or commercialization partners will be unable tocommercialize our therapeutic candidates or products we may promote or commercialize. To date, other than our limited experience in promoting Donnatal, Mytesi, and Esomeprazole Strontium Delayed-ReleaseCapsules 49.3 mg and commercializing EnteraGam, we have not marketed, distributed or sold any therapeutic candidate9 ®®®®® ®®®®Table of Contentsor product. Several of the products that we currently promote or commercialize must obtain and maintain FDA and otherforeign regulatory clearance and approval. In 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 marketed as an FDA-regulated “medical food” product intended for the dietary management of chronicdiarrhea and loose stools, which must be administered under medical supervision. The FDA could require that EnteraGamobtain FDA approval in the future to remain in distribution in the United States if the FDA disagrees with the classification ofEnteraGam as a medical food. 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.Although we have certain rights to promote Donnatalin certain U.S. territories, which is currently included in the FDA DrugEfficacy Study Implementation (“DESI”) review program, we cannot guarantee that our co-promotion partner will continue tobe allowed to sell or promote Donnatal in the U.S. without future regulatory developments that may lead to the FDArequiring Donnatal to seek a U.S. New Drug Application (“NDA”) approval. See “—We or our co-promotional orcommercialization partners are subject to risks related to the regulatory environment of the Drug Efficacy StudyImplementation review program with respect to Donnatal.” In addition, future regulatory developments may lead to a loss ofthe right to commercialize EnteraGam or the right to promote Mytesi or Esomeprazole Strontium Delayed-ReleaseCapsules 49.3 mg. Esomeprazole Strontium DR Capsules 49.3 mg is an FDA-approved proton pump inhibitor (“PPI”) drug product indicated foradults for the treatment of gastroesophageal reflux disease (“GERD”), risk reduction of NSAID-associated gastriculcer, Helicobacter pylori (“H. pylori”) eradication to reduce the risk of duodenal ulcer recurrence and for pathologicalhypersecretory conditions, including Zollinger-Ellison syndrome. In July 2018, we commenced promoting Mytesi(crofelemer), an FDA-approved anti-diarrheal prescription drug indicatedfor the symptomatic relief of non-infectious diarrhea in adults with HIV/AIDS on anti-retroviral therapy (ART). Currently, we have seven therapeutic candidates, most in late-clinical stage development, for which we ultimately plan toseek FDA approval: TALICIA (proposed tradename for RHB-105, if approved) for the treatment of H. pylori infection withtwo positive Phase 3 studies; RHB-104 for the treatment of Crohn’s disease with positive top-line results from a first Phase 3study and a completed proof-of-concept Phase 2a study for multiple sclerosis; RHB-204, with a planned pivotal Phase 3study for pulmonary nontuberculous mycobacteria (“NTM”) infections; RHB-106 (out-licensed to Bausch Health) for bowelpreparation; BEKINDA (proposed tradename for RHB-102, if approved) with positive results from a first Phase 3 study foracute gastroenteritis and gastritis and positive results from a Phase 2 study for IBS-D; YELIVA (proposed tradename forABC294640, if approved), with an ongoing Phase 2a study for cholangiocarcinoma and other ongoing studies; and RHB-107 (Upamostat; formerly MESUPRON), targeting cancer and inflammatory GI diseases. Our therapeutic candidates aresubject to extensive governmental laws, regulations, and guidelines relating to development, clinical trials, manufacturing,marketing, promotion, and commercialization of pre- and post-approval prescription drugs. We may not be able to obtainmarketing approval for any of our therapeutic candidates in a timely manner or at all. 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, our current commercial products, or other products that we maypromote or commercialize may be subject to limitations on the indicated uses for marketing or may impose restrictiveconditions of use, including cautionary information, thereby altering or eliminating the size of the market for the therapeuticcandidate, our current commercial products, or other products that we may promote or commercialize in the future. We alsoare, and will be, subject to numerous regulatory requirements from both the FDA and other foreign regulatory authorities thatgovern the 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 regulatoryauthorities in separate jurisdictions. Each jurisdiction may have different approval processes10 ®®®®® ® ® ®®®®®® ®®®Table of Contentsand requirements and may impose additional testing, development and manufacturing requirements for our therapeuticcandidates, our current commercial products and products that we may promote or commercialize in the future. Additionally, the FDA or other foreign regulatory authorities may change their clearance or approval policies or adopt newlaws, regulations or guidelines in a manner that materially delays or impairs our ability to obtain the necessary regulatoryclearances or approvals or our ability to commercialize our therapeutic candidates, promote Donnatal, MytesiandEsomeprazole Strontium Delayed-Release Capsules 49.3 mg, commercialize EnteraGam and products that we may promoteor commercialize in the future. We may encounter delays in receipt of FDA approval, if any, for commercialization of TALICIA due to CMC, clinical,regulatory, supply or other issues.We may encounter significant delays in receipt of FDA approval, if any, for commercialization of TALICIA. For example,the FDA may determine that the chemistry, manufacturing and controls (“CMC”) of TALICIA are not satisfactory due to themanufacturing standards of the products or that additional CMC work, information or quality assurances are needed. TheFDA may also consider the clinical studies conducted with TALICIA to date and the additional information provided to beinadequate, or insufficient, or require us to provide additional information, which may require us to conduct additionalstudies or otherwise significantly delay potential FDA approval of the NDA for TALICIA, if at all. In addition, we rely onthe current manufacturer of TALICIA for the manufacture of validation and registration batches in support of our potentialsubmission of an NDA with the FDA. In addition, we rely on suppliers of active pharmaceutical ingredients and excipients.We cannot guarantee that our manufacturer, suppliers or other vendors will be able to perform as required, will not terminatetheir agreements with us, or otherwise will not perform satisfactorily. The delay in identifying, engaging, qualifying andtraining an alternative manufacturer or suppliers may be extended, leading to a significant delay. Furthermore, the FDA mayalso change its clearance or approval policies or adopt new laws, regulations or guidelines in a manner that materially delaysor impairs our ability to obtain approval of the NDA for TALICIA. If any of these or other issues occur, we may face substantial additional expenses and otherwise experience delays inobtaining potential FDA approval of the NDA for TALICIA or may never obtain the FDA approval of the NDA forTALICIA. We or our co-promotional or commercialization partners are subject to risks related to the regulatory environment of theDrug Efficacy Study Implementation 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 currently included in the DESI review program of the FDA. Donnatal was first commercializedbefore Congress’s 1962 amendment to the Food Drug and Cosmetic Act. The 1962 amendment required evidence of efficacyto be granted FDA approval. At that time, the FDA introduced the DESI program to evaluate the efficacy of drugs approvedbefore 1962. Under DESI, Donnatal is not an FDA-approved drug, but it may continue to be marketed and sold until a finaldetermination regarding efficacy is made. 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. Based on our review of docketed correspondence with the FDA, our co-promotion partner, ADVANZ, 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 or results of operations. It is also the case that other manufacturers would try to take advantageof the regulatory uncertainty to launch unauthorized copies of Donnatal. Any delay or inaction by the FDA or otherregulatory body to remove unauthorized copies of Donnatal from the market will harm our ability to successfully promotethis product. 11 ®® ®®®®®®®®®®®®®®®® ®®®Table of ContentsOur 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 (the “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 our knowledge todate, the labeling and promoting of EnteraGam is consistent with FDA regulatory requirements. However, our offering ofEnteraGam as a “medical food” could be challenged by the FDA. The FDA has previously issued warning letters to othercompanies challenging the classification of their products as “medical foods.” These letters, along with guidance written bythe FDA regarding medical foods, indicate that the FDA may be applying a more 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 notalso receive such a letter or other potential enforcement action, and the FDA could take the position that EnteraGam maynot be lawfully sold in the U.S. as a “medical food.” If such a challenge were to occur, we could incur significant costsresponding to such an enforcement action or claim and defending the status of EnteraGam as a “medical food” andultimately litigation. If we or Entera Health Inc. (“Entera Health”) are not able to demonstrate to the FDA’s satisfaction thatEnteraGam 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 FDAas a drug. The U.S. is the only territory in which we have rights to commercialize EnteraGam, and the cessation of such sales,even for a limited period, could have a material adverse effect on our reputation, business, financial condition or results ofoperations. 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 may not be able to commercialize our therapeutic candidates and products we may promote orcommercialize without completing such trials in accordance with the applicable regulatory standards, even products thatmay have already been cleared or approved for marketing. 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. 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;12 ®®®®®®®®®®®®Table of Contents·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;·lack of technology to support clinical trials results;·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 if wewill be able to complete the clinical trials we conduct or if such clinical trials will demonstrate adequate safety and efficacysufficient to request and obtain regulatory approval to market our therapeutic candidates. If any of the clinical trials of any ofour current or future therapeutic candidates do not produce favorable results, or are found to have been conducted inviolation of the FDA’s standards governing such studies, our ability to request and obtain regulatory approval for thetherapeutic candidate may be adversely impacted, which could have a material adverse effect on our reputation, business,financial condition or results of operations. If we are unable to develop a diagnostic test for Mycobacterium avium paratuberculosis (“MAP”), this may adverselyimpact our ability to develop or obtain approval for RHB-104. We are expecting to continue to advance the development program for a companion diagnostic for the detection of MAPbacteria in Crohn’s disease patients in collaboration with several U.S. universities and with Q Solutions. However, we do notknow if and when a diagnostic test for MAP will become available. If we are unable to develop a diagnostic test for MAP, thismay adversely impact our ability to develop or obtain regulatory approval to market RHB-104. 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 maintain suitabledevelopment, commercialization or promotion agreements or otherwise raise substantial additional capital to secure our owncommercialization capabilities, we may have to limit the size or scope of our activities or we may have to13 2Table of Contentsdelay or terminate one or more of our development or commercialization programs. Any failure to enter into development orcommercialization agreements with respect to the development, marketing and commercialization of any therapeuticcandidate or failure to develop, market and commercialize such therapeutic candidate independently may have an adverseeffect on our reputation, business, financial condition or 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, as well as ourpromotion of Donnatal, Mytesi and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg or commercialization ofEnteraGam. We do not control third parties with whom we have or may have collaborative arrangements, and we rely onsuch third parties to achieve results which may be significant to us. In addition, any future collaborative arrangements mayplace the development or commercialization of our therapeutic candidates, promotion of Donnatal, MytesiandEsomeprazole Strontium Delayed-Release Capsules 49.3 mg or commercialization of EnteraGam or products that we maypromote or commercialize in the future, outside our control, may require us to relinquish important rights or may otherwisebe on terms unfavorable to us. Each of our collaborative arrangements requires us to rely on external consultants, advisors, and experts for assistance inseveral key functions, including clinical development, manufacturing, regulatory, market research, intellectual 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 BauschHealth. We do not control Bausch Health, but we rely on Bausch Health to clinically develop and, ultimately, if approved,commercialize RHB-106 and related rights. In addition, with respect to Donnatal, Mytesi, Esomeprazole StrontiumDelayed-Release Capsules 49.3 mg and EnteraGam, we rely on ADVANZ, Napo Pharmaceuticals, Inc. (“Napo”), ParaPROLLC (“ParaPRO”) and Entera Health, respectively, as the party responsible for, among others, the manufacture, supply,generation of product information, and other operating responsibilities. Relying upon collaborative arrangements to develop and commercialize our therapeutic candidates, such as RHB-106,products we promote, such as Donnatal, Mytesiand Esomeprazole Strontium Delayed-Release Capsules 49.3 mg, andEnteraGam, which we commercialize, and other products that we may promote or commercialize in the future, subjects us toa number 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, Mytesi and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg, which are products that we promote, EnteraGam, which is a product we commercialize,or products that we may promote or commercialize in the future;·our collaborators may fail to comply with applicable laws, rules, or regulations when performing services for us, andwe could 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, Mytesi or Esomeprazole Strontium Delayed-ReleaseCapsules 49.3 mg, or EnteraGam, which is a product we commercialize, or of products that we may promote orcommercialize;·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;·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 promote14 ®®®®® ®®®®®® ®®®®®®®Table of ContentsDonnatal, Mytesi and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg and commercializeEnteraGam in the U.S. or products we may promote or commercialize in the future;·our collaborators may not wish to extend the terms of our agreements related to our commercial products beyond theexisting terms, in which case, we will not have access to existing rights upon the expiration and will therefore not beable to promote or commercialize our candidates and products following the initial terms of our agreements; and·our collaborators may wish to terminate the collaborative arrangements due to any disagreements or conflicts withus, a change in their assessment that the arrangement is no longer valuable, a change in control or in management orin strategy, changes in product development or business strategies of our collaborators. 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, Mytesi, EsomeprazoleStrontium Delayed-Release Capsules 49.3 mg, and EnteraGam or products which we may promote or commercializein the future may be withdrawn from the market at any time due to product withdrawal requests by the FDA or otherforeign regulatory authorities”);·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 unauthorized copies ofthe product 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 our current commercial products through third-partymanufacturers with the requisite quality and manufacturing standards as required under applicable laws andregulations, and we also rely on those same partners to supply their respective products, which may result in ushaving those respective products in insufficient quantities or not delivered in as timely a manner as is necessary toachieve 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 related to the product and for taking critical actions to support theproduct including with respect to promotion, sales and marketing, medical affairs and pharmacovigilance, and anyaction or inaction taken by those same partners may adversely affect the sales of their respective products;·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 reputation, business, financialcondition or results of operations. As a result of ADVANZ’s rebranding, recapitalization in September 2018 and its delisting from the NASDAQ Stock Market inJuly 2018, we are subject to the additional risks that ADVANZ may delay, reduce or cease payments to us under theADVANZ Co-Promotion Agreement or otherwise be unable or unwilling to meet its obligations to us under the ADVANZ Co-Promotion Agreement, including its manufacture, supply, and other operating responsibilities. If any of these scenariosmaterialize, it could have an adverse effect on our reputation, business, financial condition or results of operations.15 ®®®®®®®Table of Contents Our co-promotion agreement with Napo for the promotion of Mytesiis short-term, and Napo will continue to control thesale of Mytesi and have the right to set policies concerning pricing and other terms of sale that may impact the adoptionand use of Mytesi. We entered into the co-promotion agreement with Napo on June 28, 2018, and initiated U.S. promotion of Mytesiin July2018. The agreement, as amended, will expire, without renewal or a follow-on agreement, on January 28, 2020, without usever realizing benefits from the agreement. We have not realized and may not in the future realize any meaningful revenuefrom our activities under the agreement and any launch of our promotional activities may fail. Our promotional activitiesunder the agreement are also limited to the promotion of the product to gastroenterologists and other gastro/intestinalspecialty healthcare providers, and we did not obtain the right to promote Mytesi to other healthcare providers, such asinfectious disease specialists who may have greater numbers of patients with HIV and HIV specialists who are highprescribers of antiretroviral therapies medications. We will only receive compensation from Napo if sales of Mytesi areattributable to our promotional activities within the territory agreed upon with Napo. In addition, we rely upon Napo, a thirdparty, to manufacture, sell, and manage all regulatory and other issues related to Mytesi. Napo’s failure to properly executeany of its legal or other responsibilities, in a manner that complies with all applicable governing laws and regulations, maysubject us to various regulatory and litigation risks. In addition, Napo’s failure to manufacture Mytesi in sufficientquantities and in a timely manner would impair our ability to successfully promote this product. Donnatal, Mytesi, Esomeprazole Strontium Delayed-Release Capsules 49.3 mg, and EnteraGamor products which wemay promote or commercialize in the future may be withdrawn from the market at any time due to product withdrawalrequests by 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, may besubject to regulatory review under the DESI program, through which the FDA may determine such products to be ineffectiveand impose limitations or require withdrawal of the product from the market. 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. In addition, the process and timingof any FDA DESI proceedings with respect to Donnatal are unclear. Historically, the FDA has generally permitted productsto stay on the market during these proceedings, although there is no assurance as to the time of commencement of suchproceedings or whether the FDA will, in fact, grant such permission to any future DESI-related proceedings, thereby resultingin our current commercial products being subject to withdrawal requests by the FDA. The status of EnteraGam as a “medicalfood” in the U.S. may be challenged by regulatory authorities, which may result in its withdrawal from the market untiladditional regulatory requirements are met. Regulatory authorities in other jurisdictions may have similar procedures thatmay subject any product we may promote or commercialize to limitations or withdrawal requests. In addition, the FDA orother foreign regulatory authorities may determine that the chemistry, manufacturing and controls (“CMC”) of marketedproducts that we develop, acquire or to which we acquire commercialization rights, such as our current commercial products,is unsatisfactory due to the manufacturing standards of the products. If either of these or any regulatory action is taken, ourcurrent commercial products or any product we promote or commercialize in the future could be withdrawn from the marketat any time. In addition, we may suffer from delays in further commercialization 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. Specifically, we seek to acquire rights to products thatare already commercialized, which would enable us to commercialize such products independently and further establish ourown marketing and commercialization capabilities in the U.S. We have entered into the ADVANZ Co-Promotion Agreementpursuant to which we were granted certain rights to promote Donnatal in certain U.S. territories, which was our firstagreement to commercialize a product being marketed in the U.S. We have also entered into a license16 ® ®®® ®®®®®®® ®®®®®®Table of Contentsagreement with Entera Health pursuant to which we were granted the exclusive rights to commercialize EnteraGam incertain U.S. territories, an agreement with ParaPRO pursuant to which we were granted the exclusive rights to promoteEsomeprazole Strontium Delayed-Release Capsules 49.3 mg to gastroenterologists in certain U.S. territories and a co-promotion agreement with Napo pursuant to which we were granted the exclusive right to co-promote Mytesi in certain U.S.territories to certain gastroenterologists and other healthcare practitioners for the approved indication in people living withHIV/AIDS. 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. If we are not successful in acquiring any additional products, or incommercializing EnteraGam, or in promoting Donnatal, Mytesi, and Esomeprazole Strontium Delayed-Release Capsules49.3 mg, we may not be able to further establish or maintain our own marketing and commercialization capabilities in theU.S. This may limit our ability to commercialize products on our own and may require us to contract with third-partydevelopment or commercialization partners on terms which may not be commercially favorable to us. Additionally, theseefforts to further establish and maintain our commercial capabilities in the U.S. could be found to be more costly than ourforecast and have an adverse effect on our reputation, business, financial condition or 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 such products. 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 and lawfully market and sell our products in the U.S. If we are unable toexpand our sales and marketing capability, train our sales force effectively or provide any other capabilities necessary tocommercialize our products and therapeutic candidates, we may need to contract with third parties to market and sell ourproducts. 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. The FDA also requires that our sales and marketing efforts, as well as promotions, comply with various laws and regulations.Prescription drug promotions must be consistent with and not contrary to labeling, present “fair balance” between risks andbenefits, be truthful and not false or misleading, be adequately substantiated (when required), and include adequatedirections for use. In addition to the requirements applicable to approved drug products, we may also be subject to enforcement action inconnection with any promotion of an investigational new drug. A sponsor or investigator, or any person acting on behalf of asponsor or investigator, may not represent in a promotional context that an investigational new drug is safe or effective forthe purposes for which it is under investigation or otherwise promote the drug candidate. If the FDA investigates our marketing and promotional materials or other communications and finds that any of our current orfuture commercial products are being marketed or promoted in violation of the applicable regulatory restrictions, we couldbe subject to FDA enforcement action. Any enforcement action (or related lawsuit, which could follow such action) broughtagainst us in connection with alleged violations of applicable drug promotion requirements, or prohibitions, could harm ourbusiness and our reputation, as well as the reputation of any approved drug products we may promote or commercialize. 17 ®®®®®Table of ContentsExpanding 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, Mytesi and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg incertain U.S. territories, we only began to promote products in the U.S. in 2017 and have limited experience in promotingproducts. We are currently commercializing EnteraGam in the U.S., and we likewise have only recently begun tocommercialize 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, Mytesi, and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg requirea significant expenditure of operating, financial and management resources. Even with those investments, we may not beable to effectively promote Donnatal Mytesi or Esomeprazole Strontium Delayed-Release Capsules 49.3 mg,commercialize EnteraGam, or we may incur more expenditures than anticipated in order to maximize our sales. We cannotguarantee that we will be able to establish, maintain and/or expand our sales, marketing, distribution, and market accesscapabilities and enter into and maintain any agreements necessary for commercialization with payers and third-partyproviders on acceptable terms, if at all. If we are unable to establish, maintain and/or expand such capabilities, either on ourown or by entering into agreements with others, or are unable to do so in an efficient manner or on a timely basis, we will notbe able to maximize our commercialization of EnteraGamor promotion of Donnatal, Mytesior Esomeprazole StrontiumDelayed-Release Capsules 49.3 mg, which would adversely affect our business, operating results or financial condition. Even if the promotion of Donnatal, Mytesiand 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,Mytesior Esomeprazole Strontium Delayed-Release Capsules 49.3 mg or commercialization of EnteraGam, and we mayencounter general economic or business conditions that adversely affect these products. In addition, Donnatalcontinues toface pressure from competitive products and from non-FDA approved copies of Donnatalbeing distributed in the UnitedStates. In addition, if we incur higher than expected costs in connection with our promotion of Donnatal, Mytesior 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, operating results or financial condition. We have no history of independently commercializing any of our therapeutic candidates that may be approved in the futureand may have difficulty promoting Donnatal, Mytesi 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 limited 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., in September 2017, we began promoting EsomeprazoleStrontium Delayed-Release Capsules 49.3 mg to gastroenterologists in certain U.S. territories and in July 2018, we began thepromotion of Mytesi to certain gastroenterologists and other healthcare practitioners in certain U.S. territories. There can beno assurance we will successfully commercialize our therapeutic candidates, such as TALICIA, if approved in the future, orpromote Donnatal, Mytesi, and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg, or successfullycommercialize EnteraGam or any products we may promote or commercialize in the future. In 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. 18 ®®®® ®®®®®® ®® ®® ® ®® ®® ® ®® ®®®®®®®®®®®Table of ContentsWe 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 and compliance with applicablelaws and regulations for the completion of such clinical trials. We currently do not have the ability to independently conduct clinical trials and related non-clinical studies for ourtherapeutic candidates, and we rely on third parties, such as contract research organizations, medical institutions, contractlaboratories, development and commercialization partners, clinical investigators and independent study monitors 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 Bausch Health, 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, as well as all applicable laws and regulations. For example, the FDA requires us to complywith regulations and standards, commonly referred to as good clinical practices (“GCP”), for conducting, recording andreporting the results of clinical trials to assure that data and reported results are credible and accurate and that the trialparticipants are adequately protected, and regulatory authorities in other jurisdictions may have similar responsibilities andrequirements. Our reliance on third parties does not relieve us of these responsibilities and requirements. If these third partiesdo not successfully carry out their contractual duties or meet expected deadlines, we may be required to replace them orperform such functions independently. Although we believe that there are a number of other third-party contractors we couldengage to continue these activities, it may result in a delay of the affected trial and additional costs. Accordingly, we may bematerially delayed in obtaining regulatory approvals if any, for our therapeutic candidates and may be materially delayed inour efforts to successfully commercialize our therapeutic candidates for targeted diseases. In addition, our ability to bring our therapeutic candidates to market depends on the quality and integrity of data that wepresent to regulatory authorities in order to obtain marketing authorizations. Although we attempt to audit and control thequality of third-party data, we cannot guarantee the authenticity or accuracy of such data, nor can we be certain that suchdata has not been fraudulently generated. Furthermore, the FDA may consider clinical studies inadequate where steps havenot been taken in the design, conduct, reporting, and analysis of the studies to minimize bias. For example, one potentialsource of bias in clinical studies is a clinical investigator with a financial stake in the outcome of the study. Accordingly, we(or the applicant of the IND or Biologics License Application, as applicable) must submit for all applicable clinicalinvestigators either: (i) a completed Form FDA 3454 attesting to the absence of financial interests and arrangementsdescribed in the regulations, dated and signed by the chief financial officer or other responsible corporate official; or (ii) forany investigators for whom a Form FDA 3454 is not submitted, a Form FDA 3455 disclosing completely and accurately thefollowing: ·any financial arrangement entered into between the sponsor of the covered study and the clinical investigatorinvolved in the conduct of a covered clinical trial, whereby the value of the compensation to the clinicalinvestigator for conducting the study could be influenced by the outcome of the study;·any significant payments of other sorts from the sponsor of the covered study, such as a grant to fund ongoingresearch, compensation in the form of equipment, retainer for ongoing consultation, or honoraria;·any proprietary interest in the tested product held by any clinical investigator involved in a study;·any significant equity interest in the sponsor of the covered study held by any clinical investigator involved in anyclinical study; and·any steps taken to minimize the potential for bias resulting from any of the disclosed arrangements, interests, orpayments. The FDA may refuse to file an NDA that does not contain the required certifications and disclosures or an attestation by theapplicant that the applicant has acted with due diligence to obtain the information but was unable to do so and stating thereason. Additionally, FDA refusal of an NDA on potential bias grounds may have a material adverse effect on our reputation,business, and the credibility of our other therapeutic candidates and/or commercial products. 19 Table of ContentsWe rely on contract research organizations for the management of clinical data generated from our studies, and suchcontract research organizations may not perform satisfactorily. We rely on contract research organizations to provide monitors for and to manage data for our studies, including theERADICATE Hp2 study and the MAP US study. Our reliance on these contract research organizations for data managementreduces our control over clinical data management. While we have agreements governing their activities, we have limitedinfluence over their actual performance. The ERADICATE Hp2 study enrolled 455 patients at 55 clinical sites across theU.S., and the MAP US study enrolled 331 patients across clinical sites in several countries. If these contract researchorganizations do not successfully carry out their contractual duties or obligations or meet expected deadlines, or if thequality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or forother reasons, we may be required to replace them, or our clinical studies may be extended, delayed or terminated. Inaddition, such failure of our contract research organizations would pose risks to the accuracy and usability of clinical datafrom our clinical studies. Replacing a contract research organization may result in a delay of our clinical studies andgeneration of data from such studies. In addition, we face the risk of potential unauthorized disclosure or misappropriation ofour intellectual property by contract research organizations, which may reduce our trade secret protection and allow ourpotential competitors to access and exploit our proprietary technology, including those regarding TALICIA or RHB-104. We rely on data from third parties in connection with the sale of our commercial products and our assessment of productacquisition opportunities, and this data may be inaccurate or may not accurately reflect the sales of commercial products,which may affect the revenues of some of our commercial products and our allocation of resources, which may adverselyaffect our business and the reputation of the commercial products that we promote.We rely on data from third parties, including data providers, in connection with our commercial business. Revenues for ourpromotion of some of our commercial products, as well as our assessment of opportunities to acquire rights to products, aredependent on the volume of sales of our commercial products, which is calculated based on information obtained from thirdparties. Although we take steps to verify this data, the information we receive may be inaccurate or incomplete. In the eventthe information we receive is inaccurate or incomplete, this may affect our reported revenue for a reporting period or ourdecisions of whether to acquire rights to certain products. If third parties do not manufacture TALICIA or our other therapeutic candidates or do not manufacture and sell anyproducts we may promote or commercialize, including our current commercial products, in sufficient quantities, in therequired timeframe, and at an acceptable cost and quality, clinical development and commercialization of TALICIA orour other therapeutic candidates or promotion of products we may promote or commercialize could be delayed and sales ofany product we may promote or commercialize may be adversely affected. We do not currently own or operate manufacturing facilities. We rely on, and expect to continue to rely on, third parties tomanufacture clinical and commercial quantities of TALICIA or our other therapeutic candidates and products that we maypromote or commercialize. For TALICIA, we rely on the manufacturer of TALICIA for the manufacture of validation andregistration batches in support of our potential submission of an NDA with the FDA and, if approved for marketing, formarketing and commercial sale of TALICIA. For Donnatal, we rely on ADVANZ, which has a manufacturing agreementwith a third party to provide sufficient quantities of Donnatal in the required timeframe. For EnteraGam we rely on EnteraHealth and the manufacturer, The Lauridsen Group, Inc., to provide sufficient quantities of EnteraGam in the requiredtimeframe, and for Esomeprazole Strontium Delayed-Release Capsules 49.3 mg we rely on ParaPRO, which has amanufacturing agreement with a third party to provide sufficient quantities of Esomeprazole Strontium Delayed-ReleaseCapsules 49.3 mg in the required timeframe. For Mytesi, we rely on Napo, which has a manufacturing agreement with a thirdparty to provide sufficient quantities of Mytesi in the required timeframe. Our reliance on third parties includes our relianceon them for quality assurance related to regulatory compliance. Our current and anticipated future reliance upon others forthe manufacture of our therapeutic candidates and any products that we may promote or commercialize may adversely affectour future operations and our ability to develop therapeutic candidates and commercialize any therapeutic candidates andany products that we may promote or commercialize on a timely and competitive basis. We may not be able to maintain our existing or future third-party manufacturing arrangements on acceptable terms, if at all. Iffor some reason our manufacturers or our development or commercialization partners’ manufacturers do not perform as agreedor expected or terminate or fail to renew their agreements with us for any reason, we or our partners may be 20 ®®®®®®®®®®®®®Table of Contentsrequired to replace them, in which event we may incur added costs and delays in identifying, engaging, qualifying underapplicable regulatory requirements and training any such replacements and entering into agreements with such replacementson acceptable terms. Obtaining the necessary FDA or other regulatory approvals or other qualifications required for changesin manufacturing sites, methods or processes under applicable regulatory requirements could result in a significantinterruption of supply. In the case of the manufacturer of TALICIA, in particular, the delay in identifying, engaging,qualifying and training its replacement may be extended, leading to a significant interruption of supply. Any suchadditional costs and delays may adversely impact our ability to obtain regulatory clearances and approvals to commercializeTALICIA or our other therapeutic candidates or any product we may promote or commercialize or make suchcommercialization 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, for most of our products (but not Mytesi, asdiscussed below), we have yet to conclude extensive investigations into the quality or availability of their APIs. In addition,we do not believe that there are alternative suppliers of APIs for Mytesi, and we are wholly dependent upon Napo’s abilityto source or procure the API; the raw material used to manufacture Mytesi is a crude plant latex (“CPL”), derived from theCroton lechleri tree, which is found in countries in South America, principally Peru. The ability of Napo’s contract suppliersto harvest CPL is governed by the terms of their respective agreements with local government authorities. Although CPL isavailable from multiple suppliers, to our knowledge, Napo only has contracts with a small number of suppliers to obtain CPLand arrange its shipment to its contract manufacturer. Accordingly, if Napo’s contract suppliers do not or are unable tocomply with the terms of their respective agreements with Napo, and Napo is not able to negotiate new agreements withalternate suppliers on terms that it deems commercially reasonable, it may harm our co-promotion of Mytesi. The countriesfrom which CPL is obtained could also change their laws and regulations regarding the export of the natural products orimpose or increase taxes or duties payable by exporters of such products. Restrictions could be imposed on the harvesting ofthe natural products or additional requirements could be implemented for the replanting and regeneration of the raw material.Such events could have a significant impact on our co-promotion of Mytesi. As a result of each of the foregoingcircumstances related to Mytesiand the APIs of other products that we promote or commercialize, we can provide noassurances that supply sources will not be interrupted from time to time. Changing API suppliers or finding and qualifyingnew API suppliers can be costly and take a significant amount of time. Many APIs require significant lead-time tomanufacture. There can also be challenges in maintaining similar quality or technical standards from one manufacturingbatch 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 reputation, 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 our current commercial products. 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, andwe expect to continue to rely on, third-party manufacturers to produce commercial quantities of our current commercialproducts or any product that we may gain the rights to in the future to promote or commercialize. These manufacturers21 ®®®®®®®® Table of Contentsmay not be able to successfully increase or maintain the manufacturing capacity for any of our therapeutic candidates thatmay be approved in the future, our current commercial products or any product we may gain the rights to in order to promoteor commercialize in the future, in a timely or economic manner, or at all. Except for current FDA regulations with respect to“medical foods,” the significant scale-up of manufacturing may require additional validation studies, which the FDA mustreview and approve. Foreign regulatory agencies may also require the approval of additional validation studies for scaling upthe manufacturing 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 reputation, business, financial condition or results of operations. We and our third-party manufacturers or our partners’ manufacturers are, and will be, subject to regulations of the FDAand other foreign regulatory authorities, such as applicable current good manufacturing practices and other quality-basedregulations. We and our third-party manufacturers or our partners’ manufacturers are, and will be, required to adhere to laws, regulations,and 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 our current commercial products. We and our third-party manufacturers and our partners’manufacturers may not be able to comply with applicable laws, regulations, and guidelines. We and our third-partymanufacturers and our partners’ manufacturers are, and will be, subject to unannounced inspections by the FDA, stateregulators and similar foreign regulatory authorities outside the U.S. Our failure, or the failure of our third-partymanufacturers or our partners’ manufacturers, to comply with applicable laws, regulations and guidelines could result in theimposition of sanctions on us, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketingapproval of our therapeutic candidates, delays, suspension or withdrawal of approvals, license revocation, seizures or recallsof our therapeutic candidates and commercially-marketed products, operating restrictions and criminal prosecutions, any ofwhich could significantly and adversely affect regulatory approval and supplies of our therapeutic candidates andcommercially-marketed products, and materially and adversely affect our reputation, business, financial condition or resultsof operations. Our therapeutic candidates, our current commercial products, and any product we may promote or commercialize in thefuture, even if all regulatory clearances and approvals are obtained, will be subject to ongoing regulatory review. If we failto comply with continuing U.S. and applicable foreign laws, regulations, and guidelines, we could lose those clearancesand approvals, and our reputation, business, financial condition or results of operations may be materially and adverselyaffected. 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 our current commercialproducts and any cleared or approved product that we may gain the rights to promote or commercialize in thefuture, including pharmacovigilance. In addition, the manufacturing of our therapeutic candidates, our current commercialproducts, and any other product we may promote or commercialize, whether currently or in the future, will be subject tocontinuing regulatory review, including inspections by the FDA and other foreign regulatory authorities. The results of anyongoing review may result in withdrawal from the market of a therapeutic candidate or one of our current commercialproducts, Donnatal, Mytesi, 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 adverse reactions that were not observed in clinical trials may occur during thecommercial marketing of the therapeutic candidate or any product we may promote or commercialize, including our currentcommercial products. 22 ®®®Table of ContentsIf a product receives regulatory approval, the approval may be limited, which could restrict the commercial value of theproduct. As a condition of approval or after approval (if the FDA becomes aware of new safety information), the FDA mayrequire us to implement a Risk Evaluation and Mitigation Strategy (REMS), which may include distribution or userestrictions to manage a known or potential serious risk associated with the product. REMS can include medication guides,communication plans for healthcare professionals, and elements to assure safe use (ETASU). ETASU can include, but are notlimited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, specialmonitoring, and the use of patient registries. The requirement for a REMS can materially affect the potential market andprofitability of a given drug. Once adopted, REMS are subject to periodic assessment and modification. Additionally, theFDA may require post-approval, “Phase 4” clinical trials to generate additional information on safety and/or efficacy. Theresults of such post-marketing studies may be negative and could cause the Agency to, among other things, further limitmarketing efforts or a product’s approved uses. 