RedHill Biopharma Ltd.
Annual Report 2020

Plain-text annual report

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 20-F ☐ ⌧ ☐ ☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 OR 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 Officer 21 Ha’arba’a Street, Tel Aviv 6473921, Israel Tel: 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 American Depositary Shares, each representing ten Ordinary Shares (1) Trading Symbol(s) RDHL Name of each exchange on which registered NASDAQ Global Market Ordinary Shares, par value NIS 0.01 per share (2) RDHL 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: 383,981,464 Ordinary Shares Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ⌧ If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act 1934. Yes ☐ No ⌧ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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 90 days. 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 ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.: Large Accelerated filer ☐ Accelerated filer ⌧ Non-accelerated filer ☐ Emerging growth company ☐ If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐ † The term "new or revised financial accounting standard" refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ⌧ Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: International Financing Reporting Standards as issued by the International Accounting Standards Board ⌧ Other ☐ U.S. GAAP ☐ 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. 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). Item 17 [ ] Item 18 [ ] Yes ☐ No ⌧ Table of Contents TABLE OF CONTENTS IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS ITEM 1. OFFER STATISTICS AND EXPECTED TIMETABLE ITEM 2. KEY INFORMATION ITEM 3. ITEM 4. INFORMATION ON THE COMPANY ITEM 4A. UNRESOLVED STAFF COMMENTS OPERATING AND FINANCIAL REVIEW AND PROSPECTS ITEM 5. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES ITEM 6. ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS ITEM 8. ITEM 9. ITEM 10. ADDITIONAL INFORMATION ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF FINANCIAL INFORMATION THE OFFER AND LISTING PROCEEDS [RESERVED] ITEM 15. CONTROLS AND PROCEDURES ITEM 16. ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT ITEM 16B. CODE OF ETHICS ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES. ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT ITEM 16G. CORPORATE GOVERNANCE ITEM 16H. MINE SAFETY DISCLOSURE ITEM 17. FINANCIAL STATEMENTS ITEM 18. FINANCIAL STATEMENTS ITEM 19. EXHIBITS GLOSSARY OF TERMS EXHIBIT INDEX 7 7 7 59 98 98 111 130 131 132 132 146 147 148 148 149 150 150 150 150 151 151 151 151 152 152 152 152 153 155 2 Table of Contents Unless the context otherwise requires, all references to “RedHill,” “we,” “us,” “our,” the “Company” and similar designations refer to RedHill Biopharma Ltd., a limited liability company incorporated under the laws of the State of Israel, and its direct and indirect subsidiaries, including RedHill Biopharma Inc. (“RedHill U.S.”), a wholly-owned subsidiary incorporated in Delaware. 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 to U.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) have been translated for the convenience of the reader from the original NIS amounts at the representative rate of exchange as of March 17, 2021 ($1 = NIS 3.289). The dollar amounts presented should not be construed as representing amounts that are receivable or payable in dollars or convertible into dollars, unless otherwise indicated. Foreign currency transactions in currencies other than U.S. dollars are translated in this Annual Report into U.S. dollars using exchange rates in effect at the date of the transactions. Unless otherwise indicated or the context requires, the term “therapeutic candidates” refers to investigational drug products that are still in development and have not been approved by the FDA or other relevant regulatory authority and the term “commercial products” means products approved by the Food and Drug Administration (“FDA”) that we commercialize or promote from time to time. FORWARD-LOOKING STATEMENTS Some of the statements under the sections entitled “Item 3. Key Information – Risk Factors,” “Item 4. Information on the Company,” “Item 5. Operating and Financial Review and Prospects” and elsewhere in this Annual Report may include forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms, including “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties, many of which are beyond the Company’s control and cannot be predicted or quantified. In addition, the section of this Annual Report entitled, “Item 4. Information on the Company”, contains information obtained from independent industry and other sources that we may not have independently validated. 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-looking statements 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; ● the commercialization and market acceptance of our commercial products; ● our ability to generate sufficient revenues from our commercial products, including obtaining commercial insurance and government reimbursement; ● our ability to advance our therapeutic candidates into clinical trials or to successfully complete our preclinical studies or clinical trials, and to complete the development of such therapeutic candidates and obtain approval for marketing by the Food and Drug Administration (“FDA”) or other regulatory authorities; 3 Table of Contents ● our reliance on third parties to satisfactorily conduct key portions of our commercial operations, including manufacturing and other supply chain functions, market analysis services, safety monitoring, regulatory reporting and sales data analysis and the risk that those third parties may not perform such functions satisfactorily; ● our ability to maintain an appropriate sales and marketing infrastructure; ● our ability to establish and maintain corporate collaborations; ● that our current commercial products or commercial products that we may commercialize or promote in the future may be withdrawn from the market by regulatory authorities and our need to comply with continuing laws, regulations and guidelines to maintain clearances and approvals for those products; ● our exposure to significant drug product liability claims; ● the completion of any postmarketing studies or trials; ● our ability to acquire products approved for marketing in the U.S. that achieve commercial success and to maintain our own marketing and commercialization capabilities; ● our estimates of the markets, their size, characteristics and their potential for our commercial products and therapeutic candidates and our ability to serve those markets; ● the successful commercialization of products we in-license or acquire; ● our inability to enforce claims relating to a breach of a representation and warranty by a counterparty; ● the hiring and continued employment of executives, sales personnel, and contractors; ● our receipt and timing of regulatory clarity and approvals for our commercial products and therapeutic candidates, and the timing of other regulatory filings and approvals; ● the initiation, timing, progress, and results of our research, development, manufacturing, preclinical studies, clinical trials, and other commercial efforts and therapeutic candidate development, as well as the extent and number of additional studies that we may be required to conduct; ● our ability to advance our therapeutic candidates into clinical trials or to successfully complete our preclinical studies or clinical trials, including developing a commercial companion diagnostic for the detection of Mycobacterium avium paratuberculosis (“MAP”); ● our reliance on third parties to conduct key portions of our clinical trials, including data management services and the risk that those third parties may not perform such functions satisfactorily; ● our reliance on third parties to manufacture and supply our therapeutic candidates and their respective APIs with the requisite quality and manufacturing standards in sufficient quantities and within the required timeframes and at an acceptable cost; ● the research, manufacturing, clinical development, commercialization, and market acceptance of our therapeutic candidates; ● the interpretation of the properties and characteristics of our commercial products or therapeutic candidates and of the results obtained in research, preclinical studies or clinical trials; 4 Table of Contents ● the implementation of our business model, strategic plans for our business, commercial products, and therapeutic candidates; ● heightened attention on the problems associated with opioids; ● the impact of other companies and technologies that compete with us within our industry; ● the scope of protection we are able to establish and maintain for intellectual property rights covering our commercial products and therapeutic candidates, including from existing or future claims of infringement, and our ability to operate our business without infringing or violating the intellectual property rights of others; ● parties from whom we license or acquire our intellectual property defaulting in their obligations toward us; ● the failure by a licensor or a partner of ours to meet their respective obligations under our acquisition, in-license or other development or commercialization agreements or renegotiate the obligations under such agreements, or if other events occur that are not within our control, such as bankruptcy of a licensor or a partner; ● our reliance on the actions of third parties, including sublicensors and their other sublicensees, to maintain our rights under our in-licenses which are sublicenses; ● the effect of a potential occurrence of patients suffering serious adverse events using investigative drugs under our Expanded Access Program; ● our ability to implement network systems and controls that are effective at preventing cyber-attacks, malware intrusions, malicious viruses and ransomware threats; ● the effects of the economic and business environment, including unforeseeable events; and ● the impact on our business of the political and security situation in Israel, the U.S. and other places in which we operate. Summary of Risk Factors The following is a summary of some of the principal risks we face. The list below is not exhaustive, and investors should read the “Risk Factors” section included in “Item 3. Key Information – Risk Factors” in full. ● Our pursuit of treatments for SARS-CoV-2 (the virus that causes COVID-19) infection in patients entails a high level of uncertainty. We have conducted limited testing of both opaganib and RHB-107 and cannot assure you that either of them will prove to be a safe and effective treatment for COVID-19 or will be approved for marketing or Emergency Use Authorization by the FDA or other regulatory authorities. ● If we are successful in developing a COVID-19 therapeutic, we may need to devote significant resources to our manufacturing scale-up and large-scale deployment, including for use by the U.S. or other governments. If one of our COVID-19 therapeutic candidates is approved for marketing we may also need to devote significant resources to further expand our U.S. sales and marketing activities and increase or maintain personnel to accommodate sales in the U.S. ● The ongoing COVID-19 pandemic may adversely affect our business, revenues, results of operations and financial condition. ● Our current working capital is not sufficient to commercialize our current commercial products or to complete the research and development with respect to any or all of our therapeutic candidates. We may need to raise additional capital to achieve our strategic objectives and to execute our business plans, and our failure 5 Table of Contents to raise sufficient capital or on favorable terms would significantly impair our ability to fund the commercialization of our current commercial products, therapeutic candidates, or the products we may commercialize or promote in the future, attract development or commercial partners or retain key personnel, and to fund operations and develop our therapeutic candidates. ● Our long-term capital requirements are subject to numerous risks. ● Our term loan facility imposes significant operating and financial restrictions on us, which may prevent us from capitalizing on business opportunities and may restrict our operational flexibility, and our failure to comply with the restrictive covenants in our term loan facility could have a material adverse effect on our business. ● We may be unable to generate sufficient cash flow to make the required payments under the term loan facility or to adhere to other requirements under the term loan facility. ● The indebtedness under our term loan facility is secured by substantially all of the current and future assets of RedHill U.S., all of our assets related in any material respect to Talicia®, and all of the equity interests of RedHill U.S. As a result of these security interests, such assets would only be available to satisfy claims of our general creditors or to holders of our equity securities if we were to become insolvent to the extent the value of such assets exceeded the amount of our indebtedness and other obligations. In addition, the existence of these security interests may adversely affect our financial flexibility. ● If we or our future development or commercialization partners are unable to obtain or maintain the FDA or other foreign regulatory clearance and approval for our commercial products or therapeutic candidates, we or our commercialization partners will be unable to commercialize our current commercial products, products we may commercialize or promote in the future or our therapeutic candidates, upon approval, if any. 6 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 Not applicable. 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 this Annual Report, including our financial statements and the related notes beginning on page F-1, before you decide to buy our securities. The risks and uncertainties described below in this Annual Report on Form 20-F for the year ended December 31, 2020, 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 of the risks described below or incorporated by reference in this Form 20-F, and any such additional risks, could materially adversely affect our reputation, business, financial condition or results of operations. In such case, you may lose all or part of your original investment. Risks Related to Our Development of COVID-19 Therapy and COVID-19 Impact on Our Business Our pursuit of treatments for SARS-CoV-2 (the virus that causes COVID-19) infection in patients entails a high level of uncertainty. We have conducted limited testing of both opaganib and RHB-107 and cannot assure you that either of them will prove to be a safe and effective treatment for COVID-19 or will be approved for marketing or Emergency Use Authorization by the FDA or other regulatory authorities. In response to the global pandemic of COVID-19, we are pursuing the study of opaganib and RHB-107 as potential treatments for COVID-19. Following limited testing with opaganib and RHB-107 in human patients with viral infections, including for SARS-CoV-2 infection (the virus that causes COVID-19)we cannot predict the efficacy of opaganib or RHB- 107, and we may be unable to provide a treatment that successfully treats COVID-19 and/or its symptoms in a timely manner, if at all. Furthermore, even if we successfully develop a viable therapeutic candidate, we may encounter difficulties developing and scaling up manufacturing processes suitable for production of sufficient supply for our clinical trials or for commercial use. Likewise, we may not be successful in commercializing any of the treatments we are developing for COVID-19. We are also committing financial resources and personnel to the development of opaganib and RHB-107 as potential treatments for COVID-19, which may cause delays in or otherwise negatively impact our other development programs, despite uncertainties surrounding the longevity and extent of COVID-19 as a global health concern. Our business could be negatively impacted by our allocation of significant resources to a global health threat that is unpredictable and could rapidly dissipate or against which our potential treatments, if developed, may not be partially or fully effective. 7 Table of Contents Further, we may take a decision to discontinue the study of opaganib and RHB-107 as potential treatments for COVID-19 for any reason, including if additional parties are successful in developing a more effective treatment or vaccine for COVID-19 or if the pandemic is effectively contained or the risk of SARS-CoV-2 infection is diminished or eliminated or if other market or business conditions and considerations support such discontinuation before we can successfully complete clinical development and obtain regulatory approval of opaganib or RHB-107 as a treatment for SARS-CoV-2 infection. We may be unable to recoup any costs we incur in the evaluation of opaganib and RHB-107 for SARS-CoV-2 infection and we may never recognize any revenue from the sale of opaganib or RHB-107 to treat COVID-19, even if we do receive one or more regulatory approvals. Furthermore, the biotechnology sector is highly competitive and there are numerous companies that are currently pursuing a treatment for COVID-19 and vaccine for SARS-CoV-2. In particular, there are efforts by public and private entities to develop additional treatments or vaccines as fast as possible. To date, the FDA and other world health regulators have authorized emergency use of a number of SARS-CoV-2 vaccines. Other entities have or we expect will announce positive results from clinical trials for additional SARS-CoV-2 vaccine candidates. In addition, to date, there have been several drugs authorized for emergency use in treating COVID-19 patients. These and other public and private entities may develop treatments that are more effective than any we may develop, may develop a COVID-19 treatment that becomes the standard-of-care or at a lower cost or earlier than we are able to, or may be more successful at commercializing their product, which will reduce or eliminate the commercial opportunity for our therapeutic candidates. Many of these other organizations are much larger than we are and have access to larger pools of capital, including government grants and support, and broader manufacturing infrastructure. It is possible that another company or companies will obtain FDA approval for COVID-19 treatments before we obtain emergency use authorization or FDA (or other agency) approval (if ever), in which case, the FDA, the Secretary of the Department of Health and Human Services or other agencies around the world may stop accepting applications for emergency use authorization in connection with COVID-19. Even if we do obtain emergency use authorization or FDA (or other agency) approval for our COVID-19 therapeutic candidate, such authorization will only be effective as long as the public health emergency continues, and the Secretary of the Department of Health and Human Services or FDA (or other agency) may declare an end to such emergency at any time. Finally, if the pandemic ends or is sufficiently controlled, patient accruals for clinical trials will likely become difficult, which will have a material adverse effect on our ability to complete the development of our COVID-19 therapeutic candidate. There are a number of uncertainties and risks associated with our development of a COVID-19 therapeutic candidate, and we cannot guarantee success or profitability and may, instead, face financial and operational hardship as a result of this pursuit. Government involvement may limit the commercial success of our COVID-19 therapeutic candidate. The COVID-19 pandemic has been classified as a pandemic by public health authorities, and it is possible that one or more government entities may take actions that directly or indirectly have the effect of abrogating some of our rights or opportunities. If we were to develop an anti-viral therapeutic to COVID-19, the economic value of such therapeutic to us could be limited. Separately, various government entities, including the U.S. and or other governments, are offering incentives, such as those we received, grants and contracts to encourage additional investment by commercial organizations into preventative and therapeutic agents against COVID-19, which may have the effect of increasing the number of competitors and/or providing advantages to competitors. Accordingly, there can be no assurance that we will be able to successfully establish a competitive market share for our COVID-19 candidates. If we are successful in developing a COVID-19 therapeutic, we may need to devote significant resources to our manufacturing scale-up and large-scale deployment, including for use by the U.S. or other governments. If one of our COVID-19 therapeutic candidates is approved for marketing we may also need to devote significant resources to further expand our U.S. sales and marketing activities and increase or maintain personnel to accommodate sales in the U.S. In the event that the clinical studies of opaganib and/or RHB-107 as a COVID-19 therapeutic candidate are perceived to be successful, we may need to work toward the large-scale manufacturing scale-up and larger-scale deployment of the potential therapeutic through a variety of U.S. government mechanisms such as an Expanded Access Program or an Emergency Use Authorization program. In this case, we may need to devote significant resources to this program, which would require diversion of resources from our other programs. In addition, since the path to licensure of any COVID-19 8 Table of Contents therapeutic is unclear, if use of the therapeutic is mandated by the U.S. or other government, we may have a widely used therapeutic in circulation in the U.S. or any another country prior to our full validation of the overall long-term safety and efficacy profile of our therapeutic. Unexpected safety issues in these circumstances could lead to significant reputational damage for us and our therapeutic candidates going forward and other issues, including delays in our other programs, the need for re-design of our clinical trials and the need for significant additional financial resources. In addition, in the event one of our COVID-19 therapeutic candidates is approved for marketing we may also need to further expand our sales and marketing activities in the U.S. and increase or maintain personnel to accommodate sales. In this case, we may need to devote significant additional resources to this program, which would require diversion of additional resources from our other programs. Since the beginning of 2020, we have entered into several collaborations with leading manufacturers, including with U.S.- based partners, to expand manufacturing capacity of opaganib for COVID-19 in preparation for potential emergency use applications and to gradually meet subsequent large-scale demand and distribution that could follow potential emergency use authorization and/or full marketing approval, if at all. Short-term capacity for finished drug product is anticipated to be 155,000 patient treatments, as we work to continue to build up larger initial annual scale manufacturing capacity to treat an estimated 2.8 million patients. We cannot guarantee that our ongoing efforts in relation to the drug candidates or their manufacturing, including the scale-up of manufacturing will be successful or that we will be able to supply the potential high demand for opaganib for COVID-19 that could follow potential emergency use authorization and/or full marketing approval, if at all. The exercise by the U.S. government may also adversely affect our ability to supply sufficient quantities of opaganib. See “ – The development of opaganib has been supported by government-funded programs and thus may be subject to federal regulations such as “march-in” rights and certain reporting requirements, and compliance with such regulations may limit our exclusive rights and our ability to contract with manufacturers” below. The development of opaganib has been supported by government-funded programs and thus may be subject to federal regulations such as “march-in” rights and certain reporting requirements, and compliance with such regulations may limit our exclusive rights and our ability to contract with manufacturers. Our intellectual property rights to opaganib, which we in-licensed from Apogee, have been generated through the use of U.S. federal and state government funding and are therefore subject to certain federal regulations. As a result, the U.S. government may have certain rights to intellectual property embodied in opaganib pursuant to the Bayh-Dole Act of 1980, or the Bayh-Dole Act. These U.S. government rights include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the U.S. government has the right, under certain limited circumstances, to require the licensor to grant exclusive, partially exclusive or non-exclusive licenses to any of these inventions to a third party if it determines that (i) adequate steps have not been taken to commercialize the invention, (ii) government action is necessary to meet public health or safety needs or (iii) government action is necessary to meet requirements for public use under federal regulations (also collectively referred to as “march-in rights”). The U.S. government also has the right to take title to these inventions if the licensor fails to disclose the invention to the government or fails to file an application to register the intellectual property within specified time limits. These rights of the government may affect us even though the U.S. government has not previously contacted us with respect to these intellectual property rights. Any exercise by the government of such rights could harm our competitive position, business, financial condition, results of operations and prospects. Intellectual property generated under a government-funded program is also subject to certain reporting requirements, compliance with which may require us to expend substantial resources. In addition, the U.S. government requires that any products embodying any of these inventions or produced through the use of any of these inventions be manufactured substantially in the U.S. The manufacturing preference requirement can be waived if the owner of the intellectual property can show that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the U.S. or that under the circumstances domestic manufacture is not commercially feasible. This preference for having products covered by such intellectual property be substantially manufactured in the U.S. may limit our ability to contract with non-U.S. product manufacturers or even U.S. product manufacturers whose manufacturing capacity is offshore. 9 Table of Contents The ongoing COVID-19 pandemic may adversely affect our business, revenues, results of operations and financial condition. Outbreaks of epidemic, pandemic or contagious diseases, such as COVID-19, may adversely affect our business, revenues, financial condition and results of operations. In March 2020, the World Health Organization declared the outbreak of SARS-CoV-2 a global pandemic, and the global spread of the novel coronavirus resulted in government-imposed quarantines, travel restrictions and other public health safety measures in the United States, Israel, and other affected countries. The various precautionary measures taken by many governmental authorities around the world in order to limit the spread of SARS-CoV-2 have and may continue to have an adverse effect on the global markets and its economy and demand for pharmaceutical products, including on the availability and pricing of employees, resources, materials, manufacturing and delivery efforts and other aspects of the global economy. The spread of this pandemic has caused significant volatility and uncertainty in U.S. and international markets and has resulted in increased risks to our operations. Specifically, we are monitoring a number of risks that have or may affect our business related to this pandemic, including the following: ● Commercial Operations: An extended pandemic could have a material adverse effect on sales of our commercial products. We have experienced decreased commercial activities, which have affected the sales of some of our commercial products due to slower initiation of some promotional activities associated with a significant decrease in in-clinic patient visits, tests and treatments and the impact on our sales force’s ability to engage with healthcare providers in an in-person setting, cancellation of events such as industry conferences and limited local and international travel. In addition, there may be a negative impact on our business as a result of COVID-19 within our commercial organization, including our sales force. The ability to successfully commercialize Movantik® Aemcolo® and Talicia® depends on in-clinic patient visits and the availability of diagnostics, both of which have been negatively affected by the pandemic. In addition, the significant decrease in travel has significantly reduced the demand and sales of Aemcolo® for travelers’ diarrhea. We expect the decreased level of demand and sales of Aemcolo® to continue over the coming quarters due to the effects of the pandemic. ● Supply Chain: To date, there have been no significant disruptions to our supply chain, and we currently have sufficient supply of commercial products on hand to meet U.S. commercial demand. However, an extended duration of this pandemic could result in broad supply disruptions and difficulty in finding alternative sources in the future which may adversely affect our ability to distribute certain of our commercial products for commercial supply and our therapeutic candidates for clinical supply. For example, quarantines, shelter-in- place and similar government orders, travel restrictions and health impacts of the COVID-19 pandemic could impact the availability or productivity of personnel at third-party manufacturers, distributors, freight carriers and other necessary components of our supply chain. In addition, there may be unfavorable changes in the availability or cost of raw materials, intermediates and other materials necessary for production, which may result in disruptions in our supply chain; ● Clinical Trials: The pandemic has adversely affected and may continue to adversely affect our clinical and preclinical trials, including our ability to initiate and complete our clinical and preclinical trials within the anticipated timelines, and delays or difficulties in enrolling patients in our clinical trials and recruiting clinical site investigators and clinical site staff. Interruption of key clinical trial activities, such as clinical trial site data monitoring, due to limitations on travel imposed or recommended by government officials or entities, employers and others or interruption of clinical trial patient visits and study procedures (particularly any procedures that may be deemed non-essential), may impact the completeness of clinical trial data and clinical study endpoints. The current pressure on medical systems and the prioritization of healthcare resources toward the COVID-19 pandemic have also resulted in interruptions in data collection and submissions for certain clinical trials and delayed starts for certain planned studies. As a result, our anticipated filing and marketing timelines may be adversely impacted. For example, the initiation of the Phase 3 study with RHB- 204 in first-line pulmonary NTM infections was deferred by two quarters to the fourth quarter of 2020. 10 Table of Contents - In addition, we may be unable to meet the timelines and milestones established for the contemplated postmarketing studies we are required to conduct for Aemcolo®, in which case we could be subject to FDA enforcement actions and civil monetary penalties, among others, unless the FDA agrees to an extension of the timelines and milestones. Our clinical trials can also be adversely affected by the reduction or diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trial. Any delays or interruption of our clinical trials could have an adverse effect on our development efforts of our therapeutic candidates, and failure to fulfill any postmarketing commitments could subject us to FDA enforcement actions or result in our breach of certain license agreements and cause us to lose our rights thereunder. ● Regulatory Reviews: The operations of the FDA or other regulatory agencies may be adversely affected. We may also experience delays in necessary interactions with regulatory authorities around the world, including with respect to any anticipated filings. Additionally, because our corporate headquarters are in Israel while our commercial office is in the U.S., there is additional risk in our ability as a company to control the activities occurring in the U.S., due to the geographic separation within our company. Assessment of the complete extent of the impact of COVID-19 on our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. The continuation of the COVID-19 pandemic could materially disrupt our business and operations and have an adverse effect on the global markets and global economy generally, including on the availability and cost of employees, resources, materials, manufacturing and delivery efforts, and other aspects of the economy. Risks Related to Our Business We have a history of operating losses. We may continue to incur significant losses in the coming years. From our incorporation in 2009 until establishment of our commercial presence in the U.S., we focused primarily on the development and acquisition of late-stage clinical therapeutic candidates, and since we established our commercial presence in the U.S., we have focused primarily on the acquisition and commercialization or promotion of products in the U.S. Following the launch of Talicia® in the first quarter of 2020 in the U.S. and the acquisition of Movantik® in April 2020, we have recorded meaningful revenues from our products; however, there is no assurance that we will be able to generate substantial positive cash flow or be profitable in the future. We plan to further fund our future operations through commercialization and out-licensing of our therapeutic candidates, commercialization of in-licensed or acquired products and raising additional capital through equity or debt financing or through non-dilutive financing. Our current cash resources are not sufficient to complete the research and development of all of our therapeutic candidates and to fully support our commercial operations until generation of sustainable positive cash flows. We expect that we will incur additional losses as we continue to focus our resources on advancing the development of our therapeutic candidates, as well as advancing our commercial operations, based on a prioritized plan that may result in negative cash flows from operating activities. Most of our therapeutic candidates are in late-stage clinical development. All of our therapeutic candidates will require additional clinical trials before we can obtain the regulatory approvals in order to initiate commercial sales of them, if at all. We have incurred losses since inception, principally as a result of research and development, selling, marketing, and business development, and general and administrative expenses in support of our operations. We experienced net losses of approximately $76.2 million in 2020, $42.3 million in 2019 and $38.8 million in 2018. As of December 31, 2020, we had an accumulated deficit of approximately $280.3 million. Our ability to generate sufficient revenues to sustain our business operations in accordance with our plan and to achieve profitability depends mainly upon our ability, alone or with others, to successfully commercialize or promote our current commercial products and products that we may acquire or for which we may acquire commercialization rights in the future, develop our therapeutic candidates, obtain the required 11 Table of Contents regulatory approvals in various territories. We may be unable to achieve any or all of these goals with regard to our current commercial products, our therapeutic candidates or products we may commercialize or promote in the future. As a result, we may never achieve sufficient revenues to sustain our business operations in accordance with our plan or be profitable. Our limited operating history makes it difficult to evaluate our business and prospects. We have limited operating history, and our operations to date have been limited primarily to certain commercialization and promotion of products in the U.S., acquiring and in-licensing therapeutic candidates and rights to commercialize or promote products in the U.S., research and development, raising capital and recruiting scientific, commercial and management personnel, and third-party partners. Talicia® is our first and only product that was developed internally and approved for marketing by the FDA. We generated meaningful net revenues for the year ended December 31, 2020, for the first time since our inception following the launch of Talicia® in the first quarter of 2020 in the U.S. and the acquisition of Movantik® in April 2020. In addition, besides RHB-106 which we previously out-licensed to a third party, and besides Talicia®, we have limited experience achieving regulatory approval for out-licensing our therapeutic candidates. Consequently, any predictions about our future performance may not be accurate, and we may not be able to fully assess our ability to commercialize our current commercial products or ones we may acquire or develop in the future, complete the development or obtain regulatory approval for our current and future therapeutic candidates or obtain regulatory approvals, reimbursement by third-party payors, achieve market acceptance or competitive pricing of our current commercial products or products that we may commercialize or promote in the future. Our current working capital is not sufficient to commercialize our current commercial products or to complete the research and development with respect to any or all of our therapeutic candidates. We may need to raise additional capital to achieve our strategic objectives and to execute our business plans, and our failure to raise sufficient capital or on favorable terms would significantly impair our ability to fund the commercialization of our current commercial products, therapeutic candidates, or the products we may commercialize or promote in the future, attract development or commercial partners or retain key personnel, and to fund operations and develop our therapeutic candidates. As of December 31, 2020, we had cash, cash equivalents, short-term investments and restricted cash of approximately $46.0 million, and as of December 31, 2019, we had cash, cash equivalents and short-term investments of approximately $48.0 million. Our restricted cash as of December 31, 2020, was $16 million as required by our credit agreement with HCR Collateral Management, LLC (“HCRM”). We have funded our operations primarily through public and private offerings of our securities, through strategic investments and our credit agreement with HCRM (see “– Our term loan facility imposes significant operating and financial restrictions on us, which may prevent us from capitalizing on business opportunities and may restrict our operational flexibility, and our failure to comply with the restrictive covenants in our term loan facility could have a material adverse effect on our business.”). We will need to raise additional capital to achieve our strategic objectives of commercializing our current commercial products and other products that we may commercialize or promote in the future and acquiring, in-licensing and developing therapeutic candidates. We plan to fund our future operations through commercialization of Movantik®, Talicia® and Aemcolo®, out-licensing of our therapeutic candidates and commercialization of in-licensed or acquired products, and we will also need to raise additional capital through equity or debt financing or non-dilutive financing. We are not yet certain of the financial impact of our commercialization activities, and the amounts we raise may not be sufficient to complete the research and development of all of our therapeutic candidates. We generated meaningful net revenues for the year ended December 31, 2020, for the first time since our inception; however, our business is not yet profitable. As we plan to continue expending funds to commercialize Movantik®, Talicia® and Aemcolo®, and acquire additional products and therapeutic candidates, and in research and development, we will need to raise additional capital in the future through equity or debt financing, non-dilutive financing or pursuant to development or commercialization agreements with third parties with respect to particular therapeutic candidates and commercial products approved for sale in the U.S. However, we cannot be certain that we will be able to raise capital on commercially reasonable terms or at all, or that our actual cash requirements will not be greater than anticipated. We may have difficulty raising needed capital or securing development or commercialization partners in the future as a result of, among other factors, unsuccessful commercialization of Movantik®, Talicia® Aemcolo® or products that we may commercialize or promote in the future, as well as the inherent business risks associated with our Company, our current commercial products, products that we may commercialize or promote in the future, our therapeutic candidates, and present and future market 12 Table of Contents conditions. To the extent we are able to generate meaningful revenues from our current and future commercial products, we may still need to raise capital because the revenues from our current and future commercial products may not be sufficient to 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 or commercialization 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 commercialization programs for our current commercial products and products that we may commercialize or promote in the future, or research and development programs for our therapeutic candidates, any of which may have an adverse effect on our reputation, business, financial condition or results of operations. Moreover, to the extent we are able to raise capital through the issuance of debt or equity securities, it could result in substantial dilution to existing shareholders. Our long-term capital requirements are subject to numerous risks. Our long-term capital requirements are expected to depend on many potential factors, including but not limited to: ● the progress, success, and cost of our clinical trials and research and development programs, including manufacturing; ● the number and type of commercial products we commercialize or are in the process of launching; ● our ability to successfully commercialize our current commercial products and products that we may commercialize or promote in the future, including through securing commercialization agreements with third parties and favorable pricing and market share or through our own commercialization capabilities; ● the existence and entrance of generics into the market, including entrances into the market as a result of adverse outcomes in Abbreviated New Drug Application (“ANDA”) litigation, that could compete with our products and erode the profitability of our commercial products or products that we may commercialize or promote in the future; ● the number and type of therapeutic candidates in development; ● our ability to successfully complete our clinical trials and research and development programs, including recruitment and completion of relevant pediatric and oncology studies, since the pediatric population and the very advanced disease state and poor prognosis of the oncology patients in our oncology studies make it particularly difficult to recruit and successfully treat the patients, and to successfully complete the studies; ● the identification and acquisition of additional therapeutic candidates and commercial products; ● the costs, timing, and outcome of regulatory review and obtaining regulatory clarity and approval of our therapeutic candidates and addressing regulatory and other issues that may arise post-approval; ● the costs of enforcing our issued patents and defending intellectual property-related claims; ● the costs of manufacturing, developing and maintaining sales, marketing, and distribution channels for our commercial products; ● our consumption of available resources, especially at a more rapid consumption than currently anticipated, resulting in the need for additional funding sooner than anticipated; ● our ability to satisfy our obligations under our credit agreement with HCRM; and ● the amount and frequency of any milestone or royalty payments for which we are responsible. Risks Related to Our Indebtedness Our term loan facility imposes significant operating and financial restrictions on us, which may prevent us from capitalizing on business opportunities and may restrict our operational flexibility, and our failure to comply with the restrictive covenants in our term loan facility could have a material adverse effect on our business. On February 23, 2020, we, through our wholly-owned U.S. subsidiary, RedHill U.S., entered into a credit agreement and certain security documents with HCRM for up to $115 million in a non-dilutive, six-year term loan facility. Under the terms of the term loan facility, RedHill U.S. borrowed $30 million to support our commercial operations and borrowed an additional $50 million under the term loan facility to fund the acquisition of rights to Movantik® from AstraZeneca. The borrowings under the term loan facility are secured by a first priority lien on substantially all of the current and future 13 Table of Contents assets of our wholly-owned U.S. subsidiary, RedHill U.S., all of our assets related in any material respect to Talicia®, and all of the equity interests of RedHill U.S. Our term loan facility contains a number of restrictive covenants that impose financial and operating restrictions on us, including our ability to: ● create liens; ● make certain investments; ● incur, assume or guarantee indebtedness; ● make restricted payments, including paying dividends and making certain acquisitions; ● merge, consolidate, sell or otherwise dispose of substantially all our assets; ● enter into transactions with affiliates and insiders; ● enter into sale and leaseback transactions; ● enter into agreements that restrict the ability of any persons to make payments to us or RedHill U.S.; ● prepay other indebtedness; ● dispose of assets; ● terminate, or alter the responsibilities of, certain executive officers; and ● permit net sales to drop below a certain threshold. Our term loan facility also contains a number of other covenants regarding our commercial operations, including covenants that require us to maintain a minimum cash balance at all times and to operate our business with respect to Talicia® in a manner agreed upon with HCRM, including maintaining a certain number of sale representatives. Our ability to comply with the various covenants under the term loan facility may be affected by events beyond our control, and we may not be able to continue to meet the covenants. Failure to comply with such covenants could result in an event of default that, as the term loan facility provides us with limited or no opportunity to cure certain such failures, if not waived, could result in the acceleration of all our indebtedness under our term loan facility. Our term loan facility also includes various cross-default provisions with respect to our other indebtedness and our commercial agreements. If HCRM accelerates the indebtedness under the terms of the term loan facility, we may not have sufficient funds to repay our existing debt. If we are unable to repay those amounts, HCRM could proceed against the collateral granted to it to secure such indebtedness, which could have a material adverse effect on our reputation, business, financial condition or results of operations. Our term loan facility and the restrictive covenants contained in our term loan facility could also have important consequences on our financial position and results of operations, including increasing our vulnerability to increases in interest rates because the debt under our loan agreement bears interest at variable rates. In addition, our term loan facility indebtedness uses LIBOR as a benchmark for establishing the interest rate. The most popular LIBOR indices will be phased out by the end of June 2023. It is unclear whether new methods of calculating LIBOR will be established or if alternative benchmark reference rates will be adopted. The replacement of LIBOR with an alternative benchmark reference rate may adversely affect interest rates and result in higher borrowing costs for us under current or future credit agreements. This could adversely affect our liquidity and financial condition, results of operations, and ability to acquire debt financing. We cannot predict the effect of the elimination of LIBOR or the establishment and use of alternative benchmark reference rates and the corresponding effects of our cost of capital. We may be unable to generate sufficient cash flow to make the required payments under the term loan facility. Making the required payments under our loan term facility will require a significant amount of cash. Our ability to generate sufficient cash depends on numerous factors beyond our control, and our business may not generate sufficient cash flow from the sale of our commercial products. Our ability to make the required payments under our term loan facility will depend on our ability to generate cash in the future. To some extent, this is subject to general economic, market, financial, competitive, regulatory and other factors that are beyond our control. See " - The ongoing COVID-19 pandemic may adversely affect our business, revenues, results of operations and financial condition." 14 Table of Contents If our cash flow and capital resources are insufficient to make the required payments under our term loan facility, we may be forced to reduce or delay the incurrence of expenses, sell assets, seek additional capital or restructure or refinance our term loan facility. These alternative measures may not be successful and may not permit us to meet our scheduled payment obligations. Our ability to restructure or refinance our debt will depend on the market conditions and our financial position at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. If we are unable to restructure or refinance our indebtedness, HCRM may accelerate the indebtedness, and if we are unable to repay those amounts, HCRM could proceed against the collateral granted to it to secure such indebtedness, which would have a material adverse effect on our reputation, business, financial condition or results of operations. The indebtedness under our term loan facility is secured by substantially all of the current and future assets of RedHill U.S., all of our assets related in any material respect to Talicia®, and all of the equity interests of RedHill U.S. As a result of these security interests, such assets would only be available to satisfy claims of our general creditors or to holders of our equity securities if we were to become insolvent to the extent the value of such assets exceeded the amount of our indebtedness and other obligations. In addition, the existence of these security interests may adversely affect our financial flexibility. Indebtedness under our term loan facility is secured by substantially all of the current and future assets RedHill U.S., all of our assets related in any material respect to Talicia®, and all of the equity interests of RedHill U.S. Accordingly, if an event of default were to occur under our term loan facility, HCRM could foreclose on its security interests and liquidate some or all of these assets and would have a prior right to these assets, to the exclusion of our general creditors in the event of our bankruptcy, insolvency, liquidation or reorganization. In that event, our assets would first be used to repay in full all indebtedness and other obligations secured by such assets, resulting in a substantial portion of our assets being unavailable to satisfy the claims of our unsecured indebtedness. Only after satisfying the claims of our unsecured creditors is any amount available for our equity holders. The pledge of these assets may limit our flexibility in raising capital for other purposes. Because these assets are pledged under the term loan facility, and because of the limitations on incurring debt and granting liens in the term loan facility, our ability to incur additional secured indebtedness or to sell or dispose of assets to raise capital may be impaired, which could have an adverse effect on our financial flexibility. If certain individuals no longer serve as chief executive officer of RedHill or chief commercial officer of RedHill U.S. or their titles, duties or authorities are diminished, we may be obligated to pay all outstanding obligations under our term loan facility. Our term loan facility provides that, if (i) we terminate Dror Ben-Asher or Rick Scruggs from their employment as the full- time, active chief executive officer of RedHill and full-time, active chief commercial officer of RedHill U.S., respectively, or diminish their respective titles, duties or authorities as of the date we entered into our term loan facility or (ii) we permit any of the foregoing to occur and, in the case of each of clause (i) and (ii), we do not find replacements within 90 days for such individuals who are approved in writing by HCRM after its good faith consideration of potential replacements proposed by us, this constitutes an event of default and all outstanding obligations under the term loan facility can become immediately due and payable. Whether Mr. Ben-Asher and Mr. Scruggs remain as chief executive officer of RedHill and chief commercial officer of RedHill U.S., respectively, is not entirely under our control. Although we intend to find an appropriate replacement satisfactory to HCRM if either Mr. Ben-Asher or Mr. Scruggs leaves their current position, we cannot assure you that we will be able find such a replacement within the time period permitted under our term loan facility, if at all, or that such replacement will be satisfactory to HCRM. We cannot assure you that we will be able to repay all outstanding obligations payable under the term loan facility in such event or that we will be able to find alternative financing. Even if alternative financing is available, it may be on unfavorable terms, and the interest rate charged on any new borrowings could be substantially higher than the interest rate under our term loan facility, thus adversely affecting our reputation, business, financial condition or results of operations. 15 Table of Contents Risks Related to Our Business and Regulatory Matters If we or our future development or commercialization partners are unable to obtain or maintain the FDA or other foreign regulatory clearance and approval for our commercial products or therapeutic candidates, we or our commercialization partners will be unable to commercialize our current commercial products, products we may commercialize or promote in the future or our therapeutic candidates, upon approval, if any. Our current commercial products must maintain, and the products we may commercialize or promote in the future may be required to obtain and maintain, FDA and other foreign regulatory clearance and approval. Aemcolo® was approved by the FDA in 2018 for the treatment of travelers’ diarrhea caused by non-invasive strains of E. coli in adults, and Talicia® was approved for marketing in the U.S. for the treatment of H. pylori infection in adults in November 2019. In addition, Movantik® was approved for marketing in the U.S. for the treatment of OIC in adult patients with chronic, non-cancer pain. However, future regulatory developments may lead to a loss of the right to commercialize Movantik®, Talicia® or Aemcolo® or any product we may commercialize or promote in the future. We currently have six therapeutic candidates in development, most of which are in late-clinical stage development, and for which we currently intend to develop with the goal of eventually seeking FDA approval. Our commercial products and therapeutic candidates are subject to extensive governmental laws, regulations, and guidelines relating to the development, clinical trials, manufacturing, marketing, promotion, and commercialization of pre- and post-approval prescription drugs. We may not be able to submit for or obtain marketing 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 and approvals will increase our costs and may materially adversely affect our ability to continue to generate meaningful revenues and could adversely impact our reputation, business, financial condition, results of operations or ability to attain or sustain revenues from other markets. We also are, and will be, subject to numerous regulatory requirements from both the FDA and other foreign regulatory authorities that govern 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 regulatory authorities in separate jurisdictions. Each jurisdiction may have different approval processes and requirements and may impose additional testing, development and manufacturing requirements for our current commercial products and products that we may commercialize or promote in the future and for or our therapeutic candidates. Additionally, the FDA or other foreign regulatory authorities may require, or companies may pursue, additional clinical trials after a product is approved for marketing. Such postmarketing studies may be mandated by the FDA or other foreign regulatory authorities as conditions for initial or continued approval for marketing. The FDA or other foreign regulatory authorities have expressed statutory authority to require holders of NDAs to conduct postmarketing trials to specifically address safety and other issues identified by the regulatory authority. For example, in connection with our in-license for Movantik®, we will assume the costs of and responsibility for a postmarketing observational clinical trial on major adverse cardiovascular events (MACE) and for the PREA post-marketing requirements of Aemcolo®. Certain changes related to an approved drug, including changes to the product labeling, manufacturing process, indications and other certain specifications set forth within the product’s NDA, may not be made until a new NDA or NDA supplement reflecting the applicable changes is submitted to and approved by the FDA. An NDA supplement for a new indication typically requires clinical data similar to that in the original application, including relevant pediatric data, and the FDA typically uses the same procedures and standards in reviewing NDA supplements as it does in reviewing NDAs. Even if a therapeutic candidate receives regulatory marketing approval, such approval will be limited to a specific disease state(s) and might contain significant limitations on use in the form of warnings, precautions or contraindications, or in the form of onerous risk management plans, restrictions on distribution, among other possible restrictions. Further, even after regulatory approval is obtained, later discovery of previously unknown information, such as safety risks, problems with a product or such information, the extent or severity of which were previously unknown, may result in restrictions on the 16 Table of Contents product’s ability to be marketed as initially approved or even complete withdrawal of the product’s NDA approval and, in effect, its removal from the market. Additionally, the FDA or other foreign regulatory authorities may change their clearance or approval policies or adopt new laws, regulations or guidelines that materially delay or impair our ability to commercialize our current commercial products and products that we may commercialize or promote in the future, or our ability to obtain the necessary regulatory clearances or approvals for any of our current or future therapeutic candidates. If we are unable to maintain, train and build an effective commercial infrastructure, including sales and marketing infrastructure, or establish and maintain compliant and adequate commercial capabilities, we will not be able to successfully commercialize and grow our current commercial products and any products we may commercialize or promote in the future. We and our employees, as well as our contractors, must comply with applicable regulatory requirements and restrictions relating to marketing and advertising. If we are unable to establish and maintain compliant and adequate sales and marketing capabilities, including training our new sales personnel (including sales contractors) regarding applicable regulatory requirements and restrictions, we may not be able to increase our product revenue, may generate increased expenses, and may be subject to regulatory investigations and enforcement actions. Our commercial efforts, including our sales and marketing efforts, must comply with various laws and regulations. Under applicable FDA marketing regulations, prescription drug promotions must be consistent with and not contrary to labeling, present “fair balance” between risks and benefits, be truthful and not false or misleading, be adequately substantiated (when required), and include adequate directions for use. Additionally, our marketing activities may be subject to enforcement by the Federal Trade Commission (FTC), state attorneys general, and consumer class-action liability if we engage in any practices that appear misleading or deceptive to the applicable agencies or consumers. In addition to the requirements applicable to approved drug products, we may also be subject to enforcement action in connection with any promotion of an investigational new drug. A sponsor or investigator, or any person acting on behalf of a sponsor or investigator, may not represent in a promotional context that an investigational new drug is safe or effective for the purposes for which it is under investigation or otherwise promote the therapeutic candidate. If the FDA investigates our marketing and promotional materials or other communications and finds that any of our current or future commercial products are being marketed or promoted in violation of the applicable regulatory restrictions, we could be subject to FDA enforcement action. Any enforcement action (or related lawsuit, which could follow such action) brought against us in connection with alleged violations of applicable drug promotion requirements, or prohibitions, could have an adverse effect on our reputation, business, financial condition or results of operations, as well as the reputation of any approved drug products we may commercialize or promote in the future. In addition, we may also be reliant on third parties’ compliance with such regulations. For example, the initial marketing and promotional materials we previously used to commercialize Movantik® were developed by the sub licensor without any input from us. Moreover, laws and regulations covering commercialization activities in the pharmaceutical industry are constantly changing, and we will need to continually update and adjust our policies and sales and marketing and commercialization activities to meet legal and regulatory requirements. Our ability to comply with legal and regulatory requirements at any time in time does not guarantee we will continue to be able to comply in the future. In addition to complying with applicable laws and regulations covering commercialization activities in the pharmaceutical industry, we must also comply with various contractual terms governing our use of third-party intellectual property in our commercialization materials. 