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, or any other product we may promote orcommercialize, we may face substantial additional expenses, be delayed in obtaining marketing clearance or approval, ifrequired by the FDA, or may never obtain marketing clearance or approval for such therapeutic candidate or product we maypromote or commercialize, including Donnatal. In addition, Donnatal is currently subject to the FDA’s DESI proceedingsto determine its effectiveness and the right to continue to be marketed in the U.S., and there is no assurance as to the outcomeof such proceedings. To our knowledge at this time and based on our review of docketed correspondence with the FDA, theFDA has not made a final determination as to the efficacy of Donnatal. 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 the treatment of pancreatic cancer. If we fail to maintain these orphan drugdesignations, we will lose our associated marketing exclusivity, and our competitors may sell competing products and ourrevenues could be reduced. In 2014, the FDA granted TALICIAa Qualified Infectious Disease Product (“QIDP”) designation for the treatment of H.pylori infection. In 2017, we announced that RHB-204 had been granted QIDP designation by the FDA for the treatment ofNTM infections. If either TALICIAor RHB-204 fails to maintain its QIDP designation, it could significantly increase thedevelopment time for TALICIAfor the treatment of H. pylori infection and RHB-204 for NTM infections, as the case maybe. Third-party manufacturers and the manufacturing facilities that we and our development or commercialization partners use tomanufacture any therapeutic candidate and any other products that we may promote or commercialize, including our currentcommercial products, will be subject to periodic review and inspection by the FDA and may be subject to similar review byother regulatory authorities. Later discovery of previously unknown problems with any therapeutic candidate or product wemay promote or commercialize, including our current commercial products, manufacturer or manufacturing process, or failureto comply with rules and regulatory requirements, may result in actions, including but not limited to the following: ·restrictions on such therapeutic candidate, marketed product, manufacturer or manufacturing process;·warning letters from the FDA or other foreign regulatory authorities;·withdrawal of the therapeutic candidate or marketed product from the market;·suspension or withdrawal of regulatory approvals;23 ®®®®® ® ® Table of Contents·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. Modifications 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 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 our currentcommercial products, after they have been cleared or approved for marketing, if at all, may require new regulatory clearanceor approvals, and, if necessitated by a problem with a marketed product, may result in the recall or suspension of marketing ofthe previously approved and marketed product until clearances or approvals of the modified product are obtained. The FDAand other regulatory authorities require pharmaceutical product and device manufacturers to initially make and document adetermination of whether or not a modification requires a new approval, supplement or clearance. A manufacturer maydetermine in conformity with applicable laws, regulations, and guidelines that a modification may be implemented withoutpre-clearance by the FDA or other regulatory authorities. However, the FDA or other regulatory authorities can review amanufacturer’s decision and may disagree. The FDA or other regulatory authorities may also, on their own initiative,determine that a new clearance or approval is required. If the FDA or other regulatory authorities require new clearances orapprovals of any pharmaceutical product for which we or our partners, including development or commercialization partners,previously received marketing approval, we or our partners, including development or commercialization partners, may berequired to recall and stop marketing such marketed product, which could require us or our partners, including developmentor commercialization partners, to redesign the marketed product and may cause a material adverse effect on our reputation,business, financial condition or results of operations. 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 seven clinical stage development 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. or elsewhere that are likely to achieve commercial success. In addition, even ifwe identify additional therapeutic candidates or products that have been approved or cleared for marketing in the U.S. orelsewhere that are likely to achieve commercial success, there can be no assurance as to our ability to in-license or acquiresuch therapeutic candidates 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 with24 Table of Contentsother companies, including established and well-capitalized companies. As a result, we may be unable to in-license oracquire additional 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 ourreputation, business, financial condition or 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 reputation, business, financial condition or results of operations. We acquired our rights to three of our therapeutic candidates, TALICIA, RHB-104, and RHB-106, from a third partypursuant to an asset 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 tocertain patent rights and know-how related to these therapeutic candidates. We have also obtained certain rights to promoteDonnatal in certain U.S. territories under a co-promotion agreement, the exclusive U.S. rights to commercialize EnteraGamin certain U.S. territories pursuant to a license agreement, the exclusive rights to promote Esomeprazole Strontium Delayed-Release Capsules 49.3 mg to gastroenterologists in certain U.S. territories pursuant to an agreement and the exclusive right toco-promote Mytesi to certain gastroenterologists and other healthcare practitioners in certain U.S. territories under a co-promotion agreement. These agreements require us to make payments and satisfy various performance obligations in order tomaintain our rights and licenses with respect to these therapeutic candidates and marketed products. If we or ourcollaborators do not meet our or their respective obligations under these agreements, or if other events occur that are notwithin our control, such as the bankruptcy of a licensor, we could lose the rights to our therapeutic candidates, experiencedelays in developing or commercializing our therapeutic candidates or incur additional costs, any of which could have amaterial adverse effect on our reputation, business, financial condition or 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 reputation, business, financial condition or results of operations. Wemanage a large portfolio of patents and may decide to discontinue maintaining certain patents in certain territories forvarious reasons, including costs, such as a current belief that the commercial market for the therapeutic candidate will not belarge or that there is a near-term patent expiration that may reduce the value of the therapeutic candidate. In the event wediscontinue maintaining such patents, we may not be able to enforce rights for our therapeutic candidates or protect ourtherapeutic candidates 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-relateddata, research data, our proprietary business information and that of our suppliers, technical information about our products,clinical trial plans, and employee records. Similarly, our third-party providers possess certain of our sensitive data andconfidential 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 cyber-terrorists, 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 the25 ®®®®®®Table of Contentsinformation stored there could be accessed, publicly disclosed, encrypted, lost or stolen. Any such access, inappropriatedisclosure of confidential or proprietary information or other loss of information, including our data being breached at third-party providers, could result in legal claims or proceedings, liability or financial loss under laws that protect the privacy ofpersonal information, disruption of our operations or our product development programs and damage to our reputation,which could adversely affect our business. For example, the loss of clinical trial data from completed or ongoing or plannedclinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover orreproduce 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 our current commercial products, or otherwise affect our ability tomanage our company effectively and to carry out our business plan. These key personnel are Dror Ben-Asher, our ChiefExecutive Officer, Reza Fathi, Ph.D., our Senior Vice President for Research and Development, Gilead Raday, our ChiefOperating Officer, Adi Frish, our Senior Vice President for Business Development and Licensing, Guy Goldberg, our ChiefBusiness Officer, and Micha Ben Chorin, our Chief Financial Officer. We do not maintain key-man life insurance. Althoughwe have entered into employment or consultancy agreements with all of the members of our senior management team,members of our senior management team may resign at any time. High demand exists for senior management and other keypersonnel in the pharmaceutical industry. There can be no assurance that we will be able to continue to retain and attractsuch 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 our current commercial products and potentially products we may develop, we may need to expand and maintainour marketing and sales capabilities. While we attempt to provide competitive compensation packages to attract and retainkey personnel, many of our competitors are likely to have greater resources and more experience than we have, making itdifficult for us to compete successfully for key personnel. If we cannot attract and retain sufficiently qualified suitableemployees on acceptable terms, we may not be able to develop and commercialize competitive therapeutic candidates andour commercialized products. Further, any failure to effectively integrate new personnel could materially prevent us fromsuccessfully 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 our current commercial products, as well as by political unrest, unstable governmentsand legal systems and inter-governmental disputes. Any of these changes could have a material adverse effect on ourreputation, business, financial condition or results of operations. Additionally, because our corporate headquarters are inIsrael while our commercial office is in the U.S., there is additional risk in our ability as a company to control the activitiesoccurring 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. 26 Table of ContentsIn the past, there have been heightened security concerns regarding North Korea’s nuclear weapons and long-range ballisticmissile programs. This has resulted in increased uncertainty regarding both North Korea’s actions and those of the U.S. If aparty will take an aggressive action, including acts of war, we may not receive sufficient quantities of EsomeprazoleStrontium Delayed-Release Capsules 49.3 mg in the required timeframe, and our promotion of Esomeprazole StrontiumDelayed-Release Capsules 49.3 mg may be adversely affected. Risks 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 our currentcommercial products in certain U.S. territories and to commercialize EnteraGam Even if any of our therapeutic candidates orany product we may promote or commercialize receive, have received or do not require regulatory clearance or approval, itmay not become a commercially viable product. For example, even if we or our development or commercialization partnersreceive regulatory clearance or approval to market a therapeutic candidate or receive regulatory clearance or approval topromote or commercialize any product, the clearance or approval may be subject to limitations on the indicated uses orsubject to labeling or marketing restrictions, which could materially and adversely affect their marketability andprofitability. In addition, a new therapeutic candidate may appear promising at an early stage of development or after clinicaltrials but never reach the market, or it may reach the market but not result in sufficient product sales, if any. A therapeuticcandidate or any product that we may promote or commercialize, may not result in commercial success for various reasons,including but not limited to: ·difficulty in large-scale manufacturing, including yield and quality;·low market acceptance by physicians, healthcare payors, patients and the medical community as a result of lowerdemonstrated clinical safety or 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 sufficient revenues to sustain our business operations in accordance with our plan from the saleor 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 our27 ®Table of Contentsproposed formulations, therapeutic candidates or any product we may promote or commercialize when planned, or todevelop them commercially, we may not achieve any market acceptance or generate meaningful revenue. Unexpected 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 reputation, business, financial condition or results of operations. In addition, the discovery of one ormore significant problems with a product similar to 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 reputation, business, financial condition or 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, generic products, treatments andproducts which may be developed by others could impair our ability to maintain and grow our business and remaincompetitive. The pharmaceutical and biotechnology industry is highly competitive, and we face 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, our current commercial products and products we may promote or commercialize may competewith products of third parties for market share, and generic drugs or products that treat the same indications as our currentcommercial products or products we may promote or commercialize can have an adverse effect on our revenues by reducingour market share or requiring us to reduce the price of the products we market. We are aware of at least two products that are,to our understanding, unauthorized copies of Donnatalthat currently are being sold in the U.S. The FDA has not takenaction against these products and this has had a negative effect on our commercial success. We understand that ADVANZ ispursuing legal remedies in an attempt to stop the sale of unauthorized copies of Donnatal.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 significant28 ® ®Table of Contentscompetition for us. Acquisitions of, or investments in, competing pharmaceutical or biotechnology companies by largecorporations could increase such competitors’ financial, marketing, manufacturing, and other resources. The potential widespread acceptance of therapies that are alternatives to ours may limit market acceptance of ourformulations, therapeutic candidates or products we may promote or commercialize, even if commercialized. Many of ourtargeted 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 our current commercial products andproducts we may promote or commercialize in the future. 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 signed the “Health Care and Education Reconciliation Act” (P.L. 111-152), collectively commonly referred toas the “Healthcare Reform Law.” The Healthcare Reform Law included a number of new rules regarding health insurance, theprovision of healthcare, conditions to reimbursement for healthcare services provided to Medicare and Medicaid patients,and other healthcare policy reforms. Through the law-making process, substantial changes have been and continue to bemade to the current system for paying for healthcare in the U.S., including changes made to extend medical benefits tocertain Americans who lacked insurance coverage and to contain or reduce healthcare costs (such as by reducing orconditioning reimbursement amounts for healthcare services and drugs, and imposing additional taxes, fees, and rebateobligations on pharmaceutical and medical device companies). This legislation was one of the most comprehensive andsignificant reforms ever experienced by the U.S. in the healthcare industry and has significantly changed the way healthcareis financed by both governmental and private insurers. This legislation has impacted the scope of healthcare insurance andincentives for consumers and insurance companies, among others. Additionally, the Healthcare Reform Law’s provisionswere designed to encourage providers to find cost savings in their clinical operations. Pharmaceuticals represent a significantportion of the cost of providing care. This environment has caused changes in the purchasing habits of consumers andproviders and resulted in specific attention to the pricing negotiation, product selection and utilization review surroundingpharmaceuticals. This attention may result in our therapeutic candidates and products we may promote or commercialize,including our current commercial products, being chosen less frequently or the pricing being substantially lowered. At thisstage, it is difficult to estimate the full extent 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, including our currentcommercial products, those we and our development or commercialization partners are currently developing and/or thosethat we may promote or commercialize in the future. If reimbursement for our approved therapeutic candidates, products wecurrently commercialize or promote, or any product we may promote or commercialize is substantially reduced or otherwiseadversely affected in the future, or rebate obligations associated with them are substantially increased, it could have amaterial adverse effect on our reputation, business, financial condition or results of operations. Extending medical benefits to those who currently lack coverage will likely result in substantial costs 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 our current commercial products), or by restricting coverage (and, thereby,utilization) of medical services or products. In either case, a reduction in the utilization of, or reimbursement for, anytherapeutic candidate or any product we may promote or commercialize, including our current commercial products, or29 Table of Contentsfor which we receive marketing approval in the future, could have a material adverse effect on our reputation, business,financial condition or results of operations. Several states and private entities initially mounted legal challenges to the Healthcare Reform Law, and they continue tolitigate various aspects of the legislation. On July 26, 2012, the U.S. Supreme Court generally upheld the provisions of theHealthcare Reform Law at issue as constitutional. However, the U.S. Supreme Court held that the legislation improperlyrequired the states to expand their Medicaid programs to cover more individuals. As a result, the states have a choice as towhether they will expand the number of individuals covered by their respective state Medicaid programs. Some states havenot expanded their Medicaid programs and have chosen to develop other cost-saving and coverage measures to provide careto currently uninsured individuals. Many of these efforts to date have included the institution of Medicaid-managed careprograms. The manner in which these cost-saving and coverage measures are implemented could have a material adverseeffect on our reputation, business, financial condition or results of operations. Further, the healthcare regulatory environment has seen significant changes in recent years and is still in flux. Legislativeinitiatives to modify, limit, replace, or repeal the Healthcare Reform Law and judicial challenges continue, and may increasein light of the current administration and legislative environment. We cannot predict the impact on our business of futurelegislative and legal challenges to the Healthcare Reform Law or other changes to the current laws and regulations. Thefinancial impact of U.S. healthcare reform legislation over the next few years will depend on a number of factors, includingthe policies reflected in implementing regulations and guidance and changes in sales volumes for therapeutics affected bythe legislation. From time to time, legislation is drafted, introduced and passed in the U.S. Congress that could significantlychange the statutory provisions governing coverage, reimbursement, and marketing of pharmaceutical products. In addition,third-party payor coverage and reimbursement policies are often revised or interpreted in ways that may significantly affectour business and our products. Since taking office, President Trump has continued to support the repeal of all or portions of the Healthcare Reform Law.President Trump has also issued an executive order in which he stated that it is his administration’s policy to seek the promptrepeal of the Healthcare Reform Law and in which he directed executive departments and federal agencies to waive, defer,grant exemptions from, or delay the implementation of the provisions of the Healthcare Reform Law to the maximum extentpermitted by law. Congress has enacted legislation that repeals certain portions of the Healthcare Reform Law, including butnot limited to the Tax Cuts and Jobs Act, passed in December 2017, which included a provision that eliminates the penaltyunder the Healthcare Reform Law’s individual mandate, effective January 1, 2019, as well as the Bipartisan Budget Act of2018, passed in February 2018, which, among other things, repealed the Independent Payment Advisory Board (which wasestablished by the Healthcare Reform Law and was intended to reduce the rate of growth in Medicare spending). There havealso been more recent examples of judicial challenges, such as federal judges attempting to invalidate the entire HealthcareReform Law based on the individual mandate. There is still uncertainty with respect to the impact President Trump’sadministration and the U.S. Congress may have, if any, and any changes will likely take time to unfold. Third-party payors may 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 our current commercial products,and may impose coverage restrictions or limitations that affect their use. Our revenues and profits depend heavily upon the availability of adequate reimbursement for the use of our approved orcleared therapeutic candidates, our current commercial products, and any products that we may promote or commercialize,from governmental or other third-party payors, both in the U.S. and in foreign markets. Reimbursement by a third-party payormay depend upon a number of factors, including, but not limited to, the third-party payor’s determination that the use of anapproved or cleared therapeutic candidate or product is: ·a covered benefit under its health plan;·safe, effective and medically necessary;·appropriate for the specific patient;·cost-effective; and·neither experimental nor investigational. 30 Table of ContentsObtaining reimbursement approval for a therapeutic candidate or for any product that we may promote or commercialize,including our current commercial products, from any government or other third-party payor is a time-consuming and costlyprocess that could require us or our development or commercialization partners to provide supporting scientific, clinical andcost-effectiveness data for the use of our therapeutic candidates or any product that we currently, or may, promote orcommercialize to each payor. Even when a payor determines that a therapeutic candidate or a product that we promote orcommercialize is eligible for reimbursement under its criteria, the payor may impose coverage limitations that precludepayment for some uses that are approved by the FDA or other foreign regulatory authorities, or may impose restrictions, suchas prior authorization requirements, or may simply deny coverage altogether. Reimbursement rates may vary according to theuse of the therapeutic candidate or the use of any product that we promote or commercialize and the clinical setting in whichit is used, may be based on payments allowed for lower-cost products that are already reimbursed, may be incorporated intoexisting payments for products or services, and may reflect budgetary constraints or imperfections in Medicare, Medicaid orother data used to calculate these rates. In particular, reimbursement for our products may not be available from Medicare orMedicaid, and reimbursement from other third-party payors may be limited, reduced or revoked. For example, reimbursementfor Donnatal has been limited and is mostly available only through private payors, with certain restrictions, such as priorauthorization requirements. Commercial coverage for Esomeprazole Strontium Delayed-Release Capsules 49.3 mg has beenlimited, and the class as a whole is highly genericized with certain products available inexpensively and over the counter,and many payors manage the pricing of the generics as well. In addition, because EnteraGam is a “medical food” it is subjectto unique FDA regulations and requirements that may limit its market potential. Overall, our ability to get reimbursementcoverage for our commercial products has historically been limited. Successful commercialization of our current commercialproducts requires a conducive reimbursement environment. If our products do not receive adequate reimbursement coverage,or if reimbursement coverage is reduced or otherwise adversely affected, then their respective commercial prospects could beseverely limited. Although certain payors may currently provide some form of coverage for our commercial products, payorsmay suspend or discontinue reimbursement at any time, may require or increase co-payments from patients, may imposerestrictions or limitations on coverage, or may reduce reimbursement rates for our products. If we fail to establish broadadoption of and reimbursement for our commercial products, or if we are unable to maintain any existing reimbursement frompayors, our ability to generate revenue could be harmed and this could have a material adverse effect on our reputation,business, financial condition or results of operations. In addition to our existing commercial products, any new product wemay promote or commercialize in the future may require that we expend substantial time and resources in order to obtain andretain reimbursement, and any of these efforts may not be successful. 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 comparative effectivenessresearch, both by private payors and by government agencies. To the extent other drugs or therapies are found to be moreeffective than our products, payors may elect to cover such therapies in lieu of our products or reimburse our products at alower rate. Legislation that reduces reimbursement for our therapeutic candidates could adversely impact how much or underwhat circumstances healthcare providers will prescribe or administer our therapeutic candidates, if approved, or for anyproduct that we may promote or commercialize, including our current commercial products. This could materially andadversely impact our reputation, business, financial condition or results of operations by reducing our ability to generatemeaningful revenue, raise capital, obtain additional collaborators and market. At this stage, we are unable to estimate theextent of the direct or indirect impact of any such federal and state proposals. Furthermore, the Centers for Medicare and Medicaid Services frequently change product descriptors, coverage policies,product and service codes, payment methodologies and reimbursement values. Third-party payors often follow Medicarecoverage policy and payment limitations in setting their own reimbursement rates, and both the Centers for Medicare andMedicaid Services and other third-party payors may have sufficient market power to demand significant price reductions.Price reductions or other significant coverage policies or payment limitations could materially and adversely affect ourreputation, business, financial condition or results of operations. 31 ®®Table of ContentsWe are subject to U.S. federal and state healthcare laws and regulations relating to our business, and our failure to complywith such laws could have a material adverse effect on our reputation, business, financial condition or results ofoperations. 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. Healthcare providers, physicians, and third-party payors play a primary role in therecommendation and prescription of our therapeutic candidates, current commercial products, or any products we maypromote or commercialize. Our arrangements with third-party payors, customers, employees, or others may expose us tobroadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financialarrangements and relationships through which we market, sell, and distribute our products. The laws that may affect ourability to operate include, but are not limited to, the following: ·the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfullysoliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either thereferral of an individual for, or the purchase, order or recommendation of, any good or service for which paymentmay be made under government healthcare programs such as the Medicare and Medicaid programs;·the federal Anti-Inducement Law (also known as the Civil Monetary Penalties Law), which prohibits a person fromoffering or transferring remuneration to a Medicare or State healthcare program 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 Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and its implementingregulations, which impose obligations on certain covered entities and their business associates with respect tosafeguarding the privacy, security, and transmission of individually identifiable health information, and requirenotification to affected individuals, regulatory authorities, and potentially the media of certain breaches of securityof individually identifiable health information;·HIPAA’s fraud and abuse provision, which imposes criminal and civil liability for executing a scheme to defraudany healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact ormaking any materially false statement in connection with the delivery of or payment for healthcare benefits, items orservices;·the FDCA, which among other things, strictly regulates drug product and medical device marketing, prohibitsmanufacturers from marketing such products for off-label use and regulates the distribution 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. Compliance efforts may involve substantial costs, and if our operations or business arrangements with third parties are foundto be in violation of any such requirements, we may be subject to penalties, including civil or criminal penalties, monetarydamages, the curtailment or restructuring of our operations, or exclusion from participation in government contracting,healthcare reimbursement or other government programs, including Medicare and Medicaid, any of which could adverselyaffect our financial results. Although effective compliance programs can help mitigate the risk of investigation andprosecution for violations of these laws, these risks cannot be entirely eliminated. Any violations of these32 Table of Contentslaws, or any action against us for violation of these laws, even if we successfully defend against it, could result in a materialadverse effect on our reputation, business, financial condition or 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 for all payments, transfers of value orownership or investment interests that are not reported. In addition, there has been a recent trend of increased federal andstate regulation of payments made to physicians for marketing, medical directorships, and other purposes. Some statesimpose a legal obligation on companies to adhere to voluntary industry codes of behavior (e.g., the PhRMA Code and theAdvaMed Code of Ethics), which apply to pharmaceutical and medical device companies’ interactions with healthcareproviders; some mandate implementation of corporate compliance programs, along with the tracking and reporting of gifts,compensation and other remuneration to physicians, and some states limit or prohibit such gifts. 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. In June 2016, Vermont became the first state topass 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, and two such bills, the PatientRight to Know Drug Prices Act (for private plans) and the Know the Lowest Price Act (for Medicare Parts C and D), weresigned into law on October 10, 2018. These laws and any other such implementation of legislation requiring publication ofdrug costs could materially and adversely impact our reputation, business, financial condition or results of operations bypromoting a reduction in drug prices. As such, patients may choose to use other low-cost, established drugs or therapies. The scope and enforcement of these laws are uncertain and subject to change in the current environment of healthcare reform,especially in light of the lack of applicable precedent and guidance. We cannot predict the impact that new legislation or anychanges in existing legislation will have on our reputation, business, financial condition, or results of operations. Federal orstate regulatory authorities may challenge our current or future activities under these laws. Any such challenge could have amaterial adverse effect on our reputation, business, financial condition or results of operations. Any state or federal regulatoryreview of us, regardless of the outcome, would be costly and time-consuming and could negatively and adversely affect ourbusiness or results of operations. 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, including but not limited to,state and federal anti-kickback laws and any material failure to comply 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, the 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 entering into corporateintegrity agreements with the U.S. government. Companies may not promote drugs for “off-label” uses, that is, uses that arenot described in the product’s labeling and that differ from those approved by the FDA or other applicable regulatoryagencies. A company that is found to have improperly promoted drug products for off-label uses may be subject tosignificant liability, including civil and administrative remedies, as well as criminal sanctions. In addition, an enforcementaction against us could cause management’s attention to be diverted from our business operations and damage ourreputation. 33 Table of ContentsWe 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 risks 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 or 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 our current commercial products. In addition, regardless of merit or eventual outcome, productliability 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 operations.However, 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. Our clinical trials may indicate unexpected serious adverse events or other adverse events and/or undesirable side effectsthat may harm our business prospects, operating results or financial condition. Serious adverse events identified duringone of our Expanded Access Programs (EAPs) may present additional risks that may adversely affect our development ofthe therapeutic candidates involved in the applicable EAP. As is the case with pharmaceuticals generally, certain side effects and adverse events may emerge as safety risks associatedwith the use of our therapeutic candidates. Similarly, serious adverse events (SAEs) have occurred and may occur in thefuture in connection with our clinical trials. Results of our clinical trials could reveal a high and unacceptable severity and34 Table of Contentsprevalence of side effects or unexpected characteristics. Undesirable side effects caused by our product candidates couldcause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or thedelay or denial of regulatory approval by the FDA or comparable foreign regulatory authorities. The drug-related side effectscould affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liabilityclaims. Any of these occurrences may have a material adverse effect on reputation, business, financial condition or results ofoperations. 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 the EAP. Serious adverse events or other undesirable side effects in connection with the use of our therapeutic candidates providedunder the 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 were 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 our current commercial products. 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. 35 Table of ContentsSecurity 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 informationtechnology 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 allowed36 Table of Contentsin published applications, and it is also not possible to know which claims of granted patents, if any, will be deemedenforceable in a court of law. After the completion of development and registration of our patents, third parties may still manufacture or 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 any product we maypromote or commercialize, including our current commercial products, 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, Bausch Health, to prosecute, maintain and defend the patents and other intellectualproperty rights of RHB-106, which we have licensed to Bausch Health. If Bausch Health does not prosecute, maintain anddefend the patents and other intellectual property rights of RHB-106, it could materially harm our ability to obtain suitablepatent protection covering RHB-106 or ensure freedom to commercialize RHB-106 in view of third-party patent rights,thereby materially reducing our potential profits from RHB-106. 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. The fourth GI-specialty product, Mytesi(crofelemer), is protected by three methods of use patents thatprotect only the approved first therapeutic use of crofelemer as described on the Mytesi label. If the FDA proceedings relatedto Donnatal designed to determine its effectiveness will be ongoing, only products that receive an NDA from the FDA, DESIproducts and those actively participating in the hearing process of the FDA may be marketed. However, other competingproducts may freely enter the market, and we and our partners may not have sufficient intellectual property rights inDonnatal to protect it from such competition. See “—Risks Related to Our Business and Regulatory Matters – Donnatal,Mytesi, Esomeprazole Strontium Delayed-Release Capsules 49.3 mg, and EnteraGamor products which we may promote orcommercialize in the future may be withdrawn from the market at any time due to product withdrawal requests by the FDA orother foreign regulatory authorities 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 requirethe disclosure and assignment to us of the rights to the ideas, developments, discoveries and inventions of our employees,advisors, research collaborators, contractors and consultants while we employ or engage them. However, 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 trade37 ®®®®® ®®®®®® Table of Contentssecret, know-how or other technology not protected by a patent could materially adversely affect any competitive advantagewe may have over any such competitor. To 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 effect onour reputation, business, financial condition or 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. 38 Table of ContentsRisks Related to our Ordinary Shares and ADSs It is possible that we may be treated as a “passive foreign investment company”, which could result in adverse U.S. federalincome tax consequences to U.S. investors. There is some uncertainty in the determination of our PFIC status, and it is possible that we may be treated as a PFIC for U.S.federal income tax purposes for our current taxable year and future taxable years. A non-U.S. corporation will be considered aPFIC for any taxable year if either (1) at least 75% of its gross income for such year is passive income or (2) at least 50% ofthe value of its assets (based on an average of the quarterly values of the assets during such year) is attributable to assets thatproduce or are held for the production of passive income. Because the value of our assets for purposes of this determinationwill generally be determined by reference to the market price of the ADSs, our PFIC status will depend in large part on themarket price of the ADSs. A separate determination must be made each taxable year as to whether we are a PFIC (after theclose of each such taxable year). If we are a PFIC for any taxable year during which a U.S. Holder (as defined in “Item 10.Additional Information – Taxation — U.S. Federal Income Tax Considerations – Passive Foreign Investment Companies”)holds Ordinary Shares or ADSs, the U.S. Holder may be subject to adverse tax consequences, including (i) the treatment of allor a portion of any gain on disposition as ordinary income, (ii) the application of an interest charge with respect to such gainand certain dividends and (iii) compliance with certain reporting requirements. Each U.S. Holder is urged to consult its owntax advisor regarding these issues. 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 in particular, are subject to fluctuation, and changes in the price of our securities may be unrelated toour operating performance. The market price of our Ordinary Shares on the TASE and the market price of our ADSs on theNASDAQ have fluctuated in the past, and we expect they will continue to do so. The market price of our Ordinary Shares andADSs 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, geopolitical 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,39 Table of Contentsshareholders have often instituted securities class action litigation and derivative actions. If we were involved in securities orother litigation, it could have a substantial cost and divert resources and attention of management from our business, even ifwe are successful. Future sales of our Ordinary Shares or ADSs could reduce the market price of our Ordinary Shares and ADSs. All of our outstanding Ordinary Shares are registered and available for sale in Israel. In addition, as of December 31, 2018, wehad options to purchase 29,400,235 Ordinary Shares under our Amended and Restated Award Plan (2010) (the “2010 AwardPlan”) outstanding, options to purchase 3,000 ADSs (each representing 10 Ordinary Shares) outside the 2010 Award Plan andnon-tradable warrants to purchase an aggregate of 2,025,458 ADSs (each representing 10 Ordinary Shares) outstanding. Inaddition, as of December 31, 2018, there were 38,518,375 Ordinary Shares reserved 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 were listed on the NASDAQ CapitalMarket from December 27, 2012, through July 19, 2018, and have been listed on the NASDAQ Global Market since July 20,2018. Trading in our securities on these markets takes place in different currencies (U.S. dollars on the NASDAQ and NIS onthe TASE), and at different times (resulting from different time zones, different trading days and different public holidays inthe U.S. and Israel). The trading prices of our securities on these two markets may differ due to these and other factors. Anydecrease in the price of our securities on one of these markets could cause a decrease in the trading price of our securities onthe 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 and our Ordinary Shares on the TASE, and this may limit theability 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 on the NASDAQ Global Market inJuly 2018, and our Ordinary Shares began trading on the TASE in February 2011, we cannot assure you that we will maintaincompliance with all of the requirements for our ADSs and our Ordinary Shares to remain listed. Additionally, there can be noassurance that trading of our ADSs and our Ordinary Shares on such markets will be sustained or desirable. We have incurred significant costs as a result of the listing of our ADSs on the NASDAQ, and we may need to devotesubstantial time and resources to new and current compliance initiatives and reporting requirements. As a public company in the U.S. and Israel, we incur significant accounting, legal and other expenses as a result of the listingof our securities on both the NASDAQ and the TASE. These include costs associated with the reporting requirements of theSecurities and Exchange Commission (the “SEC”) and the requirements of the NASDAQ Listing Rules, as well asrequirements under Section 404 and other provisions of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). Theserules and regulations have increased our legal and financial compliance costs, introduced new costs such as investorrelations, travel costs, stock exchange listing fees, and shareholder reporting, and made some activities more time-consumingand costly. Any future changes in the laws and regulations affecting public companies in the U.S. and Israel, includingSection 404 and other provisions of the Sarbanes-Oxley Act, the rules and regulations adopted by the SEC and the NASDAQListing Rules, as well as applicable Israeli reporting requirements, will result in increased costs to40 Table of Contentsus as we respond to such changes. These laws, rules, and regulations could make it more difficult and costly for us to obtaincertain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policylimits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of theserequirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors,our board committees or as executive officers and may require us to pay more for such positions. As of December 31, 2018, we no longer qualify as an “emerging growth company” as defined in the JOBS Act. As such,certain temporary exemptions from various reporting requirements, including, but not limited to, not being required tocomply with the auditor attestation requirements of Section 404 of the Sarbanes Oxley Act (and the rules and regulations ofthe SEC thereunder) ceased to apply, and we have begun to incur and expect to incur additional expenses and devoteincreased management time, effort and attention toward ensuring compliance with such reporting requirements, which aresignificant. 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 the home country practicein Israel with regard to, among other things, director nomination procedures and quorum at shareholders’ meetings. Inaddition, we follow our home country law, instead of the NASDAQ Listing Rules, which require that we obtain shareholderapproval for certain dilutive events, such as for the establishment or amendment of certain equity-based compensation plans,an issuance that will result in a change in control, certain transactions other than a public offering involving issuances of a20% or more interest in us and certain acquisitions of the stock or assets of another company. Following our home countrygovernance practices as opposed to the requirements that would otherwise apply to a U.S. domestic issuer listed on theNASDAQ Stock Market may provide less protection than is accorded to investors under the NASDAQ Listing Rulesapplicable 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 control 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 have documented and tested our internal control systems and procedures in order for us to comply with the requirementsof Section 404 of the Sarbanes-Oxley Act, which requires us to furnish a report by management on, among other things, theeffectiveness of our internal control over financial reporting, and requires our auditor's attestation report on the effectivenessof our internal control over financial reporting. The continuous process of strengthening our internal control and complyingwith Section 404 of the Sarbanes-Oxley Act is complicated, expensive and time-consuming. While our assessment of ourinternal control over financial reporting resulted in our conclusion that as of December 31, 2018, our internal control overfinancial reporting was effective, we cannot predict the outcome of our testing or any subsequent testing by our auditor infuture periods. If we fail to maintain the adequacy of our internal control, we may not be able to ensure that we can concludeon an ongoing basis that we have effective internal control over financial reporting. Even if we do conclude that our internalcontrol over financial reporting is effective, our independent registered public accounting firm may still issue a report that isqualified or adverse if it is not satisfied with our internal control. Failure to maintain effective internal control over financialreporting could result in investigation or sanctions by regulatory authorities and could have a material adverse effect on ourreputation, business, financial condition, results of operations or investor confidence in the accuracy and completeness of ourfinancial reports, which would cause the price of our Ordinary Shares and ADSs to decline. 