17 Table of Contents In order to further establish and maintain our own commercialization capabilities in the U.S., we may need to further expand, among others, our development, regulatory, manufacturing, sales and marketing capabilities, and to increase or maintain our personnel to accommodate sales. We may experience difficulties in managing this growth and integrating new personnel. We have significantly increased our sales force in connection with the commercialization of Movantik®, Talicia® and Aemcolo®. To further establish and maintain our own commercialization capabilities in the U.S. we may need to further expand, among others, our development, regulatory, manufacturing, sales and marketing capabilities, and to increase or maintain our personnel to accommodate sales. We may not be able to secure personnel, organizations or vendors that are adequate in number or expertise to successfully and lawfully market and sell our products in the U.S. If we are unable to expand our sales and marketing capability, train our sales force or contractors effectively or provide any other capabilities necessary to commercialize products, we may need to contract with third parties to market and sell our products which could have an adverse effect on our financial condition and our results of operation. We may also have difficulty in integrating into our existing U.S. operations the significant number of sales and other commercial personnel or contractors that we are hiring or engaging to support the commercialization of Movantik®, Talicia® and Aemcolo®. Sales personnel or contractors' productivity may decrease as we hire new, less experienced sales personnel or contractors, who are not yet familiar with our commercial products. In addition, we may be exposed to greater regulatory and compliance risks with our expanded sales force and activities. Future growth may impose significant added responsibilities on members of management, including the need to identify, recruit, maintain, motivate and integrate additional employees or contractors. In addition, management may have to divert a disproportionate amount of its attention away from running our day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not successfully continue the commercialization of Movantik®, Talicia® or Aemcolo®. We may not successfully continue the commercialization of Movantik®, Talicia® or Aemcolo® and our products may not be, or continue to be, commercially successful for various reasons, including but not limited to: ● difficulty in large-scale manufacturing, including yield and quality, and in shipping product internationally; ● low market acceptance by physicians, healthcare payors, patients and the medical community as a result of lower demonstrated clinical safety or efficacy compared to products, prevalence, and severity of adverse side effects, or other potential disadvantages relative to alternative treatment methods; ● insufficient or unfavorable levels of reimbursement from government or commercial payors, such as, for example, Medicare, Medicaid, and applicable private insurance companies, health maintenance organizations, and other health plan administrators; ● changes to the underlying dynamics of the markets for these products, including significant extended decrease in U.S. international travel that will affect the market for Aemcolo®; ● infringement on proprietary rights of others for which we or third parties involved in the development or commercialization of our products or potential future therapeutic candidates have not received licenses; ● incompatibility with other marketed products; ● other potential advantages of alternative treatment methods and competitive forces or advancements that may make it more difficult for us to penetrate a particular market segment, if at all; ● ineffective marketing, sales, and distribution activities and support; ● lack of significant competitive advantages over other 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 sale or marketing of a product; ● changes to product labels, indications or other relevant information that may trigger additional regulatory requirements that may have a direct or indirect impact on the commercialization of our products; ● our inability or unwillingness, for cost or other reasons, to commercialize Movantik®, Talicia® and Aemcolo® to the extent any are approved for commercialization at the time of any such collaboration issues; 18 Table of Contents ● timing of market introduction of competitive products, including from generic competitors; and ● changes in any laws, regulations, or other relevant policies related to drug pricing or other marketing conditions and requirements that may directly or indirectly limit, restrict, or otherwise negatively impact our ability or success in marketing or commercializing. Physicians, various other healthcare providers, patients, payors or the medical community, in general, may be unwilling to accept, utilize or recommend Movantik®, Talicia® or Aemcolo®. If we are unable, either on our own or through third parties, to manufacture, commercialize or market Talicia®, or to commercialize or market Movantik® or Aemcolo®, we may not achieve or continue to achieve market acceptance or continue to generate meaningful revenues from Movantik® or generate meaningful revenues from Talicia® and Aemcolo®. If U.S. international travel does not return or partially return to pre-COVID-19 pandemic levels, the likelihood of our ability to successfully market Aemcolo® is doubtful. Due to the significant decrease in travel as a result of the pandemic, the travelers’ diarrhea market has been significantly impacted, and we have generated very limited revenues from the sale of Aemcolo®. If U.S. international travel does not return or partially return to pre-COVID-19 pandemic levels, we cannot assure that we will generate meaningful revenues from sales of Aemcolo®, and the likelihood of our ability to successfully market success Aemcolo® is doubtful. Although Aemcolo® was approved by the FDA before we acquired rights to it, such approval is contingent upon the completion of two additional postmarketing studies in specified pediatric populations. The Pediatric Research Equity Act (PREA) amended the federal Food, Drug, and Cosmetic Act (FDCA) by authorizing the FDA to require that NDA submissions must each contain an assessment of the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations that supports dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may, in some cases, grant deferrals for submission of some or all pediatric data until after the product’s approval for use in adults (in addition to full and partial waivers). Aemcolo® received FDA approval on November 16, 2018, for the treatment of travelers’ diarrhea caused by non-invasive strains of Escherichia coli in adults, subject to the completion of the deferred pediatric studies required by PREA as mandatory postmarketing studies. In acquiring the ownership rights to Aemcolo®, we assumed responsibility for completing any postmarketing requirements or commitments that may be required to retain approval. Accordingly, we must conduct two randomized, placebo-controlled studies to evaluate the safety, tolerability, and efficacy of Aemcolo® for the treatment of travelers’ diarrhea in (i) children from 6 to 11 years of age and (ii) children from 12 to 17 years of age, respectively. In conducting the required pediatric postmarketing studies for Aemcolo®, we must comply with various regulatory requirements set forth in, or pursuant to, PREA (in addition to other FDA regulations to which clinical trials are subject, more generally). For example, pediatric study sponsors must submit periodic reports to the FDA on the status of each study and other relevant information, such as (among other things) whether any difficulties have been encountered, as well as annual reports regarding clinical safety. Such sponsors are also required to submit to the FDA a timetable for completion in connection with each pediatric postmarketing study, along with a set of milestone dates (which typically include dates for final protocol submission, clinical study completion, and final report submission) by which the FDA will measure the study’s progress and compliance with applicable requirements. After submitted to and approved by the FDA, pediatric study sponsors must adhere to the agreed-upon timetables and milestones in conducting each study. Any failure to meet the deadlines established by the applicable timetable or milestone dates for a given pediatric study constitutes a violation of the FDCA (per PREA). The timelines and milestones established for the contemplated postmarketing Aemcolo® studies, in relevant part, require that we complete the study in children from 6 to 11 years of age by June of 2022 and the study in children from 12 to 17 years of age by June of 2021, with submission of the final study reports by December of 2022 and 2021, respectively. Due to the impact of COVID-19 and travel restrictions, we will approach the FDA with regard to the timeline. Upon completion of the Aemcolo® studies, if achieved, we will submit the required reports containing the safety and efficacy results of each 19 Table of Contents study as supplements to the approved NDA for Aemcolo®, along with the proposed labeling changes (incorporating the relevant dosage and administration information for the studied pediatric populations) that we believe to be warranted based on the data derived from such studies. We cannot be certain that the safety and efficacy results of the pediatric postmarketing studies for Aemcolo® will be favorable, and it is possible that such study results could ultimately cause the FDA to require certain pediatric-specific labeling for Aemcolo® that may negatively affect its reputation, competitive advantages, and/or profitability. If we fail to complete the required pediatric postmarketing studies for Aemcolo® in accordance with PREA, we may be subject to the traditional FDA enforcement actions authorized under most other contexts, such as warning letters, seizure, injunction, and withdrawal or suspension of the marketing approval for Aemcolo®, among others, any of which may have a material adverse effect on our reputation, business, financial condition or results of operations. In addition, the FDA is required to issue PREA-Non-Compliance Letters to any sponsors who fail to meet specified PREA requirements and to publicly post each such Non-Compliance Letter on the designated FDA webpage. The postmarket pediatric obligations we assumed upon acquiring Aemcolo® could subject us to any of the above-described actions, as well as more substantial consequences beyond the scope of the FDA’s traditional enforcement authority. In particular, non-compliance with PREA’s postmarketing pediatric requirements could give rise to civil monetary penalties of up to $250,000 per violation and up to a total of $10 million for all violations adjudicated in a single proceeding. In addition, failure to fulfill any postmarketing commitments that we agreed to assume could also result in our breach of the license agreement with Cosmo Pharmaceuticals N.V. (“Cosmo”) and cause us to lose our rights thereunder. Although Movantik® has already been approved by the FDA, such approval is contingent upon the completion of an additional postmarketing safety study. If the study results are unfavorable, such that they reflect a negative benefit-risk profile for Movantik®, this could need to label changes or possibly market withdrawal. Movantik® first received FDA approval on September 16, 2014, for the treatment of OIC in adult patients with chronic non-cancer pain, including patients with chronic pain related to prior cancer or its treatment who do not require frequent (e.g. weekly) opioid dosage escalation. We have agreed to assume responsibility for completing any postmarketing requirements or commitments that may be required to retain approval. Accordingly, we will be required to continue the postmarketing observational epidemiological study to evaluate the MACE of Movantik®. The timelines and milestones established for the MACE study, in relevant part, will require that we complete the study by December 2021, with submission of the final study report by December 2023. The completion of the study relies upon our ability to enroll an adequate number of patients with at least one year of exposure to Movantik®. Enrollment to date is slow and the milestones may need to be extended. Upon completion of the MACE study, if achieved, we expect to submit the required report containing the safety and efficacy results of the study as supplements to the approved NDA for Movantik®, along with any proposed labeling changes (incorporating the relevant dosage and administration information for the studied populations) that we believe to be warranted based on the data derived from such study. We cannot be certain that the safety and efficacy results of the MACE study for Movantik® will be favorable, and it is possible that such study results could ultimately cause the FDA to require certain labeling for Movantik® that may negatively affect its reputation, competitive advantages or profitability. If we fail to complete the required MACE study for Movantik®, we may be subject to the traditional FDA enforcement actions authorized under most other contexts, such as warning letters, seizure, injunction, and withdrawal or suspension of the marketing approval for Movantik®, among others, any of which may have a material adverse effect on our reputation, business, financial condition or results of operations. The postmarket obligations we have agreed to assume upon acquiring Movantik® could subject us to any of the above-described actions, as well as more substantial consequences beyond the scope of the FDA’s traditional enforcement authority. In addition, failure to fulfill any postmarketing commitments that we agreed to assume could also result in our breach of the license agreement with AstraZeneca AB (the “AstraZeneca License Agreement”) and cause us to lose our rights thereunder. 20 Table of Contents Any collaborative arrangements that we have established or may establish may not be successful, or we may otherwise not realize the anticipated benefits from these collaborations, including commercialization of our current commercial products. We do not control third parties with whom we have or may have collaborative arrangements, and we rely on such third parties to achieve results which may be significant to us. In addition, any future collaborative arrangements may place the commercialization of our current commercial products or products that we may commercialize or promote in the future or the development of our therapeutic candidates outside our control and may require us to relinquish important rights or may otherwise be on terms unfavorable to us. Each of our collaborative arrangements requires us to rely on external consultants, advisors, and experts for assistance in several key functions, including clinical development, manufacturing, regulatory, market research, intellectual property, and commercialization. We do not control these third parties, but we rely on such third parties to achieve results, which may be significant to us. With respect to Aemcolo®, we rely on Cosmo the party responsible for, among others, the manufacture, supply, and other operating responsibilities. With respect to Talicia®, we rely on Recipharm AB and other contracting parties for the manufacture of Talicia® and its components. With respect to Movantik®, we rely on AstraZeneca to, among other things, manufacture, supply and provide other operating services with respect to Movantik®. Relying upon collaborative arrangements to commercialize our current commercial products and other products that we may commercialize or promote in the future and to develop our therapeutic candidates, subjects us to a number of risks, including but not limited to the following: ● we will be responsible for making certain royalty payments under our various in-licenses even if our operating costs exceed the revenues generated from the relevant products; ● our collaborators may default on their obligations to us and we may be forced to either terminate, litigate or renegotiate 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 our current commercial products, products that we may commercialize or promote in the future or our therapeutic candidates; ● our collaborators may fail to comply with applicable laws, rules, or regulations when performing services for us, and we 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 for our current commercial products or products that we may commercialize or promote; ● 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 a collaborator’s willingness or ability to complete its obligations under any arrangement; ● under certain circumstances, a collaborator could move forward with a competing therapeutic candidate or commercial product developed either independently or in collaboration with others, including our competitors; ● collaborative arrangements are often terminated or allowed to expire, which may limit or terminate our rights to commercialize our current commercial products or products we may commercialize or promote in the future, or could delay the development and may increase the cost of developing our therapeutic candidates; ● our collaborators may not wish to extend the terms of our agreements related to our commercial products or therapeutic candidates beyond the existing terms, in which case, we will not have access to existing rights upon the expiration and will therefore not be able to develop such therapeutic candidates or commercialize or promote such products following the initial terms of our agreements; and ● our collaborators may wish to terminate the collaborative arrangements due to any disagreements or conflicts with us, a change in their assessment that the arrangement is no longer valuable, a change in control or in management or in strategy, changes in product development or business strategies of our collaborators. 21 Table of Contents In addition, our reliance upon our partners in connection with commercial activities subjects us to a number of additional risks, including but not limited to, the following: ● we do not generally control our partners’ communications with the FDA or other foreign regulatory authorities, and the FDA or other foreign regulatory authorities may determine to withdraw the products from the market due to any action or inaction taken by our partners (see “Item 3. Key Information – Our current commercial products or products which we may commercialize or promote in the future may be subject to recalls or market withdrawal that could have an adverse effect on our reputation, business, financial condition or results of operations.”); ● in many instances, we rely on our partners to take enforcement action to protect the IP and regulatory protections, if any, of some of our commercial products. Their failure to diligently protect these products could materially affect our commercial success; ● we rely on our partners to be responsible for the manufacture of some of our current commercial products, including through third-party manufacturers with the requisite quality and manufacturing standards as required under applicable laws and regulations, and we also rely on those same partners to supply their respective products and APIs, which may result in us having those respective products and APIs in insufficient quantities or not delivered in as timely a manner as is necessary to achieve adequate or successful promotion and sale of their respective products; ● our partners relating to our commercial products may significantly create or change reimbursement agreements or increase or decrease the price of their respective products to a level that could adversely affect our sales or revenues; ● our partners may make decisions related to the product and take critical actions to support the product, including with respect to promotion, sales and marketing, medical affairs and pharmacovigilance, and any action or inaction taken by those same partners may adversely affect the sales of their respective commercial products; ● our partners may terminate their agreements with us after an agreed-upon period for reasons set forth in those same partners’ respective agreements with us; ● our partners for future commercial products may change or create new agreements with wholesalers, Pharmacy Benefit Managers or other important stakeholders, which may significantly impact our ability to achieve commercial success, or they may fail to negotiate reimbursement agreements with payors which could also negatively affect our commercial success; ● our partners may change the price of their respective commercial products to a level that could adversely affect our sales or revenues; and ● our 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 If any of these or other scenarios materialize, they could have an adverse effect on our reputation, business, financial condition or results of operations. Our current commercial products or products which we may commercialize or promote in the future may be subject to recalls or market withdrawal that could have an adverse effect on our reputation, business, financial condition or results of operations. The FDA and similar foreign governmental authorities have the authority to require the recall of regulated products in the event of material deficiencies or defects in design or manufacture. In the case of the FDA, the authority to require a recall must be based on an FDA finding that there is a reasonable probability that the product would cause serious injury or death. In addition, foreign governmental bodies have the authority to require the recall of our products in the event of material deficiencies or defects in design or manufacture. Product manufacturers or owners, as applicable, may, on their own initiative, recall a product if any material deficiency in a product is found. A government-mandated or voluntary recall by us or one of our collaborators, as applicable, could occur as a result of manufacturing errors, design or labeling defects or other deficiencies and issues. Recalls of any of our products would divert managerial and financial resources and will have an adverse effect on our reputation, business, financial condition or results of operations. The FDA requires that certain classifications of recalls be reported to the FDA 22 Table of Contents within 10 working days after the recall is initiated. Companies are required to maintain certain records of recalls even if they are not reportable to the FDA. We may initiate voluntary recalls involving our products in the future that we determine do not require notification of the FDA. If the FDA disagrees with our determinations, they could require us to report those actions as recalls. A future recall announcement could harm our reputation with customers and negatively affect our sales. In addition, the FDA could take enforcement action for failing to report the recalls when they were conducted. Regulatory authorities in other jurisdictions may have similar procedures that may subject any product we may commercialize or promote to limitations or withdrawal requests. In addition, the FDA or other foreign regulatory authorities may determine that the chemistry, manufacturing and controls (“CMC”) of marketed products 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, our current commercial products or any product we commercialize or promote in the future could be withdrawn from the market at any time. In addition, we may suffer from delays in further commercialization of any product we commercialize or promote. If we acquire products, technologies, companies or businesses that own rights to, or otherwise acquire commercialization and related rights to, products, such transactions could result in additional costs, integration or operating difficulties, dilution and other adverse consequences. Such acquired products, technologies or businesses that own rights to products may not achieve commercial success or further establish our marketing and commercialization capabilities. Part of our strategy is to identify and acquire rights to products that have been cleared or approved for marketing in the U.S. or elsewhere, and in particular, those with a therapeutic focus on GI or with therapeutic activities which are overlapping or complementary to our existing commercial activities (for example, Movantik®). Management has evaluated, and expects to continue to evaluate, a wide array of potential strategic acquisitions. From time to time, management may engage in discussions regarding potential acquisitions or licensing of rights to certain products that management believes are important to our business. Any one of these transactions could have a material effect on our reputation, business financial condition or results of operations. In connection with these acquisitions or licensing transactions, we may: ● issue equity securities that may substantially dilute our shareholders’ percentage of ownership; ● be obligated to make upfront milestones, royalty or other contingent or non-contingent payments; ● incur debt or non-recurring and other charges, or assume liabilities; and ● incur amortization expenses related to intangible assets or incur large and immediate write-offs of assets or goodwill or impairment charges. For example, to fund our growing operations and our in-license for Movantik®, we entered into a credit agreement with HCRM (see “Item 3. Risk Factors – Our term loan facility imposes significant operating and financial restrictions on us, which may prevent us from capitalizing on business opportunities and may restrict our operational flexibility, and our failure to comply with the restrictive covenants in our term loan facility could have a material adverse effect on our business.”). In addition, the process of integrating an acquired product, technology, company or business may create operating difficulties and expenditures and pose numerous additional risks to our operations, including: ● difficulty and expense in integrating the acquired product, technology, company or business, and personnel in accordance with our business strategy and existing operations, including the failure to achieve the expected benefits and synergies; ● obligations to further develop and commercialize the acquired product, technology, company or business, in particular in jurisdictions outside of those in which we have experience operating; ● higher than anticipated acquisition costs and expenses; ● failure to manufacture or supply, or procure manufacturers or suppliers for, the acquired product, technology, company or business economically or successfully commercialize or achieve market acceptance of the acquired product; 23 Table of Contents ● exposure to liabilities of the acquired product, technology, company or business, including contract terms and conditions that are less favorable to us than our standard contractual terms, known or unknown risks relating to the validity or enforceability of patents, expiration of patents or exclusivity rights, generic competition, product defects or product liability claims, patent and other litigation and clinical, development or other liabilities; ● disruption of our business and diversion of our management’s and technical personnel’s time and attention from their day-to-day responsibilities; ● adverse effects on our reputation, business, financial condition or results of operations, including due to expenditures or acquisition-related costs, costs of commercialization or amortization or impairment costs for acquired goodwill and other intangible assets; ● impairment of relationships with key suppliers and manufacturers due to changes in management and ownership and difficulty in maintaining existing agreements, licenses and other arrangements or rights on substantially similar terms as existed prior to the acquisition; ● regulatory changes and market dynamics after the acquisition; and ● potential loss of key employees, particularly those of the acquired entity. If any of the above events (or more) occur, or if we cannot effectively manage or respond to such events following one or more acquisitions, they may have a material adverse effect on our reputation, business, results of operations or financial condition. Moreover, there can be no assurance that we will accurately or consistently identify products approved or cleared for marketing that will achieve commercial success, that we will be able to successfully acquire or commercialize such products or that such acquisitions would further establish our marketing and commercialization capabilities. In addition, pursuant to the credit agreement with HCRM, we will need lender consent in order to complete future in-licenses or acquisitions of additional therapeutic candidates or products, which may limit us from executing our business strategy. If we are unable to successfully continue the commercialization of Movantik® and Talicia®, our business and results of operations will suffer. In 2020, we undertook efforts to expand our product portfolio, including the acquisition of certain rights to promote Movantik® and the launch of Talicia®, as a result of which our commercial portfolio is significantly larger than it was previously. A significant portion of the revenues generated in the twelve-month period ended December 31, 2020, was attributable to revenues from Movantik®, and we expect our future success will significantly depend upon our ability to successfully commercialize Movantik® and Talicia®. In addition, there can be no guarantee that we will be able to establish our own manufacturing capabilities, including through third parties, in order to continue the successful commercialization of Movantik® and Talicia®. Our success depends on obtaining reimbursement to patients for our products and there is no guarantee we will be able to secure commercial or government coverage for any of our products. There is significant pressure within the U.S. healthcare reimbursement system to reduce costs of prescription drugs which could adversely affect us. In addition, in the case of Movantik®, we face competitive pressures from other drugs in the PAMORA class as well as non-PAMORA alternatives. Our management team could face further challenges in effectively and collaboratively working with AstraZeneca (as well as Nektar Therapeutics, the originator of Movantik®, in accordance with the terms of the AstraZeneca License Agreement). In order to support our growing development product portfolio, we will need to achieve revenues from sales of Movantik® and Talicia® consistent with our business expectations, which may prove more difficult than currently expected. Our reputation, business, financial condition and results of operations may be materially adversely affected by any failure to meet such expectations. We may not be able to enforce claims relating to a breach of the representations and warranties that our counterparties provided under their respective agreements. In connection with the various agreements and arrangements we have entered into or may enter into in order to, among other things, acquire, license, manufacture, supply, promote or commercialize our current products or any future products, our counterparties have given certain representations and warranties and undertaken certain indemnification obligations as applicable. Nonetheless, we may not be able to enforce any claims against such other parties relating to breaches of these representations and warranties or obligations. Moreover, even if we are able to eventually recover any losses resulting 24 Table of Contents from a breach of these representations and warranties or obligations, we may temporarily be required to bear these losses ourselves. Maintaining and potentially expanding our commercial infrastructure in the U.S. is a significant undertaking that requires substantial financial and managerial resources, and we may encounter setbacks or may not be successful in our efforts. Establishing, maintaining or expanding the necessary commercial capabilities is competitive and time-consuming, and the commercialization of Movantik®, Talicia® and Aemcolo® requires a significant expenditure of operating, financial and management resources. Even with those investments, we may not be able to effectively commercialize our current commercial products, or we may incur more expenditures than anticipated in order to maximize our sales. We cannot guarantee that we will be able to establish, maintain or expand our sales, marketing, distribution, and market access capabilities and enter into and maintain any agreements necessary for commercialization with payors and third-party providers on acceptable terms, if at all. If we are unable to establish, maintain or expand such capabilities, either on our own or by entering into agreements with others, or are unable to do so in an efficient manner or on a timely basis, we will not be able to maximize the commercialization of our current commercial products or products that we may commercialize or promote in the future, which would adversely affect our reputation, business, financial condition or results of operations. Even if the commercialization of our current and future commercial products is successful, we may fail to further our business strategy as anticipated or to achieve anticipated benefits and success. We may incur higher than expected costs in connection with the commercialization of our current commercial products, and we may encounter general economic or business conditions that adversely affect these products. In addition, if we incur higher than expected costs in connection with the commercialization of our current and future commercial products, we may need to reduce or terminate our commercial activities, which may have a material adverse effect on our reputation, business, financial condition or results of operations. We have a limited history of independently commercializing products that we developed and for which we obtained regulatory approval, such as Talicia®, and a limited history of commercializing products in the U.S. Due to our inexperience, we may have difficulty commercializing current commercial products, including Movantik®, Talicia® and Aemcolo®, or promoting or commercializing any products for which we may obtain FDA approval or to which we may acquire commercialization or promotion rights in the future. Compared to competitors in the industry, we have relatively limited experience marketing and selling products in the U.S. In particular, we have limited experience in commercializing products that we developed and for which we obtained regulatory approval, such as Talicia®, which may materially increase our marketing and sales expenses or cause us to be ineffective in these efforts. Talicia® is the first product that we are commercializing that we developed and for which we obtained regulatory approval. Our prior experience promoting and commercializing several other commercial products in the U.S. that we no longer commercialize or promote was limited and brief. There can be no assurance we will successfully commercialize our current commercial products or any products we may commercialize or promote 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 our current commercial products and therapeutic candidates that we may seek to commercialize in the future. 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 in commercializing products, and we may not be able to generate sufficient revenue to achieve or sustain profitability. Our failure to accurately forecast demand for our commercial products, or to quickly adjust to forecast changes, could adversely affect our business and financial results. Market uncertainty makes it difficult for us to accurately forecast future commercial product demand. We will be setting target levels for the manufacture of our commercial products in advance of purchases based upon our forecasts of commercial product sales. 25 Table of Contents If our forecasts exceed demand, we could experience excess inventory of active pharmaceutical ingredients (“APIs”) or of our commercial products, which can increase our inventory costs and result in obsolete inventory. Alternatively, if demand exceeds our forecasts, this may cause a shortage of commercial products, or the APIs used in our products, which could result in an inability to satisfy demand for our commercial products and a resulting material loss of market share and potential revenue. A failure to accurately predict the level of demand for our commercial products could adversely affect our revenues and net income. Moreover, the supply agreement that we have entered into in connection with our in-license for Movantik® limits the extent to which we can deviate from our forecasts. In addition, some of our suppliers may require extensive advance notice of our requirements in order to produce APIs or commercial products in the quantities we desire. Long lead times may require us to place orders far in advance of the time when the commercial products will be offered for sale, and limitations on our flexibility to change such orders may not only make it difficult for us to accurately forecast demand for our commercial products, but also expose us to risks relating to shifts in consumer demand and trends and adversely affecting our operating results. We rely on data from third parties in connection with the sale of our commercial products and our assessment of product acquisition opportunities. Inaccuracies in such data may affect the revenues of our commercial products and our allocation of resources, and as a result, may adversely affect our reputation, business, financial condition or results of operations. We rely on data from third parties, including data providers, in connection with our commercial business. Revenues for the commercialization of some of our commercial products, as well as our assessment of opportunities to acquire rights to products, are dependent on the volume of sales of commercial products, which is calculated based on information obtained from third parties. Although we take steps to verify this data, the information we receive may be inaccurate or incomplete. In the event the information we receive is inaccurate or incomplete, this may affect our reported revenue for a reporting period or our decisions of whether to acquire rights to certain products. If third parties do not manufacture or sell our current commercial products, our therapeutic candidates, upon approval, if any, or products we may commercialize or promote in the future in sufficient quantities, within the required timeframes, at an acceptable cost and in accordance with applicable quality standards and other regulatory requirements, the commercialization of our current commercial products or products we may commercialize or promote in the future may be adversely affected, or clinical development of our therapeutic candidates. We do not currently own or operate manufacturing facilities. We rely on, and expect to continue to rely on, third parties to manufacture commercial quantities of our current commercial products and products that we may commercialize or promote in the future and clinical quantities of our therapeutic candidates. We rely on the manufacturer of Talicia® to provide sufficient quantities of Talicia® in the required timeframe. We rely on Cosmo to provide sufficient quantities of Aemcolo® in the required timeframe. In addition, we rely on AstraZeneca to provide sufficient quantities of both Movantik® and the API used in connection therewith for a set transition period. In addition, we are in the process of transitioning the manufacture of Movantik® from AstraZeneca to other third parties. This transition will need to be completed in a successful and timely manner for our supply requirements to be met. During the transition and thereafter, we will rely on various third parties to satisfy our supply requirements and there is no guarantee they will be able to do so successfully or in a timely manner. Our reliance on third parties includes our reliance on them for quality assurance related to regulatory compliance. Our current and anticipated future reliance upon others for the manufacture of our therapeutic candidates and any products that we may commercialize or promote may adversely affect our future operations and our ability to commercialize our current commercial products and any products that we may commercialize or promote on a timely and competitive basis, and to develop therapeutic candidates. We may not be able to maintain our existing or future third-party manufacturing arrangements on acceptable terms, if at all. If for some reason our manufacturers or our development or commercialization partners’ manufacturers do not perform as agreed or expected or terminate or fail to renew the agreements for any reason, we or our partners may be required to replace them, in which event we may incur added costs and delays in identifying, engaging, qualifying under applicable regulatory requirements and training any such replacements and entering into agreements with such replacements on acceptable terms. In addition, our ability to enter into such alternative arrangements within a reasonable period of time, if at all, may be contractually limited by the terms of our manufacturing agreements existing at that time. Obtaining the 26 Table of Contents necessary FDA or other regulatory approvals or other qualifications required for changes in manufacturing sites, methods or processes under applicable regulatory requirements could result in a significant interruption of supply. In the case of the manufacturer of Movantik® and Talicia®, in particular, the delay in identifying, engaging, qualifying and training its replacement may be extended, leading to a significant interruption of supply. Any such additional costs and delays may adversely impact our ability to obtain regulatory clearances and approvals for our therapeutic candidates or any product we may commercialize or promote or make such commercialization or marketing economically unfeasible. We rely on third parties to manufacture and supply us with high-quality APIs and their starting materials in the quantities and quality 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 current commercial products and products we may commercialize or promote in the future and our therapeutic candidates. If these suppliers are incapable or unwilling to meet our current or future needs on acceptable terms or at all, we could experience delays in supplying product to market or commercial supply shortages that would adversely affect our sales of products we currently or may commercialize or promote in the future, or delays in obtaining regulatory clearances or approvals for our therapeutic candidates. While there may be several alternative suppliers of APIs on the market, for most of our products we have yet to conclude extensive investigations into the quality or availability of their APIs. Changing API suppliers or finding and qualifying new API suppliers can be costly and take a significant amount of time. Many APIs require significant lead-time to manufacture. There can also be challenges in maintaining similar quality or technical standards from one manufacturing batch to the next. In connection with our in-license for Movantik®, we rely on AstraZeneca to provide the necessary API during a set transition period. Upon the expiration of such transition period, we will be responsible for finding a new API supplier as we do not expect to manufacture the necessary API ourselves. If we are not able to find stable, affordable, high quality, or reliable supplies of our APIs, we may not be able to produce enough supplies of our current commercial products or products we may commercialize or promote in the future, or of our therapeutic candidates, which could have a material adverse effect on our reputation, business, financial condition or results of operations. In addition, while to date there have been no significant disruptions to our supply chain, including to the manufacture of our APIs or their starting materials, there may be unfavorable changes in the availability or cost of raw materials, intermediates, and other materials necessary for production, which may result in disruptions in our supply chain. See “ – The ongoing COVID-19 pandemic may adversely affect our business, revenues, results of operations and financial condition.” We anticipate continued reliance on third-party manufacturers for our current commercial products, and we expect to rely on third-party manufacturers if we are successful in obtaining marketing approval from the FDA and other regulatory agencies for any of our therapeutic candidates. We rely on, and we expect to continue to rely on, third-party manufacturers to produce commercial quantities of our current commercial products. In addition, we expect to rely on third-party manufacturers to produce products that we may commercialize or promote in the future. To date, other than Talicia®, which the FDA has approved for marketing in the U.S., our therapeutic candidates have been manufactured in relatively small quantities for preclinical testing and clinical trials, as well as for other regulatory purposes by third-party manufacturers. If the FDA or other regulatory agencies approve any of our current or future therapeutic candidates for commercial sale, we expect that we would rely, at least initially, on third-party manufacturers to produce commercial quantities of our approved therapeutic candidates. These manufacturers may not be able to successfully increase or maintain the manufacturing capacity for our current commercial products or any product we may commercialize or promote in the future or any of our therapeutic candidates that may be approved in the future, in a timely or economic manner, or at all. The significant scale-up of manufacturing may require additional validation studies, which the FDA must review and approve. Foreign regulatory agencies may also require the approval of additional validation studies for scaling up the manufacturing process of any of our therapeutic candidates or current or future commercial products. If the third-party manufacturers are unable to successfully increase or maintain the manufacturing capacity for a therapeutic candidate, current commercial products or for products that we may 27 Table of Contents commercialize or promote in the future, or if we are unable to secure replacement third-party manufacturers or unable to establish our own manufacturing capabilities, the commercial launch of any approved products may be delayed or there may be a shortage in supply. With respect to Movantik®, until we are able to establish long-term manufacturing capabilities (including through third-party manufacturers), which will not be earlier than the expiration of the set transition period, our ability to arrange for an alternative manufacturer is contractually limited in the event that AstraZeneca is unable to increase or maintain the manufacturing capacity to satisfy our needs. A supply disruption from any of our third-party manufacturers could have a material adverse effect on our reputation, business, financial condition or results of operations. Reliance on third-party manufacturers entails risks, including, but not limited to: ● manufacturing delays if our third-party manufacturers give greater priority to the supply of other products over our current or future commercial products, including Movantik®, Talicia® and Aemcolo®, or any future therapeutic candidates, if approved, or otherwise do not satisfactorily perform according to the terms of their agreements with us; ● the possible termination or nonrenewal of manufacturing agreements by the third-party manufacturers at a time that is costly or inconvenient for us; ● the possible breach of manufacturing agreements by third-party manufacturers; ● delays in obtaining regulatory approval for any future therapeutic candidates, if our third-party manufacturers fail to satisfy FDA inspection requirements in connection with pre-approval inspections or otherwise fail to comply with regulatory requirements; and ● product loss or serious adverse events due to contamination, equipment failure, or improper installation or operation of equipment or operator error. We and our third-party manufacturers or our partners’ manufacturers are, and will be, subject to regulations of the FDA and other foreign regulatory authorities, such as applicable current good manufacturing practices and other quality-based regulations. 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 and recordkeeping relating to our current commercial products and any products we may commercialize or promote, and our therapeutic candidates with varying cGMP rigors depending on what phase each of our respective therapeutic candidates is in with respect to its drug development process. 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-party manufacturers and our partners’ manufacturers are, and will be, subject to unannounced inspections by the FDA, state regulators and similar foreign regulatory authorities outside the U.S. Our failure, or the failure of our third-party manufacturers or our partners’ manufacturers, to comply with applicable laws, regulations and guidelines could result in the imposition of sanctions on us, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our therapeutic candidates, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of our current and future commercial products and therapeutic candidates, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect regulatory approval and supplies of our current and future commercial products and therapeutic candidates, and materially and adversely affect our reputation, business, financial condition or results of operations. Furthermore, changes in the manufacturing process or procedure, including a change in the location where the product is manufactured or a change of a third-party manufacturer, will require prior FDA or other regulatory review or approval of the manufacturing process and procedures in accordance with the FDA’s regulations or comparable foreign requirements. This review may be costly and time-consuming and could delay or prevent the launch or commercial production of a product. The new facility will also be subject to pre-approval inspection. In addition, we will have to demonstrate that the product made at the new facility is equivalent to the product made at the former facility by physical and chemical methods, which are costly and time-consuming. It is also possible that the FDA may require clinical testing as a way to prove equivalency, which would result in additional costs and delay, and may also result in delays in approval or commercialization of a product or render it unfeasible. 28 Table of Contents Our current commercial products, and any product we may commercialize or promote in the future, even if all regulatory clearances and approvals are obtained, will be subject to ongoing regulatory review. If we fail to comply with continuing U.S. and applicable foreign laws, regulations, and guidelines, we could lose those clearances and approvals, and our reputation, business, financial condition or results of operations may be materially and adversely affected. We or our commercialization partners, as applicable, are and will be subject to ongoing reporting obligations with respect to our current commercial products and any cleared or approved product that we may commercialize or promote in the future, including pharmacovigilance, and with respect to our therapeutic candidates, even if they receive regulatory clearance or approval. In addition, the manufacturing of our current commercial products, and any other product we may commercialize or promote, whether currently or in the future, and our therapeutic candidates, will be subject to continuing regulatory review, including inspections by the FDA and other foreign regulatory authorities. Furthermore, according to our in-license for Movantik®, we are responsible for managing the product’s global safety database, which may result in increased inspection from foreign regulatory authorities with which we do not have experience interacting. The results of any ongoing review may result in withdrawal from the market of one of our current commercial products or products we may commercialize or promote in the future, interruption of manufacturing operations or imposition of labeling or marketing limitations for such commercial product or therapeutic candidate, or other potentially significant enforcement actions. Since many more patients are exposed to drugs following their marketing clearance or approval, serious adverse reactions that were not observed in clinical trials may occur during the commercial marketing of our current commercial products or any product we may commercialize or promote in the future, including therapeutic candidates. If a product receives regulatory approval, the approval is limited to the specific indications for use identified in the approved marketing application and by any additional requirements, restrictions, and limitations identified at the time of the product’s approval or thereafter, which could restrict the commercial value of the product. As a condition of approval or after approval (if the FDA becomes aware of new safety information), the FDA may require us to implement a Risk Evaluation and Mitigation Strategy (REMS), which may include distribution or use restrictions 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 not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability of a given drug. Once adopted, REMS are subject to periodic assessment and modification. Additionally, the FDA may require post-approval, “Phase 4” clinical trials (for example, the MACE study with respect to Movantik®) to generate additional information on safety or efficacy. The results of such postmarketing studies may be negative and could cause the FDA to, among other things, further limit marketing efforts or a product’s approved uses. If we or our future commercialization partners, as applicable, are required to conduct additional clinical trials or other testing of our current commercial products, or any other product we may commercialize or promote, or of our therapeutic candidates, we may face substantial additional expenses, be delayed in obtaining marketing clearance or approval, if required by the FDA, or may never obtain marketing clearance or approval for such product we may commercialize or promote or therapeutic candidate. Third-party manufacturers and the manufacturing facilities that we and our development or commercialization partners use to manufacture any of our current commercial products and any other products that we may commercialize or promote, and therapeutic candidate, will be subject to periodic review and inspection by the FDA and may be subject to similar review by other regulatory authorities. Later discovery of previously unknown problems with any of our current commercial products and product we may commercialize or promote, or any therapeutic candidate, manufacturer or manufacturing process, or failure to 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 marketed product from the market; ● withdrawal of the therapeutic candidate from use in a clinical trial; ● suspension or withdrawal of regulatory approvals; 29 Table of Contents ● refusal to approve pending applications or supplements to approved applications that we or our development or commercialization partners submit; ● voluntary or mandatory recall; ● fines; ● refusal to permit the import or export of our current commercial products or products that we may commercialize or promote in the future or our therapeutic candidates; ● product seizure or detentions; ● injunctions or the imposition of civil or criminal penalties; and ● adverse publicity. If we or our future commercialization partners, suppliers, third-party contractors or clinical investigators are slow to adapt, or are unable 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 products already cleared or approved for marketing in any jurisdiction, resulting in decreased or lost revenue from such products and could also result in other civil or criminal sanctions, including fines and penalties, and we may lose marketing clearance or approval of any of our therapeutic candidates, if any of our therapeutic candidates are approved for marketing. We may be subject to risks relating to our past promotion of Donnatal®, Mytesi®, and Esomeprazole Strontium Delayed- Release Capsules 49.3 mg and our commercialization of EnteraGam®. In June 2017, we commenced promoting Donnatal® (Phenobarbital, Hyoscyamine Sulfate, Atropine Sulfate, Scopolamine Hydrobromide) in the U.S. pursuant to an exclusive co-promotion agreement with a subsidiary of ADVANZ, an international specialty pharmaceutical company. In June 2017, we commenced commercializing EnteraGam® in certain territories in the U.S. pursuant to a license agreement with Entera Health. In September 2017, we commenced promoting Esomeprazole Strontium DR Capsules 49.3 mg to gastroenterologists in certain U.S. territories pursuant to a commercialization agreement with ParaPRO LLC. In July 2018, we commenced promoting Mytesi® (crofelemer) pursuant to a co-promotion agreement with Napo, a wholly-owned subsidiary of Jaguar Health, Inc. Although none of these agreements are currently in effect, we may still be exposed to claims under these agreements. We may be exposed to risks relating to our past promotion and commercialization of these products, including product liability or other claims. If we are subject to any such claims, it could have a material adverse effect on our business. We may encounter delays in receipt of FDA approval, if any, for our therapeutic candidates due to CMC, clinical, efficacy, safety, or regulatory or other issues. We may encounter significant delays in receipt of FDA approval, if any, for our therapeutic candidates. For example, the FDA may determine that the CMC of one of our therapeutic candidates is not satisfactory due to the manufacturing standards of the products or that additional CMC work, information or quality assurances are needed. The FDA may also consider the clinical studies conducted with a therapeutic candidate and the additional information provided to be inadequate, or insufficient, or require us to provide additional information, which may require us to conduct additional studies or otherwise significantly delay potential FDA approval of the potential NDA for a therapeutic candidate, if at all. In addition, we cannot guarantee that potential future manufacturers or other vendors related to manufacturing will be able to perform as required, will not terminate their agreements with us, or otherwise will not perform satisfactorily. The potential delay in identifying, engaging, qualifying and training an alternative manufacturer may be extended, leading to a significant delay. Furthermore, the FDA may also change its clearance or approval policies or adopt new laws, regulations or guidelines in a manner that materially delays or impairs our ability to obtain approval of the potential NDA for a therapeutic candidate, if any. If any of these or other issues occur, we may face substantial additional expenses and otherwise experience delays in obtaining FDA approval of the NDAs we may file in the future for our therapeutic candidates, including RHB-104 for Crohn’s disease, or may never obtain the FDA approval for such NDAs. 30 Table of Contents 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 or commercialization partners may not be able to obtain regulatory approvals for our therapeutic candidates or commercialize products we may commercialize or promote without completing such trials in accordance with the applicable regulatory standards, even products that may have already been cleared or approved for marketing. We have limited experience in conducting and managing the clinical trials that are required to obtain or maintain regulatory approvals and commence or continue commercial sales. We have agreed to manage and complete the postmarketing major adverse cardiovascular events (MACE) trial for Movantik® and will be reliant on third parties in connection therewith as well. 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 third parties, 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 our therapeutic 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 materially delay or prevent the obtainment of a regulatory approval of current or future therapeutic candidates and delay or prevent their commercialization. In connection with the clinical trials for our therapeutic candidates and other therapeutic candidates that we may seek to develop in the future, either on our own or through licensing or partnering agreements, we face various risks and uncertainties, 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 or continue a clinical trial; ● expiration of clinical trial material before or during our trials as a result of delays, including suspension of a clinical trial, degradation of, or other damage to, the clinical trial material; ● negative or inconclusive results or results that are not sufficiently positive from clinical trials; ● the FDA or other foreign regulatory authorities may disagree with the number, design, size, conduct or implementation of our clinical studies; ● the FDA or other foreign regulatory authorities may require us to conduct additional clinical trials or studies in connection with therapeutic candidates in development, as well as for products that have already been cleared and approved 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 events and 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 preclinical studies or clinical trials; ● the results may not meet the level of statistical significance required by the FDA or other foreign regulatory authorities; ● 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 a lower 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 to unexpected 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 and experience than us, have suffered significant setbacks in advanced clinical trials, even after seeing promising results in earlier clinical trials. As such, despite the results reported in earlier clinical trials of our therapeutic candidates, we do not 31 Table of Contents know if we will be able to complete the clinical trials we conduct or if such clinical trials will demonstrate adequate safety and efficacy sufficient to request and obtain regulatory approval to market our therapeutic candidates. If any of the clinical trials of any of our current or future therapeutic candidates do not produce favorable results or are found to have been conducted in violation of the FDA’s or other regulatory body’s standards governing such studies, our ability to request and obtain regulatory approval for the therapeutic 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 MAP, this may adversely impact 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 MAP bacteria in Crohn’s disease patients in collaboration with several U.S. universities and laboratories. However, we do not know if and when a diagnostic test for MAP will become available. If we are unable to develop a diagnostic test for MAP, this may 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 commercialize or promote, or otherwise not be able to raise substantial additional capital, we will likely need to alter our development and commercialization plans. Our drug development programs and the potential commercialization of our approved products or our therapeutic candidates and products that we may commercialize or promote in the future will require additional cash to fund expenses. As such, our strategy includes either selectively partnering or collaborating with multiple pharmaceutical and biotechnology companies to assist us in furthering the development or potential commercialization of our approved products and therapeutic candidates, if approved, promoting or commercializing products, in whole or in part, in some or all jurisdictions or through our own commercialization capabilities. With respect to potential new third-party partners for the development or commercialization of our approved products and therapeutic candidates, if approved, and development or commercialization of products that we may commercialize or promote in the future, we may not be successful in entering into collaborations with third parties on acceptable terms, or at all. In addition, if we fail to negotiate and maintain suitable development, commercialization or promotion agreements or otherwise raise substantial additional capital to secure our own commercialization capabilities, we may have to limit the size or scope of our activities or we may have to delay or terminate one or more of our development or commercialization programs. Any failure to enter into development or commercialization agreements with respect to the development, marketing and commercialization of any therapeutic candidates or products we may commercialize or promote or failure to develop, market and commercialize such commercial products or therapeutic candidates or products we may commercialize or promote independently may have an adverse effect on our reputation, business, financial condition or results of operations. We rely on third parties to conduct our clinical trials and related non-clinical studies and those third parties may not perform satisfactorily, including but not limited to failing to meet established deadlines and compliance with applicable laws 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 our therapeutic candidates, and we rely on third parties, such as contract research organizations, medical institutions, contract laboratories, development and commercialization partners, clinical investigators and independent study monitors to perform these functions. We have agreed to manage and complete the postmarketing major adverse cardiovascular events (MACE) trial for Movantik®. Our reliance on these third parties for research and development activities reduces our control over these activities. Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. Although we have, in the ordinary course of business, entered into agreements with such third parties, we continue to be responsible for confirming that each of our clinical trials and related non-clinical studies is conducted in accordance with its general investigational plan and protocol, as well as all applicable laws and regulations. For example, the FDA requires us to comply with regulations and standards, commonly referred to as good clinical practices (“GCP”), for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the trial participants are adequately protected, and regulatory authorities in other jurisdictions may have similar responsibilities and requirements. Our reliance on third parties does not relieve us of these responsibilities and requirements. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we 32 Table of Contents may be required to replace them or perform such functions independently. Although we believe that there are a number of other third-party contractors we could engage to continue these activities, it may result in a delay of the affected trial and additional costs. Accordingly, we may be materially delayed in obtaining regulatory approvals, if any, for our therapeutic candidates and may be materially delayed in our commercialization efforts for the targeted indications. In addition, our ability to bring our therapeutic candidates to market depends on the quality and integrity of data that we present to regulatory authorities in order to obtain marketing authorizations. Although we attempt to audit and control the quality of third-party data, we cannot guarantee the authenticity or accuracy of such data, nor can we be certain that such data has not been fraudulently generated. Furthermore, the FDA may consider clinical studies inadequate where steps have not been taken in the design, conduct, reporting, and analysis of the studies to minimize bias. For example, one potential source 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 clinical investigators either: (i) a completed Form FDA 3454 attesting to the absence of financial interests and arrangements described in the regulations, dated and signed by the chief financial officer or another responsible corporate official; or (ii) for any investigators for whom a Form FDA 3454 is not submitted, a Form FDA 3455 disclosing completely and accurately the following: ● any financial arrangement entered into between the sponsor of the covered study and the clinical investigator involved in the conduct of a covered clinical trial, whereby the value of the compensation to the clinical investigator 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 ongoing research, 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 any study; and ● any steps taken to minimize the potential for bias resulting from any of the disclosed arrangements, interests, or payments. The FDA may refuse to accept a filing of an NDA that does not contain the required certifications and disclosures or attestations by the applicant that the applicant has acted with due diligence to obtain the information but was unable to do so and stating the reason. Additionally, FDA refusal of an NDA on potential bias grounds may have a material adverse effect on our reputation, business, financial condition or results of operations and the credibility of our other commercial products or therapeutic candidates. We rely on contract research organizations for the management of clinical data generated from our studies, and such contract research organizations may not perform satisfactorily. We rely on contract research organizations to provide monitors for and to manage data for our studies. Our reliance on these contract research organizations for data management reduces our control over clinical data management. While we have agreements governing their activities, we have limited influence over their actual performance. If these contract research organizations do not successfully carry out their contractual duties or obligations or meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or for other reasons, we may be required to replace them, or our clinical studies may be extended, delayed or terminated. In addition, such failure of our contract research organizations would pose risks to the accuracy and usability of clinical data from our clinical studies. Replacing a contract research organization may result in a delay in our clinical studies and generation of data from such studies. In addition, we face the risk of potential unauthorized disclosure or misappropriation of our intellectual property by contract research organizations, which may reduce our trade secret protection and allow our potential competitors to access and exploit our proprietary technology. We may fail to receive or maintain the benefits from the orphan drug and QIDP designations granted by the FDA for our applicable products or therapeutic candidates, as applicable. In the U.S., under the Orphan Drug Act, the FDA may grant orphan drug designation to a drug or biologic intended to treat a rare disease or condition, which is defined as one occurring in a patient population of fewer than 200,000 in the U.S., or 33 Table of Contents a patient population greater than 200,000 in the U.S. where there is no reasonable expectation that the cost of developing the drug or biologic will be recovered from sales in the U.S. In 2011, the FDA granted RHB-104 orphan drug designation for the treatment of Crohn’s disease in the pediatric population; in 2017, the FDA granted opaganib (ABC294640, Yeliva®) orphan drug designation for the treatment of cholangiocarcinoma and granted RHB-107 (upamostat, formerly Mesupron) orphan drug designation for the treatment of pancreatic cancer, and in 2020 the FDA granted orphan drug designation to RHB-204 for the treatment of NTM infections. In the U.S., the orphan drug designation entitles a party to financial incentives, such as opportunities for grant funding toward clinical trial costs, tax advantages and user-fee waivers. In addition, if a product that has the orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications, including an NDA, to market the same drug or biologic for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity or where the original manufacturer is unable to assure sufficient product quantity. Exclusive marketing rights from a given orphan drug designation may be limited if we seek approval for an indication broader than the orphan-designated indication or may be lost if the FDA later determines that the request for designation was materially defective, or if we are unable to assure sufficient quantities of the product to meet the needs of patients with the orphan-designated disease or condition. Further, even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs with different active moieties may receive and be approved for the same condition, and only the first applicant to receive approval will receive the benefits of marketing exclusivity. Even after an orphan-designated product is approved, the FDA can subsequently approve a later drug with the same active moiety for the same condition if the FDA concludes that the later drug is clinically superior if it is shown to be safer, more effective or makes a major contribution to patient care. Orphan drug designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process. In addition, in 2017, we announced that RHB-204 had been granted QIDP designation by the FDA for the treatment of pulmonary NTM infections. Like orphan drugs, QIDPs may take advantage of market exclusivity, which in the case of QIDPs is five years (total period of twelve years together with the orphan drug designation). However, the five-year exclusivity extension does not apply to a supplement to an application under Section 505(b) of the FDCA for any QIDP for which an extension is in effect or has expired; a subsequent application submitted with respect to a product approved by the FDA for a change that results in a new indication, route of administration, dosing schedule, dosage form, delivery system, delivery device or strength; or a product that does not meet the definition of a QIDP under Section 505(g) based upon its approved uses. Modifications to our current commercial products or to any product that we may commercialize or promote in the future, or our therapeutic candidates, may require new regulatory clearances or approvals or may require us or our development or commercialization partners, as applicable, to recall or cease marketing any of our approved products, or delay further studies of our therapeutic candidates in human subjects until clearances or approvals are obtained. Modifications to our current commercial products and any products we may commercialize or promote, or to our therapeutic candidates, after they have been cleared or approved for marketing, if at all, may require new regulatory clearance or approvals, in particular, if we seek or are required to expand our operations to jurisdictions outside of the U.S., and, if necessitated by a problem with a marketed product, may result in the recall or suspension of marketing of the previously approved and marketed product until clearances or approvals of the modified product are obtained. The FDA and other regulatory authorities require pharmaceutical product and device manufacturers to initially make and document a determination of whether or not a modification requires a new approval, supplement or clearance. A manufacturer may determine in conformity with applicable laws, regulations, and guidelines that a modification may be implemented without pre-clearance by the FDA or other regulatory authorities. However, the FDA or other regulatory authorities can review a manufacturer’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 or approvals 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 34 Table of Contents partners, may be required to recall and stop marketing such marketed product, which could require us or our partners, including development or 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, consummate and integrate in-licenses or acquire additional therapeutic candidates to achieve commercial success, including products approved or cleared for marketing in the U.S. or elsewhere. Movantik®, Talicia®, Aemcolo® and our six clinical-stage development therapeutic candidates were all acquired or licensed by us from third parties and we may in the future pursue in-licenses or acquisitions of additional therapeutic candidates or products and seek to integrate them into our operations as well. We evaluate internally and with external consultants each therapeutic candidate we in-license or acquire. However, there can be no assurance as to our ability to accurately or consistently identify therapeutic candidates or products that have been approved or cleared for marketing in the U.S. or elsewhere that are likely to achieve commercial success. In addition, even if we identify additional therapeutic candidates or products that have been approved or cleared for marketing in the U.S. or elsewhere that are likely to achieve commercial success, there can be no assurance as to our ability to in-license or acquire such therapeutic candidates or products under favorable terms or at all. In-licenses and acquisitions of therapeutic candidates and products involve risks that could adversely affect our future results of operations. 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 have been approved or cleared for marketing in the U.S. We may compete for in-license and acquisition opportunities with other companies, including established and well-capitalized companies. As a result, we may be unable to in-license or acquire additional therapeutic candidates or products that have been approved or cleared for marketing in the U.S. at all or on favorable terms. Our failure to further in-license or acquire therapeutic candidates or products that have been approved or cleared for marketing in the U.S. in the future may materially hinder our ability to grow and could materially harm our reputation, 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 or other development or commercialization agreements or renegotiate the obligations under such agreements, or if other events occur that are not within our control, such as bankruptcy of a licensor or a partner, we could lose the rights to our therapeutic candidates or products we may commercialize or promote, experience delays in developing or commercializing our therapeutic candidates or products we may commercialize or promote or incur additional costs, which could have a material adverse effect on our reputation, business, financial condition or results of operations. We acquired our rights to Talicia® and two of our other therapeutic candidates, RHB-104, and RHB-106, from a third party pursuant to an asset purchase agreement. In addition, we in-licensed our rights to three other therapeutic candidates, RHB- 102 (Bekinda®), opaganib (ABC294640Yeliva®), and RHB-107 (upamostat), pursuant to license agreements in which we received exclusive perpetual licenses to certain patent rights and know-how related to these therapeutic candidates. We have also obtained the exclusive U.S. rights to commercialize Aemcolo® and we obtained the global rights (excluding Europe, and Canada) to commercialize Movantik®, each pursuant to a license agreement. These agreements require us to make payments and satisfy various performance obligations in order to maintain our rights and licenses with respect to these marketed products and therapeutic candidates. If we or our collaborators do not meet our or their respective obligations under these or future agreements, or if other events occur that are not within our control, such as the bankruptcy of a licensor, we could lose the rights to commercialize our current and future commercial products or to our therapeutic candidates, experience delays in developing our therapeutic candidates or incur additional costs. For example, AstraZeneca divested its rights in Movantik® in Europe, Canada and Israel in 2016 to other third-party sublicensees. In connection with our in-license for Movantik®, if our sub licensor or such third-party sublicensees do not meet their respective obligations under their respective agreements, we may lose the ability to commercialize Movantik®. The loss of such rights could have a material 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 certain issued patents licensed to us. If we do not meet our obligations under these agreements in a timely manner or if other 35 Table of Contents events occur that are not within our control, such as the bankruptcy of a licensor, which impact our ability to prosecute certain patent applications and maintain certain issued patents licensed to us, we could lose the rights to our current and future commercial products or our therapeutic candidates which could have a material adverse effect on our reputation, business, financial condition or results of operations. We manage a large portfolio of patents and may decide to discontinue maintaining certain patents in certain territories for various reasons, including costs, such as a current belief that the commercial market for the therapeutic candidate will not be large or that there is a near-term patent expiration that may reduce the value of the therapeutic candidate. In the event we discontinue maintaining such patents, we may not be able to enforce rights for our therapeutic candidates or protect our therapeutic candidates from competition in those territories. Disputes may arise between us and third parties from whom we have acquired assets, commercialization rights or licenses. Any conflict, dispute or disagreement with such third parties may result in disruptions to our business relationships, require us to pay damages and incur costs, adversely affect our results of operations and may lead to loss of rights that are important to our business or costly litigation. Our existing agreements impose, and we expect that future acquisition, commercialization or license agreements will impose, various diligence, milestone payments, royalty or other obligations on us. Such agreements require, or may in the future require, us to remit upfront and royalty payments or performance milestone payments. Any failure on our part to pay upfront and royalties owed or milestone payments could lead to us losing rights under our licenses and could thereby adversely affect our business. If there is any conflict, dispute, disagreement or issue of non-performance between us and our third-party partners regarding our rights or obligations under the acquisition, commercialization or license agreements, including any such conflict, dispute or disagreement arising from our failure to satisfy payment obligations under any such agreement or to perform certain activities or to adhere to any contractual obligation, we may be liable to pay damages and incur costs, and it could lead to delays in the research, development, collaboration, and commercialization of our commercial products, products we may promote or commercialize in the future or our therapeutic candidates. The resolution of such disputes could require or result in litigation or arbitration, which could be time-consuming and expensive. Such third-party partner may have a right to terminate the affected license subject to a dispute. If our existing agreements are terminated, it would have a material adverse effect on our reputation, business, financial condition or results of operations. 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 impact the successful completion of our planned clinical trials or the commercialization of our current commercial products and therapeutic candidates, if approved, and any product we may commercialize or promote in the future, or otherwise affect our ability to manage our company effectively and to carry out our business plan. These key personnel are Dror Ben- Asher, our Chief Executive Officer, Reza Fathi, Ph.D., our Senior Vice President for Research and Development, Gilead Raday, our Chief Operating Officer, Adi Frish, our Chief Corporate and Business Development Officer, Guy Goldberg, our Chief Business Officer, Micha Ben Chorin, our Chief Financial Officer, Rick D. Scruggs, our Chief Commercial Officer, Dr. June Almenoff, our Chief Scientific Officer, Rob Jackson, our Senior VP, Sales & Marketing and Robert J. Gilkin, our Senior VP, Market Access and Trade Relations. We do not maintain key-man life insurance. Although we 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 key personnel in the pharmaceutical industry. There can be no assurance that we will be able to continue to retain and attract such personnel. Our growth and success also depend on our ability to attract and retain additional highly qualified scientific, technical, business development, marketing, sales, managerial and finance personnel. We experience intense competition for qualified personnel, and the existence of non-competition agreements between prospective employees and their former employers may prevent us from hiring those individuals or subject us to liability from their former employers. In addition, as part of our plan to promote our current commercial products and potential products we may develop, we may need to expand and maintain our marketing and sales capabilities. While we attempt to provide competitive compensation packages to attract and retain key personnel, many of our competitors are likely to have greater resources and more experience than we have, making it difficult for us to compete successfully for key personnel. If we cannot attract and retain sufficiently qualified suitable employees on acceptable terms, we may not be able to develop and commercialize 36 Table of Contents our commercialized products and competitive therapeutic candidates. Further, any failure to effectively integrate new personnel could materially prevent us from successfully growing our company. We face several risks associated with international business. We operate our business in multiple international jurisdictions. Such operations could be materially affected by changes in foreign exchange rates, capital and exchange controls, expropriation and other restrictive government actions, changes in intellectual property legal protections and remedies, changes in data privacy laws, trade regulations and procedures and actions affecting approval, production, pricing, and marketing of, reimbursement for and access to, our current commercial products and products we may commercialize or promote, or our therapeutic candidates, as well as by political unrest, unstable governments and legal systems, and inter-governmental disputes. In addition, we are subject to global events beyond our control, including war, public health crises, such as pandemics and epidemics (as described above), trade disputes and other international events. Any of these changes could have a material adverse effect on our reputation, business, financial condition or results of operations. Risks Related to Our Industry The market for our current commercial products, for any product we may commercialize or promote in the future and for our therapeutic candidates is rapidly changing and competitive, and new drug delivery mechanisms, drug delivery technologies, new drugs, generic products, treatments and products which may be developed by others could impair our ability to maintain and grow our business and remain competitive. The pharmaceutical and biotechnology industry is highly competitive, and we face significant competition from many pharmaceutical, biopharmaceutical and biotechnology companies that are researching, developing and marketing products designed to address the indications for which we are currently developing therapeutic candidates or may develop therapeutic candidates in the future or for which we may commercialize or promote products. There are various other companies that currently market, are in the process of developing or may develop in the future products that address all of the indications or diseases treated by our current commercial products, products that we may commercialize or promote in the future, and our therapeutic candidates. New drug delivery mechanisms, drug delivery technologies, new drugs and new treatments that have been developed or that are in the process of being developed or will be developed by others may render our current commercial products, products we may commercialize or promote in the future and our therapeutic candidates noncompetitive or obsolete, or we may be unable to keep pace with technological developments or other market factors. Some of these technologies may have an entirely different approach or means of accomplishing similar therapeutic effects compared to our current commercial products, products we may commercialize or promote in the future and our therapeutic candidates. In addition, our current commercial products and products we may commercialize or promote in the future may compete with products of third parties for market share, and generic drugs or products that treat the same indications as our current commercial products or products we may commercialize or promote in the future, which can have an adverse effect on our revenues by reducing our market share or requiring us to reduce the price of the products we market. Movantik® primarily competes with other approved PAMORA drugs, several other branded prescription therapies already approved and used extensively to treat OIC, as well as with OTC products. Talicia® primarily competes with several branded and generic therapies already approved and used extensively to treat H. pylori. Additionally, Phathom Pharmaceuticals, Inc. is developing a Vonoprazan-based combination treatment, for the treatment of GERD and H. pylori infection. Vonoprazan is an oral small molecule potassium acid blocker. Aemcolo® primarily competes with several competing drugs marketed in the U.S. intended for the treatment of travelers’ diarrhea, including Xifaxan® (marketed by Salix Pharmaceuticals). Aemcolo® also competes with generic antibiotics such as fluoroquinolones and azithromycin. Aemcolo® also competes with prescription and OTC anti-diarrheal medications such as loperamide and bismuth subsalicylate, as well as probiotics and medical foods which may offer symptomatic relief. We may also be exposed to potentially competitive products, which may be under development to treat or prevent travelers’ diarrhea, including new antibiotics, anti-diarrheals, and vaccines. 37 Table of Contents 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 greater research and development capabilities, human resources, and budgets than we do, as well as substantially more marketing, manufacturing, financial and managerial resources. These entities represent significant competition for us. Acquisitions of, or investments in, competing pharmaceutical or biotechnology companies by large corporations 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 our formulations, current commercial products or products we may commercialize or promote in the future, even if commercialized and therapeutic candidates. Many of our targeted diseases and conditions can also be treated by other medications or drug delivery technologies. These treatments may be widely accepted in medical communities and have a longer history of use, among other possible advantages. The established use of these competitive drugs may limit the potential for widespread acceptance of our current commercial products and products we may commercialize or promote in the future and may limit the potential for our commercial products and therapeutic candidates to receive widespread acceptance, if commercialized. Talicia® or any product for which we may obtain regulatory approval or acquire commercialization rights may not become or continue to be commercially viable products. Other than Talicia®, none of our therapeutic candidates has been cleared or approved for marketing, and none of our therapeutic candidates is currently being marketed or commercialized in any jurisdiction. Even if any of our therapeutic candidates or any product we may commercialize or promote receives regulatory clearance or approval, such as Talicia®, or do not require regulatory clearance or approval, it may not become a commercially viable product. For example, even if we or our development or commercialization partners receive regulatory clearance or approval to market a therapeutic candidate or receive regulatory clearance or approval to commercialize or promote any product, the clearance or approval may be subject to limitations on the indicated uses or subject to labeling or marketing restrictions, which could materially and adversely affect their marketability and profitability. In addition, a new therapeutic candidate may appear promising at an early stage of development or after clinical trials but never reach the market, or it may reach the market but not result in sufficient product sales, if any. A therapeutic candidate or any product that we may commercialize or promote, 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 lower demonstrated clinical safety or efficacy compared to products, prevalence, and severity of adverse side effects, or other potential disadvantages relative to alternative treatment methods; ● insufficient or unfavorable levels of reimbursement from government or third-party payors, such as insurance companies, health maintenance organizations and other health plan administrators; ● infringement on proprietary rights of others for which we or our development or commercialization partners have not received licenses; ● incompatibility with other therapeutic candidates or marketed products; ● other potential advantages of alternative treatment methods and competitive forces that may make it more difficult for us to penetrate a particular market segment, if at all; ● ineffective marketing, sales, and distribution activities and support; ● lack of significant competitive advantages over existing products on the market; ● lack of cost-effectiveness or unfavorable pricing compared to other alternatives available on the market; ● inability to generate sufficient revenues to sustain our business operations in accordance with our plan from the sale or marketing of a product in view of the economic arrangements that we have with commercialization or other partners; ● changes to labels, indications or other regulatory requirements as they relate to the commercialization of our products; ● inability to establish collaborations with third-party development or commercialization partners on acceptable terms, or at all, and our inability or unwillingness for cost or other reasons to commercialize the therapeutic candidates or any product we may commercialize or promote on our own; and 38 Table of Contents ● timing of market introduction of competitive products. Physicians, various other healthcare providers, patients, payors or the medical community, in general, may be unwilling to accept, utilize or recommend Talicia® and any product we may commercialize or promote. If we are unable, either on our own or through third parties, to manufacture, commercialize or market Talicia®, our proposed formulations, therapeutic candidates or any product we may commercialize or promote when planned, or to develop 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 commercialize or promote to fail to gain or lose market acceptance. Unexpected safety or efficacy concerns can arise with respect to any product we may commercialize or promote, whether or not scientifically justified, potentially resulting in product recalls, withdrawals or declining sales, as well as product liability, consumer fraud or other claims. The market perception and reputation of any product we commercialize or may commercialize or promote in the future, and their safety and efficacy are important to our business and the continued acceptance of any such product. Any negative publicity about any of our current or future commercial products, such as the pricing of any product, discovery of safety issues, adverse events, or even public rumors about such events, could have a material adverse effect on our reputation, business, financial condition or results of operations. In addition, the discovery of one or more significant problems with a product similar to any of our current commercial products or products we may commercialize or promote in the future that implicate (or are perceived to implicate) an entire class of products or the withdrawal or recall of such similar products could have an adverse effect on the current or future commercialization of any product we may commercialize or promote. New data about any of our current commercial products or products that we may commercialize or promote in the future, or products similar to any of our current commercial products or those we may commercialize or promote in the future, could cause us reputational harm and could negatively impact demand for such products due to real or perceived side effects or uncertainty regarding safety or efficacy and, in some cases, could result in product withdrawal. Any of the foregoing could have a material adverse effect on our reputation, business, financial condition or results of operations. Heightened attention on the problems associated with the abuse of opioids could adversely affect our ability to commercialize certain of our current or future products, which would adversely affect our reputation, business, financial condition and results of operations. In recent years, there has been increased public attention on the public health issue of opioid abuse in the U.S. Public inquiries and governmental investigations into opioid use and litigation and heightened regulatory activity regarding the sales, marketing, distribution or storage of opioid products, among other things, could cause additional unfavorable publicity regarding the use and misuse of opioids and products related to opioids (such as Movantik®), which could have a material adverse effect on our reputation as a manufacturer of an opioid-related product and our potential ability to successfully commercialize such product. Such negative publicity could reduce the potential size of the market for Movantik® and decrease the revenues we may be able to generate from its sale, which in turn would adversely affect our business and results of operations. Additionally, such increased scrutiny of opioids generally, whether focused on Movantik® or otherwise, could have the effect of negatively impacting relationships with healthcare providers and other members of the healthcare community, reducing the overall market for opioid-related products or reducing the prescribing and use of Movantik®. We could be adversely affected if healthcare reform measures substantially change the market for medical care or healthcare 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 March 30, 2010, he signed the “Health Care and Education Reconciliation Act” (P.L. 111-152), collectively commonly referred to as the “Healthcare Reform Law.” The Healthcare Reform Law included a number of new rules regarding health insurance, the provision 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 be made to the current system for paying for healthcare in the U.S., including changes made to extend 39 Table of Contents medical benefits to certain Americans who lacked insurance coverage and to contain or reduce healthcare costs (such as by reducing or conditioning reimbursement amounts for healthcare services and drugs, and imposing additional taxes, fees, and rebate obligations on pharmaceutical and medical device companies). This legislation was one of the most comprehensive and significant reforms ever experienced by the U.S. in the healthcare industry and has significantly changed the way healthcare is financed by both governmental and private insurers. This legislation has impacted the scope of healthcare insurance and incentives for consumers and insurance companies, among others. Additionally, the Healthcare Reform Law’s provisions were designed to encourage providers to find cost savings in their clinical operations. Pharmaceuticals represent a significant portion of the cost of providing care. This environment has caused changes in the purchasing habits of consumers and providers and resulted in specific attention to the pricing negotiation, product selection and utilization review surrounding pharmaceuticals. This attention may result in our current commercial products, products we may commercialize or promote in the future, and our therapeutic candidates, being chosen less frequently or the pricing being substantially lowered. At this stage, 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 government programs (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 of medical care in the U.S. could impact the reimbursement for prescribed drugs and pharmaceuticals, including our current commercial products, those we and our development or commercialization partners are currently developing or those that we may commercialize or promote in the future. If reimbursement for the products we currently commercialize or promote, any product we may commercialize or promote, or approved therapeutic candidates is substantially reduced or otherwise adversely affected in the future, or rebate obligations associated with them are substantially increased, it could have a material 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. federal government, which may force significant additional changes to the healthcare system in the U.S. Much of the funding for expanded healthcare coverage may be sought through cost savings. While some of these savings may come from realizing greater efficiencies in delivering care, improving the effectiveness of preventive care and enhancing the overall quality of care, much of the cost savings may come from reducing the cost of care and increased enforcement activities. Cost of care could be reduced further by decreasing the level of reimbursement for medical services or products (including our current commercial products, our development or commercialization partners or any product we may commercialize or promote, or those therapeutic candidates currently being developed by us), or by restricting coverage (and, thereby, utilization) of medical services or products. In either case, a reduction in the utilization of, or reimbursement for our current commercial products, any product we may commercialize or promote, or any therapeutic candidate, or for 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 to litigate various aspects of the legislation. On July 26, 2012, the U.S. Supreme Court generally upheld the provisions of the Healthcare Reform Law at issue as constitutional. However, the U.S. Supreme Court held that the legislation improperly required the states to expand their Medicaid programs to cover more individuals. As a result, the states have a choice as to whether they will expand the number of individuals covered by their respective state Medicaid programs. Some states have not expanded their Medicaid programs and have chosen to develop other cost-saving and coverage measures to provide care to currently uninsured individuals. Many of these efforts to date have included the institution of Medicaid-managed care programs. The manner in which these cost-saving and coverage measures are implemented could have a material adverse effect 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. Legislative initiatives to modify, limit, replace, or repeal the Healthcare Reform Law and judicial challenges continue, and may increase in light of the current administration and legislative environment. We cannot predict the impact on our business of future legislative and legal challenges to the Healthcare Reform Law or other changes to the current laws and regulations. The financial impact of U.S. healthcare reform legislation over the next few years will depend on a number of factors, including the policies reflected in implementing regulations and guidance and changes in sales volumes for therapeutics affected by the legislation. From time to time, legislation is drafted, introduced and passed in the U.S. Congress that could 40 Table of Contents significantly change 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 affect our business and our products. During his time in office, former President Trump supported the repeal of all or portions of the Healthcare Reform Law. President Trump also issued an executive order in which he stated that it is his administration’s policy to seek the prompt repeal 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 extent permitted by law. Congress has enacted legislation that repeals certain portions of the Healthcare Reform Law, including but not limited to the Tax Cuts and Jobs Act, passed in December 2017, which included a provision that eliminates the penalty under the Healthcare Reform Law’s individual mandate, effective January 1, 2019, as well as the Bipartisan Budget Act of 2018, passed in February 2018, which, among other things, repealed the Independent Payment Advisory Board (which was established by the Healthcare Reform Law and was intended to reduce the rate of growth in Medicare spending). Additionally, in December 2018, a district court in Texas held that the individual mandate is unconstitutional and that the rest of the Affordable Care Act is, therefore, invalid. On appeal, the Fifth Circuit Court of Appeals affirmed the holding on the individual mandate but remanded the case back to the lower court to reassess whether and how such holding affects the validity of the rest of the Affordable Care Act. Substantial uncertainty remains as to the future of the Affordable Care Act after the U.S. Supreme Court declined to expedite its review of the Fifth Circuit’s holding on January 21, 2020. Accordingly, these issues were not resolved before the transition to President Biden's administration. The Trump administration sought to pass additional reform measures before the recent election. For example, President Trump issued several executive orders aimed at lowering drug prices, most recently, on September 13, 2020. The impact of such executive orders remains to be seen; however, given that they are intended to lower drug prices, we may be negatively affected by such orders if they are ultimately implemented. We cannot predict the impact that such actions against the Affordable Care Act will have on our business, and there is uncertainty as to what healthcare programs and regulations may be implemented or changed at the federal and/or state level in the U.S. or the effect of any future legislation or regulation. Furthermore, we cannot predict what actions the Biden administration will implement in connection with the Affordable Care Act. However, it is possible that such initiatives could have an adverse effect on our ability to obtain approval and/or successfully commercialize products in the U.S. in the future. For example, any changes that reduce, or impede the ability to obtain, reimbursement for the type of products we currently, or intend to, commercialize in the U.S. or that reduce medical procedure volumes could adversely affect our operations and/or future business plans. Third-party payors may not adequately reimburse customers for any of our products that we may commercialize or promote, including our current commercial products, and may impose coverage restrictions or limitations such as prior authorizations and step edits that affect their use. Our revenues and profits depend heavily upon the availability of adequate reimbursement for the use of our current commercial products, and any products that we may commercialize or promote, from governmental or other third-party payors, both in the U.S. and in foreign markets. Reimbursement by a third-party payor may depend upon a number of factors, including, but not limited to, the third-party payor’s determination that the use of an approved 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. Obtaining reimbursement approval for a product that we may commercialize or promote, including our current commercial products, from any government or other third-party payor is a time-consuming and costly process that could require us or our development or commercialization partners to provide supporting scientific, clinical and cost-effectiveness data for the use of our products that we currently, or may, commercialize or promote to each payor. Even when a payor determines that a product that we currently or may commercialize or promote is eligible for reimbursement under its criteria, the payor 41 Table of Contents may impose coverage limitations that preclude payment for some uses that are approved by the FDA or other foreign regulatory authorities, or may impose restrictions, such as prior authorization requirements, or may simply deny coverage altogether. Reimbursement rates may vary according to the use of the product that we commercialize or may commercialize or promote in the future and the clinical setting in which it is used, may be based on payments allowed for lower-cost products that are already reimbursed, may be incorporated into existing payments for products or services, and may reflect budgetary constraints or imperfections in Medicare, Medicaid or other data used to calculate these rates. In particular, reimbursement for our products may not be available from Medicare or Medicaid, and reimbursement from other third-party payors may be limited, reduced or revoked. Overall, our ability to get reimbursement coverage for our commercial products has historically been limited. Successful commercialization of our commercial products 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 be severely limited. Although certain payors may currently provide some form of coverage for our commercial products, payors may suspend or discontinue reimbursement at any time, may require or increase co-payments from patients, may impose restrictions or limitations on coverage, or may reduce reimbursement rates for our products. If we fail to establish broad adoption of and reimbursement for our commercial products, or if we are unable to maintain any existing reimbursement from payors, 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 we may commercialize or promote in the future may require that we expend substantial time and resources in order to obtain and retain 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 constrain expenditures for medical products and services, which may affect payments for any product that we currently or may commercialize or promote in the U.S. In addition, there is a growing emphasis on comparative effectiveness research, both by private payors and by government agencies. To the extent other drugs or therapies are found to be more effective than our products, payors may elect to cover such therapies in lieu of our products or reimburse our products at a lower rate. Legislation that reduces reimbursement for our current or future commercial products could adversely impact how much or under what circumstances healthcare providers will prescribe or administer those products. This could materially and adversely impact our reputation, business, financial condition or results of operations by reducing our ability to continue to generate meaningful revenue, raise capital, obtain additional collaborators and market share. At this stage, we are unable to estimate the extent of the direct or indirect impact of any such federal and state proposals. Furthermore, the Centers for Medicare and Medicaid Services frequently change product descriptors, coverage policies, product and service codes, payment methodologies and reimbursement values. Third-party payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates, and both the Centers for Medicare and Medicaid 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 our reputation, business, financial condition or results of operations. We are subject to U.S. federal and state healthcare laws and regulations relating to our business, and our failure to comply with such laws could have a material adverse effect on our reputation, business, financial condition or results of operations. We are subject to additional healthcare regulation and enforcement by the U.S. federal government and the states in which we conduct or will conduct our business. Healthcare providers, physicians, and third-party payors play a primary role in the recommendation and prescription of our current commercial products or any products we may commercialize or promote in the future. Our arrangements with third-party payors, customers, employees, or others may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell, and distribute our products. The laws that may affect our ability to operate include, but are not limited to, the following: ● the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under government healthcare programs such as the Medicare and Medicaid programs; 42 Table of Contents ● the federal Anti-Inducement Law (also known as the Civil Monetary Penalties Law), which prohibits a person from offering or transferring remuneration to a Medicare or State healthcare program beneficiary that the person knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of any item 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 from referring Medicare or Medicaid patients for certain designated health services where that physician or family member has a financial relationship with the entity providing the designated health service, unless an exception applies; ● federal false claims laws that prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other government healthcare programs that are false or fraudulent; ● the so-called federal “Sunshine Act”, which requires certain pharmaceutical and medical device companies to monitor and report certain financial relationships with physicians and other healthcare providers to the Centers for Medicare and Medicaid Services for disclosure to the public; ● the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and its implementing regulations, which impose obligations on certain covered entities and their business associates with respect to safeguarding the privacy, security, and transmission of individually identifiable health information, and require notification to affected individuals, regulatory authorities, and potentially the media of certain breaches of security of individually identifiable health information; ● HIPAA’s fraud and abuse provision, which imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services; ● the FDCA, which among other things, strictly regulates drug product and medical device marketing, prohibits manufacturers 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 false statements 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 apply to 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 found to be in violation of any such requirements, we may be subject to penalties, including civil or criminal penalties, monetary damages, 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 adversely affect our financial results. Although effective compliance programs can help mitigate the risk of investigation and prosecution for violations of these laws, these risks cannot be entirely eliminated. Any violation of these laws, or any action against us for violation of these laws, even if we successfully defend against it, could result in a material adverse effect on our reputation, business, financial condition or results of operations. The Healthcare Reform Law also imposes reporting requirements on certain medical device and pharmaceutical manufacturers, among others, to make annual public disclosures of certain payments and other transfers of value to physicians and teaching hospitals and ownership or investment interests held by physicians or their immediate family members. Failure to submit required information may result in civil monetary penalties for all payments, transfers of value or ownership or investment interests that are not reported. In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians for marketing, medical directorships, and other purposes. Some states impose a legal obligation on companies to adhere to voluntary industry codes of behavior (e.g., the PhRMA Code and the AdvaMed Code of Ethics), which apply to pharmaceutical and medical device companies’ interactions with healthcare providers; 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 disclose information about their production and marketing costs, and ultimately lowering costs for drug products. Several states have passed or introduced bills that would require disclosure of certain pricing information for prescription drugs 43 Table of Contents that have no threshold amount or are above a certain annual wholesale acquisition cost. In June 2016, Vermont became the first state to pass legislation requiring certain drug companies to disclose information relating to justification of certain price increases. The U.S. Congress has also introduced bills targeting prescription drug price transparency, and two such bills, the Patient Right to Know Drug Prices Act (for private plans) and the Know the Lowest Price Act (for Medicare Parts C and D), were signed into law on October 10, 2018. These laws and any other such implementation of legislation requiring publication of drug costs could materially and adversely impact our reputation, business, financial condition or results of operations by promoting 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 any changes in existing legislation will have on our reputation, business, financial condition, or results of operations. Federal or state regulatory authorities may challenge our current or future activities under these laws. Any such challenge could have a material adverse effect on our reputation, business, financial condition or results of operations. Any state or federal regulatory review of us, regardless of the outcome, would be costly and time-consuming and could negatively and adversely affect our business or results of operations. Our marketing, promotional and business practices, including with respect to pricing, as well as the manner in which sales forces 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 well as the manner in which companies’ in-house or third-party sales forces interact with purchasers, prescribers, and patients, are subject to extensive regulation, the enforcement of which may result in the imposition of civil or criminal penalties, injunctions, or limitations on marketing practices for some of our products or pricing restrictions or mandated price reductions for some of our products. Many companies have been the subject of claims related to these practices asserted by state or federal authorities. These claims have resulted in fines and other consequences, such as entering into corporate integrity agreements with the U.S. government. Companies may not promote drugs for “off-label” use, that is, uses that are not described in the product’s labeling and that differ from those approved by the FDA or other applicable regulatory agencies. A company that is found to have improperly promoted drug products for off-label use may be subject to significant liability, including civil and administrative remedies, as well as criminal sanctions. In addition, enforcement action against us could cause management’s attention to be diverted from our business operations and damage our reputation. 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 our therapeutic candidates and any products we may commercialize or promote, involve and will involve an inherent risk that significant liability claims may be asserted against us or our development or commercial partners. Product liability claims, or other claims related to our therapeutic candidates and any products we may commercialize or promote, regardless of merit or their outcome, could require us to spend significant time and money in litigation or to pay significant settlement amounts or judgments. A product liability claim could also significantly harm our reputation and the market price of our shares and decrease demand for any of our current commercial products, products that we commercialize or promote, and delay market acceptance of our therapeutic candidates or products we may commercialize or promote. In addition, regardless of merit or eventual outcome, product liability claims may result in: ● decreased demand for approved products; ● impairment of our business reputation; ● withdrawal of clinical trial participants; ● initiation of investigations by regulators; ● litigation costs; ● distraction of management’s attention from our primary business; 44 Table of Contents ● substantial monetary awards to patients or other claimants; ● loss of revenues; and ● the inability to receive regulatory approval for and commercialize our therapeutic candidates, upon approval, if any, in the future. 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 death claims. Any successful product liability or other claim may prevent us from obtaining adequate liability insurance in the future on commercially desirable or reasonable terms. An inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or inhibit the commercialization of our current commercial products or products we may commercialize or promote in the future, or the development of our therapeutic candidates. Our clinical trials may indicate unexpected serious adverse events or other adverse events or undesirable side effects that may harm our reputation, business, financial condition or results of operations. Serious adverse events identified during one of our Expanded Access Programs (EAPs) may present additional risks that may adversely affect our development of the 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 associated with the use of our therapeutic candidates. Similarly, serious adverse events (SAEs) have occurred and may occur in the future in connection with our clinical trials. Results of our clinical trials could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics. Undesirable side effects caused by our therapeutic candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or comparable foreign regulatory authorities. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may have a material adverse effect on our reputation, business, financial condition or results of operations. Patients who receive access to investigational new drugs that have not yet received regulatory marketing approval through expanded access programs may be suffering from life-threatening illnesses and poor prognosis and may have exhausted all other available therapies. The risk for serious adverse events in this patient population is high, which could have a negative impact 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 provided under the EAP could cause significant delays or an inability to successfully develop or commercialize such therapeutic candidates, which could materially harm our business. In particular, any such serious adverse events or other undesirable side effects could cause us or regulatory authorities to interrupt, delay or halt non-clinical studies and clinical trials, or could make 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 are observed in patients who were granted expanded access to our investigational new drugs under the EAP, further clinical development of such therapeutic candidate may be delayed or we may not be able to continue development of such therapeutic candidates at all, and the occurrence of these events could have a material adverse effect on our business. Undesirable side effects caused by our therapeutic candidates could also result in the delay or denial of regulatory approval by the FDA or other regulatory authorities or in a more restrictive label than we expect and could cause us to incur additional costs. Global economic conditions may make it more difficult for us to commercialize our current commercial products and any products that we may commercialize or promote in the future and develop our therapeutic candidates. The pharmaceutical industry, like other industries and businesses, continues to face the effects of the challenging economic environment. Patients experiencing the effects of the challenging economic environment, including high unemployment levels and increases in co-pays, may switch to generic products, delay treatments, skip doses or use other less effective treatments to reduce their costs. Challenging economic conditions in the U.S. include the demands by payors for substantial rebates and formulary restrictions limiting access to brand-name drugs. In addition, in Europe and in a number of emerging 45 Table of Contents markets 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 our current commercial products, any products that we may commercialize or promote, and our therapeutic candidates, upon approval, if any. Our business involves risks related to handling regulated substances, which could severely affect our ability to commercialize our current commercial products and any products that we may commercialize or promote in the future and to conduct research and development of our therapeutic candidates. In connection with our or our development or commercialization partners’ research and development activities, as well as the manufacture of commercial products, materials, and therapeutic candidates and any products that we may commercialize or promote in the future, we and our development or commercialization partners are subject to federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials, biological specimens and waste. We and our research and development or commercialization partners may be required to incur significant costs to comply with environmental and health and safety regulations in the future. Our research and development, as well as the activities of our commercial and clinical manufacturing and commercialization partners, both now and in the future, may involve the controlled use of hazardous materials, including, but not limited to, certain hazardous chemicals. We cannot completely eliminate the risk of accidental contamination or injury from these materials. In the event of such an occurrence, we could be held liable for any damages that could result and any such liability could exceed our resources. Security breaches, loss of data, and other disruptions could compromise sensitive information and expose us to liability, which would cause our business and reputation to suffer. In the ordinary course of our business, we may collect and store sensitive data, including intellectual property, compliance- related data, research data, our proprietary business information and that of our suppliers and business partners, technical information about our products, clinical trial plans as well as personally identifiable information of patients, clinical trial participants and employees. We also have outsourced elements of our information technology structure, and as a result, we are managing independent vendor relationships with third parties who may or could have access to our confidential information. Similarly, our business partners and other third-party providers possess certain of our sensitive data and confidential information. The secure maintenance of this information is critical to our operations and business strategy. Despite the implementation of security measures, our internal computer systems, and those of third parties on which we rely, are vulnerable to damage from computer viruses, malware, ransomware, cyber-fraud, natural disasters, terrorism, war, telecommunication and electrical failures, cyber-attacks or cyber-intrusions over the Internet, attachments to emails, persons inside 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 around the world have increased. We, our partners, vendors, and other third-party providers could be susceptible to attacks on our and their information security systems, which attacks are of ever-increasing levels of sophistication and are made by groups and individuals with a wide range of motives and expertise, including criminal groups. Any such breach could compromise our and their networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, inappropriate disclosure 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 of personal information, disrupt our operations, or our product development programs and damage our reputation, any of which could adversely affect our business. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. We are highly dependent on information technology networks and systems, including the Internet, to securely process, transmit and store this critical information. Security breaches of this infrastructure, including physical or electronic break- ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure or modification of confidential information. The secure processing, storage, maintenance and transmission of 46 Table of Contents this critical information is vital to our operations and business strategy, and we devote significant resources to protecting such information. Although we take measures to protect sensitive information from unauthorized access or disclosure, our information technology and infrastructure may be vulnerable to attacks by hackers or viruses or breached due to employee error, malfeasance or other disruptions. A security breach or privacy violation that leads to disclosure or modification of or prevents access to consumer information (including personally identifiable information or protected health information) could harm our reputation, compel us to comply with disparate state breach notification laws, require us to verify the correctness of database contents and otherwise subject us to liability under laws that protect personal data, resulting in increased costs or loss of revenue. If we are unable to prevent such security breaches or privacy violations or implement satisfactory remedial measures, our operations could be disrupted, and we may suffer a loss of reputation, financial loss, and other regulatory penalties because of lost or misappropriated information, including sensitive consumer data. In addition, these breaches and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above. Any such breach or interruption could compromise our networks, and the information stored there could be inaccessible or could be accessed by unauthorized parties, publicly disclosed, lost or stolen. Any such interruption in access, improper access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, such as HIPAA and the General Data Protection Regulation (GDPR) in connection with our required maintenance of the global safety database for Movantik®, and regulatory penalties. Unauthorized access, loss or dissemination could also disrupt our operations, including our ability to perform tests, provide test results, bill facilities or patients, process claims and appeals, provide customer assistance services, conduct research and development activities, collect, process and prepare Company financial information, provide information about our current and future solutions and other patient and clinician education and outreach efforts through our websites, and manage the administrative aspects of our business and damage our reputation, any of which could adversely affect our reputation, business, financial condition or results of operations. Any such breach could also result in the compromise of our trade secrets and other proprietary information, which could adversely affect our competitive position. In addition, the interpretation and application of consumer, health-related, privacy and data protection laws in the U.S. and elsewhere are often uncertain, contradictory, and in flux. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our practices. If so, this could result in government-imposed fines or orders requiring that we change our practices, which could adversely affect our reputation, business, financial condition or results of operations. Complying with these various laws could cause us to incur substantial costs or require us to change our business practices and compliance procedures in a manner adverse to 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 commercialization or development partners to obtain patent protection for our therapeutic candidates and any products that we may commercialize or promote, maintain the confidentiality of our trade secrets and know-how, operate without infringing or violating on the proprietary rights of others and 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 related to our therapeutic candidates, inventions and improvements that may be important to the continuing development of our commercial products and therapeutic candidates, and we plan to try to do the same with products we may acquire, commercialize or promote in the future, where this is possible. Because the patent position of pharmaceutical companies involves complex legal and factual questions, we cannot predict the scope, validity or enforceability of patents with certainty. Our issued patents and the issued patents of our commercialization or development partners may not provide us with any competitive advantages, may be held invalid or unenforceable as a result of legal challenges by third parties or could be circumvented. Ownership of the patent rights we 47 Table of Contents in-license from our commercialization or development partners or the patent rights to the products already approved for marketing that we develop, acquire or for which we acquire commercialization rights may be challenged, and as a result, the rights we in-license and the rights to products we acquire may turn out not to be exclusive or we may not actually have rights under the patents despite receiving representations from a commercialization or development partner. Our competitors may also independently develop drug delivery technologies or products similar to ours or design around or otherwise circumvent patents issued to, or licensed 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 in patents being issued. If these patents are issued, they may not provide us with proprietary protection or competitive advantages. The degree of future protection to be afforded by our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. In the U.S., Europe, and other jurisdictions, patent applications are typically not published until 18 months after filing. In addition, many companies and universities do not publish their discoveries until after patent filings are made. This makes it difficult to be certain that we were the first to file for protection of the inventions or the first to invent the inventions. As a result, we may not be able to obtain or maintain protection for certain inventions. Therefore, the enforceability and scope of our patents and patent applications in the U.S., Europe, and other jurisdictions are uncertain and unpredictable. Any patents that we own may not provide sufficient protection against competitors and may be of insufficient scope to achieve our business objectives. Additionally, the patent filings of others might act as an impediment to our ability to commercialize our current or future commercial products. Patent rights are territorial; thus, the patent protection we do have will only extend to those countries in which we have issued patents. Even so, the laws of certain countries do not protect our intellectual property rights to the same extent as do the laws of the U.S. and the European Union. Competitors may successfully challenge our patents, produce similar drugs or products that do not infringe our patents or produce drugs in countries where we have not applied for patent protection or that do not respect our patents. Furthermore, it is not possible to know the scope of claims that will be allowed in published applications, and it is also not possible to know which claims of granted patents, if any, will be deemed enforceable in a court of law. In some cases, litigation may be necessary to enforce our patent rights. If we choose to take an infringing third party to court, the third party may challenge the validity or enforceability of our patent rights or may assert that their activities do not infringe our patents. Litigation is expensive and unpredictable, and we may not have the proper resources to pursue such litigation or to protect our patent rights. Moreover, there is the risk that the court will find that our patents are not valid or enforceable, or that the third party does not infringe our rights in these patents. Adverse results in any such litigation could materially impair our patent rights and our ability to prevent generic and other competition for our products. Such results might also materially affect our economics and our ability to require third parties to enter a license with us or to pay us a reasonable royalty for using our technology. In connection with the closing of our in-license for Movantik®, we assumed control of ANDA litigation related to U.S. Patent No. 9,012,469, which covers the commercial, oxalate salt, form of naloxegol (naloxegol oxalate) that is due to expire in April 2032. To date, three parties have filed paragraph IV certifications against U.S. Patent No. 9,012,469. While we cannot predict the outcome of this ongoing legal proceeding, we intend to defend ourselves vigorously in these matters. Adverse results in such litigation could cause our period of patent exclusivity in the U.S. for Movantik® to expire as early as September 2028. After the completion of the development and registration of our patents, third parties may still manufacture or market products in infringement of our patent-protected rights. Such manufacture or market of products in infringement of our patent-protected rights is likely to cause us damage and lead to a reduction in the prices of our current commercial products, any product we may commercialize or promote, or any of our therapeutic candidates, thereby reducing our potential profits. In addition, due to the extensive time needed to develop, test and obtain regulatory approval for our therapeutic candidates or any product we may commercialize or promote, any patents that protect our therapeutic candidate or any product we may commercialize or promote may expire early during commercialization. This may reduce or eliminate any market 48 Table of Contents advantages that such patents may give us. Following patent expiration, we may face increased competition through the entry of generic products 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 and trademark prosecution, patent and trademark maintenance or patent and trademark defense on our behalf. Therefore, our ability to ensure that these patents and trademarks are properly prosecuted, maintained, or defended may be limited, which may adversely affect our rights in the commercialization of our commercial products, development of our therapeutic candidates, and potential approval for marketing of our therapeutic products. Any failure by our licensors or commercialization or development partners to properly conduct patent and trademark prosecution, patent and trademark maintenance, patent and trademark enforcement, or patent defense could materially harm our ability to obtain suitable patent protection covering our commercial products or therapeutic candidates or ensure freedom to commercialize the products in view of third-party patent rights, thereby materially reducing our potential profits. If we are unable to protect the confidentiality of our trade secrets or know-how, such proprietary information may be used by others to compete against us. In addition to filing patents, we generally try to protect our trade secrets, know-how, and technology by entering into confidentiality or non-disclosure agreements with parties that have access to them, such as our development or commercialization partners, employees, contractors, and consultants. We also enter into agreements that purport to require the 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 agreements can be difficult and costly to enforce or may not provide adequate remedies. Any of these parties may breach the confidentiality agreements and willfully or unintentionally disclose our confidential information, or our competitors might learn of the information in some other way. The disclosure to, or independent development by, a competitor of any trade secret, know-how or other technology not protected by a patent could materially adversely affect any competitive advantage we 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 the proprietary rights to this type of information. If a dispute arises with respect to any proprietary right, enforcement of our rights 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 spend substantial time and money and could prevent us from developing or commercializing any of our commercial products and our therapeutic candidates. The development, manufacture, use, offer for sale, sale or importation of any of our commercial products or any of our therapeutic candidates may infringe on the claims of third-party patents or other intellectual property rights. Patentability, invalidity, freedom-to-operate or other opinions may be required to determine the scope and validity of third-party proprietary rights. The nature of claims contained in unpublished patent filings around the world is unknown to us and it is not possible to know which countries patent holders may choose for an extension of their filings under the Patent Cooperation Treaty or other mechanisms. We may also be subject to claims based on the actions of employees and consultants with respect to the usage or disclosure of intellectual property learned at other employers. The cost to us of any intellectual property litigation or other infringement proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the 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 proceedings could have a material adverse effect on our ability to compete in the marketplace. Intellectual property litigation and other proceedings may also absorb significant management time. Consequently, we are unable to guarantee that we will be able to manufacture, use, offer for sale, sell or import any of our commercial products or of our therapeutic candidates in the event of an infringement action. In the event of patent infringement claims, or to avoid potential claims, we may choose or be required to seek a license from a third party and would most likely be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we were able to obtain a license, the rights may be non-exclusive, which 49 Table of Contents could potentially limit our competitive advantage. Ultimately, we could be prevented from commercializing a therapeutic candidate and any products that we may commercialize or promote or be forced to cease some aspect of our business operations if, as a result of actual or threatened patent infringement or other claims, we are unable to enter into licenses on acceptable terms. This inability to enter into licenses or the ability to exclude others using proprietary rights could have a material adverse effect on our reputation, business, financial condition or results of operations. See Item 8. Financial Information A. Consolidated Statements and Other Financial Information - Legal Proceedings regarding the Aether Litigation. We may be subject to other patent-related litigation or proceedings that could be costly to defend and uncertain in their outcome. In addition to infringement claims against us, we may become a party to other patent litigation or proceedings before regulatory agencies, including post-grant review, inter parties review, interference or re-examination proceedings filed with the U.S. Patent and Trademark Office or opposition proceedings in other foreign patent offices regarding intellectual property rights with respect to our therapeutic candidates or any products that we may commercialize or promote, as well as other disputes regarding intellectual property rights with development or commercialization partners, or others with whom we have contractual or other business relationships. Post-issuance proceedings challenging patent claims validity are not uncommon, and we or our development or commercialization partners will be required to defend these procedures as a matter of course. Such procedures may be costly, and there is a risk that we may not prevail, which could harm our business significantly. Our status as a sublicensee under our in-license for Movantik® may increase the likelihood we will lose valuable rights to Movantik®. Rather than obtaining direct licenses from Nektar Therapeutics, the originator of Movantik® (“Nektar”), for certain intellectual property covering the manufacture and use of Movantik®, we obtained sublicenses to such rights from AstraZeneca pursuant to AstraZeneca’s agreement with Nektar. Therefore, our success depends, in part, on AstraZeneca exercising its rights and fulfilling its obligations under its agreement with Nektar. AstraZeneca’s failure to exercise its rights and fulfill its obligations under its agreement with Nektar could cause us to lose our rights covering the manufacture and use of Movantik®. In addition, AstraZeneca has previously sublicensed its rights under its agreement with Nektar to other sublicensees in Canada and Europe. Therefore, our success also depends, in part, on such other sublicensees complying with the terms and conditions of their respective agreements with AstraZeneca. Risks Related to our ADSs U.S. holders of ADSs may suffer adverse tax consequences if we were characterized as a passive foreign investment company. Based on the current composition of our gross income and assets and on reasonable assumptions and projections, we believe we will not be treated as a passive foreign investment company (a PFIC) for U.S. federal income tax purposes for 2020. However, there can be no assurance that this will be the case in future taxable years. If we were characterized as a PFIC, U.S. holders of the ADSs may suffer adverse tax consequences. Generally, gains realized on the sale of the ADSs would be treated as ordinary income, rather than capital gain, the preferential rate otherwise applicable to dividends received in respect of the ADSs by individuals who are U.S. holders would not be available, and interest charges would apply to certain distributions by us and the proceeds from sales of the ADSs. There has been a limited market for our ADSs. We cannot ensure investors that an active market will continue or be sustained for our ADSs on the Nasdaq and this may limit the ability of our investors to sell our ADSs. In the past, there was limited trading in our ADSs, and there is no assurance that an active trading market of our ADSs will continue or will be sustained. Limited or minimal trading in our ADSs has in the past, and may in the future, lead to 50 Table of Contents dramatic fluctuations in market price and investors may not be 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 in July 2018, we cannot assure you that we will maintain compliance with all of the requirements for our ADSs to remain listed. Additionally, there can be no assurance that trading of our ADSs will be sustained or desirable. Our ADSs do not trade on any exchange outside of the U.S., and our Ordinary Shares do not trade on any securities exchange. Our ADSs are listed only in the U.S. on the Nasdaq Global Market, and our Ordinary Shares are not currently traded on any other securities exchange. A holder of Ordinary Shares may not be able to effect transactions in our Ordinary Shares without depositing such Ordinary Shares with the depositary in exchange for the issuance of ADSs representing such Ordinary Shares. As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of applicable SEC and Nasdaq Stock Market requirements, which may result in less protection than is accorded to investors under rules applicable to domestic issuers. As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of those otherwise required under the Nasdaq Listing Rules for domestic issuers. For instance, we follow the home country practice in Israel with regard to, among other things, director nomination procedures and quorum at shareholders’ meetings. In addition, we follow our home country law, instead of the Nasdaq Listing Rules, which require that we obtain shareholder approval 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 a 20% or more interest in us and certain acquisitions of the stock or assets of another company. Following our home country governance practices as opposed to the requirements that would otherwise apply to a U.S. domestic issuer listed on the Nasdaq Stock Market may provide less protection than is accorded to investors under the Nasdaq Listing Rules applicable to domestic issuers. In addition, as a foreign private issuer, we are exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery 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 domestic companies whose securities are registered under the Exchange Act. We currently do not anticipate paying cash dividends, and accordingly, investors must rely on the appreciation in our ADSs for any return on their investment. We currently anticipate that we will retain future earnings, if any, for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. In addition, the terms of our term loan facility prohibit us from paying dividends. Therefore, the success of an investment in our ADSs will depend upon any future appreciation in their value. There is no guarantee that our ADSs will appreciate in value or even maintain the price at which our investors have purchased their securities. 