41 Table of ContentsWe 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 the depositary to vote their ADSs.Furthermore, the depositary and its agents are not responsible for any failure to carry out any instructions to vote, for themanner in which any vote is cast or for the effect of any such vote. As a result, holders of our ADSs may not be able toexercise their right to vote and they may lack recourse if their ADSs are not voted as they requested. In addition, in thecapacity as an ADS holder, they are not able to call a shareholders’ meeting. 42 Table of ContentsThe 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. 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 by us in our discretion, absent the situations described above. Holders of our Ordinary Shares are notsubject 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, and our principal offices are located in central Israel. Accordingly,political, economic and military conditions in Israel and the surrounding region may directly affect our business. Since theestablishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arabneighbors, including Hezbollah in Lebanon (and Syria) and Hamas in the Gaza Strip, both of which involved missile strikesin various parts of Israel causing the disruption of economic activities. Our principal offices are located within the range ofrockets that could be fired from Lebanon, Syria or the Gaza Strip into Israel. In addition, Israel faces many threats from moredistant neighbors, in particular, Iran. Parties with whom we do business have sometimes declined to travel to Israel duringperiods of heightened unrest or tension, forcing us to make alternative arrangements when necessary. In addition, thepolitical and security situation in Israel may result in parties with whom we have agreements involving performance in Israelclaiming that they are not obligated to perform their commitments under those agreements pursuant to force majeureprovisions in such agreements. Any hostilities involving Israel or the interruption or curtailment of trade within Israel orbetween Israel and its trading partners could adversely affect our operations or results of operations and could make it moredifficult for us to raise capital. 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 is currently committed to cover the reinstatement value of direct damagesthat are caused by terrorist attacks or acts of war, there is no assurance that this government coverage will be maintained, or ifmaintained, will be sufficient to compensate us fully for damages incurred. Any losses or damages incurred by us could havea material adverse effect on our business. Several countries, principally in the Middle East, restrict doing business with Israel and Israeli companies, and additionalcountries may impose restrictions on doing business with Israel and Israeli companies. In addition, there have been increasedefforts by activists to cause companies and consumers to boycott Israeli goods based on Israeli government policies. Suchbusiness restrictions and boycotts, particularly if they become more widespread, may materially and adversely impact ourbusiness. 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 our employees in Israel and payment to43 Table of Contentspart of our service providers in Israel and other territories, are paid in NIS and in other currencies. In addition, a portion of ourfinancial assets is held in NIS and in other currencies. As a result, we are exposed to currency fluctuation risks. For example, ifthe NIS strengthens against the U.S. dollar, our reported expenses in U.S. dollars may be higher. In addition, if the NISweakens against the U.S. dollar, the U.S. dollar value of our financial assets held in NIS will decline. Provisions of the RedHill Biopharma Ltd. 2010 Award Plan, Israeli law, our articles of association and our change incontrol retention plan may delay, prevent or otherwise impede a merger with, or an acquisition of, our Company, or anacquisition of a significant portion of our shares, which could prevent a change in control, even when the terms of such atransaction are favorable to us and our shareholders. Our 2010 Award Plan provides that all options granted by us will be fully accelerated upon a “hostile takeover” of us. A“hostile takeover” is defined in our 2010 Award Plan as an event in which any person, entity or group that was not an“interested party”, as defined in the Israeli Securities Law – 1968, on the date of the initial public offering of our OrdinaryShares on the TASE, will become a “controlling shareholder” as defined in the Israel Securities Law, 1968, or a “holder,” asdefined in the Israeli Securities Law – 1968, of 25% or more of our voting rights or any merger or consolidation involving us,in each case without a resolution by our board of directors supporting the transaction. In addition, if a “Significant Event”occurs and following which the employment of a grantee with us or a related company is terminated by us or a relatedcompany other than for “Cause”, and unless the applicable agreement provides otherwise, all the outstanding options heldby or for the benefit of any such grantee will be accelerated and immediately vested and exercisable. A “Significant Event” isdefined in our 2010 Award Plan as a consolidation or merger with or into another corporation approved by our board ofdirectors in which we are 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 interest in the offer accept the offer, or (ii) the shareholders who donot accept the offer hold less than 2% of the issued and outstanding share capital of the company or of the applicable class.The shareholders, including those who indicated their acceptance of the tender offer (except if otherwise detailed in thetender offer document), may, at any time within six months following the completion of the tender offer, petition the court toalter the consideration for the acquisition. At the request of an offeree of a full tender offer which was accepted, the court maydetermine that the consideration for the shares purchased under the tender offer was lower than their fair value and compelthe offeror to pay to the offerees the fair value of the shares. Such an 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 external44 Table of Contentsdirectors 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. In addition, we have adopted a change in control employee retention plan providing for compensation to Company officersand employees in the event of a change in control (as defined by the plan), subject to the satisfaction of variousconditions. See “Item 6 B. – Compensation – Change in Control Retention Plan.” 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. 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 its power inthe company, including, among other things, in voting at the general meeting of shareholders on matters such as amendmentsto a company’s articles of association, increases in a company’s authorized share capital, mergers and acquisitions andinterested party transactions requiring shareholder approval. In addition, a shareholder who knows that it possesses the powerto determine the outcome of a shareholder vote or to appoint or prevent the appointment of a director or executive officer inthe company has a duty of fairness toward the company. There is limited case law available to assist us in understanding theimplications of these provisions that govern shareholders’ actions. These provisions may be interpreted to impose additionalobligations and responsibilities on holders of our Ordinary Shares that are not typically imposed on shareholders of U.S.corporations. 45 Table of ContentsClaims 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 we may exempt or indemnify a director or an officer to the maximum extent permissibleunder law. 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 or financial condition and limitthe funds available to who may choose to bring a claim against us. These provisions and resultant costs may also discourageus from bringing a lawsuit against directors and officers for breaches of their duties and may similarly discourage the filing ofderivative litigation by our shareholders against the directors and officers even though such actions, if successful, mightotherwise 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,and on July 20, 2018, our ADSs were listed on the NASDAQ Global Market. Our Ordinary Shares are traded on the Tel-AvivStock Exchange under the symbol “RDHL,” and our ADSs are traded on the NASDAQ Global Market under the same symbol"RDHL." The Securities and Exchange Commission, or SEC, maintains an Internet site that contains reports, proxy and informationstatements and other information regarding issuers that file electronically with the SEC at http://sec.gov. Our web site address is http://www.redhillbio.com. Information contained on, or that can be accessed through, our websitedoes not constitute a part of this Annual Report. Our capital expenditures for the years ended December 31, 2018, 2017, and 2016 were approximately $23,000, $146,000 and$85,000 respectively. Our current capital expenditures involve equipment and leasehold improvements. 46 Table of ContentsB. Business Overview We are a specialty biopharmaceutical company, primarily focused on proprietary drugs for gastrointestinal (“GI”) diseases.From inception to the end of the period covered by this Annual Report, we invested a total of $5.3 million on in-licensingand 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 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 seventherapeutic candidates, most in late-stage clinical development. 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. None of our therapeutic candidates has 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 GI-focused sales force in the U.S. currently promotes Donnatal(Phenobarbital, Hyoscyamine Sulfate, Atropine Sulfate, Scopolamine Hydrobromide), Mytesi (crofelemer 125 mg delayed-release tablets) and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg and commercializes EnteraGam (serum-derived bovine immunoglobulin/protein isolate (“SBI”)). Our Strategy Our goal is to become a significant player in the development and commercialization of pharmaceuticals for the treatment ofGI diseases. 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, which would enable us to commercialize such products independently through our ownmarketing and commercialization capabilities. We identify such opportunities through our broad network ofcontacts 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 to47 ® ®®Table of Contentsobtain marketing 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. 48 Table of ContentsOur Therapeutic Candidates Summary The ongoing development programs of our seven therapeutic candidates, most in late-stage clinical development, include“TALICIA”, “RHB-104”, “RHB-204”, “BEKINDA”, “RHB-106”, “YELIVA” and “RHB-107” and related research anddevelopment programs, the most advanced of which are described below. Name of TherapeuticCandidate Proposed Indication Potential AdvantagesOver Most ExistingTreatments, ifApproved DevelopmentStage Rights to the ProductTALICIA H. pylori infection Improved efficacy; all-in-onepill First Phase 3 study in theU.S. completed;confirmatory Phase 3study in the U.S. ongoing Acquired all rights to the composition and its use forthe treatment of a GI disorder associated with H. pylori,worldwide and exclusive. We filed our own IPapplications directed to the proposed commercialformulation and useRHB-104 Crohn’s disease Novel mechanism of actionand improved clinicalbenefit (targeting suspectedunderlying cause of Crohn'sdisease) First Phase 3 study in N.America, Israel, Australia,New Zealand, and Europeongoing; open labelextension Phase 3 studyongoing We filed patent applications internationally directed tothe proposed commercial formulation and useRHB-104 Multiple sclerosis (MS) Oral formulation and novelmechanism of action Phase IIa proof of conceptstudy in Israel completed We filed patent applications internationally directed tothe proposed use of triple antibiotic therapy to treatRRMSRHB-204 Pulmonarynontuberculousmycobacteria (NTM)infections caused byMycobacterium aviumcomplex (MAC) Oral formulation targeting amajor cause of pulmonaryNTM infections A single pivotal Phase 3study planned in supportof an NDA filing;initiation expected secondhalf of 2019 We filed patent applications internationally directed tothe proposed commercial formulation and useBEKINDA24 mg Acute gastroenteritis andgastritis No other approved 5-HT3serotonin receptor inhibitorfor this indication; once-daily dosing First Phase 3 study in theU.S. completed;confirmatory Phase 3study in planning We filed patent applications internationally to protectthe proposed commercial formulation and its useBEKINDA12 mg IBS-D Potential 5-HT3 serotoninreceptor inhibitor withimproved safety, whilemaintaining efficacy Phase 2 in the U.S.completed; final resultsannounced in January2018 We filed patent applications internationally to protectthe proposed commercial formulation and its useRHB-106 Bowel preparation Oral pill, avoid severe badtaste of chemical solutions,no known nephrotoxicityissues Licensed to BauschHealth Worldwide rights licensed to Bausch HealthYELIVA Advanced unresectablecholangiocarcinoma Oral administration, first-in-class SK2 selectiveinhibitor, with anti-inflammatory and anti-canceractivities Phase 2a study in the U.S.ongoing (ABC-108) Worldwide exclusive licenseYELIVA Refractory or relapsedmultiple myeloma Oral administration, first-in-class SK2 selectiveinhibitor, with anti-inflammatory and anti-canceractivities Investigator-initiatedPhase 1b/2 study in theU.S. ongoing (ABC-103) Worldwide exclusive licenseYELIVA Advanced hepatocellularcarcinoma Oral administration, first-in-class SK2 selectiveinhibitor, with anti-inflammatory and anti-canceractivities Investigator-sponsoredPhase 2 study in the U.S.ongoing (ABC-106) Worldwide exclusive licenseRHB-107 (Upamostat;formerly MESUPRON) Gastrointestinal and othersolid tumors An orally-dosed smallmolecule compound with anestablished clinical safetyprofile; first-in-class specificinhibitor of five humanserine proteases Completed Phase 2studies in pancreaticcancer and breast cancer;pre-clinical studiesongoing Worldwide exclusive license; excludes China, HongKong, Taiwan, and Macao TALICIA(proposed tradename for RHB-105, if approved) TALICIA is an investigational new drug intended for the eradication of H. pylori bacterial infection in the GI tract.TALICIA is a combination of three approved drug products – omeprazole, which is a proton pump inhibitor (prevents49 ®®®®® ® ®®®® ®®Table of Contentsthe secretion of hydrogen ions necessary for digestion of food in the stomach), amoxicillin and rifabutin, which areantibiotics. TALICIA is administered to patients orally. Chronic 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 780,000 deaths annually, according to the World Health Organization(“WHO”). According to a 2010 report by Polk DB et al. published in Nature Reviews Cancer, H. pylori-induced gastritis isthe strongest singular risk factor for cancers of the stomach, and eradication of H. pylori significantly decreases the risk ofdeveloping cancer in infected individuals without pre-malignant lesions. In November 2014, TALICIAwas granted QIDP designation by the FDA. The QIDP designation was granted under theFDA's Generating Antibiotic Incentives Now (GAIN) Act, which is intended to encourage development of new antibioticdrugs for the treatment of serious or life-threatening infections that have the potential to pose a serious threat to publichealth. The granted QIDP designation allows us to benefit from Fast-Track development status with an expediteddevelopment pathway for TALICIA and eligibility for 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 treatment of H. pyloriinfection, 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,TALICIAand RHB-106.” Market and Competition 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 30-40% of the patients due to the development of antibiotic resistance,based on “The Toronto Consensus for the Treatment of Helicobacter pylori Infection in Adults” by Fallone et al. publishedin Gastroenterology in 2016 and reports by Prof. David Y. Graham, M.D., et al. published in Nature Clinical PracticeGastroenterology & Hepatology in 2008 and in Gut in 2010 and by Malfertheiner P. et al. published in Gut in 2012. As published in the 2006 study report by Dr. T.J. Borody, et al. in Alimentary Pharmacology & Therapeutics, the potentialadvantage of TALICIA over the current first-line therapies was shown in a Phase 2 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 3 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. H. pylori bacterial infection affects over 50% of the adult population worldwide, according to a 2018 report by Kakelar HMet al., published in Gastric Cancer, and approximately 35% of the U.S. population, according to a report by Hooi JKY et al.published in 2017 in Gastroenterology. In the U.S., we estimate that approximately 2.5 million patients per annum are treatedfor H. pylori eradication, based on a 2018 analysis by Foster Rosenblatt, a provider of analytic consulting and managementdevelopment services for the life sciences industry. Based on the analysis by Foster Rosenblatt, we estimate the potentialglobal and U.S. market for TALICIA was approximately $4.8 billion and $1.4 billion in 2018, respectively. 50 ®® ®®®®®, ®®®®Table of ContentsClinical Development A Phase 2 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 3 trial in the U.S., the ERADICATE Hp Study, which wascompleted in 2015, showed 89.4% eradication of H. pylori with TALICIAtherapy while open-label standard-of-care yieldedan H. pylori eradication rate of 63% in placebo subjects. We met with the FDA in April 2016 to discuss the results of the ERADICATE Hp Study and the proposed design of theconfirmatory Phase 3 study for the treatment of H. pylori infection. In light of the feedback received from the FDA, in January2017 we entered into an agreement with ICON Clinical Research Limited to perform clinical trial services for theconfirmatory Phase 3 study. Pursuant to a recommendation from the FDA, we completed a successful supportivepharmacokinetic (PK) program in May 2017 prior to initiating the confirmatory Phase 3 study. In June 2017, we initiated a confirmatory Phase 3 study with TALICIA for the treatment of H. pylori infection (the“ERADICATE Hp2 study”). The ERADICATE Hp2 study is a two-arm, randomized, double-blind, active comparator-controlled study, that investigated 455 dyspepsia patients with confirmed H. pylori infection at 55 clinical sites across theU.S. Subjects were randomized 1:1 to receive four capsules, three times daily, of either TALICIA or the active comparator, adual therapy amoxicillin and omeprazole regimen at equivalent doses, for a period of 14 days. In December 2018, we announced positive top-line results from the ERADICATE Hp2 study. The study successfully met itsprimary endpoint with a high degree of statistical significance, demonstrating 84% eradication of H. pylori infection withTALICIA versus 58% in the active comparator arm in the intent-to-treat population (p<0.0001). No safety issues werereported in the study and TALICIA was found to be well tolerated. Preliminary H. pylori culture results taken throughout the ERADICATE Hp2 study from patients across 20 U.S. statesconfirmed the high resistance of H. pylori to the antibiotics most commonly used for treatment, clarithromycin (17%resistance) and metronidazole (44% resistance). Importantly, no resistance to rifabutin, a key component in TALICIA’sunique and proprietary formulation, was detected in the study. Moreover, consistent with the literature describing the diminished efficacy of standard-of-care therapies, results from theopen-label part of the ERADICATE Hp2 Phase 3 study showed 60% eradication of H. pylori with these therapies. Results from the ERADICATE Hp2 study showed consistent 21- 29% treatment benefit of TALICIAversus the activecomparator across all H. pylori culture susceptibility and resistance subgroups, including amoxicillin, clarithromycin, andmetronidazole. We will continue to analyze the data from the ERADICATE Hp2 study, including antibiotic susceptibility and resistance,and plan to meet with the FDA to present the data and discuss the path towards potential marketing approval of TALICIA inthe U.S. Subject to any additional regulatory feedback, the ERADICATE Hp2 study is expected to complete the clinical packagerequired for a potential submission of an NDA with the FDA for TALICIAin the first half of 2019. 51 ®® ®®®®®® ®® Table of ContentsThe 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 2a Examining the therapeuticcandidate’s effectivenessin treating H. pyloriinfection in patients forwhom standard of carehad failed to treat theinfection Center forDigestiveDisease,Australia 130 The trial wascompleted andindicated that thetreatment iseffective for H.pylori-infectedpatients for whomstandard of carehad failed to treatthe infection Completed in 2005- ComparativeBioavailability Comparing thebioavailability ofTALICIA to thebioavailability of anequivalent dose ofcommercially availableactive ingredients AlgorithmePharma, Canada 16 Completed Completed in 2013ERADICATEHp Study Phase 3 Examining theeffectiveness, safety, andPK of the finalformulation 13 sites in theU.S. 118 Completed Completed in 2015- ComparativeBioavailability Comparing thebioavailability ofTALICIA in fed andfasted state and to thebioavailability of theactive comparator for theconfirmatory Phase 3study AlgorithmePharma, Canada 18 Completed Completed in 2017ERADICATEHp2 Study Phase 3 Assess the safety andefficacy of TALICIA ascompared to activecomparator 65 sites in theU.S. 455 Positive top-lineresults announcedin December 2018 Final resultsexpected in the firstquarter of 2019 We cannot predict with certainty our development costs, and such costs may be subject to change. See “Item 3. KeyInformation – D. Risk Factors – Risks Related to Our Financial Condition and Capital Requirements.” RHB-104 Crohn’s Disease RHB-104 is an investigational new drug intended to treat Crohn’s disease, which is a serious inflammatory disease of the GIsystem that may cause severe abdominal pain and bloody diarrhea, malnutrition and potentially life-threateningcomplications. RHB-104 is a patented combination of clarithromycin, clofazimine, and rifabutin, three generic antibiotic ingredients, in asingle capsule. The compound was developed to treat MAP infections in Crohn’s disease. We announced positive top-linesafety and efficacy results from the first Phase 3 study with RHB-104 for Crohn’s disease (the “MAP US study”) in July 2018,and have an ongoing open-label extension Phase 3 study (the “MAP US2 study”) to evaluate the safety and efficacy of RHB-104 in subjects who remain with active Crohn’s disease (CDAI ≥ 150) after 26 weeks of blinded study therapy in the Phase 3MAP US study. 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 causing a major 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/CARD15 have been implicated in the pathogenesis of Crohn’s disease with52 ®®®®Table of Contentsmutations in NOD2 suspected of leading to defective recognition of MAP and increased compensatory immune activation inpatients with Crohn’s disease. Advances in diagnostic technology have led to increasingly higher identification of MAP,with studies, such as Bull TJ et al. J Clin Microbiol, 2003 and Shafran I et al. Dig Dis Sci, 2002, demonstrating a highprevalence of MAP in Crohn’s disease patients. However, there is currently no FDA-approved commercial diagnostic test forMAP. 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 and manufacturing of the all-in-one capsules for our clinical trials have been completed.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, TALICIAand RHB-106.” We continue to pursue the development program for a companion diagnostic for the detection of MAP bacteria in Crohn’sdisease patients in collaboration with U.S. universities and diagnostic companies. These efforts are in part based ondetecting the presence of MAP bacterial DNA in the blood, the rights for which we acquired from UCF. We do not know ifor when such a diagnostic test would become available. Market and Competition According to GlobalData, a provider of market intelligence for the pharmaceutical sector, there were approximately 1.69million diagnosed prevalent cases of Crohn's disease in the seven major markets (U.S., France, Germany, Italy, Spain, UK,Japan) in 2018. This number of prevalent cases is expected to increase to 1.85 million by 2022. According to GlobalData, the 2018 sales of drug treatments for Crohn’s disease were estimated at approximately $10.5billion in the seven major markets and are expected to exceed $12.8 billion in 2022 in the seven major markets. 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 symptomatic relief, the effects of which arelargely temporary or partial and are accompanied by numerous adverse effects. The most commonly prescribed drugs fortreatment of Crohn’s disease include 5 Aminosalicylates (5-ASA, such as mesalamine), corticosteroids (such as prednisone),immunosuppressant drugs (such as azathioprine and methotrexate) and biologic agents, including TNF-α inhibitors (such asRemicade, Humira and Cimzia), integrin inhibitors (such as Tysabri and Entyvio) and an IL 12 and IL23 antagonist(such as 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, Salix Pharmaceuticals (a wholly owned subsidiaryof Bausch Health) together with Alfasigma S.p.A announced that they will initiate a late-stage clinical program to study aformulation of the antibiotic rifaximin (Xifaxan) for the treatment of Crohn’s disease. 53 ®, ®®®®®®®Table of ContentsClinical Development A Phase 3 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 with prednisolone initiated at 40 mg / day andweaned over the 16-week period. Subjects were subsequently assessed at 52, 104 and 156 weeks. The main secondaryobjective was the percentage of patients who achieved clinical remission at 16 weeks. The results of the trial were publishedby Professor Warwick Selby et al. in 2007 in the medical journal Gastroenterology. Although the study did not meet themain objective of showing a difference in relapse rate with long-term treatment, there was a statistically significant differencebetween the treatment groups in the percentage of subjects in remission at week 16. Professor Marcel Behr and ProfessorJames Hanley from McGill University published a re-analysis of the study in The Lancet Infectious Diseases in June 2008,based on the intent-to-treat (ITT) principle and found that there was a significant statistical advantage for the active therapyover the placebo throughout the two-year period of administration that disappeared once the active therapy wasdiscontinued. 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 which became Syneos Health (“Syneos”), and ouragreements were transferred to Syneos. See “—Master Service Agreement with 7810962 Canada Inc. and see also "ClinicalServices Agreement – Clinical Services Agreement related to RHB-104." In October 2012, we entered into an agreement with our Canadian service provider, which, in turn, entered into a back-to-back agreement with a Canadian manufacturer to complete the manufacturing and supply of RHB-104 for our clinical trials.In addition, we entered into additional manufacturing agreements directly with the Canadian manufacturer. In July 2018, we announced positive top-line results from the MAP US study, a randomized, double-blind, placebo-controlled first Phase 3 study with RHB-104 for Crohn’s disease. The Phase 3 study enrolled 331 subjects with moderately toseverely active Crohn’s disease (defined as Crohn’s Disease Active Index (“CDAI”) between 220 and 450) in the U.S.,Canada, Europe, Australia, New Zealand, and Israel. Subjects were randomized 1:1 to receive RHB-104 or placebo as an add-on therapy to baseline standard-of-care medications, including 5-ASAs, corticosteroids, immunomodulators or anti-TNFagents. Our MAP US study successfully met its primary endpoint, as well as key secondary endpoints. Top-line results in the intent-to-treat (ITT) population demonstrated superiority of RHB-104 over placebo in achieving remission at week 26, defined asCDAI value of less than 150, the primary endpoint of the study. The proportion of patients meeting the primary endpoint wassignificantly greater in the RHB-104 group compared to placebo at week 26 (37% vs. 23%, p= 0.007). Moreover, while thesecondary endpoints were not powered for significance in this induction of remission trial, key secondary endpoints werenevertheless met with statistically and clinically meaningful outcomes, demonstrating consistent benefit to Crohn’s diseasepatients treated with RHB-104. RHB-104 was found to be generally safe and well tolerated. The top-line results were provided to us by an independent third party following an independent analysis and remain subjectto completion of the independent review and analysis of the underlying data, including all safety, secondary and otheroutcome measures, and completion of the Clinical Study Report. We believe that additional clinical studies will most likelybe required to support an NDA for RHB-104, if filed. We plan to meet with key opinion leaders and the FDA to present thedata package and discuss the development path to potential approval and also continue discussions with potential partnersfor RHB-104. In addition, an open-label extension Phase 3 study (the “MAP US2 study”) is ongoing to evaluate the safety and efficacy ofRHB-104 in subjects who remain with active Crohn’s disease (CDAI ≥ 150) after 26 weeks of blinded study therapy in thePhase 3 MAP US study. These subjects had the opportunity to receive treatment with RHB-104 for a 52-week period in theopen-label MAP US2 study. We expect that the data collected in the MAP US2 study will be supplemental to the MAP USstudy data. The MAP US2 study’s primary endpoint is disease remission at week 16, defined as CDAI of less than 150. In July2018, the MAP US2 study completed enrollment of 54 subjects in the U.S., Canada, Europe, Israel, and New Zealand.54 Table of Contents 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 MAP US study. 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 2a Examining the effect of thetreatment on Crohn’sdisease patients Center forDigestive Disease,Australia 12 Performed Completed 2002Borody 2005 Phase 2 Examining the effect of thetreatment on Crohn’sdisease patients Center forDigestive Disease,Australia 52 Performed Completed 2005Selby Phase 3 Examining the effect of thetreatment with the producton Crohn’s disease patients 20 clinical centersin Australia 213 The trial wasperformed andindicatedpromisingimprovementrates, although itdid not meet themain trialobjective, asdefined Published in2007Biovail PK Study2007 PK Study Optimize the formulation ofRHB-104 on a PK basis Toronto, Ontario 24 The trialcompared twoformulations todetermine theoptimumformulation forRHB-104 Completed 2007MAP US Study Phase 3 Assess the safety andefficacy of RHB-104 inCrohn’s disease patients U.S., Canada.Israel, Australia,New Zealand, andEurope 331 Positive top-lineresultsannounced inJuly 2018. Final resultsexpected in thefirst quarter of2019Food 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 PK effectof multiple doses of RHB-104 on CYP3A4 enzymesin healthy volunteers AlgorithmePharma, Canada 36 Ended Ended 2014MAP US2 Study Phase 3 Assess the safety andefficacy of RHB-104 inCrohn’s disease patients U.S., Canada,Israel, NewZealand, andEurope 54 Ongoing Ongoing Expanded Access Programs (EAP) for Treatment of Crohn’s Disease Responding to a number of requests from investigators in the MAP US study, we recently opened up an EAP for the use ofRHB-104 for treatment of Crohn’s Disease outside of clinical trials. Treating physicians are required to submit to usexpanded access requests on behalf of patients in addition to obtaining the local regulatory approval for the proposed use ofthe investigational medicinal product. Our medical professionals evaluate each request and respond based on the scientificevidence available at the time of the request and specific criteria set by us. We cannot predict how long this program willcontinue, and we may decide for various reasons, including but not limited to, resources and availability of RHB-104, not tocontinue with the EAP for RHB-104. 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.” 55 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 in 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 2a 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 cytokine production as ameasure of inflammation in EAEmice treated with RHB-104 vs.negative controls - - Completed 2012EAE ProphylaxisStudy Pre-Clinical Scoring EAE severity in micetreated prophylactically with RHB-104 vs. negative controls - - Completed 2012EAE Relapse Study Pre-Clinical Scoring EAE severity in micetreated with RHB-104 vs. negativeand positive controls - - Completed 2012Lipopolysaccharide(LPS)-inducedcytokine productionstudy Pre-Clinical Measure LPS-induced cytokineproduction in C57BL/6 micetreated with RHB-104 vs. negativeand positive controls - - Completed 2013CEASE-MS Phase 2a Proof of concept study to assess thesafety and efficacy of RHB-104 inRRMS Israel 18 Completed 2016;final resultsannounced 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.”56 Table of Contents RHB-204 Nontuberculous Mycobacteria Infections In light of our discussions with the FDA on our design of a single pivotal Phase 3 study in support of a potential NDA filingfor the treatment of pulmonary nontuberculous mycobacteria (NTM) caused by mycobacterium avium complex (MAC), weplan, subject to completion of a supportive non-clinical program and further input from the FDA, to initiate a pivotal Phase 3study with RHB-204 in the second half of 2019. The study will be intended to assess the efficacy and safety of RHB-204 as a first-line treatment for pulmonary NTMinfections caused by MAC. In January 2017, we announced that RHB -204 had been granted QIDP designation by the FDA for the treatment of NTMinfections, including eligibility for an extended market exclusivity period, if approved for marketing in the U.S. RHB-204 is a patented fixed-dose combination product of three antibiotics intended to simplify administration and optimizecompliance. Each capsule contains the same three antibiotics as RHB-104 (clarithromycin, clofazimine, and rifabutin), but atdoses unique from RHB-104. Clarithromycin and rifabutin were selected because mycobacteria live within host cells, andthese agents have intracellular activity against MAC. Further, rifabutin enhances the antimicrobial activity of clarithromycindue to increased levels of clarithromycin’s active metabolite. Selection of clofazimine was based on its activity againstMAC, preferential accumulation in macrophages and bactericidal activity demonstrated in a mouse model of tuberculosis. Market and Competition Pulmonary NTM is an orphan disease affecting an estimated 110,000 patients in the U.S. in 2017, according to a 2017analysis by Foster Rosenblatt. The incidence and prevalence of NTM lung disease are increasing worldwide, while treatmentoptions remain limited, lengthy and challenging, according to Ryu YJ et (Tuberc Respir Dis, 2016). NTM are naturally occurring organisms found in water and soil, which can cause chronic pulmonary infection. According toPrevots DR (Am J Respir Crit Care Med, 2010), approximately 80% of pulmonary NTM cases in the U.S. are associated withMAC. In some people, infection with NTM may lead to a progressive lung disease characterized by cough, shortness ofbreath, fatigue and weight loss. NTM disease is more common in the older adult population and individuals with acompromised immune system or underlying lung disease. According to the American Lung Association, NTM are relatively resistant to antibiotics and can become more resistant ifonly one antibiotic is used. Effective treatment of NTM caused by MAC requires three drugs for at least 12 months oftreatment. Currently recommended treatment regimens, drug resistance patterns, and treatment outcomes differ according tothe NTM species, and management is a lengthy complicated process with limited therapeutic options (Ryu YJ et al. 2016).Adherence to the guidelines for treating NTM lung disease is suboptimal, and potentially harmful antibiotics regimens arecommonly prescribed. Management of NTM disease requires prolonged use of costly combinations of multiple drugs with asignificant potential for toxicity. In September 2018, FDA approved Arikayce® (amikacin liposome inhalation suspension), a new drug developed by InsmedIncorporated, for the treatment of lung disease caused by MAC in a limited population of refractory patients which does notrespond to conventional treatment. To the best of our knowledge, this is the first treatment approved specifically forpulmonary NTM infections caused by MAC. Arikayce® is indicated as a second-line therapy in refractory patients as part ofa combination antibacterial drug regimen. The Arikayce® prescribing information includes a Boxed Warning regarding theincreased risk of respiratory conditions, including hypersensitivity pneumonitis, bronchospasm, exacerbation of underlyinglung disease and hemoptysis that have led to hospitalizations in some cases. 57 Table of ContentsAdditional drug candidates are currently under development for the treatment of NTM infections, including Molgradex(Savara Inc.), an inhaled formulation of recombinant human GM-CSF, which is being evaluated in an ongoing Phase 2astudy. RHB-204 is targeting an annual potential U.S. market for pulmonary NTM, estimated to have exceeded $500 million in2017, based on an analysis by Foster Rosenblatt. Clinical Development Although each of the three components of RHB-204 is approved individually and has been tested extensively in humans(e.g. see RHB-104), the formulation and doses represented by RHB-204 have not been tested. Current plans are to start apivotal trial for pulmonary NTM lung infection in the second half of 2019. The appropriate regulatory path is currentlyunder discussion. The following chart summarizes the development history and status of RHB-204: Trial name Developmentphase Purpose ofthe trial Clinicaltrial sites Plannednumber ofsubjects of the trial Status ofthe trialCleaR-MAC Trial Phase 3 Registration for pulmonaryNTM treatment 25 100 In planning for the second halfof 2019 BEKINDA (RHB-102) BEKINDA is an investigational once-daily bi-modal extended-release oral formulation of ondansetron, a leading member ofthe family of 5-HT3 serotonin receptor inhibitors. We are developing BEKINDAin multiple dosage strengths. BEKINDA isunder development for the intended use in the following indications, which are novel and not yet FDA-approved indicationsfor ondansetron targeting large potential markets: 1)Acute gastroenteritis and gastritis - 24 mg strength 2)Irritable Bowel Syndrome with Diarrhea (IBS-D) - lower dose strength for long-term administration 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. Patents that we licensed from Temple University, relating to the CDT technology, expired in the firstquarter of 2018. The proposed commercial formulation and its use are protected by Company-filed patent applications andare being pursued internationally. 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. Market and Competition A single dose of BEKINDA is intended to treat nausea and vomiting over a time window of approximately 24 hours. Ifapproved for such use, this would be potentially advantageous for acute gastroenteritis and gastritis patients as it could helpeliminate the need to take additional drugs (tablets) during the day or receiving intravenously administered drugs. 58 ®®® ®®®®®®®Table of ContentsIf 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.) and which completed two pivotal pharmacokinetic studies intended to establish thebioequivalence of EUR-1025 versus Zofran (ondansetron hydrochloride). To the best of our knowledge, EUR-1025 wasbeing developed for the indication of postoperative-induced nausea and vomiting, for which Zofran and genericondansetron were already approved. To the best of our knowledge, there has not been further clinical development of EUR-1025 since the completion of the above-mentioned pharmacokinetic studies. Clinical Development In June 2017, we announced positive top-line results from the randomized, double-blind, placebo-controlled Phase 3 study(the “GUARD study”) with BEKINDA(RHB-102) 24 mg, which tested it for use in connection with acute gastroenteritis andgastritis. The study successfully met its primary endpoint of efficacy in acute gastroenteritis and gastritis. BEKINDA 24 mgwas also found to be safe and well tolerated in this indication. The GUARD study evaluated the safety and efficacy ofBEKINDA 24 mg in treating acute gastroenteritis and gastritis in 321 adults and children over the age of 12. The primaryendpoint of the study was the proportion of patients without further vomiting, without rescue medication, and who were notgiven intravenous hydration from 30 minutes post first dose of the study drug until 24 hours post dose, compared to placebo.In September 2017, we met with the FDA to discuss the study results and the clinical and regulatory path towards potentialmarketing approval of BEKINDA 24 mg in the U.S. Following the guidance provided at the meeting and additionalguidance provided thereafter, we are currently working to design a confirmatory Phase 3 study to support a potential NDAwith BEKINDA24 mg for acute gastroenteritis and gastritis. 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 3 study was Dr. Robert A. Silverman, MD, MS, Associate Professor at the Hofstra NorthShore-LIJ School of Medicine and an emergency medicine specialist. 59 ®®®®®®® ®®®® ® ® ® ® ® ® ®®Table of ContentsThe 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 ScheduleGUARDStudy Phase 3 Randomized double-blind placebo-controlledPhase 3 study in acutegastroenteritis andgastritis 21 sites in the U.S. 321 Evaluated the safety andefficacy of BEKINDAin acute gastroenteritisand gastritis Completed 2017TBD ConfirmatoryPhase 3 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.” Irritable Bowel Syndrome with Diarrhea (IBS-D) Irritable bowel syndrome (IBS) is a multifactorial disorder marked by recurrent abdominal pain or discomfort and alteredbowel function. Certain factors that alter GI function can contribute to IBS symptoms, including stress, 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. Market and Competition IBS is one of the most common GI disorders. According to publications by Saito YA. et al. (The American Journal ofGastroenterology, 2002) and by Lovell RM et al. (Clinical Gastroenterology and Hepatology, 2012), it is estimated that upto 30 million Americans may suffer from IBS. Of the three subtypes of IBS, IBS-D is the most prevalent diagnosed subtype inthe seven major markets, with an estimated 8.3 million diagnosed prevalent cases in 2018, according to a report byGlobalData. According to a report from EvaluatePharma, the U.S. potential market for IBS-D treatments was estimated to reachapproximately $980 million in 2019 and exceed $1 billion in 2020. 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, Hikma and Amneal Pharmaceuticals). However, alosetron is approved only for the treatment of IBS in womenwith severe chronic IBS-D and its indication is restricted to those patients for whom the benefit-to-risk balance is mostfavorable due to infrequent, but severe, adverse reactions. The active ingredient in BEKINDA, ondansetron, is approved bythe U.S. FDA as an oncology support antiemetic and has a good safety profile. Therefore, we believe that BEKINDA, ifapproved for the treatment of IBS-D in the U.S., may provide improved safety while maintaining efficacy and has thepotential to be a preferred 5-HT3 serotonin receptor inhibitor treatment for patients suffering from IBS-D. According toEvaluatePharma, the 2019 U.S. sales of Lotronex are estimated to reach approximately $70 million in 2018. Ramosetron,another 5-HT3 serotonin receptor inhibitor (marketed under the brand name Irribow® by Astellas Pharma Inc. and genericversions marketed by Pfizer Japan, Takeda Pharmaceuticals, Fuji Pharma and additional companies), is60 ® ®® ®®®®®®Table of Contentsmarketed for the treatment of IBS-D and for chemotherapy-induced nausea and vomiting in Japan, South Korea, China andIndia, and for and postoperative nausea and vomiting in South Korea. To the best of our knowledge, there is currently noclinical development of ramosetron for marketing approval in the U.S. for any indication. To the best of our knowledge, one of the main competitors of BEKINDA for the treatment of IBS-D is Xifaxan (rifaximin),marketed in the U.S. by Bausch Health. Xifaxanis an antibiotic treatment that was approved for the treatment of IBS-D in2015. Xifaxan is also approved in the U.S. for the treatment of hepatic encephalopathy and traveler's diarrhea and for thereduction in risk of overt hepatic encephalopathy recurrence in adults. According to a report by GlobalData, it is believedthat Xifaxanis a gut-selective, broad-spectrum antibiotic with in vitro activity against both gram-positive and gram-negative bacteria. According to a report by EvaluatePharma, the worldwide annual sales of Xifaxan for the treatment of IBS-D were estimated to reach approximately $590 million in 2019. Viberzi (eluxadoline) is another drug for the treatment of IBS-D approved by the FDA in 2015. Viberzi is a locally-actingmu-opioid receptor agonist and a delta-opioid receptor antagonist marketed in the U.S. by Ironwood Pharmaceuticals andAllergan plc. According to EvaluatePharma, the worldwide sales of Viberzi are estimated to reach approximately $200million in 2019. Donnatal (Phenobarbital, Hyoscyamine Sulfate, Atropine Sulfate, Scopolamine Hydrobromide) is also used as a treatmentfor IBS and is 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 ADVANZ. Clinical Development In January 2018, we announced positive final results from the Phase 2 clinical study of BEKINDA (RHB-102) 12 mg for thetreatment of IBS-D. The randomized, double-blind, placebo-controlled Phase 2 study evaluated the safety and efficacy ofBEKINDA 12 mg in 126 subjects over 18 years old at 16 clinical sites in the U.S. The BEKINDA 12 mg Phase 2 studysuccessfully met its primary endpoint, improving the primary efficacy outcome of stool consistency. BEKINDA 12 mg wasalso shown to be safe and well tolerated. No serious adverse events or new or unexpected safety issues were noted in thestudy. 