51 Table of Contents Investors in our ADSs may not receive the same distributions 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 dividends or other distributions on our Ordinary Shares and may not receive any value for them, if it is illegal or impractical to make them available to investors in our ADSs. The depositary for the ADSs has agreed to pay to investors in our ADSs the cash dividends or other distributions it or the custodian receives on Ordinary Shares or other deposited securities underlying the ADSs, after deducting its fees and expenses. Investors in our ADSs will receive these distributions in proportion to the number of Ordinary Shares such ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act of 1933, as amended, but that is not properly registered or distributed under an applicable exemption from registration. In these cases, the depositary may determine not to distribute 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 received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, Ordinary Shares, rights or anything else to holders of ADSs. In addition, the depositary may deduct from such dividends or distributions its fees and may withhold amounts on account of taxes or other governmental charges to the extent the depositary believes it is required to make such withholding. This means that investors in our ADSs may not receive the same distributions 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 to make 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. Holders of our ADSs do not have the same rights as our holders of Ordinary Shares and may only exercise the voting rights with respect to the 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 on the proposals on the agenda for the shareholders’ meeting. When a shareholders’ meeting is convened, holders of our ADSs may not receive sufficient advance notice of a shareholders’ meeting to permit them to cancel the ADSs and withdraw their Ordinary Shares to allow them to cast their vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of our ADSs or carry out their voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of our ADSs in a timely manner, but we cannot assure holders 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 the manner in which any vote is cast or for the effect of any such vote. As a result, holders of our ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested. In addition, in the capacity as an ADS holder, they are not able to call a shareholders’ meeting. The depositary for our ADSs gives us a discretionary proxy to vote our Ordinary Shares underlying ADSs if a holder of our ADSs 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 Shares underlying 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 impact on shareholders. 52 Table of Contents The effect of this discretionary proxy is that a holder of our ADSs cannot prevent our Ordinary Shares underlying such ADSs from being voted by us at our discretion, absent the situations described above. Holders of our Ordinary Shares are not subject to this discretionary proxy. Risks Related to our Operations in Israel We conduct our operations in Israel and therefore our results may be adversely affected by political, economic and military instability 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 the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors, including Hezbollah in Lebanon (and Syria) and Hamas in the Gaza Strip, both of which involved missile strikes in various parts of Israel causing the disruption of economic activities. Our principal offices are located within the range of rockets that could be fired from Lebanon, Syria or the Gaza Strip into Israel. In addition, Israel faces many threats from more distant neighbors, in particular, Iran. Parties with whom we do business have sometimes declined to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary. In addition, the political and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements. Any hostilities involving Israel or the interruption or curtailment of trade within Israel or between Israel and its trading partners could adversely affect our operations or results of operations and could make it more difficult 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 in the Middle East. Although the Israeli government is currently committed to cover the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, there is no assurance that this government coverage will be maintained, or if maintained, will be sufficient to compensate us fully for damages incurred. Any losses or damages incurred by us could have a material adverse effect on our business. Several countries, principally in the Middle East, restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies. In addition, there have been increased efforts by activists to cause companies and consumers to boycott Israeli goods based on Israeli government policies. Such business restrictions and boycotts, particularly if they become more widespread, may materially and adversely impact our business. Because a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed by currency fluctuations and inflation. Our reporting and functional currency is the U.S. dollar. Most of our revenues and royalty payments from our agreements with our development or commercialization partners are in U.S. dollars, and we expect our revenues from future licensing and co-promotion agreements to be denominated mainly in U.S. dollars or in Euros. We pay a substantial portion of our expenses in U.S. dollars; however, a portion of our expenses, including salaries of our employees in Israel and payment to part of our service providers in Israel and other territories, are paid in NIS and in other currencies. In addition, a portion of our financial assets is held in NIS and in other currencies. As a result, we are exposed to currency fluctuation risks. For example, if the NIS strengthens against the U.S. dollar, our reported expenses in U.S. dollars may be higher. In addition, if the NIS weakens against the U.S. dollar, the U.S. dollar value of our financial assets held in NIS will decline. 53 Table of Contents Provisions of the RedHill Biopharma Ltd. Award Plan, Israeli law, our articles of association and our change in control retention plan may delay, prevent or otherwise impede a merger with, or an acquisition of, our Company, or an acquisition of a significant portion of our shares, which could prevent a change in control, even when the terms of such a transaction are favorable to us and our shareholders. Our 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 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 Ordinary Shares on the TASE, will become a “controlling shareholder” as defined in the Israel Securities Law, 1968, or a “holder,” as defined in the Israeli Securities Law – 1968, of 25% or more of 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 related company other than for “Cause”, and unless the applicable agreement provides otherwise, all the outstanding options held by or for the benefit of any such grantee will be accelerated and immediately vested and exercisable. A “Significant Event” is defined in our Award Plan as a consolidation or merger with or into another corporation approved by our board of directors in which we are the continuing or surviving corporation or in which the continuing or surviving corporation assumes the option or substitutes it with an appropriate option in the surviving corporation. The Israeli Companies Law, 1999, or the Israeli Companies Law, regulates mergers, requires tender offers for acquisitions of shares or voting rights above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger may not be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar of Companies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, a majority of each class of securities of the target company must approve a merger. Moreover, the Israeli Companies Law provides that certain purchases of securities of a public company are subject to tender offer rules. As a general rule, the Israeli Companies Law prohibits any acquisition of shares or voting power in a public company that would result in the purchaser holding 25% or more, or more than 45% of the voting power in the company, if there is no other person holding 25% or more, or more than 45% of the voting power in a company, respectively, without conducting a special tender offer. The Israeli Companies Law further provides that a purchase of shares or voting power of a public company or a class of shares of a public company which will result in the purchaser’s holding 90% or more of the company’s shares, class of shares or voting rights, is prohibited unless the purchaser conducts a full tender offer for all of the company’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 accept the offer hold less than 5% of the issued and outstanding share capital of the company or of the applicable class, and more than half of the shareholders who do not have a personal interest in the offer accept the offer, or (ii) the shareholders who do not 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 the tender offer document), may, at any time within six months following the completion of the tender offer, petition the court to alter the consideration for the acquisition. At the request of an offeree of a full tender offer which was accepted, the court may determine that the consideration for the shares purchased under the tender offer was lower than their fair value and compel the offeror to pay to the offerees the fair value of the shares. Such 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 the company’s shares, or class of shares. 54 Table of Contents Pursuant to our articles of association, the size of our board of directors may be no less than five persons and no more than eleven, including any external directors whose appointment is required under the law. The directors who are not external directors are divided into three classes, as nearly equal in number as possible. At each annual general meeting, the term of one class of directors expires, and the directors of such class are re-nominated to serve an additional three-year term that expires at the annual general meeting held in the third year following such election (other than any director nominated for election by Cosmo pursuant to the Company’s subscription agreement with Cosmo, whose term of office may expire earlier depending on the beneficial ownership by the Cosmo investor of the Cosmo shares). This process continues indefinitely. Such provisions of our articles of association make it more difficult for a third party to effect a change in control or takeover attempt that our management and board of directors oppose. In addition, we have adopted a change in control employee retention plan providing for compensation to Company officers and employees in the event of a change in control (as defined by the plan), subject to the satisfaction of various conditions. 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 to some 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 deferral contingent on the fulfillment of numerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating companies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no actual disposition of the shares has occurred. These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with 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 to our 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 serve process 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 the assets of our directors and executive officers may be located outside of the U.S. Therefore, a judgment obtained against us or most of our executive officers and our directors in the U.S., including one based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the U.S. and may not be enforced by a U.S. or Israeli court. 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 in original actions instituted in Israel. The obligations and responsibilities of our shareholders are governed by Israeli law, which may differ in some respects from the obligations and responsibilities of shareholders of U.S. companies. Israeli law may impose obligations and responsibilities 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 shareholders are governed by our articles of association and Israeli law. These obligations and responsibilities differ in some respects from the obligations and responsibilities of shareholders in typical U.S.-based corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith toward the company and other shareholders and to refrain from abusing its power in the company, including, among other things, in voting at the general meeting of shareholders on matters such as amendments to a company’s articles of association, increases in a company’s authorized share capital, mergers and acquisitions and interested party transactions requiring shareholder approval. In addition, a shareholder who knows that it possesses the power to determine the outcome of a shareholder vote or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness toward the company. There is limited case law available to assist us in understanding the implications of these provisions that govern shareholders’ actions. These provisions may be interpreted to impose additional obligations and responsibilities on our shareholders that are not typically imposed on shareholders of U.S. corporations. 55 Table of Contents Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful shareholder claims against us and may reduce the amount of money available to us. The Israeli Companies Law and our articles of association permit us to indemnify our directors and officers for acts performed by them in their capacity as directors and officers. The Israeli Companies Law provides that a company may not exempt or indemnify a director or an officer nor enter into an insurance contract, which would provide coverage for any monetary liability incurred as a result of: (a) a breach by the director or officer of his duty of loyalty, except for insurance and indemnification where the director or officer acted in good faith and had a reasonable basis to believe that the act would not prejudice the company; (b) a breach by the director or officer of his duty of care if the breach was done intentionally or recklessly, except if the breach was solely as a result of negligence; (c) any act or omission done with the intent to derive an illegal personal benefit; or (d) any fine, civil fine, monetary sanctions, or forfeit imposed on the officer or director. Our articles of association provide that we may exempt or indemnify a director or an officer to the maximum extent permissible under law. We have issued letters of indemnification to our directors and officers, pursuant to which we have agreed to indemnify them in advance for any liability or expense imposed on or incurred by them in connection with acts they perform in their capacity as a director or officer, subject to applicable law. The amount of the advance indemnity is limited to the higher of 25% of our then 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 of their duties as directors by shifting the burden of such losses and expenses to us. Although we have obtained directors’ and officers’ liability insurance, certain liabilities or expenses covered by our indemnification obligations may not be covered by such insurance or the coverage limitation amounts may be exceeded. As a result, we may need to use a significant amount of our funds to satisfy our indemnification obligations, which could severely harm our business or financial condition and limit the funds available to those who may choose to bring a claim against us. These provisions and resultant costs may also discourage us from bringing a lawsuit against directors and officers for breaches of their duties and may similarly discourage the filing of derivative litigation by our shareholders against the directors and officers even though such actions, if successful, might otherwise benefit our security holders. Our Amended and Restated Articles of Association designate courts located either within the State of Israel, or the Federal District Courts of the United States, as the exclusive forum for certain litigation that may be initiated by our shareholders, which could limit our shareholders’ ability to bring a favorable or convenient judicial forum for disputes with us. Our Amended and Restated Articles of Association provide that, unless we consent in writing to the selection of an alternative forum, the Tel Aviv District Court (Economic Division in the State of Israel (or, if the Tel Aviv District Court does not have jurisdiction, and no other Israeli court has jurisdiction, the federal district court for the District of New York) shall be the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our shareholders, and (3) any action asserting a claim arising pursuant to any provision of the Companies Law or the Israeli Securities Law 5728-1968, in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants. In addition, the federal district courts of the United States for the District of New York shall be the exclusive forum for any complaint asserting a cause of action arising under the Securities Act of 1933. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to these provisions. This forum selection provision may limit shareholders’ ability to bring a claim in a judicial forum for disputes that it finds favorable or convenient for disputes with us or our directors, officers, or other employees, which may discourage lawsuits with respect to such claims. Alternatively, a court, including an Israeli court, could find these provisions of our Articles of Association to be inapplicable or unenforceable in respect of one or more of the specified types of actions or proceedings, which may require us to incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition. 56 Table of Contents General Risks We must comply with the U.S. Foreign Corrupt Practices Act. The U.S. Foreign Corrupt Practices Act (the “FCPA”) applies to companies, such as us, with a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The FCPA to which various of our operations may be subject generally prohibits companies and their intermediaries from engaging in bribery or making other improper payments to officials for the purpose of obtaining or retaining business. In various jurisdictions, our operations require that we and third parties acting on our behalf routinely interact with government officials, including medical personnel who may be considered government officials for purposes of these laws because they are employees of state- owned or controlled facilities. Our policies mandate compliance with these anti-bribery laws; however, we operate in many parts of the world that have experienced governmental or private corruption to some degree. As a result, the existence and implementation of a robust anti-corruption program cannot eliminate all risks that unauthorized reckless or criminal acts have been or will be committed by our employees or agents. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties. Violations of the FCPA, or allegations of such violations, could disrupt our business and result in a material adverse effect on our reputation, business, financial condition or results of operations. Future issuances or sales of our ADSs could reduce the market price of our ADSs. As of March 17, 2021, we had options to purchase 49,306,180 ordinary shares (“Ordinary Shares”) under our Amended and Restated Award Plan (2010) (“Award Plan”) outstanding and options outstanding to purchase 3,000 ADSs (each representing 10 Ordinary Shares) outside the Award Plan. In addition, as of March 17, 2021, there were 16,438,747 Ordinary Shares reserved for issuance under our Award Plan (including Ordinary Shares subject to outstanding options under such plan). In January 2021, we issued 3,188,776 ADSs, and in March 2021, we issued 4,647,433 ADSs, in connection with underwritten bought deal offerings. In addition, to date, we have sold an aggregate of 2,837,038 ADSs under our “at-the-market” equity offering program. Future substantial issuance or sale of our ADSs, or the perception that such sales may occur in the future, including sales of ADSs issuable upon the exercise of options, warrants or other equity- based securities, may cause the market price of our ADSs to decline. Moreover, the issuance of ADSs upon the exercise of our options will also have a dilutive effect on our shareholders, which could further reduce the price of our ADSs. The market price of our ADSs is subject to fluctuation, which could result in substantial losses by our investors. The COVID-19 pandemic has resulted in significant financial market volatility, and its impact on the global economy remains uncertain. A continuation or worsening of the pandemic could have a material adverse impact on the market price of our ADSs. This may affect the ability of our investors to sell their ADSs, and the value of an investment in our ADSs may decline. The stock market in general and the market price of our ADSs on the Nasdaq, in particular, are subject to fluctuation, and changes in the price of our securities may be unrelated to our operating performance. The market price of our ADSs on the Nasdaq has fluctuated in the past, and we expect they will continue to do so. The market price of our ADSs is and will be subject to a number of factors, including but not limited to: ● our ability to execute our business plan, including commercialization of our current and future commercial products; ● announcements of technological innovations or new therapeutic candidates or new products approved for marketing by us or others; ● announcements by us of significant acquisitions, strategic partnerships, in-licensing, out-licensing, joint ventures or capital commitments; ● our ability to comply with the various covenants under our credit agreement with HCRM; ● expiration or terminations of licenses, research contracts or other commercialization or development agreements; ● public concern as to the safety of drugs we, our commercialization or development partners or others market or develop; ● the volatility of market prices for shares of biopharmaceutical companies generally; 57 Table of Contents ● 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 ADSs are covered by 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 operating performance. These factors and any corresponding price fluctuations may materially and adversely affect the market price of our ADSs and result in substantial losses by our investors. Additionally, market prices for securities of biotechnology and pharmaceutical companies historically have been very volatile. The market for these securities has from time to time, experienced significant price and volume fluctuations for reasons unrelated to the operating performance of any one company. The COVID-19 pandemic has resulted in significant financial market volatility and uncertainty. A continuation or worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on our ability to access capital, on our business, results of operations and financial condition, and on the market price of our ADSs. In the past, following periods of market volatility, shareholders have often instituted securities class action litigation and derivative actions. If we were involved in securities or other litigation, it could have a substantial cost and divert resources and attention of management from our business, even if we are successful. We incur significant costs as a result of the listing of our ADSs on the Nasdaq, and we may need to devote substantial time and resources to new and current compliance initiatives and reporting requirements. As a public company in the U.S., we incur significant accounting, legal and other expenses as a result of the listing of our securities on the Nasdaq. These include costs associated with the reporting requirements of the SEC and the requirements of the Nasdaq Listing Rules, as well as requirements under Section 404 and other provisions of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). These rules and regulations have increased our legal and financial compliance costs, introduced new costs such as investor relations, travel costs, stock exchange listing fees, and shareholder reporting, and made some activities more time-consuming and costly. Any future changes in the laws and regulations affecting public companies in the U.S. and Israel, including Section 404 and other provisions of the Sarbanes-Oxley Act, the rules and regulations adopted by the SEC and the Nasdaq Listing Rules, as well as applicable Israeli reporting requirements, may result in an increase to our costs as we respond to such changes. These laws, rules, and regulations could make it more difficult and costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these requirements 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. Since 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 to comply with the auditor attestation requirements of Section 404 of the Sarbanes Oxley Act (and the rules and regulations of the SEC thereunder) ceased to apply, and we have begun to incur and expect to incur additional expenses and devote increased management time, effort and attention toward ensuring compliance with such reporting requirements, which are significant. 58 Table of Contents We may fail to maintain effective internal control over financial reporting, which may adversely affect investor confidence in us and, as a result, may affect the value of our ADSs. We have documented and tested our internal control systems and procedures in order for us to comply with the requirements of Section 404 of the Sarbanes-Oxley Act, which requires us to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting, and requires our auditor’s attestation report on the effectiveness of our internal control over financial reporting. The continuous process of strengthening our internal control and complying with Section 404 of the Sarbanes-Oxley Act is complicated, expensive and time-consuming. While our assessment of our internal control over financial reporting resulted in our conclusion that as of December 31, 2020, our internal control over financial reporting was effective, we cannot predict the outcome of our testing or any subsequent testing by our auditor in future periods. If we fail to maintain the adequacy of our internal control, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting. Even if we do conclude that our internal control over financial reporting is effective, our independent registered public accounting firm may still issue a report that is qualified or adverse if it is not satisfied with our internal control. Failure to maintain effective internal control over financial reporting could result in investigation or sanctions by regulatory authorities and could have a material adverse effect on our reputation, business, financial condition, results of operations or investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our ADSs to decline. 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 was registered as a private company limited by shares under the laws of the State of Israel. Our principal executive offices are located 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 of approximately $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. On February 13, 2020, our Ordinary Shares were voluntarily delisted from trading on the Tel-Aviv Stock Exchange. Our ADSs are traded on the Nasdaq Global Market under the symbol "RDHL." The Securities and Exchange Commission, or SEC, maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at http://sec.gov. Our website address is http://www.redhillbio.com. Information contained on, or that can be accessed through, our website does not constitute a part of this Annual Report. Our capital expenditures for the years ended December 31, 2020, 2019, and 2018 were approximately $406,000, $168,000, and $23,000, respectively. Our current capital expenditures involve equipment and leasehold improvements. B. Business Overview We are a specialty biopharmaceutical company, primarily focused on the commercialization and development of proprietary drugs for gastrointestinal (“GI”) and infectious diseases. Our primary focus is to become a leading specialty biopharmaceutical company through our commercial presence in the U.S. to support current and potential future commercialization of products approved for marketing and of our therapeutic candidates. We are currently focused primarily on the commercialization in the U.S. of GI-related products Movantik®, Talicia® and Aemcolo®. 59 Table of Contents In addition, we also continue to develop our pipeline of clinical-stage therapeutic candidates, including the study of our therapeutic candidates with opaganib (Yeliva®, ABC294640) and RHB-107 (upamostat) as potential treatments for COVID-19 and other indications, RHB-104 for Crohn's disease, and other development programs. We look for opportunities to leverage our commercial presence and capabilities in the U.S. to support the potential future launch of our therapeutic candidates currently under development, if approved by the FDA, or FDA-approved products which we may acquire in the future. Depending on the specific development program, our therapeutic candidates are designed to exhibit greater efficacy and/or provide improvements over existing drugs in various ways, including by one or more of the following: by improving their safety profile, reducing side effects, lowering the number of administrations, using a more convenient administration form or providing a cost advantage. We generate our pipeline of therapeutic candidates by identifying, validating and in-licensing or acquiring products that are consistent with our product and corporate strategy and that we believe exhibit a relatively high probability of therapeutic and commercial success. We have one product that we developed internally which has been approved for marketing and, to date, none of our therapeutic candidates has generated meaningful revenues. We plan to commercialize our therapeutic candidates, upon approval, if any, through licensing and other commercialization arrangements outside the U.S. with pharmaceutical companies on a global and territorial basis or, in the case of commercialization in the U.S., independently with our dedicated commercial operations or in a potential partnership with other commercial-stage companies. We also evaluate, on a case-by-case basis, co-development, co-promotion, licensing and similar arrangements. Our Strategy Our goal is to become a significant player in the commercialization and development of pharmaceuticals for the treatment of GI-related diseases. Key elements of our strategy are to: ● advance our initiative to become a leading specialty biopharmaceutical company by leveraging our commercial presence in the U.S. to achieve successful commercialization of products approved for marketing, including Talicia® and our other commercial products, and future commercialization of our therapeutic candidates, if approved, and by identifying and acquiring rights to products that have been approved for marketing in the U.S. and investigational new drugs 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 approved or commercialized in the U.S., preferably with a therapeutic focus on GI, which would enable us to commercialize such products independently through our own marketing and commercialization capabilities. We identify such opportunities through our broad network of contacts and other sources in the pharmaceutical field; ● identify and acquire rights to products from pharmaceutical companies that have encountered cash flow or operational problems or that decide to divest one or more of their products for various reasons. Specifically, we seek to acquire rights to and develop products that are intended to treat pronounced clinical needs, have patent or other protections, and have potential target markets totaling tens of millions to billions of dollars. Additionally, we seek to acquire rights to and develop products based on different technologies designed to reduce our dependency on any specific product or technology. We identify such opportunities through our broad network of contacts and other sources in the pharmaceutical field; ● enhance existing pharmaceutical products, including broadening their range of indications, or launching innovative and advantageous pharmaceutical products, based on existing active ingredients. Because there is a large knowledge base regarding existing products, the preclinical, clinical and regulatory requirements needed to obtain 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 to reducing costs and time to market, we believe that targeting therapeutics with proven safety and efficacy profiles provides us a better prospect of clinical success; ● where applicable, utilize the FDA’s 505(b)(2) regulatory pathway to potentially obtain more timely and efficient approval of our formulations of previously approved products. Under the 505(b)(2) process, we are able to seek FDA approval of a new dosage form, strength, route of administration, formulation, dosage regimen, or indication 60 Table of Contents of a pharmaceutical product that has previously been approved by the FDA. This process enables us to partially rely on the FDA findings of safety or efficacy for previously approved drugs, thus avoiding the duplication of costly and time-consuming preclinical and various human studies. See “Item 4. Information on the Company – B. Business Overview – 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 leverage the expertise of others. The pharmaceutical and biotechnology industries are intensely competitive. Our therapeutic candidates, if commercialized, and our approved drugs, compete with existing drugs and therapies. In addition, there are many pharmaceutical companies, biotechnology companies, medical device companies, public and private universities, government agencies and research organizations actively engaged in the research and development of products targeting the same markets as our therapeutic candidates. Many of these organizations have substantially greater financial, technical, manufacturing and marketing resources than we do. In certain cases, our competitors may also be able to use alternative technologies that do not infringe upon our patents to formulate the active materials in our therapeutic candidates. They may, therefore, bring to market products that are able to compete with our candidates, or other products that we may develop in the future. Our Approved and Commercial Products in the U.S. We have established the headquarters of our U.S. commercial operations in Raleigh, North Carolina. Our U.S. operations serves as the platform for the commercialization of Movantik®, Talicia® and Aemcolo®, and potential launch of our proprietary, late-clinical stage therapeutic candidates in the U.S., if approved by the FDA, and potential in-licensed or acquired commercial-stage products in the U.S. Our sales force consisted of approximately 90 sales representatives as of December 31, 2020. The net revenues for the fiscal years ended December 31, 2020, and 2019 from the commercial products were approximately $64.4 million and $6.3 million, respectively. We continue to pursue the acquisition of additional commercial products, including, without limitation, through licensing or promotion transaction, asset purchase, joint venture with, acquisition of, or a merger with or other business combination with, companies with rights to commercial GI and other relevant assets and are continuously working to expand U.S. managed care access and coverage to our commercial products, where appropriate. We plan to pursue such opportunities in the U.S. and, if available, in other jurisdictions; however, we intend to focus our commercial activities in the U.S. We currently promote and commercialize three GI products in the U.S. Movantik® We acquired the worldwide rights (excluding Europe Canada, and Israel) to commercialize and develop Movantik® (naloxegol) from AstraZeneca in April 2020. Movantik® is a proprietary once-daily oral peripherally-acting mu-opioid receptor antagonist (PAMORA) approved by the FDA for the treatment of opioid-induced constipation (OIC) in adult patients with chronic non-cancer pain, including patients with chronic pain related to prior cancer or its treatment who do not require frequent (e.g. weekly) opioid dosage escalation. We initiated the promotion of Movantik® in the second quarter of 2020. In October 2020, we gained the rights to commercialize and develop Movantik® in Israel, and thus we now hold the worldwide rights to Movantik®, excluding Europe and Canada. See “Item 4. Information on the Company – B. Business Overview – Acquisition, Commercialization and License Agreements – License Agreement for Movantik®.” Regulatory Status Movantik® received FDA approval on September 16, 2014, for the treatment of OIC in adult patients with chronic non- cancer pain, including patients with chronic pain related to prior cancer or its treatment who do not require frequent (e.g. weekly) opioid dosage escalation. In connection with our in-license for Movantik®, we agreed to assume responsibility for completing any postmarketing requirements or commitments that may be required to retain approval. Accordingly, we are required to continue the post-marketing observational epidemiologic study to evaluate the major adverse cardiovascular events (MACE) of Movantik®. 61 Table of Contents Market and Competition Movantik® is a peripherally-acting mu-opioid receptor antagonist indicated for the treatment of OIC. According to a DataMonitor report, OIC is the most common side effect of opioids, as tolerance does not arise over the long term, and is estimated that OIC in patients with non-cancer pain ranges between 40–50%. Movantik® primarily competes with several branded therapies already approved and used extensively to treat OIC, including Amitiza® (lubiprostone, promoted by Takeda Pharmaceuticals) and two other oral PAMORA drugs, Relistor® (methylnaltrexone bromide, promoted by Salix Pharmaceuticals) and Symproic® (naldemedine, promoted by BioDelivery Sciences International, Inc.). Movantik® also competes with several OTC and prescription drugs, such as laxatives, including stool softeners, stimulants and the use of enemas. We may also be exposed to potential competitive products that may be under development to treat or prevent OIC. Talicia® (omeprazole magnesium, amoxicillin, and rifabutin) delayed-release capsules 10 mg/250 mg/12.5 mg Talicia® is our proprietary new drug approved for marketing in the U.S. for the treatment of H. pylori infection in adults. Talicia® is a combination of three approved drug products – omeprazole, which is a proton pump inhibitor (prevents the secretion of hydrogen ions necessary for the digestion of food in the stomach), amoxicillin and rifabutin, which are antibiotics. Talicia® is administered to patients orally. Talicia® is the first product we developed that was approved for marketing in the U.S. We launched Talicia® in the U.S. in March 2020 with our dedicated sales force. Chronic infection with H. pylori irritates the mucosal lining of the stomach and small intestine. The original discovery of the H. pylori bacteria and its association with peptic ulcer disease warranted the Nobel Prize in 2005. H. pylori infection has since 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, and gastric cancer. Gastric cancer is one of the most prevalent cancers worldwide and one of the most common causes of cancer-related deaths, accounting for approximately 760,000 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 is the strongest singular risk factor for cancers of the stomach, and eradication of H. pylori significantly decreases the risk of developing cancer in infected individuals without pre-malignant lesions. In November 2014, Talicia® was granted QIDP designation by the FDA. The QIDP designation was granted under the FDA’s Generating Antibiotic Incentives Now (GAIN) Act, which is intended to encourage the development of new antibiotic drugs for the treatment of serious or life-threatening infections that have the potential to pose a serious threat to public health. The granted QIDP designation allows Talicia® to benefit from an additional five years of U.S. market exclusivity, on top of the standard exclusivity period, for a total of eight years of market exclusivity. In December 2020, the Company announced that it had further increased unrestricted commercial coverage of Talicia® in the U.S. to extend to over 70% of commercial lives or 167 million Americans. Talicia® is targeting a significantly broader indication than that of existing H. pylori therapies, as a treatment of H. pylori infection, regardless of ulcer status. We acquired the rights to Talicia® pursuant to an agreement with Giaconda Limited. See “Item 4. Information on the Company – B. Business Overview – Acquisition, Commercialization and License Agreements – Acquisition of Talicia®, RHB-104, and RHB-106.” Regulatory Status On November 1, 2019, Talicia® was approved by the FDA and is eligible for a total of eight years of U.S. market exclusivity. 62 Table of Contents Market and Competition The American College of Gastroenterology clinical guidelines for the treatment of H. pylori infection published in 2017 generally exclude the majority of the U.S. population from treatment with current standard-of-care therapies which commonly include the antibiotic clarithromycin with amoxicillin or another antibiotic and a proton pump inhibitor. The American College of Gastroenterology recommends against using clarithromycin-based triple therapies in cases where the patient has prior macrolide exposure, in regions with unknown clarithromycin resistance or regions with 15% or more clarithromycin resistance. It is estimated that clarithromycin resistance in the U.S. exceeds 20% prevalence (Park JY, Dig Dis Sci. 2016). Such current clarithromycin and metronidazole-based standard-of-care treatments fail in approximately 25- 40% of the patients due to the development of antibiotic resistance, based on Malfertheiner P. et al. (Gut 2012), O’Connor A. et al. (Helicobacter 2015) and Venerito M. et al. (Digestion 2013). According to a 2015 publication by Shiota et al., it is estimated that H. pylori resistance to clarithromycin, a standard-of-care antibiotic used for the treatment of H. pylori, more than doubled between 2009-2013. Talicia® is designed to address the high resistance of H. pylori bacteria to the antibiotics commonly used in current standard-of-care therapies. Talicia’s approval was supported, in part, by the results of two positive Phase 3 studies in the U.S. for the treatment of H. pylori-positive adult patients complaining of epigastric pain and/or discomfort. The confirmatory Phase 3 study of Talicia® demonstrated 84% eradication of H. pylori infection with Talicia® vs. 58% in the active comparator arm (p<0.0001). Further, in an analysis of data from this study, it was observed that subjects with measurable blood levels of drug at Day 13 had response rates of 90.3% in the Talicia® arm vs. 64.7% in the active comparator arm. H. pylori bacterial infection affects over 50% of the adult population worldwide, according to a 2018 report by Kakelar HM et 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 million patients per annum are treated for H. pylori eradication, based on a 2019 Custom study by IQVIA for us. Talicia® faces competition in the U.S. from certain branded prescription therapies indicated for the treatment of H. pylori infection including, but not limited to, Pylera® (sold by Allergan plc), PrevPac® (sold by Takeda Pharmaceuticals) and Omeclamox-Pak® (sold by Cumberland Pharmaceuticals), as well as from the generic individual components of these branded therapies and other generic antibiotics and PPIs approved for the treatment of H. pylori infection. Additionally, the individual components of Talicia® are available in generic form and while rifabutin is not available in an equivalent dose, there is a risk that some physicians may prescribe the individual components of Talicia® in doses that are not equivalent to the approved drug and regimen. In addition, Pathom Pharmaceuticals, Inc. is conducting a pivotal Phase 3 study to evaluate the efficacy of vonoprazan in combination with amoxicillin and vonoprazan in combination with amoxicillin and clarithromycin in eradication of H. pylori infection. Vonoprazan is an oral small molecule potassium competitive acid blocker (P-CAB) which has received marketing approval in Japan and other countries in Asia and Latin America. According to Pathom Pharmaceuticals, top- line results from this study are expected in the second quarter of 2021. We believe that Talicia® offers a significant benefit over other marketed drugs in part because of the resistance profile demonstrated in our Phase 3 program, which showed no bacterial resistance to rifabutin and high resistance to clarithromycin and metronidazole. Aemcolo® In October 2019, we entered into a license agreement with a wholly-owned subsidiary of Cosmo pursuant to which we were granted exclusive rights to commercialize Aemcolo® in the U.S. Aemcolo®, containing 194mg of rifamycin, is an orally administered, minimally absorbed antibiotic that is delivered to the colon, approved by the FDA in 2018 for the treatment of travelers’ diarrhea caused by non-invasive strains of E. coli in adults (“Travelers’ Diarrhea”). In December 2019, we launched the commercialization of Aemcolo® in the U.S. See “Item 4. Information on the Company – B. Business Overview – Acquisition, Commercialization and License Agreements – Exclusive License Agreement for Aemcolo®.” 63 Table of Contents Regulatory Status Aemcolo® received FDA approval on November 16, 2018, for the treatment of travelers’ diarrhea caused by noninvasive strains of Escherichia coli in adults. Cosmo transferred the Aemcolo® NDA and the IND to RedHill U.S., which were accepted on November 27, 2019. This acceptance also includes a commitment to complete any postmarketing requirements or commitments related to the NDA. There are two pediatric studies that are required to be completed to satisfy the PREA requirements and also with required milestone dates: ● Conduct a randomized, placebo-controlled study to evaluate the safety, tolerability, and efficacy of Aemcolo® (rifamycin) for the treatment of travelers’ diarrhea in children from 6 to 11 years of age. ● Conduct a randomized, placebo-controlled study to evaluate the safety, tolerability, and efficacy of Aemcolo® (rifamycin) for the treatment of travelers’ diarrhea in children from 12 to 17 years of age. Market and Competition Aemcolo® is a new pharmaceutical product employing rifamycin SV engineered with MMX® technology. The application of MMX® technology to rifamycin SV allows the antibiotic to be delivered directly into the colon, intended to avoid unwanted effects on the beneficial bacterial flora living in the upper portions of the gastrointestinal tract. The specific dissolution profile of Aemcolo® tablets increases the colonic disposition of the antibiotic so that an optimized intestinal concentration is achieved thus abating its systemic absorption in the lower intestine. In October 2017, the FDA granted QIDP and Fast Track designations for Aemcolo®. With the QIDP designation, intended for antibacterial or antifungal drugs that treat serious or life-threatening infections, together with new chemical entity (NCE) designation, Aemcolo® enjoys marketing exclusivity until 2028. Travelers’ diarrhea is the most common travel-related illness according to the FDA. The Centers for Disease Control and Prevention Yellow book states that attack rates of travelers’ diarrhea range up to 70% of travelers, depending on the destination and season of travel. Travelers’ diarrhea may often result in short-term morbidity adversely impacting travel plans. Untreated diarrhea can also lead to an underappreciated risk of chronic complications, including functional bowel disorders. There are several competing drugs marketed in the U.S. intended for the treatment of travelers’ diarrhea. One of the leading competitors is Xifaxan® (marketed by Salix Pharmaceuticals), a prescription drug approved for the treatment of travelers’ diarrhea caused by non-invasive strains of E. coli in adults and pediatric patients, treatment of IBS-D and reduction in risk of overt hepatic encephalopathy recurrence in adults. Aemcolo® also competes with generic antibiotics such as fluoroquinolones and azithromycin. Aemcolo® also competes with prescription and OTC anti-diarrheal medications such as loperamide and bismuth subsalicylate, as well as probiotics and medical foods which may offer symptomatic relief. We may also be exposed to potentially competitive products, which may be under development to treat or prevent travelers’ diarrhea, including new antibiotics, anti-diarrheals, and vaccines. 64 Table of Contents Our Therapeutic Candidates Summary The ongoing development programs of our six therapeutic candidates, most in late-stage clinical development, include “RHB-204”, RHB-104”, “RHB-102 (Bekinda®)”, “RHB-106”, “opaganib” (ABC294640; Yeliva®) and “RHB-107” (upamostat) and related research and development programs, the most advanced of which are described below. Name of Therapeutic Candidate RHB-204 RHB-104 Proposed Indication Pulmonary nontuberculous mycobacteria (NTM) infections caused by Mycobacterium avium complex (MAC) Crohn’s disease RHB-102 (Bekinda®) 24 mg Acute gastritis gastroenteritis and RHB-102 (Bekinda®) 12 IBS-D mg RHB-106 Bowel preparation opaganib (ABC294640; Yeliva®) Patients hospitalized with SARS-CoV-2 severe COVID- 19 pneumonia opaganib (ABC294640; Yeliva®) Advanced cholangiocarcinoma unresectable opaganib (ABC294640; Prostate cancer Yeliva®) RHB-107 (upamostat; formerly Mesupron) RHB-107 (upamostat; formerly Mesupron) and opaganib (ABC294640; Yeliva®) Outpatients SARS-Co-V-2 disease) Advanced cholangiocarcinoma infected with (COVID-19 unresectable RHB-107 (upamostat; formerly Mesupron) Gastrointestinal and other solid tumors Potential Advantages Over Most Existing Treatments, if Approved Oral formulation targeting a major cause pulmonary NTM infections of Development Stage Initiated Phase 3 study filed filed patent patent Rights to the Product patent filed to protect applications We internationally directed the to proposed commercial formulation and use applications We internationally directed the to proposed commercial formulation and use applications We internationally the proposed commercial formulation and its use applications We filed internationally the proposed commercial formulation and its use applications We filed internationally the proposed commercial formulation and its use We filed patent applications to protect the proposed commercial use to protect to protect patent patent results for all Full 52-week subjects in the Phase 3 study; supportive top-line results from the open-label extension Phase 3 study First Phase 3 study in the U.S. completed; confirmatory Phase 3 study in planning Phase 2 in the U.S. completed; Phase 3 program in planning Phase 2/3 studies in planning U.S. Phase 2 study completed and awaiting top-line data; recruiting for global Phase 2/3 Phase 1/2a study ongoing (ABC-108) in the U.S. Worldwide exclusive license Investigator-sponsored Phase 2 study in the U.S (ABC-107, to replace ABC-106) Worldwide exclusive license We filed patent applications to protect the proposed commercial use Phase 2a study ongoing filed patent We internationally directed proposed commercial use applications the to in Completed Phase 2 studies pancreatic and breast cancer cancer; preclinical testing ongoing exclusive license; Worldwide excludes China, Hong Kong, Taiwan, and Macao1 clinical Novel mechanism of action and improved benefit (targeting suspected underlying cause of Crohn’s disease) No 5-HT3 approved serotonin receptor inhibitor for this indication; once-daily dosing other Potential 5-HT3 serotonin receptor inhibitor with improved safety, while maintaining efficacy Oral pill, avoid severe bad taste of chemical solutions, no known nephrotoxicity issues and Oral administration, first-in-class SK2 selective inhibitor, with anti- inflammatory anti-cancer activities Oral administration, first-in-class SK2 selective inhibitor, with anti- anti-cancer inflammatory activities Oral administration, first-in-class SK2 selective inhibitor, with anti- inflammatory anti-cancer activities in addition to failing treatment with abiraterone or enzalutamide Phase 2/3 study ongoing and and SK2 Combination of an orally-dosed small molecule compound with an established clinical safety profile; first-in-class specific inhibitor of five human serine proteases (RHB- 107 (upamostat)) and an oral dose first-in-class selective inhibitor, with anti-inflammatory and activities (opaganib (ABC294640 (Yeliva®))) An orally-dosed small molecule compound with an established clinical safety profile; first-in-class specific inhibitor of five human serine proteases anti-cancer 1 We have received a Notice of Allowance from the United States Patent and Trademark Office for treatment of solid tumors with a combination of opaganib and RHB-107. 65 Table of Contents RHB-204 Nontuberculous Mycobacteria Infections In November 2020, we initiated a Phase 3 study in RHB-204 for the treatment of Mycobacterium avium complex (MAC) disease, the most common cause of pulmonary nontuberculous mycobacteria (NTM) infection. The study is intended to assess the efficacy and safety of RHB-204 as a potential first-line, stand-alone treatment for pulmonary NTM infections caused by MAC. The multi-center, randomized, double-blind, two-part, placebo-controlled, parallel-group Phase 3 study will be conducted at up to 40 sites across the U.S. Study endpoints include sputum culture conversion at month six of treatment with RHB-204, compared to placebo and patient-reported outcomes, including improvements in physical functioning, respiratory symptoms and fatigue. In January 2017, we announced that RHB-204 had been granted QIDP designation by the FDA for the treatment of pulmonary NTM infections, including eligibility for Accelerated Approval and Priority Review and an extended market exclusivity period, if approved for marketing in the U.S. In October 2020, we announced that RHB-204 had been granted Orphan Drug designation by the FDA for the treatment of pulmonary NTM infections which would extend market exclusivity period to a total of 12 years, if approved for marketing in the U.S. In January 2021 we announced that the FDA granted RHB-204 Fast Track designation, allowing RedHill access to early and frequent communications with the FDA, to expedite the RHB-204 development program, and to a rolling review of an NDA. RHB-204 is a patented fixed-dose combination product of three antibiotics intended to simplify administration and optimize compliance, selected based on modelling to provide optimal balance of the potential safety and efficacy. Each capsule contains the same three antibiotics as RHB-104 (clarithromycin, clofazimine, and rifabutin), but at doses unique from RHB-104. Clarithromycin and rifabutin were selected because mycobacteria live within host cells, and these agents have intracellular activity against MAC. Further, rifabutin enhances the antimicrobial activity of clarithromycin due to increased levels of clarithromycin's active metabolite. Selection of clofazimine was based on its activity against MAC, 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 2017 analysis by Foster Rosenblatt. Although rare, the incidence and prevalence of NTM lung disease are increasing in many areas of the world, according to Henkle E et al (Ann Am Thorac Soc 2015). Treatment options 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 to Prevots DR (Am J Respir Crit Care Med, 2010) and Winthrop KL (Am J Respir Crit Care Med, 2010), approximately 80% of pulmonary NTM cases in the U.S. are associated with MAC. In some people, infection with NTM may lead to a progressive lung disease characterized by fever, weight loss, chest pain, and blood in sputum. NTM disease is more common in the older adult population and individuals with a compromised immune system or underlying lung disease. According to the American Lung Association, NTM are relatively resistant to antibiotics and can become more resistant if only one antibiotic is used. Effective treatment of NTM caused by MAC requires three drugs for at least 12 months of treatment. Currently recommended treatment regimens, drug resistance patterns, and treatment outcomes differ according to the NTM species, and management is a lengthy complicated process with limited therapeutic options (Ryu YJ et al. 2016). There is currently no approved first-line therapy for NTM lung disease. Treatment is determined based on guidelines and includes multi-drug regimens with antibiotics not approved for NTM. Adherence to the guidelines for treating NTM lung disease is suboptimal, and potentially harmful antibiotic regimens are commonly prescribed. Management of NTM disease requires prolonged use of costly combinations of multiple drugs with a significant potential for toxicity. 66 Table of Contents In September 2018, FDA approved Arikayce® (amikacin liposome inhalation suspension), a new drug developed by Insmed Incorporated, for the treatment of lung disease caused by MAC in a limited population of refractory patients which does not respond to conventional treatment. To the best of our knowledge, this is the first treatment approved specifically for pulmonary NTM infections caused by MAC. Arikayce® is indicated as a second-line therapy in refractory patients as part of a combination antibacterial drug regimen. The Arikayce® prescribing information includes a Boxed Warning regarding the increased risk of respiratory conditions, including hypersensitivity pneumonitis, bronchospasm, exacerbation of underlying lung disease and hemoptysis that have led to hospitalizations in some cases. Several drug candidates are currently under development for the treatment of NTM infections, including but not limited to, LungFitTMGO (Beyond Air Inc.), an inhaled Nitric Oxide and SRP720 (Spero Therapeutics, Inc.), an oral antimicrobial agent. Additionally, Insmed Incorporated has announced that it has initiated a clinical trial program with Arikayce® as a first-line treatment for patients with MAC lung disease. According to www.clinicaltrials.gov, there are several additional ongoing clinical studies evaluating treatments for NTM infections. 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. Initiation of the trial for pulmonary NTM lung infections was in November 2020. The appropriate regulatory path is currently under discussion. The following chart summarizes the development history and status of RHB-204: Trial name CleaR-MAC Trial Development phase Phase 3 Purpose of the trial Evaluate the efficacy and safety of RHB-204 in adult subjects with documented MAC lung infection. Clinical trial sites Up to 40 Planned number of subjects of the trial 125 Status of the trial Recruiting 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 GI system that may cause severe abdominal pain and bloody diarrhea, malnutrition and potentially life-threatening complications. RHB-104 is a patented combination of clarithromycin, clofazimine, and rifabutin, three generic antibiotic ingredients, in a single capsule. The compound was developed to treat MAP infections in Crohn’s disease. To date, Crohn’s disease has been considered an autoimmune disease, but the exact pathological mechanism is unclear. Dr. Robert J. Greenstein suggested in The Lancet Infectious Diseases, 2003 that Crohn’s disease is caused by MAP, the same organism responsible for causing a major disease in animal agriculture production, domestic and wild animals. This hypothesis is supported by an expanding number of scientific and clinical studies published in peer-reviewed journals since a National Institute of Allergy and Infectious Diseases conference that focused on MAP in Crohn’s disease took place in 1998. Specific genetic loci like NOD2/CARD15 have been implicated in the pathogenesis of Crohn’s disease with mutations in NOD2 suspected of leading to defective recognition of MAP and increased compensatory immune activation in patients with Crohn’s disease. Advances in diagnostic technology have led to increasingly higher identification of MAP, with studies, such as Naser S et al. The Lancet, 2004, Bull TJ et al. J Clin Microbiol, 2003 and Shafran I et al. Dig Dis Sci, 2002, demonstrating a high prevalence of MAP in Crohn’s disease patients. However, there is currently no FDA-approved commercial diagnostic test for MAP. 67 Table of Contents In 2011, we obtained FDA “Orphan Drug” status for RHB-104 for the treatment of Crohn’s disease in the pediatric population. 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 License Agreements – Acquisition of Talicia®, RHB-104, and RHB-106.” We continue to pursue the development program for a companion diagnostic for the detection of MAP bacteria in Crohn’s disease patients. These efforts are in part based on detecting the presence of MAP bacterial DNA in human biological specimens. We do not know if or 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 1.3 million diagnosed prevalent cases of Crohn’s disease in the eight major markets (U.S., Canada, France, Germany, Italy, Spain, UK, Japan) in 2020. This number of prevalent cases is expected to increase to 1.6 million by 2026. Therapeutic interventions in Crohn’s disease patients are based on the disease location, severity, and associated complications. Therapeutic approaches for the treatment of Crohn’s disease are individualized according to the patient’s symptomatic response and tolerance to the prescribed treatment. Since the existing treatments are not curative, the current therapeutic approaches are sequential and involve treatment of an acute disease or inducing clinical remission followed by maintenance of the response or remission to improve the patient’s quality of life. Currently, available drugs on the market for the treatment of Crohn’s disease offer symptomatic relief, the effects of which are largely temporary or partial and are accompanied by numerous adverse effects. The most commonly prescribed drugs for treatment 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 , and Cimzia®), integrin inhibitors (such as Tysabri® and Entyvio®) and an IL 12 inhibitors (such as Remicade®, Humira® and IL23 antagonist (such as Stelara®). Additionally, several companies have developed for approval, or are in the process of developing, biosimilar drugs to compete with the approved biologic agents once their patent has expired. Salix Pharmaceuticals (a wholly-owned subsidiary of Bausch Health) also announced in January 2020 that they will initiate a Phase 2/3 study with the antibiotic rifaximin (Xifaxan®) for the treatment of Crohn’s disease. There are other companies currently conducting clinical trials with drug candidates in Crohn’s disease. 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. Unlike drugs currently on the market for the treatment of Crohn’s disease, which are immunosuppressive agents, RHB-104 is intended to address the suspected cause of the disease - MAP bacterial infection. To the best of our knowledge, there are no drugs approved for marketing that target infections caused by MAP bacteria in Crohn’s disease patients. Clinical Development A Phase 3 clinical trial for RHB-104 was conducted in Australia, sponsored by Pharmacia, a Swedish company (which merged with Pfizer), with the primary endpoint of evaluating the ratio of patients with recurrent symptoms of Crohn’s disease following the initial induction of remission with 16 weeks of treatment with prednisolone initiated at 40 mg/day and weaned over the 16-week period. Subjects were subsequently assessed at 52, 104 and 156 weeks. The main secondary objective was the percentage of patients who achieved clinical remission at 16 weeks. The results of the trial were published by Professor Warwick Selby et al. in 2007 in the medical journal Gastroenterology. Although the study did not meet the main objective of showing a difference in relapse rate with long-term treatment, there was a statistically 68 Table of Contents significant difference between the treatment groups in the percentage of subjects in remission at week 16. Professor Marcel Behr and Professor James Hanley from McGill University published a re-analysis of the study in The 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 therapy over the placebo throughout the two-year period of administration that disappeared once the active therapy was discontinued. In June 2011, we entered into an agreement with our Canadian service provider, which entered into a back-to-back agreement with PharmaNet Canada Inc. for the provision of clinical trial services for the RHB-104 adult studies in North America and Europe. PharmaNet was subsequently acquired by inVentiv Health which became Syneos Health (“Syneos”), and our agreements were transferred to Syneos. See “Item 4. Information on the Company – B. Business Overview – Acquisition, Commercialization and License Agreements – Master Service Agreement with Loonhills R&D Inc. (formerly 7810962 Canada Inc.)” and see also "Item 4. Information on the Company – B. Business Overview – Acquisition, Commercialization and License Agreements – Clinical Services 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 first Phase 3 study with RHB-104 for Crohn’s disease (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 to severely 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-TNF agents. 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 as CDAI value of less than 150, the primary endpoint of the study. The proportion of patients meeting the primary endpoint was significantly greater in the RHB-104 group compared to placebo at week 26 (37% vs. 23%, p= 0.007). Moreover, while the secondary endpoints were not powered for significance in this induction of remission trial, key secondary endpoints were nevertheless met with statistically and clinically meaningful outcomes, demonstrating consistent benefit to Crohn’s disease patients treated with RHB-104. RHB-104 was found to be generally safe and well tolerated. In October 2018, we reported additional positive data from the MAP US study, including subgroup analysis of treatment with and without anti-TNF agents, presented at the United European Gastroenterology Week 2018. In October 2019, we announced full week 52 results of blinded treatment in the MAP US study at the American College of Gastroenterology, which were consistent with the previously reported interim positive outcomes from the study. The study continued to meet its primary endpoint of clinical remission, defined as CDAI value of less than 150, at week 26 (36.7% vs. 22.4%, p=0.0048), key secondary endpoints of maintenance of remission at weeks 16 and 52 (25.9% vs. 12.1%, p=0.0016) and, notably, durable clinical remission on all visits, week 16 through 52 (18.7% vs. 8.5%, p=0.0077) (in all cases, data presented as RHB-104 vs. placebo). RHB-104 was found to be generally safe and well tolerated, with an overall balance in the type and frequency of adverse events between RHB-104 and placebo. RHB-104 was associated with a lower incidence of Clostridiodies (Clostridium) difficile infections compared with placebo. In the analysis of the complete safety information for the study, a top-line electrocardiogram monitoring report for the MAP US study, which was shared with the FDA, demonstrated evidence of progressive prolongation of the QTcF (corrected QT interval by Frederica’s formula) interval across visits, with the largest mean placebo-corrected ΔQTcF (∆∆QTcF) of 30.6ms at week 52 of treatment. Clofazimine, as well as clarithromycin (another active component of RHB-104), are known to be associated with QT prolongation. We continue to analyze the data from the RHB-104 studies, including QT prolongation findings and various pharmacokinetic and pharmacodynamic models and, as previously announced, intend to meet with the FDA again to discuss the RHB-104 program, including these data. 69 Table of Contents In October 2019, we also announced supportive top-line results from an open-label extension Phase 3 study (the “MAP US2 study”), which was conducted 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 3 MAP US study. These subjects had the opportunity to receive treatment with RHB-104 for a 52-week period in the open-label MAP US2 study. A total of 54 subjects entered the open-label extension study in the U.S., Canada, Europe, Israel, and New Zealand, and 30 subjects completed 52 weeks of treatment with RHB-104. The MAP US2 study’s primary endpoint is disease remission at week 16, defined as CDAI of less than 150. Top-line results from the MAP US2 study demonstrated 28% clinical remission with RHB-104 at week 16 and 22% remission at week 52. Of the MAP US2 subjects who were previously randomized to the placebo arm (as an add-on to standard-of-care therapies) in the MAP US study and treated with RHB-104 for the first time in the MAP US2 study, 32% achieved remission at week 16. An independent review and analysis of the top-line results was provided to RedHill by a third party. Analysis of the underlying data, including all safety, secondary and other outcome measures, and completion of the Clinical Study Report remain subject to a further independent review. We further announced in September 2019 that following additional guidance received from the FDA on the path for potential approval of RHB-104 for the treatment of Crohn’s disease, we have intensified our collaborations with leading laboratories in the field of detection of MAP bacteria in Crohn’s disease patients, including Baylor College of Medicine and the University of Central Florida’s College of Medicine. We do not know if and when a diagnostic test for MAP would become available. Additional FDA guidance on the potential path to approval of RHB-104 is to be obtained prior to initiation of further clinical studies. We have conducted several supportive studies with the current formulation of RHB-104, including a population pharmacokinetic study that was conducted as part of the Phase 3 MAP US study. We believe that additional clinical studies will be required to support an NDA for RHB-104, if filed. 70 Table of Contents The following chart summarizes the clinical trial history and status of RHB-104 studies and its earlier individual active agents: Clinical trial author/designation Borody 2002 Development phase of the clinical trial Phase 2a Borody 2005 Phase 2 Selby Phase 3 Purpose of the clinical trial Examining the effect of the treatment on Crohn’s disease patients Examining the effect of the treatment on Crohn’s disease patients Examining the effect of the treatment with the product on Crohn’s disease patients Center Digestive Disease, Australia Center Digestive Disease, Australia 20 centers Australia clinical in Planned number of subjects of the trial 12 Nature and status of the trial Performed Schedule Completed 2002 Clinical trial site for for 52 Performed Completed 2005 Biovail PK Study 2007 PK Study Optimize the formulation of RHB-104 on a PK basis Toronto, Ontario MAP US Study Phase 3 MAP US2 Study Phase 3 Drug-Drug Study Interaction PK Study Food Effect Study PK Study Assess the safety and efficacy of RHB-104 in Crohn’s disease patients Assess the safety and efficacy in Crohn’s of RHB-104 disease patients To assess the net PK effect of multiple doses of RHB-104 on CYP3A4 enzymes in healthy volunteers Determine the effect of food on the bioavailability of RHB- 104 in healthy volunteers U.S., Canada. Israel, Australia, New Zealand, and Europe U.S., Canada, Israel, New Zealand, and Europe Algorithme Pharma, Canada Algorithme Pharma, Canada 213 24 331 trial was and The performed indicated promising improvement rates, although it did not meet the trial main objective, as defined The compared formulations determine optimum formulation for RHB-104 Completed trial two to the Published in 2007 Completed 2007 Completed 2020 54 Completed Completed 2021 36 Ended Ended 2014 84 Completed Completed 2014 We cannot predict with certainty our development costs, and such costs may be subject to change. See “Item 3. Key Information – D. Risk Factors – Risks Related to Our Financial Condition and Capital Requirements.” Multiple Sclerosis (“MS”) MS is an inflammatory, demyelinating, and neurodegenerative disease of the central nervous system of uncertain etiology that exhibits characteristics of both infectious and autoimmune pathology. We had previously conducted a Phase 2a proof-of-concept study with RHB-104 for relapsing-remitting multiple sclerosis. At the current stage, we have no intention to pursue the development of RHB-104 for this indication. 71 Table of Contents RHB-102 (Bekinda®) RHB-102 (Bekinda®) is an investigational once-daily bi-modal extended-release oral formulation of ondansetron, a leading member of the family of 5-HT3 serotonin receptor inhibitors. We are developing RHB-102 (Bekinda®) in multiple dosage strengths. RHB-102 (Bekinda®) is under development for the intended use in the following indications, which are novel and not yet FDA-approved indications for 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 RHB-102 (Bekinda®) utilizes a technology called CDT® that uses salts to provide an extended-release of ondansetron. The CDT® platform enables extended drug release (i.e., the measured rate of introduction of active drug) at a relatively low manufacturing cost. The proposed commercial formulation and its use are protected by Company-filed patents and pending patent applications and are being pursued internationally. Acute Gastroenteritis and Gastritis Acute gastroenteritis and gastritis both involve inflammation of the mucous membranes of the GI tract. Symptoms of gastroenteritis and gastritis include nausea, vomiting, diarrhea, and abdominal pain. Acute gastroenteritis and gastritis are major causes of emergency room visits, particularly for pediatrics. If approved, RHB-102 (Bekinda®) could potentially decrease the number of emergency room visits for patients suffering from acute gastroenteritis and gastritis by offering them an effective and long-lasting treatment, which can be taken in the comfort of their home. Market and Competition A single dose of RHB-102 (Bekinda®) is intended to treat nausea and vomiting over a time window of approximately 24 hours. If approved for such use, this would be potentially advantageous for acute gastroenteritis and gastritis patients as it could help eliminate the need to take additional drugs (tablets) during the day or receiving intravenously administered drugs. If RHB-102 (Bekinda®) is approved for the treatment of acute gastroenteritis and gastritis, it could potentially hold substantial advantages over existing treatments. If approved, RHB-102 (Bekinda®) could be prescribed by primary care physicians to patients early on, potentially preventing emergency room visits, dehydration and the need to provide IV fluids. There are an estimated 179 million cases of gastroenteritis in the U.S. annually (Scallan E et al. 2011). To the best of our knowledge, there are no other 5-HT3 serotonin receptor inhibitors indicated or in the advanced clinical stage of development in the U.S. for this indication. Patients presenting at hospitals with gastroenteritis and gastritis are often treated primarily in IV administration with antiemetic drugs not indicated or approved for this condition, off-label, including 5-HT3 serotonin receptor inhibitors. If approved, RHB-102 (Bekinda®) will compete with several prescription and OTC anti-emetic drugs, including but not limited to, dimenhydrinate, Nauzene®, and Emetrol®, as well as off-label use of ondansetron and other 5-HT3 inhibitors. We may also be exposed to potentially competitive products which may be under development to treat acute gastroenteritis. To the best of our knowledge, a product that potentially directly competes with RHB-102 (Bekinda®) is EUR-1025 for controlled release of ondansetron, based on a different technology of controlled release originally developed by Eurand N.V. (now owned by Adare Pharmaceuticals, Inc.) and which completed two pivotal pharmacokinetic studies intended to establish the bioequivalence of EUR-1025 versus Zofran® (ondansetron hydrochloride). To the best of our knowledge, EUR-1025 was being developed for the indication of postoperative-induced nausea and vomiting, for which Zofran® and generic ondansetron 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. 72 Table of Contents 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 RHB-102 (Bekinda®) 24 mg for acute gastroenteritis and gastritis. The study successfully met its primary endpoint and RHB-102 (Bekinda®) 24 mg was found to be safe and well tolerated in this indication. The GUARD study evaluated the efficacy and safety of RHB-102 (Bekinda®) 24 mg in treating acute gastroenteritis and gastritis in 321 adults and children over the age of 12. The primary endpoint of the study was the proportion of patients without further vomiting, without rescue medication, and who were not given 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 toward potential marketing approval of RHB-102 (Bekinda®) 24 mg in the U.S. Following the guidance provided at the meeting and additional guidance provided thereafter, we are currently advancing preparations toward a confirmatory Phase 3 study to support a potential NDA with RHB-102 (Bekinda®) 24 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 RHB-102 (Bekinda®) treated patients as compared to 54.3% of placebo patients (p=0.04; n=192 in the RHB-102 (Bekinda®) group and n=129 in the placebo group). In the Per Protocol (PP) population, which included patients who met all protocol entry criteria and for which the diagnosis of gastroenteritis was confirmed (n=177 in the RHB-102 (Bekinda®) group and n=122 in the placebo group), RHB-102 (Bekinda®) improved the efficacy outcome by 27%; 69.5% of patients in the RHB-102 (Bekinda®) group vs. 54.9% in the placebo group, (p=0.01). An imbalance in baseline nausea was noted, with worse nausea in the RHB-102 (Bekinda®) treated group. In a post hoc analysis, when results were adjusted for baseline nausea, the p-value for the ITT population was 0.0152, and for the PP population was 0.0037. RHB-102 (Bekinda®) 24 mg was also shown to be safe and well tolerated; electrocardiogram results showed no adverse changes with treatment. The benefit observed with RHB-102 (Bekinda®) is evident across the spectrum of severity of nausea at baseline, including in patients with very severe nausea, suggesting that the drug works regardless 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 North Shore-LIJ School of Medicine and an emergency medicine specialist. In September 2019, we had a follow-up meeting with the FDA regarding our efforts to design a study acceptable to the agency to seek the FDA’s approval for pediatric labeling for RHB-102 (Bekinda®), as required by the FDA pursuant to the Pediatric Research Equity Act. We are continuing our discussions with the FDA to prepare an agreed-upon pediatric study plan for filing with the FDA. The following chart summarizes the clinical trial history and status of RHB-102 (Bekinda®) for gastroenteritis and gastritis: Clinical trial name GUARD Study Development phase of the clinical trial Phase 3 TBD Confirmatory Phase 3 Purpose of the clinical trial Randomized double- blind placebo-controlled Phase 3 study in acute gastroenteritis and gastritis Support a potential NDA with RHB-102 (Bekinda®) 24 mg for acute gastroenteritis and gastritis Planned number of subjects of the trial 321 Clinical trial site sites 21 the in U.S. Nature and status of the trial Evaluated efficacy (Bekinda®) gastroenteritis and gastritis the safety and RHB-102 of acute in Schedule Completed 2017 TBD TBD TBD TBD We cannot predict with certainty our development costs, and such costs may be subject to changes. See “Item 3. Key Information – D. Risk Factors – Risks Related to Our Financial Condition and Capital Requirements.” 73 Table of Contents Irritable Bowel Syndrome with Diarrhea (IBS-D) Irritable bowel syndrome (IBS) is a multifactorial disorder marked by recurrent abdominal pain or discomfort and altered bowel 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 and increase colonic permeability and motility. (Source: http://www.mayoclinic.org/medical- professionals/clinical-updates/digestive-diseases/better-agents-needed-irritable-bowel-syndrome-diarrhea). In preliminary studies, ondansetron has demonstrated activity in IBS-D (Garsed K, Chernova J, Hastings M, et al. Gut Published Online First December 12, 2013). Unlike alosetron (a currently approved 5-HT3 antagonist in IBS-D), ondansetron has not been noted to cause ischemic colitis (FDA labeling for Lotronex® (alosetron), 2010; FDA labeling 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 RHB-102 (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 GlobalData, it is estimated that over 41 million people in North America may suffer from IBS. Of the three subtypes of IBS, IBS-D is the most prevalent diagnosed subtype according to Pimentel M (Am J Manag Care, 2018), accounting for40% of the patient population 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 by Actavis plc, Hikma, Par Pharmaceuticals, and Amneal Pharmaceuticals). However, alosetron is approved only for the treatment of IBS in women with severe chronic IBS-D and its indication is restricted to those patients for whom the benefit-to-risk balance is most favorable due to infrequent, but severe, adverse reactions. The active ingredient in RHB-102 (Bekinda®), ondansetron, is approved by the U.S. FDA as an oncology support antiemetic and has a good safety profile. Therefore, we believe that RHB-102 (Bekinda®), if approved for the treatment of IBS-D in the U.S., may provide improved safety while maintaining efficacy and has the potential to be a preferred 5-HT3 serotonin receptor inhibitor treatment for patients suffering from IBS-D. Ramosetron, another 5-HT3 serotonin receptor inhibitor (marketed under the brand name Irribow® by Astellas Pharma Inc. and generic versions marketed by Pfizer Japan, Takeda Pharmaceuticals, Fuji Pharma and additional companies), is marketed for the treatment of IBS-D and for chemotherapy-induced nausea and vomiting in Japan, South Korea, China and India, and for and postoperative nausea and vomiting in South Korea and India. To the best of our knowledge, there is currently no clinical development of ramosetron for marketing approval in the U.S. for any indication. If approved, RHB-102 (Bekinda®) will compete with several prescription drugs indicated for IBS-D, including but not limited to Xifaxan® (rifaximin), marketed in the U.S. by Bausch Health, and Viberzi® (eluxadoline), marketed in the U.S. by Allergan plc., as well as additional prescription drugs, generic drugs, and over-the-counter products indicated for IBS-D or for symptomatic relief of diarrhea and pain. In addition, there are currently additional drug candidates in development by other companies for the treatment of IBS-D in the U.S. Clinical Development In January 2018, we announced positive final results from the Phase 2 clinical study of RHB-102 (Bekinda®) 12 mg for the treatment of IBS-D. The randomized, double-blind, placebo-controlled Phase 2 study evaluated the efficacy and safety of RHB-102 (Bekinda®) 12 mg in 126 subjects over 18 years old at 16 clinical sites in the U.S. The study successfully met its primary endpoint, improving the primary efficacy outcome of stool consistency. 74 Table of Contents RHB-102 (Bekinda®) was also shown to be safe and well tolerated in this indication. No serious adverse events or new or unexpected safety issues were noted in the study. In September 2018, we announced that we concluded a positive End-of- Phase 2 Type B meeting with the FDA discussing the clinical and regulatory pathway toward potential FDA approval of RHB-102 (Bekinda®) for the treatment of IBS-D. We are currently finalizing the design of two pivotal Phase 3 studies with RHB-102 (Bekinda®) for the treatment of IBS-D. The primary endpoint of the trial was the proportion of patients in each treatment group with response in stool consistency on study drug as compared to baseline. Response was defined as per FDA guidelines for the indication. Additional endpoints were 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: o o o o abdominal pain abdominal discomfort frequency of defecation incidence and severity of adverse events. The RHB-102 (Bekinda®)12 mg Phase 2 study successfully met its primary endpoint, improving the primary efficacy outcome of stool consistency response (in accordance with the FDA guidance definition) by an absolute difference of 20.7%, with 56.0% responders of subjects treated with RHB-102 (Bekinda®) (n=75) vs. 35.3% responders of the placebo subjects (n=51) (p=0.036). While not powered for statistical significance of the secondary efficacy endpoints, the study suggested clinically meaningful improvement in both secondary efficacy endpoints of abdominal pain response and overall response (combined stool consistency and abdominal pain response). Final results from the Phase 2 study demonstrated that RHB-102 (Bekinda®) 12 mg improved the overall worst abdominal pain response rate by 11.5% vs. placebo (50.7% with RHB-102 (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 the RHB-102 (Bekinda®) 12 mg arm (40.0% with RHB-102 (Bekinda®) 12 mg (n=75) vs. 25.5% with placebo (n=51); (p=0.135)). RHB-102 (Bekinda®) 12 mg was also shown to be safe and well tolerated. No serious adverse events or new or unexpected safety issues were noted in the study. In September 2018, we announced that we concluded a positive End-of-Phase 2/Pre- Phase 3 (Type B) meeting with the FDA discussing the clinical and regulatory pathway toward potential FDA approval of RHB-102 (Bekinda®) 12 mg for the treatment of IBS-D. We plan to finalize the design of two pivotal Phase 3 studies with RHB-102 (Bekinda®) for the treatment of IBS-D. The Company has initiated formulation work to formulate RHB-102 at lower dosages to help support planned pediatric studies. In December 2019, we received confirmation from the FDA that it has agreed with our Initial Pediatric Study Plan (iPSP). The following chart summarizes the clinical trial history and status of RHB-102 (Bekinda®) for IBS-D: Clinical trial name - Development phase of the clinical trial Phase 2 Purpose of the clinical trial Randomized double-blind placebo-controlled Phase 2 study in IBS-D Clinical trial site 16 sites in the U.S. Planned number of subjects of the trial 126 TBD Phase 3 Randomized double-blind placebo-controlled Phase 3 study in IBS-D TBD TBD Nature and status of the trial Evaluating the safety and efficacy of RHB- 102 (Bekinda®) 12 mg in IBS-D TBD Schedule Completed 2018 TBD We cannot predict with certainty our development costs and such costs may be subject to change. See “Item 3. Key Information – D. Risk Factors – Risks Related to Our Financial Condition and Capital Requirements.” 75 Table of Contents RHB-106 RHB-106 is an investigational tablet intended for the preparation and cleansing of the GI tract prior to the performance of abdominal procedures, including diagnostic tests such as colonoscopy, barium enema or virtual colonoscopy, as well as surgical 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 Talicia®, RHB-104, and RHB-106.” In December 2019, we provided a notice of termination of the worldwide exclusive license agreement we had entered into on February 27, 2014, with Salix Pharmaceuticals, Ltd. (“Salix, which was later acquired by Valeant Pharmaceuticals International, Inc. (“Valeant”), and subsequently renamed Bausch Health. As a result of the termination of the Salix licensing agreement, we regained the exclusive worldwide rights to the RHB-106 encapsulated formulation for bowel preparation. Market and Competition It is estimated that approximately 19 million colonoscopies are performed annually in the U.S., according to a 2018 iDATA research report. The annual number of procedures in the U.S. is increasing, presumably due to the rising awareness of colorectal cancer. If approved, RHB-106 will compete with several products in the U.S., including but not limited prescription products such as PrepoPik® (marketed by Ferring Pharmaceuticals), Clenpiq® (marketed by Ferring Pharmaceuticals), Suprep® and Sutab® (marketed by BrainTree Laboratories Inc. (acquired by Sebela Pharmaceuticals)), OsmoPrep®, MoviPrep® and Plenvu® (marketed by Bausch Health). There are additional bowel preparations in development by other companies. To the best of our knowledge, the main competitors of RHB-106 are bowel 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 liters of solution before the performance of the gastroenterological procedure. In addition to the need to drink considerable amounts of a solution, a common side effect that raises difficulties with users is the accompanying harsh and unpleasant taste, leading to potential difficulties with patient compliance. RHB-106 offers the potential for improved patient compliance 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 not contain sodium phosphate, an active ingredient linked with a risk of nephrotoxicity. Products administered in the form of tablets or capsules that were released on the market in the U.S., such as OsmoPrep®, are based on a chemical substance called sodium phosphate. In December 2008, the FDA published a severe warning against the use of these products due to rare but severe side effects linked to kidney damage. As a consequence of this development, the FDA required in 2008 that oral sodium phosphate products carry a severe warning (black box label). In November 2020, the FDA approved Sutab®, a new drug product administered in tablet form which does not contain sodium phosphate. The potential advantage of RHB-106 over the current competitor products of the PEG 3350 type, MoviPrep®, as well as over products such as PicoPrep®, is that it is administered in an oral tablet, permits the patient to drink any clear liquid with the product and spares the patient the exposure to the unpleasant taste that may accompany these products. RHB-106 also does not fall under the black box warning against nephrotoxicity issued by the FDA in December 2008 with respect to currently marketed sodium phosphate capsule preparations. 76 Table of Contents Clinical Development The following chart summarizes the clinical trial history and status of RHB-106: Clinical trial name - Development phase of the clinical trial Phase 2a Purpose of the clinical trial of Comparison the product’s effectiveness and safety with an existing product Clinical site Center Digestive Disease, Australia for Number of subjects of the trial 60 Nature and status of the trial Completed Performance schedule Completed in 2005 Opaganib (ABC294640; Yeliva®) Opaganib (ABC294640; Yeliva®) is an investigational new drug that is a proprietary, first-in-class, orally-administered SK2 selective inhibitor, with anti-viral, anti-inflammatory and anti-cancer activities, targeting multiple oncology, inflammatory and GI indications. The compound originally designated as ABC294640 received an international non- proprietary name, opaganib, in the Recommended INN: List 79, 2018. Opaganib (ABC294640; Yeliva®) 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 other inflammatory cytokine production. Specifically, by inhibiting the SK2 enzyme, opaganib (ABC294640; Yeliva®) blocks the synthesis of S1P which regulates 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 to ABC294640 (which we then renamed to opaganib (ABC294640 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 opaganib (ABC294640, Yeliva®).” The development of opaganib has been supported by grants and contracts from U.S. federal and state government agencies awarded to Apogee, including from the NCI, BARDA, the U.S. Department of Defense and the FDA Office of Orphan Products Development. Market and Competition Opaganib (ABC294640; Yeliva®) is currently being developed for several potential indications, including for the treatment of severe COVID-19 pneumonia, cholangiocarcinoma (bile duct cancer), and prostate cancer. COVID-19 is a newly recognized disease caused by a coronavirus virus, SARS-CoV-2. A flu-like illness was first noted in December 2019 and was subsequently attributed to a virus designated as SARS-CoV-2. The clinical spectrum has not yet been well defined and ranges from asymptomatic infection to pneumonia and Acute Respiratory Distress Syndrome (ARDS) with multiorgan failure, that may lead to death. Patients over 65 years and those with significant comorbidities, such as diabetes, cardiac or pulmonary disease, are more susceptible for developing severe disease and have a relatively higher mortality rate compared to younger, otherwise healthy patients. To date, there have been over 100 million confirmed cases of COVID-19 worldwide, with over 2 million reported deaths. Several therapies have been approved by the FDA for the treatment of COVID-19, some under emergency use authorization. These therapies include anti-viral drugs such as Veklury® (remdesivir), anti-inflammatory drugs and monoclonal antibodies. Several vaccines for SARS-CoV-2 have also 77 Table of Contents been approved by the FDA and other regulatory agencies to date. Multiple additional drug therapies and vaccines are currently under development for COVID-19. Cholangiocarcinoma (bile duct cancer) is a highly lethal malignancy. According to the American Cancer Society report, approximately 8,000 people are diagnosed with intrahepatic and extrahepatic bile duct cancers annually in the U.S., with recent studies showing an increased incidence of cholangiocarcinoma, mainly attributed to recent advancements in the diagnosis of this disease (Gores GJ, Hepatology, 2003). Surgery with complete resection is currently known to be the only curative therapy for cholangiocarcinoma; however, only a minority of patients are classified as having a resectable tumor at the time of diagnosis. Additional treatment options include radiation therapy and chemotherapy, but the efficacy of these treatments in cholangiocarcinoma patients is also limited and the prognosis for relapse patients who have failed initial chemotherapy is very poor, with an overall median survival of approximately one year (Valle J, et al. New Eng J, Med 2010). In April 2020, the FDA approved Pemazyre® (pemigatinib), the first drug approved specifically for cholangiocarcinoma, indicated for adults with advanced bile duct cancer whose cancer has grown after at least one previous chemotherapy treatment and whose tumors have a mutation in the FGFR2 gene. The 5-year relative survival rates of intrahepatic and extrahepatic cholangiocarcinoma patients range between 2% to 25%, depending on the tumor type and stage at diagnosis, according to the American Cancer Society. There are several drugs in late-stage clinical development for cholangiocarcinoma. Prostate cancer is the second most common cancer and the second leading cause of cancer death in American men. The American Cancer Society estimates that approximately 248,530 new cases of prostate cancer will be diagnosed in 2021. Prostate cancer is more likely to develop in older men and in African-American men. Treatment options depend on each case and include surgery, radiotherapy, cryotherapy, chemotherapy, hormone therapy, and immunotherapy. There are several approved drugs indicated for treatment of prostate cancer, as well as several drugs in development for U.S. approval. Clinical Development COVID-19 Preclinical data have demonstrated both anti-inflammatory and antiviral activities of opaganib, with the potential to reduce inflammatory lung disorders, such as pneumonia, and mitigate pulmonary fibrotic damage. In September 2020, we announced that opaganib demonstrated potent inhibition of SARS-CoV-2, the virus that causes COVID-19, achieving complete blockage of viral replication in an in vitro model of human lung bronchial tissue. Additionally, preclinical in vivo studies have demonstrated that opaganib decreased fatality rates from influenza virus infection and ameliorated Pseudomonas aeruginosa-induced lung injury by reducing the levels of IL-6 and TNF-alpha in bronchoalveolar lavage fluids. Preliminary results from a preclinical study with opaganib, administered at 250 mg/kg, demonstrated a reduction of thrombosis (blood clotting) in an acute respiratory distress syndrome (ARDS) animal model. The preclinical study was designed to assess the efficacy of opaganib in reducing the incidence of adverse thromboembolic events in situ in the lipopolysaccharide (LPS)-induced model of pulmonary inflammation, a reliable model of ARDS that can mimic COVID- 19 inflammation. The preliminary results from our study show opaganib 250 mg/kg reduced blood clot length, weight and total thrombus score in a preclinical model of ARDS. We believe such preliminary results add to the known antiviral and anti-inflammatory activities of opaganib and provide the potential for a unique triple-action effect on the pathophysiological processes associated with COVID-19 disease. In September 2020, Apogee was awarded a grant from Pennsylvania's COVID-19 Vaccines, Treatments and Therapies Program, which supports the rapid advancement of promising novel COVID-19 therapies. ABC-201: Global Phase 2/3 Study In July 2020, we initiated a global Phase 2/3 clinical study (NCT04467840) evaluating opaganib in hospitalized patients with severe COVID-19 pneumonia. This ongoing global multi-center, randomized, double-blind, parallel-arm, placebo- controlled study continues to enroll patients with a target of up to 464 patients requiring hospitalization and treatment with 78 Table of Contents supplemental oxygen. The study has been approved in Brazil, Israel, the United Kingdom, Italy, Russia, Mexico, Poland and Columbia with further expansion ongoing. Enrollment was initiated in August 2020 and is approximately 60% complete. In January 2021, we announced that the independent Data Safety Monitoring Board (DSMB) for the study unanimously recommended to continue the study following a pre-scheduled futility review of unblinded efficacy data from the first 135 patients treated in the study and safety data from the first 175 patients. In November 2020, we announced that the global Phase 2/3 study received a unanimous recommendation to continue, following a pre-scheduled safety review by an independent DSMB. The DSMB's recommendation was based on an unblinded analysis of safety data from the first 70 patients treated for 14 days. In December 2020 we announced that the study received a second unanimous recommendation by the DSMB to continue, following a review of unblinded safety data from 155 treated patients. ABC-110: U.S. Phase 2 Study The Phase 2, randomized, double-blind, placebo-controlled clinical study with opaganib in the U.S. enrolled 40 patients with severe COVID-19 pneumonia requiring hospitalization and supplemental oxygen. The study was not powered for statistical significance and focused on safety evaluation and identifying a signal of efficacy. Top-line results from the study found opaganib to be safe, with no material safety differences between the opaganib and placebo treatment arms. Overall, fewer patients suffered from serious adverse events (SAEs) in the opaganib treatment arm than in the placebo arm. In this small sample size, there were few events of intubation or fatality, and these were balanced between the two arms. The opaganib-treated arm demonstrated a consistent trend of greater improvement in reducing oxygen requirement by end of treatment on Day 14 across key primary and secondary efficacy outcomes, correlating with clinical improvement as defined by the World Health Organization (WHO) ordinal scale: ● A greater improvement in the proportion of patients reaching room air and no longer requiring oxygen support by Day 14 vs. the control arm (52.6% vs. 22.2%). ● A greater improvement in the proportion of patients with a 50% reduction in supplemental oxygen by Day 14 vs. the control arm (89.5% vs. 66.7%). ● A higher proportion of patients discharged by Day 14 vs. the control arm (73.7% vs. 55.6%). ● A greater reduction from baseline of the median total oxygen requirement (AUC) over 14 days vs. the control arm (68.0% vs. 46.7%). We intend to provide the data for peer review when available. ABC-108: Advanced Unresectable Cholangiocarcinoma A Phase 2a clinical study with opaganib (ABC294640; Yeliva®) in patients with advanced, unresectable, intrahepatic, perihilar and extrahepatic cholangiocarcinoma is ongoing at Mayo Clinic’s major campuses in Arizona and Minnesota, the Huntsman Cancer Institute, University of Utah Health and at Emory University. In September 2018, we announced that the study achieved its pre-specified efficacy goal for the first stage of the two-stage study design, and as a result, the study has continued to its second stage. Treatment with opaganib (ABC294640, Yeliva®), Part 1 of the study, designed to enroll 39 evaluable patients, completed enrollment in January 2020. In October 2019, an expansion cohort for cotreatment of opaganib (ABC294640; Yeliva®) and hydroxychloroquine sulfate (HCQ) was submitted to the FDA. Enrollment of this cotreatment cohort, Part 2 of the study, began in July 2020. The cohort will consist of two phases: Phase 1, an accelerated dose escalation run-in with enrollment of up to 15 patients evaluable for safety and tolerability, and Phase 2, treatment of 20 patients evaluable in the Phase 1 determined dose to determine safety and tolerability. 79 Table of Contents The primary objective of Part 1 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 four months to treatment with opaganib (ABC294640; Yeliva®). The primary endpoint of Part 2 is to determine Durable Disease Control Rate (DDCR), defined as Disease Control Rate (DCR) of at least four months’ duration to treatment with opaganib (ABC294640; Yeliva®) and HCQ. In April 2017, the FDA granted to opaganib (ABC294640; Yeliva®) orphan drug designation for the treatment of cholangiocarcinoma. The orphan drug designation allows us to benefit from various development incentives to develop opaganib (ABC294640; Yeliva®) for this indication, including tax credits for qualified clinical testing, the waiver of a prescription drug user fee (PDUFA) upon submission of a potential NDA and, if approved, a seven-year marketing exclusivity period (subject to certain exceptions) for the 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 ongoing clinical trial ABC-108 for advanced unresectable cholangiocarcinoma. This program is designed to provide access to opaganib (ABC294640; Yeliva®) for the treatment of cholangiocarcinoma prior to approval by the local regulatory agency. We cannot predict how long this program will continue, and we may decide for various reasons, including but not limited to resources and availability of opaganib (ABC294640; Yeliva®), not to continue with the EAP. ABC-103: Refractory or Relapsed Multiple Myeloma A Phase 1b study with opaganib (ABC294640; Yeliva®) for the treatment of refractory or relapsed multiple myeloma was performed in heavily pretreated patients at Duke University Medical Center. A total of 13 patients were enrolled and treated in three dose cohorts. While efficacy was not the primary endpoint of the Phase 1b study, of ten evaluable subjects, one patient achieved a very good partial response. The study was supported by a $2 million grant from the National Cancer Institute (NCI) Small Business Innovation Research Program awarded to Apogee Biotechnology Corporation, in conjunction with Duke University, with additional support from us. The study ended in line with the NCI grant expiration in May 2019. The Clinical Study Report was finalized in November 2020. Data demonstrated that oral administration of opaganib is generally safe and tolerable in patients with refractory or relapsed multiple myeloma. One patient in the 500 mg dose cohort showed a very good partial response and one patient showed stable disease for three months. The remaining patients had very short periods of stability, progressive disease or tumor assessment was missing. Mean progression-free survival (PFS) across dose cohorts was relatively the same number of weeks, and thus a conclusion on dosing strength in relation to improved survival could not be discerned. Additionally, there did not appear to be an effect of opaganib on plasma levels of sphingosine 1 phosphate (S1P), IL-6, or other cytokines measured in patients with refractory or relapsed MM. The small study size prohibits meaningful efficacy conclusions to be drawn. The primary endpoints of the first portion of the study (Phase 1) were to assess safety and determine the maximum tolerated dose in this group of patients. Secondary objectives included assessment of antitumor activity and determination of the PK and pharmacodynamic (PD) properties of opaganib (ABC294640; Yeliva®) in refractory or relapsed multiple myeloma patients. At the current stage, we have no intention to pursue the development of opaganib (ABC294640; Yeliva®) for this indication. ABC-101: Advanced Solid Tumors A Phase 1 study, first-in-man evaluation of opaganib (ABC294640; Yeliva®) in advanced solid tumors was completed in the summer of 2015. Final results demonstrated that the study, conducted at the Medical University of South Carolina (MUSC), successfully met its primary and secondary endpoints, demonstrating that the compound is well tolerated and can be safely administered to cancer patients at doses predicted to have therapeutic activity. 80 Table of Contents Twenty-one patients with advanced solid tumors were treated with opaganib (ABC294640; Yeliva®) in the study, the majority of who were GI cancer patients, including pancreatic, colorectal and cholangiocarcinoma cancers. The study included the first-ever longitudinal analysis of plasma S1P levels as a potential pharmacodynamic biomarker for activity of a sphingolipid-targeted drug. Administration of opaganib (ABC294640; Yeliva®) resulted in a rapid and pronounced decrease in levels of S1P with several patients having prolonged stabilization of disease. The study was supported by grants from the U.S. National Cancer Institute (NCI) awarded to MUSC Hollings Cancer Center, an NCI-Designated Cancer Center, and from the FDA Office of Orphan Products Development (OOPD) awarded to Apogee. ABC-106: Advanced Hepatocellular Carcinoma An investigator-sponsored Phase 2 study to evaluate the safety and efficacy of opaganib (ABC294640; Yeliva®) as a second-line monotherapy in patients with advanced hepatocellular carcinoma (“HCC”) was initiated at the Medical University of South Carolina (“MUSC”) Hollings Cancer Center, the Mayo Clinic campus at Arizona and the University of Maryland. The study was led by Dr. Carolyn Britten, MUSC, and was planned to enroll up to 39 patients who have experienced tumor progression following treatment with first-line single-agent sorafenib (Nexavar®). In September 2019, we announced that The National Cancer Institute (NCI) grant that was previously awarded to the MUSC to support a study with opaganib (ABC294640; Yeliva®) in hepatocellular carcinoma (HCC) had been diverted to support a Phase 2 study with opaganib (ABC294640; Yeliva®) for a different indication, prostate cancer (ABC-107). At the current stage, we have no intention to pursue the development of opaganib (ABC294640; Yeliva®) for the HCC indication. ABC-107: Prostate Cancer The investigator-sponsored study “A Phase 2 Study of the Addition of opaganib to Androgen Antagonists in Patients with Prostate Cancer Progression on Enzalutamide or Abiraterone” was initiated in March 2020 at MUSC Hollings Cancer Center and at Emory University. Additional U.S. sites are planned to be initiated later this year. The study will be led by Dr. Michael B. Lilly. The study is planned to enroll up to 60 patients and is supported by the National Cancer Institute grant awarded to MUSC. This is a Phase 2 efficacy study of opaganib (ABC294640; Yeliva®) in patients with metastatic castration-resistant prostate cancer that is progressing during treatment with androgen signaling blockers, abiraterone or enzalutamide. The study will consist of an initial safety “run in” cohort in which patients will receive opaganib (ABC294640; Yeliva®) along with continuation of prior abiraterone or enzalutamide to document tolerability in this new patient population and to document the effects of opaganib (ABC294640; Yeliva®) on blood prostate-specific antigen (PSA) levels. Provided that there is no untoward toxicity in these patients, there will be two additional cohorts with up to 27 patients, with each of patients with worsening disease during abiraterone or enzalutamide treatment. These patients will continue previous androgen blocking agents (abiraterone or enzalutamide, and gonadotropin-releasing hormone GnRH receptor agonist/antagonist). The primary objective of the study is to measure the proportion of patients with disease control during opaganib (ABC294640; Yeliva®) plus abiraterone or enzalutamide treatment using a composite metric based on PSA, bone scan, and RECIST measurements per Prostate Cancer Working Group 3 (PCWG3) criteria. ABC-104: Oncology Support, Radioprotectant: Prevention of Radiation-Associated Mucositis in the Treatment of Head and Neck Cancer A Phase 1b study to evaluate opaganib (ABC294640; Yeliva®) as a radioprotectant in head and neck cancer patients undergoing therapeutic radiotherapy is currently on hold. 81 Table of Contents ABC-105: Moderate to Severe Ulcerative Colitis (“UC”) A Phase 2 study to evaluate the efficacy of opaganib (ABC294640; Yeliva®) in patients with moderate to severe UC by the proportion of patients who are in remission at the end of treatment is currently on hold. 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 to evaluate the effect of a standardized meal on the absorption and bioavailability of opaganib (ABC294640; Yeliva®) in healthy subjects, was completed in the U.S. in January 2018. The study also evaluated the effect of the administration of a solution of opaganib (ABC294640, Yeliva®) via nasogastric (NG) tube on the absorption and bioavailability of opaganib (ABC294640; Yeliva®). Twenty-three eligible, healthy, male and female adult subjects were randomized to receive opaganib (ABC294640; Yeliva®) orally in a state of fast, fed or as a solution by NG tube (after tube feeding). 17 subjects received all three treatments. All three treatments, though maximum concentration was lower when the drug was given orally in the fed state as compared to fasted, nasogastric administration after tube feeding led to intermediate results. Subjects experienced fewer gastrointestinal side effects when the drug was given in the fed state than fasted, but the pharmacodynamic effect, as reflected in the decrease in sphingosine-1-phosphate, the product of the target enzyme, was no lower after fed than fasted administration. Thus, the results indicated that opaganib (ABC294640; Yeliva®) may be given after eating, with improved tolerance and no loss of pharmacodynamic effect. 82 Table of Contents The following chart summarizes the clinical trial history and status of opaganib (ABC294640; Yeliva®): Clinical trial name ABC-201 Development phase of the clinical trial Phase 2/3 ABC-110 Phase 2 Purpose of the clinical trial A study for the treatment of Opaganib in patients with severe COVID-19 pneumonia A study for the treatment of opaganib in patients with severe COVID-19 pneumonia ABC-108 Phase 2a ABC-107 Phase 2 (103193 MUSC Study ID) ABC-103 Phase 1b/2 ABC-101 Phase 1 ABC-106 Phase 2 ABC-104 Phase 1b ABC-105 Phase 2 ABC-109 Phase 1 and patients perihilar A study for the treatment of unresectable advanced, intrahepatic, and extrahepatic with cholangiocarcinoma (ABC294640; opaganib Yeliva®) co-treatment with opaganib (ABC294640; Yeliva®) and HCQ An add-on study for prostate cancer who progressed on enzalutamide or abiraterone. The proportion of patients with disease control during with opaganib (ABC294640; Yeliva®) and enzalutamide or abiraterone will be measured Safety and efficacy study in patients with refractory or relapsed multiple myeloma that have previously been proteasome treated with inhibitors and immunomodulatory drugs and Safety, pharmacodynamic study in patients with advanced solid tumors treatment PK Investigator-Sponsored Safety and Efficacy Study in Patients with Advanced Hepatocellular Carcinoma Who Have Progressed on Sorafenib Safety and efficacy study in the prevention of mucositis in combination with radiotherapy for treatment of squamous head and neck carcinoma A study for the treatment of moderate to severe ulcerative colitis Assessment of the effect of food on the absorption and bioavailability of opaganib (ABC294640; Yeliva®); also as a solution via nasogastric (NG) fed conditions under tube Clinical trial site Planned number of subjects of the trial Nature and status of the trial Multicenter study 464 Ongoing Multicenter study across the U.S. 40 Ongoing Multicenter across the U.S. study Up to 105 Ongoing Up to 60 Ongoing Medical University of South Carolina, Charleston, U.S. and sites collaborating (multicenter, U.S.) Schedule Data expected in Q1/2021 Top-line results reported in 2020 Ongoing Initiated in March 2020 University, Duke North Carolina, U.S. Ended Ended after Phase 1 Ended Medical University of South Carolina, Charleston, U.S. 22 Completed. Final results indicate the study drug is well tolerated and can be safely administered to cancer patients Medical University of South Carolina, Charleston, U.S. and collaborating sites (Multicenter, U.S.) Multicenter across the U.S. study From 12 to 39 Withdrawn and replaced with in prostate cancer (103193 MUSC Study ID) ABC-107 Up to 32 TBD Multicenter study Up to 94 TBD Completed 2015 Withdrawn TBD TBD ICON Early Phase Services, San- Antonio, TX, U.S. 23 Completed Completed 2018 83 Table of Contents We cannot predict with certainty our development costs, and such costs may be subject to changes. See “Item 3. Key Information – 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 a proprietary, first-in-class, orally-administered potent inhibitor of several serine proteases administered by oral capsule, with demonstrated antiviral and potential tissue- protective effects. We believe this combined antiviral and potential tissue-protective action makes it a promising candidate for evaluation as a treatment for COVID-19 disease. RHB-107 has demonstrated strong inhibition of SARS-CoV-2 viral replication in an in vitro human bronchial cell model, and its safety profile has been demonstrated in approximately 200 people, including in Phase 2 studies in oncology indications. In addition, we believe that RHB-107 has a unique potency and specificity that suggests it may be a new non-cytotoxic approach to cancer therapy, as well as other indications of high unmet need such as inflammatory digestive diseases and inflammatory lung diseases. As mentioned under “Item 4. Information on the Company – B. Business Overview – Acquisition, Commercialization and License Agreements – License Agreement for RHB-107”, on June 30, 2014, we signed an exclusive license agreement for this oncology therapeutic candidate. Under this agreement, we are responsible for all development, regulatory and commercialization 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 drug designation allows us to benefit from various development incentives to develop RHB-107 (upamostat; formerly Mesupron) for this indication, including tax credits for qualified clinical testing, waiver of a PDUFA upon submission of a potential 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 with several potential mechanisms of action to inhibit tumor invasion and metastasis and has been developed for the treatment of solid tumor cancers, including GI cancers, with the focus on locally advanced non-metastatic pancreatic cancer. See also “- opaganib (ABC294640, Yeliva®) - Market and Competition” for information on COVID-19. Data from non- clinical studies indicate that WX-UK1, the active metabolite of RHB-107, is a potent and specific inhibitor of several human serine proteases (e.g., trypsin-3, trypsin-2, trypsin-1, matriptase-1, and trypsin-6). Several of these serine proteases are associated with cancer progression and metastasis, as well as non-cancerous indications. The non-clinical studies suggest new potential therapeutic applications of WX-UK1 in inflammatory gastrointestinal diseases and lung diseases. There are several drugs in late-stage clinical development for pancreatic cancer See also “– opaganib (ABC294640, Yeliva®) – Market and Competition” for information on cholangiocarcinoma. Clinical Development A multicenter, randomized, double-blind, placebo-controlled, parallel-group Phase 2/3 study is ongoing in patients with symptomatic diagnostically confirmed COVID-19 who do not require inpatient care. RHB-107 is being administered once daily for 14 days, with patients receiving follow-up for eight weeks from first dosing. The primary endpoints are time to sustained recovery from symptomatic illness compared to placebo, as well as safety and tolerability of RHB-107. Several secondary and exploratory endpoints are also being assessed. In February 2021, we announced that the first patient had been dosed in the study. 84 Table of Contents RHB-107 was studied in a 3D tissue model of human bronchial epithelial cells (EpiAirway™) which morphologically and functionally resembles the human airway and is similar to the model used to discover SARS-CoV-2. The study was designed to evaluate the in vitro efficacy of RHB-107 in inhibiting SARS-CoV-2 infection and included a positive control of camostat. Results from the study demonstrated potent inhibition of SARS-CoV-2 viral replication. Several Phase 1 studies and two Phase 2 proof-of-concept studies have been completed with RHB-107 in cancer patients. The first Phase 2 trial in locally advanced non-metastatic pancreatic cancer and the second trial in metastatic breast cancer established the therapeutic candidate’s safety and tolerability profile. The Phase 2 trials with RHB-107in both indications failed to demonstrate 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 developed since the original clinical trials were performed, we are currently planning several preclinical studies, including biomarker analysis and mechanism of action studies. We expect that the findings from these studies can help us determine the patient populations to be studied in subsequent clinical trials. We are working on several oncology projects evaluating multiple clinical candidates, including RHB-107 as a component spanning oncology and inflammatory digestive disease indications where a strong unmet medical need exists. We have also pursued patent protection in cancer therapy for various combinations of drugs with different mechanisms of action that achieve synergistic effects. Currently, the portfolio includes two U.S. patents, one pending U.S. patent application, and 10 foreign pending patent applications. We are planning a pilot study for the combination of RHB-107 and opaganib (Yeliva®) in patients with advanced, unresectable intrahepatic, perihilar and extrahepatic cholangiocarcinoma. In March 2018, we announced that a new mechanism of action for RHB-107, inhibition of trypsin-3 was identified. We are currently evaluating the potential utilization of RHB-107 in several GI and oncology indications. We cannot predict with certainty our development costs, and such costs may be subject to change. See “Item 3. Key Information – D. Risk Factors – Risks Related to Our Financial Condition and Capital Requirements.” Ebola Virus Disease Therapy We completed the first part of a preclinical in-vivo study (2 out of the 3 proposed actives). The preliminary results were evaluated in conjunction with the U.S. National Institute of Allergy and Infectious Diseases and demonstrated statistical significance of the combination of two of RedHill our molecular candidates. The second part of the study (all three actives combined) has not yet been initiated. In May 2018, we received a new U.S. patent for our experimental Ebola therapy. Acquisition, Commercialization and License Agreements Acquisition of Talicia®, RHB-104, and RHB-106 On August 11, 2010, we entered into an asset purchase agreement with Giaconda Limited, a publicly-traded Australian company, pursuant to which Giaconda Limited transferred all of its patents, tangible assets, production files, regulatory approvals and other data related to the “Heliconda”, “Myoconda” and “Picoconda” products to us. We renamed these products Talicia®, RHB-104, and RHB-106, respectively. Giaconda Limited further transferred to us products in process, product samples and raw materials, as well as certain rights of first refusal with respect to intellectual property in relation to digestive condition treatments. The agreement excluded the transfer of the rights to two products of Giaconda Limited that are not related to Talicia®, RHB-104, and RHB-106. However, to the extent that the intellectual property associated with these two other products may be required for the research, development, manufacture, registration, import/export, use, commercialization, distribution, sale or offer for sale of any of Talicia®, RHB-104, and RHB-106, Giaconda Limited granted us an exclusive worldwide assignable right to such intellectual property for such purposes. The closing of this transaction occurred on August 26, 2010. 85 Table of Contents We paid Giaconda Limited in consideration for the assets purchased by us an initial amount of $500,000. We and Giaconda Limited also agreed that, until the expiration of the last patent transferred to us with respect to each product, we will pay to Giaconda Limited 7% of net sales from the sale of the relevant product/s 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, Giaconda Limited agreed that neither it, nor the developer of the products, nor any of their respective affiliates may compete with us or assist others to compete with us with respect to the products and acquired technology for the period provided for in the agreement. The agreement provides that, should we elect not to proceed with the registration proceedings, or the maintenance of any patent transferred to us, we will notify Giaconda Limited and Giaconda Limited will have the right to proceed with the registration, maintenance, development and commercialization of such patent at its expense. Should Giaconda Limited exercise 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 appropriate financial resources to prepare, initiate and complete the clinical development of the products (with the exception of Picoconda by virtue of the Salix license agreement dated February 27, 2014) and file an application for regulatory marketing approval in accordance with industry standards. Development failures, negative regulatory decisions, or other reasons beyond our control will not constitute a breach of this obligation. Should we breach this obligation with respect to the development of any of the products and fail to cure the breach within 90 days from the date that Giaconda Limited sends us a default notice, Giaconda Limited may buy back all of the intellectual property rights with respect to such product for the original 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, described below, we amended the asset purchase agreement and related agreements by excluding from the non-compete undertakings of Giaconda Limited and certain of its affiliate products, technology, and related activities in the purgative field and excluded from such non-compete undertakings certain of Giaconda Limited’s affiliates. Subsequently, we recognized revenues in 2014 and paid Giaconda Limited an additional amount of $1 million. On February 27, 2014, we amended the asset purchase agreement with Giaconda Limited to cancel the buyback right and agreed that we would pay Giaconda Limited 20% of all amounts received by us from Bausch Health under the license agreement, without first recouping amounts and expenses and notwithstanding the expiration of any relevant patents. License Agreement for Movantik® On February 23, 2020, we entered into the AstraZeneca License Agreement pursuant to which AstraZeneca granted us (by way of sublicense) exclusive, worldwide (excluding Europe Canada, and Israel) development and commercialization rights to Movantik® (naloxegol) and certain associated products. In October 2020, as part of an amendment to the AstraZeneca License Agreement, we also gained the rights to Movantik® in Israel. Under the terms of the AstraZeneca License Agreement, as amended to date, we agreed to pay AstraZeneca an upfront payment of $52.5 million and an additional $16 million in gradual payments starting in March 2021 and ending in December 2022. In addition, we have assumed responsibility for certain milestone and royalty payments payable to Nektar depending on net sales (as defined in the AstraZeneca License Agreement) for the licensed product. AstraZeneca transferred its co-commercialization agreement with Daiichi Sankyo, Inc. for Movantik® to us. In August 2020, we announced an amendment to the agreement with Daiichi Sankyo, Inc. which enables us to exercise full control over brand strategy and commercialization for Movantik® in the US, while also increasing capital. As part of the agreement, we will bear all responsibilities and costs for commercializing Movantik® in the U.S. During the term of the agreement, we will pay Daiichi Sankyo a mid-teen royalty rate on net sales of Movantik® in the U.S., in addition to three lump-sum payments in the amount of $5.1 million in December 2021 and $5 million in each of July 2022 and 2023. The term of this agreement shall continue until the end of the first calendar year during which annual net sales of Movantik® fall below the amount provided for in the agreement. 86 Table of Contents AstraZeneca granted us an exclusive, sublicensable license under AstraZeneca's patents and know-how to develop, sell and otherwise exploit Movantik® in the relevant territories under which RedHill was granted a license. We will take over and control the current consolidated litigation relating to ANDA filed under the Hatch-Waxman Act. We will bear all costs associated with the research, development, and commercialization of Movantik® in our territory. The AstraZeneca License Agreement includes various representations, warranties, covenants, indemnities and other provisions customary for transactions of this nature. The AstraZeneca License Agreement also provides for the right of termination for either party in the event of an uncured material breach committed by the other party. The foregoing summary is qualified in its entirety by reference to the AstraZeneca License Agreement, which is filed as an exhibit hereto. Supply Agreement for Movantik® On February 23, 2020, we entered into a supply agreement with AstraZeneca pursuant to which AstraZeneca is assisting us with certain technology transfers to enable us to manufacture Movantik® through our own supply chain (including through third parties) and, pending completion of such technology transfers, supply us with our requirements for Movantik® on an interim basis. The agreement also provides for AstraZeneca to supply us with our requirements of related API for an agreed period, subject to the earlier depletion of AstraZeneca's API inventories. All products supplied by AstraZeneca under the agreement are required to have been manufactured in accordance with, and comply in all material respects with, certain standards. The agreement will expire in accordance with its terms once the supply terms for Movantik® and associated API have each expired or terminated, and will automatically terminate if, and to the extent that, the AstraZeneca License Agreement is terminated. The agreement also provides for a right of termination for either party in the event of an uncured material breach committed by the other party, and we also have certain additional rights to terminate the agreement. The agreement includes various representations, warranties, covenants, indemnities, limitations of liability and other provisions. The foregoing summary is qualified in its entirety by reference to the supply agreement, which is filed as an exhibit hereto. Transitional Services Agreement for Movantik® On February 23, 2020, we entered into a transitional services agreement with AstraZeneca pursuant to which AstraZeneca is providing certain transitional services with respect to Movantik® to us on an interim basis pending the transfer of certain agreements, arrangements, and responsibilities to us. Pursuant to the agreement, AstraZeneca provides certain services to us relating to the sale of Movantik® on our behalf during an agreed period following closing under the AstraZeneca License Agreement. During such period we are entitled under the agreement to receive an agreed sales margin from sales of Movantik®, which takes into account the services provided under the Supply Agreement described above. The agreement also provides for the provision by AstraZeneca of various other services to us during certain agreed periods. The agreement will terminate on a service-by-service basis until the earliest of (i) the end date agreed for such service, (ii) the expiration or earlier termination of the AstraZeneca License Agreement, and (iii) an agreed long-stop date. The agreement includes various representations, warranties, covenants, indemnities, limitations of liability and other provisions. In November 2020, we announced the successful transition of Movantik® from AstraZeneca. 87 Table of Contents Exclusive License Agreement for Aemcolo® On October 17, 2019, we entered into a strategic collaboration with Cosmo, which includes an exclusive license agreement for the U.S. rights to Aemcolo® and a simultaneous private investment by Cosmo of $36.3 million in the Company at $7.00 per ADS, with a 180-day transfer restriction. Under the terms of the license agreement, Cosmo granted us the exclusive rights to commercialize Aemcolo® in the U.S. for travelers’ diarrhea and agreed to act as the exclusive supplier of Aemcolo®. The license agreement also grants us certain rights related to the potential development of additional indications for Aemcolo®, as well as arrangements related to other pipeline therapeutic candidates of Cosmo. There are two pediatric studies that are required to be completed to satisfy the PREA requirements and also with required milestone dates. See “Item 4. Information on the Company – B. Business Overview – Acquisition, Commercialization and License Agreements – Our Approved and Commercial Products in the U.S. – Aemcolo® – Regulatory Status.” Concurrently with the simultaneous private investment by Cosmo, as part of the license agreement we issued to a wholly- owned subsidiary of Cosmo 1,714,286 ADSs at an agreed value of $12.0 million, as an upfront payment for the rights granted under the license, corresponding to a price per ADS of $7.00, with a 180-day transfer restriction. These ADSs are in addition to the ADSs issued to Cosmo as part of the $36.3 million investment discussed above. In addition, we agreed to pay Cosmo a royalty percentage in the high twenties on net sales generated from the commercialization of Aemcolo® in the U.S. The license agreement further provides for potential regulatory and commercial milestone payments to Cosmo totaling up to $100.0 million, which, based on our current expectations and assumptions, are not currently expected to be made in the next 12 months. In connection with the subscription agreement, Cosmo has nominated for appointment one member to our board of directors. The agreement includes various representations, warranties, covenants, indemnities, limitations of liability and other provisions. The license agreement provides for the right of termination for either party in the event of an uncured material breach committed by the other party and grants either party to terminate at its discretion under certain conditions. On January 11, 2021, Cosmo announced that it had successfully completed a Phase 2 Proof of Concept ("POC") clinical trial of Rifamycin-MMX 600mg in patients with diarrhea-predominant irritable bowel syndrome ("IBS-D"). As part of our Exclusive License Agreement with Cosmo for the U.S. rights to Aemcolo® (rifamycin), we maintain certain rights, including a right of first refusal, in relation to Rifamycin-MMX 600mg in the U.S. Cosmo reported that results of the Phase 2 POC study show the achievement of statistical significance in all the study populations (intent-to-treat, full analysis study, modified full analysis study and per protocol) for the composite primary endpoint (substantial pain and diarrhea decrease) [OR 3.26 (1.39 - 7.67); p-value 0.0066] and for most secondary endpoints such as adequate relief of IBS-related symptoms [OR 2.18 (1.12 - 4.26); p-value 0.0227] and IBS-related bloating at the end of treatment period [OR 2.13 (1.11 - 4.07); p-value 0.0223]. The foregoing summary is qualified in its entirety by reference to the Exclusive License Agreement with Cosmo, which is filed as an exhibit hereto. License Agreement for opaganib (ABC294640; Yeliva®) On March 30, 2015, we entered into an exclusive license agreement with Apogee, a privately-held biotech company located in Hummelstown, Pennsylvania, U.S., under which Apogee granted us the exclusive, worldwide development and commercialization rights to ABC294640 which we then renamed to Yeliva® and received an international non-proprietary name, opaganib, in 2018) and additional intellectual property rights. Opaganib (ABC294640; Yeliva®) is a proprietary, first-in-class, orally-administered SK2 inhibitor, with anti-inflammatory and anti-cancer activities, targeting multiple oncology, inflammatory and GI indications. Under the terms of the agreement, as amended, we agreed to pay Apogee initial milestone payments of $3 million. In addition, we undertook to pay up to an additional $2 million in potential development milestone payments and potential tiered royalties starting in the low double-digits. Such potential royalties are due until the later of: (i) the expiration of the last to expire licensed patent that covers the product in the relevant country; and (ii) the expiration of regulatory exclusivity in the relevant country. Through December 31, 2020, we paid Apogee the initial amount of $3 million. The license agreement will stay in effect as of its effective date unless terminated 88 Table of Contents earlier as described in the agreement. We are entitled to terminate the agreement at any time upon 30 days prior written notice to Apogee. The agreement also provides for 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 to Heidelberg Pharma AG, “Heidelberg”), a German biopharmaceutical company focused on oncology, under which Heidelberg granted us the exclusive worldwide (excluding China, Hong Kong, Taiwan, and Macao) development and commercialization rights for all indications to RHB-107. In consideration for the license, we paid Heidelberg an upfront payment of $1 million. We have agreed to pay Heidelberg tiered 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 terminate the agreement at any time on 30 days written notice to Heidelberg. The agreement also provides the right of termination for each party in the event of a breach. 