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; and·differences between treatment groups in:oabdominal painoabdominal discomfortofrequency of defecationoincidence and severity of adverse events. The BEKINDA 12 mg Phase 2 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 2 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)). 61 ®®® ®® ®®®®®®®®®®®®®®®®Table of ContentsBEKINDA 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. In September 2018, we announced that we concluded a positive End-of-Phase 2/Pre-Phase 3 (TypeB) meeting with the FDA discussing the clinical and regulatory pathway towards potential FDA approval of BEKINDA 12mg for the treatment of IBS-D. We plan to finalize the design of two pivotal Phase 3 studies with BEKINDAfor the treatmentof IBS-D. The 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 2 Randomized double-blind placebo-controlledPhase 2 study in IBS-D 16 sites in theU.S. 126 Evaluating thesafety and efficacyof BEKINDA 12mg in IBS-D Completed2018TBD Phase 3 Randomized double-blind placebo-controlledPhase 3 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 an investigational tablet intended for the preparation and cleansing of the GI tract prior to the performance ofabdominal procedures, including diagnostic tests such as colonoscopy, barium enema or virtual colonoscopy, as well assurgical interventions, 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, TALICIAand RHB-106.” On February 27, 2014, we entered into a licensing agreement with Salix Pharmaceuticals, Ltd. (“Salix”), which was lateracquired by Valeant Pharmaceuticals International, Inc. (“Valeant”), and subsequently renamed to Bausch Health, pursuantto which we licensed the exclusive worldwide rights to our RHB-106 encapsulated formulation for bowel preparation andrights to other purgative developments. Pursuant to this agreement, we received an upfront payment of $7 million and areentitled to an additional potential $5 million in subsequent milestone payments. In March 2018, the 2014 license agreementwas amended, among other things, to clarify the development efforts to be used by Bausch Health, provide for enhancedinvolvement by us in certain intellectual property matters and increase the lower end of the range of royalty payments to bepaid to us on net sales from low single digits to high single digits, such that the total potential royalties range from highsingle digits up to low double digits. We continue to assist Bausch Health in the development of RHB-106, as needed. Wehave agreed to pay a percentage of the amounts we will potentially receive from Bausch Health to the third party from whichwe acquired the rights to RHB-106. See “Item 4. Information on the Company – B. Business Overview – Acquisition,Commercialization and License Agreements – Exclusive License Agreement with Bausch Health Companies Inc.” Market and Competition According to a report by EvaluatePharma, the worldwide market of laxative products was estimated at approximately $1.2billion in 2018. 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 unpleasant62 ®®® ®®®, Table of Contentstaste, leading to potential difficulties with patient compliance. RHB-106 offers the potential for improved patientcompliance because it is tasteless and eliminates the need for drinking several liters of the ill-flavored electrolyte solution.RHB-106 also potentially has an advantage compared to currently available tablet products in the field in that it does notcontain sodium phosphate, an active ingredient linked with a risk of nephrotoxicity. Competing products in the U.S. include PrepoPik (marketed by Ferring Pharmaceuticals; marketed under the namePicoPrep in other countries), which is based on an active chemical ingredient called sodium picosulfate, the same activeingredient used in RHB-106. PrepoPik is given in the form of a water-soluble powder and requires drinking quantities offluids. Clenpiq™ is another product by Ferring Pharmaceuticals, which includes the active ingredient sodium picosulfate.Clenpiq™ (sodium picosulfate, magnesium oxide, and anhydrous citric acid) is a ready-to-drink cranberry-flavored oralsolution for cleansing of the colon in adults undergoing a colonoscopy. Another product, Suprep, marketed by BrainTreeLaboratories Inc., is an osmotic laxative indicated for cleansing of the colon in preparation for colonoscopy in adults.Suprep’s active ingredients include sodium sulfate, potassium sulfate and magnesium sulfate in oral solution, and it isadministered as a split-dose regimen. Products administered in the form of tablets or capsules that were released on the market in the U.S., such as OsmoPrep(marketed by Bausch Health), are based on a chemical substance called sodium phosphate. In December 2008, the FDApublished a severe 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). A leading product among the PEG 3350 family of products is MoviPrep, marketed by Bausch Health in the U.S. and byNorgine B.V. in Europe. It requires drinking about two liters of solution. The potential advantage of RHB-106 over thecurrent competitor products of the PEG 3350 type (such as MoviPrep), as well as over PicoPrep, is that it is administered inan oral tablet, permits the patient to drink any clear liquid with the product and spares the patient the exposure to theunpleasant taste that may accompany these products. RHB-106 also does not fall under the black box warning againstnephrotoxicity issued by the FDA in December 2008 with respect to currently marketed sodium phosphate capsulepreparations. Plenvu® is a new PEG-based bowel preparation oral solution, which was approved by FDA in May 2018 and is marketed byBausch Health in the U.S. and by Norgine B.V. in Europe. It is administered as a two-day split dose regimen. Clinical Development Following the acquisition of Salix by Valeant (now Bausch Health), and a recent amendment to our agreement with them, tothe best of our knowledge, Bausch Health is continuing the development program based on such agreement and amendment. 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 2a Comparison of theproduct’seffectiveness andsafety with anexisting product Center for DigestiveDisease, Australia 60 Completed Completed in2005 YELIVA (Opaganib, ABC294640) YELIVA is an investigational new drug that is a proprietary, first-in-class, orally-administered SK2 selective inhibitor, withanti-inflammatory and anti-cancer activities, targeting multiple oncology, inflammatory and GI indications. The compoundoriginally designated as ABC294640 received an international non-proprietary name, opaganib, in the Recommended INN:List 79, 2018. 63 ®®®®®® ®®®®®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, as noted above, received an international non-proprietary name,opaganib, in 2018) and additional intellectual property for all indications. See “Item 4. Information on the Company – B.Business Overview – Acquisition, Commercialization and License Agreements – License Agreement for YELIVA.” Market and Competition YELIVAis currently being developed for several potential indications, including for the treatment of cholangiocarcinoma(bile duct cancer), refractory or relapsed multiple myeloma and advanced hepatocellular carcinoma (“HCC).” 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 are classified as havinga resectable tumor at the time of diagnosis. Additional treatment options include radiation therapy and chemotherapy, butthe efficacy of these treatments in cholangiocarcinoma patients is also limited and the prognosis for relapse patients whohave failed initial chemotherapy is very poor, with an overall median survival of approximately one year (Valle J, et al. NewEng J, Med 2010). The 5-year relative survival rates of intrahepatic and extrahepatic cholangiocarcinoma patients rangebetween 2% to 30%, depending on the tumor type and stage at diagnosis, according to the American Cancer Society. Thereare several drugs in late-stage clinical development for cholangiocarcinoma. The American Cancer Society estimated that approximately 32,110 new cases of multiple myeloma would be diagnosed inthe U.S. in 2019 and approximately 12,960 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 $22 billion in 2019 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 WHO International Agency for Research on Cancer GLOBOCAN 2018 report,liver cancer is the fourth most common cause of cancer-related deaths worldwide. The annual worldwide incidence of livercancer was estimated to have reached approximately 841,000 cases in 2018. In the U.S., the American Cancer Societyestimates that over 42,000 patients will be diagnosed with liver cancer in 2019, with an expected mortality of 31,780 people.According to GlobalData, the market for the treatment of HCC in the seven major markets is estimated to exceed $730million in 2019. There are several drugs in late-stage clinical development for HCC. Clinical Development ABC-108: Advanced Unresectable Cholangiocarcinoma A single-arm Phase 2a clinical study to explore the activity of YELIVA as a single agent in patients with advanced,unresectable, intrahepatic and extrahepatic cholangiocarcinoma was initiated in December 2017. The study is beingconducted at Mayo Clinic major campuses in Arizona and Minnesota, the University of Texas MD Anderson Cancer Center,Huntsman Cancer Institute, the University of Utah Health and Emory University, Georgia. In September 2018, we announcedthat the study achieved its pre-specified efficacy goal (one of the first 12 evaluable patients was noted to have stable disease(based RECIST 1.1 criteria) of at least 4 months) for the first stage of the two-stage study design, and as a result, the study hascontinued to its second stage. The study is designed to enroll up to 70 patients, in order to achieve64 ®®®®® ®Table of Contentsenrollment of 39 patients evaluable for efficacy as defined by the Modified Intent to Treat (mITT) population criteria.Enrollment is expected to be completed by the end of 2019. The primary objective is to determine the response rate (RR) of cholangiocarcinoma defined as objective responses (OR), i.e.complete and partial responses (CR, PR) plus stable disease (SD) of at least 4 months to treatment with YELIVA. In April 2017, the FDA granted YELIVA (ABC294640) orphan drug designation for the treatment of cholangiocarcinoma.The orphan drug designation allows us to benefit from various development incentives to develop YELIVA for thisindication, including tax credits for qualified clinical testing, the waiver of a prescription drug user fee (PDUFA) uponsubmission of a potential NDA and, if approved, a seven-year marketing exclusivity period (subject to certain exceptions) forthe treatment of cholangiocarcinoma. EAP for the Treatment of Advanced Unresectable Cholangiocarcinoma An EAP is for eligible participants who do not qualify for participation in, or who are otherwise unable to access, the ongoingclinical trial ABC-108 for advanced unresectable cholangiocarcinoma. This program is designed to provide access toYELIVAfor the treatment of cholangiocarcinoma prior to approval by the local regulatory agency. We cannot predict howlong this program will continue, and we may decide for various reasons, including but not limited to resources andavailability of YELIVA, not to continue with the EAP. ABC-103: Refractory or Relapsed Multiple Myeloma A Phase 1b/2 study with YELIVA for the treatment of refractory or relapsed multiple myeloma was initiated in the thirdquarter of 2016 and is ongoing at Duke University Medical Center. Enrollment for the Phase 1b portion of the study has beencompleted with a total of 11 patients enrolled and treated in three dose cohorts. Results from the Phase 1b portion of thestudy did not show any dose-limiting toxicities. Additionally, while efficacy was not the primary endpoint of the Phase 1study, it was observed that out of 10 evaluable subjects, two subjects had stable disease for over four months and one patientachieved a very good partial response (VGPR). The study is supported by a $2 million grant from the National CancerInstitute (“NCI”) Small Business Innovation Research Program awarded to Apogee Biotechnology Corporation, inconjunction with Duke University, with additional support from us. The primary endpoints of the first portion of the study (Phase 1) 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 2) 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. ABC-101: Advanced Solid Tumors A Phase 1 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. 65 ®®®® ®®® ®®®®Table of ContentsThe 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 2 study to evaluate the safety and efficacy of YELIVA as a second-line monotherapy inpatients with advanced hepatocellular carcinoma (“HCC”) is ongoing at the Medical University of South Carolina(“MUSC”) Hollings Cancer Center, the Mayo Clinic campus in Arizona and the University of Maryland. The study isplanned to enroll up to 39 patients who have experienced tumor progression following treatment with first-line single-agentsorafenib (Nexavar). The study is being led by Dr. Carolyn Britten and is being conducted at the Medical University of South Carolina (MUSC)and the University of Maryland and Mayo campus at Arizona. The study is supported by a grant from the NCI, awarded to MUSC, which is intended to fund a broad range of studies on thefeasibility of targeting sphingolipid metabolism for the treatment of a variety of solid tumor cancers. We are supplyingYELIVA to this study. ABC-104: Oncology Support, Radioprotectant: Prevention of Radiation-Associated Mucositis in the Treatment of Head andNeck Cancer A Phase 1b study is in planning to evaluate YELIVA as a radioprotectant in head and neck cancer patients undergoingtherapeutic radiotherapy. ABC-105: Moderate to Severe Ulcerative Colitis (“UC”) A Phase 2 study is in planning to evaluate the efficacy of YELIVA in patients with moderate to severe UC by the proportionof patients who are in remission at the end of treatment. ABC-109: Food Effect Study in Healthy Subjects A Phase 1, 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. 66 ®®®®®®®®®®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 2a A study for the treatmentof advanced, unresectableintra-hepatic, perihilarand extrahepaticcholangiocarcinoma Multicenterstudy across theU.S. Up to 70 Ongoing OngoingABC-103 Phase 1b/2 Safety and efficacy studyin patients with refractoryor relapsed multiplemyeloma that havepreviously been treatedwith proteasomeinhibitors andimmunomodulatorydrugs DukeUniversity,North Carolina,U.S. Up to 77 Ongoing OngoingABC-101 Phase 1 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 Completed2015ABC-106 Phase 2 Investigator-SponsoredSafety and EfficacyStudy in Patients withAdvanced HepatocellularCarcinoma Who HaveProgressed on Sorafenib MedicalUniversity ofSouth Carolina,Charleston,U.S. andcollaboratingsites(Multicenter,U.S.) From 12 to 39 Ongoing OngoingABC-104 Phase 1b 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 2 A study for the treatmentof moderate to severeulcerative colitis Multicenterstudy Up to 94 TBD TBDABC-109 Phase 1 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, U.S. 23 Completed Completed2018 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 (Upamostat; formerly MESUPRON) RHB-107 (Upamostat; formerly MESUPRON) (INN: upamostat) is an investigational new drug, which we are seeking tomarket as a proprietary small molecule, first-in-class, potent serine protease inhibitor administered 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. 67 ®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. 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 (Upamostat; formerlyMESUPRON) for this indication, including tax credits for qualified clinical testing, waiver of a PDUFA 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. Market and Competition RHB-107 is an investigational new drug, to be marketed upon approval as an orally-administered protease inhibitor withseveral potential mechanisms of action to inhibit tumor invasion and metastasis and has been developed for the treatment ofsolid tumor cancers, including GI cancers, with the focus on locally advanced non-metastatic pancreatic cancer. Data from non-clinical studies indicate that WX-UK1, the active metabolite of RHB-107, is a potent and specific inhibitor offive human serine proteases (trypsin-3, trypsin-2, trypsin-1, matriptase-1, and trypsin-6). Several of these serine proteases areassociated with cancer progression and metastasis. The non-clinical studies suggest new potential therapeutic applications ofWX-UK1 in oncology and inflammatory gastrointestinal diseases. Pancreatic cancer is characterized as a disease with very high unmet need in oncology. The American Cancer Societyestimates that 6,770 new cases of pancreatic cancer will be diagnosed in 2019, with an expected mortality of 45,750 in 2019,representing one of the poorest prognoses across the GI cancers. The total worldwide sales of pancreatic cancer therapies wereestimated to reach approximately $1.6 billion in 2019, according to GlobalData. There are several drugs in late-stage clinical development for pancreatic cancer. Clinical Development Several Phase 1 studies and two Phase 2 proof-of-concept studies have been completed with RHB-107. The first Phase 2 trialin locally advanced non-metastatic pancreatic cancer and the second trial in metastatic breast cancer established thetherapeutic candidate's safety and tolerability profile. The Phase 2 trials with RHB-107 in both indications failed todemonstrate significant 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 and inflammatory digestive disease indications where strong unmet medical need exists. We haverecently received a Notice of Allowance from the U.S. Patent and Trademark Office for a patent that will recite claims directedto a combination of YELIVA, RHB-107, and a known antibiotic. The claims in the patent will also be directed to methods oftreating cancer, or preventing cancer, by administering YELIVA and a known antibiotic. Upon issuance, in addition to theexisting intellectual property protection covering the individual compounds, we believe the new patent will provide us withintellectual property protection covering our combination for the potential treatment of cancer, prevention of cancerrecurrence or progression and inhibition of growth and proliferation of cancer cells. In March 2018, we announced that a new mechanism of action for RHB-107, inhibition of trypsin-3 was identified. We arecurrently evaluating potential utilization of RHB-107 in several GI indications. 68 ®®Table of ContentsWe 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 three activescombined) has not yet been initiated. In May 2018, we received a new U.S. Patent for our experimental Ebola therapy. 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 stageproducts, 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. The net revenues for the fiscal year ended December 31, 2018, and frominitiation of our promotional activities in mid-June 2017 through December 31, 2017, were approximately $8.4 million and$4.0 million, respectively. We continue to pursue the acquisition of additional commercial GI products, including, withoutlimitation, through licensing or promotion transaction, asset purchase, joint venture with, acquisition of, or merger with orother business combination with, companies with rights to commercial GI assets and are continuously working to expandU.S. managed care access and coverage to our commercial products, where appropriate. We plan to pursue such GIopportunities in the U.S. and, if available, in other jurisdictions; however, we intend to focus our commercial activities in theU.S. By the end of 2018, we were promoting and commercializing four GI products in the U.S. Donnatal In December 2016, we entered into the Co-Promotion Agreement with ADVANZ for the promotion of Donnatal(Phenobarbital, Hycosamine Sulfate, Atropine Sulfate, Scopolamine Hydrobromide) in the U.S. The prescription drug productis sold in two formulations: an immediate-release tablet and an immediate-release fast-acting liquid (tablets and elixir).Donnatal is an anticholinergic and barbiturate combination drug product used as an adjunctive therapy for IBS, a conditioncharacterized by abdominal pain, bloating, and diarrhea or constipation. It may also be used as an adjunctive therapy foracute enterocolitis and duodenal ulcers. We commenced promotional activities for Donnatal in June 2017. Regulatory status Based on ADVANZ’s 2015 Annual Information Form, ADVANZ 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 approval process.According to the DESI program, drugs approved before October 10, 1962, were reviewed to evaluate whether there wassubstantial evidence of their effectiveness. When a review was completed, the FDA would issue a DESI notice describing themarketing conditions for the class of drug products covered by the notice. Donnatal has been found safe but not for efficacy for its labeled uses. As a DESI drug, Donnatal is classified as “possiblyeffective” as an adjunctive therapy in the treatment of IBS (irritable colon, spastic colon, and mucous colitis) and acuteenterocolitis. Donnatal may also be useful as adjunctive therapy in the treatment of duodenal ulcer. It has not been shownconclusively 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. 69 ®®®®®®®®®®®Table of ContentsThe 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 ADVANZ 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. Several copies of Donnatal are being sold in the market without going through the FDA approval process.To the best of our knowledge, the FDA has not taken any enforcement action against these copies of Donnatal. Market and Competition IBS is one of the most common GI disorders. According to publications by Saito YA. et al. (The American Journal ofGastroenterology, 2002) and by Lovell RM et al. (Clinical Gastroenterology and Hepatology, 2012), it is estimated that upto 30 million Americans may suffer from IBS. According to a report from GlobalData, the U.S. potential market for IBS treatments was estimated to reach approximately$1.89 billion in 2019 and exceed $2 billion in 2020. To the best of our knowledge, at least two third parties are distributing unapproved generic versions of Donnatal (tablets andelixir) in the U.S. ADVANZ reported in its third quarter 2018 Management’s Discussion and Analysis report (dated November14, 2018) that it has ongoing legal proceedings against third parties for listing and distributing non-FDA approved copies ofDonnatal. To the best of our knowledge, both proceedings are 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 Mylan Specialty L.P.). Another competing drug which includesboth 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 Bausch Health). 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 (Bausch Health), Viberzi (Ironwood Pharmaceutical Inc. and Allergan Inc.) and Lotronex (brand marketed bySebela Pharmaceuticals, also available in generic form) which are used as second or third-line therapies for patients with IBS-D. Antidepressants, mainly tricyclic antidepressants and selective serotonin reuptake inhibitors, are also used as second orthird-line treatments in patients with IBS. There are several drugs in advanced clinical development for IBS. Mytesi In June 2018, we entered into a co-promotion agreement with Napo, a wholly-owned subsidiary of Jaguar Health, Inc.,granting us exclusive U.S. rights to co-promote Mytesi (crofelemer 125 mg delayed-release tablets) for the approvedindication in people living with HIV/AIDS with respect to certain gastroenterologists and other healthcare practitioners incertain U.S. territories. Mytesi is an anti-diarrheal indicated for the symptomatic relief of non-infectious diarrhea in adultpatients with HIV/AIDS on anti-retroviral therapy. In July 2018, we initiated the promotion of Mytesi in the U.S. The initialterm of the co-promotion agreement was for six months, which was subsequently extended by amendments to the co-promotion agreement entered in November 2018 and again in January 2019 to end in January 2020. 70 ®®®®®®®®®®®®®®®®®®®®®®®Table of ContentsNapo owns the NDA initially filed by Salix and approved on December 31, 2012. Napo must complete the post-marketingcommitments pursuant to the FDA regulations for this product, including a carcinogenicity study that is ongoing; and apediatric study protocol (evaluation of pharmacokinetics, efficacy for symptomatic relief of non-infectious diarrhea, andsafety with different doses of crofelemer over a four-week period in HIV-positive pediatric patients, ages 1 month to 17 years,on anti-retroviral therapy), which has not yet been submitted. Market and Competition Mytesi® is the only FDA-approved diarrhea treatment, which has been studied and approved specifically in adults withHIV/AIDS. To the best of our knowledge, there are currently no advanced clinical studies ongoing in the U.S. with newtherapeutics for the indication of symptomatic relief of non-infectious diarrhea in adult patients with HIV/AIDS. According to the CDC, there were approximately 1 million people living with diagnosed HIV in the U.S. in 2016. Based onan analysis by Foster Rosenblatt, we estimate that approximately 15,000 HIV patients suffer from non-infectious diarrheaannually. EnteraGam In April 2017, we entered into a license agreement with Entera Health pursuant to which we were granted exclusive U.S.commercialization rights to EnteraGam. EnteraGam (serum-derived bovine immunoglobulin/protein isolate, SBI) ispromoted as an FDA-regulated “medical food” product intended for the dietary management of chronic diarrhea and loosestools. 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. However, our offering of EnteraGam as a “medical food” could be challenged by the FDA. See “—Our offering of EnteraGam as a “medical food” in the U.S. may be challenged by regulatory authorities.” The ingredients inEnteraGam are generally recognized as safe (GRAS) for use in the general population. 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 $980 million in 2019 and exceed $1 billion in2020. 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,71 ®®®®®®®®®®®® Table of ContentsClostridium difficile (C. diff) and aging, Tolerex® (Nestle Health Science), a medical food intended for patients sufferingfrom severely impaired GI function, Modulen® (Nestle Health Science), a whole-protein, powdered formulation for thedietary management of the active phase of Crohn’s disease, and IBGard® (IM HealthScience), a medical food formulated fordietary management of IBS. There are also several competing products being sold by other companies that source the rawmaterial from the same manufacturer of EnteraGam®, although we are the only ones licensed to sell under the EnteraGam®brand. 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) and prescription and OTC anti-diarrheal medications, such as Imodium® (loperamide). Esomeprazole Strontium Delayed-Release Capsules 49.3 mg In August 2017, we entered into a commercialization agreement with ParaPRO, an Indiana-based specialty pharmaceuticalcompany, granting us the exclusive rights to promote Esomeprazole Strontium Delayed-Release Capsules 49.3 mg togastroenterologists in certain U.S. territories. Esomeprazole Strontium Delayed-Release Capsules 49.3 mg is an FDA-approved prescription PPI drug product indicated for adults for the treatment of GERD, risk reduction of NSAID-associatedgastric ulcer, H. pylori eradication to reduce the risk of duodenal ulcer recurrence and for pathological hypersecretoryconditions, including Zollinger-Ellison syndrome. In September 2017, we initiated the promotion of EsomeprazoleStrontium Delayed-Release Capsules 49.3 mg in selected U.S. territories. Regulatory status We promote Esomeprazole Strontium Delayed-Release Capsules 49.3 mg in the U.S., which was approved by the FDA in2013 under the 505(b)(2) regulatory path, with Nexium as the Reference Listed Drug. Since we have not licensed orpurchased the rights to the NDA and instead only promote the product with limited rights under the agreement with ParaPRO,we rely on ParaPRO for ensuring regulatory compliance and to maintain the approved NDA. To the best of our knowledge,there have been two supplements approved to the NDA, one due to safety concerns and class labeling of PPIs initiated by theFDA in 2016 and the first supplement, again requested by the FDA in October 30, 2014, under Section 505(o)(4) of theFDCA, with new safety information that the FDA believed should be included in the labeling for Esomeprazole StrontiumDelayed-Release Capsules 49.3 mg. This information pertains to the risk of Vitamin B12 deficiency with long-term dailytreatment of PPIs and the risk of concomitant dosing of mycophenolate mofetil with PPIs resulting in reduced systemicexposure of mycophenolate mofetil as reported in current literature. Market and Competition GERD is considered the most common disease encountered by gastroenterologists (Katz PO et al. Am J Gastroenterol, 2013).According to GlobalData, the number of prevalent cases of GERD in the U.S. in 2019 is estimated to exceed 66 million. The 2012 American College of Gastroenterology guidelines for treatment of GERD recommend treatment with an 8-weekcourse of PPIs 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 and prescription 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®, marketed by Takeda Pharmaceu(cid:18)cals) is theonly other PPI other than Esomeprazole Strontium Delayed-Release Capsules 49.3 mg that is not available in generic form.PPIs are one of the most commonly prescribed classes of medications in the U.S.; with an estimated market value exceeding$20 billion in 2016 (Symphony Health (accessed August 2017)). 72 ®®®Table of ContentsAcquisition, 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, TALICIAand 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, TALICIAand 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 netsales from the sale of the products by us and 20% of the consideration (including royalties received by us) from sublicensees,in each case, only after we recoup 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 by virtue of the Salix license agreement dated February 27, 2014) and file an application for regulatory marketingapproval in accordance with industry standards. Development failures, negative regulatory decisions, or other reasonsbeyond our control will not constitute a breach of this obligation. Should we breach this obligation with respect to thedevelopment of any of the products and fail to cure the breach within 90 days from the date that Giaconda Limited sends us adefault notice, Giaconda Limited may buy back all of the intellectual property rights with respect to such product for theoriginal purchase price, plus the related development costs incurred by us through the date of the buy-back. In connection with the license agreement with Salix (later acquired by Bausch Health), dated February 27, 2014, describedbelow, we amended the asset purchase agreement and related agreements by excluding from the non-compete undertakingsof Giaconda Limited and certain of its affiliate products, technology and related activities in the purgative field andexcluded from such non-compete undertakings certain of Giaconda Limited's affiliates. Subsequently, we recognizedrevenues in 2014 and paid Giaconda Limited an additional amount of $1 million. On February 27, 2014, we amended theasset purchase agreement with Giaconda Limited to cancel the buyback right and agreed that we would pay GiacondaLimited 20% of all amounts received by us from Bausch Health under the license agreement, without first recouping amountsand expenses and notwithstanding the expiration of any relevant patents. Exclusive License Agreement with Bausch Health Companies Inc. On February 27, 2014, we entered into a worldwide exclusive license agreement with Salix (now Bausch Health), as amendedon February 26, 2018, 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 the agreement, we granted Salixthe right to develop and commercialize RHB-106 or the related rights.73 ®, ®, ®, ®Table of Contents 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, before it was amended on February 26, 2018, we received an up-front payment of $7 million andwere entitled to an additional amount of up to $5 million in subsequent milestone payments. In addition, we were entitled toreceive tiered royalties on net sales, ranging from low 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. We were granted an option to commercialize certain of the products of Bausch Health, in pre-determined territories. Thisright is subject to such products being available for distribution in the applicable territories and Bausch Health 's agreementto a potential exclusive distribution arrangement with us. We were granted exclusivity as to the commercialization rightunder 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,royalty-free and irrevocable. We have the right, following notice to Bausch Health, to terminate the agreement in the eventthat Bausch Health does not pursue the development of RHB-106 or related rights. This termination right is effective untilthe date on which all subsequent milestone payments referred to above have been paid to us. On February 26, 2018, we entered into an amendment to the agreement that clarifies the development efforts to be used byBausch Health, as well as provides for our enhanced involvement in certain intellectual property matters. In addition, theparties have agreed to increase the lower end of the range of royalty payments to be paid to us on net sales from low singledigits to high single digits, such that the potential royalties now range from high single digits up to low double digits.Milestone payments remain unchanged. We have agreed to pay a percentage of the amounts received by us from BauschHealth to the third party from which we acquired the rights to RHB-106. 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 received an international non-proprietaryname, opaganib, in 2018) 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, inflammatoryand GI indications. Under the terms of the agreement, as amended, we agreed to pay Apogee initial milestone payments of $3million. In addition, we undertook to pay up to an additional $2 million in potential development milestone payments andpotential tiered royalties starting in the low double-digits. Such potential royalties are due until the later of: (i) the expirationof the last to expire licensed patent that covers the product in the relevant country; and (ii) the expiration of regulatoryexclusivity in the relevant country. Through December 31, 2018, we paid Apogee the initial amount of $3 million. Thelicense agreement will stay in effect as of its effective date unless terminated earlier as described in the agreement. We areentitled to terminate the agreement at any time upon 30 days’ prior written notice to Apogee. The agreement also providesfor the right of termination for each party in the event of a material breach committed by the other party. License Agreement for RHB-107 (Upamostat; formerly 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. 74 ®®®Table of ContentsIn 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. Exclusive Co-Promotion Agreement for Donnatal On December 30, 2016, we entered into an exclusive co-promotion agreement with a subsidiary of ADVANZ, 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, andADVANZ continues to be responsible for, among other things, the manufacturing and supply and pricing of Donnatalin allterritories. We and ADVANZ share the revenues generated from the promotion of Donnatal by us based upon an agreed uponsplit. 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 upon three months’ notice for reasons set forth in the agreement.ADVANZ may terminate the agreement after an agreed upon period and for reasons set forth in the agreement. Co-Promotion Agreement for Mytesi In June 2018, we entered into a co-promotion agreement with Napo, a human health company developing andcommercializing novel gastrointestinal prescription products from plants used traditionally in rainforest areas. Napo is awholly-owned subsidiary of Jaguar Health, Inc. Under this agreement, Napo granted us exclusive U.S. rights to co-promoteMytesi (crofelemer 125 mg delayed-release tablets) for the approved indication in people living with HIV/AIDS with respectto certain gastroenterologists and other healthcare practitioners in certain U.S. territories. Mytesi is an anti-diarrhealindicated for the symptomatic relief of non-infectious diarrhea in adult patients with HIV/AIDS on anti-retroviral therapy.The initial term of the co-promotion agreement was for six months, which was extended by the parties in November 2018 andJanuary 2019 to end in January 2020. In July 2018, we initiated the promotion of Mytesi in the U.S. 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. Commercialization Agreement for Esomeprazole Strontium Delayed-Release Capsules 49.3 mg In August 2017, we entered into an agreement with ParaPRO LLC (“ParaPRO”) granting us the exclusive rights to promoteEsomeprazole Strontium Delayed-Release Capsules 49.3 mg to gastroenterologists in certain U.S. territories. Under theagreement, we agreed on a co-promotion plan with ParaPRO, and are responsible, together with ParaPRO for the promotion ofthe product to gastroenterologists for all labeled indications for the product in certain U.S. territories. In the event of the saleinto the agreed territories of a generic equivalent for the product, we may limit or discontinue all or part of our ongoingpromotional activities. ParaPRO agreed to provide us promotional material, training and samples (or equivalents) of theproduct, and it is responsible to take all actions in relation to the commercialization of the product in the territory and allaspects of managed care, and we are responsible for the promotion of the product. The agreement provides that all regulatorymatters relating to the commercialization of the product during the term of this agreement are the responsibility of ParaPRO,subject to our right to communicate with regulatory authorities with respect to matters75 ®®® ®®®®®®® ®Table of Contentsrelating to us and our performance under the agreement. The initial term of the agreement is four years. Each party mayterminate the agreement upon prior written notice to the other party for reasons set forth in the agreement. 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 $195,000 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 On December 27, 2014, we entered into a license agreement with the University of Minnesota (UoM) pursuant to which wewere granted an exclusive license for all indications and medical uses to a patent-protected designation of certain DNAsequencing. 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, 2018, the estimated discount we will receive from our Canadian serviceprovider is approximately $0.3 million. 76 Table of ContentsClinical 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., (subsequently a subsidiary of inVentiv Health Clinical, Inc., which became Syneos),an international CRO company for the purpose of performing the clinical trial for RHB-104. Syneos is a leading provider ofglobal drug development services to pharmaceutical and biotechnology companies, offering therapeutically specializedcapabilities for Phase 1-4 clinical development, and pursuant to the agreement, is responsible for the performance of theclinical trial, including entering into agreements with medical centers to perform the trial, supervision of the performance andprogress of the trial and the analysis of the results, all pursuant and subject to applicable regulatory requirements. Pursuant to this agreement and subsequent amendments, Syneos is entitled to receive compensation in connection with theMAP US study, as well as reimbursement of investigator grant costs and pass-through costs to be paid during the trial. Thepayments are spread over the period of the clinical trial based upon quarterly administration fees and milestone paymentsbased on patient recruitment, completion of subject dosing and report preparation, investigators’ grants paid to researchcenters that participate in the trial, as well as reimbursement of certain expenses. These fees, however, are partial costs for theRHB-104 program and may increase in accordance with the final clinical trial protocol, length of the study and payments tobe made to third parties, such as investigator grants costs and additional service providers, including other clinical researchorganizations. 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. In February 2017, we entered into an agreement with our Canadian service provider, which entered into a back-to-backagreement with Syneos for the provision of clinical trial services for the MAP US2 study. Expanded Access Program (EAP) We have adopted an EAP, allowing patients with life-threatening diseases potential access to our investigational new drugsthat have not yet received regulatory marketing approval. Expanded access (sometimes referred to as “compassionate use”) ispossible outside of our clinical trials, under certain eligibility criteria, when a certain investigational new drug is needed totreat a life-threatening condition and when there is some clinical evidence suggesting that the drug might be effective forthat condition. Patients who qualify for our EAP do not meet the eligibility criteria or are incapable of participating in ourclinical trials for such therapeutic candidate or there is no clinical trial accessible to such patients. Following the adoption ofthe program, we continue to receive patient requests to obtain access to our investigational drugs. Subject to the evaluationof eligibility and all other necessary regulatory, reporting and other conditions and approvals required in all relevantjurisdictions, we provide certain patients with an 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. We77 Table of Contentsvigorously defend our intellectual property to preserve our rights and gain the benefit of our technological investments. Wehave rights, either through assignment, asset purchase or in-licensing, to a total of approximately 200 issued patents and 100patent applications. The patents and patent applications are registered in the U.S. and other key jurisdictions, the details ofeach family 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 The patent portfolio protecting TALICIA currently includes four U.S. patents, two pending U.S. patent applications, andover 20 foreign patents and patent applications. The second-generation patents (all but two noted above) provide patentprotection through 2034. RHB-104 – Inflammatory Bowel Disease The patent portfolio protecting RHB-104 and its use in treating inflammatory bowel disease currently includes six U.S.patents, one pending U.S. patent application, and 33 foreign patents and patent applications, providing patent protectionthrough 2029. 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”) The patent portfolio protecting use of RHB-104 for treating relapsing-remitting multiple sclerosis includes one U.S. patentand over 20 foreign patents and patent applications, providing patent protection through 2032. RHB-204 – Nontuberculous Mycobacterium (NTM) Infections The patent portfolio protecting RHB-204 currently includes two U.S. patents, one pending U.S. patent application and onepending European patent application, providing protection through 2029. BEKINDA - Gastritis, Gastroenteritis and IBS-D The patent portfolio protecting BEKINDA and its use currently includes two U.S. patents, two pending U.S. patentapplications, and over 30 foreign patents and patent applications, providing patent protection through 2034. RHB-106 - Bowel Preparation The patent portfolio protecting RHB-106 and its use currently includes one issued U.S. patent, one pending U.S. patentapplication, and 12 foreign patents and patent applications, providing patent protection through 2033. We are party to an exclusive agreement by which Bausch Health licensed us the exclusive worldwide rights to the RHB-106patent portfolio. As part of the agreement, Bausch Health is responsible for the patent families related to RHB-106.78 ®®®®Table of Contents 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. These patents relate to sphingosine kinase inhibitors, pharmaceuticalcompositions, methods of preparing the inhibitors, methods of treating inflammatory diseases using the inhibitors, methodsof treating cancer using the inhibitors, and methods for inhibiting sphingosine kinase. The patent portfolio covering YELIVA includes 4 U.S. patents and over 18 foreign patents and patent applications,providing patent protection through 2028. RHB-107 (Upamostat; formerly 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 and over60 foreign patents and patent applications, providing patent protection through 2027. Ebola The patent portfolio covers RedHill’s proprietary experimental therapy for the treatment of Ebola virus disease. Theportfolio consists of one U.S. patent, 1 pending U.S. patent application, and 7 pending international 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. 79 ®®®Table of ContentsU.S. Food and Drug Administration (FDA) 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. 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 1. In Phase 1 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 1 studies is generally in therange of 20 to 80. Phase 2. In Phase 2 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 2 studies typically are larger than Phase 1 but smaller than Phase 3 studies and may involve several hundredparticipants. Phase 3. Phase 3 studies typically involve an expanded patient population at geographically-dispersed test sites and involvecontrol groups taking a reference compound or a placebo (an inactive compound identical in appearance to the studycompound). They are performed after preliminary evidence suggesting the effectiveness of the product candidate has beenobtained and are designed to evaluate clinical safety and efficacy further, to establish the overall benefit-risk relationship ofthe product candidate and to provide an adequate basis for a potential product approval. Phase 3 studies usually involveseveral hundred to several thousand participants. Phase 4. Phase 4 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 4clinical trial requirement. These clinical trials are often referred to as Phase 4 post-approval or post-marketing commitments.Failure to promptly conduct Phase 4 clinical trials could result in the inability to deliver the product into interstatecommerce, misbranding charges, and civil monetary penalties.80 Table of Contents 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, manufacturers mustcontinue to spend time, money and effort to meet requirements relating to personnel, facilities, equipment, production andprocess, 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 for 90% of the submissions received, unless the application relates to an unmet medical need in aserious or life-threatening indication, in which case the goal may be within six months of a completed NDA submission.However, PDUFA goal dates are not legal mandates, and the FDA response may occur several months beyond the originalPDUFA goal date. Further, the review process and the target response date under PDUFA may be extended if the FDA requestsor the NDA sponsor otherwise provides additional information or clarification regarding information already provided in theNDA. The NDA review process can, accordingly, be very lengthy. During its review of an NDA, the FDA may refer theapplication to an advisory committee for review, evaluation, and recommendation as to whether the application should beapproved. The FDA is not bound by the recommendation of an advisory committee, but it typically follows suchrecommendations. Data from clinical studies are not always conclusive, and the FDA or any advisory committee it appointsmay 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 4 clinical trial to further assess and monitor the product’s safety and efficacy after approval.81 Table of ContentsRegulatory approval of products for serious or life-threatening indications may require that participants in clinical studies befollowed for long periods to determine the overall survival benefit of the drug product candidate. If the FDA approves one of our therapeutic drug candidates, we will be required to comply with a number of post-approvalregulatory requirements. We would be required to report to the FDA, among other things, certain adverse reactions andproduction problems, and provide updated safety and 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 demonstrate the product’s safety and efficacy in the new indication. Even ifsuch studies are conducted, the FDA may not approve any change 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 may also 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,82 Table of Contentsprocess, stability, qualification and validation data related to the manufacturing and quality of the new product must beincluded in an NDA submitted under Section 505(b)(2). To the extent that the Section 505(b)(2) applicant is relying on the FDA’s conclusions regarding studies conducted for analready approved product, the applicant is required to certify to the FDA concerning any patents listed for the approvedproduct in the FDA’s Orange Book publication. 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 protocol design, eligibility for FDAgrants to fund clinical studies, waiver of the FDA application fee, and a period of seven years of marketing exclusivity for theproduct 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. FollowingFDA approval, 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;83 Table of Contents·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. Due 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 comply with these laws. Evolving interpretations of current laws or the adoption of new federal or state laws orregulations 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 2018, we subleased a portion of the office space to a tenant for approximately $42,000. The termunder our lease agreement will expire on January 31, 2026. These offices have served as our corporate headquarters sinceApril 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 $169,000 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 contains84 Table of Contentsforward-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 proprietary drugs for GI diseases. From our inception tothe end of the period covered by this Annual Report, we invested a total of $5.3 million on in-licensing and acquisitions oftherapeutic 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 seven therapeutic candidates, most in late-stage clinical development. 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 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, 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 promote four GIproducts in the U.S., Donnatal, Mytesi, EnteraGam and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg underagreements 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 Donnatal, Mytesi, Esomeprazole Strontium Delayed-Release Capsules 49.3 mg, and from commercializationof EnteraGamwith 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 seven therapeutic candidates, most in late-stage clinical development, and fourcommercial products: Therapeutic Candidates TALICIA (RHB-105) is intended for the treatment of H. pylori bacterial infection in the GI tract. TALICIA is a combinationof three approved drug products – omeprazole, which is a proton pump inhibitor (prevents the secretion of hydrogen ionsnecessary for digestion of food in the stomach), amoxicillin and rifabutin, which are antibiotics. TALICIA is administered topatients orally. In December 2018, we announced positive top-line results from the ERADICATE Hp2 study. Subject to anyadditional regulatory feedback, the ERADICATE Hp2 study is expected to complete the clinical package required for apotential submission of an NDA with the FDA for TALICIA in the first half of 2019. We acquired ownership rights inpatents, tangible assets, production files, and regulatory approvals and other data and certain third-party agreements relatedto TALICIA pursuant to the Asset Purchase Agreement with Giaconda Limited described above.85 ®®®®®® ®®®®®Table of ContentsSee “Item 4. Information on the Company – B. Business Overview – Acquisition, Commercialization and LicenseAgreements – Acquisition of RHB-104, TALICIAand RHB-106.” 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 patentedcombination of clarithromycin, clofazimine, and rifabutin, three generic antibiotic ingredients, in a single capsule. Thecompound was developed to treat Crohn’s disease through the targeting of MAP infection. We announced positive top-linesafety and efficacy results from the Phase 3 MAP US study in July 2018 and have an ongoing Phase 3 MAP US2 study toevaluate the safety and efficacy of RHB-104 in subjects who remain with active Crohn’s disease (CDAI ≥ 150) after 26 weeksof blinded study therapy in the MAP US study. On August 11, 2010, we entered into an asset purchase agreement withGiaconda Limited, pursuant to which we acquired ownership rights in patents, tangible assets, production files andregulatory approvals and other data and certain third-party agreements related to RHB-104, TALICIA and RHB-106 inexchange for $500,000 and royalty payments of 7% of net sales and 20% of sublicense fees, in each case, only after werecoup the amounts and expenses exceeding the approved budget. See “Item 4. Information on the Company – B. BusinessOverview – Acquisition, Commercialization and License Agreements – Acquisition of RHB-104, TALICIAand RHB-106.” RHB-204 is a patented fixed-dose combination product of three antibiotics that will simplify administration and optimizecompliance. Each capsule contains the same components as RHB-104 (clarithromycin, clofazimine, and rifabutin) but atunique doses. Final dose selection for the pending pivotal trial is ongoing, and current plans are to start a pivotal trial forNTM lung infection in H2 2019. The appropriate regulatory path is currently under discussion. BEKINDA (RHB-102) is a once-daily bi-modal extended-release oral formulation of ondansetron, a leading member of thefamily of 5-HT3 serotonin receptor inhibitors, intended to treat nausea, vomiting and diarrhea symptoms experienced insome people suffering from acute gastroenteritis, gastritis, and IBS-D. On May 2, 2010, we received a worldwide, exclusiveand perpetual license to use patents and know-how relating to CDTtechnology from SCOLR Pharma, Inc. in exchange foran up-front payment of $100,000. SCOLR announced during 2013 that it had ceased business operations, and we enteredinto a License Agreement with Temple University to secure direct rights to patents related to the CDT platform. SCOLR haditself licensed those patents from Temple University, the original owner of the patents. YELIVA (ABC294640) is a proprietary, first-in-class, orally-administered SK2 selective inhibitor, with anti-inflammatoryand anti-cancer activities, targeting multiple oncology, inflammatory and GI indications. The compound originallydesignated as ABC294640 received an international non-proprietary name, opaganib, in the Recommended INN: List 79,2018. On March 30, 2015, we entered into an exclusive worldwide license agreement with Apogee, pursuant to whichApogee granted us the exclusive worldwide development and commercialization rights to ABC294640 (which we thenrenamed to YELIVA and as noted above, received an international non-proprietary name, opaganib, in 2018) and additionalintellectual property for all indications. Under the terms of the agreement, as amended, we agreed to pay Apogee initialmilestone payments of $3 million, of which the total amount has been paid, as well as up to $2 million in potentialdevelopment milestone payments, and tiered royalties starting in the low double-digits. For more information regarding thisagreement, see “Item 4. Information on the Company – B. Business Overview – Acquisition, Commercialization and LicenseAgreements – License Agreement for YELIVA.” RHB-107 (Upamostat; formerly MESUPRON) (INN: upamostat) is a proprietary small molecule, first-in-class, potent serineprotease inhibitor administered by oral capsule. We believe that RHB-107 has a unique potency and specificity that suggestsit may be a new non-cytotoxic approach to cancer therapy, as well as other indications of high unmet need such asinflammatory digestive diseases and inflammatory lung diseases. On June 30, 2014, we acquired from Heidelberg theexclusive development and commercialization rights to RHB-107, excluding China, Hong Kong, Taiwan, and Macao, for allindications. We made an upfront payment to Heidelberg of $1.0 million with potential tiered royalties on net revenues,ranging from mid-teens up to 30%. We are responsible for all development, regulatory and commercialization of RHB-107.See “Item 4. Information on the Company – B. Business Overview – Acquisition, Commercialization and LicenseAgreements – License Agreement for RHB-107.” 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 surgical86 ®, ®®, ®® ®®®®Table of Contentsinterventions, such as a laparotomy. We acquired ownership rights in patents, tangible assets, production files, and regulatoryapprovals and other data and rights in certain third-party agreements related to RHB-106 pursuant to the Asset PurchaseAgreement with Giaconda Limited described above. See “Item 4. Information on the Company – B. Business Overview –Acquisition, Commercialization and License Agreements – Acquisition of RHB-104, TALICIAand RHB-106.” On February27, 2014, we entered into a licensing agreement with Salix (later acquired by Bausch Health) pursuant to which BauschHealth is granted the exclusive worldwide rights to our RHB-106 encapsulated formulation for bowel preparation, and rightsto other purgative developments. Commercial Products Donnatalis an anticholinergic and barbiturate combination drug product used as an adjunctive therapy for IBS. OnDecember 30, 2016, we entered into the Co-Promotion Agreement with a subsidiary of ADVANZ, pursuant to which we weregranted certain rights to promote Donnatalin certain U.S. territories. See “Item 4. Information on the Company – B.Business Overview – Acquisition, Commercialization and License Agreements – Exclusive Co-Promotion Agreement forDonnatal.” We commenced promotional activities for Donnatal in June 2017 and recorded revenues of $0.7 million for theyear ended 2017 and $3.5 million for the year ended 2018 from promotion of Donnatal. Mytesi is an anti-diarrheal indicated for the symptomatic relief of non-infectious diarrhea in adult patients with HIV/AIDSon anti-retroviral therapy. See “Item 4. Information on the Company – B. Business Overview – Acquisition,Commercialization and License Agreements – Co-Promotion Agreement for Mytesi.” We initiated the promotion of Mytesiin the U.S. in July 2018 and recorded an immaterial amount of revenues for the year ended December 31, 2018 frompromotion of Mytesi. Esomeprazole Strontium Delayed-Release Capsules 49.3 mg is an FDA-approved prescription PPI drug product indicated foradults for the treatment of GERD, risk reduction of NSAID-associated gastric ulcer, H. pylori eradication to reduce the risk ofduodenal ulcer recurrence and for pathological hypersecretory conditions, including Zollinger-Ellison syndrome. See “Item4. Information on the Company – B. Business Overview – Acquisition, Commercialization and License Agreements –Commercialization - Agreement for Esomeprazole Strontium Delayed-Release Capsules 49.3 mg.” We initiated thepromotion of Esomeprazole Strontium Delayed-Release Capsules 49.3 mg in selected U.S. territories in September 2017 andrecorded an immaterial amount of revenues for the year ended December 31, 2017, and $0.2 million for the year endedDecember 31, 2018, from promotion of Esomeprazole Strontium Delayed-Release Capsules 49.3 mg. EnteraGam (serum-derived bovine immunoglobulin/protein isolate, SBI) is promoted as an FDA-regulated “medical food”product intended for the dietary management of chronic diarrhea and loose stools. EnteraGam must be administered undermedical supervision. See “Item 4. Information on the Company – B. Business Overview – Acquisition, Commercializationand License Agreements – License Agreement for EnteraGam.” We initiated commercialization activities for EnteraGam inJune 2017 and recorded revenues of $3.2 million for the year ended December 31, 2017, and $4.7 million for the year endedDecember 31, 2018, from commercialization of EnteraGam. Components of Statements of Comprehensive Loss Revenues In 2018 and 2017, revenues consisted of revenues with respect to commercialization and promotional activities of ourcommercial products, as described above. In 2016, we recorded revenues with respect to a certain licensing agreement. 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. 87 ®, ® ® ®®®®®®®®®®®®Table of ContentsGeneral 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 consultantsdedicated for marketing activities with the Company's commercialized and promoted products and 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 Expenses Financial income and expenses consist 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. Critical 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 or results of operations. Our estimates are primarily guided byobserving 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. As88 Table of Contentsof 2017, we started to accumulate losses also from our commercial operations. As of December 31, 2018, we had anaccumulated deficit of approximately $169.1 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 Donnatal, Mytesi, and Esomeprazole Strontium Delayed-Release Capsules 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. Three Months Ended March 31 June 30 Sep. 30 Dec. 31 March 31 June 30 Sep. 30 Dec. 31 March 31 June 30 Sep. 30 Dec. 31 2016 2017 2018 Statements of operations U.S. dollars in thousands Net revenues — 1 — 100 — 483 1,523 2,001 2,445 2,350 2,206 1,359 Cost of revenues — — — — — 272 935 919 930 725 598 584 Research and development expenses,net 4,676 6,031 7,038 7,496 8,137 8,434 8,106 8,292 6,416 6,044 6,624 5,778 Selling, marketing and businessdevelopment 312 424 402 417 605 3,376 4,189 3,844 3,170 3,123 3,040 3,153 General and administrative expenses 915 740 1,014 1,179 1,315 1,940 2,258 2,512 1,924 2,015 1,680 1,887 Other expenses — — — — 45 — — 800 — — — — Operating loss 5,903 7,194 8,454 8,992 10,102 13,539 13,965 14,366 9,995 9,557 9,736 10,043 Financial income 380 666 109 1,013 1,556 2,523 150 3,966 134 156 133 2,403 Financial expenses 1 24 599 371 50 7 1,697 13 74 1,717 480 44 Net loss 5,524 6,552 8,944 8,350 8,596 11,023 15,512 10,413 9,935 11,118 10,083 7,684 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. Segment Information Commencing 2017, the Company has two segments, Commercial Operations and Research & Development. The CommercialOperations segment covers all areas relating to the commercial sales and operating expenses directly related to that activity.The Research and Development segment includes all activities related to the research and development of therapeuticcandidates. Below is a table summarizing the financial results of the two segments for the years ended December 31, 2018 and December31, 2017. Year Ended December 31, Year Ended December 31, 2018 2017 December 31, 2018: CommercialOperations Research andDevelopment Consolidated CommercialOperations Research andDevelopment Consolidated U.S. dollars in thousands U.S. dollars in thousands Net revenues 8,360 — 8,360 4,007 — 4,007 Cost of revenues 2,837 — 2,837 2,126 — 2,126 Gross profit 5,523 — 5,523 1,881 — 1,881 Research and development expenses, net — 24,862 24,862 — 32,969 32,969 Selling, marketing and businessdevelopment expenses 11,329 1,157 12,486 10,520 1,494 12,014 General and administrative expenses 2,795 4,711 7,506 2,680 5,345 8,025 Other expenses — — — — 845 845 Operating loss 8,601 30,730 39,331 11,319 40,653 51,972 89 ®®®Table of Contents Comparison of the Year Ended December 31, 2018 to the Year Ended December 31, 2017 Net Revenues Net Revenues for the year ended December 31, 2018 were $8.4 million, compared to $4.0 million for the year endedDecember 31, 2017. The increase was due to the advancement of promotional activities for Donnatal andcommercialization activities for EnteraGam, initiated mid-June 2017. Cost of Revenues Cost of Revenues for the year ended December 31, 2018 was $2.8 million, compared to $2.1 million for the year endedDecember 31, 2017. The increase was due to higher cost of goods sold and amounts paid for royalties relating tocommercialization activities. Gross Profit Gross Pro(cid:51)it for the year ended December 31, 2018, was $5.5 million, compared to $1.9 million for the year endedDecember 31, 2017. Gross margin increased from 47% to 66%. The increase was due to net revenues and cost of revenues,discussed above. Research and Development Expenses Research and Development Expenses for the year ended December 31, 2018, were $24.9 million, compared to $33.0 millionfor the year ended December 31, 2017. The decrease was mainly due to the implementation of the Company's costreduction plan, the finalization of the Phase 3 study with RHB-104 and completion of the clinical studies with BEKINDA. Selling, Marketing and Business Development Expenses Selling, Marketing and Business Development Expenses for the year ended December 31, 2018, were $12.5 million,compared to $12.0 million for the year ended December 31, 2017. The increase was mainly due to the expenses related tocommencement of U.S. commercial operations in June 2017, offset by the continued implementation of the Company’s costreduction plan. General and Administrative Expenses General and Administrative Expenses for the year ended December 31, 2018, were approximately $7.5 million, compared to$8.0 million for the year ended December 31, 2017. The decrease was due to the continued implementation of theCompany’s cost reduction plan and optimization measures. Operating Loss Operating Loss for the year ended December 31, 2018, was $39.3 million, compared to $52.0 million for the year endedDecember 31, 2017. The decrease was due to the increase in gross margin and a decrease in operating expenses. Financial Income, net Financial Income, net for the year ended December 31, 2018, was $0.5 million, compared to $6.4 million for the year endedDecember 31, 2017. The decrease was mainly related to a fair value gain on derivative financial instruments. 90 ®®®Table of ContentsComparison 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 relatingto commercialization activities. There was no cost of revenues for the year ended December 31, 2016. Gross Profit Gross Pro(cid:51)it for the year ended December 31, 2017, was $1.9 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. 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 then ongoing Phase 3 study with TALICIA andfrom the Phase 1/2 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 General 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 commercial 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. B. 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.Since 2017, through our U.S. subsidiary, we commercialize or promote four GI products in the U.S., Donnatal, 91 ®®®Table of ContentsMytesi, EnteraGam and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg under agreements with third parties.These commercial operations are still generating operational losses. 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 Bausch Health). As ofDecember 31, 2018, we had approximately $53.2 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. By February 2, 2014, the tradable Series 1Warrants were exercised for an aggregate amount of $4 million. 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. By January 10, 2015, the warrant expiration date, 682,200warrants had been exercised for an aggregate amount of approximately $1.0 million. The remaining unexercised warrantsexpired. 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. On January 10,2017, 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). On January 21, 2017, all of these warrantsexpired unexercised. On February 27, 2014, we entered into a Worldwide Exclusive License Agreement with Salix (now Bausch Health), pursuantto which we granted exclusive worldwide rights to our RHB-106 encapsulated formulation for bowel preparation and rightsto other purgative developments. Under the license agreement, Salix paid an upfront payment of $7.0 million. We are alsoentitled 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 with BauschHealth Companies Inc." On February 13, 2015, we sold an aggregate of 1,150,000 ADSs in an underwritten public offering of our ADSs in the U.S. ata public offering price of $12.50 per ADS, for gross proceeds to us of approximately $14.4 million. On July 22, 2015, we sold an aggregate of 2,739,143 ADSs in an underwritten public offering of our ADSs in the U.S. at apublic offering price of $16.25 per ADS, for gross proceeds to us of approximately $44.5 million, before underwritingdiscounts and commissions and other offering expenses. On December 27, 2016, we sold 2,250,000 ADSs and warrants to purchase 1,125,000 ADSs in an underwritten 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 for gross proceeds of approximately $15million. The offering price in both offerings was $10.25 for a fixed combination of one ADS and a warrant to purchase 0.5 ofan ADS. The warrants in both offerings have a per ADS exercise price of $13.33 and have a term of three years. Following thepartial exercise by the underwriters of their option, our underwritten public offering and the concurrent registered directoffering totaled 3,846,519 ADSs and warrants to purchase 2,025,458 ADSs, representing aggregate gross proceeds from bothofferings of approximately $39.4 million. 92 ®®Table of ContentsOn 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. On August 9, 2018, we sold 4,166,667 ADSs in an underwritten public offering of our ADSs in the U.S. at a public offeringprice of $6.00 per ADS, for gross proceeds of approximately $25 million before underwriting discounts and commissions andother offering expenses. On December 11, 2018, we sold 2,857,143 ADSs in an underwritten public offering of our ADSs in the U.S. at a publicoffering price of $7.00 per ADS, for gross proceeds of approximately $20 million before underwriting discounts andcommissions and other offering expenses. Revenues generated from our U.S. commercial activities were approximately $8.4 million for the year ended December 31,2018, and approximately $4.0 million for the year ended December 31, 2017. 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 currentcommercial products or products that we may promote or commercialize in the future, we will need to raise substantialadditional funds, as our current cash and short-term investments are not sufficient to complete the research and developmentof all of our therapeutic candidates and fund our commercial operations. However, additional financing may not be availableon acceptable terms, if at 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 reputation, business, financial condition or results of operations.See “Item 3. Key Information – D. Risk Factors – Risks Related to Our Financial Condition and Capital Requirements”. Ourcurrent 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 the promotion ofDonnatal, Mytesiand Esomeprazole Strontium Delayed-Release Capsules 49.3 mg and commercialization of EnteraGam.We will need to raise additional capital to achieve our strategic objectives of acquiring, in-licensing, developing andcommercializing therapeutic candidates, promoting Donnatal, Mytesiand Esomeprazole Strontium Delayed-ReleaseCapsules 49.3 mg and commercializing EnteraGam and other products that we may promote or commercialize in the future,and our failure to raise sufficient capital or on favorable terms would significantly impair our ability to fund our operations,develop our therapeutic candidates, promote products such as Donnatal, Mytesi and Esomeprazole Strontium Delayed-Release Capsules 49.3 mg or other products that we may promote in the future, commercialize EnteraGam or the products wemay commercialize in the future, attract development or commercial partners or retain key personnel. 93 ®® ®®® ®®®®Table of ContentsWe implemented a cost reduction plan to gradually reduce our 2018 quarterly cash used in operating activities toapproximately $8.5 million on average. We believe this, 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, 2018, was $34.5 million, compared to $44.8 millionfor the year ended December 31, 2017. The decrease in Net Cash Used in Operating Activities was a direct result of thedecrease in Operating Loss, as detailed above. Net Cash Used in Investing Activities Net Cash provided by Investing Activities for the year ended December 31, 2018, was $5.4 million, compared to Net Cashused in Investing Activities of $18.6 million for the year ended December 31, 2017. The change from the comparableperiod was mainly due to a change in investment in current bank deposits and financial assets at fair value through profit orloss. Net Cash Provided by Financing Activities Net Cash Provided by Financing Activities for the year ended December 31, 2018, was $41.8 million, compared to $25.7million for the year ended December 31, 2017, both resulting mainly from the proceeds of our public offerings. 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, 2018. 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 ourresearch and development expense to remain our primary expense in the near future as we continue to develop ourtherapeutic candidates. 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 FDA or other foreign regulatory clearance and approval for ourtherapeutic candidates or products we may promote or commercialize, we or our commercialization partners will be unable tocommercialize our therapeutic candidates or products we may promote or commercialize.” 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 to94 Table of Contentsthe type, complexity, novelty and intended use of a therapeutic candidate. See “Item 3. Key Information – D. Risk Factors –Risks Related to Our Business and Regulatory Matters.” We expect our research and development expenses to stay material as we continue the advancement of our clinical trials andtherapeutic candidates’ development. The lengthy process of completing clinical trials and seeking regulatory approvals forour therapeutic candidates requires substantial expenditures. Any failure or delay in completing clinical trials, or inobtaining regulatory approvals, could cause a delay in generating product revenue and cause our research and developmentexpenses to increase and, in turn, have a material adverse effect on our operations. Due to the factors set forth above, we arenot able to estimate with any high certainty if and when we would recognize any substantial revenues from our projects. D. Trend Information We are a specialty biopharmaceutical company primarily focused on proprietary drugs for GI diseases. 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 withEntera Health, granting us exclusive license to use the EnteraGamtrademarks, trade names 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 granting us the exclusive rights to promote EsomeprazoleStrontium Delayed-Release Capsules 49.3 mg to gastroenterologists in certain U.S. territories. In June 2018, we entered into aco-promotion agreement with Napo, granting us exclusive U.S. rights to co-promote Mytesi (crofelemer 125 mg delayed-release tablets) for the approved indication in people living with HIV/AIDS with respect to certain gastroenterologists andother healthcare practitioners in certain U.S. territories. The foregoing agreements are part of our goal to build our ownmarketing and commercialization capabilities in the U.S. to support future commercialization of our therapeutic candidates. Our primary focus is currently on the development of clinical-stage GI therapeutic candidates, and we have also establishedcommercial presence and capabilities, promoting several GI products in the U.S., intended primarily to support potentialfuture launch of our GI-related therapeutic candidates currently under development. Recently, we have increased our focuson the preparations for commercialization of our therapeutic candidates. As we prepare to potentially submit an NDA withthe FDA for TALICIA in the first half of 2019 and plan to progress in our clinical studies of our other therapeutic candidates,including RHB-104 for Crohn’s disease and RHB-204 for pulmonary nontuberculous mycobacteria (“NTM”) infections, wehave begun preparations for a potential commercial launch of TALICIA and discussions with potential partners for thepotential commercialization of TALICIA and potential development and commercialization of RHB-104 and RHB-204,with the goal to generate revenues from our therapeutic candidates and support their development and commercialization. At the same time, as we continue to try to increase revenues generated by our commercial products, we continue to pursueopportunities to in-license or acquire GI therapeutic candidates and products that have been approved or cleared formarketing in the U.S. 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. 95 ® ® ®®®®®Table of ContentsF. Tabular Disclosure of Contractual Obligations The following table summarizes our significant contractual obligations on December 31, 2018: More Less than 1-3 3-5 than 5 Total 1 year years years years (U.S. dollars in thousands) (Unaudited)Office and vehicle lease obligations 1,846 994 793 60 — Accounts payable, accrued expenses and other current liabilities 10,381 10,381 — — — Total 12,227 11,375 793 60 — The foregoing table does not include our in-license agreements with Heidelberg, Apogee, our asset sale agreement withGiaconda Limited and our agreement with UCF or University of Minnesota, pursuant to which we are obligated to makevarious payments upon the achievement of agreed upon milestones or make certain royalty payments since we are unable toestimate the actual amount or timing of these payments currently. If all of the milestones are achieved over the life of each in-licensing agreement, we will be required to pay, in addition to the amounts in the above table and royalties on our netincome, an aggregate amount of approximately $2.3 million for milestones achieved. All of our in-licensing agreements areterminable 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 $1.8 million. Allof our manufacturing agreements are terminable at-will by us upon short prior written notice. The foregoing table does not reflect an amendment to the office lease for our offices in Tel-Aviv, signed in January 2019.Under the amendment, the term of the lease was extended through January 31, 2026, and an annual lease payment isapproximately $0.4 million. 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.” 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 53 Chief Executive Officer and Chairman of the Board of DirectorsMicha Ben Chorin 50 Chief Financial OfficerReza Fathi, Ph.D. 64 Senior Vice President Research and DevelopmentGilead Raday 44 Chief Operating OfficerAdi Frish 49 Senior Vice President Business Development and LicensingGuy Goldberg 43 Chief Business OfficerDirectors Dr. Shmuel Cabilly (2) 69 DirectorEric Swenden 75 DirectorDr. Kenneth Reed 65 Director96 1Table of ContentsDan Suesskind (1) 75 DirectorRick D. Scruggs 59 DirectorOfer Tsimchi (1), (2) 59 DirectorNurit Benjamini (1), (2) 52 DirectorNicolas A. Weinstein 37 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. Prior to joining RedHill he was a memberof the team that built GVT (currently Telefonica Brazil). During his seven years as Chief Financial Officer at GVT, he led itsfinancial department through pivotal financial transactions and preparations for its successful IPO. From 2014 until 2016,Mr. Ben Chorin served as Chief Financial Officer of Pyramid Analytics a business intelligence (BI) software company. From2009 until 2013, he served as CFO of Starhome B.V., a leading international roaming vendor, from 2005 until 2009 as CFOof Winetworks, and from 1998 until 2005 Mr. Ben Chorin served as Chief Financial Officer at GVT (currently TelefonicaBrazil). Mr. Ben Chorin 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.97 1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.98 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 and from 2017 to 2018. In addition, Mr. Suesskind currently serves on the boardof directors of 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 the HebrewUniversity of Jerusalem, Israel, and an M.B.A. from the University of Massachusetts. The board of directors has determinedthat 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 until its acquisition by Valeant (now Bausch Health) in March2015. Mr. Scruggs joined Salix in 2000, after working at Oclassen Pharmaceuticals Inc. and Watson Pharmaceuticals, andhelped build Salix’s commercial organization, serving in various sales and commercial trade-related positions. He wasappointed as Executive Vice President in 2011 and was responsible for all business development activities as well as theworldwide distribution of Salix innovative products and intellectual property. Mr. Scruggs also served as the Head of theboard of directors 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 andas the Chairman of our compensation committee since May 5, 2011. From 2008 to 2012, Mr. Tsimchi served as the Chairmanof the board of directors of Polysack Plastic Industries Ltd. and Polysack-Agriculture Products, and since 2006, he has servedas a Partner in the Danbar Group Ltd., a holding company. Mr. Tsimchi currently serves on the board of directors of AmutatZionut 2000, Danbar Group Ltd, Caesarstone Sdot-Yam Ltd. and Maabarot Products Ltd. Mr. Tsimchi received his BA inEconomics and Agriculture from the Hebrew University of Jerusalem, Israel. The board of directors has determined that Mr.Tsimchi is a financial and accounting expert under Israeli law. Nurit Benjamini has served as a director on our board of directors and a chairperson of our audit committee and a 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 creates freshmobile content for everyone. From 2011 to 2013, Ms. Benjamini served as the Chief Financial Officer of Wix.com(NASDAQ: WIX). Ms. Benjamini serves as an external director of BiolineRx Ltd. (NASDAQ/TASE: BLRX), and as thechairperson of its audit committee, and on the board of directors, and as chairperson of the audit committee, of AllotCommunications Ltd. (NASDAQ/TASE: ALLT). Ms. Benjamini holds a B.A. in economics and business and an M.B.A. infinance, 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 of CFRPharmaceuticals. Mr. Weinstein currently leads the healthcare and venture investments of EMC2 Fund Ltd. (“EMC2”) and itspartnership 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, Harbo, andSelfpoint. Mr. Weinstein holds an M.Sc. in Finance from Universidad Adolfo Ibanez (Chile) and an MBA from the KelloggSchool of Management (2012). Mr. Weinstein has been nominated to our board of directors by99 Table of ContentsEMC2 pursuant to the right we granted to any investor that invested at least $15 million in the Company in our December2016 public offering to nominate one person to our board of directors, subject to various conditions described in theprospectus that we filed with the 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, 2018, was approximately $2.6 million.Out of that amount $1.8 million was paid as salary, $0.4 million was attributed to the value of the options granted to seniormanagement during 2018, approximately $0.1 million was attributed to retirement plans and $0.3 million attributed to otherlong-term benefits. No additional amounts have been set aside or accrued by us to provide pension, retirement or similarbenefits. 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, 2018. The compensation detailed in the table below refers to actual compensationgranted or paid to the director or officer during the year 2018. Value of Equity Base Salary or Value of Based Other Social Compensation All Other Name and Position of Director or Officer Payment (1) benefits (2) Granted (3) Compensation (4) TotalAmounts in U.S. dollars are based on 2018 monthly average representative U.S. dollar – NIS rate of exchangeDror Ben-Asher, Chief Executive Officer andChairman of the Board of Directors (5) 351,781 72,386 132,631 18,787 575,585 Adi Frish, Senior Vice President BusinessDevelopment and Licensing 264,082 69,152 65,617 15,291 414,141 Guy Goldberg, Chief Business Officer 280,595 53,020 65,617 12,525 411,756 Micha Ben Chorin, Chief Financial Officer 260,191 68,688 65,617 14,784 409,280 Gilead Raday, Chief Operating Officer 266,463 50,948 65,617 15,656 398,683 (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 2018.(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 2018 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 $29,126). 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 will be entitled to a special one-time bonus equal to his then current monthly salary and retirement benefits, including payments to an advanced studyfund and pension arrangement and car expense reimbursement, multiplied by 12. A “hostile takeover” is defined as anoccurrence where a person, entity or group that was not an interested100 Table of Contentsparty under the Israeli Securities Law 1968 on the date of the initial public offering of our Ordinary Shares, becomes a“controlling shareholder,” as defined in the Israeli Securities Law 1968, or a “holder,” as defined in the Israel SecuritiesLaw 1968, of 25% or more of the voting rights in the Company. In addition, in case of a “hostile takeover”, all optionsgranted 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 6C. – 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 $23,157) and a cash fee ofNIS 4,390 (approximately $1,218) per meeting (or a smaller amount in the case where they do not physically attend themeeting). Change in Control Retention Plan We have adopted a change in control employee retention plan providing for compensation to Company employees, otherthan to the chief executive officer, in the event of a change in control (as defined by the plan), subject to the satisfaction ofvarious conditions. Compensation to employees would be up to 12 months’ salary depending on employee seniority andyears with the Company. 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 offering101 Table of Contentswhich closed on December 27, 2016, together with its affiliates, more than $15 million of ADSs and warrants, whose term ofoffice as director may expire earlier depending on the beneficial ownership of EMC2 at least 75 days prior to our annualgeneral meeting of shareholders for the year 2019, as described below). This process continues indefinitely. A simplemajority shareholder vote may elect directors for a term of less than three years in order to ensure that the three groups ofdirectors have as equal number of directors as possible as provided above. The directors of the first class, currently consistingof Dr. Shmuel Cabilly, Dan Suesskind and Nurit Benjamini, will hold office until our annual general meeting to be held inthe year 2019. The directors of the second class, currently consisting of Dror Ben-Asher, Rick Scruggs and NicolasWeinstein, will hold office until our annual general meeting to be held in the year 2020, and the directors of the third class,currently consisting of Dr. Kenneth Reed, Eric Swenden and Ofer Tsimchi, will hold office until our annual general meetingto be held in the year 2021. Until the next annual general meeting, the board of directors may elect new directors to fillvacancies 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 2019 if EMC2 does not meet a 4% beneficial ownership of our outstanding sharesthreshold at least 75 days prior to our annual general meeting of shareholders for 2019. See “Item 6. “Directors, SeniorManagement and Employees – C. Board Practices – Independent and External Directors – Israeli Companies LawRequirements” below for a description of the adoption by the Company of the corporate governance exemptions set forth inRegulation 5D of the Israeli Companies Regulations (Relief for Public Companies with Shares Listed for Trading on a StockMarket Outside of Israel), 5760-2000, including with respect to external 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. An amendment to the Israeli Companies Law requires that the terms of service and engagement of the chief executive officer,directors or controlling shareholders (or a relative thereof) receive the approval of the compensation committee, board ofdirectors, and shareholders, subject to limited exceptions. The appointment and terms of office of a company's officers, otherthan 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.102 Table of ContentsUnder the Israeli Companies Law, a “special majority” requires (i) the vote of at least a majority of the shares held byshareholders who are not controlling shareholders or have a personal interest in the proposal (shares held by abstainingshareholders 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 requirements103 Table of Contentsunder the Israeli Companies Law. In accordance with our board of directors’ resolution, pursuant to the Regulation, we intendto comply with the NASDAQ Listing Rules in connection with a majority of independent directors on the board of directorsand in connection with the composition of each of the audit committee and the compensation committee, in lieu of suchrequirements 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. 104 Table of ContentsUnder 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 externaldirectors 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 of whether a director possesses financial andaccounting expertise 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. 105 Table of ContentsCommittees Israeli Companies Law Requirements Our board of directors has established three standing committees, the audit committee, the compensation committee, and theinvestment committee. Audit 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 NuritBenjamini (chairperson), Ofer Tsimchi and Dan Suesskind. 106 Table of ContentsAn amendment to the Israeli Companies Law allows a company whose audit committee’s composition meets therequirements set for the composition of a compensation committee (as further detailed below) to have one committee actingas both audit and compensation committees. As of the date of this Annual Report, we have not elected to have one committeeacting as both the audit and the compensation committees. Compensation Committee According to the Israeli Companies Law, the board of directors of a public company must establish a compensationcommittee. Except in the case of companies listed on foreign stock exchanges, including the NASDAQ Stock Market, whichhave adopted the corporate governance exceptions set forth in the Regulation, such as us, as described under "- 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 Ofer Tsimchi (chairman), Dr. Shmuel Cabilly and 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 Eric Swenden (chairman), Dan Suesskind and Nurit Benjamini assists the boardin fulfilling its responsibilities with respect to our financial and investment strategies and policies, including determiningpolicies and guidelines on these matters and monitoring implementation. It is also authorized to approve certain financialtransactions and review risk factors associated with management of our finances and the mitigation of such risks, as well asfinancial 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 the107 Table of Contentsownership of voting securities, by contract, or otherwise.” A safe harbor has been adopted by the SEC, under which a personwho is not an executive officer or 10% shareholder of the issuer would be deemed not to have control of the issuer. In accordance with the Sarbanes-Oxley Act of 2002 and the NASDAQ Listing Rules, the audit committee is directlyresponsible for the appointment, compensation, and performance of our independent auditors. In addition, the auditcommittee is responsible for assisting the board of directors in reviewing our annual financial statements, the adequacy of ourinternal control 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 Nurit Benjamini, Ofer Tsimchi and Dan Suesskind, with Ms.Benjamini serving as chairperson. All members of our audit committee meet the requirements for financial literacy under theNASDAQ Listing Rules. Our board of directors has determined that each of Mr. Ofer Tsimchi and Ms. Nurit Benjamini is anaudit committee financial expert as defined by the SEC rules and all members of the audit committee have the requisitefinancial 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. 108 Table of ContentsUnder the Israeli Companies Law, subject to certain exceptions, directors’ compensation arrangements require the approvalof the compensation committee, the board of directors and the shareholders. The 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 the company’s interest cannot be approved. Subject to certain exceptions, the compensation committee and the boardof 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 terms109 Table of Contentsof office and employment, require the approval of the audit committee, the board of directors and the shareholders of thecompany, in that order. The shareholders’ approval must include either: ·a majority of the shareholders who have no personal interest in the transaction and who are participating in thevoting, in person, by proxy or by written ballot, at the meeting (votes abstaining are not be taken into account); or·the total number of shares voted against the proposal by shareholders without a personal interest does not exceed2% of the aggregate voting rights in the Company. In addition, any such transaction whose term is more than three years requires the above-mentioned approval every threeyears, unless, with respect to transactions not involving the receipt of services or compensation, the audit committeeapproves a longer term as reasonable under the circumstances. However, under regulations, promulgated pursuant to the Israeli Companies Law, certain transactions between a companyand its controlling shareholders, or the controlling shareholder’s relative, do not require shareholder approval. For information concerning the direct and indirect personal interests of certain of our directors or 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. 