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 pursuant to which we were granted an exclusive license for all indications and medical uses to a patent-protected diagnostic test aimed at identifying the presence of MAP bacterial DNA in peripheral blood through DNA testing. The license covers the future commercial 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 be unreasonably withheld. To date, in consideration for the license, we have made payments in the aggregate amount of $210,000. We are in the process of amending the agreement to revise some of the original agreed-upon terms. The agreement will remain in force until the US patent expires. Additional License Agreement 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 we were granted an exclusive license for all indications and medical uses to a patent-protected designation of certain DNA sequencing. Licensing and Manufacturing Terms with Cosmo Pharmaceuticals On August 12, 2020, we entered into a binding term sheet with Cosmo for an exclusive licensing and manufacturing agreement for multiple products. Since then, we and Cosmo have renegotiated the scope and terms of the collaboration, and in lieu of the terms of the term-sheet, we have entered into three manufacturing agreements with respect to Movantik®, RHB-204 and opaganib. COVID-19 Impact on our Business In an effort to contain and mitigate the spread of COVID-19, many countries around the world, including the U.S. and Israel, have imposed quarantines and restrictions on travel and mass gatherings to slow the spread of the virus and closed non-essential businesses and offices, and as of the date of this prospectus supplement, many local jurisdictions continue to have such restrictions in place. As many local jurisdictions continue to have such restrictions in place, our ability to continue to operate our business may also be limited. Such events may result in a period of office closures, business, supply and drug product manufacturing disruption, and in reduced operations, any of which could materially affect our business, 89 Table of Contents financial condition and results of operations. Moreover, the COVID-19 pandemic may further divert the attention and efforts of the medical community to coping with COVID-19 and disrupt the marketplace in which we operate and may have a material adverse effect on our operations. In addition, SARS-CoV-2 infections of our employees may cause disruption to our operations. To date, the financial impact on our business has been moderate, and we have put in place a comprehensive alternative commercial strategy to support our growth initiatives while adhering to government and health regulatory guidelines. Additionally, to date, there have been no significant disruptions to our supply chain, and we currently have sufficient supply of commercial products on hand to meet U.S. commercial demand. However, we have experienced decreased commercial activities which have affected the sales of some of our commercial products due to slower initiation of certain promotional activities associated with a significant decrease in in-clinic patient visits, tests and treatments and the impact on our sales force's ability to engage with healthcare providers in an in-person setting, cancellation of events such as industry conferences and limited local and international travel. The ability to successfully commercialize Talicia® depends on in-clinic patient visits and the availability of diagnostics, both of which has have been negatively affected by the pandemic. In addition, the COVID-19 pandemic has adversely affected and may continue to adversely affect our clinical and pre-clinical trials, including our ability to initiate and complete our clinical and pre-clinical trials within the anticipated timelines, and delays or difficulties in enrolling patients in our clinical trials and recruiting clinical site investigators and clinical site staff. For example, initiation of our Phase 3 study with RHB-204 in pulmonary NTM infections was deferred by two quarters to the fourth quarter of 2020. In addition, we may be unable to meet the timelines and milestones established for the contemplated postmarketing studies we are required to conduct for Aemcolo®, in which case we could be subject to FDA enforcement actions and civil monetary penalties, among others, unless the FDA agrees to an extension of the timelines and milestones. Moreover, the significant decrease in travel has significantly reduced the demand and sales of Aemcolo® for travelers' diarrhea. Assessment of the complete extent of the impact of COVID-19 on our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. The continuation of the COVID-19 pandemic could materially disrupt our business and operations and have an adverse effect on the global markets and global economy generally, including on the availability and cost of employees, resources, materials, manufacturing and delivery efforts, and other aspects of the economy. Expanded Access Program (EAP) We have adopted an Expanded Access Program (“EAP”), allowing patients with life-threatening diseases potential access to our investigational new drugs that have not yet received regulatory marketing approval. Expanded access (sometimes referred to as “compassionate use”) is possible outside of our clinical trials, under certain eligibility criteria, when a certain investigational new drug is needed to treat a life-threatening condition and when there is some clinical evidence suggesting that the drug might be effective for that condition. Patients who qualify for our EAP do not meet the eligibility criteria or are incapable of participating in our clinical trials for such therapeutic candidate or there is no clinical trial accessible to such patients. Following the adoption of the program, we continue to receive patient requests to obtain access to our investigational drugs. Subject to the evaluation of eligibility and all other necessary regulatory, reporting and other conditions and approvals required in all relevant jurisdictions, we provide certain patients with an investigational new drug under the EAP. Under a compassionate use program, patients with severe COVID-19 (as classified by the WHO ordinal scale) were treated with opaganib in a leading hospital in Israel. Data from the treatment of these first patients with severe COVID-19 with opaganib have been published. We believe an analysis of treatment outcomes suggests substantial benefit to patients treated with opaganib under compassionate use in both clinical outcomes and inflammatory markers as compared to a retrospective matched case-control group from the same hospital. All patients in the opaganib-treated group were discharged from hospital on room air without requiring intubation and mechanical ventilation, whereas 33% of the matched case-control group required intubation and mechanical ventilation. Median time to weaning from high-flow nasal cannula was reduced to 10 days in the opaganib-treated group, as compared to 15 days in the matched case-control group. 90 Table of Contents In April 2020, we received authorization from the Italian National Institute for Infectious Diseases and Central Italian Ethics Committee for an EAP allowing immediate compassionate use of our investigational drug, opaganib (Yeliva®; ABC294640), in Italy for patients with confirmed coronavirus (COVID-19) infection with life-threatening clinical manifestations. Intellectual Property Our success depends in part on our ability to obtain and maintain proprietary protection for our technology and therapeutic candidates, its therapeutic applications, and related technology and know-how, to operate without infringing the proprietary rights of others and to prevent others from infringing our proprietary rights. Our policy is to seek to protect our proprietary position by, among other methods, filing U.S. and foreign patent applications related to our proprietary technology, inventions, and improvements that are important to the development of our business. We also rely on our trade secrets, know-how, and continuing technological innovation to develop and maintain our proprietary position. We vigorously defend our intellectual property to preserve our rights and gain the benefit of our technological investments. Patents and Patent Applications We have rights, either through assignment, asset purchase or in-licensing, to a total of approximately 375 issued patents and 105 patent applications. The patents and patent applications are registered in the U.S. and other key jurisdictions, the details of each 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. Our ability to maintain and solidify our proprietary position for our technology will depend on our success in obtaining effective claims and enforcing those claims once granted. Movantik® Following the closing of our in-license for Movantik®, we have in-licensed patents and trademarks from AstraZeneca AB as part of the AstraZeneca License Agreement. The Orange Book lists six U.S. patents, two of which are directed to the approved use for the treatment of opioid-induced constipation. However, the entire licensed patent portfolio consists of ten U.S. patents, one pending patent application, over fifty foreign patents and about a dozen pending foreign patent applications. Talicia® The patent portfolio protecting Talicia® currently includes five U.S. patents, two pending U.S. patent applications, and over 20 foreign patents and patent applications. The patents provide patent protection through 2034. Aemcolo® This patent portfolio was in-licensed by us from Cosmo Technologies Ltd. as part of our license agreement for Aemcolo®. The U.S. patent portfolio consists of four issued patents and one pending patent application. The four issued patents protect the commercial product and its approved method of use. RHB-104 – Inflammatory Bowel Disease The patent portfolio protecting RHB-104 and its use in treating inflammatory bowel disease currently includes eight U.S. patents, one pending U.S. patent application, and 33 foreign patents and patent applications, providing patent protection through 2029. We have also 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. The 91 Table of Contents acquired diagnostic technology is intended for the detection of Mycobacterium avium subspecies paratuberculosis (MAP) bacterium. RHB-104 – Multiple Sclerosis (“MS”) The patent portfolio protecting the use of RHB-104 for treating relapsing-remitting multiple sclerosis includes one U.S. patent and over 20 foreign patents and patent applications, providing patent protection through 2032. RHB-204 – Nontuberculous Mycobacterium (NTM) Infections The base patent portfolio protecting RHB-204 currently includes one U.S. patent, one pending U.S. patent application, one European patent application, and one pending Hong Kong application, providing protection through 2029. Additional patent filings seeking to protect the proposed commercial formulation and its use could extend protection through 2041. RHB-102 (Bekinda®) - Gastritis, Gastroenteritis and IBS-D The patent portfolio protecting RHB-102 (Bekinda®) and its use currently includes three U.S. patents, two pending U.S. patent applications, 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 two issued U.S. patents, one pending U.S. patent application, and 12 foreign patents and patent applications, providing patent protection through 2033. Opaganib (ABC294640; Yeliva®) - Oncology, inflammatory and GI Indications This patent portfolio was in-licensed by us from Apogee. opaganib (ABC294640; Yeliva®) is a first-in-class, proprietary SK2 inhibitor, administered orally, with anti-cancer and anti-inflammatory activities, targeting a number of potential oncology, inflammatory and GI indications. These patents relate to sphingosine kinase inhibitors, pharmaceutical compositions, methods of preparing the inhibitors, methods of treating inflammatory diseases using the inhibitors, methods of treating cancer using the inhibitors, and methods for inhibiting sphingosine kinase. The patent portfolio covering opaganib (ABC294640; Yeliva®) includes four U.S. patents and over eighteen 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- class protease inhibitor administered by oral capsule. The RHB-107 patent portfolio includes patents directed to the new chemical entity, 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 fifteen issued U.S. patents and over sixty foreign patents and patent applications, providing patent protection through 2027. Ebola The patent portfolio covers RedHill’s proprietary experimental therapy for the treatment of the Ebola virus disease. The portfolio consists of two U.S. patents, one pending U.S. patent application, and eight pending international patents and patent applications. SARS-CoV-2 This patent portfolio seeks to protect the use of opaganib and RHB-107 for treating or preventing coronavirus infections. A series of provisional patent applications were filed in 2020, which will be converted into an internationally examined 92 Table of Contents patent portfolio in 2021. If patents are issued from this patent family, they would provide patent protection through 2041 for this indication. RHB-108 – Combination Cancer Therapy RedHill has also pursued patent protection in cancer therapy for various combination of drugs with different mechanisms of action which achieve synergistic effects. Currently, the portfolio includes two U.S. patents, one pending U.S. patent application, and ten foreign pending patent applications. Trademarks Our principal trademarks, including RedHill, Redhill Biopharma, Talicia, Bekinda, Yeliva, and their related logos, are registered with the United States Patent and Trademark Office. We have also filed registration applications for non-U.S. trademarks in other countries in which we do or plan to do business. Brand names appearing in this annual report are trademarks of RedHill Biopharma Ltd. except for: ● trademarks used or that may be or have been used under license by RedHill or its affiliates, such as Aemcolo®, a trademark of Cosmo Technologies Ltd. ● trademarks used or that may be or have been used under license by RedHill or its affiliates, such as Movantik®, a trademark of AstraZeneca AB. Not all trademarks related to investigational agents have been authorized as of the date of this annual report by the relevant health authorities; for instance, the Bekinda® and Yeliva® trade names have not been approved by the FDA. Government Regulations and Funding Pharmaceutical companies are subject to extensive regulation by national, state and local agencies such as the FDA in the U.S., the Ministry of Health in Israel, or the EMA. The manufacture, clinical trials, distribution, marketing and sale of pharmaceutical products are subject to government regulation in the U.S. and various foreign countries. To manufacture both new therapeutic drug candidates for clinical trials and approved therapeutic drugs for sale and distribution in the U.S., we must follow the rules and regulations in accordance with current cGMP codified in 21 CFR 210 and 211. Additionally, we are responsible for ensuring that the API in each therapeutic drug or therapeutic drug candidate is manufactured in accordance with the International Conference on Harmonization (“ICH”) Q7 guidance that has been adopted by the FDA. Further, we are required to conduct clinical trials that present data indicating that our therapeutic drug candidates are safe and efficacious in accordance with the current good clinical practice and codified in 21 CFR 312. If we do not comply with applicable requirements, we may be fined, the government may refuse to approve our marketing applications or not allow us to manufacture or market our products, and we may be criminally prosecuted. We and our contract manufacturers and clinical research organizations may also be subject to regulations under other federal, state and local laws, including, but not limited to, the U.S. Occupational Safety and Health Act, the Resource Conservation and Recovery Act, the Clean Air Act and 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 the healthcare industry. As a result, pharmaceutical companies must ensure their compliance with the Foreign Corrupt Practices Act 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 applicable regulatory approvals of one country does not imply the approval in another country. However, securing the approval of a more stringent body, i.e., the FDA, may facilitate receiving the approval by a regulatory authority in a different country where the regulatory requirements are similar or less stringent. The approval procedures involve high costs and are manpower intensive, usually extend over many years and require highly skilled and professional resources. 93 Table of Contents FDA Approval Process for New Molecular Entities Our therapeutic drug candidates are classified as New Molecular Entities. The steps required to be taken before therapeutic drug candidate may be marketed in the U.S. generally include: ● completion of preclinical laboratory and animal testing; ● the submission to the FDA of an investigational new drug, or IND, application which must be evaluated and found acceptable 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 the proposed drug therapeutic 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 of patients may enter the study, schedules of tests and procedures, drugs, dosages, and length of study, as well as the parameters to be used in monitoring safety, and the efficacy criteria to be evaluated. A protocol for each clinical study and any subsequent protocol amendments must be submitted to the FDA as part of the IND. In all the countries that are signatories of the Helsinki Declaration (including Israel), the prerequisite for conducting clinical trials (on human subjects) is securing the preliminary approval of the competent authorities of that country to conduct medical 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, but the phases may overlap or be combined. However, safety information should be submitted before the initiation of a subsequent clinical 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, though in cases where the therapeutic drug candidate may make the volunteer ill, clinical patients with the targeted condition may be used. These “dose-escalation” studies are designed to evaluate the safety, dosage tolerance, metabolism and pharmacologic actions of the therapeutic drug candidate in humans, side effects associated with increasing doses, and, in some cases, to gain early evidence on efficacy. The number of participants included in Phase 1 studies is generally in the range of 20 to 80. Phase 2. In Phase 2 studies, in addition to safety, the sponsor evaluates the efficacy of the therapeutic drug candidate on targeted indications to determine dosage tolerance and optimal dosage and to identify possible adverse effects and safety risks. Phase 2 studies typically are larger than Phase 1 but smaller than Phase 3 studies and may involve several hundred participants. Phase 3. Phase 3 studies typically involve an expanded patient population at geographically-dispersed test sites and involve control groups taking a reference compound or a placebo (an inactive compound identical in appearance to the study compound). They are performed after preliminary evidence suggesting the effectiveness of the therapeutic candidate has been obtained and are designed to evaluate clinical safety and efficacy further, to establish the overall benefit-risk relationship of the therapeutic candidate and to provide an adequate basis for a potential product approval. Phase 3 studies usually involve several hundred to several thousand participants. Phase 4. Phase 4 clinical trials are postmarketing studies designed to collect additional safety data as well as potentially expand a product indication. Postmarketing commitments may be required of, or agreed to by, a sponsor after the FDA has approved a therapeutic drug candidate for marketing. These studies are used to gain additional information from the treatment of patients in the intended therapeutic indication and to verify a clinical benefit in the case of drugs approved under accelerated approval regulations. If the FDA approves a product while a company has ongoing clinical trials that were not necessary for approval, a company may be able to use the data from these clinical trials to meet all or part of any Phase 4 clinical trial requirement. These clinical trials are often referred to as Phase 4 post-approval or postmarketing commitments. Failure to promptly conduct Phase 4 clinical trials could result in the inability to deliver the product into interstate commerce, misbranding charges, and civil monetary penalties. 94 Table of Contents Clinical trials must be conducted in accordance with the FDA’s GCP requirements. The FDA may order the temporary or permanent discontinuation of a clinical study at any time or impose other sanctions if it believes that the clinical study is not being conducted in accordance with FDA requirements or that the participants are being exposed to an unacceptable health risk. An institutional review board, or IRB, generally must approve the clinical trial design and patient informed consent at study sites that the IRB oversees and also may halt a study, either temporarily or permanently, for failure to comply with the IRB’s requirements, or may impose other conditions. Additionally, some clinical studies are overseen by an independent group of qualified experts organized by the clinical study sponsor, known as a data safety monitoring board or committee. The FDA recommends that a data safety monitoring board should be used to perform regular interim analysis for long-term clinical studies where safety concerns may be unusually high. This group recommends whether or not a trial may move forward at designated checkpoints based on access to certain data from the study. The clinical study sponsor may also suspend or terminate a clinical trial based on evolving business objectives or competitive climate. As a therapeutic 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 clinical studies progress. We and the third-party manufacturers on which we rely for the manufacture of our therapeutic drugs and therapeutic drug candidates and their respective API are subject to requirements that drugs be manufactured, packaged and labeled in conformity with cGMP. In addition to our third-party API manufacturers, we are responsible for ensuring that our third-party excipient manufacturers conform to cGMP requirements. To comply with cGMP requirements, manufacturers must continue to spend time, money and effort to meet requirements relating to personnel, facilities, equipment, production and process, labeling and packaging, quality control, recordkeeping, and other requirements. Assuming completion of all required testing in accordance with all applicable regulatory requirements, detailed information on the therapeutic candidate is submitted to the FDA in the form of an NDA, requesting approval to market the product for one or more indications, together with payment of a user fee, unless waived. An NDA includes all relevant data available from pertinent nonclinical and clinical studies, including negative or ambiguous results as well as positive findings, together with detailed information on the chemistry, manufacture, control and proposed labeling, among other things. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and efficacy of the therapeutic 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 User Fee Act, or PDUFA, the FDA’s goal is to complete its initial review and respond to the applicant within ten months of a completed submission for 90% of the submissions received, unless the application relates to an unmet medical need in a serious 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 original PDUFA goal date. Further, the review process and the target response date under PDUFA may be extended if the FDA requests or the NDA sponsor otherwise provides additional information or clarification regarding information already provided in the NDA. The NDA review process can, accordingly, be very lengthy. During its review of an NDA, the FDA may refer the application to an advisory committee for review, evaluation, and recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it typically follows such recommendations. Data from clinical studies are not always conclusive, and the FDA or any advisory committee it appoints may interpret data differently than the applicant. After the FDA evaluates the NDA and conducts a pre-approval inspection of all manufacturing facilities where the drug therapeutic candidate or its API will be produced, it will either approve commercial marketing of the drug therapeutic candidate with prescribing information for specific indications or issue a complete response letter indicating that the application is not ready for approval and stating the conditions that must be met in order to secure approval of the NDA. If the complete response letter requires additional data and the applicant subsequently submits that data, the FDA nevertheless may ultimately decide that the NDA does not satisfy its criteria for approval. The FDA could also approve the NDA with a Risk Evaluation and Mitigation Strategies, or REMS, plan to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries, and other risk minimization 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 postmarketing testing. The FDA may also request a Phase 4 clinical trial to further assess and monitor the product’s safety and efficacy 95 Table of Contents after approval. Regulatory approval of products for serious or life-threatening indications may require that participants in clinical studies be followed for long periods to determine the overall survival benefit of the drug therapeutic candidate. If the FDA approves one of our therapeutic drug candidates, we will be required to comply with a number of post-approval regulatory requirements. We would be required to report to the FDA, among other things, certain adverse reactions and production problems, and provide updated safety and efficacy information and comply with requirements concerning advertising and promotional labeling for any of our products. Also, quality control and manufacturing procedures must continue to conform to cGMP after approval, and the FDA periodically inspects manufacturing facilities to assess compliance with cGMP, which imposes extensive procedural, substantive and recordkeeping requirements. If we seek to make certain changes to an approved therapeutic drug, such as certain manufacturing changes, we may need the FDA to review and approve before the change can be implemented. For example, if we change the manufacturer of a product or its API, the FDA may require stability or other data from the new manufacturer, which will take time and is costly to generate, and the delay associated with generating this data may cause interruptions in our ability to meet commercial demand, if any. At their discretion, physicians may prescribe approved pharmaceutical products for indications that pharmaceutical products have not been approved for use by the FDA. However, we may not label or promote pharmaceutical products for an indication that has 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 data from adequate and well-controlled studies that demonstrate the product’s safety and efficacy in the new indication. Even if such 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, quantities of our therapeutic candidates. Future FDA and state inspections may identify compliance issues at these third-party facilities that may disrupt production or distribution or require substantial resources to correct. In addition, discovery of previously unknown problems with a product or the failure to comply with applicable requirements may result in restrictions on a product, manufacturer or holder of an approved NDA, including withdrawal or recall of the product from the market or other voluntary, FDA-initiated or judicial action that could delay or prohibit further marketing. Newly discovered or developed safety or efficacy data may require changes to a product’s approved labeling, including the addition of new warnings and contraindications, and may also require the implementation of other risk management measures. Many of the foregoing could limit the commercial value of an approved product or require us to commit substantial additional resources in connection with the approval of a product. Also, new government requirements, including those resulting from new legislation, may be established, or the FDA’s policies may change, which could delay or prevent regulatory approval of our products under development. 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, a company may file a Section 505(b)(2) NDA, instead of a “stand-alone” or “full” NDA, somewhat similar to the process for approval of the original indication or reference drug and requires, among other things, submitting data from adequate and well-controlled studies that demonstrate the product’s safety and efficacy in the new indication. Even if such studies are conducted, the FDA may not approve any change in a timely fashion, or at all. Section 505(b)(2) of the Food, Drug, and Cosmetic Act was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, otherwise known as the Hatch-Waxman Amendments. Section 505(b)(2) was enacted to allow a company to avoid duplicative testing by permitting the applicant to leverage previously performed pertinent clinical and non-clinical studies into the current NDA submission. Some examples of therapeutic drug candidates that may be allowed to follow a 505(b)(2) path to approval are candidates that have a new dosage form, strength, route of administration, formulation or indication. The Hatch-Waxman Amendments permit the applicant to rely upon certain published nonclinical or clinical studies conducted for an approved product or the FDA’s conclusions from a prior review of such studies. The FDA may require companies to perform additional studies or measurements to support any changes from the approved product. The FDA may then approve the new product for all or some of the labeled indications for which the reference product has been approved, as well as for any new indication supported by the NDA. While references to nonclinical and clinical data not generated by the applicant or for which the applicant does not have a right of reference are allowed, all development, 96 Table of Contents process, stability, qualification and validation data related to the manufacturing and quality of the new product must be included 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 an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book publication. Specifically, the applicant must certify that: (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. The Section 505(b)(2) application also will not be approved until any non-patent exclusivity, such as exclusivity 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 its products only to be subject to significant delay and patent litigation before its products may be commercialized. Orphan Drug Designation The Orphan Drug Act of 1983, or Orphan Drug Act, encourages manufacturers to seek approval 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 reasonable expectation of recovering the development costs for the product. For products that receive orphan drug designation by the FDA, the Orphan Drug Act provides tax credits for clinical research, FDA assistance with protocol design, eligibility for FDA grants to fund clinical studies, waiver of the FDA application fee, and a period of seven years of marketing exclusivity for the product following FDA marketing approval. GAIN Act The FDA’s Generating Antibiotic Incentives Now (GAIN) Act is intended to encourage the development of new antibiotic drug therapeutic candidates for the treatment of serious or life-threatening infections. For products that receive QIDP designation under the Act, the Act provides Fast-Track development status with an expedited development pathway and Priority Review status, which potentially provides shorter review time by the FDA of a future potential marketing application. Following FDA 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 healthcare industry, as well as industry standards and guidance, such as the codes issued by the Pharmaceutical Research and Manufacturers 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 our relationships with healthcare providers and patients. In addition, we may be subject to patient privacy regulations by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include but are not limited to: ● the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, 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 or service 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, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from the federal government, including Medicare, Medicaid, or other third-party payors, that are false or fraudulent; ● HIPAA, which imposes federal criminal and civil liability for executing, or attempting to execute, a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters; ● the federal transparency laws, including the Physician Payments Sunshine Act, that requires applicable manufacturers of covered drugs to disclose payments and other transfers of value provided to physicians and teaching hospitals and physician ownership and investment interests; 97 Table of Contents ● HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and its implementing regulations, also imposes certain requirements relating to the privacy, security, and transmission of individually identifiable health information; and ● state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers, state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines, state laws that require pharmaceutical manufacturers to report certain pricing or payment information, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other 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 intent requirement of the federal Anti-Kickback Statute and certain other criminal healthcare fraud statutes. Specifically, a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the Healthcare Reform Law provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the 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 under one or more of these laws. In addition, there can be no assurance that we would not be required to alter one or more of our practices to comply with these laws. Evolving interpretations of current laws or the adoption of new federal or state laws or regulations could adversely affect the arrangements we may have with sales personnel, healthcare providers, and patients. Our risk of being found in violation of these laws is increased by the fact that some of these laws are open to a variety of interpretations. If our past or present operations, practices, or activities are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and 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 our business 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 $470,000 per year. Since 2018, we have been subleasing a portion of the office space to a tenant, and the lease payment is approximately $79,000 per year. The term under our lease agreement will expire on January 31, 2026. These offices have served as our corporate headquarters since April 2011. The Company also entered into an operating lease agreement for the U.S. offices it uses. The agreement will expire on July 31, 2024. The projected yearly rental expenses are approximately $400,000 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 the financial statements and the notes thereto included elsewhere in this Annual Report. The following discussion contains 98 Table of Contents forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report, particularly those in “Item 3. Key Information – D. Risk Factors.” Company Overview We are a specialty biopharmaceutical company primarily focused on the commercialization and development of proprietary drugs for GI and infectious diseases. Our primary focus is to become a leading specialty biopharmaceutical company through our commercial presence in the U.S. to support current and potential future commercialization of products approved for marketing and of our therapeutic candidates. We are currently focused primarily on the commercialization in the U.S. of the GI-related products, Movantik® (naloxegol), Talicia® (omeprazole, amoxicillin, and rifabutin) and Aemcolo® (rifamycin). In addition, we also continue to develop our pipeline of clinical-stage therapeutic candidates in several ongoing studies with our therapeutic candidates, including with opaganib (Yeliva®, ABC294640) and RHB-107 (upamostat), as potential treatments for COVID-19. We look for opportunities to leverage our commercial presence and capabilities in the U.S. to support the potential future launch of our therapeutic candidates currently under development, if approved by the FDA, or FDA-approved products which we may acquire in the future. Depending on the specific development program, our therapeutic candidates are designed to exhibit greater efficacy and/or provide improvements over existing drugs in various ways, including by one or more of the following: by improving their safety profile, reducing side effects, lowering the number of administrations, using a more convenient administration form or providing a cost advantage. Our current pipeline consists of six therapeutic candidates, most in late-stage clinical development. We generate our pipeline of therapeutic candidates by identifying, rigorously validating and in-licensing or acquiring products that are consistent with our product and corporate strategy and that we believe exhibit a relatively reasonable probability of therapeutic and commercial success. We have one product that we developed internally which has been approved for marketing and, to date, none of our therapeutic candidates has generated meaningful sales. We plan to commercialize our therapeutic candidates, upon approval, if any, through licensing and other commercialization arrangements with pharmaceutical companies outside the U.S. on a global and territorial basis or, in the case of commercialization in the U.S., independently with our dedicated commercial operations. We also evaluate, on a case by case basis, co-development, co-promotion, licensing and similar arrangements. Since inception, we have funded our operations primarily through public and private offerings of our equity securities, loans, our strategic collaboration with Cosmo and revenues from our commercial activity. As of December 31, 2020, we had approximately $46.0 million of cash, cash equivalents, short-term investments and restricted cash. The following is a description of our three current commercial products and six therapeutic candidates, most in late-stage clinical development: Commercial Products Movantik® is a proprietary once-daily oral peripherally-acting mu-opioid receptor antagonist (PAMORA) approved by the FDA for the treatment of opioid-induced constipation (OIC) in adult patients with chronic non-cancer pain, including patients with chronic pain related to prior cancer or its treatment who do not require frequent (e.g. weekly) opioid dosage escalation. We initiated the promotion of Movantik® in the second quarter of 2020. In April 2020, we acquired from AstraZeneca AB worldwide rights (excluding Europe, Canada and Israel) to commercialize and develop Movantik® (naloxegol), pursuant to a license agreement, dated February 23, 2020 (the "AstraZeneca License Agreement"), and in October 2020 we obtained the rights to commercialize and develop Movantik® in Israel. We initiated our U.S. commercialization activities for Movantik® in April 2020. 99 Table of Contents Talicia® is a proprietary new drug approved for marketing in the U.S. for the treatment of H. pylori bacterial infection in adults. Talicia® is a combination of three approved drugs, omeprazole, which is a proton pump inhibitor (prevents the secretion of hydrogen ions necessary for the digestion of food in the stomach), amoxicillin and rifabutin, which are antibiotics. Talicia® is administered to patients orally. On November 1, 2019, the FDA approved Talicia® for marketing in the U.S. for the treatment of H. pylori infection in adults and we launched Talicia® in the U.S. in March 2020. Talicia® has a total of eight years of U.S. market exclusivity. Talicia® is the first therapeutic candidate we developed to be approved by the FDA. Aemcolo® (containing 194 mg of rifamycin), is an orally-administered, minimally absorbed antibiotic that is delivered to the colon, approved by the FDA in 2018 for the treatment of travelers’ diarrhea caused by non-invasive strains of E. coli in adults. In December 2019, we commenced the commercialization of Aemcolo® in certain territories in the U.S. Therapeutic Candidates RHB-204 is a patented fixed-dose combination product of three antibiotics that will simplify administration and optimize compliance. Each capsule contains the same components as RHB-104 (clarithromycin, clofazimine, and rifabutin) but at unique doses, selected based on modeling to provide optimal balance of the potential safety and efficacy. Opaganib ( ABC294640; Yeliva®) is an investigational new drug that is proprietary, first-in-class, orally administered SK2 selective inhibitor, with anti-viral, anti-inflammatory and anti-cancer activities, targeting multiple oncology, inflammatory and GI indications. The compound originally designated 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 the exclusive worldwide development and commercialization rights to ABC294640 (which we then renamed to ABC294640 (Yeliva®) and as noted above, received an international non-proprietary name, opaganib, in 2018) and additional intellectual property for all indications. Under the terms of the agreement, as amended, we agreed to pay Apogee initial milestone payments of $3 million, of which the total amount has been paid, as well as up to $2 million in potential development milestone payments, and tiered royalties starting in the low double-digits. For more information regarding this agreement, see “Item 4. Information on the Company – B. Business Overview – Acquisition, Commercialization and License Agreements – License Agreement for opaganib ( ABC294640; Yeliva®).” to which Apogee granted us RHB-107 (upamostat; formerly Mesupron) (INN: upamostat) is 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 to cancer therapy, as well as other indications of high unmet need such as inflammatory digestive diseases and inflammatory lung diseases. On June 30, 2014, we acquired from Heidelberg the exclusive development and commercialization rights to RHB-107, excluding China, Hong Kong, Taiwan, and Macao, for all indications. 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 License Agreements – License Agreement for RHB-107.” RHB-104 is an investigational new drug intended to treat Crohn's disease, which is a serious inflammatory disease of the GI system that may cause severe abdominal pain and bloody diarrhea, malnutrition and potentially life-threatening complications. RHB-104 is a patented combination of clarithromycin, clofazimine, and rifabutin, three generic antibiotic ingredients, in a single capsule. The compound was developed to treat Crohn's disease through the targeting of MAP infection. In October 2019, we announced full week 52 results for all subjects in the previously announced Phase 3 MAP US study of RHB-104 with subjects with moderate to severe Crohn's disease and supportive top-line results from the open- label extension Phase 3 MAP US2 study. The full week 52 results of blinded treatment in the MAP US study with RHB- 104 were consistent with the previously reported positive outcomes of the study. The study continued to meet its primary endpoint of clinical remission, further supporting the potential clinical benefit of treatment with RHB-104. 100 Table of Contents On August 11, 2010, we entered into an asset purchase agreement with Giaconda Limited, pursuant to which we acquired ownership rights in patents, tangible assets, production files, and regulatory approvals and other data and certain third-party agreements related to Talicia®, RHB-104, and RHB-106 in exchange for $500,000 and royalty payments of 7% of net sales and 20% of sublicense fees, in each case, only after we recoup the amounts and expenses exceeding the approved budget. See "Item 4. Information on the Company - B. Business Overview - Acquisition, Commercialization and License Agreements - Acquisition of Talicia®, RHB-104, and RHB-106." RHB-102 (Bekinda®) is an investigational once-daily bi-modal extended-release oral formulation of ondansetron, a leading member of the family of 5-HT3 serotonin receptor inhibitors, intended to treat nausea, vomiting and diarrhea symptoms experienced in some people suffering from acute gastroenteritis, gastritis, and IBS-D. RHB-106 is an investigational tablet intended for the preparation and cleansing of the GI tract prior to the performance of abdominal procedures, including diagnostic tests such as colonoscopy, barium enema or virtual colonoscopy, as well as surgical interventions, such as a laparotomy. We acquired ownership rights in patents, tangible assets, production files, and regulatory approvals and other data and rights in certain third-party agreements related to RHB-106 pursuant to the Asset Purchase Agreement with Giaconda Limited described above. See “Item 4. Information on the Company – B. Business Overview – Acquisition, Commercialization and License Agreements – Acquisition of Talicia®, RHB-104, and RHB-106.” Components of Statements of Comprehensive Loss Revenues In 2020, 2019 and 2018, revenues consisted of revenues with respect to commercialization and promotional activities of our commercial products. 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 “Item 5. Operating and Financial Review and Prospects – C. Research and Development, Patents and Licenses” below. General and Administrative Expenses General and administrative expenses consist primarily of compensation for employees, directors and consultants and professional services. Other significant general and administrative expenses include medical affairs, 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 consultants dedicated to marketing activities with the Company’s commercialized and promoted products and professional services. Other significant selling, marketing and business development expenses include market research, market access, advertising, printed and digital media, 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 of derivative financial instruments, interest earned on our cash, cash equivalents, and short-term bank deposits, bank fees, interest, and finance changes for lease liabilities and other transactional costs and expense or income resulting from fluctuations of the U.S. dollar against other currencies, in which a portion of our assets and liabilities are denominated like NIS, for example. 101 Table of Contents Critical Accounting Policies and Estimates The preparation of financial statements, in conformity with IFRS, requires companies to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and judgments are subject to an inherent degree of uncertainty, and actual results may differ. Our significant accounting 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 other factors, including expectations of future events that are believed to be reasonable under the circumstances, and are particularly important to the portrayal of our financial position or results of operations. Our estimates are primarily guided by observing the following critical accounting policies. Recognition and Measurement of Allowance for Rebates and Patient Discount Programs and Product Returns – The Company offers various rebate and patient discount programs, which result in discounted prescriptions to qualified patients. Rebates and discounts provided to the wholesalers and to the patients under these arrangements are accounted for as variable consideration, and recognized as a reduction in revenue, for which unsettled amounts are accrued. The allowance for these rebates is calculated based on historical and estimated utilization of the rebate and discount programs at the time the revenues are recognized. The main estimates used in recognizing and measuring this allowance relate to the number of products sold to customers not yet prescribed to patients (units “in the channel”) and the mix of rebate and discount programs estimated for future prescription utilization. The Company periodically evaluates its estimates against actual results and, if necessary, updates the estimates accordingly. In addition, in determining our revenues, we are also required to make significant judgments and estimates regarding the amount of product sales that may be returned by our customers. Where historical rates of return exist, we use historical return patterns as a basis to establish a returns reserve for products shipped to customers. For newly launched products for which we currently may not have sufficient historical data of product returns, we estimate product returns based on available industry data for comparable products, our own sales information, our visibility into the inventory remaining in the distribution channel and product dating. Impairment of Intangible Research and Development Assets – Since the development of our therapeutic candidates has not yet been completed and they are defined as research and development assets acquired by us, we review, on an annual basis or when events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. We make judgments to determine whether indications are present that require reviewing the impairment of these intangible assets. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is determined using discounted cash flow calculations where the asset’s expected post-tax cash flows are risk-adjusted over their estimated remaining useful economic life. The risk-adjusted cash flows are discounted using the estimated Company’s post-tax weighted average cost of capital (“WACC”) which was approximately 17% for 2020 and approximately 15% for all other reported years in these financial statements. The main estimates used in calculating the recoverable amount include: outcome of the therapeutic candidates’ R&D activities; probability of success in gaining regulatory approval, size of potential market and the Company’s asset’s specific share in it and amount and timing of projected future cash flows. Since the above require certain judgments and the use of estimates, actual results may differ from our estimations and as a result, would decrease our related actual results. 102 Table of Contents Estimated Useful Life of the Acquired Assets in the Movantik® acquisition In connection with the Movantik® acquisition agreements, we accounted the acquisition of rights to Movantik® as an asset acquisition that does not constitute a business for the following reasons: (a) The Supply Agreement provides RedHill U.S. with the ability to purchase finished products and materials from AstraZeneca during a transition period at approximately fair value, without acquiring AstraZeneca's organized workforce or existing processes required to manufacture Movantik®. RedHill U.S. does not purchase an in-place manufacturing process nor any specialized equipment required for the manufacturing process, but instead, the purpose of the Supply Agreement is to enable RedHill U.S. to establish its own manufacturing capabilities, whether directly or through a third party, that would also require obtaining relevant regulatory approvals, which presumably will take a significant period of time. (b) The Transitional Services Agreement was intended to allow a smooth transition of the different activities related to Movantik® for a relatively short period and was not intended for RedHill U.S. to acquire AstraZeneca's organized workforce, supply chain or distribution processes. The Transitional Services Agreement ended on September 30, 2020. Moreover, since all acquired assets are intended to generate revenues from sales of Movantik® and have a similar useful life, we attributed this consideration to a single intangible asset representing the acquired rights to Movantik®. The intangible asset shall be amortized from its acquisition on a straight-line basis over its useful life. The main estimate used in determining the useful life was the anticipated duration of sales of the product after its expected patent expiration. Estimated Recoverable Amount and useful economic life of Aemcolo® Asset – The rights granted under the exclusive license agreement for the U.S. rights to Aemcolo® were acquired in exchange for our ADSs and were recognized at fair value at the acquisition date. We determined the fair value of these rights on the basis of discounted future cash flow calculations risk-adjusted over their estimated remaining useful economic life. The risk- adjusted cash flows are discounted using the estimated Company’s WACC, as described above. The recoverable amount was based on a number of judgments and estimates, including the size of potential market, Aemcolo®’s peak market share and the period in which it will be reached and amount and timing of projected future cash flows. Moreover, the Company determined the asset’s useful economic life, over which the asset will be amortized on a straight- line basis from its acquisition. The main estimate used in determining the useful life was the anticipated duration of sales of the product after its expiration. Recent Accounting Pronouncements The recent accounting pronouncements are set forth in Note 2 to our audited consolidated financial statements beginning on page F-1 of this Annual Report. A. Operating Results History of Losses Since inception in 2009, we have generated significant losses in connection with the research and development of our therapeutic candidates and from our commercial operations. We may continue to incur additional losses, which may be substantial over the next several years, as our commercial operations are expected to continue to expand. We also expect to continue and expand our research and development activities and commercial activities over time and this will require further resources. As a result, we expect to continue incurring operating losses, which may be substantial over the next several years, and we will need to obtain substantial additional funds. As of December 31, 2020, we had an accumulated deficit of approximately $280.3 million. 103 Table of Contents We expect to continue to fund our operations over the next several years through revenues generated from the commercialization of our commercial products, public or private equity offerings, debt financings, non-dilutive financings, commercialization of our therapeutic candidates, if approved, or products we may commercialize or promote in the future. Quarterly Results of Operations The following tables show our unaudited quarterly statements of operations for the periods indicated. We have prepared this quarterly information on a basis consistent with our audited financial statements. Three Months Ended Statements of operations Net revenues Cost of revenues Research and development expenses, net Selling, marketing and business development General and administrative expenses Operating loss Financial income Financial expenses Net loss Loss per ordinary share (U.S. dollars) March 31 June 30 Sep. 30 Dec. 31 March 31 June 30 Sep. 30 Dec. 31 March 31 June 30 Sep. 30 Dec. 31 2018 2019 U.S. dollars in thousands 2020 2,445 930 2,350 725 2,206 598 1,359 584 1,737 417 1,563 425 1,401 629 1,590 788 6,146 6,044 6,624 5,778 3,170 3,123 3,040 3,153 1,924 9,995 134 74 9,935 2,015 9,557 156 1,717 11,118 1,680 9,736 133 480 10,083 1,887 10,043 2,403 44 7,684 5,372 3,136 2,025 9,213 374 1,031 9,870 6,972 2,799 2,276 4,147 4,893 6,158 2,399 12,380 1,546 74 10,908 2,925 9,844 170 161 9,835 4,132 11,764 260 187 11,691 1,056 1,715 2,765 9,006 4,586 17,016 214 355 17,157 20,899 14,188 20,943 10,337 21,461 10,652 3,214 4,323 6,189 9,964 13,414 16,901 6,033 12,500 108 3,655 16,047 7,329 14,460 42 4,220 18,638 7,427 19,708 20 4,643 24,331 0.05 0.05 0.04 0.03 0.03 0.04 0.03 0.03 0.05 0.04 0.05 0.06 Our quarterly revenues and operating results have varied in the past and are expected to vary in the future due to numerous factors. We believe that period-to-period comparisons of our operating results are not necessarily meaningful and should not be relied upon as indications of future performance. Segment Information Commencing 2017, the Company has two segments, Commercial Operations, and Research & Development. The Commercial Operations segment covers all areas relating to 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 therapeutic candidates. Below is a table summarizing the financial results of the two segments for the years ended December 31, 2020, December 31, 2019, and December 31, 2018. Net revenues Cost of revenues Gross profit Research and development expenses, net Selling, marketing business and development expenses General and administrative expenses Operating loss Year Ended December 31, 2020 Year Ended December 31, 2019 Commercial Operations Research and Development U.S. dollars in thousands Consolidated Commercial Research and Operations Year Ended December 31, 2018 Commercial Research and Development Consolidated Operations U.S. dollars in thousands 6,291 2,259 4,032 — — — — 6,291 2,259 4,032 17,419 17,419 8,360 2,837 5,523 — Development Consolidated — — — 8,360 2,837 5,523 24,862 24,862 64,359 36,892 27,467 — — — — 16,491 64,359 36,892 27,467 16,491 47,468 1,817 49,285 16,854 1,479 18,333 11,329 1,157 12,486 17,597 7,778 25,375 37,598 26,086 63,684 5,173 17,995 6,308 25,206 11,481 43,201 2,795 8,601 4,711 30,730 7,506 39,331 104 Table of Contents Comparison of the Year Ended December 31, 2020, to the Year Ended December 31, 2019 Net Revenues Net Revenues for the year ended December 31, 2020, were $64.4 million, compared to $6.3 million for the year ended December 31, 2019. The increase was attributed to revenues recognized from sales of Movantik® and Talicia®. Cost of Revenues Cost of Revenues for the year ended December 31, 2020, was $36.9 million, compared to $2.3 million for the year ended December 31, 2019. The increase was in line with the increase in revenues from commercialized products. Gross Profit Gross Profit for the year ended December 31, 2020, was $27.5 million, reflecting a gross margin of 42.7%, compared to $4.0 million for the year ended December 31, 2019, reflecting a gross margin of 64.1%. The increase in gross profit was attributed mainly to sales of Movantik®, and the reduction in gross margin was mainly attributed to royalties and amortization of Movantik® asset. Research and Development Expenses Research and Development Expenses for the year ended December 31, 2020, were $16.5 million, mainly attributable to the development of our COVID-19 therapeutics and to the Phase 3 study of RHB-204 for pulmonary NTM disease. Research and development expenses for the year ended December 31, 2019 were $17.4 million, mainly attributable to the Phase 3 study with Talicia® and the Phase 3 studies with RHB-104. Selling, Marketing and Business Development Expenses Selling, Marketing and Business Development Expenses for the year ended December 31, 2020, were $49.3 million, compared to $18.3 million for the year ended December 31, 2019. The increase was attributable to the expansion of our U.S. salesforce and marketing activities, in support of the launch of Talicia® and post-acquisition commercialization of Movantik®. General and Administrative Expenses General and Administrative Expenses for the year ended December 31, 2020, were approximately $25.4 million, compared to $11.5 million for the year ended December 31, 2019. The increase was attributable mainly to the expansion of our commercial activities related to Talicia® launch and Movantik® acquisition and transition from AstraZeneca. Operating Loss Operating Loss for the year ended December 31, 2020, was $63.7 million, compared to $43.2 million for the year ended December 31, 2019. The increase was attributable to the expansion of our commercial operations. Financial Expenses, net Financial Expenses, net for the year ended December 31, 2020, was $12.5 million, compared to Financial Income, net of $0.9 million for the year ended December 31, 2019. The increase was mainly due to interest expenses related to our credit agreement with HCRM. 105 Table of Contents Comparison of the Year Ended December 31, 2019, to the Year Ended December 31, 2018 This analysis can be found in Item 5 of the Company’s Annual Report on Form 20-F for the year ended December 31, 2019. B. Liquidity and Capital Resources Liquidity and Capital Resources Through our U.S. subsidiary, we currently commercialize Movantik®, Talicia® and Aemcolo®. However, our ability to generate significant revenues from the commercialization of our commercial products still remains uncertain. To date, our commercial operations are still generating operational losses. Other than Talicia®, our therapeutic candidates are in research and development stage, and therefore do not yet generate revenues. Since inception, we have funded our operations primarily through public and private offerings of our equity securities, loans, our strategic collaboration with Cosmo and revenues from our commercial activity. As of December 31, 2020, we had approximately $46 million of cash, cash equivalents, short-term investments and restricted cash. During the year ended December 31, 2020, we sold 2,837,038 of our ADSs under the At-the-Market (ATM) program for total gross proceeds of approximately $24.5 million, leaving an available balance under the ATM program of approximately $35.5 million. On January 14, 2021, we closed an underwritten offering of 3,188,776 ADSs at a public offering price of $7.84 per share, for total net proceeds of approximately $23.1 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us in connection with the offering. On March 4, 2021, we closed an underwritten offering of 4,375,000 ADSs at a public offering price of $8.00 per ADS, for total net proceeds of approximately $32.8 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us in connection with the offering. On March 11, 2021 and on March 16, 2021, the underwriter exercised its overallotment option and accordingly we issued additional 272,433 ADSs for total net proceeds of approximately $2.0 million, after deducting underwriting discounts and commissions. Revenues generated from our U.S. commercial activities were approximately $64.4 million for the year ended December 31, 2020, and approximately $6.3 million for the year ended December 31, 2019. Term Loan Facility On February 23, 2020 (the “Credit Agreement Closing Date”), we, through our wholly-owned subsidiary, “RedHill U.S.”, entered into a credit agreement (the “Credit Agreement”) with HCRM, as Administrative Agent (“HCRM”), and the lenders from time to time party thereto. Pursuant to the terms of the Credit Agreement, RedHill U.S. received a $30 million loan following the signing of the Credit Agreement (the “Tranche A Loan”). An additional $50 million tranche was used to fund the acquisition of rights to Movantik® from AstraZeneca (together with the Tranche A Loan, the “Loans”). The Loans bear interest at an annual rate equal to the 3-month LIBOR rate plus 8.20% which will be decreased to 6.7% starting April 1, 2021, with a 1.75% 3-month LIBOR floor. Interest under the Credit Agreement is payable quarterly in arrears on the last day of each March, June, September, and December (each an “Interest Payment Date”). The Loans will mature on February 23, 2026 (the “Term Loan Maturity Date”), at which time, if not earlier repaid in full, the outstanding principal amount of the Loans, together with any accrued and unpaid interest, shall be due and payable in cash. Upon the prepayment or repayment of all or any portion of the Loans, RedHill U.S. must pay to the lenders under the Credit Agreement an exit fee in an amount equal to 4% of the aggregate principal amount of the Loans prepaid or repaid on such date. Pursuant to the Credit Agreement, HCRM will receive a royalty of 4% ( on up to $75 million of our annual net revenues (the “Revenue Interest”). Payments of Revenue Interest will be made quarterly in arrears for nine years, beginning with the first fiscal quarter of 2021. 