110 Table of ContentsExemption, 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. Directors’ and Officers’ Insurance The Israeli Companies Law and our articles of association provide that, subject to the provisions of the Israeli CompaniesLaw, we may obtain insurance for our directors and 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 to thefollowing terms and conditions: (a) the insurance term may not exceed seven years; (b) the coverage amount may not exceed$50 million; (c) the premium payable by us may not exceed $400,000 annually. The Compensation Policy is in effect forthree 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 is $17 million and an additional $33 million, subject to shareholder approval. This insurance isrenewed on an annual basis. Pursuant to the foregoing approvals, 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 indemnity111 Table of Contentsundertaking given the company’s actual business, and in such amount or standard as the board of directors deemsreasonable under the circumstances. Such undertaking must specify the events that, in the board of directors’opinion, are foreseeable in view of the company’s actual business at the time of the undertaking and the amount orthe standards that the board of directors deemed reasonable at the time;·a provision authorizing the company to indemnify an 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;·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 duty112 Table of Contentsof care upon distribution, to the extent applicable to the officer or director, if any. The letter also exempts an officer ordirector from any liability for any damage incurred by him, either directly or indirectly, due to the breach of the officer ordirector’s duty of care vis-à-vis us, by his acts in his capacity as an officer or director prior to the letter of exemption andindemnification becoming effective. D. Employees As of December 31, 2018, we had 75 employees, of which fourteen employees provide services in Israel and sixty-one in theU.S. In addition, we also received services from sixteen consultants, of which ten in the U.S., five in Canada and one inBelgium. As of December 31, 2016 2017 2018 Company Company Company Employees Consultants Employees Consultants Employees ConsultantsManagement and administration 11 4 12 — 12 — Research and development 2 10 2 17 2 16 Commercial operations — — 60 3 61 — 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 25, 2019, 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 283,686,908 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 25,2019. 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 not113 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) 6,722,270 2.37 %Dr. Shmuel Cabilly (2) 5,378,268 1.89 %Eric Swenden (3) 1,565,340 * Dan Suesskind (4) 1,293,590 * Nicolas A. Weinstein (5) 320,130 * Ofer Tsimchi (6) 280,000 * Rick D. Scruggs (7) 205,000 * Nurit Benjamini (8) 205,000 * Executive officers Dror Ben-Asher (9) 6,431,280 2.24 %Reza Fathi, Ph.D. (10) 1,626,250 * Adi Frish (11) 1,186,250 * Gilead Raday (12) 997,960 * Guy Goldberg (13) 956,250 * Micha Ben Chorin (14) 412,500 * All directors and executive officers as a group (14 persons) 27,580,088 9.39 %*Less than 1.0%(1)Includes options to purchase 275,000 Ordinary Shares exercisable within 60 days of February 25, 2019. The exerciseprice of these options ranges between $1.09 and $1.48 per share, and the options expire between 2020 and 2024.Number of shares beneficially held also includes shares held by family members.(2)Includes options to purchase 335,000 Ordinary Shares exercisable within 60 days of February 25, 2019. 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 181,250 Ordinary Shares exercisable within 60 days of February 25, 2019. The exerciseprice of these options ranges between $1.09 and $1.48 per share, and the options expire between 2020 and 2024. Alsoincludes warrants to purchase 475,000 Ordinary Shares exercisable within 60 days of February 25, 2019. The exerciseprice of these warrants is $1.33 per share, and the options expire in December 2019.(4)Includes options to purchase 275,000 Ordinary Shares exercisable within 60 days of February 25, 2019. 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 40,000 Ordinary Shares exercisable within 60 days of February 25, 2019. The exerciseprice of these options is $1.09 per share, and the options expire in 2024.(6)Includes options to purchase 280,000 Ordinary Shares exercisable within 60 days of February 25, 2019. The exerciseprice of these options ranges between $1.09 and $1.48 per share, and the options expire between 2021 and 2024.(7)Includes options to purchase 205,000 Ordinary Shares exercisable within 60 days of February 25, 2019. 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 205,000 Ordinary Shares exercisable within 60 days of February 25, 2019. 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 3,146,250 Ordinary Shares exercisable within 60 days of February 25, 2019. The exerciseprice of these options ranges between $0.65 and $1.48 per share, and the options expire between 2020 and 2025. Doesnot include options to purchase 600,000 Ordinary Shares at an exercise price of $1.08 per Ordinary Share, the allocationof which is subject to approval of our shareholders, which would replace options to acquire the same number of OrdinaryShares previously held by Mr. Ben-Asher which had an exercise price of $0.72 per Ordinary Share and an expiration datein February 2019. This allocation of options has been approved by our compensation committee and board of directorswhich also approved the extension of options held by other optionees whose options were expiring in February 2019and whose extended options will have the same terms as Mr. Ben-Asher’s options. See "Item 5. Operating and FinancialReview and Prospects – B. Liquidity and Capital Resources" for more information regarding the warrants.114 Table of Contents(10)Includes options to purchase 1,358,250 Ordinary exercisable within 60 days of February 25, 2019. The exercise price ofthese options ranges between $0.75 and $1.56 per share, and the options expire between 2020 and 2028. See "Item 5.Operating and Financial Review and Prospects – B. Liquidity and Capital Resources" for more information regarding thewarrants.(11)Includes options to purchase 1,006,250 Ordinary Shares exercisable within 60 days of February 25, 2019. The exerciseprice of these options ranges between $0.75 and $1.56 per share, and the options expire between 2020 and 2025.(12)Includes options to purchase 997,960 Ordinary Shares exercisable within 60 days of February 25, 2019. The exerciseprice of these options ranges between $0.75 and $1.56 per share, and the options expire between 2020 and 2025.(13)Includes options to purchase 956,250 Ordinary Shares exercisable within 60 days of February 25, 2019. The exerciseprice of these options ranges between $0.65 and $1.56 per share, and the options expire between 2020 and 2025.(14)Includes options to purchase 412,500 Ordinary Shares exercisable within 60 days of February 25, 2019. The exerciseprice of these options ranges between $0.65 and $1.41 per share, and the options expire between 2023 and 2025. Award Plans 2010 Award Plan In 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 25, 2019, there were 29,360,235 Ordinary Shares issuable uponthe exercise of outstanding awards under the 2010 Award Plan. See footnote (6) to “– E. Share Ownership” above for adescription 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 ten (10) years after thegrant 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 in 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 in 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.115 Table of Contents 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 the plan willbe accelerated, so that the grantee will be entitled to exercise all of those options. A “controlling shareholder” in thisparagraph is a controlling shareholder, as defined in the Israel Securities Law, 1968. An “interested party” is defined in theSecurities Law and includes, among others: ·a holder of 5% or more of the outstanding shares or voting rights of an entity;·a person entitled to appoint one or more of the directors or chief executive officer of an entity;·a director of an entity or its chief executive officer;·an entity, in which an individual referred to above holds 25% or more of its outstanding shares or voting rights, 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 25, 2019, 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 283,686,908 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 25, 2019. 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 ofClass First Investments Holding Ltd. (1) 39,285,710 13.85 %683 Capital Partners, LP (2) 36,938,400 13.02 %EMC2 Fund Ltd. (3) 22,223,950 (4) 7.81 %(1)The address of First Investments Holding Ltd. is2nd Floor, Strathvale House, 90 North Church Street, P.O. Box 1103.(2)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.(3)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.(4)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 5.116 Table of ContentsOperating and Financial Review and Prospects – B. Liquidity and Capital Resources" for more information regarding thewarrants. On February 6, 2019, 22,149,844 ADSs (equivalent to 221,498,440 Ordinary Shares, or approximately 78% 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 25, 2019, there was one shareholder of record of our Ordinary Shares who was located in Israel.The number of record holders is not at all representative of the number of beneficial holders of our ADSs or Ordinary Sharesbecause 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, 2018.117 Table of Contents 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. Our ADSs were tradedon the NASDAQ Capital Market under the symbol “RDHL” from December 27, 2012, and were listed on the NASDAQ GlobalMarket under the same symbol since July 20, 2018. 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 Global Market under the symbol “RDHL.” The ADRswere issued pursuant to a Depositary Agreement entered into with The Bank of New York. D. Selling Shareholders Not applicable. E. Dilution Not applicable. F. Expenses of the Issue Not applicable. 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 traded118 Table of Contentssecurities or is not in market terms and if as a result of the private placement the holdings of a substantial shareholder willincrease or as a result of it a person will become a substantial shareholder, then, in either case, the allotment must beapproved by the board of directors and by the shareholders of the company. A “substantial shareholder” is defined as ashareholder who holds five percent or more of the company’s outstanding share capital, assuming the exercise of all of thesecurities convertible into shares held by that person. In order for the private placement to be on “market terms” the board ofdirectors has to determine, on the basis of detailed explanation, that the private placement is on market terms, unless provenotherwise. 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 director or thegeneral manager, as well as all related material information known to him or her, in connection with any existing or proposedtransaction by the company. In addition, if the transaction is an extraordinary transaction, (that is, a transaction other than inthe ordinary course of business, otherwise than on market terms, or is likely to have a material impact on the company’sprofitability, assets or liabilities), the member of the board of directors or senior management must also disclose any personalinterest held by his or her spouse, siblings, parents, grandparents, descendants, spouse’s descendants, siblings and parents,and the spouses of any of the foregoing. Once the member of the board of directors or senior management complies with the above disclosure requirement, 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. 119 Table of ContentsAccording 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 600,000,000 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 shares are listed for trading bothon a stock exchange in and outside of Israel, from some provisions of the Israeli Companies Law. An amendment to theseregulations exempts us from the requirements of the Israeli proxy regulation, under certain circumstances. 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 one120 Table of Contentsshareholder at least, present in person or by proxy constitutes a quorum except where such meeting was called at the demandof shareholders. With the agreement of a meeting at which a quorum is present, the chairman may, and on the demand of themeeting he must, adjourn the meeting from time to time and from place to place, as the meeting resolves. Annual generalmeetings of shareholders are held once every year within a period of not more than 15 months after the last preceding annualgeneral shareholders’ meeting. The board of directors may call special general meetings of shareholders. The IsraeliCompanies Law provides that a special general meeting of shareholders may be called by the board of directors or by arequest of two directors or 25% of the directors in office, whichever is the lower, or by shareholders holding at least 5% of ourissued share capital 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. A 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.121 Table of Contents 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. In the event that a special tender offer is made, a company’s board of directors is required to express its opinion on theadvisability of the offer or must abstain from expressing any opinion if it is unable to do so, provided that it gives 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. 122 Table of ContentsFor 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. In 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. 123 Table of ContentsE. 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. General Corporate Tax Structure in Israel Israeli companies are generally subject to corporate tax on their taxable income at the rate of 23% for the 2018 tax year. 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(23% in 2018 and thereafter), and a marginal tax rate of up to 50% in 2019 for individuals, including an excess tax (asdiscussed 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.124 Table of Contents 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 tradedsecurities made within the previous six months. However, if all tax due was withheld at source according to applicableprovisions of the Israeli Income Tax Ordinance and regulations promulgated thereunder, such return need not be 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 649,560 for 2019, linked to the IsraeliConsumer Price Index) will be subject to an additional tax at the rate of 3% on his or her taxable income for such tax yearthat is in excess of such amount. For this purpose, taxable income includes taxable capital gains from the sale of securitiesand taxable income from interest and dividends, subject to the provisions of an applicable double tax treaty. 125 Table of ContentsEstate and Gift Tax Israel does not currently impose estate or gift taxes. 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 tax matters that may be relevant to aparticular holder or all tax considerations that may be relevant with respect to an investment in our Ordinary Shares or ADSs. This summary does not address tax considerations applicable to a holder of our Ordinary Shares or ADSs that may 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. 126 Table of ContentsYou 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 Israelitaxes withheld from such distribution, see “Item 10. Additional Information – E. Taxation – Israeli Tax Considerations”,actually or constructively received by a U.S. Holder with respect to our Ordinary Shares (or, in the case of ADSs, 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 into127 Table of ContentsU.S. dollars. If the foreign currency is converted into U.S. dollars on the date of receipt, a U.S. Holder generally should not berequired to recognize a foreign currency gain or loss in respect of the dividend. If the foreign currency received in thedistribution is not converted into U.S. dollars on the date of receipt, a U.S. Holder will have a basis in the foreign currencyequal to its U.S. dollar value on the date of receipt. Any gain or loss on a subsequent conversion or other disposition of theforeign currency will be treated as U.S. source ordinary income or loss. Subject to certain conditions and limitations, any Israeli taxes withheld on dividends may be creditable against a U.S.Holder’s U.S. federal income tax liability, subject to generally applicable limitations. The rules relating to foreign 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. If 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, it is possible that we may be treated as a PFIC for U.S. federal income taxpurposes for our current taxable year and future taxable years. A non-U.S. corporation is considered a PFIC for any taxableyear if either: ·at least 75% of its gross income for such taxable year is passive income; or128 Table of Contents·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 taxable years or yourholding period for the ADSs will be treated as an excess distribution. Under these special tax rules, if you receive any excessdistribution 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 the129 Table of Contentstaxable year. However, deductions are allowable only to the extent of any net mark-to-market gains on the ADSs included inyour income for prior taxable years. Amounts included in your income under a mark-to-market election, as well as gain onthe actual sale or other disposition of the ADSs, are treated as ordinary income. Ordinary loss treatment also applies to thedeductible portion of any mark-to-market loss on the ADSs, as well as to any loss realized on the actual sale or disposition ofthe ADSs to the extent the amount of such loss does not exceed the net mark-to-market gains previously included for theADSs. Your basis in the ADSs will be adjusted to reflect any such income or loss amounts. If you make a valid mark-to-market election, the tax rules that apply to distributions by corporations which are not PFICs would apply to distributions byus, except the lower applicable tax rate for qualified dividend income would not apply. If we cease to be a PFIC when youhave a mark-to-market election in effect, gain or loss realized by you on the sale of the ADSs will be a capital gain or loss andtaxed in the manner described above under “Sale or Other Disposition of Ordinary Shares or ADSs.” The mark-to-market election is available only for “marketable stock,” which is 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 Global 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 income on acurrent basis. However, we do not currently intend to prepare or provide the information that would enable you to make aqualified electing fund election. Unless otherwise provided by the U.S. Treasury, each U.S. shareholder of a PFIC is required to 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 24%, 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 is130 Table of Contentsfurnished 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. H. Documents on Display We are subject to the information reporting requirements of the Exchange Act, applicable to foreign private issuers, andunder those requirements, we file reports with the SEC. Those other reports or other information are available to the publicthrough 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 be accessed through, ourwebsite does not constitute a part of this Annual Report. I. Subsidiary Information Not applicable. 131 Table of Contents 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 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. 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. 132 Table of Contents(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, 2018: 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 22 55 29,004 (55) (22) Bank deposits 4 10 8,271 (10) (4) Accounts receivable (except prepaid expenses) 3 8 1,895 (8) (3) Accounts payable and accrued expenses (6) (15) (10,381) 15 6 Total loss 23 58 (58) (23) 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 GlobalMarket. 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, New York,New York 10286, and at the principal office of our custodians, Bank Leumi Le-Israel, 34 Yehuda Halevi St., Tel Aviv 65546,Israel and Bank Hapoalim B.M., 104 Hayarkon Street, Tel Aviv 63432, Israel. 133 Table of ContentsFees 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, including issuancesresulting from a distribution of shares or rights or otherproperty ·Cancellation of American Depositary Shares for the purposeof withdrawal, including if the deposit agreement terminates$0.05 (or less) per American Depositary Share ·Any cash distribution to American Depositary ShareholdersA fee equivalent to the fee that would be payable ifsecurities distributed to you had been shares and theshares had been deposited for issuance of AmericanDepositary Shares ·Distribution of securities distributed to holders of depositedsecurities which are distributed by the depositary toAmerican Depositary Shareholders$0.05 (or less) per American Depositary Shares percalendar year ·Depositary servicesRegistration or transfer fees ·Transfer and registration of shares on our share register to orfrom 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. ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OFPROCEEDS Not applicable. 134 Table of Contents ITEM 15. CONTROLS AND PROCEDURES (a) Disclosure Controls and Procedures We performed an evaluation of the effectiveness of our disclosure controls and procedures that are designed to ensure thatinformation required to be disclosed on Form 20-F and 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 control over financial reporting may not prevent or detect misstatements. In addition,projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 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, 2018 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, 2018. Our auditor, Kesselman & Kesselman, Certified Public Accountants (Isr.), amember firm of PricewaterhouseCoopers International Limited, an independent registered public accounting firm, hasprovided an attestation report on our internal control over financial reporting, which is included herein. 135 Table of Contents(c) Attestation Report of Registered Public Accounting Firm Our independent registered public accounting firm has audited the consolidated financial statements included in this annualreport on Form 20-F, and as part of its audit, has issued its audit report on the effectiveness of our internal control overfinancial reporting. This report is included in pages F-2 and F-3 of this annual report on Form 20-F and is incorporated hereinby reference. (d) Changes in Internal Control Over Financial Reporting There were no changes in our internal control over financial reporting that occurred during the year ended December 31,2018, that have materially affected or are reasonably 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, https://ir.redhillbio.com/static-files/9be49636-4b2f-453e-ac3e-7b759b984c40. 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 2018 2017 (U.S. dollars in thousands)Audit (1) 185 115 Audit-related services (2) 85 47 Tax (3) 22 33 Total 292 195 (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. 136 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 in 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. 137 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 141. 138 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)139 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.140 Table of ContentsREDHILL BIOPHARMA LTD EXHIBIT INDEX 1.1Articles of Association of the Registrant, as amended (unofficial English translation). 2.1Form of Deposit Agreement among the Registrant, the Bank of New York Mellon, as Depositary, andall Owners and Holders from time to time of American Depositary Shares issued hereunder(incorporated by reference to Exhibit 1 to the Registration Statement on Form F-6 filed by The Bankof New York Mellon with the Securities and Exchange Commission on December 6, 2012). 2.2Form of American Depositary Receipt (Incorporated by reference to Exhibit 1 to the RegistrationStatement on Form F-6 filed by The Bank of New York Mellon with the Securities and ExchangeCommission on December 6, 2012). 4.1*Asset Purchase Agreement, dated August 11, 2010, by and between the Registrant and GiacondaLimited (RHB-104, 105, 106) (Incorporated by reference to Exhibit 4.4 to Draft RegistrationStatement on Form DRS disseminated with the Securities and Exchange Commission, dated December3, 2012). 4.2Amendment to Asset Purchase Agreement by and between the Registrant and Giaconda Limited(RHB-104, 105, 106) dated February 27, 2014. 4.3*License Agreement, dated February 27, 2014, by and between the Registrant and Bausch Health (f/k/aSalix Pharmaceuticals, Inc.) (Incorporated by reference to Exhibit 4.6 of the Annual Report on Form20-F filed with the Securities and Exchange Commission on February 26, 2015). 4.4†Amendment #1 dated March 20, 2018 to the License Agreement, dated February 27, 2014, by andbetween the Registrant and Bausch Health (f/k/a Salix Pharmaceuticals, Inc.). 4.5*Exclusive License Agreement, dated March 30, 2015, by and between the Registrant and ApogeeBiotechnology Corp (Incorporated by reference to Exhibit 4.7 of the Annual Report on Form 20-Ffiled with the Securities and Exchange Commission on February 25, 2016). 4.6†Amendment #1 dated January 23, 2017, to the Exclusive License Agreement dated March 30, 2015,by and between the Registrant and Apogee Biotechnology Corp. 4.7*Amendment #2 dated June 22, 2017, to the Exclusive License Agreement dated March 30, 2015, byand between the Registrant and Apogee Biotechnology Corp. (incorporated by reference to Exhibit4.5 of the Annual Report on Form 20-F filed with the Securities and Exchange Commission onFebruary 22, 2018), 4.8*Amendment #3 dated February 6, 2018, to the Exclusive License Agreement dated March 30, 2015,by and between the Registrant and Apogee Biotechnology Corp. (incorporated by reference to Exhibit4.6 of the Annual Report on Form 20-F filed with the Securities and Exchange Commission onFebruary 22, 2018). 4.9†Amendment #4 dated January 3, 2019, to the Exclusive License Agreement dated March 30, 2015, byand between the Registrant and Apogee Biotechnology Corp. 4.10Amendment #5 dated January 23, 2019, to the Exclusive License Agreement dated March 30, 2015,by and between the Registrant and Apogee Biotechnology Corp.141 Table of Contents 4.11*Exclusive Commercialization Agreement, dated December 30, 2016, by and between Registrant andConcordia Pharmaceuticals Inc. (incorporated by reference to Exhibit 4.24 of the Annual Report onForm 20-F filed with the Securities and Exchange Commission on February 23, 2017). 4.12†Amendment #1 dated August 26, 2018, to the Exclusive Commercialization Agreement, datedDecember 30, 2016, by and between Registrant and a subsidiary of ADVANZ PHARMA (f/k/aConcordia Pharmaceuticals Inc.). 4.13*Exclusive License Agreement, dated April 5, 2017, by and between Registrant and Entera Health Inc.(incorporated by reference to Exhibit 4.19 of the Annual Report on Form 20-F filed with the Securitiesand Exchange Commission on February 22, 2018). 4.14Amendment #1 dated July 25, 2018, to the Exclusive License Agreement by and between Registrantand Entera Health Inc. 4.15†Amendment #2 dated September 29, 2018, to the Exclusive License Agreement by and betweenRegistrant and Entera Health Inc. 4.16Form of Letter of Exemption and Indemnity adopted on July 2013 (unofficial English translation)(incorporated by reference to Exhibit B to Exhibit 99.1 to Form 6-K disseminated with the Securitiesand Exchange Commission, dated June 26, 2013). 4.17Amended and Restated Award Plan (2010) (incorporated by reference to Appendix B of the 6-K filedwith the Securities and Exchange Commission on April 3, 2017). 8.1Subsidiary List (incorporated by reference to Exhibit 8.1 of the Annual Report on Form 20-F filedwith the Securities and Exchange Commission on February 22, 2018), 12.1Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 12.2Certification 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 theSarbanes-Oxley Act of 2002. 15.1Consent of Independent Registered Public Accounting Firm 101.The following financial statements from the Company’s 20-F for the fiscal year ended December 31,2018 formatted in XBRL: (i) Consolidated Statements of Comprehensive Loss, (ii) ConsolidatedStatements of Financial Position, (iii) Consolidated Statements of Changes in Equity, (iv) ConsolidatedStatements of Cash Flows, and (v) Notes to the 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. 142 Table of Contents SIGNATUREThe 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 the Board of Directors By:/s/ Micha Ben-Chorin Name: Micha Ben Chorin Title: Chief Financial Officer Date: February 25, 2019 143 Table of ContentsREDHILL BIOPHARMA LTD.2018 CONSOLIDATED FINANCIAL STATEMENTS TABLE OF CONTENTS PageReport of Independent Registered Public Accounting Firm F-1Consolidated Statements of Comprehensive Loss F-3Consolidated Statements of Financial Position F-4Consolidated Statements of Changes in Equity F-5Consolidated Statements of Cash Flows F-6Notes to the Consolidated Financial Statements F-7 Table of ContentsReport of Independent Registered Public Accounting Firm To the board of directors and shareholders of REDHILL BIOPHARMA LTD. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated statements of financial position of RedHill Biopharma Ltd. and itssubsidiary (The "Company") as of December 31, 2018 and 2017, and the related consolidated statements of comprehensiveloss, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2018, including therelated notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’sinternal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control -Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financialposition of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each ofthe three years in the period ended December 31, 2018 in conformity with International Financial Reporting Standards asissued by the International Accounting Standards Board. Also, in our opinion, the Company maintained, in all materialrespects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in InternalControl - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internalcontrol over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,included in Management's Annual Report on Internal Control over Financial Reporting appearing under Item 15(b). Ourresponsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internalcontrol over financial reporting based on our audits. We are a public accounting firm registered with the Public CompanyAccounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company inaccordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and ExchangeCommission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and performthe audits to obtain reasonable assurance about whether the consolidated financial statements are free of materialmisstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained inall material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of materialmisstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respondto those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in theconsolidated financial statements. Our audits also included evaluating the accounting principles used and significantestimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Ouraudit of internal control over financial reporting included obtaining an understanding of internal control over financialreporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operatingeffectiveness of internal control based on the assessed risk. Our audits also included performing such other 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 Contentsprocedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for ouropinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A company’s internal control over financial reporting includes those policies andprocedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and thatreceipts and expenditures of the company are being made only in accordance with authorizations of management anddirectors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Kesselman & KesselmanCertified Public Accountants (Isr.)A member of PricewaterhouseCoopers International Limited Tel-Aviv, IsraelFebruary 25, 2019 We have served as the Company’s auditor since 2010. Kesselman & Kesselman, Trade Tower, 25 Hamered Street, Tel-Aviv 6812508, Israel,P.O Box 50005 Tel-Aviv 6150001 Telephone: +972 -3- 7954555, Fax:+972 -3- 7954556, www.pwc.com/ilF-2 Table of ContentsREDHILL BIOPHARMA LTD. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Year Ended December 31, Note 2018 2017 2016 U.S. dollars in thousandsNET REVENUES18 8,360 4,007 101COST OF REVENUES 2,837 2,126 —GROSS PROFIT 5,523 1,881 101RESEARCH AND DEVELOPMENT EXPENSES, net19 24,862 32,969 25,241SELLING, MARKETING AND BUSINESS DEVELOPMENT EXPENSES20 12,486 12,014 1,555GENERAL AND ADMINISTRATIVE EXPENSES21 7,506 8,025 3,848OTHER EXPENSES10 — 845 —OPERATING LOSS 39,331 51,972 30,543FINANCIAL INCOME 678 6,505 1,548FINANCIAL EXPENSES 167 77 375FINANCIAL INCOME, net22 (511) (6,428) (1,173)LOSS AND COMPREHENSIVE LOSS FOR THE YEAR 38,820 45,544 29,370 LOSS PER ORDINARY SHARE (U.S. dollars)24 Basic 0.17 0.26 0.23 Diluted 0.17 0.26 0.24 The accompanying notes are an integral part of these financial statements. F-3 Table of ContentsREDHILL BIOPHARMA LTD. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION December 31, Note 2018 2017 U.S. dollars in thousandsCURRENT ASSETS: Cash and cash equivalents5 29,005 16,455Bank deposits5 8,271 13,163Financial assets at fair value through profit or loss6 15,909 16,587Trade receivables 958 1,528Prepaid expenses and other receivables7 1,876 3,290Inventory8 769 653 56,788 51,676NON-CURRENT ASSETS: Bank deposits 140 152Fixed assets9 163 230Intangible assets10 5,320 5,285 5,623 5,667TOTAL ASSETS 62,411 57,343 CURRENT LIABILITIES: Accounts payable 3,324 4,805Accrued expenses and other current liabilities12 7,057 6,025Payable in respect of intangible asset purchase13a(3) — 1,000 10,381 11,830 NON-CURRENT LIABILITIES: Derivative financial instruments16 344 448Royalty obligation13a(3) 500 — 844 448TOTAL LIABILITIES 11,225 12,278 EQUITY:15 Ordinary shares 767 575Additional paid-in capital 219,505 177,434Accumulated deficit (169,086) (132,944)TOTAL EQUITY 51,186 45,065 TOTAL LIABILITIES AND EQUITY 62,411 57,343 The accompanying notes are an integral part of these financial statements.F-4 Table of ContentsREDHILL BIOPHARMA LTD. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Ordinary Additional Accumulated Total shares paid-in capital Warrants deficit equity U.S. dollars in thousandsBALANCE AT JANUARY 1, 2016343120,6211,057(61,944)60,077CHANGES DURING THE YEAR ENDEDDECEMBER 31, 2016:Share-based compensation to employees and service providers — — —1,6791,679Issuance of ordinary shares, net of expenses9629,956 — —30,052Exercise of options into ordinary shares 2261 — —263Comprehensive loss — — —(29,370)(29,370)BALANCE AT DECEMBER 31, 2016441150,8381,057(89,635)62,701BALANCE AT JANUARY 1, 2017441150,8381,057(89,635)62,701CHANGES DURING THE YEAR ENDEDDECEMBER 31, 2017:Share-based compensation to employees and service providers — — —2,2352,235Issuance of ordinary shares, net of expenses11922,097 —22,216Exercise of warrants and options into ordinary shares153,442 — —3,457Warrants expiration —1,057(1,057) — —Comprehensive loss — — —(45,544)(45,544)BALANCE AT DECEMBER 31, 2017575177,434 —(132,944)45,065BALANCE AT JANUARY 1, 2018575177,434 —(132,944)45,065CHANGES DURING THE YEAR ENDEDDECEMBER 31, 2018:Share-based compensation to employees and service providers — — —2,6782,678Issuance of ordinary shares, net of expenses19041,712 —41,902Exercise of options into ordinary shares 2359 — —361Comprehensive loss — — —(38,820)(38,820)BALANCE AT DECEMBER 31, 2018767219,505 —(169,086)51,186 The accompanying notes are an integral part of these financial statements. F-5 Table of ContentsREDHILL BIOPHARMA LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2018 2017 2016 U.S. dollars in thousandsOPERATING ACTIVITIES: Comprehensive loss (38,820) (45,544) (29,370)Adjustments in respect of income and expenses not involving cash flow: Share-based compensation to employees and service providers 2,678 2,235 1,679Depreciation 90 81 44Write-off of intangible assets — 845 —Fair value adjustments on derivative financial instruments (104) (5,687) (1,152)Fair value losses (gains) on financial assets at fair value through profit or loss 137 127 (67)Revaluation of bank deposits 35 (123) (274)Issuance costs in respect of warrants — — 368Exchange differences in respect of cash and cash equivalents 103 (367) (39) 2,939 (2,889) 559Changes in assets and liability items: Decrease (increase) in trade receivables 570 (1,429) 99Decrease (increase) in prepaid expenses and other receivables 1,414 (1,728) 612Decrease (increase) in inventory (116) (653) —Increase (decrease) in accounts payable (1,481) 4,745 (60)Increase (decrease) in accrued expenses and other current liabilities 1,032 2,729 (98) 1,419 3,664 553Net cash used in operating activities (34,462) (44,769) (28,258)INVESTING ACTIVITIES: Purchase of fixed assets (23) (146) (85)Purchase of intangible assets (35) (1,035) (35)Change in investment in current bank deposits 4,869 (13,000) 36,838Purchase of financial assets at fair value through profit or loss (6,976) (21,923) (12,246)Proceeds from sale of financial assets at fair value through profit or loss 7,517 17,522 —Net cash provided by (used in) investing activities 5,352 (18,582) 24,472FINANCING ACTIVITIES: Proceeds from issuance of ordinary shares, net of expenses 41,902 22,216 35,754Exercise of warrants and options into ordinary shares, net of expenses 361 3,437 263Repayment of payable in respect of intangible asset purchase (500) — —Net cash provided by financing activities 41,763 25,653 36,017INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 12,653 (37,698) 32,231EXCHANGE DIFFERENCES ON CASH AND CASH EQUIVALENTS (103) 367 39BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OFPERIOD 16,455 53,786 21,516BALANCE OF CASH AND CASH EQUIVALENTS AT END OF PERIOD 29,005 16,455 53,786SUPPLEMENTARY INFORMATION ON INTEREST RECEIVED IN CASH 728 469 408 The accompanying notes are an integral part of these financial statements. F-6 Table of ContentsREDHILL BIOPHARMA LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - GENERAL: a.General1)RedHill Biopharma Ltd. (the “Company”), incorporated in Israel on August 3, 2009, together with itswholly-owned subsidiary RedHill Biopharma Inc. (the “Company’s subsidiary”), incorporated inDelaware, U.S. on January 19, 2017, is a specialty biopharmaceutical company, primarily focused onlate-stage clinical development and commercialization of proprietary drugs for gastrointestinal (“GI”)diseases.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 the Company’ssubsidiary. In February 2011, the Company listed its securities on the Tel-Aviv Stock Exchange (“TASE”) andfrom December 2012 through July 2018, the Company’s American Depositary Shares (“ADSs”) werelisted on the NASDAQ Capital Market. Since July 2018, the Company’s ADSs have been listed on theNASDAQ Global Market (“NASDAQ”). The Company’s registered address is 21 Ha’arba’a St, Tel-Aviv, Israel. 2)U.S. rights to commercialize and co-promoteIn April 2017, the Company signed an exclusive license agreement with a privately held U.S.company, granting the Company certain commercialization rights to commercialize EnteraGam®.Under the license agreement, the Company is required to pay royalties based on net sales, as providedin the agreement. The initial term of the agreement is four years. See also note 2o(2). In December 2016, the Company entered into an agreement with an international specialtypharmaceutical company, granting the Company certain rights to promote Donnatal in certain U.S.territories. In addition, in August 2017 and June 2018, the Company entered into agreements withU.S. companies, granting the Company certain rights to promote Esomeprazole Strontium Delayed-Release Capsules 49.3 mg and Mytesi, respectively, in certain U.S. territories. According to theseagreements, fees are paid to the Company based on units sold of the products during each period. Theinitial terms of the agreements are between a year and a half and four years. See also note 2o(1). 3)To date the Company has out-licensed on an exclusive worldwide basis only one of its therapeuticcandidates and has generated limited revenues from its commercial activities. Accordingly, there is noassurance that the Company’s business will generate sustainable positive cash flows. ThroughDecember 31, 2018, the Company has an accumulated deficit, and its activities have been fundedprimarily through public and private offerings of the Company’s securities.The Company plans to further fund its future operations through commercialization and out-licensingof its therapeutic candidates, commercialization of in-licensed or acquired products and raisingadditional capital through equity or debt financing or through non-dilutive financing. The Company’scurrent cash resources are not sufficient to complete the research and development ofF-7 ®®Table of ContentsREDHILL BIOPHARMA LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS all of the Company’s therapeutic candidates and to fully support its commercial operations untilgeneration of sustainable positive cash flows. Management expects that the Company will incuradditional losses as it continues to focus its resources on advancing the development of its therapeuticcandidates, as well as advancing its commercial operations, based on a prioritized plan that will resultin negative cash flows from operating activities. The Company believes its existing capital resourcesshould 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 or results of operations. b. Approval of financial statements These financial statements were approved by the Board of Directors on February 25, 2019. 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, 2018 and 2017 and for each ofthe three years for the period ended on December 31, 2018 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 transactions and balances 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 and its subsidiary operate (the “FunctionalF-8 Table of ContentsREDHILL BIOPHARMA LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Currency”). The consolidated financial statements are presented in U.S. dollars (“$”), which is theCompany’s functional and presentation currency. 2) Transactions and balances Foreign currency transactions in currencies different from the Functional Currency (hereafter foreigncurrency, mostly New Israeli Shekel (“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. e. Trade receivables Trade receivables are recognized initially at the amount of consideration that is unconditional, unless theycontain significant financing components. Subsequent to the initial recognition, they are measured atamortized cost using the effective interest rate method, less any impairment loss. f. Inventory The Company’s inventory represents items held for sale in the ordinary course of business, in the process ofproduction for a sale in the ordinary course of business or materials or supplies to be used in the productionprocess, to the extent they are recoverable. The inventory is stated at the lower of cost or net realizablevalue with cost determined using the first-in, first-out method. 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 asset items are initially recognized at acquisition cost. Fixed assets items are stated at cost lessaccumulated depreciation. F-9 Table of ContentsREDHILL BIOPHARMA LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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: %Computer 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;and·adequate technical, financial and other resources to complete the development and to use or sellthe intangible asset are available and costs associated with the intangible asset duringdevelopment can be measured reliably. Other development costs that do not meet the above criteria are recognized as expenses asincurred. Development costs previously recognized as an expense are not recognized as an asset in asubsequent period. As of December 31, 2018, 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. F-10 Table of ContentsREDHILL BIOPHARMA LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 Statements of Financial Position. j. Financial assets As of January 1, 2018, the Company adopted IFRS 9 “Financial Instruments”. 1)Classification The (cid:51)inancial assets of the Company are classi(cid:51)ied into the following categories: (cid:51)inancial assets atfair value through pro(cid:51)it or loss, and (cid:51)inancial assets at amortized cost. The classi(cid:51)ication is done onthe basis of the Company’s business model for managing the (cid:51)inancial asset and the contractual cashflow characteristics of the financial asset.a)Financial assets at amortized cost Financial assets at amortized cost are assets held within a business model whose objective is tohold assets in order to collect contractual cash (cid:51)lows and the contractual terms of the (cid:51)inancialasset give rise on speci(cid:51)ied dates to cash (cid:51)lows that are solely payments of principal and intereston the principal amount outstanding. Financial assets at amortized cost are included in current assets, except for those with maturitiesgreater than 12 months after the statements of (cid:51)inancial position date (for which they areclassified as noncurrent assets).Financial assets at amortized cost of the Company are included in trade receivables, otherreceivables and bank deposits in the Statements of Financial Position.b)Financial assets at fair value through profit or loss Financial assets at fair value through pro(cid:51)it or loss of the Company are assets not measured atamortized cost in accordance with (1)(a) above. Assets in this category are classi(cid:51)ied as currentassets if they are expected to be settled within 12 months; otherwise, they are classi(cid:51)ied asnoncurrent.F-11 Table of ContentsREDHILL BIOPHARMA LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2)Recognition and measurement Regular purchases and sales of (cid:51)inancial assets are recognized on the settlement date, which is thedate on which the asset is delivered to the Company or delivered by the Company. Investments areinitially recognized at fair value plus transaction costs for all (cid:51)inancial assets not recorded at fairvalue through pro(cid:51)it or loss, except for trade receivables, that are recognized initially at the amountof consideration that is unconditional unless they contain significant financing components.Financial assets measured at fair value through pro(cid:51)it or loss are initially recognized at fair value,related transaction costs are expensed to pro(cid:51)it or loss. Financial assets are derecognized when therights to receive cash (cid:51)low from the investments have expired or have been transferred and theCompany has transferred substantially all risks and rewards of ownership. Financial assets at fairvalue through pro(cid:51)it or loss are subsequently recorded at fair value. Financial assets at amortizedcost are measured in subsequent periods at amortized cost using the effective interest method.Gains or losses arising from changes in the fair value of financial assets at fair value through profit orloss are presented in the Statement of Comprehensive Loss under “Financial Expenses (Income), net”.3)Impairment The Company recognizes a loss allowance for expected credit losses on (cid:51)inancial assets at amortizedcost.At each reporting date, the Company assesses whether the credit risk on a (cid:51)inancial instrument hasincreased signi(cid:51)icantly since initial recognition. If the (cid:51)inancial instrument is determined to have lowcredit risk at the reporting date, the Company assumes that the credit risk on a (cid:51)inancial instrumenthas not increased significantly since initial recognition.The Company measures the loss allowance for expected credit losses on trade receivables that arewithin the scope of IFRS 15 and on (cid:51)inancial instruments for which the credit risk has increasedsigni(cid:51)icantly since initial recognition based on lifetime expected credit losses. Otherwise, theCompany measures the loss allowance at an amount equal to 12-month expected credit losses at thecurrent reporting date.Prior to the effective date and adoption of IFRS 9, the (cid:51)inancial assets of the Company were classi(cid:51)iedinto the following categories: (cid:51)inancial assets at fair value through pro(cid:51)it or loss, and loans andreceivables. The classification depended on the purpose for which the financial assets were acquired,also, prior to the adoption of IFRS 9, the Company assessed at December 31, 2017 whether there is anyobjective evidence that a financial asset or group of financial assets was impaired. k. Financial liabilities Financial liabilities are initially recognized at their fair value minus, in the case of a financial liability notat fair value through profit or loss, transaction costs that are directly attributable to the issue of the financialliability. F-12 Table of ContentsREDHILL BIOPHARMA LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Financial liabilities are subsequently measured at amortized cost, except for derivative financialinstruments, which are subsequently measured at fair value through profit or loss. Financial liabilities are classified as current liabilities if payment is due within one year or less, otherwisethey are classified as non-current liabilities. The Company’s (cid:51)inancial liabilities at amortized cost are included in accounts payable, accrued expensesand other current liabilities and payable in respect of intangible asset. The derivative financial instruments represent warrants that confer the right to net share settlement. The Company removes a financial liability (or a part of a financial liability) from its Statement of FinancialPosition when, and only when, it is extinguished (when the obligation specified in the contract isdischarged, canceled or expired). The Company accounts for a substantial modification of the terms of an existing financial liability or a partof it as an extinguishment of the original financial liability and the recognition of a new financial liability.The difference between the carrying amount of a financial liability (or part of a financial liability)extinguished and the consideration paid, including any non-cash assets transferred or liabilities assumed, isrecognized in profit or loss. l. 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. m. 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 as well as the Company’s practice, require the Company to payseverance pay and/or pensions to employees dismissed or retired, in certain circumstances. The Company has a severance pay plan in accordance with Section 14 of the Israeli Severance Pay Lawwhich is treated as a defined contribution plan. According to the plan, the Company regularly makespayments to severance pay or pension funds without having a legal or constructive obligation to payfurther contributions if the fund does not hold sufficient assets to pay the related payments toemployees’ service in current and prior periods. Contributions for severance pay or pension arerecognized as employee benefit expenses when they are due commensurate with receipt of workservices from the employee, and no further provision is required in the financial statements. The Company’s subsidiary provides, at will, benefit contributions for its employees. F-13 Table of ContentsREDHILL BIOPHARMA LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2) Vacation and recreation pay Under Israeli law, each employee in Israel is entitled to vacation days and recreation pay, bothcomputed on an annual basis. This entitlement is based on the period of employment. The Companyrecords expenses and liability for vacation and recreation pay based on the benefit accumulated byeach employee. n. Share-based payments The Company operates several equity-settled, share-based compensation plans to employees (as defined inIFRS 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 non-market 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. o. 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 deficit 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.F-14 Table of ContentsREDHILL BIOPHARMA LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1) Revenues from promotional services The Company recognizes revenue from promotional services as it satisfies its performance obligationover time, in an amount equal to the consideration to which it expects to be entitled to, taking intoconsideration the constraint on variable considerations stipulated in IFRS 15. 2) Revenues from the sale of products Principal versus agent considerations: When a third 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 inIFRS 15. In connection with the commercialization of EnteraGam, the Company is determined to be theprincipal in the arrangement, rather than an agent of Entera Health Inc. (“Entera Health”), since theCompany controls the product before transferring it to a customer. Therefore, revenue in the amountthe Company is entitled to receive from its customers is recognized on a gross basis, from whichroyalties payable to Entera Health are accounted for in cost of revenues. The Company recognizes revenues from the sale of EnteraGam at a point in time when control overthe product is transferred to customers (upon delivery). The transaction price in these arrangements is the consideration to which the Company expects to beentitled from the customer, reduced by estimates of rebates, discounts, allowances and provision forproduct returns, given or expected to be given, which vary by product arrangement and buying groups.The Company estimates its variable consideration using the most likely amount method using actualin-market data received pre- and post- end of the accounting period and are applied to inventory heldat wholesalers and pharmacies. The Company will continue to refine these estimates andmethodologies 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. Variable payments, contingent on achieving additional milestones, are included in the transactionprice based on most likely amount method. Amounts included in the transaction price are recognizedF-15 ®®Table of ContentsREDHILL BIOPHARMA LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS only when it is highly probable that a significant reversal of cumulative revenues will not occur,usually upon achievement of a specific milestone, in accordance with the relevant agreement. Sales-based royalties are not included in the transaction price; rather they are recognized as the relatedsale occurs, due to the specific exception for sales-based royalties in licensing of intellectual property. 4) Practical expedients and exemptions The Company expenses sales commissions when incurred since the amortization period of the assetthat the Company otherwise would have recognized would have been for less than one year. Thesecosts are recorded as selling and marketing expenses. p. Advertising and promotional expenses Advertising and promotional costs include, among others, distribution of free samples of thecommercialized products. These costs are recognized as an expense when incurred. q. 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. r. 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. s. 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 these financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantiallyenacted by the date of the Statements of Financial Position and are expected to apply when the relateddeferred income tax asset will be realized, or the deferred income tax liability will be settled. Deferredincome tax assets are recognized only to the extent that it is probable that future taxable profit will beavailable against which the temporary differences can be utilized. Since the Company is unable to assess whether it will have taxable income in the foreseeable future, nodeferred tax assets were recorded in these financial statements. F-16 Table of ContentsREDHILL BIOPHARMA LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS t. 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. 16 “Leases” (hereafter - IFRS 16) IFRS 16 was issued in January 2016. It will result in almost all leases being recognized on the balance sheetby lessees, as the distinction between operating and finance leases is removed. Under the new standard, anasset (the right to use the leased item) and a financial liability to pay rentals are recognized.The only exceptions are short-term and low-value leases. The Company has reviewed all of the Company’s and its subsidiary’s leasing arrangements over the lastyear in light of the new lease accounting rules in IFRS 16. The standard will affect primarily the accountingfor the Company’s operating leases. As at the reporting date, the Company has non-cancellable operatinglease commitments of $1.8 million, see note 13b. The Company expects to recognize right-of-use assets and lease liabilities of approximately $1.7 millionon January 1, 2019. The Company will apply the standard from its mandatory adoption date of January 1, 2019. The Companyintends to apply the simplified transition approach and will not restate comparative amounts for the yearprior to first adoption. The Company expects that net loss will increase by an immaterial amount for 2019 as a result of adoptingthe new rules. Operating cash flows for 2019 will increase, and financing cash flows will decrease byapproximately $0.9 million as repayment of the principal portion of the lease liabilities will be classified ascash flows from financing activities. 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, 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 carrying amounts of assets andliabilities within the following financial year, are with respect to impairment of intangible assets. The Company reviews once a year or when indications of impairment are present, whether research anddevelopment related 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. F-17 Table of ContentsREDHILL BIOPHARMA LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 the potential market, market competition and timetables for regulatoryapprovals. NOTE 4 - FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT: 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 overall riskmanagement program focuses on the unpredictability of financial markets and seeks to minimizepotential 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 management activitiesin accordance with policies approved by its board of directors (the “Board of Directors”). The Board ofDirectors provides general guidelines for overall financial risk management as well as policies dealingwith specific 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 the totalvalue of the Company’s corporate bonds portfolio is invested in a single bond issuer. (a) Market risks The Company might be exposed to foreign exchange risk as a result of its payments to employeesand 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 by aligning thecurrencies for holding liquidity with the currencies of expected expenses, based on the expectedcash flows of the Company. Had the Functional Currency of the Company been stronger by 5%against the NIS, assuming all other variables remained constant, the Company would haverecognized an additional expense of $58,,000 $56,000 and $78,000 in profit or loss for the yearsended, December 31, 2018, 2017 and 2016, respectively. The foreign exchange risks associatedwith these balances are immaterial. (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 forF-18 Table of ContentsREDHILL BIOPHARMA LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS the short term and with highly-rated institutions, the credit and interest risks associated with thesebalances are 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 23b. (c) Liquidity risk Prudent liquidity risk management requires maintaining sufficient cash or 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, 2018, 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 yet been generated, the Company is exposed toliquidity risk. As of December 31, 2018, the Company’s non-derivative financial liabilities, include accountspayable, accrued expenses, and other current liabilities for a period of less than 1 year. 2) Capital risk management The Company’s objectives when managing capital are to safeguard the Company’s ability to continueas a going concern in order to provide returns for shareholders, maintain optimal capital structure, andto reduce the cost of capital. 3) Fair value estimation The following is an analysis of financial instruments measured at fair value using valuation methods.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);and·inputs for the asset or liability that are not based on observable market data (that is,unobservable inputs) (level 3) The fair value of financial instruments traded in active markets is based on quoted market prices atdates of the Statements of Financial Position. A market is regarded as active if quoted prices areF-19 Table of ContentsREDHILL BIOPHARMA LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS readily and regularly available from an exchange, dealer, broker, industry group, pricing service, orregulatory agency, and those prices represent actual and regularly occurring market transactions on anarm’s length basis. These instruments are included in level 1. The fair value of financial instruments that are not traded in an active market is determined by 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 of an instrument are observable, then 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, 2018:Assets -Financial assets at fair value through profit or loss15,909 —15,909Liabilities -Derivative financial instruments —344344December 31, 2017:Assets -Financial assets at fair value through profit or loss16,587 —16,587Liabilities -Derivative financial instruments —448448 The following table presents the change in derivative liabilities measured at level 3 for the years endedDecember 31, 2018 and 2017: Derivative financial instruments Year Ended December 31, 2018 2017 U.S. dollars in thousands Balance at beginning of the year4486,155Exercise of derivative into shares —(20)Fair value adjustments recognized in profit or loss(104)(5,687)Balance at end of the year344448 The fair value of the above-mentioned derivative financial instruments that are not traded in an activemarket is 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. For more information regarding the derivative financial instruments, see note 16. F-20 Table of ContentsREDHILL BIOPHARMA LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 – CASH, CASH EQUIVALENTS AND BANK DEPOSITS: a. Cash and cash equivalents December 31, 2018 2017 U.S. dollars in thousandsCash in bank 7,736 8,305Short-term bank deposits 21,269 8,150 29,005 16,455 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 2.03%. NOTE 6 - FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS: These financial assets as of December 31, 2018 represent a portfolio of marketable debt securities. The Company’s business model regarding this portfolio is to realize cash flows through the sale of its assets,rather than hold these assets to collect their contractual cash flows or both to collect contractual cash flows andto sell these financial assets. The Company is primarily focused on fair value information and uses thatinformation to assess the assets’ performance and to make decisions. Therefore, this portfolio is classified asfinancial assets at fair value through profit or loss. The fair value of the securities is based on their exchange market price at the end of each trading day andreporting period. NOTE 7 - PREPAID EXPENSES AND OTHER RECEIVABLES: December 31, 2018 2017 U.S. dollars in thousandsAdvance to suppliers 1,319 2,426Discount from service provider 241 537Prepaid expenses 120 130Government institutions 196 197 1,876 3,290 The fair value of other receivables, which constitute of financial assets, approximates their carrying amount. F-21 Table of ContentsREDHILL BIOPHARMA LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 - INVENTORY: December 31, 2018 2017 U.S. dollars in thousandsRaw materials 507 —Finished goods 262 653 769 653 During the years ended December 31, 2018 and 2017, the Company recognized amounts of $1 million and $0.8million, respectively, in inventory cost as part of cost of revenues. NOTE 9- FIXED ASSETS: The composition of assets and accumulated depreciation grouped by major classifications: Cost Accumulated depreciation Depreciated balance December 31 December 31 December 31 2018 2017 2018 2017 2018 2017 U.S. dollars in thousandsOffice furniture andequipment (includingcomputers) 372 349 235 163 137 186Leasehold improvements 132 132 106 88 26 44 504 481 341 251 163 230 NOTE 10 - 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, 2018 2017 U.S. dollars in thousandsCost: Balance at beginning of year 5,285 6,195Additions during the year 35 35Deductions during the year — (945)Balance at end of year 5,320 5,285 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 non-coretherapeutic candidate that was intended to treat congestive heart failure, left atrium dysfunction and high bloodpressure. In February 2017, the Company recognized a loss in the amount of $45,000 paid to a private German companyfor the exclusive option to acquire rights to an oncology therapeutic candidate. As the Company did notexercise or extend its option to acquire these rights, the entire amount was deducted from the intangible assets’cost and recorded as a loss in the Consolidated Statement of Comprehensive Loss under Other Expenses.F-22 Table of ContentsREDHILL BIOPHARMA LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS In December 2017, the Company recognized a loss in the 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 3 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 13. NOTE 11 - LIABILITY FOR EMPLOYEE RIGHTS UPON RETIREMENT: a. Labor laws and agreements in Israel require the Company to pay severance pay and/or pensions to anemployee dismissed or retiring from their employment in certain circumstances. b. The Company’s pension liability and the Company’s liability for payment of severance pay for employeesin Israel for whom the liability is within the scope of Section 14 of the Severance Pay Law, is covered byongoing deposits with defined contribution plans. The amounts deposited are not included in theStatements of Financial Position. The amounts charged as an expense with respect to defined contribution plans in 2018, 2017 and 2016were $182,000, $155,000 and $121,000, respectively. NOTE 12 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES: December 31, 2018 2017 U.S. dollars in thousandsAccrued expenses 5,599 4,969Employees and related liabilities 1,380 1,045Government institutions 78 11 7,057 6,025 The fair value of the accounts payable and accrued expense balances approximates their carrying amounts. NOTE 13 - COMMITMENTS: a. Agreements to purchase intellectual property 1) On August 11, 2010, the Company entered into an agreement with private Australian company in anasset purchase agreement to acquire intellectual property relating to three therapeutic candidates forthe treatment of gastrointestinal conditions. Pursuant to the asset purchase agreement, as amended, theCompany paid the Australian company an initial amount of $500,000 and undertook to pay futurepayments in the range of 7% - 20% from the Company’s revenues that may be generated from the saleand sublicense of the therapeutic candidates, less certain deductible amounts, as detailed in theagreement. Such potential payments are due until termination or expiration of the last of the patentstransferred to the Company pursuant to the agreement (each on a product-by-product basis). F-23 Table of ContentsREDHILL BIOPHARMA LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS In 2014, the Company entered into a licensing agreement with Salix Pharmaceuticals, Ltd., which waslater acquired by Valeant Pharmaceuticals International, Inc. and subsequently renamed to BauschHealth Companies Inc. (“Bausch Health”), pursuant to which Bausch Health licensed from theCompany the exclusive worldwide rights to one of the above-mentioned therapeutic candidates.Under the license agreement, Bausch Health paid an upfront payment of $7 million with subsequentpotential milestone payments up to a total of $5 million. In March 2018, the 2014 license agreementwas amended, among other things, to increase the lower end of the range of potential royalty paymentsto be paid to the Company on net sales from low single digits to high single digits, such that the totalpotential royalties payments will range from high single digits up to low double digits. Following theexecution of the 2014 license agreement, the Company recognized revenues in 2014 in the amount ofthe upfront payment and subsequently paid the Australian company an additional amount of $1million. The additional amount paid was recognized as cost of revenues in the Statement ofComprehensive Loss. Through December 31, 2018, the Company has paid the Australian company in total $1.5 million, asmentioned above. 2) 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 a therapeutic candidate. Under theterms of the agreement, the Company paid the German company an upfront payment of $1 million andagreed to pay the German company potential tiered royalties, less certain deductible amounts asdetailed in the agreement, ranging from mid-teens and up to 30%. Such potential royalties are dueuntil the later of (i) the expiration of the last to expire licensed patent that covers the product in therelevant country and (ii) the expiration of regulatory exclusivity in the relevant country. ThroughDecember 31, 2018, the Company has paid the German company only the initial amount mentionedabove. 3) 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 a therapeutic candidate, and additional intellectual property rights, targeting multipleoncology, inflammatory and GI indications. Under the terms of the agreement, the Company undertookto pay the U.S. company an initial amount of $1.5 million and an additional amount of $2 million tobe paid on a specific date. In addition, the Company undertook to pay up to $2 million in potentialdevelopment milestone payments, and potential tiered royalties on revenues, less certain deductibleamounts starting in the low double-digits as detailed in the agreement. Such potential royalties are dueuntil the later of (i) the expiration of the last to expire licensed patent that covers the product in therelevant country; and (ii) the expiration of regulatory exclusivity in the relevant country. ThroughDecember 31, 2018, the Company paid the U.S. company a total of $3 million. Following an amendment to the agreement from February 2018, during December 2018 the Companyelected to convert the current payment of the remaining $0.5 million into increased future potentialroyalty payments. As of December 31, 2018, the Company recognized an amount of $0.5 million as anon-current liability with respect to the increase in potential royalty payments. F-24 Table of ContentsREDHILL BIOPHARMA LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS b. Operating lease agreements The Company and its subsidiary lease offices and vehicles under non-cancellable operating leases expiringwithin two to five years. The office and vehicle obligations are payable as follows: December 31, 2018 U.S. dollars in thousandsLess than 1 year9942-5 years8531,847 As of December 31, 2018, an amount of $140,000 was deposited with a bank to secure the leaseobligations. In January 2019, the Company signed an amendment to its Israeli office lease agreement. According to theamendment, the Company obliged to lease the offices through January 31, 2026 for an annual lease amountof approximately $0.4 million. NOTE 14 - 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. 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 for2018, 2017 and 2016 were 23%, 24% and 25%, respectively. b. U.S. subsidiary The Company’s subsidiary is incorporated in the U.S and is taxed under U.S. tax laws. The applicablecorporate tax rate in 2017 was 34%. On December 22, 2017, the Tax Cuts and Jobs Act (the “2017 Act”)was enacted and 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. F-25 Table of ContentsREDHILL BIOPHARMA LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS c. Carry forward losses As of December 31, 2018, the Company had net operating losses carried forward (“NOLs”) ofapproximately $135 million. Under Israeli tax laws, carry forward tax losses have no expiration date. As of December 31, 2018, the U.S. subsidiary had net operating losses carried forward of approximately $18million, of which approximately $10 million which expires in 2037, and approximately $8 million whichdoes not expire, but is limited to offset 80% of the net income in the year it is utilized. 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, 2018 and 2017, were $27 million and $28 million, respectively. These temporarydifferences have no expiration dates. e. Tax assessments The Company has not been assessed for tax purposes since its incorporation. The Company’s taxassessments for 2013 are therefore considered final. NOTE 15 - 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, 2018 2017 In thousandsAuthorized 600,000 300,000Issued and paid 283,687 212,729 F-26 Table of ContentsREDHILL BIOPHARMA LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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, 2018 was $5.55 per ADS on the NASDAQ and$0.54 per share on the TASE (based on the exchange rate reported by the Bank of Israel for that date). On May 2, 2018, a general meeting of the Company’s shareholders approved the increase of theauthorized share capital of the Company to 600,000,000 ordinary shares. 2) Exercise of warrants and options During 2018 and 2017, the Company issued 719,374 and 2,988,750 ordinary shares for $0.4 millionand $0.8 million, respectively, resulting from exercises of options that had been issued to employees,consultants and directors of the Company. 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 January 2017, the underwriters for the Company’s December 2016 underwritten public offeringpartially exercised their option and purchased 133,103 ADSs for approximately $1.28 million.Following the partial exercise of the underwriters’ option, the underwritten public offering and theconcurrent registered direct offering totaled 3,846,519 ADSs and warrants to purchase 2,025,458 ADSs,representing aggregate gross proceeds from both offerings of approximately $39.4 million beforededucting underwriting discounts and commissions, placement agent fees and other offering expenses. 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. 5) In August 2018, the Company completed an underwritten offering in the U.S. of an aggregate4,166,667 ADSs, each representing ten of its ordinary shares, for gross proceeds to the Company ofapproximately $25 million. Net proceeds to the Company from the offering, following underwritingcommissions and other offering expenses, were approximately $23.5 million 6) In December 2018, the Company completed an underwritten offering in the U.S. of an aggregate2,857,143 ADSs, each representing ten of its ordinary shares, for gross proceeds to the Company ofapproximately $20 million. Net proceeds to the Company from the offering, following underwritingcommissions and other offering expenses, were approximately $18.4 million b.WarrantsIn January 2017, warrants issued under investment agreements from January 21, 2014, that were exercisableinto 4,183,496 ordinary shares, expired along with any right or claim of the holders.F-27 Table of ContentsREDHILL BIOPHARMA LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 16 - DERIVATIVE FINANCIAL INSTRUMENTS: a. Warrants issued in 2014 The warrants were classified as a financial liability due to a net settlement provision. In January 2017, theCompany issued 2,526,320 ordinary shares for approximately $2.63 million resulting from exercises ofthese warrants. The remaining unexercised warrants to purchase 1,052,640 ordinary shares expired alongwith any right or claim whatsoever of the holders. b. Warrants issued in 2016 The warrants, issued under December 2016 offering, were classified as a financial liability due to a netsettlement provision. These warrants are exercisable into 2,025,458 ADSs. The warrants have a three-yearterm and may be exercised either for cash or on a cashless basis at an exercise price of $13.33 per ADS. The fair value of the warrants is computed using the Black and Scholes option pricing model. The fairvalue of the warrants upon issuance was computed based on the price of an ADS and based on thefollowing parameters: risk-free interest rate of 1.56% and an average standard deviation of 53.13%. Thefair value of the warrants as of December 31, 2018, was computed based on the price of an ADS as ofDecember 31, 2018 and based on the following parameters: risk-free interest rate of 2.63% and an averagestandard deviation of 60.55%. NOTE 17 - SHARE-BASED PAYMENTS: On May 30, 2010, a general meeting of shareholders approved the option plan of the Company (the “OptionPlan”), after being approved by the Board of Directors. In 2017 the Option Plan was amended and restated as the2010 Award Plan (the “Award Plan”). As of December 31, 2018, the Award Plan allows the Company to allocateup to 38,518,375 options to employees, consultants and directors and are reserved by the Board of Directors forissuance under the Award Plan. The terms and conditions of the grants were determined by the Board ofDirectors and are according to the Award Plan. a. The following is information on options granted in 2018: Number of options granted According to the Award Plan Exercise Fair value of of the Company price for 1 options on date of Other than to To directors ordinary grant in U.S. dollarsDate of grant directors (1) (1)(2) Total share ($) in thousands (3)January 20181,455,000 —1,455,0000.56433March 20183,210,000 —3,210,0000.65808May 2018 —500,000500,0000.65111August 2018630,000 —630,0000.84238November 2018210,000 —210,0000.901025,505,000500,0006,005,0001,692 F-28 Table of ContentsREDHILL BIOPHARMA LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1) The options will vest as follows: for directors, employees and consultants of the Company and theCompany's subsidiary who had provided services exceeding one year as of the grant date, options willvest in 16 equal quarterly installments over a four-year period. For directors, employees andconsultants of the Company and the Company's subsidiary who had not provided services exceedingone year as of the grant date, the options will vest as follows: 1/4 of the options will vest one yearfollowing the grant date and the rest will vest over 12 equal quarterly installments. During thecontractual term, the options will be exercisable, either in full or in part, from the vesting date until theend of 10 years from the date of grant.The options include both options exercisable into the Company’s ordinary shares and optionsexercisable to the Company’s ADSs. 2) The general meeting of the Company’s shareholders held on May 2, 2018 (the “May 2018 AGM”),subsequent to approval of the Company’s Board of Directors, granted 500,000 options under theCompany’s stock options plan to the Company's Chairman of the Board of Directors and ChiefExecutive Officer. 3) The fair value of the options was computed using the binomial model and the underlying data used wasmainly the following: price of the Company’s ordinary share: $0.48 - $0.88, expected volatility:50.99% - 58.4%, risk-free interest rate: 2.65% - 3.19% and the expected term was derived based on thecontractual term of the options, the expected exercise behavior and expected post-vesting forfeiturerates. the expected volatility assumption used in based on the historical volatility of the Company’sshare. b. During 2018, the Board of Directors approved a three years extension of the exercise period of fully-vestedoptions exercisable into the Company's ordinary shares granted to employees and consultants that wereoriginally scheduled to expire in February 2018, March 2018, August 2018, January 2019 and February2019. Accordingly, 2,844,210 options, 120,000 options, 260,000 options, 750,000 options and 400,000options, respectively, were extended with new terms: the exercise price will increase by 50% to $0.75,$1.575, $1.035, $1.08 and $1.08 per ordinary share, respectively, and will not be exercisable within oneyear of the extension. These options originally had a term of seven years. The total incremental fair value ofthe options as of the date of the extension was approximately $0.4 million and was recorded to theStatement of Comprehensive Loss immediately. c.The May 2018 AGM, subsequent to approval of the Company’s Board of Directors, granted three yearextensions of the exercise period of 1,540,000 fully-vested options exercisable into the Company'sordinary shares and 150,000 fully-vested options exercisable into the Company's ordinary shares grantedto the Company's Chairman of the Board of Directors and Chief Executive Officer and to a non-executivedirector of the Company, respectively, that were originally scheduled to expire in February 2018 and May2018, respectively. These options originally had a term of seven years, and the extensions are under thesame terms as detailed in b above. The total incremental fair value of the options on the date of May 2018AGM was $0.1 million and was recorded to the Statements of Comprehensive Loss immediately.In December 2018, the Board of Directors of the Company also approved the extension of the exerciseperiod of 600,000 options to the Company's Chief Executive Officer that were originally scheduled toF-29 Table of ContentsREDHILL BIOPHARMA LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS expire in February 2019, under the same terms detailed above, subject to the approval of the Company’sshareholders. These options also originally had a term of seven years.d. The following is information on options granted in 2017: Number of options granted According to the Award Plan Exercise Fair value of of the Company price for 1 options on date of Other than to ordinary grant in U.S. dollarsDate of grant directors (1) To directors (1) Total share ($) in 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 3,499 1)The options will vest as follows: for directors, employees and consultants of the Company who hadprovided services exceeding one year to the Company as of the grant date, the options will vest in 16equal quarterly installments over a four-year period. For directors, employees and consultants of theCompany who had not provided services to the Company exceeding one year as of the grant date, theoptions will vest as follows: 1/4 of the options will vest one year following the grant date and the restover the following three years in 12 equal quarterly installments. During the contractual term theoptions will be exercisable, either in full or in part, from the vesting date until the end of 7 years fromthe date of grant. 2017 grants include both options exercisable into the Company’s ordinary sharesand options exercisable to the Company’s ADSs. 2)The fair value of the options was computed using the binomial model and the underlying data usedwas mainly the following: price of the Company’s ordinary share: $0.98 - $1.09, expected volatility:49.48% - 58.09%, risk-free interest rate: 2.05% - 2.23% and the expected term was derived based onthe contractual term of the options, the expected exercise behavior and expected post-vestingforfeiture rates. The expected volatility assumption used is based on the historical volatility of theCompany’s share. e. Changes in the number of options and weighted averages of exercise prices are as follows: Year Ended December 31, 2018 2017 Weighted Weighted average of average of Number of exercise Number of exercise options price ($) options price ($)Outstanding at beginning of year25,781,7981.0522,025,5480.95Exercised(719,374)0.02(2,988,750)0.27Expired and forfeited(1,707,189)0.96(490,000)1.37Granted6,005,0000.667,235,0001.05Outstanding at end of year29,360,2351.0525,781,7981.05Exercisable at end of year12,962,5741.2516,842,6970.99F-30 Table of ContentsREDHILL BIOPHARMA LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS f. The following is information about the exercise price and remaining useful life of outstanding options atyear-end: December 31, 2018 2017Number 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 life29,360,235$0.56-$1.614.325,781,798$0.5-$1.613.5 g. Expenses recognized in profit or loss for the options are as follows: Year Ended December 31, 2018 2017 2016U.S. dollars in thousands2,6782,2351,679 The remaining compensation expenses as of December 31, 2018 are $1.8 million and will be expensed infull by December 2022. 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 18 – NET REVENUES: Year Ended December 31, 2018 2017 2016 U.S dollars in thousandsLicensing— — 100Commercialization of product4,671 3,240 —Promotional services 3,689 767 —Other revenues 1 8,360 4,007 101 In 2018 and 2017, revenues consist solely revenues with respect to commercialization and promotionalactivities of the company’s commercial products, as detailed in note 1a(2). F-31 Table of ContentsREDHILL BIOPHARMA LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 19 - RESEARCH AND DEVELOPMENT EXPENSES, net: Year Ended December 31, 2018 2017 2016 U.S. dollars in thousandsPayroll and related expenses552653652Professional services2,2972,2181,816Share-based payments872793841Clinical and pre-clinical trials20,37327,94020,732Intellectual property development290401428Other47896477224,86232,96925,241 NOTE 20 – SELLING, MARKETING AND BUSINESS DEVELOPMENT EXPENSES: Year Ended December 31, 2018 2017 2016 U.S. dollars in thousandsPayroll and related expenses 7,540 5,012 301Share-based payments 575 387 65Professional services 1,626 1,778 947Samples — 1,569 —Travel and related expenses 1,822 2,236 81Office-related expenses 495 395 86Other 428 637 75 12,486 12,014 1,555 NOTE 21 – GENERAL AND ADMINISTRATIVE EXPENSES: Year Ended December 31, 2018 2017 2016 U.S. dollars in thousandsPayroll and related expenses3,8803,3111,082Share-based payments1,2311,054773Professional services1,4612,2461,391Office-related expenses547567300Other3878473027,5068,0253,848F-32 Table of ContentsREDHILL BIOPHARMA LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 22- FINANCIAL INCOME, net: Year Ended December 31, 2018 2017 2016 U.S dollars in thousandsFinancial income: Fair value gains on derivative financialinstruments 104 5,687 1,152Gains on financial assets at fair value throughprofit or loss 295 189 80Gains from changes in exchange rates — 332 34Interest from bank deposits 279 297 282 678 6,505 1,548Financial expenses: Loss from changes in exchange rates 125 — —Issuance cost with respect of warrants — — 368Other 42 77 7 167 77 375Financial income, net (511) (6,428) (1,173) NOTE 23 – SEGMENT INFORMATION 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 atrevenues, gross profit and operating expenses levels. The Commercial Operations segment covers all areasrelating to the commercial sales and operating expenses directly related to that activity and is being performedby the Company’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 nosegmentation 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, Year Ended December 31, 2018 2017December 31, 2018:CommercialOperations Research andDevelopment Consolidated CommercialOperations Research andDevelopment Consolidated U.S. dollars in thousands U.S. dollars in thousandsNet revenues8,360 — 8,360 4,007 — 4,007Cost of revenues2,837 — 2,837 2,126 — 2,126Gross profit5,523 — 5,523 1,881 — 1,881Research and development expenses,net — 24,862 24,862 — 32,969 32,969Selling, marketing and businessdevelopment expenses11,329 1,157 12,486 10,520 1,494 12,014General and administrative expenses2,795 4,711 7,506 2,680 5,345 8,025Other expenses — — — — 845 845Operating loss8,601 30,730 39,331 11,319 40,653 51,972F-33 Table of ContentsREDHILL BIOPHARMA LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS b. Major customers The percentages of total net revenues for the year ended December 31, 2018 and the year ended December31, 2017 from one customer were 46% and 59%, respectively and from another customer were 42% and19% respectively. The Company’s revenues were entirely in the U.S. and the payment terms for allcustomers are 30 to 60 days. NOTE 24- 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 basic loss per share: Year Ended December 31, 2018 2017 2016Loss (U.S. dollars in thousands) 38,820 45,544 29,370Weighted average number of ordinary sharesoutstanding during the period (in thousands) 231,204 176,579 128,514Basic loss per share (U.S. dollars) 0.17 0.26 0.23 b. Diluted Diluted loss per share is calculated by adjusting the weighted average number of ordinary sharesoutstanding, assuming conversion of all potentially dilutive ordinary shares, using the treasury stockmethod. The Company has two categories of potentially dilutive ordinary shares: warrants issued toinvestors and options issued to employees and service providers. The effect of options issued to employeesand service providers, for all reporting years, is anti-dilutive. In 2017 and 2018, the effect of warrants isanti-dilutive. Year Ended December 31, 2018 2017 2016Loss (U.S. dollars in thousands)38,82045,54429,370Adjustment for financial income of warrants — —1,208Loss used to determine diluted loss per share38,82045,54430,578Weighted average number of ordinary shares outstandingduring the period (in thousands)231,204176,579128,514Adjustment for warrants — —295Weighted average number of ordinary shares for dilutedloss per share (in thousands)231,204176,579128,809Diluted loss per share (U.S. dollars)0.170.260.24F-34 Table of ContentsREDHILL BIOPHARMA LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 25 - RELATED PARTIES: a. Key management in 2018 includes members of the Board of Directors and the Chief Executive Officer Year Ended December 31, 2018 2017 2016 U.S. dollars in thousandsKey management compensation: Salaries and other short-term employeebenefits 734 677 576Post-employment benefits 36 35 32Share-based payments 510 557 504Other long-term benefits 26 7 11 b. Balances with related parties: December 31, 2018 2017 U.S. dollars in thousandCurrent liabilities -Credit balance in “accrued expenses and other current liabilities”178199Non-current liabilities -Derivative financial instruments 811 NOTE 26 – EVENT SUBSEQUENT TO DECEMBER 31, 2018: On February 25, 2019, the Board of Directors of the Company approved a grant of 178,000 options to purchase ADSs toemployees of the Company’s subsidiary and 100,000 options to purchase ordinary shares to advisory board members and anemployee of the Company, under the Company’s stock options plan. The estimated fair value of the options on the grantdate was $0.8 million. F-35Exhibit 1.1 These Articles of Association are an unofficial translation of the Articles of Association in Hebrewadopted by the Company. Articles of Association of Redhill Biopharma Ltd.(“Company”) As approved by in the annual general meeting of shareholders on May 2, 2018 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 Capital914.Powers of the General Meeting1115.Annual and Special General Meetings1116.Proceedings at General Meetings1217.Votes of Shareholders1218.Appointment of a Voting Proxy1319.Appointment of Directors and Termination of Their Office1420.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 Shares2228.Dividends and Bonus Shares2229.Acquisition of Company Shares2430.Exemption of Officeholders2431.Indemnification of Officeholders2432.Officeholders’ Insurance2633.Exemption, Indemnification and Insurance - General2634.Merger2635.Liquidation2736.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 6,000,000, divided into 600,000,000 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 4.10 Confidential Amendment #5ToEXCLUSIVE LICENSE AGREEMENTApogee Biotechnology CorporationandRedHill Biopharma Ltd. This Amendment is entered into effective as of the date of the last signature below (the “Effective Date”)by and between RedHill Biopharma Ltd. (“RedHill”) and Apogee Biotechnology Corporation (“Apogee”)to amend the terms of that Exclusive 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 theAgreement as follows: 1. Annex A is hereby amended and modified by adding to the list of Patents therein the following Patent: ·U.S. Provisional Patent Application Serial No. 62/792,996, filed January 16, 2019 which shallhereafter be a “Patent”, as defined in and for all purposes of the Agreement. 