106 Table of Contents Pursuant to the terms of the Credit Agreement, on each Interest Payment Date beginning with March 2023 (the “Amortization Date”) through and including the Term Loan Maturity Date, RedHill U.S. must repay the Loans in equal installments. If, however, our net revenues for the trailing four quarters ending March 31, 2022, are less than $50 million, then at the sole discretion of the Required Lenders (as defined in the Credit Agreement), the Amortization Date shall be the Interest Payment Date immediately following the two year anniversary of the Credit Agreement Closing Date. We may elect to prepay the Loans at any time, subject to a prepayment premium that declines from 5% for the first four years of the Loans, to 2.5% in the fifth year, to 1.25% in the final year prior to maturity of the Loans. In addition, if we prepay any Loans prior to the third anniversary of the applicable borrowing date for such Loans, we are required to pay all required interest payments that would have been due on the principal amount of such Loans prepaid through and including the third anniversary of the applicable borrowing date for such Loans. We also entered into a Security Agreement, a Pledge Agreement, an Israeli-law governed Fixed Charge Debenture and an Israeli-law governed Floating Charge Debenture in favor of HCRM, pursuant to which our obligations under the Credit Agreement (and those of RedHill U.S.) are secured by a pledge of all of our holdings of the capital stock of RedHill U.S., substantially all of the assets of RedHill U.S., and all of our assets relating in any material respect to Talicia®. The Credit Agreement contains certain affirmative covenants, including those relating to, among other things: financial statements; notices; payments of obligations; preservation of existence; maintenance of properties; maintenance of insurance; compliance with laws; inspection rights; and protection of our intellectual property. The Credit Agreement also contains certain negative covenants barring us and our subsidiaries from (with limited exceptions) taking certain actions including, among other things: certain fundamental transactions; issuing dividends and distributions; incurring indebtedness; incurring liens; making investments; engaging in transactions with affiliates; engaging in sale-leaseback transactions; and changing the nature of our business. The Credit Agreement also contains a financial covenant requiring us to maintain a specified level of cash liquidity as well as a covenant requiring us to maintain minimum net sales beginning with the fiscal quarter ending June 30, 2022. In addition, the Credit Agreement contains a covenant restricting our ability to terminate or to permit certain changes to the respective roles and responsibilities as of February 23, 2020, of our chief executive officer, Dror Ben-Asher, and the chief commercial officer of RedHill U.S., Rick Scruggs. The Credit Agreement contains defined events of default, in certain cases subject to a grace period, following which the lenders may declare any outstanding principal and unpaid interest immediately due and payable. These include, among other things: failure to pay principal, interest, or other amounts payable when due; any uncured breach of a representation, warranty, or covenant; any uncured cross-default under certain contracts; certain judgments being entered against us or our subsidiaries; certain bankruptcy or insolvency events; any Change of Control or Material Adverse Effect (in each case, as defined in the Credit Agreement); and certain regulatory events with respect to our products. We estimate that so long as sufficient revenues to sustain our business operations in accordance with our plan are not generated from our current commercial products, our therapeutic candidates, upon approval, if any, out-licensing transactions or products that we may commercialize or promote in the future, we will need to raise substantial additional funds, as our current cash and short-term investments are not sufficient to continuously fund our commercial operations and complete the research and development of all of our therapeutic candidates. However, additional financing may not be available on acceptable terms, if at all. Our future capital requirements will depend on many factors including but not limited to: ● our ability to successfully commercialize commercial products and our therapeutic candidates, upon approval, if any, including securing commercialization agreements with third parties and favorable pricing and market share; ● we may consume available resources more rapidly than currently anticipated, resulting in the need for additional funding sooner than anticipated. ● the regulatory path of each of our therapeutic candidates; ● 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 candidates and addressing regulatory and other issues that may arise post-approval; ● the costs of enforcing our issued patents and defending intellectual property-related claims; ● the costs of developing sales, marketing, and distribution channels; and 107 Table of Contents ● consumption of available resources more rapidly than currently anticipated, resulting in the need for additional funding sooner than anticipated. If we are unable to generate sufficient revenues from our commercial products, commercialize or out-license our therapeutic candidates or obtain future financing to sustain our business operations in accordance with our plan, we may be forced to delay, reduce the scope of, or eliminate one or more of our current commercial products and products that we may commercialize or promote in the future or our research, development programs for our therapeutic candidates, which may have a 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”. Our current working capital is not sufficient to commercialize our current commercial products or to complete the research and development with respect to any or all of our therapeutic candidates. We will need to raise additional capital to achieve our strategic objectives of acquiring, in-licensing, developing and commercializing therapeutic candidates, upon approval, if any, commercializing our current commercial products and other products that we may commercialize or promote 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, and commercialize products, such as our current commercial products or other products that we may commercialize or promote in the future, attract development or commercial partners or retain key personnel. Cash Flow Net Cash Used in Operating Activities Net Cash Used in Operating Activities for the year ended December 31, 2020, was $48.6 million, compared to $40.7 million for the year ended December 31, 2019. The increase was attributable to the increase in operating loss. Net Cash Used in Investing Activities Net Cash Used in Investing Activities for the year ended December 31, 2020, was $35.6 million, primarily related to $52.5 million upfront payment to AstraZeneca for the acquisition of Movantik, partially offset by inflows from current bank deposits and financial assets at fair value through profit or loss. Net Cash Provided by Investing Activities for the year ended December 31, 2019 was $5.2 million, mainly attributable to proceeds from bank deposits and from the sale of marketable securities. Net Cash Provided by Financing Activities Net Cash Provided by Financing Activities for the year ended December 31, 2020, was $84.4 million, comprised primarily from $78.1 million inflow from our credit agreement with HCRM and additional $23.9 million proceeds from issuance of our ADSs, partially offset by $16 million classified as restricted cash. Net Cash Provided by Financing Activities for the year ended December 31, 2019, was $35.5 million, primarily from the strategic collaboration with Cosmo, which included an investment in the amount of $36.3 million. We did not have any material commitments for capital expenditures, including any anticipated material acquisition of plant and equipment or interests in other companies, as of December 31, 2020. C. Research and Development, Patents and Licenses Our research and development expenses consist primarily of costs of clinical trials, professional services, share-based payments and payroll, and related expenses. The clinical trial costs are mainly related to payments to third parties to manufacture our therapeutic candidates, to perform clinical trials with our therapeutic candidates and to provide us with regulatory services. We charge all research and development expenses to operations as they are incurred. We expect our research and development expenses to remain our primary expense in the near future as we continue to develop our therapeutic candidates. 108 Table of Contents Due to the inherently unpredictable nature of clinical development processes, we are unable to estimate with any certainty the costs we will incur in the continued development of the therapeutic candidates in our pipeline for potential commercialization. Our future research and development expenses will depend on the clinical success of each therapeutic candidate, the rate of patient recruitment and the ongoing assessments of each therapeutic candidate’s commercial potential. In addition, we cannot forecast with any degree of certainty which therapeutic candidates may be subject to future commercialization arrangements, when such commercialization arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. See “Item 3. Key Information – D. Risk Factors – If we or our development or commercialization partners are unable to obtain or maintain FDA or other foreign regulatory clearance and approval for our therapeutic candidates or products we may commercialize or promote, we or our commercialization partners will be unable to commercialize our therapeutic candidates, upon approval, if any, or products we may commercialize or promote.” As we obtain results from clinical trials, we may elect to discontinue or delay the development and clinical trials for certain therapeutic candidates in order to focus our resources on more promising therapeutic candidates or projects. Completion of clinical trials by us or our licensees may take several years or more, but the length of time generally varies according to the 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 and therapeutic candidates’ development. The lengthy process of completing clinical trials and seeking regulatory approvals for our therapeutic candidates requires substantial expenditures. Any failure or delay in completing clinical trials, or in obtaining regulatory approvals, could cause a delay in generating product revenue and cause our research and development expenses to increase and, in turn, have a material adverse effect on our operations. Due to the factors set forth above, we are not 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 our commercialization success with regard to any of our therapeutic candidates or commercial products. Our sales, marketing and business development expenditure is our primary expenditure, as we continue commercialization of Movantik®, Talicia® and Aemcolo®. We continue to incur research and development expenditures in connection with our therapeutic candidates. Increases or decreases in research and development expenditures are primarily attributable to the level and results of our clinical trial activities and the amount of expenditure on those trials. We are monitoring a number of risks that have or may affect our business related to the COVID-19 pandemic, including our commercial operations, supply chain, clinical trials and regulatory reviews. Assessment of the complete extent of the impact of COVID-19 on our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. The continuation of the COVID-19 pandemic could materially disrupt our business and operations and have an adverse effect on the global markets and global economy generally, including on the availability and cost of employees, resources, materials, manufacturing and delivery efforts, and other aspects of the economy. Our primary focus is to become a revenue-generating, GI-focused, specialty biopharmaceutical company through our commercial presence in the U.S. to support current and potential future commercialization of our potential future therapeutic candidates and products approved for marketing, and our other commercial products. 109 Table of Contents E. Off-Balance Sheet Arrangements Since inception, we have not entered into any transactions with unconsolidated entities whereby we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligations under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market risk or credit risk support. F. Tabular Disclosure of Contractual Obligations The following table summarizes our significant contractual obligations on December 31, 2020: Total Less than 1 year 1-3 years U.S. dollars in thousands 3-5 years More than 5 years Accounts payable Lease liabilities Accrued expenses and other current liabilities Borrowing Payable in respect of intangible assets purchase Royalty obligation Inventory (1) 11,553 6,195 24,082 136,198 30,600 1,786 25,328 11,553 1,985 24,082 10,154 20,600 127 11,137 — 3,133 — 44,512 10,000 692 6,602 — 1,077 — 63,002 — 55 7,589 — — — 18,530 — 912 — (1) Constitutes future obligations to purchase API, bulk tables and finished goods under our Supply Agreement with AstraZeneca used in connection with our commercialization of Movantik®. We expect to purchase the inventory in the regular course of business as part of our ongoing commercialization of Movantik®. The foregoing table does not include our in-license agreements with Heidelberg, Apogee, our asset sale agreement with Giaconda Limited and our agreement with UCF or the University of Minnesota, pursuant to which we are obligated to make various payments upon the achievement of agreed-upon milestones or make certain royalty payments since we are unable to estimate 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 net income, an aggregate amount of approximately $2.0 million for milestones achieved. All of our in-licensing agreements are terminable at-will by us upon prior written notice. See “Item 4. Information on the Company – B. Business Overview – Acquisition and License Agreements.” The foregoing table also does not include payments payable under our clinical services agreements, all of which are contingent upon the completion of milestones. See “Item 4. Information on the Company – B. Business Overview – Clinical Services Agreements.” 110 Table of Contents ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A. Directors and Senior Management1 The following table sets forth the name, age and position of each of our executive officers and directors as of the date of this Annual Report. Name Executive Officers Dror Ben-Asher Micha Ben Chorin Reza Fathi, Ph.D. Gilead Raday Adi Frish Guy Goldberg Rick D. Scruggs Dr. June Almenoff Directors Dr. Shmuel Cabilly (3) Eric Swenden (1) (3) Dr. Kenneth Reed (2) (3) Ofer Tsimchi (1), (2) (3) Alla Felder (1), (2), (3) Alessandro Della Chà (3) Age Position(s) 55 52 66 46 51 45 61 65 71 77 67 61 47 57 Chief Executive Officer and Chairman of the Board of Directors Chief Financial Officer Senior Vice President Research and Development Chief Operating Officer Chief Corporate and Business Development Officer Chief Business Officer Chief Commercial Officer and Director Chief Scientific Officer Director Director Director Director Director Director (1) Member of our audit committee; also serves as our financial statements committee. (2) Member of our compensation committee. (3) Independent director under Nasdaq Listing Rules. Executive officers Dror Ben-Asher has served as our Chief Executive Officer and as a director since August 2009. Since May 2011, Mr. Ben- Asher has also served as Chairman of our board of directors. From January 2002 to November 2010, Mr. Ben-Asher served as a manager at P.C.M.I. Ltd., an affiliate of ProSeed Capital Holdings CVA. Mr. Ben-Asher holds an LLB from the University of Leicester, U.K., an MJur. from Oxford University, U.K. and completed LLM studies at Harvard University. Micha Ben Chorin has served as our Chief Financial Officer since January 2016. From 2014 until 2016, Mr. Ben Chorin served as Chief Financial Officer of Pyramid Analytics a business intelligence (BI) software company. From 2009 until 2013, he served as CFO of Starhome B.V., a leading international roaming vendor, from 2005 until 2009 as CFO of Winetworks, a wireless operator, and from 1998 until 2005 Mr. Ben Chorin served as Chief Financial Officer at GVT (currently Telefonica Brazil). Mr. Ben Chorin holds a B.A. from Tel-Aviv University and is a Certified Public Accountant. 1 Senior management includes members of the Company’s administrative, supervisory or management bodies, or nominees for such positions. 111 Table of Contents Reza Fathi, Ph.D., has served as our Senior Vice President Research and Development since May 2010. From 2005 to 2009, Dr. Fathi served as a Director of Research in XTL Biopharmaceuticals Inc., a biotechnology company engaged in developing small molecule clinical candidates for infectious diseases. Prior to that, from 2000-2005, Dr. Fathi served as Director of Research at Vivoquest, Inc. where he was responsible for developing a number of novel natural product-based combinatorial technologies for infectious diseases such as HCV and HIV. Between 1998-2000, he served as a Manager of Chemical 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 Discovery Group 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 2016. From December 2012, until March 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 from January 2009 to December 2009, he was an independent consultant, specializing in business development and project management 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 the boards of Sepal Pharma Plc., ViDAC Limited, Morria Biopharmaceuticals Plc., Vaccine Research International Plc., TKsignal Plc., and Miras Medical Imaging Plc. He received his M.Sc. in Neurobiology from the Hebrew University of Jerusalem, Israel, and an M.Phil. in Bioscience Enterprise from Cambridge University, U.K. Adi Frish has served as our Chief Corporate and Business Development Officer since October 2020. From December 2012 to October 2020 Mr. Frish served as our Senior Vice President Business Development and Licensing. From October 2010 to December 2012, Mr. Frish served as our Vice President Business Development and Licensing. From 2006 to 2010, Mr. Frish served as the Chief Business Development at Medigus Ltd., a medical device company in the endoscopic field, 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 an LLB from Essex University, U.K. and an LLM in Business Law from the Bar-Ilan University, Israel. Guy Goldberg has served as our Chief Business Officer since 2012. From 2007 to 2012, Mr. Goldberg served as Vice President and then as Senior Vice President of Business Operations at Eagle Pharmaceuticals, a specialty injectable drug development company, based in New Jersey. From 2004 to 2007, Mr. Goldberg was an associate at ProQuest Investments, a healthcare-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. Rick D. Scruggs has served as our Chief Commercial Officer since February 2020 and served as our Chief Operations Officer, U.S. Operations since January 1, 2019, and as a member of our board of directors since January 1, 2016. Mr. Scruggs most recently served as Executive Vice President of Business Development at Salix until its acquisition by Valeant (now Bausch Health) in March 2015. Mr. Scruggs joined Salix in 2000, after working at Oclassen Pharmaceuticals Inc. and Watson Pharmaceuticals, and helped build Salix’s commercial organization, serving in various sales and commercial trade-related positions. Mr. Scruggs was appointed as Executive Vice President in 2011 and was responsible for all business development activities as well as the worldwide distribution of Salix’s innovative products and intellectual property. Mr. Scruggs also served as the Head of the board of directors of Oceana Therapeutics, Salix’s European subsidiary. Mr. Scruggs holds a B.S. in Criminal Justice from the Appalachian State University in North Carolina. Dr. June Almenoff has served as our Chief Scientific Officer since May 2019. With over 20 years of experience in the pharmaceutical industry, Dr. Almenoff served in various senior executive roles, including the President and Chief Medical Officer of Furiex Pharmaceuticals (acquired by Actavis plc, now Allergan plc), whose lead product, Viberzi®, was approved by the FDA in 2015 for the treatment of irritable bowel syndrome with diarrhea (IBS-D). Prior to joining Furiex, Dr. Almenoff worked at GlaxoSmithKline plc, where she held various positions of increasing responsibility. She has recently served as a board member and advisor to numerous biopharma companies. She is currently a board member of the Harrington Investment Advisory Board of the Harrington Discovery Institute and of Brainstorm Cell Therapeutics (Nasdaq: BCLI). Dr. Almenoff holds a B.A. (cum laude) from Smith College and graduated from the M.D.-Ph.D. program 112 Table of Contents at the Mt. Sinai School of Medicine. She completed internal medicine residency and infectious disease fellowship training at Stanford University Medical Center and served on the faculty of Duke University School of Medicine, where she currently holds an adjunct appointment. Directors Dr. Shmuel Cabilly has served as a member of our board of directors since August 2010 and has served on our compensation committee since May 2011. Dr. Cabilly is a scientist and inventor in the field of immunology. In the Backman Research Institute of the City of Hope, Dr. Cabilly initiated the development of a new breakthrough technology for recombinant antibody production, which was patented and known as the “Cabilly Patent.” Dr. Cabilly was also a co- founder and a Chief Scientist of Ethrog Biotechnology, where he invented dry buffer technologies enabling the production of a liquid-free disposable apparatus for gel electrophoresis and a technology that enables the condensation of molecular separation zones to a small gel area. This technology was sold to Invitrogen in 2001. Dr. Cabilly serves as a board member at several companies, including BioKine Therapeutics Ltd., Neuroderm Ltd. and Biologic Design Ltd. Dr. Cabilly holds a B.Sc. in Biology from the Ben Gurion University of Beer Sheva, Israel, an M.Sc. in Immunology and Microbiology from the Hebrew University of Jerusalem, Israel, and a Ph.D. in Immunology and Microbiology from the Hebrew University of Jerusalem, Israel. Eric Swenden has served as a member of our board of directors since May 2010 and has served on our investment committee since May 2011. From 1966 until 2001 Mr. Swenden served in various positions including Chief Executive Officer (since 1985) and Executive Chairman (since 1990) of Vandemoortele Food Group, a privately held Belgium-based European food group with revenue of approximately EUR 2 billion, and he currently serves on the board of directors of TBC S.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. Dr. Kenneth Reed has served as a member of our board of directors since December 2009. Dr. Reed is a dermatologist practicing in private practice under the name of Kenneth Reed M.D. PC. Dr. Reed currently serves on the board of directors of Minerva Biotechnologies Corporation. Dr. Reed received his B.A. from Brown University in the U.S. and an M.D from the University of Medicine and Dentistry of New Jersey in the U.S. Dr. Reed is a board-certified dermatologist with over 25 years of clinical experience since completing the Harvard Medical School Residency Program in Dermatology. Dr. Reed is also a co-founder of Early Cell, a prenatal diagnostics company, Prescient Pharma and Lispiro. Ofer Tsimchi has served as a director on our board of directors, a member of our audit committee and as the Chairman of our compensation committee since May 2011. From 2008 to 2012, Mr. Tsimchi served as the Chairman of the board of directors of Polysack Plastic Industries Ltd. and Polysack-Agriculture Products, and since 2006, he has served as a Partner in the Danbar Group Ltd., a holding company. Mr. Tsimchi currently serves on the board of directors of Caesarstone Ltd., Amutat Zionut 2000, Danbar Group Ltd, and Maabarot Products Ltd. Mr. Tsimchi received his BA in Economics 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. Alla Felder has served as a director on our board of directors and a chairperson of our audit committee and a member of our compensation committee since May 2019. Ms. Felder currently serves as a Director in numerous publicly listed leading Israeli companies across several industries, such as Enlight Renewable Energy Ltd., Ashtrom Properties Ltd., Carmit Industries Ltd. and Argaman Industries Ltd. Ms. Felder also served on the board of Neuroderm Ltd., leading up to its acquisition by Mitsubishi Tanabe Pharma Corporation in 2017. Ms. Felder is a business and financial advisor and currently serves as an external CFO for several technology companies and is also a lecturer in the College of Management Academic Studies Division. From 1997 to 2010 Ms. Felder was with PriceWaterhouseCoopers where she served in her last role as a Senior Manager. Ms. Felder received a degree in Business Administration and Accounting from the College of Management Academic Studies Division in Rishon Lezion, Israel and an Executive Master’s degree in the Science of Finance from the City University of New York. Alessandro Della Chà has served as a member of our board of directors since February 2021 and has served as the Chief Executive Officer of Cosmo Pharmaceuticals NV since 2014 and as a board member since 2006. In addition, Mr. Della 113 Table of Contents Chà serves as a board member of Acacia Pharma Group plc. Mr. Della Chà received a degree in law from the University of Milan, Italy, and an LL.M. in European Union commercial law from the University of Leicester, United Kingdom. Mr. Della Chà serves on the board of directors as a nominee of Cosmo pursuant to the Company’s subscription agreement with Cosmo. B. Compensation The aggregate compensation paid, and benefits-in-kind granted to or accrued on behalf of all of our directors and executive officers for their services, in all capacities, to us during the year ended December 31, 2020, was approximately $4.9 million. Out of that amount $3.1 million was paid as salary, $1.3 million was attributed to the value of the options granted to senior management during 2020, approximately $0.1 million was attributed to retirement plans and $0.4 million was attributed to other long-term benefits and $0.1 million for bonuses. No additional amounts have been set aside or accrued by us to provide pension, retirement or similar benefits. The compensation terms for our directors and officers are derived from their employment agreements and comply with our Compensation Policy for Executive Officers and Directors as approved by our shareholders (the “Compensation Policy”). The table and summary below outline the compensation granted to our five highest compensated directors and officers during the year ended December 31, 2020. The compensation detailed in the table below refers to actual compensation granted or paid to the director or officer during the year 2020. Name and Position of Director or Officer Payment (1) Benefits (2) Bonuses Base Salary or Other Value of Social Value of Equity- Based Compensation Granted (3) All Other Compensation (4) Total Amounts in U.S. dollars are based on the 2020 monthly average representative U.S. dollar – NIS rate of exchange Dror Ben-Asher, Chief Executive Officer and Chairman of the Board of Directors (6) Rick Scruggs, Chief Commercial Officer Micha Ben Chorin, Chief Financial 445,499 563,750 90,282 14,235 — — 261,450 130,200 20,193 817,424 — 708,185 Officer 297,774 78,453 25,000 135,600 16,827 553,654 Adi Frish, Chief Corporate and Business Development Officer Gilead Raday, Chief Operating Officer 293,514 312,146 75,233 59,274 25,000 — 159,000 159,000 13,462 16,827 566,209 547,248 (1) “Base Salary or Other Payment” means the aggregate yearly gross monthly salaries or other payments with respect to the Company’s Executive Officers and members of the board of directors for the year 2020. Messrs. Ben-Asher and Scruggs do not receive extra compensation for the service as members of the board of directors. (2) “Social Benefits” include payments to the National Insurance Institute, advanced education funds, managers’ insurance and 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 2020 in exchange for the directors and officers services recognized as an expense in profit or loss and is carried to the accumulated deficit under equity. The total amount is recognized as an expense over the vesting period of the options. See Item 6, Directors, Senior Management and Employees, E. Share Ownership for further information regarding the options. (4) “All Other Compensation” includes, among other things, car-related expenses (including tax gross-up), communication expenses, 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 a monthly base gross salary of NIS 192,500 (approximately $58,528). 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 a study fund, contribution by the Company to an insurance policy and pension fund, and additional benefits, including communication expenses. In addition, Mr. Ben-Asher is entitled to reimbursement of car-related expenses from the Company. Mr. Ben-Asher’s employment terms include an advance notice period of 180 days by the Company and 90 days by Mr. Ben-Asher. During such an advance notice period, Mr. Ben-Asher will be entitled 114 Table of Contents to all of the compensation elements, and to the continuation of vesting of any options or restricted shares granted to him. Additionally, in the event Mr. Ben-Asher’s employment is terminated in connection with a “change in control” he will be entitled to a special one-time payment equal to his then-current monthly salary and retirement benefits, including payments to an advanced study fund and pension arrangement and car expense reimbursement, multiplied by 18. A “change in control” is defined under the change in control employee retention plan (the "CIC Plan") as follows: (1) the consummation of any merger, consolidation, reorganization, or similar transaction or series of related transactions of the Company with another entity, other than a merger, consolidation, reorganization, or similar transaction or series of related transactions which would result in the shareholders of the Company immediately preceding the transaction beneficially owning, immediately after the transaction, at least 50% of the combined voting power of the outstanding securities of the surviving or resulting entity (or its parent); (2) any “person” (as such term is used in Sections 13(d) and 14(d) of the U.S. Exchange Act of 1934 (“Exchange Act”)) or “group” (two or more persons acting as a partnership, limited partnership, syndicate or other group for the purpose of acquiring, holding, or disposing of the applicable securities referred to herein) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then-outstanding voting securities; (3) the election of a board of directors over a three-year period or less, the majority of which is not supported by at least a majority of the then existing board of directors of the Company; or (4) any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company (other than to an entity controlled by the Company). Employment Agreements We have entered into employment or consultant agreements with each of our executive officers. All of these agreements contain customary provisions information and assignment of regarding non-competition, confidentiality of inventions. However, the enforceability of the non-competition provisions may be limited under applicable laws. For information on exemption and indemnification letters granted to our directors and officers, please see “Item 6C. – Board Practices – Exemption, Insurance and Indemnification of Directors and Officers.” Director Compensation We currently pay our non-executive directors an annual cash fee of NIS 97,319 (approximately $29,589 and a cash fee of NIS 5,116 (approximately $1,555) per meeting (or a smaller amount in the case where they do not physically attend the meeting). In March 2021, our compensation committee and board approved an amendment to compensation to our non- executive directors to provide for an annual cash fee retainer of $40,000, additional amounts for serving on committees of our board of directors and additional amounts for serving as a chairperson of a committee of our board of directors. This amendment is subject to approval of our shareholders. Change in Control Retention Plan We have adopted a change in control employee retention plan providing for compensation to Company employees, in the event of a change in control (as defined by the plan), subject to the satisfaction of various conditions. Compensation to employees would be up to 12 months’ salary depending on employee seniority and years with the Company. Compensation Policy On June 24, 2019, our shareholders approved the Compensation Policy for our directors and officers in accordance with Amendment No. 20 to the Israeli Companies Law, pursuant to which we are required to determine the compensation of our directors and officers, and which must be approved by our shareholders every three years. The policy was previously approved by our board of directors, upon the recommendation of our compensation committee. The Compensation Policy is in effect for three years from the 2019 annual general meeting. Our Compensation Policy principles 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 should 115 Table of Contents encourage our officers to identify with our objectives, and an increase in officer satisfaction and motivation should retain the employment of high-quality officers in our service over the long term. C. Board Practices Appointment of Directors and Terms of Officers Pursuant to our articles of association, the size of our board of directors shall be no less than five persons and no more than eleven persons, including any external directors whose appointment is required by law. The directors who are not external directors are divided into three classes, as nearly equal in number as possible. At each annual general meeting, which is required to be held annually, but not more than fifteen months after the prior annual general meeting, the term of one class of directors expires, and the directors of such class are re-nominated to serve an additional three-year term that expires at the annual general meeting held in the third year following such election (other than any director nominated for election by Cosmo pursuant to the Company’s subscription agreement with Cosmo, whose term of office may expire earlier depending on the beneficial ownership by the Cosmo investor of the Cosmo shares). This process continues indefinitely. A simple majority shareholder vote may elect directors for a term of less than three years in order to ensure that the three groups of directors have as equal a number of directors as possible as provided above. The directors of the first class, currently consisting of Eric Swenden, Ofer Tsimchi and Alessandro Della Chà, will hold office until our annual general meeting to be held in the year 2021. The directors of the second class, currently consisting of Dror Ben-Asher, Dr. Kenneth Reed and Alla Felder, will hold office until our annual general meeting to be held in the year 2022. The directors of the third class, currently consisting of Dr. Shmuel Cabilly and Rick Scruggs, will hold office until our annual general meeting to be held in the year 2023. Until the next annual general meeting, the board of directors may elect new directors to fill vacancies or increase the number of members of the board of directors up to the maximum number provided in our articles of association. Any director so appointed may hold office until the first general shareholders’ meeting convened after the appointment. Alessandro Della Chà was appointed by our board of directors to serve until the annual general meeting of shareholders to be held in 2021. See “Item 6. “Directors, Senior Management and Employees – C. Board Practices – Independent and External Directors – Israeli Companies Law Requirements” below for a description of the adoption by the Company of the corporate governance exemptions set forth in Regulation 5D of the Israeli Companies Regulations (Relief for Public Companies with Shares Listed for Trading on a Stock Market 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 or she does not have the required qualifications and the ability to dedicate an appropriate amount of time for the performance of his duties as a director in the company, taking into consideration, among other things, the special needs and size of the company. In addition, a public company may convene an annual general meeting of shareholders to elect a director, and may elect such director, only if prior to such shareholders meeting, the nominee declares, among other things, that he or she possesses all of the required qualifications to serve as a director (and lists such qualifications in such declaration) and has the ability 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 of his office, including exculpation, indemnification or insurance, requires the approval of the compensation committee, the board of directors and the shareholders of the company. 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 of directors, and shareholders, subject to limited exceptions. The appointment and terms of office of a company’s officers, other than directors and the general manager (i.e., chief executive officer) are subject to the approval by first, the company’s compensation committee; second, the company’s board of directors, in each case subject to the company’s compensation policy, and then approved by its shareholders. However, in special circumstances, they may approve the appointment and terms of office of officers inconsistent with such policy, provided that (i) they have considered those provisions that must be included in the compensation policy according to the Israeli Companies Law and (ii) shareholder approval is obtained (by a majority of shareholders that does not include the controlling shareholders of the company and any shareholders interested in the approval of the compensation). However, if the shareholders of the company do not approve a 116 Table of Contents compensation arrangement with an officer inconsistent with the company’s compensation policy, in special situations the compensation committee and the board of directors may override the shareholders’ decision if each of the compensation committee and the board of directors provide detailed reasons for their decision. In addition, non-material amendments to the compensation of a public company’s officers (other than the chief executive officer and the directors) may be approved by the chief executive officer of the company if the company’s compensation policy establishes that non-material amendments within the parameters established in the compensation policy may be approved by the chief executive officer, so long as the compensation is consistent with the company’s compensation policy. An amendment to the Israeli Companies Law requires that the board and shareholders (with approval by a “special majority” as further discussed below) adopt a compensation policy applicable to the company’s directors and officers which must take into account, among other things, providing proper incentives to directors and officers, the risk management of the company, the officer’s contribution to achieving corporate objectives and increasing profits, and the function of the officer or director. Under the Israeli Companies Law, a “special majority” requires (i) the vote of at least a majority of the shares held by shareholders who are not controlling shareholders or have a personal interest in the proposal (shares held by abstaining shareholders are not taken into account); or (ii) that the aggregate number of shares voting against the proposal held by such shareholders does not exceed 2% of the company’s voting shareholders. The compensation paid to a public company’s chief executive officer is required to be approved by, first, the company’s compensation committee; second, the company’s board of directors; and third, unless exempted under the regulations promulgated under the Israeli Companies Law, by the company’s shareholders (by a special majority vote as discussed above with respect to the approval of director compensation). However, if the shareholders of the company do not approve the compensation arrangement with the chief executive officer, the compensation committee and board of directors may override the shareholders’ decision if each of the compensation committee and the board of directors provide a detailed report for their decision. The renewal or extension of the engagement with a public company’s chief executive officer need not be approved by the shareholders of the company if the terms and conditions of such renewal or extension are no more beneficial than the previous engagement or there is no substantial difference in the terms and conditions under the circumstances, and the terms and conditions of such renewal or extension are in accordance with the company’s compensation policy. The compensation committee 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 inconsistent with such policy provided that they have considered those provisions that must be included in the compensation policy according to the Israeli Companies Law and that shareholder approval was obtained (by a special majority vote as discussed above with respect to the approval of director compensation). The compensation committee may waive the shareholder approval requirement with regards to the approval of the initial engagement terms of a candidate for the chief executive officer position, if they determine that the compensation arrangement is consistent with the company’s stated compensation policy, and that the chief executive officer did not have a prior business relationship with the company or a controlling shareholder of the company and that subjecting the approval of the engagement to a shareholder vote would impede the company’s ability to employ the chief executive officer candidate. The engagement with a public company’s chief executive officer need not be approved by the shareholders of the company with respect to the period from the commencement of the engagement until the next shareholder meeting convened by the company, if the terms and conditions of such engagement were approved by the compensation committee and the board of directors of the company, the terms and conditions of such engagement are in accordance with the company’s compensation policy approved in accordance with the Israeli Companies Law, and if the terms and conditions of such engagement are no more beneficial than the terms and conditions of the person previously serving in such role or there is no substantial difference in the terms and conditions of the previous engagement versus 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 his employment 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 regulations exempting companies like us whose shares are traded outside of Israel from some provisions of the Israeli Companies Law. 117 Table of Contents Under the Israeli Companies Law, except as provided below, companies incorporated under the laws of Israel whose shares are either (i) listed for trading on a stock exchange or (ii) have been offered to the public in or outside of Israel and are held by the public (Public Company) are required to appoint at least two external directors. Our board of directors has resolved to adopt the corporate governance exception set forth in Regulation 5D of the Israeli Companies Regulations (the “Regulation”). In accordance with the Regulation, a public company with securities listed on certain foreign exchanges, including the Nasdaq Stock Market, that satisfies the applicable foreign country laws and regulations that apply to companies organized in that country relating to the appointment of independent directors and composition of audit and compensation committees and have no controlling shareholder are exempt from the requirement to appoint external directors or comply with the audit committee and compensation committee composition requirements under the Israeli Companies Law. In accordance with our board of directors’ resolution, pursuant to the Regulation, we intend to comply with the Nasdaq Listing Rules in connection with a majority of independent directors on the board of directors and in connection with the composition of each of the audit committee and the compensation committee, in lieu of such requirements of the Israeli Companies Law. The Israeli Companies Law provides that a person may not be appointed as an external director if the person is a relative of the controlling shareholder or if the person or the person’s relative, partner, employer, someone to whom he is subordinated directly or indirectly or any entity under the person’s control, has, as of the date of the person’s appointment to serve as external director, or had, during the two years preceding that date, any affiliation with us, our controlling shareholder, any relative of our controlling shareholder, as of the date of the person’s appointment to serve as external director, or any entity in which, currently or within the two years preceding the appointment date, the controlling shareholder was the company or the company’s controlling shareholder; and in a company without a controlling shareholder or without a shareholder holding 25% or more of the voting rights in the company, any affiliation to the chairman of the board of directors, to the general manager (Chief Executive Officer), to a shareholder holding 5% or more of the company’s shares or voting rights, or to the chief 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 a company 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 general manager, 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 to whom he is subordinated directly or indirectly or any entity under the person’s control has a business or professional relationship with an entity which has an affiliation with is prohibited as detailed above, even if such relationship is not on a regular basis (excluding negligible relationship). In addition, an external director may not receive any compensation other than 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 external director will not be deemed to have “affiliation” with the public company for which he serves or is a candidate for serving as an external director. No person can serve as an external director if the person’s positions or other businesses create, or may create, a conflict of interests with the person’s responsibilities as a director or may impair his ability to serve as a director. In addition, a person who is a director of a company may not be elected as an external director of another company if, at that time, a director of the other 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 certain companies listed on foreign stock exchanges, including the Nasdaq Stock Market, of the corporate governance exceptions 118 Table of Contents set forth in the Regulation, as described above, until the lapse of two years from termination of office, a company, its controlling shareholder, or a company controlled by him may not engage an external director, his spouse, or child to serve as an officer in the company or in any entity controlled by the controlling shareholder and cannot employ or receive professional services for consideration from that person, and may not grant such person any benefit either directly or indirectly, including through a corporation controlled by that person. The same restrictions apply to relatives other than a spouse or a child, but such limitations may only apply for one year from the date such external director ceased to be engaged in such capacity. In addition, if at the time an external director is appointed all current members of the board of directors who are neither controlling shareholders nor relatives of controlling shareholders are of the same gender, then the external director to be appointed must be of the other gender. Under the Israeli Companies Law, a public company is required to appoint as an external director, a person who has “professional expertise” or a person who has “financial and accounting expertise,” provided that at least one of the external directors must have “financial and accounting expertise.” However, if at least one of our other directors (1) meets the independence requirements of the Exchange Act, (2) meets the standards of the Nasdaq Stock Market for membership on the audit committee and (3) has financial and accounting expertise as defined in the Israeli Companies Law and applicable regulations, then neither of our external directors is required to possess financial and accounting expertise as long as both possess other requisite professional qualifications. The determination of whether a director possesses financial and accounting 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 his education, experience and qualifications is highly skilled in respect of, and understands, business-accounting matters and financial reports in a manner that enables him to understand in depth the company’s financial statements and to stimulate discussion regarding the manner in which the financial data is presented. Under the Israeli Companies Law regulations, a director 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 in an area relevant to the main business sector of the company or in a relevant area of the board of directors position, or has at least five years of experience in one of the following or at least five years of aggregate experience in two or more of the following: a senior management position in the business of a corporation with a substantial scope of business, in a senior position 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 directors with “accounting and financial expertise” that such company believes appropriate in light of the company’s type, size, the scope and complexity of its activities and other factors. Once a company has made this determination, it must ensure that the necessary appointments to the board of directors are made in accordance with this determination. Our board of directors determined that two directors with “accounting and financial expertise” is appropriate for us. Our board of directors currently has three 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 of shares voted at the meeting, including at least a majority of the votes of the shareholders who are not controlling shareholders (as defined in the Israeli Companies Law), do not have a personal interest in the appointment (excluding a personal interest which did not result from the shareholder’s relationship with the controlling shareholder), vote in favor of the election of the director without taking abstentions into account; or (2) the total number of shares of the above- mentioned shareholders who voted against the election of the external director does not exceed two percent of the aggregate voting rights in the company. The initial term of an external director is three years and may be extended for two additional three-year terms under certain circumstances and conditions. Nevertheless, regulations under the Israeli Companies Law provide that companies, whose shares are listed for trading the Nasdaq Stock Market, may appoint an external director for additional three-year terms, under certain circumstances and conditions. External directors may be removed only in a general meeting, by the same percentage of shareholders as is required for their election, or by a court, and in both cases only if the external 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 external director and the audit committee is required to include all of the external directors. 119 Table of Contents An external director is entitled to compensation and reimbursement of expenses in accordance with regulations promulgated under the Israeli Companies Law and is otherwise prohibited from receiving any other compensation, directly or indirectly, in connection with serving as a director except for certain exculpation, indemnification and insurance provided by the company. Committees Israeli Companies Law Requirements Our board of directors has established three standing committees, the audit committee, the compensation committee, and the investment committee. Audit Committee Under the Israeli Companies Law, the board of directors of a public company must appoint an audit committee. Except in the case of companies listed on foreign stock exchanges, including the Nasdaq Stock Market, which have adopted the corporate governance exceptions set forth in the Regulation, such as us, as described under “- Independent and External Directors – Israeli Companies Law Requirements”, who are exempt from the audit committee composition requirements under the Companies Law, an audit committee of a public company under the Israeli Companies Law must be comprised of at least three directors including all of the external directors. In addition, the Israeli Companies Law provides that the majority of the members of the audit committee, as well as the majority of members present at audit committee meetings, must be “independent” (as such term is defined below) and the chairman of the audit committee must be an external director. In addition, the following are disqualified from serving as members 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 controlling shareholder, a director who regularly provides services to the company or to its controlling shareholder or to an entity controlled 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 committee meetings during the discussion and at the time decisions are made, unless the chairman of the audit committee determines that the presence of such person is required to present a matter to the meeting or if such person qualifies under an available exemption in the Israeli Companies Law. An “independent director” is defined as an external director or a director who meets the following conditions: (i) satisfies certain conditions for appointment as an external director (as described above) and the audit committee has determined that such conditions have been met and (ii) has not served as a director of the company for more than nine consecutive years, with any 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 order to correct such flaws. In addition, the approval of the audit committee is required to effect specified actions and related party transactions. 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” for purposes of the requisite approval procedures; ● to determine whether to approve actions and transactions that require audit committee approval under the Israel Companies 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 necessary resources have been made available to the internal auditor considering the company’s needs and size; and 120 Table of Contents ● to determine arrangements for handling complaints of employees in relation to suspected flaws in the business management 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 Alla Felder (chairperson), Ofer Tsimchi and Eric Swenden. An amendment to the Israeli Companies Law allows a company whose audit committee’s composition meets the requirements set for the composition of a compensation committee (as further detailed below) to have one committee acting as both audit and compensation committees. As of the date of this Annual Report, we have not elected to have one committee acting as both the audit and the compensation committees. Compensation Committee According to the Israeli Companies Law, the board of directors of a public company must establish a compensation committee. Except in the case of companies listed on foreign stock exchanges, including the Nasdaq Stock Market, which have adopted the corporate governance exceptions set forth in the Regulation, such as us, as described under “- Independent and External Directors – Israeli Companies Law Requirements”, who are exempt from the compensation committee composition requirements under the Companies Law, the Israeli Companies Law requires that the compensation committee must 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 Law requirements described above. The compensation committee chairman must be an external director and any persons not qualified from serving as a member of the compensation committee may not be present at the compensation committee meetings during the discussion and at the time decisions are made, unless the chairman of the compensation committee determines that the presence of such person is required to present a matter to the meeting or if such person qualifies under an available exemption in the Israeli Companies Law. Our compensation committee, which consists of Ofer Tsimchi (chairman), Dr. Kenneth Reed and Alla Felder, administers issues relating to our global compensation plan with respect to our employees, directors, and consultants. Our compensation committee is responsible for making recommendations to the board of directors regarding the issuance of share options and compensation terms for our directors and officers and for determining salaries and incentive compensation for our executive officers and incentive compensation for our other employees and consultants. Each of the members of the compensation committee is “independent” as such term is defined in the Nasdaq Listing Rules. Investment Committee Our investment committee, which consists of Eric Swenden (chairman), Alla Felder and Ofer Tsimchi, assists the board in fulfilling its responsibilities with respect to our financial and investment strategies and policies, including determining policies and guidelines on these matters and monitoring implementation. It is also authorized to approve certain financial transactions and review risk factors associated with management of our finances and the mitigation of such risks, as well as financial controls and reporting and various other finance-related matters. Nasdaq Stock Market Requirements Under the Nasdaq Listing Rules, we are required to maintain an audit committee consisting of at least three members, all of whom are independent and are financially literate and one of whom has accounting or related financial management expertise. The independence requirements of Rule 10A-3 of the Exchange Act implement two basic criteria for determining independence: ● audit committee members are barred from accepting directly or indirectly any consulting, advisory or other compensatory fee from the issuer or an affiliate of the issuer, other than in the member’s capacity as a member of the board of directors and any board committee; and 121 Table of Contents ● audit committee members may not be an “affiliated person” of the issuer or any subsidiary of the issuer apart from her 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 more intermediaries, controls, or is controlled by, or is under common control with, the person specified.” The term “control” is intended to be consistent with the other definitions of this term under the Exchange Act, as “the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.” A safe harbor has been adopted by the SEC, under which a person who 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 directly responsible for the appointment, compensation, and performance of our independent auditors. In addition, the audit committee is responsible for assisting the board of directors in reviewing our annual financial statements, the adequacy of our internal control and our compliance with legal and regulatory requirements. The audit committee also oversees our major financial risk exposures and policies for managing such potential risks, discusses with management and our independent auditor significant risks or exposure and assesses the steps management has taken to minimize such risk. As noted above, the members of our audit committee include Alla Felder, Ofer Tsimchi and Eric Swenden, with Ms. Felder serving as chairperson. All members of our audit committee meet the requirements for financial literacy under the Nasdaq Listing Rules. Our board of directors has determined that each of Ms. Alla Felder, Mr. Ofer Tsimchi and Mr. Eric Swenden is an audit committee financial expert as defined by the SEC rules and all members of the audit committee have the requisite financial experience as defined by the Nasdaq Listing Rules. Each of the members of the audit committee is “independent” as such term is defined in Rule 10A-3(b)(1) under the Exchange Act Corporate Governance Practices Internal Auditor Under the Israeli Companies Law, the board of directors must appoint an internal auditor proposed by the audit committee. The role of the internal auditor is, among others, to examine whether our actions comply with the law and orderly business procedure. Under the Israeli Companies Law, the internal auditor may not be an interested party, an officer or a director, a relative of an interested party, or a relative of an officer or a director, nor may the internal auditor be our independent accountant or its representative. In January 2018, Ms. Sharon Cohen, Lead Engagement Partner, Head of LS & HC Industry at Deloitte 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, including directors and executive officers. The duty of care requires a director or an officer to act with the level of care, according to which a reasonable director or officer in the same position would have acted under the same circumstances. 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 by such person by virtue of such person’s position; and ● all other important information pertaining to the previous actions. 122 Table of Contents The duty of loyalty requires a director or an officer to act in good faith and for the benefit of the company and includes a duty to: ● refrain from any action involving a conflict of interest between the performance of the director’s or officer’s duties in the company and such person’s personal affairs; ● refrain from any activity that is competitive with the company’s business; ● refrain from usurping any business opportunity of the company to receive a personal gain for the director, officer or others; and ● disclose to the company any information or documents relating to a company’s affairs which the director or officer has received due to such person’s position as a director or an officer. Under the Israeli Companies Law, subject to certain exceptions, directors’ compensation arrangements require the approval of 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 the first board meeting at which the transaction is discussed, disclose any personal interest that he may have, and all related material 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 a company in which the director or officer or the director’s or officer’s relative is: (i) a shareholder which holds 5% or more of a company’s share capital or its voting rights, (ii) a director or a general manager, or (iii) in which the director or officer has the right to appoint at least one director or the general manager. A personal interest also includes a personal interest of a person who votes according to a proxy of another person, even if the other person has no personal interest, and a personal interest of a person who gave a proxy to another person to vote on his behalf – in each case, regardless whether discretion with respect to how to vote lies with the person voting or not. In the case of an extraordinary transaction, the director’s or the officer’s duty 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 of directors may approve an ordinary transaction between the company and a director or an officer, or a third party in which a director or an officer has a personal interest, unless the articles of association provide otherwise. A transaction that does not benefit the company’s interest cannot be approved. Subject to certain exceptions, the compensation committee and the board of directors must approve the conditions and term of office of an officer (who is not a director). If the transaction is an extraordinary transaction, both the audit committee and the board of directors, in that order, must approve the transaction. Under specific circumstances, shareholder approval may also be required. Whoever has a personal interest in a matter, which is considered at a meeting of the board of directors or the audit committee, may not be present at this meeting or vote on this matter. However, if the chairman of the board of directors or the chairman of the audit committee has determined that the presence of such person is required to present a matter at the meeting; such officer holder may be present at the meeting. Notwithstanding the foregoing, if the majority of the directors have a personal interest in a matter, a director who has the personal interest in this matter may be present at this meeting or vote on this matter, but the board of directors’ decision requires the shareholder approval. Controlling Shareholder Transactions and Actions Under the Israeli Companies Law, the disclosure requirements which apply to a director or an officer also apply to a controlling shareholder of a public company and to a person who would become a controlling shareholder as a result of a private placement. A controlling shareholder includes a person who has the ability to direct the activities of a company, other than if this power derives solely from his/her position on the board of directors or any other position with the 123 Table of Contents company. In addition, for such purposes, a controlling shareholder includes a shareholder that holds 25% or more of the voting rights in a public company if no other shareholder owns more than 50% of the voting rights in the company. Extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, including a private placement in which a controlling shareholder has a personal interest; and the terms of engagement of the company, directly or indirectly, with a controlling shareholder or his or her relative (including through a corporation controlled by a controlling shareholder), regarding the company’s receipt of services from the controlling shareholder, and if such controlling shareholder is also a director or an officer of the company or an employee, regarding his or her terms of office and employment, require the approval of the audit committee, the board of directors and the shareholders of the company, 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 the voting, in person, by proxy or by written ballot, at the meeting (votes abstaining not being taken into account); or ● the total number of shares voted against the proposal by shareholders without a personal interest does not exceed 2% 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 three years, unless, with respect to transactions not involving the receipt of services or compensation, the audit committee approves a longer term as reasonable under the circumstances. However, under regulations, promulgated pursuant to the Israeli Companies Law, certain transactions between a company and 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 principal shareholders 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 regarding a transaction with a controlling shareholder indicate whether or not that shareholder has a personal interest in the vote in question, the failure of which results in the invalidation of that shareholder’s vote. The Israeli Companies Law further provides that an acquisition of shares or voting rights in a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would become a holder of 45% of the voting rights of the company, unless there is a holder of more than 45% of the voting rights of the company or would become a holder of 25% 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 under certain circumstances; ● an acquisition of shares from a holder of at least 25% of the voting rights, as a result of which a person would become 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 would become a holder of more than 45% of the voting rights in the company. The Israeli Companies Law further provides that a shareholder has a duty to act in good faith toward the company and other shareholders when exercising his rights and duties and must refrain from oppressing other shareholders, including in connection with the voting at a shareholders’ meeting on: ● any amendment to the articles of association; ● an increase in the company’s authorized share capital; ● a merger; or ● approval of certain transactions with control persons and other related parties, which require shareholder approval. 124 Table of Contents In addition, any controlling shareholder, any shareholder who knows that it possesses power to determine the outcome of a shareholder vote and any shareholder who, pursuant to the provisions of a company’s articles of association, has the power to appoint or prevent the appointment of a director or an officer in the company, or has any other power over the company, is under a duty to act with fairness toward the company. Under the Israeli Companies Law, the laws that apply to a breach of a contract will generally also apply to a breach of the duty of fairness. Exemption, Insurance, and Indemnification of Directors and Officers Exemption of Officers and Directors Under the Israeli Companies Law, a company may not exempt an officer or director from liability with respect to a breach of his duty of loyalty, but may exempt in advance an officer or director from liability to the company, in whole or in part, with respect to a breach of his duty of care, except in connection with a prohibited distribution made by the company, if so provided in its articles of association. Our articles of association provide for this exemption from liability for our directors and officers. Directors’ and Officers’ Insurance The Israeli Companies Law and our articles of association provide that, subject to the provisions of the Israeli Companies Law, we may obtain insurance for our directors and officers for any liability stemming from any act performed by an officer or director in his capacity as an officer or director, as the case may be with respect to any of the following: ● a breach of such officer’s or director’s duty of care to us or to another person; ● a breach of such officer’s or director’s duty of loyalty to us, provided that such officer or director acted in good faith and had reasonable cause to assume that his act would not prejudice our interests; ● a financial liability imposed upon such officer or director in favor of another person; ● financial liability imposed on the officer or director for payment to persons or entities harmed as a result of violations in administrative proceedings as described in Section 52(54)(a)(1)(a) of the Israeli Securities Law (“Party Harmed by the Breach”); ● expenses incurred by such officer or director in connection with an administrative proceeding conducted in this matter, 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. Pursuant to the Compensation Policy, we may obtain a directors’ and officers’ liability insurance policy, which would apply to our or our subsidiaries’ directors and officers, as they may be, from time to time, subject to the following terms and conditions: (a) the total insurance coverage under the insurance policy may not exceed $100 million; and (b) the purchase of such policy must be approved by the Compensation Committee (and, if required by law, by the board of directors) which shall determine that such policy reflects the current market conditions and that it does not materially affect the Company's profitability, assets or liabilities. In addition, pursuant to our Compensation Policy, should we sell our operations (in whole or in part) or in case of a merger, spin-off or any other 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 the following terms and conditions: (a) the insurance term may not exceed seven years; (b) the coverage amount may not exceed $100 million. ; and (c) the purchase of such policy must be approved by the Compensation Committee (and, if required by law, by the board of directors) which shall determine that such policy reflects the current market conditions and that it does not materially affect the Company's profitability, assets or liabilities. The Compensation Policy is in effect for three years from the 2019 annual general meeting. Pursuant to the foregoing approvals, we carry directors’ and officers’ liability insurance. This insurance is renewed on an annual basis. 