2. The Parties hereby agree that subject to the modifications specifically stated in this Amendment, all termsand conditions of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to the Agreement to beexecuted by their duly authorized representatives as of the Effective Date. Apogee Biotechnology Corp. RedHill Biopharma Ltd. Signature:/s/ Charles D. Smith Signature:/s/ Dror Ben-AsherName: Charles D. Smith Name: Dror Ben-AsherTitle: President and CEO Title: CEO01/23/2019 Signature:/s/ Micha Ben Chorin Name: Micha Ben-Chorin Title: CFO1Exhibit 4.12 Confidential THE SYMBOL "[****]" DENOTES PLACES WHERE PORTIONS OF THIS DOCUMENTHAVE BEEN OMIITTED PURSUANT TO A REQUEST FOR CONFIDENTIALTREATMENT. SUCH MATERIAL HAS BEEN FILED SEPARATELY WITH THESECURITIES AND EXCHANGE COMMISSION AMENDMENT NO. 1 TO EXCLUSIVE COMMERCIALIZATION AGREEMENT This Amendment No.1 to Exclusive Commercialization Agreement is made effective as of August24, 2018 by and between RedHill Biopharma Ltd. (“RedHill”) and Concordia Pharmaceuticals Inc., byway of its Barbados branch (“Concordia”).WITNESETH WHEREAS, Concordia and RedHill entered into an Exclusive Commercialization Agreementdated December 30, 2016 (the “Main Agreement”);WHEREAS, Concordia and RedHill desire to amend the Main Agreement;NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, theParties hereby agree as follows:1. All terms not otherwise defined herein shall have the meaning ascribed thereto in the MainAgreement, unless the context requires otherwise.2. In accordance with Section 20.6 of the Main Agreement, the Main Agreement is amended asfollows:2.1. Section 1.4 of the Main Agreement is hereby amended effective October 1, 2018 by thedeletion of the second sentence thereof so that Section 1.4 in its entirety is as follows:“1.4 “Applicable Percentage” means [****]”2.2. The following provision shall be added to the Main Agreement as a new Section 9.6:“Concordia shall pay RedHill two (2) one-time payments as follows: (i) $[****] to be paidon or before [****]; and (ii) $ [****] for [****] to be paid on or before [****]. Inconsideration for [****] RedHill: (i) has provided [****]; and (ii) continue, until September30, 2018, Promotion and commercialization of the Product for the Field of Use (with thenumber of representatives throughout geographical territories) substantially similar to thatprovided through the first half of 2018; subject, inter alia, to reassignment and promptreplacement of representatives and other ordinary course and commercially reasonablechanges in the geographical territories.2.3. The following provision shall be added to the Main Agreement as the last sentence ofSection 9.2: “All amounts paid or payable by Concordia to RedHill pursuant to the applicable QuarterlyReport shall, absent fraud or manifest error, be considered final and binding and shall not besubject to dispute or adjustment.”3. Except as specifically amended herein, the provisions of the Main Agreement shall continue in fullforce and effect.4. This Amendment No. 1 may be executed in any number of counterparts, each of which shall bedeemed an original, but all of which shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written. RedHill Biopharma Ltd. Concordia Pharmaceuticals Inc., S.à.r.l., Barbados Branch By:/s/ Dror Ben-Asher By:/s/ Robert FordName: Dror Ben-Asher Name: Robert FordTitle: CEO Title: Managing Director & Vice-President, Legal Affairs By:/s/ Micha Ben Chorin Name: Micha Ben Chorin Title: CFO August 26, 2018 Exhibit 4.14 First AddendumExclusive Licensing Agreement This First Addendum to the Agreement (as defined below) is made and entered into between Licensor and Licenseeas of the Effective Date of the Agreement. RECITALS WHEREAS, the Licensor and Licensee are parties to an Exclusive License Agreement made and entered into as ofApril 4, 2017 (the "Agreement"). WHEREAS, the Licensed Product was sold by Licensor in the Territory since August 2013 up to the RedHill Launchwhich occurred June 12, 2017 (the “Licensor Sales”). WHEREAS, Licensee has been selling the License Product exclusively in the Territory pursuant to the terms andconditions of the Agreement since the RedHill Launch (the "Licensee Sales"). WHEREAS, the Licensor and Licensee both desire to enter into this First Addendum to the Agreement to establishthe responsibilities of each party as they relate to customer returns of the Licensed Product ("Returns") which may occurduring and after the Term of the Agreement. NOW, THEREFORE, in consideration of the mutual promises and conditions contained in this First Addendum andin the Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is herebyacknowledged by, the parties agree as follows: 1.0 Definitions. Capitalized terms not otherwise defined herein shall have the meaning ascribed to them in theAgreement. 2.0 Returns. The parties hereby agree that the responsibilities, conditions and process for returns as outlined inAttachment A to this First Addendum are hereby agreed to and incorporated into this First Addendum and the Agreement intheir entirety. 3.0 Survival. The terms and conditions of this First Addendum shall survive the Expiration Date and theTermination Date. IN WITNESS WHEREOF, the parties hereto have caused this First Addendum to the Agreement to be executed as ofthe Effective Date. LICENSOR Entera Health, Inc. By:/s/ Aage Lauridsen LICENSEEDate:July 25, 2018 Title:CEO RedHill Biopharma, Inc. By:/s/ Dror Ben-Asher/s/ Micha Ben Chorin Date:July 18, 2018July 18, 2018 Title:CEOCFO 1 confidential First AddendumExclusive License Agreement Attachment A Returns The actual processing of all Returns will be the responsibility of Licensee through the earlier of the Expiration Date orTermination Date. Thereafter processing of such returns shall be the responsibility of the Licensor or its designated futurelicensee. Either party may use a logistics vendor to fulfill its processing responsibilities. The cost of any credit issued to the customer relating to a Return shall be the responsibility of the Licensor for any Licensorsales and the Licensee for any Licensee sales. The cost that Licensor will reimburse to Licensee for Returns of Licensor sales processed by Licensee will be limited to thesales price of the Licensed Product at the time of the Licensor sale (i.e., Licensor WAC) less 10%. The cost that Licensee willreimburse to Licensor for Returns of Licensee sales processed by Licensor will be limited to the sales price of the LicensedProduct at the time of the Licensee sale (i.e., Licensee WAC) less 10%. For the avoidance of doubt, the cost of any creditissued to a customer relating to a Return which is the responsibility of the Licensee shall be deducted from Net Sales. Any Licensor Sales Returned to Licensee will be destroyed in the manner required by the SOP of Licensor or shipped toLicensor for disposal, at Licensor's option. Licensor will be responsible for the cost of disposal and shipping. Any LicenseeSales Returned to Licensor will be destroyed in the manner required by the SOP of Licensee or shipped to Licensee fordisposal, at Licensee's option. Licensee will be responsible for the cost of disposal and shipping. Below is a listing of lots produced and their designation as Licensor Sales or Licensee Sales. Lots 6JO2PT, 6JO2PTA, and6JO3PT contain both Licensor Sales and Licensee Sales and shall be designated as a "Shared Lot". All Licensor sales from theShared Lots were made to Foundation Care. Licensee sales from Shared Lots were made to Foundation Care and additionalcustomers. For simplicity, any returns of units from the Shared Lots from Foundation Care will be the responsibility ofLicensor; returns of units from the Shared Lots from all other customers will be the responsibility of the Licensee. Reimbursable costs of Returns will be invoiced monthly by the processing party. Payment terms shall be net thirty (30)calendar days from the date of invoice. Any undisputed past due payments over 15 days beyond due date shall bear interestat a per annum rate equal to (a) the Prime Rate plus two percent (2.0%) per annum, or the maximum interest rate permissibleunder law, whichever is less. All payments to be made in USD. 2 confidential Entera Health Lots RedHill Lots “Licensor Sales”"Licensee Sales" 6J03PTA 6J04PT 3D01PT 3L02PT 5H02PTA 6B05PTA 3D01PTA 3L02PTA 5H03PT 6B06PT And, all future Licensed Product sales up to and including the earlierof Expiration Date or Termination Date 3D01PTB 4M02PTA 5H03PTA 6B06PTA 3D01PTC 4M02PTB 5H04PT 6B07PT 3E02PT 4M03PT 5H04PTA 6B07PTA 3E02PTA 4M03PTA 5K03PT 6B08PT 3E03PT 4P01PT 5K03PTA 6B08PT 3E03PTA 4P01PTA 5K04PT 6H03PT 3E04PT 4P02PTA 5K04PTA 6H03PT 3G04PT 4P02PTB 5K05PT 6H04PT 3G04PTA 5H01PT 5K05PTA 6H04PTA 3L01PT 5H01PTA 5K06PT 6J01PT 3L01PTA 5H02PT 5K06PTA 6J01PTA 3L01PTB 6B05PT And all future Licensed Product sales after the earlier of the Expiration Date or the Termination Date 3Exhibit 4.15Confidential 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 AMENDMENT TO EXCLUSIVE LICENSE AGREEMENT This Amendment to the Exclusive License Agreement (the "Amendment') is entered into as of September 7, 2018(the "Amendment Effective Date") by and between Entera Health, Inc., an Iowa Corporation, having an address at2425 SE Oak Tree Court, Ankeny, Iowa 50021 (the ''Licensor''), and RedHill Biopharma, Inc. a Delawarecorporation, having an address at 8045 Arco Corporate Drive, Suite 120, Raleigh, North Carolina 27617, along withall Affiliates thereof (as defined in that certain Exclusive License Agreement dated as of April 4, 2017 between theparties hereto (the "Agreement")) ("Licensee"). Unless otherwise specifically defined in this Amendment, any termused in this Amendment which is defined in the Agreement shall have the meaning assigned to it in the Agreement. WHEREAS, on August 16, 2018, [****] of the Agreement; and WHEREAS, pursuant to Section 17.4 of the Agreement, Licensor may [****]; and WHEREAS, the Licensee [****]. NOW, THEREFORE, in consideration of the premises and of the mutual covenants above, and for good andvaluable consideration, the adequacy and sufficiency of which is hereby acknowledged, the parties agree as follows: l. Replacement of Section 1.6: The Agreement is hereby amended and modified by deleting Section 1.6 in itsentirety and replacing such deleted section with a new Section 1.6 as set forth below: 1.6 "Contract Year" shall mean: (a) until October 1, 2018, a period of twelve (12) successivemonths commencing on the RedHill Launch Date (as defined below); and (b) from and after October 1, 2018, eachperiod of twelve (12) successive months. 2. Addition of New Section 4.4: The Agreement is hereby amended and modified by adding a new Section 4.4to the Agreement, as set forth below: 4.4 Licensee hereby agrees that the minimum amount of Licensed Product that Licensee shall purchasefrom Licensor in any one order shall comprise a [****] of Licensed Product, containing 30 sachets per box. 3. Addition of New Section 4.5: The Agreement is hereby amended and modified by adding a new Section 4.5to the Agreement, as set forth below: 4.5 Licensee hereby agrees that, once per month, personnel of Licensee chosen at the full and sole discretionof the Licensee and who are intimately involved and familiar with Licensee's sales and commercialization efforts withrespect to Licensed Product shall be available for, and participate in, monthly update teleconference calls, withpersonnel of Licensor. During such calls, Licensee personnel shall provide, within reason, monthly updates of salesefforts, progress, trends, forecasts, and the like, with respect to Licensed Product, and shall answer all questionsreasonably related thereto submitted or asked by Licensor. The information and updates provided by Licensee shallinclude, without limitation, information and updates concerning the numbers of open territories, total prescriptions,new prescriptions, calls made, and sample calls made, in furtherance of the commercialization and sales activities forthe Licensed Product. Licensee personnel shall participate on such calls for a duration reasonably requested byLicensor, up to one hour per monthly call. For the avoidance of any doubt, any and all operational decisions regardingthe Licensed Product remain at the full and sole discretion of the Licensee and Licensor shall not intervene or attemptto intervene, in such decisions in any manner whatsoever. 4. Replacement of Section 17.4: The Agreement is hereby amended and modified by deleting Section17.4 in its entirety and replacing such deleted section with a new Section 17.4 as set forth below: 17.4 Either of Licensor or Licensee may terminate this Agreement if Licensee fails to meet the Minimum NetSales target in any Contract Year provided the terminating party delivers termination notice to the other party within[****] from the date Licensee notifies Licensor of an applicable failure. Either Licensor or Licensee may terminatethis Agreement in the event of each and every such failure, and any failure to provide notice of termination within thetimelines stipulated above in respect of any particular failure shall not preclude either party from later terminating suchAgreement in respect of a later failure. Either Licensor or Licensee shall also be entitled to terminate this Agreementat any time, upon [****] prior written notice to the other party provided Licensor delivers termination notice toLicensee within [****] from the date Licensee provides the reports detailed below evidencing a failure to meet thesales targets provided below, if Licensee fails to meet any one or more of the following sales targets applicable to anyone or more of the time periods as set forth below: (a) [****] of Licensed Product during [****].(b) [****] of Licensed Product during [****].(c) [****] of Licensed Product [****].(d) [****] of Licensed Product [****]. Termination of this Agreement shall constitute the only remedy Licensor is entitled to for such commercial failuresdescribed in this Section 17.4, with no further liability by Licensee whatsoever in connection with such commercialfailures. Without limiting any other obligation of Licensee in this Agreement, Licensee shall provide reports of all 2 sales of Licensed Product made during each calendar quarter sufficient to enable Licensor to determine whetherLicensee has met the foregoing sales milestones within [****] during the Contract Term. 5. Replacement of Section 17.8 (a): The Agreement is hereby amended and modified by deleting Section 17.8(a)in its entirety and replacing such deleted section with a new Section 17.8(a) as set forth below: (a) Within [****] before the Expiration Date or within [****] after the Termination Date, Licenseeshall provide Licensor with a statement indicating the number and description of Licensed Products which ithas on hand as of the date of expiration or termination and the amount of such inventory necessary to fillLicensee's existing customer orders with such documentation provided to Licensor. Licensee shall have theright to sell Licensed Products it has on hand to fulfill Licensee's existing customer orders, as aforesaid, underthe License, subject to payment of Royalties. Furthermore, Licensee shall have the option, exercisable uponnotice to Licensor within [****]following the date of expiration or termination, to require Licensor torepurchase from Licensee all such remaining Licensed Products (or the part thereof that is not needed to fulfillLicensee's existing customer orders, as aforesaid) that are in a sellable condition, meaning that all suchLicensed Products: (i) are undamaged, unopened, unadulterated, unmodified, and in substantially identicalcondition as when such Licensed Products arrived at the Licensee's facilities; and (b) have at least [****]remaining shelf-life, at the price paid by Licensee. In the event that any such remaining Licensed Productsbear, incorporate, or embody any trademarks or other intellectual property rights of Licensee, Licensee herebygrants a perpetual, irrevocable, non-exclusive, worldwide, royalty-free, fully paid up, assignable, sublicensablelicense to Licensor to undertake any and all actions, including, without limitation, to sell and offer to sell suchremaining Licensed Products bearing or incorporating such Licensee intellectual property rights, with respectto such remaining Licensed Products solely to the extent reasonably necessary, convenient, or advisable toenable Licensor to undertake any and all sales and commercialization activities for such remaining LicensedProducts. 6. Entire Agreement: This Amendment, together with the Agreement, constitutes the entire agreement betweenthe parties with respect to the subject matter of the Agreement, as amended by this Amendment. The Agreement,together with this Amendment supersedes all prior agreements, whether written or oral, with respect to the subjectmatter of the Agreement, as amended, provided that nothing herein shall affect the Supply Agreement or anyother document or instrument referenced in the Agreement, except as modified herein. Each party confirms that itis not relying on any representations, warranties or covenants of the other party except as specifically set out in theAgreement as amended. The parties hereby agree that subject to the modifications specifically stated in thisAmendment, all terms and conditions of the Agreement shall remain in full force and effect. This Amendmentshall be governed by the same choice of law and subject to the same venue and dispute resolution provisions asset forth in the Agreement.[Signature Page Next Page] 3 Confidential IN WITNESS WHEREOF, the parties have entered into this Amendment to the Exclusive License Agreementas of the Amendment Effective Date by their duly authorized representatives. LICENSORL.ICENSEE ENTERA HEALTH, INC.REDHILL BIOPHARMA, INC. By: /s/ Alex WaldenBy: /s/ Dror Ben-Asher/s/ Micha Ben ChorinDate: Sept. 29, 2018Name: Dror Ben-AsherCFOTitle: VP, FinanceTitle: CEO Date: Sept.27, 2018 4Exhibit 4.2Confidential AMENDMENT TO ASSET PURCHASE AGREEMENT This Amendment to Asset Purchase Agreement (this “Amendment”) is made as of 27 February 2014 (the“Amendment Effective Date”), by and among RedHill Biopharma Ltd., an Israeli company having its principal placeof business at 21 Ha’arba’a Street, Tel-Aviv 64739, Israel (“RedHill”), and Giaconda Limited ACN 108 088 517, anAustralian public limited company having its registered office at Ground Floor, 44 East Street, Five Dock, NSW 2046,Australia (“Giaconda”). Each of RedHill and Giaconda is sometimes referred to individually herein as a “Party” andcollectively as the “Parties.”WHEREAS, Giaconda and RedHill are the parties to that certain Asset Purchase Agreement, dated as of 11August 2010 (the “Original Asset Purchase Agreement”) , which in Section 13.2 thereof contains provisions thatimpose certain restraints on the ability of Giaconda and Borody (as defined below) and their respective affiliates tosupply or grant certain goods, services or rights;WHEREAS, Professor Thomas J. Borody, of Ground Floor, 44 East Street, Five Dock, New South Wales,Australia 2046 (“Borody”), and RedHill in connection with the execution and delivery of the Original Asset PurchaseAgreement and the consummation of the transactions contemplated thereby, entered into, and are now the parties to,that certain Agreement, dated as of 11 August 2010 (the “ROFR Agreement”), which in Section 4.2 thereof containsprovisions that impose certain restraints on the ability of Borody and his affiliates to supply or grant certain goods,services or rights;WHEREAS, Borody, together with Dr. Sanjay Ramrakha, Dr. John Saxon, and Dr. Antony Wettstein(collectively, including Borody, the “Inventors”), has conducted work in the field of colonic purgatives, laxatives, andgastrointestinal cleansers and has in connection therewith developed certain know-how and intellectual property withrespect thereto;WHEREAS, Salix Pharmaceuticals, Inc. (“Salix”) and the Inventors wish to enter into an Assignment andLicense Agreement simultaneously herewith, pursuant to which Salix will acquire certain rights;WHEREAS, RedHill and Salix are entering into an Agreement (the “Salix/RedHill Agreement”) datedsimultaneously herewith;WHEREAS, as required by the Salix/RedHill Agreement, RedHill has agreed to amend the Original AssetPurchase Agreement to revise the restraints it places on the ability of Giaconda, Borody and their affiliates to supply orgrant certain goods, services, rights and information to Salix; andWHEREAS, Borody and RedHill are entering into a Deed of Variation dated simultaneously herewith that willamend the ROFR Agreement; Confidential NOW, THEREFORE, in consideration of the premises and the mutual promises and conditions hereinafter setforth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, theParties, intending to be legally bound, do hereby amend the Original Asset Purchase Agreement as follows:SECTION 1. Additional Definitions. The following new definitions shall be inserted into the Section 1 of theOriginal Asset Purchase Agreement in their correct alphabetical order:“Designated Products” means all Products other than Purgative Products.“Designated Technology” means all Technology other than Technology that relates to the Purgative Field.“Designated Technology Intellectual Property” means all Technology Intellectual Property other than TechnologyIntellectual Property that relates to the Purgative Field.“Purgative Field” means the development, manufacturing, and commercialization, making, having made, using,offering to sell, selling, or importing of Purgative Products.“Purgative Product” means any substance or product, including the Picoconda product, intended for use as a colonicpurgative, laxative or gastrointestinal cleanser (including in, or for the purpose of, the prevention, diagnosis, staging,monitoring, treatment or maintenance of any disease or condition) in humans or non-human animals, but not, for theavoidance of doubt, any of RedHill's RHB-102 (extended release anti-emetic ondansetron), Myoconda (RedHill'sRHB-104 - a product containing a combination of clarithromycin, clofazamine and rifabutin) and Heliconda (RedHill'sRHB-105 - a product containing a combination of rifabutin, amoxicillin and pantoprazole or omeprazole).SECTION 2. Non-Competition.2.1 Section 13.2.1 of the Original Asset Purchase Agreement is hereby amended and replaced in its entirety by thefollowing:“Restraint. Seller agrees and undertakes that neither Seller or its Affiliates (excluding Borody and theCentre for Digestive Diseases Pty Limited (ACN 097 085 884)) (CDD) , will, without the prior writtenconsent of Buyer directly or indirectly, as owner, part-owner, financier, partner, joint venturer,stockholder, employee, broker, agent, principal, corporate officer, director, licensor or in any othercapacity whatever (a) supply or grant services or rights similar to or competing with the DesignatedProducts or the Designated Technology; or (b) supply goods or services that assist any other person,entity, or organization in competing or in preparing to compete with the Designated Products or theDesignated Technology. The foregoing restrictions do not prevent Seller from selling, licensing, ordealing with Hepaconda or Ibaconda provided that those patents and associated intellectual property arenot the subject of the Charges. The foregoing 2 Confidential restrictions do not apply if Seller proposes to exercise or exercises its Buy Back Option. ”2.2 Section 13.2.5 of the Original Asset Purchase Agreement is hereby amended and replaced in its entirety by thefollowing:This Section 13.2.1 does not restrict:a) Seller or its Affiliates holding 1% or less of any class of stock or securities of a publicly listed company,provided that Seller or its Affiliates have no active role in that company;b) Seller or its Affiliates recruiting a person through a recruitment agency (except if the agency targets Buyer’semployees) or as a response to a newspaper, web page or other public employment advertisement;c) Seller or its Affiliates from selling, licensing, or dealing with Hepaconda or Ibaconda provided that thosepatents and associated intellectual property are not the subject of the Charges or part of the TechnologyIntellectual Property or licensed to Buyer under Section 4 hereto;d) Seller from proposing to exercise or exercising its Buy Back Option;e) Seller from enjoying the full incidents of ownership of the Relevant Therapy acquired by it as a result ofexercising its Buy Back Option.2.3 Section 13.2.6 of the Original Asset Purchase Agreement is added as follows:“Notwithstanding any clause in this agreement, nothing in this agreement restricts Borody or hisAffiliates from taking any action or conducting any activities with respect to Purgative Products orotherwise in the Purgative Field.”2.4 Release The Buyer irrevocably and unconditionally releases and forever discharges the Seller and its Affiliatesfrom any and all claims (including any present or future causes of action, expenses, including legal fees, claim,liabilities, damages, declaration, demand, loss or suit whether arising in contract, tort, statue, equity or otherwisewhether known or unknown) that the Buyer or its Affiliates may have in connection with any acts or omissions ofBorody or CDD relating to Section 13.2 of the Original Asset Purchase Agreement prior to the amendment of Section13.2 under this Agreement.SECTION 3. Confidentiality. Section 14.2 of the Original Asset Purchase Agreement is hereby amended by addinga new sentence at the end thereof reading as follows:“Notwithstanding anything in this Article 14 to the contrary, nothing in this Article 14 shall operate tolimit or qualify the right and ability of Seller, Borody, CDD and their respective Affiliates to use and todisclose to Salix Pharmaceuticals, Inc. information, including information that would otherwiseconstitute Confidential 3 Confidential Information subject to the restrictions and limitations set forth in this Article 14, to the extent (but onlyto the extent) the same relates to Purgative Products or the Purgative Field.”SECTION 4. Condition Precedent. The parties agree and acknowledge that this Amendment is interdependent withthose agreements and deeds set forth on Annex 1 hereto (the “Interdependent Documents”) and that, except as mayotherwise be agreed by the parties in writing, (a) no provision of this Amendment other than this Section 4 will comeinto effect until a counterpart of each of the other Interdependent Documents has been duly executed and delivered byall parties thereto but (b) simultaneously with the execution and delivery by each party thereto of a counterpart of eachof the other Interdependent Documents all provisions of this Amendment shall, without further action by any of theparties, come into full force and effect.SECTION 5. Effective Date; Incorporation of Terms; Continuing Effect. Subject to Section 4, this Amendmentshall be deemed effective for all purposes as of the Amendment Effective Date. The amendment set forth in thisAmendment shall be deemed to be incorporated in, and made a part of, the Original Asset Purchase Agreement, andthe Original Asset Purchase Agreement and this Amendment shall be read, taken and construed as one and the sameagreement (including with respect to the provisions set forth in Article 18 of the Original Asset Purchase Agreement,which shall, as applicable, be deemed to apply to this Amendment (including with respect to the governinglaw)). Except as otherwise expressly amended by this Amendment, the Original Asset Purchase Agreement shallremain in full force and effect as so amended in accordance with its terms and conditions and does not prejudice anyaccrued rights or obligations which the parties to the Original Asset Purchase Agreement have under that agreement.SECTION 6. Counterparts. This Amendment may be executed in any number of counterparts, each of which shallbe deemed to be an original, and all of which, taken together, shall constitute one and the same instrument. ThisAmendment may be executed by the electronic or telephonic delivery of a facsimile of an executed signature pagehereof with the same effect as the delivery of the original of such executed signature page.[Remainder of page intentionally left blank] 4  IN WITNESS WHEREOF, the parties, intending to be bound, have caused this Amendment to be executed ontheir behalf by their duly authorized agent to be effective as of the Amendment Effective Date. RedHill Biopharma Ltd. By:/s/ Dror Ben-Asher /s/ Ori Shilo Name: Dror Ben-Asher Ori Shilo Title: CEO Deputy CEO February 26, 2014 February 26, 2014 Executed by Giaconda Limited ACN 108 088 517 inaccordance with Section 127 of the Corporations Act2001 /s/ Thomas Borody /s/ Christopher Robert BilkeySignature of director Signature of director/company secretary Name of director/company secretary:Name of director: Thomas Borody Christopher Robert Bilkey Signature Page to Amendment to Asset Purchase Agreement  ANNEX 1 Interdependent Documents Core Transactional Documents1. Assignment and License Agreement by and among Professor Thomas J. Borody, Dr Sanjay Ramrakha, Dr JohnSaxon, and Dr Antony Wettstein and Salix Pharmaceuticals, Inc.2. Agreement between RedHill Biopharma Ltd. and Salix Pharmaceuticals, Inc.Giaconda / Redhill Arrangements3. This Amendment to Asset Purchase Agreement by and between RedHill Biopharma Ltd. and Giaconda LimitedACN 108 088 5174. Deed of Waiver, Confirmation, Termination, and Amendment by and between Giaconda Limited ACN 108 088517, Centre for Digestive Diseases Pty Limited ACN 097 085 884, Professor Thomas Julius Borody, RedHillBiopharma Ltd., and Salix Pharmaceuticals, Inc.Borody / RedHill Arrangements5. Deed of Variation by and between RedHill Biopharma Ltd. and Professor Thomas J. Borody6. Deed of Termination by and between RedHill Biopharma Ltd and Centre for Digestive Diseases Pty Limited ACN097 085 8847. Deed of Termination by and between RedHill Biopharma Ltd and Professor Thomas J. BorodyGeneral Facilitating Documents8. Deed of Waiver and Confirmation by and among Centre for Digestive Diseases Pty Limited ACN 097 085 884,Professor Thomas Julius Borody, and Salix Pharmaceuticals, Inc.9. Deed of Waiver and Confirmation by and between Pharmatel Research & Development Pty Ltd as trustee for thePharmatel Research & Development Trust ACN 104 997 328 and Salix Pharmaceuticals, Inc.10. Research Services Agreement by and between Centre for Digestive Disease Pty Limited ACN 097 085 884 andSalix Pharmaceuticals, Inc.11. Deed of Waiver and Confirmation, between Giaconda Limited ABN 108 088 517 and Centre for DigestiveDiseases Pty Limited ABN 54 097 085 88412. Letter agreement, between Giaconda Limited ACN 108 088 517 and Salix Pharmaceuticals, Inc.Giaconda / Borody/ Salix Arrangements  13. Deed of Waiver and Confirmation by and among Giaconda Limited ACN 108 088 517, Professor Thomas JuliusBorody, and Salix Pharmaceuticals, Inc.14. Ibaconda Assignment Agreement by and between Giaconda Limited ACN 108 088 517 and SalixPharmaceuticals, Inc.Rosenhain Arrangements15. Releases for Salix Deed, dated 23 December 2013, by and between Mrs. Norma Rosenhain, CIPAC Limited, andSalix Pharmaceuticals, Inc.16. Deed of Assignment and License, dated on or about 25 January 2013, between Professor Thomas Julius Borodyand CIPAC Limited17. Letter agreement, dated 23 December 2013, between Mrs. Norma Rosenhain and CIPAC Limited18. Termination Deed, dated 23 December 2013, between Professor Thomas Julius Borody, Centre for DigestiveDiseases Pty Limited ACN 097 085 884, and Mrs. Norma Rosenhain Exhibit 4.4Confidential THE SYMBOL "[****]" DENOTES PLACES WHERE PORTIONS OF THIS DOCUMENT HAVE BEEN OMIITTEDPURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. SUCH MATERIAL HAS BEEN FILED SEPARATELYWITH THE SECURITIES AND EXCHANGE COMMISSION AMENDMENT NO. 1 TO AGREEMENT This Amendment No.1 to Agreement is made as of February 26, 2018 (the “Amendment Effective Date”) byand between RedHill Biopharma Ltd. (“RedHill”) and Salix Pharmaceuticals, Inc. (“Salix”). WITNESETH WHEREAS, RedHill and Salix have entered into that certain Agreement dated February 27, 2014 (the“Agreement”); andWHEREAS, [****] and the Parties desire to amend the Agreement to reflect certain changes to the Agreement; NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the Parties herebyagree as follows: 1. All terms not otherwise defined herein shall have the meaning ascribed thereto in the Agreement, unless thecontext requires otherwise.2. RedHill hereby [****] of the Agreement pursuant to [****] and the Parties agree that the Agreement shall be[****].3. In consideration for the covenants, agreements and undertakings made herein, the receipt and sufficiency ofwhich is hereby acknowledged, RedHill (for itself and each of its successors, assigns, parents, subsidiaries,affiliates, attorneys, agents, employees, directors, officers, representatives, or any persons or entities acting onits behalf) hereby releases and discharges Salix from and against any and all claims, liabilities or damages,whether known or unknown, whether present or future, that RedHill had, has or may have against Salix, andhereby waives any right RedHill may have [****], in each case, relating to or arising out of any [****] of theAgreement, from the beginning of time through the Amendment Effective Date.4. Other than with respect to the releases expressly detailed in Section 3 of this Amendment, nothing herein shallprejudice any rights and remedies conferred [****] in accordance with its terms following the AmendmentEffective Date.5. In accordance with Section 13.7 of the Agreement, the Agreement is hereby amended as follows:5.1. Article 1 is hereby amended to include the following definitions:1  “Commercially Reasonable Efforts” shall mean, with respect to the efforts and resources to beexpended by a Party with respect to any objective or activity under this Agreement, [****].“Development Plan” shall mean the development plan prepared by Salix setting out Salix’s plan toDevelop [****], as such plan may be amended from time to time by Salix [****], which development plan(and any amendments thereto) shall be provided to RedHill promptly upon completion and, in the caseof the initial Development Plan, no later than [****] following the Amendment Effective Date.”5.2. Article 3.7.2 is hereby deleted in its entirety and replaced with the following:“3.7.2 Without limiting the provisions of Section 3.7.1, the Parties acknowledge and agree that, otherthan as set out in Sections 5.4 and 12.3, Salix has no obligation to Develop or Commercialize anyLicensed Product or any obligation to satisfy the conditions to the milestone payments set forth inSection 6.2 or to achieve any particular level of additional consideration or other payments (oradditional consideration or other payments payable to Redhill under Section 6.3).”5.3. Article 5 is hereby amended by the addition of the following after Section 5.3:“5.4 Development Diligence. Salix shall use Commercially Reasonable Efforts to pursue theDevelopment of [****] in accordance with the Development Plan.”5.4. Section 6.3.1(c) is hereby amended by replacing [****].5.5. Section 7.1.1(c) is hereby deleted in its entirety and replaced with the following:“(c) RedHill shall have the right to be actively involved in the maintenance of Licensed RedHill Patentsand License RedHill Know-how. Salix shall provide RedHill with copies of all relevant documentationso that RedHill will be informed of the continuing preparation, filing, prosecution and maintenance ofthe Licensed RedHill Patents and may comment upon such documentation sufficiently in advance ofany filing deadline. Salix shall consider in good faith any comments received from RedHill; provided,however, that if RedHill has not commented upon such documentation in a reasonable time for Salix tosufficiently consider RedHill’s comments prior to a deadline with the relevant government patent office,or Salix must act to preserve the Licensed RedHill Patents, Salix will be free to act withoutconsideration of RedHill’s comments, if any. Salix shall keep RedHill fully informed with respect to anycommunications with any relevant governmental offices and (i) within [****] of Salix’s receipt thereof,provide to RedHill any written correspondence from any governmental office, and (ii) no later than[****] prior to the submission thereof provide to RedHill any proposed written correspondence to anygovernmental office, including copies of any and all underlying data to accompany any suchcorrespondence. Salix shall consider in good faith any written comments received from RedHill withrespect to such2  correspondence prior to its submission; provided, however, that if RedHill has not commented uponsuch correspondence in a reasonable time for Salix to sufficiently consider RedHill’s comments prior toa deadline with respect to such correspondence, Salix will be free to act without consideration ofRedHill’s comments, if any. Without derogating from the foregoing, at any time that Salix is notDeveloping [****] or the Development Plan does not contemplate the Development of [****], Salix shallact in accordance with all comments provided by RedHill in connection with preparation, filing,prosecution and maintenance of the Licensed RedHill Patents, including in preparing any proposedwritten correspondence to any governmental office and otherwise act in accordance with RedHill’spatent and regulatory strategy as notified timely to Salix’s patent counsel in writing, in each case,unless Salix has a documented and compelling reason not to do so. All of the obligations of Salix set outin this Section 7.1.1(c) shall be subject to (and limited by) its obligations under Applicable Law andunder its contractual commitments with any Third Party, including, but not limited to, its obligations ofconfidentiality and non-disclosure existing as of the Amendment Effective Date.”5.6. Section 12.3 is hereby deleted in its entirety and replaced with the following:“12.3 Additional Termination Rights by RedHill.12.3.1 In the event that Salix should, at any time during the period beginning [****] following theEffective Date and ending on the date [****], not then be using Commercially Reasonable Efforts topursue the Development of [****] in accordance with the Development Plan, then RedHill shall beentitled to give Salix notice requiring Salix to commence or resume using Commercially ReasonableEfforts to Develop [****] in accordance with the Development Plan and stating RedHill’s intention toterminate this Agreement if Salix fails to do so. For the avoidance of doubt, RedHill shall be entitled togive such notice more than once, but any such notice may be given only during the period beginning[****] and ending on the date on which [****]. If Salix fails to commence or resume using CommerciallyReasonable Efforts to Develop [****], and give notice of such commencement or resumption to RedHill,within [****] after its receipt of such notice (or, if relevant Development activities cannot reasonably becommenced or resumed within such [****] period, if Salix does not commence actions to commence orresume relevant Development activities, and give notice of such commencement to RedHill, within[****] period and thereafter diligently continue such actions or if in any event Salix has not commencedor resumed relevant Development activities, and given notice of such commencement or resumption toRedHill, within [****] after its receipt of such notice), then RedHill shall be entitled, by notice to Salixand without prejudice to any other rights conferred on RedHill by this Agreement and in addition toany other remedies available to RedHill at law or in equity, to terminate this Agreement forthwith.3  12.3.2 Without derogating from the foregoing, in the event that Salix shall fail, for any reason, and evenif having used Commercially Reasonable Efforts to do so, to (i) [****] (ii) [****] (as may be extended onmutual agreement of the Parties), then RedHill shall be entitled to give Salix notice requiring Salix to[****] and stating RedHill’s intention to terminate this Agreement if Salix fails to do so. For theavoidance of doubt, RedHill shall be entitled to give such notice more than once (but not for the sameevent resulting in Salix’ failure to comply with such matters), but any such notice may be given onlyduring (and with respect to events occurring during) the period beginning on the Amendment EffectiveDate and ending on the date on which [****]. If Salix fails to [****], in each case, within [****] after itsreceipt of such notice, then this Agreement shall terminate forthwith. Such right of termination shall beRedHill’s sole remedy with respect to the breaches described in this Section 12.3.2.6. Except as specifically amended herein, the provisions of the Agreement shall continue in full force and effect.[signature page follows] 4  IN WITNESS WHEREOF, the Parties have executed this Amendment as of the date first above written. RedHill Biopharma Ltd. Salix Pharmaceuticals, Inc. By:/s/ Dror Ben-Asher By:/s/ Mark McKennaName:Dror Ben-Asher Name:Mark McKennaTitle:CEO Title:SVP & GMFeb. 26, 2018 3.20.2018 By:/s/ Micha Ben Chorin Name:Micha Ben Chorin Title:CFO February 26, 2018 5  ANNEX A [****] 6Exhibit 4.6Confidential THE SYMBOL "[****]" DENOTES PLACES WHERE PORTIONS OF THIS DOCUMENT HAVE BEEN OMIITTEDPURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. SUCH MATERIAL HAS BEEN FILEDSEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION Amendment #1ToEXCLUSIVE LICENSE AGREEMENT Apogee Biotechnology CorporationandRedHill Biopharma Ltd This Amendment is entered into effective as of the date of the last signature below (the"Effective Date") by and between RedHill Biopharma Ltd ("RedHill") and Apogee BiotechnologyCorporation ("Apogee") to amend the terms of that Exclusive License Agreement entered into bythe parties effective March 30, 2015 ("Agreement"). NOW, THEREFORE, the mutual covenants set forth herein, the parties agree to amend the terms ofthe Agreement as follows: 1. Clause 6.2.1 is hereby modified to: [****] days following the earlier of (i) [****] and (ii) [****]:Two Million US Dollars ($2,000,000). 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 dulyauthorized representatives as of the date of the last party to sign to be effective and in agreement.  RedHill Biopharma Ltd Apogee Biotechnology Corporation By:/s/ Micha Ben Chorin By:/s/ Charles D. Smith/s/ Dror Ben-Asher Printed Name:Micha Ben Chorin Printed Name:Charles D. Smith Dror Ben-Asher Title:CFO Title:President and CEOCEO Date: January 23, 2017 Date:January 21, 2017 Exhibit 4.9Confidential 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 SECURITIES ANDEXCHANGE COMMISSION Amendment #4ToEXCLUSIVE LICENSE AGREEMENT Apogee Biotechnology CorporationandRedHill Biopharma Ltd This Amendment is entered into effective as of the date of the last signature below (the“Effective Date”) by and between RedHill Biopharma Ltd (“RedHill”) and Apogee BiotechnologyCorporation (“Apogee”) to amend the terms of that Exclusive License Agreement entered into bythe parties effective March 30, 2015 (“Agreement”). NOW, THEREFORE, the mutual covenants set forth herein, the parties agree to amend theterms of the Agreement as follows: 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). 2. Clause 6.3.1.1 is hereby modified to: A Royalty equal to [****]. 3. Clause 6.3.1.2 is hereby modified to: A Royalty equal to [****]. 4. Clause 6.3.2.1 is hereby modified to: A Royalty equal to [****]. 5. Clause 6.3.2.2 is hereby modified to: A Royalty equal to [****]. 6. Clause 6.3.3 is hereby modified to: A royalty equal to [****]. 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 theirduly authorized representatives as of the date of the last party to sign to be effective and inagreement. RedHill Biopharma Ltd Apogee Biotechnology Corporation By:/s/ Micha Ben Chorin By:/s/ Charles D. Smith/s/ Dror Ben-Asher PrintedName:Micha Ben Chorin Printed Name:Charles D. SmithDror Ben-Asher Title:CFO Title:President and CEOCEO Date:January 3, 2019 Date:January 1, 2019 Exhibit 12.1 CERTIFICATION BY CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OFTHE SARBANES-OXLEY ACT 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 asof, and for, the periods presented in this report; 4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control overfinancial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures tobe designed under our supervision, to ensure that material information relating to the company,including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financialreporting to be designed under our supervision, to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles; c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in thisreport our conclusions about the effectiveness of the disclosure controls and procedures, as of the end ofthe period covered by this report based on such evaluation; and d) Disclosed in this report any change in the company’s internal control over financial reporting thatoccurred during the period covered by the annual report that has materially affected, or is reasonablylikely to materially affect, the company’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 overfinancial reporting which are reasonably likely to adversely affect the company’s ability to record,process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have asignificant role in the company’s internal control over financial reporting. Date: February 25, 2019 /s/ Dror Ben-Asher Dror Ben-Asher Chief Executive Officer 2Exhibit 12.2 CERTIFICATION BY CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OFTHE SARBANES‑OXLEY ACT 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 suchstatements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report,fairly present in all material respects the financial condition, results of operations and cash flows of thecompany 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 disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controlover financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company andhave: a) Designed such disclosure controls and procedures, or caused such disclosure controls and proceduresto be designed under our supervision, to ensure that material information relating to the company,including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financialreporting to be designed under our supervision, to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles; c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in thisreport our conclusions about the effectiveness of the disclosure controls and procedures, as of the endof the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the company’s internal control over financial reporting thatoccurred during the period covered by the annual report that has materially affected, or is reasonablylikely to materially affect, the company’s internal control over financial reporting; 5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation ofinternal control over financial reporting, to the company’s auditors and the audit committee of the company’sboard of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal controlover financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information;and b) Any fraud, whether or not material, that involves management or other employees who have asignificant role in the company’s internal control over financial reporting. Date: February 25, 2019 /s/ Micha Ben Chorin Micha Ben Chorin Chief Financial Officer 2Exhibit 13 CERTIFICATION BY CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICERPURSUAN TO SECTION 906 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, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each ofthe undersigned officers of the Company certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of theSarbanes-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 of1934; and(2) The information contained in the Report fairly presents, in all material respects, the financial condition andresults of operations of the Company Dated: February 25, 2019 /s/ Dror Ben-Asher Dror Ben-Asher Chief Executive Officer /s/ Micha Ben Chorin Micha Ben Chorin Chief Financial Officer Exhibit 15.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statements on Form F-3 (file No. 333-209702 andfile No. 333-226278) and the Registration Statements on Form S-8 (file No. 333-225122, file No. 333-219441, file No. 333-207654 and file No. 333-188286) of RedHill Biopharma Ltd. of our report dated February 25, 2019 relating to the financialstatements and the effectiveness of internal control over financial reporting, which appears in this Form 20‑F./s/ Kesselman & KesselmanCertified Public Accountants (Isr.)A member firm of PricewaterhouseCoopers International Limited Tel-Aviv, IsraelFebruary 25, 2019 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

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