125 Table of Contents Indemnification of Officers and Directors The Israeli Companies Law provides that a company may indemnify an officer or director for payments or expenses associated with acts performed in his capacity as an officer or director of the company, provided the company’s articles of association 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 monetary liability imposed on him in favor of another person pursuant to a judgment (including a judgment given in a settlement or an arbitrator’s award approved by the court), so long as such indemnification is limited to types of events which, in the board of directors’ opinion, are foreseeable at the time of granting the indemnity undertaking given the company’s actual business, and in such amount or standard as the board of directors deems reasonable 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 or the 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 reasonable litigation expenses, including counsel fees, incurred by an officer or director in which he is ordered to pay by a court, in proceedings that the company institutes against him or instituted on behalf of the company or by another person, or in a criminal charge of which he was acquitted, or a criminal charge in which he was convicted of a criminal 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 reasonable litigation fees, including attorney’s fees, incurred by an officer or director due to an investigation or proceeding filed against him by an authority that is authorized to conduct such investigation or proceeding, and that resulted without filing an indictment against him and without imposing on him financial obligation in lieu of a criminal proceeding, or that resulted without filing an indictment against him but with imposing on him a financial obligation as an alternative to a criminal proceeding in respect of an offense that does not require the proof of criminal 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 Party Harmed by the Breach; ● a provision authorizing the company to indemnify an officer or director for future events with respect to expenses incurred by such officer or director in connection with an administrative proceeding, including reasonable litigation expenses, 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 or an officer nor enter into an insurance contract, which would provide coverage for any monetary liability incurred as a result of any of the following: ● a breach by the officer or director of his duty of loyalty, except for insurance and indemnification where the officer or 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 the breach was solely as a result of negligence; ● any act or omission done with the intent to derive an illegal personal benefit; or ● any fine, civil fine, monetary sanctions, or forfeit imposed on the officer or director. In addition, under the Israeli Companies Law, exemption of, 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, by our shareholders. 126 Table of Contents 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 position as our director or officer, all subject to the letter of indemnification, as approved by our shareholders from time to time and in accordance with our articles of association. We may provide retroactive indemnification to any officer to the extent allowed by the Israeli Companies Law. As approved by our shareholders on July 18, 2013, the amount of the advance indemnity is limited to the higher of 25% of our then shareholders’ equity, per our most recent annual financial statements, or $5 million. In March 2021, our compensation committee and board of directors approved an amendment to the letters of indemnification with our directors and officers to provide for an increase in the limit on the amount of the advance indemnity to $10 million. This amendment is subject to approval of our shareholders. As part of the indemnification letters, we exempted our directors and officers, in advance, to the extent permitted by law, from any liability for any damage incurred by them, either directly or indirectly, due to the breach of an officer’s or director’s duty of 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 by law, we do not exempt an officer or director in advance from his liability to us for a breach of the duty of care upon distribution, to the extent applicable to the officer or director, if any. The letter also exempts an officer or director from any liability for any damage incurred by him, either directly or indirectly, due to the breach of the officer or director’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 and indemnification becoming effective. D. Employees As of December 31, 2020, we had 182 employees, of which 17 provide services in Israel and 165 in the U.S. In addition, we also receive services from 11 consultants, of which 5 are in the U.S., 3 in Canada and 3 in Israel. As of December 31, 2018 2019 2020 Company Company Company Management and administration Research and development Commercial operations Employees Consultants Employees Consultants — 12 — 13 2 128 12 2 61 — 16 — Employees Consultants — 11 — 15 2 165 While none of our employees are party to a collective bargaining agreement, certain provisions of the collective bargaining agreements between the Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of Economic Organizations (including the Industrialists’ Associations) are applicable to our employees by order of the Israel Ministry of Labor. 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 and working conditions beyond the required minimums. We have never experienced any employment-related work stoppages and believe our relationship with our employees is good. E. Share Ownership The following table sets forth information regarding the beneficial ownership of our outstanding Ordinary Shares as of March 17, 2021, of each of our directors and executive officers individually and as a group based on information provided to us by our directors and executive officers. The information in this table is based on 466,673,384 Ordinary Shares outstanding as of such date. The number of Ordinary Shares beneficially owned by a person includes Ordinary Shares subject to options held by that person that were currently exercisable at, or exercisable within 60 days of March 17, 2021. The Ordinary Shares issuable under these options are treated as if they were outstanding for purposes of computing the percentage ownership of the person holding these options but not the percentage ownership of any other person. None 127 Table of Contents of the holders of the Ordinary Shares listed in this table have voting rights different from other holders of the Ordinary Shares. Directors Dr. Kenneth Reed (1) Dr. Shmuel Cabilly (2) Eric Swenden (3) Ofer Tsimchi (4) Alessandro Della Chà Alla Felder (5) Executive officers Dror Ben-Asher (6) Reza Fathi, Ph.D. (7) Adi Frish (8) Gilead Raday (9) Guy Goldberg (10) Micha Ben Chorin (11) Rick D. Scruggs (12) June Almenoff (13) All directors and executive officers as a group (14 persons) Number of Shares Beneficially Percent of Held Class 7,622,020 4,624,178 1,549,340 710,000 680,000 240,000 7,968,010 2,620,000 2,405,000 2,195,000 2,125,000 1,775,000 1,595,000 278,120 36,386,668 1.63 % * * * * * 1.69 % * * * * * * * 7.48 % Less than 1.0% * (1) Includes options to purchase 580,000 Ordinary Shares exercisable within 60 days of March 17, 2021. The exercise price of these options ranges between $0.49 and $1.48 per share and the options expire between 2023 and 2030. Number of shares beneficially held also includes shares held by family members. (2) Includes options to purchase 490,000 Ordinary Shares exercisable within 60 days of March 17, 2021. The exercise price of these options ranges between $0.49 and $1.48 per share and the options expire between 2023 and 2030. (3) Includes options to purchase 486,250 Ordinary Shares exercisable within 60 days of March 17, 2021. The exercise price of these options ranges between $0.49 and $1.48 per share and the options expire between 2023 and 2030. (4) Includes options to purchase 710,000 Ordinary Shares exercisable within 60 days of March 17, 2021. The exercise price of these options ranges between $0.49 and $1.58 per share and the options expire between 2021 and 2030. (5) Includes options to purchase 240,000 Ordinary Shares exercisable within 60 days of March 17, 2021. The exercise price of these options ranges between $0.49 and $0.92 per share and the options expire between 2029 and 2030. (6) Includes options to purchase 4,700,000 Ordinary Shares exercisable within 60 days of March 17, 2021. The exercise price of these options ranges between $0.49 and $1.48 per share and the options expire between 2022 and 2030. (7) Includes options to purchase 2,350,000 Ordinary Shares exercisable within 60 days of March 17, 2021. The exercise price of these options ranges between $0.49 and $1.56 per share, and the options expire between 2022 and 2030. (8) Includes options to purchase 2,225,000 Ordinary Shares exercisable within 60 days of March 17, 2021. The exercise price of these options ranges between $0.49 and $1.56 per share and the options expire between 2022 and 2030. (9) Includes options to purchase 2,195,000 Ordinary Shares exercisable within 60 days of March 17, 2021. The exercise price of these options ranges between $0.49 and $1.56 per share and the options expire between 2022 and 2030. (10) Includes options to purchase 2,125,000 Ordinary Shares exercisable within 60 days of March 17, 2021. The exercise price of these options ranges between $0.49 and $1.56 per share, and the options expire between 2022 and 2030. (11) Includes options to purchase 1,775,000 Ordinary Shares exercisable within 60 days of March 17, 2021. The exercise price of these options ranges between $0.49 and $1.41 per share and the options expire between 2023 and 2030. (12) Includes options to purchase 1,445,000 Ordinary Shares exercisable within 60 days of March 17, 2021. The exercise price of these options ranges between $0.68 and $1.28 per share and the options expire between 2023 and 2030. (13) Includes options to purchase 270,620 Ordinary Shares exercisable within 60 days of March 17, 2021. The exercise price of these options ranges between $0.80 and $1.41 per share and the options expire between 2023 and 2029. 128 Table of Contents Award Plans Amended and Restated Award Plan Our 2010 Amended and Restated Award Plan (2010) (“Award Plan”) provides for the granting of Ordinary Shares, ADSs, stock options under various tax regimes in Israel and the U.S., restricted shares, and other share-based awards to our directors, officers, employees, consultants and service providers and individuals who are their employees, and to the directors, officers, employees, consultants and service providers of our subsidiaries and affiliates. The Award Plan provides for awards to be issued at the determination of our board of directors in accordance with applicable laws. As of March 17, 2021, there were 49,306,180 Ordinary Shares issuable upon the exercise of outstanding awards under the Award Plan and 16,438,747 Ordinary Shares available for future issuance under the Award Plan. Our Award Plan provides that the maximum number of Ordinary Shares that may be issued under the Award Plan will automatically be increased on January 1 of each calendar year such that immediately following such increase the maximum number of Ordinary Shares that may be issued under the Award Plan will be equal to fifteen percent (15%) of the number of outstanding Ordinary Shares on a fully-diluted basis on December 31 of the immediately preceding calendar year. Administration of Our Amended and Restated Award Plan Our Award Plan is administered by our compensation committee regarding the granting of awards and the terms of awards grants, including the exercise price, method of payment, vesting schedule, acceleration of vesting and the other matters necessary in the administration of these plans. Options granted under the Award Plan to eligible Israeli employees, directors and officers are granted under Section 102 of the Israel Income Tax Ordinance pursuant to which the options or the Ordinary Shares issued upon their exercise must be allocated or issued to a trustee and be held in trust for two years from the date upon which such options were granted in order to benefit from the provisions of Section 102. Under Section 102, any tax payable by an employee from the grant or exercise of the options is deferred until the transfer of the options or Ordinary Shares by the trustee to the employee or upon the sale of the options or Ordinary Shares, and gains may qualify 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 the Award Plan as amended generally vest over a period of 4 years and expire ten (10) years after the grant date. The Award Plan, however, permits options to have a term of up to 10 years. If we terminate a grantee for cause (as such term is defined in the Award Plan) the right to exercise all the options granted to the grantee, the grantee’s vested and unvested options will expire immediately, on the earlier of: ● termination of the engagement; or ● the date of the notice of the termination of the engagement. Upon termination of employment for any other reason, other than in the event of death, disability, retirement after the age of 60, a merger or other change in control approved by the board of directors, or for cause, all unvested options will expire and all vested options will generally be exercisable for 90 days following termination, or such other period as determined by the plan administrator, subject to the terms of the 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 be entitled at the time of termination to full acceleration of all the options granted prior to the event. Under our Award Plan, as amended, in the event any person, entity or group that was not an interested party at the time of our initial public offering on the TASE becoming a controlling shareholder, all options granted by us under the plan will be accelerated, so that the grantee will be entitled to exercise all of those options. A “controlling shareholder” in this paragraph is a controlling shareholder, as defined in the Israel Securities Law, 1968. An “interested party” is defined in the Securities Law and includes, among others: ● a holder of 5% or more of the outstanding shares or voting rights of an entity; ● a person entitled to appoint one or more of the directors or chief executive officer of an entity; ● a director of an entity or its chief executive officer; 129 Table of Contents ● an entity, in which an individual referred to above holds 25% or more of its outstanding shares or voting rights, or is entitled to appoint 25% or more of its directors; or ● a person who initiated the establishment of the entity. Upon termination of employment due to death or disability, or retirement after the age of 60, subject to the board of directors’ approval, all the vested options at the time of termination will be exercisable for 24 months, or such other period as determined by the plan administrator, subject to the terms of the 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 as of March 17, 2021, 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 such shareholder’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 466,673,384 Ordinary Shares outstanding (equal to 46,667,338 ADSs) as of such date. In determining the number of Ordinary Shares beneficially owned by a person, we include any shares as to which the person has sole or shared voting power or investment power, as well as any Ordinary Shares subject to options or warrants held by that person that were currently exercisable at, or exercisable within 60 days of March 17, 2021. The Ordinary Shares issuable under these options and warrants are treated as if they were outstanding for purposes of computing the percentage ownership of the person holding these options and warrants but not the percentage ownership of any other person. None of the holders of the Ordinary Shares listed in this table have voting rights different from other holders of Ordinary Shares. Cosmo Pharmaceuticals N.V. (1) First Investments Holding Ltd. (2) Ibex Israel Fund LLLP (3) Number of Shares Beneficially Held 69,000,010 39,285,710 24,690,370 Percent of Class 14.79 % 8.42 5.29 (1) The address of Cosmo Pharmaceuticals N.V. is Riverside II, Sir John Rogerson’s Quay, Dublin, Ireland. Cosmo Technologies Ltd. a wholly-owned subsidiary of Cosmo Pharmaceuticals N.V., is the direct holder of 17,142,860 of the Ordinary Shares listed in the table. (2) Mr. Vasile Timis may be deemed the beneficial owner of the shares held by First Investments Holdings Ltd. The address of First Investments Holding Ltd. is 2nd Floor, Strathvale House, 90 North Church Street, P.O. Box 1103, Cayman Islands. (3) Ibex Investors LLC (the “Investment Manager”) is the investment manager of Ibex Israel Fund LLLP (the “Fund”). Ibex Investment Holdings LLC (“IM Holdings”) is the sole member of the Investment Manager. Ibex GP LLC (the “General Partner”) is the general partner of the Fund. Ibex Investment Holdings II LLC (“GP Holdings”) is the sole member of the General Partner. Justin B. Borus is the manager of the Investment Manager, IM Holdings, the General Partner and GP Holdings. Justin B. Borus, the Investment Manager, IM Holdings, the General Partner and GP Holdings may be deemed to beneficially own the Ordinary Shares directly beneficially owned by the Fund. The address of Ibex Israel Fund LLLP is 260 N. Josephine, Suite 300., Denver, CO 80206. On March 17, 2021, 13,297,609 ADSs (equivalent to 132,976,090 Ordinary Shares, or approximately 28.49% of our total issued and outstanding Ordinary Shares), were held of record by three record holders, of which one holder had a U.S. address. As of March 17, 2021, 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 Shares because many of the ADSs and Ordinary Shares are held by brokers or other nominees. 130 Table of Contents On October 17, 2019, we entered into a strategic collaboration with Cosmo, which includes an exclusive license agreement for the U.S. rights to Aemcolo® and a simultaneous private investment by Cosmo of $36.3 million in the Company. Cosmo was issued an aggregate of 6,900,001 ADSs (represented by 69,000,010 Ordinary Shares) in connection with the license agreement and private investment. See “Item 4. Information on the Company – B. Business Overview – B. Business Overview Acquisition, Commercialization and License Agreements – Exclusive License Agreement for Aemcolo® .” B. Related Party Transactions “Item 4. Information on the Company - B. Business Overview - Acquisition, Commercialization and License Agreements - Licensing and Manufacturing Terms with Cosmo Pharmaceuticals.” 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. On February 22, 2021, Aether Therapeutics Inc., filed a complaint against us in the United States District Court for the District of Delaware. We refer to this matter as the Aether Litigation. The complaint asserts that our marketing of the Movantik® product infringes U.S. Patent Nos. 6,713,488, 8,748,448, 8,883,817 and 9,061,024 held by Aether Therapeutics Inc., or the Aether Patents. Aether has asserted the Aether Patents against other entities previously involved in the marketing of the Movantik® product. The complaint requests customary remedies for patent infringement, including (i) a judgment that we have infringed, contributed to and induced infringement of the Aether patents, (ii) damages, (iii) attorneys' fees and (iv) costs and expenses. We intend to vigorously defend ourselves against these claims. Given the early stage of the Aether litigation, we are unable to predict the likelihood of success of the claims of Aether Therapeutics Inc. against us or to quantify any risk of loss. The Aether Litigation could last for an extended period of time and require us to dedicate significant financial resources and management resources to our defense. An adverse ruling against us could materially and adversely affect our business, financial position, results of operations or cash flows and could also result in reputational harm. Even if we are successful in defending against these claims, the Aether Litigation could result in delays in future product developments, reputational harm or other collateral consequences Dividend Policy We have never declared or paid cash dividends to our shareholders. Currently, we do not intend to pay cash dividends, and we are prohibited from doing so under our Credit Agreement. We currently intend to reinvest any future earnings, if any, in developing and expanding our business. Any future determination relating 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, 2020. 131 Table of Contents ITEM 9. THE OFFER AND LISTING A. Offer and Listing Details Our Ordinary Shares were traded on the TASE under the symbol “RDHL” from February 2011 to February 2020 and were voluntarily delisted from trading on the TASE, effective February 13, 2020. They are listed but are not traded on the Nasdaq Global Market in connection with our ADSs.Our ADSs were traded on the Nasdaq Capital Market under the symbol “RDHL” from December 27, 2012, and have been listed on the Nasdaq Global Market under the same symbol since July 20, 2018. B. Plan of Distribution Not applicable. C. Markets Our ADSs, each representing ten Ordinary Shares and evidenced by an American depositary receipt, or ADR, are traded on the Nasdaq Global Market under the symbol “RDHL.” The ADRs were issued pursuant to a Depositary Agreement entered into with The Bank of New York Mellon. 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, New York, NY. Objects and Purposes According to Section 4 of our articles of association, we shall engage in any legal business. Our number with the Israeli Registrar of Companies is 514304005. 132 Table of Contents 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 before the private placement, and all or part of the private placement consideration is not in cash or in public traded securities or is not in market terms and if as a result of the private placement the holdings of a substantial shareholder will increase or as a result of it a person will become a substantial shareholder, then, in either case, the allotment must be approved by the board of directors and by the shareholders of the company. A “substantial shareholder” is defined as a shareholder who holds five percent or more of the company’s outstanding share capital, assuming the exercise of all of the securities convertible into shares held by that person. In order for the private placement to be on “market terms” the board of directors has to determine, on the basis of detailed explanation, that the private placement is on market terms, unless proven otherwise. Board of Directors Under our articles of association, resolutions by the board of directors are decided by a majority of votes of the directors present, 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 provided for in a company’s articles of association and in certain circumstances by the compensation or audit committee and by the board of directors itself. Those transactions that require such approval pursuant to a company’s articles of association must be approved by its board of directors. In certain circumstances, compensation or audit committee and shareholder approval are also required. See “Item 6. Directors, Senior Management and Employees – C. Board Practices.” The Israeli Companies Law requires that a member of the board of directors or senior management of the company promptly and, in any event, not later than the first board meeting at which the transaction is discussed, disclose any personal interest that he or she may have, either directly or by way of any corporation in which he or she is, directly or indirectly, a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager, as well as all related material information known to him or her, in connection with any existing or proposed transaction by the company. In addition, if the transaction is an extraordinary transaction, (that is, a transaction other than in the ordinary course of business, otherwise than on market terms, or is likely to have a material impact on the company’s profitability, assets or liabilities), the member of the board of directors or senior management must also disclose any personal interest held by his or her spouse, siblings, parents, grandparents, descendants, spouse’s descendants, siblings and parents, and the spouses of any of the foregoing. Once the member of the board of directors or senior management complies with the above disclosure requirement, a company may approve the transaction in accordance with the provisions of its articles of association. Under the provisions of the Israeli Companies Law, whoever has a personal interest in a matter, which is considered at a meeting of the board of directors or the audit committee, may not be present at this meeting or vote on this matter, unless it is not an extraordinary transaction as defined in the Israeli Companies Law. However, if the chairman of the board of directors or the chairman of the audit committee has determined that the presence of a director or an officer with a personal interest is required for the presentation of a matter, such officer holder may be present at the meeting. Notwithstanding the foregoing, if the majority of the directors have a personal interest in a matter, they will be allowed to participate and vote on this matter, but an approval of the transaction by the shareholders in the general meeting will be required. Our articles of association provide that, subject to the Israeli Companies Law, all actions executed in good faith by the board of directors or by a committee thereof or by any person acting as a director or a member of a committee of the board of directors, will be deemed to be valid even if, after their execution, it is discovered that there was a flaw in the appointment of these 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 may appoint board of directors’ committees. The committees of the board of directors report to the board of directors their resolutions or recommendations on a regular basis, as prescribed by the board of directors. The board of directors may cancel the resolution of a committee that has been appointed by it; however, such cancellation will not affect the validity 133 Table of Contents of any resolution of a committee, pursuant to which we acted, vis-à-vis another person, who was not aware of the cancellation thereof. Decisions or recommendations of the committee of the board which require the approval of the board of directors will be brought to the directors’ attention at a reasonable time prior to the discussion at the board of directors. According to the Israeli Companies Law, a contract of a company with its directors, regarding their conditions of service, including the grant to them of exemption from liability from certain actions, insurance, and indemnification as well as the company’s contract with its directors on conditions of their employment, in other capacities, require the approval of the compensation committee, the board of directors, and the shareholders by a Special Majority. Description of Securities Ordinary Shares Our registered share capital is NIS 8,000,000, divided into (i) 794,000,000 registered Ordinary Shares of NIS 0.01 par value each, and (ii) 6,000,000 preferred shares of NIS 0.01 par value each. The Ordinary Shares do not have preemptive rights, preferred rights or any other right to purchase our securities. Neither our articles of association nor the laws of the State of Israel restrict the ownership or voting of Ordinary Shares by non- residents of Israel, except for subjects of countries that are enemies of Israel. Transfer of Shares. Fully paid Ordinary Shares are issued in registered form and may be freely transferred pursuant to our articles 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, under regulations promulgated under the Israeli Companies Law, we are required to publish a notice in two daily newspapers at least 35 calendar days prior any shareholders’ meeting in which the agenda includes matters which may be voted on by voting instruments. Regulations under the Israeli Companies Law exempt companies whose shares are listed for trading both on a stock exchange in and outside of Israel, from some provisions of the Israeli Companies Law. An amendment to these regulations exempts us from the requirements of the Israeli proxy regulation, under certain circumstances. According to the Israeli Companies Law and the regulations promulgated thereunder, for purposes of determining the shareholders entitled to notice and to vote at such meeting, the board of directors may fix the record date not more than 40 nor less than four calendar days prior to the date of the meeting, provided that an announcement regarding the general meeting 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 from time to time, in a resolution approved by a majority of 75% or more of the votes cast by those shareholders present and voting at the meeting in person, by proxy or by a voting instrument, not taking into consideration abstaining votes, to change the minimum or maximum number of directors as stated above as well as to amend the board classification under our Articles. A simple majority shareholder vote is required to elect a director for a term of less than three years. For more information, please see “Item 6. Directors, Senior Management and Employees – C. Board Practices – Appointment of Directors and Terms of Office.” Dividend and Liquidation Rights. Our profits, in respect of which a resolution was passed to distribute them as a dividend or bonus shares, are to be paid pro rata to the amount paid or credited as paid on account of the nominal value of shares held by the shareholders. In the event of our liquidation, the liquidator may, with the general meeting’s approval, distribute parts of our property in specie among the shareholders and he may, with similar approval, deposit any part of our property with trustees in favor of the shareholders as the liquidator, with the approval mentioned above deems fit. The terms of our term loan facility prohibit us from paying dividends. 134 Table of Contents Voting, Shareholders’ Meetings and Resolutions. Holders of Ordinary Shares are entitled to one vote for each Ordinary Share held on all matters submitted to a vote of shareholders. The quorum required for an ordinary meeting of shareholders consists of at least two shareholders present, in person or by proxy, or who has sent us a voting instrument indicating the way in which 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 place as prescribed by the board of directors in the notice to the shareholders. At the reconvened meeting one shareholder at least, present in person or by proxy constitutes a quorum except where such meeting was called at the demand of shareholders. With the agreement of a meeting at which a quorum is present, the chairman may, and on the demand of the meeting he must, adjourn the meeting from time to time and from place to place, as the meeting resolves. Annual general meetings of shareholders are held once every year within a period of not more than 15 months after the last preceding annual general shareholders’ meeting. The board of directors may call special general meetings of shareholders. The Israeli Companies Law provides that a special general meeting of shareholders may be called by the board of directors or by a request of two directors or 25% of the directors in office, whichever is the lower, or by shareholders holding at least 5% of our issued 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, at the 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 and conditions 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 target company’s issued and outstanding share capital is required by the Israeli Companies Law to make a tender offer to all of the company’s shareholders for the purchase of all of the issued and outstanding shares of the company. A person wishing to acquire shares of an Israeli public company and who would as a result hold over 90% of the issued and outstanding share capital of a certain class of shares is required to make a tender offer to all of the shareholders who hold shares of the same class for the purchase of all of the issued and outstanding shares of the same class. If the shareholders who do not respond to or accept the offer hold less than 5% of the issued and outstanding share capital of the company or of the applicable class of the shares, and more than half of the shareholders who do not have a personal interest in the offer accept the offer, all of the shares that the acquirer offered to purchase will be transferred to the acquirer by operation of law. However, a tender offer will be accepted if the shareholders who do not accept it hold less than 2% of the issued and outstanding share capital of the company or of the applicable class of the shares. Upon a successful completion of such a full tender offer, any shareholder that was an offeree in such tender offer, whether such 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 be paid as determined by the court. However, under certain conditions, the offeror may determine in the terms of the tender offer that an offeree who accepted the offer will not be entitled to petition the Israeli court as described above. If the shareholders who did not respond or accept the tender offer hold at least 5% of the issued and outstanding share capital of the company or of the applicable class, the acquirer may not acquire shares of the company that will increase its holdings to more than 90% of the company’s issued and outstanding share capital or of the applicable class from shareholders who accepted the tender offer. The description above regarding a full tender offer will also apply, with necessary changes, when a full tender offer is accepted, and the offeror has also offered to acquire all of the company’s securities. 135 Table of Contents Special Tender Offer The Israeli Companies Law provides that an acquisition of shares of an Israeli public company must be made by means of a special tender offer if as a result of the acquisition the purchaser would become a holder of at least 25% of the voting rights in the company. This rule does not apply if there is already another holder of at least 25% of the voting rights in the company. Similarly, the Israeli Companies Law provides that an acquisition of shares of a public company must be made by means of a special tender offer if as a result of the acquisition the purchaser would become a holder of more than 45% of the voting rights in the company, if there is no other shareholder of the company who holds more than 45% of the voting rights in the company. These requirements do not apply if the acquisition (i) occurs in the context of a private offering, on the condition that the shareholders meeting approved the acquisition as a private offering whose purpose is to give the acquirer at least 25% of the voting rights in the company if there is no person who holds at least 25% of the voting rights in the company, or as a private offering 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 and resulted in the acquirer becoming a holder of at least 25% of the voting rights in the company; or (iii) was from a holder of more than 45% of the voting rights in the company and resulted in the acquirer becoming a holder of more than 45% of the voting rights in the company. The special tender offer may be consummated only if (i) at least 5% of the voting power attached to the company’s outstanding shares will be acquired by the offeror and (ii) the special tender offer is accepted by a majority of the votes of those offerees who gave notice of their position in respect of the offer; in counting the votes of offerees, the votes of a holder in 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 or companies under their control, are not taken into account. In the event that a special tender offer is made, a company’s board of directors is required to express its opinion on the advisability of the offer or must abstain from expressing any opinion if it is unable to do so, provided that it gives the reasons for 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 cause the failure of an existing or foreseeable special tender offer or is to impair the chances of its acceptance, is liable to the potential purchaser and shareholders for damages resulting from his acts, unless such officer acted in good faith and had reasonable grounds to believe he or she was acting for the benefit of the company. However, officers of the target company may negotiate with the potential purchaser in order to improve the terms of the special tender offer and may further negotiate with third parties in order to obtain a competing offer. If a special tender offer was accepted by a majority of the shareholders who announced their stand on such offer, then shareholders who did not respond to the special offer or had objected to the special tender offer may accept the offer within four days of the last day set for the acceptance of the offer. In the event that a special tender offer is accepted, then the purchaser or any person or entity controlling it and any corporation controlled by them must refrain from making a subsequent tender offer for the purchase of shares of the target company and may not execute a merger with the target company for a period of one year from the date of the offer unless the purchaser or such person or entity undertook to effect such 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 certain requirements described under the Israeli Companies Law are met, a majority of each party’s shareholders, by a majority of each party’s shares that are voted on the proposed merger at a shareholders’ meeting. 136 Table of Contents The board of directors of a merging company is required pursuant to the Israeli Companies Law to discuss and determine whether in its opinion there exists a reasonable concern that, as a result of a proposed merger, the surviving company will not be able to satisfy its obligations toward 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 the approval of the board of directors of each of the merging companies, the boards of directors must jointly prepare a merger proposal for submission to the Israeli Registrar of Companies. For purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the shares voting at the shareholders meeting (excluding abstentions) that are held by parties other than the other party to the merger, any person who holds 25% or more of the means of control (see “Management – Audit Committee – Approval of Transactions with Related Parties” for a definition of means of control) of the other party to the merger or anyone on their behalf including their relatives (see “Management – External Directors – Qualifications of External Directors” for a definition of relatives) or corporations controlled by any of them, vote against the merger. In addition, if the non-surviving entity of the merger has more than one class of shares, the merger must be approved by each class of shareholders. If the transaction would have been approved but for the separate approval of each class of shares or the exclusion of the votes of certain shareholders as provided above, a court may still rule that the company has approved the merger upon the request of holders of at least 25% of the voting rights of a company, if the court holds that the merger is fair and reasonable, taking into account the appraisal of the merging companies’ value and the consideration offered to the shareholders. Under the Israeli Companies Law, each merging company must send a copy of the proposed merger plan to its secured creditors. Unsecured creditors are entitled to receive notice of the merger, as provided by the regulations promulgated under the Israeli Companies Law. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy the obligations of the target company. The court may also give instructions in order to secure the rights of creditors. In addition, a merger may not be completed unless at least 50 days have passed from the date that a proposal for approval of the merger was filed with the Israeli Registrar of Companies and 30 days from the date that shareholder approval of both merging 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 Ordinary Shares, including shares providing certain preferred or additional rights to voting, distributions or other matters and shares having preemptive rights. We have 6,000,000 authorized unissued preferred shares. Our authorized preferred shares, and any other class of shares other than Ordinary Shares that we may create and issue in the future, depending on the specific rights that may be attached to them, may delay or prevent a takeover or otherwise prevent our shareholders from realizing a potential premium over the market value of their Ordinary Shares. The authorization of a new class of shares will require an amendment to our articles of association which requires the prior approval of a majority of our shares represented and voting at a general meeting. Shareholders voting at such a meeting will be subject to the restrictions under the Israeli Companies Law described in “– Voting.” In addition, provisions of our articles of our association relating to the election of our directors for terms of three years make it more difficult for a third party to effect a change in control or takeover attempt that our management and board of directors oppose. See “Item 6. Directors, Senior Management and Employees – C. Board Practices – Appointment of 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.” 137 Table of Contents D. Exchange Controls Israeli law and regulations do not impose any material foreign exchange restrictions on non-Israeli holders of our Ordinary Shares. Dividends, if any, paid to holders of our Ordinary Shares, and any amounts payable upon our dissolution, liquidation or winding up, as well as the proceeds of any sale in Israel of our Ordinary Shares to an Israeli resident, may 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 time of conversion. E. Taxation Israeli Tax Considerations General The following is a summary of the material tax consequences under Israeli law concerning the purchase, ownership and disposition of our Ordinary Shares or American Depositary Shares (collectively, the “Shares”). This discussion does not purport to constitute a complete analysis of all potential tax consequences applicable to investors upon purchasing, owning or disposing of our Shares. In particular, this discussion does not take into account the specific circumstances 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 are subject to special tax regimes not covered under this discussion). To the extent that issues discussed herein are based on legislation that has yet to be subject to judicial or administrative interpretation, there can be no assurance that the views expressed herein will accord with any such interpretation in the future. Potential investors are urged to consult their own tax advisors as to the Israeli or other tax consequences of the purchase, ownership, and disposition of the Shares, including, in particular, the effect of any foreign, state or local taxes. General Corporate Tax Structure in Israel Israeli companies are generally subject to corporate tax on their taxable income at the rate of 23% for the 2020 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 by a non-Israeli resident if those assets are either (i) located in Israel; (ii) are shares or a right to a share in an Israeli resident corporation, or (iii) represent, directly or indirectly, rights to assets located in Israel, unless an exemption is available or unless an applicable double tax treaty between Israel and the seller’s country of residence provides otherwise. The Israeli Income Tax Ordinance distinguishes between “Real Gain” and the “Inflationary Surplus”. “Real Gain” is the excess of the total capital gain over Inflationary Surplus generally computed on the basis of the increase in the Israeli Consumer Price Index between the date of purchase and the date of disposition. Inflationary Surplus is not subject to tax. Real Gain accrued by individuals on the sale of the Shares will be taxed at the rate of 25%. However, if the individual shareholder is a “Controlling Shareholder” (i.e., a person who holds, directly or indirectly, alone or together with another, 10% or more of one of the Israeli resident company’s means of control) at the time of sale or at any time during the preceding 12-month period, such gain will be taxed at the rate of 30%. Corporate and individual shareholders dealing in securities in Israel are taxed at the tax rates applicable to business income (23% in 2019 and thereafter), and a marginal tax rate of up to 50% in 2020 for individuals, including an excess tax (as discussed below). 138 Table of Contents Notwithstanding the foregoing, capital gains generated from the sale of our Shares by a non-Israeli shareholder may be exempt 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 may not apply to shares purchased on or after January 1, 2009) and (ii) the seller does not have a permanent establishment in Israel to which the generated capital gain is attributed. However, non-Israeli resident corporations will not be entitled to the foregoing exemption if Israeli residents: (i) have a 25% or more interest in such non-Israeli corporation or (ii) are the beneficiaries of, or are entitled to, 25% or more of the income or profits of such non-Israeli corporation, whether directly or indirectly. In addition, such exemption would not be available to a person whose gains from selling or otherwise disposing of the securities are deemed to be business income. In addition, the sale of the Shares may be exempt from Israeli capital gains tax under the provisions of an applicable double tax treaty. For example, the Convention Between the Government of the United States of America and the Government of the State of Israel with Respect to Taxes on Income, or the U.S.-Israel Double Tax Treaty, exempts a U.S. resident (for purposes of the U.S.-Israel Double Tax Treaty) from Israeli capital 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. law applicable to foreign tax credits. The U.S.- Israel Double Tax Treaty does not relate to U.S. state or local taxes. Payers of consideration for the Shares, including the purchaser, the Israeli stockbroker or the financial institution through which the Shares are held, are obligated, subject to certain exemptions, to withhold tax upon the sale of Shares at a rate of 25% 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 advance payment must be paid to the Israeli Tax Authority on January 31 and July 31 of every tax year in respect of sales of traded securities made within the previous six months. However, if all tax due was withheld at source according to applicable provisions of the Israeli Income Tax Ordinance and regulations promulgated thereunder, such return need not be filed, and no advance payment must be paid. Capital gains are also reportable on annual income tax returns. Dividends Dividends distributed by a company to a shareholder who is an Israeli resident individual will generally be subject to income tax at a rate of 25%. However, a 30% tax rate will apply if the dividend recipient is a Controlling Shareholder, as defined above, at the time of distribution or at any time during the preceding 12-month period. If the recipient of the dividend is an Israeli resident corporation, such dividend will generally be exempt from Israeli income tax provided that the income from which such dividend is distributed, derived or accrued within Israel. Dividends distributed by an Israeli resident company to a non-Israeli resident (either an individual or a corporation) are generally subject to Israeli withholding tax on the receipt of such dividends at the rate of 25% (30% if the dividend recipient is a Controlling Shareholder at the time of distribution or at any time during the preceding 12-month period). These rates may be reduced under the provisions of an applicable double tax treaty. For example, under the U.S.-Israel Double Tax Treaty, 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 payment of the dividend and during the whole of its prior taxable year (if any), at least 10% of the outstanding shares of the voting stock of the Israeli resident paying corporation and not more than 25% of the gross income of the Israeli resident paying corporation for such prior taxable year (if any) consists of certain types of interest or dividends the tax rate is 12.5%; (ii) if both the conditions mentioned in clause (i) above are met and the dividend is paid from an Israeli resident company’s income which was entitled to a reduced tax rate under The Law for the Encouragement of Capital Investments, 1959, the tax rate is 15%; and (iii) in all other cases, the tax rate is 25%. The aforementioned rates under the U.S.-Israel Double Tax Treaty will not apply if the dividend income is attributed to a permanent establishment of the U.S. resident in Israel. 139 Table of Contents 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 651,600 for 2020, linked to the Israeli Consumer Price Index) will be subject to an additional tax at the rate of 3% on his or her taxable income for such tax year that is in excess of such amount. For this purpose, taxable income includes taxable capital gains from the sale of securities and taxable income from interest and dividends, subject to the provisions of an applicable double tax treaty. Estate and Gift Tax Israel does not currently impose estate or gift taxes if the Israeli Tax Authority is satisfied that the gift was made in good faith and on condition that the recipient of the gift is not a non-Israeli resident. Foreign Exchange Regulations Non-residents of Israel who hold our Shares are able to receive any dividends, and any amounts payable upon the dissolution, liquidation and winding up of our affairs, repayable in non-Israeli currency at the rate of exchange prevailing at the time of conversion. However, Israeli income tax is generally required to have been paid or withheld on these amounts. In addition, the statutory framework for the potential imposition of currency exchange control has not been eliminated and may be restored at any time by administrative action. U.S. Federal Income Tax Considerations The following is a summary of the material U.S. federal income tax consequences relating to the ownership and disposition of our Ordinary Shares and ADSs by U.S. Holders, as defined below. This summary addresses solely U.S. Holders who acquire ADSs pursuant to this offering and who hold Ordinary Shares or ADSs, as applicable, as capital assets for tax purposes. This summary is based on current provisions of the Internal Revenue Code of 1986, as amended (the “Code”), current and proposed U.S. Treasury regulations promulgated thereunder, and administrative and judicial decisions as of the date hereof, all of which are subject to change, possibly on a retroactive basis. In addition, this section is based in part upon representations of the depositary and the assumption that each obligation in the deposit agreement and any related agreement will be performed in accordance with its terms. This summary does not address all U.S. federal income tax matters that may be relevant to a particular 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 subject to special tax rules including, without limitation, the following: ● dealers or traders in securities, currencies or notional principal contracts; ● banks, insurance companies and other financial institutions; ● real estate investment trusts; ● persons subject to the alternative minimum tax; ● tax-exempt organizations; ● traders that have elected mark-to-market accounting; ● corporations that accumulate earnings to avoid U.S. tax; ● pension plans; ● investors that hold the Ordinary Shares or ADSs as part of a “straddle,” “hedge,” or “conversion transaction” with other investments; ● regulated investment companies; ● persons that actually or constructively own 10 percent or more of our shares by vote or by value; ● persons that are treated as partnerships or other pass-through entities for U.S. federal income purposes and persons who hold the Ordinary Shares or ADSs through partnerships or other pass-through entities; and ● persons whose functional currency is not the U.S. dollars. 140 Table of Contents 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 Shares or ADSs. You are urged to consult your own tax advisor regarding the foreign and U.S. federal, state, and local and other tax consequences 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. federal income 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 in the U.S. or under the laws of the U.S., any state thereof, or the District of Columbia; ● 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 valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. If an entity or arrangement that is classified as a partnership for U.S. federal tax purposes holds Ordinary Shares or ADSs, the U.S. federal tax treatment of its partners will generally depend upon the status of the partners and the activities of the partnership. Entities or arrangements that are classified as partnerships for U.S. federal tax purposes and persons holding Ordinary Shares or ADSs through such entities should consult their own tax advisors. In general, if you hold ADSs, you will be treated as the holder of the underlying Ordinary Shares represented by those ADSs for U.S. federal income tax purposes. Accordingly, gain or loss generally will not be recognized if you exchange ADSs for the underlying Ordinary Shares represented by those ADSs. Distributions Subject to the discussion under “—Passive Foreign Investment Companies” below, the gross amount of any distribution, including the amount of any Israeli taxes withheld from such distribution, see “Material Tax Considerations—Israeli Tax Considerations,” actually or constructively received by a U.S. Holder with respect to an Ordinary Share (or, in the case of an ADS, received by the depositary) will be taxable to the U.S. Holder as foreign-source dividend income to the extent of our current and accumulated earnings and profits as determined under U.S. federal income tax principles. The U.S. Holder will not be eligible for any dividends received deduction in respect of the dividends paid by us. Distributions in excess of earnings and profits will be non-taxable to the U.S. Holder to the extent of the U.S. Holder’s adjusted tax basis in its Ordinary Share or ADS. Distributions in excess of such adjusted tax basis will generally be taxable to the U.S. Holder as capital gain from the sale or exchange of property as described below under “—Sale or Other Disposition of Ordinary Shares or ADSs.” If we do not report to a U.S. Holder the portion of a distribution that exceeds earnings and profits, then the distribution will generally be taxable as a dividend. The amount of any distribution of property other than cash will be the fair market value of that property on the date of distribution. Qualified dividends received by non-corporate U.S. Holders will be subject to U.S. federal income tax at the preferential long-term capital gains rate of, currently, a maximum of 20%. Dividends distributed with respect to our Ordinary Shares or ADSs are qualified dividend only if we are treated as a “qualified foreign corporation” and such U.S. Holder has a holding period with respect to our Ordinary Shares or ADSs of at least 61 days during the 121-day period beginning 60 days before the ex-dividend date. We are a “qualified foreign corporation” if we are not a PFIC for the year in which the dividend is paid or for the preceding taxable year and either (a) we are eligible for the benefits under the U.S.-Israel Double Tax Treaty or (b) the Ordinary Shares or ADSs are readily tradable on an established securities market in the U.S. As discussed below in “—Passive Foreign Investment Companies,” we do not anticipate being treated as a PFIC for this year; however, there can be no assurance that we will not be treated as a PFIC for our current taxable or future taxable years. You should consult your own tax advisor regarding the availability of this preferential tax rate under your particular circumstances. 141 Table of Contents The amount of any distribution paid in a currency other than U.S. dollars (a “foreign currency”), including the amount of any withholding tax thereon, will be included in the gross income of a U.S. Holder in an amount equal to the U.S. dollar value of the foreign currency calculated by reference to the exchange rate in effect on the date of the U.S. Holder’s (or, in the case of ADSs, the depositary’s) receipt of the dividend, regardless of whether the foreign currency is converted into U.S. dollars. If the foreign currency is converted into U.S. dollars on the date of receipt, a U.S. Holder generally should not be required to recognize a foreign currency gain or loss in respect of the dividend. If the foreign currency received in the distribution is not converted into U.S. dollars on the date of receipt, a U.S. Holder will have a basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Any gain or loss on a subsequent conversion or other disposition of the foreign 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 credits and the timing thereof are complex. You should consult your own tax advisors regarding the availability of a foreign tax credit in your particular situation. Sale or Other Disposition of Ordinary Shares or ADSs Subject to the discussion under “—Passive Foreign Investment Companies” below, a U.S. Holder that sells or otherwise disposes of its Ordinary Shares or ADSs will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount realized on the sale or other disposition and such U.S. Holder’s adjusted basis in the Ordinary Shares or ADSs. Such gain or loss generally will be capital gain or loss and will be a long-term capital gain or loss if the U.S. Holder’s holding period of the Ordinary Shares or ADSs exceeds one year at the time of the sale or other disposition. Long-term capital gains realized by non-corporate U.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 the foreign tax credit limitation. However, if we were a PFIC, any such gain would be subject to the PFIC rules, as discussed below, rather than being taxed as capital gain. As discussed below in “—Passive Foreign Investment Companies,” we do not anticipate being a PFIC for this year; however, there can be no assurance that we will not be treated as a PFIC for our current taxable year and future taxable years. If a U.S. Holder receives foreign currency upon a sale or exchange of Ordinary Shares or ADSs, gain or loss will be recognized in the manner described above under “—Distributions.” However, if such foreign currency is converted into U.S. dollars on the date received by the U.S. Holder, the U.S. Holder generally should not be required to recognize any foreign currency gain or loss on such conversion. As discussed above under the heading “Material Tax Considerations—Israeli Tax Considerations—Taxation of Shareholders,” a U.S. Holder who holds Ordinary Shares or ADSs through an Israeli broker or other Israeli intermediary may be subject to Israeli withholding tax on any capital gains recognized on a sale or other disposition of the Ordinary Shares or ADSs if the U.S. Holder does not obtain approval of an exemption from the Israeli Tax Authorities or does not claim any allowable refunds or reductions. U.S. Holders are advised that any Israeli tax paid under circumstances in which an exemption from (or a refund of or a reduction in) such tax was available will not be creditable for U.S. federal income tax purposes. U.S. Holders are advised to consult their Israeli broker or intermediary regarding the procedures for obtaining an exemption or reduction. Medicare Tax on Unearned Income Non-corporate U.S. Holders whose income exceeds certain thresholds are required to pay an additional 3.8% tax on their net investment income, which includes dividends paid on the Ordinary Shares or ADSs and capital gains from the sale or other disposition of the Ordinary Shares or ADSs. 142 Table of Contents Passive Foreign Investment Companies Although we do not anticipate being treated as a PFIC for this year, it is possible that based on the value and composition of our assets, that we may be treated as a PFIC for U.S. federal income tax purposes for future taxable years. A non-U.S. corporation is considered a PFIC for any taxable year if either: ● at least 75% of its gross income for such taxable year is passive income; or ● at least 50% of the value of its assets (based on an average of the fair market values of the assets determined at the end of each quarter 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 value of the outstanding shares of another corporation, it will be treated as if it (a) held a proportionate share of the assets of such other corporation and (b) received a proportionate share of the income of such other corporation directly. Passive income generally includes, among other things, dividends, interest, rents, royalties and certain capital gain, but generally excludes rents and royalties that are derived 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 taxable year). Because the value of our assets for purposes of the asset test will generally be determined by reference to the market price of the Ordinary Shares or ADSs, our PFIC status will depend in large part on the market price of the Ordinary Shares or ADSs, which may fluctuate significantly. If we are a PFIC for any year during which a U.S. Holder holds Ordinary Shares or ADSs, such Ordinary Shares or ADSs generally will continue to be treated as Ordinary Shares or ADSs in a PFIC with respect to such U.S. Holder for all succeeding years during which such U.S. Holder holds the Ordinary Shares or ADSs, unless we cease to be a PFIC and such U.S. Holder makes a “deemed sale” election with respect to the Ordinary Shares or ADSs such U.S. Holder holds. If such election is made, a U.S. Holder will be deemed to have sold the Ordinary Shares or ADSs it holds at their fair market value on the last day of the last taxable year in which we qualified as a PFIC, and any gain from such deemed sale would be subject to the U.S. federal income tax treatment described below. After the deemed sale election, the Ordinary Shares or ADSs with respect to which the deemed sale election was made will not be treated as Ordinary Shares or ADSs in a PFIC unless we subsequently become a PFIC. For each taxable year, we are treated as a PFIC with respect to a U.S. Holder, such U.S. Holder will be subject to special tax rules with respect to any “excess distribution” it receives and any gain it realizes from a sale or other disposition (including a pledge) of the Ordinary Shares or ADSs, unless it makes a “mark-to-market” election as discussed below. Distributions a U.S. Holder receives in a taxable year that are greater than 125% of the average annual distributions it received during the shorter of the three preceding taxable years or its holding period for the Ordinary Shares or ADSs will be treated as an excess distribution. Under these special tax rules, if a U.S. Holder receives any excess distribution or realizes any gain from a sale or other disposition of the Ordinary Shares or ADSs: ● the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the Ordinary Shares or ADSs; ● the amount of excess distribution or gain allocated to the current taxable year, and any taxable year before the first taxable year in which we were a PFIC, must be included in the U.S. Holder’s gross income (as ordinary income) for the current tax year; and ● the amount allocated to each other year will be subject to the highest marginal tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to such amounts allocated to each other year. The tax liability for amounts allocated to years before the year of disposition or “excess distribution” cannot be offset by any losses for such years. Additionally, any gains realized on the sale of the Ordinary Shares or ADSs cannot be treated as capital gains. 143 Table of Contents If we are treated as a PFIC with respect to a U.S. Holder for any taxable year, to the extent any of our subsidiaries are also PFICs, such U.S. Holder will be deemed to own its proportionate share of any such subsidiaries that are PFICs, and such U.S. Holder may be subject to the rules described in the preceding two paragraphs with respect to the shares of such subsidiaries that are PFICs it would be deemed to own. As a result, a U.S. Holder may incur liability for any “excess distribution” described above if we receive a distribution from such subsidiaries that are PFICs or if any we dispose of, or are deemed to dispose of, any shares in such subsidiaries that are PFICs. You should consult your own tax advisor regarding 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 such stock to elect out of the general tax treatment for PFICs discussed above. If a U.S. Holder makes a mark-to-market election for the Ordinary Shares or ADSs, such U.S. Holder 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 the Ordinary Shares or ADSs as of the close of such U.S. Holder’s taxable year over such U.S. Holder’s adjusted basis in such Ordinary Shares or ADSs. a U.S. Holder is allowed a deduction for the excess, if any, of the adjusted basis of the Ordinary Shares or ADSs over their fair market value as of the close of the taxable year. However, deductions are allowable only to the extent of any net mark-to-market gains on the Ordinary Shares or ADSs included in a U.S. Holder’s income for prior taxable years. Amounts included in a U.S. Holder’s income under a mark-to-market election, as well as gain on the actual sale or other disposition of the Ordinary Shares or ADSs, are treated as ordinary income. Ordinary loss treatment also applies to the deductible portion of any mark-to-market loss on the Ordinary Shares or ADSs, as well as to any loss realized on the actual sale or disposition of the Ordinary Shares or ADSs to the extent the amount of such loss does not exceed the net mark-to-market gains previously included for the Ordinary Shares or ADSs. A U.S. Holder’s basis in the Ordinary Shares or ADSs will be adjusted to reflect any such income or loss amounts. If a U.S. Holder makes a valid mark-to-market election, the tax rules that apply to distributions by corporations which are not PFICs would apply to distributions by us, except the lower applicable tax rate for qualified dividend income would not apply. If we cease to be a PFIC when a U.S. Holder has a mark-to-market election in effect, gain or loss realized by such U.S. Holder on the sale of the Ordinary Shares or ADSs will be a capital gain or loss and taxed in the manner described above under “—Sale or Other Disposition of Ordinary Shares or ADSs.” The mark-to-market election is available only for “marketable stock,” which is a stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter, or regularly traded, on a qualified exchange or another market, as defined in applicable U.S. Treasury regulations. Any trades that have as their principal purpose meeting this requirement will be disregarded. The ADSs are listed on the NASDAQ Global Market and, accordingly, provided the ADSs are regularly traded, the mark-to-market election would be available to a U.S. Holder of ADSs if we are a PFIC. Once made, the election cannot be revoked without the consent of the IRS unless the Ordinary Shares or ADSs cease to be marketable stock. If we are a PFIC for any year in which the U.S. Holder owns the Ordinary Shares or ADSs but before a mark-to-market election is made, the interest charge rules described above will apply to any mark-to-market gain recognized in the year the election is made. If any of our subsidiaries are or become PFICs, the mark-to-market election will not be available with respect to the shares of such subsidiaries that are treated as owned by a U.S. Holder. Consequently, a U.S. Holder could be subject to the PFIC rules with respect to income of the lower-tier PFICs the value of which already had been taken into account indirectly via mark-to-market adjustments. You should consult your own tax advisors as to the availability and desirability of a mark-to-market election, as well as the impact of such election on interests in any lower-tier PFICs. In certain circumstances, a U.S. Holder of stock in a PFIC can make a “qualified electing fund election” to mitigate some of the adverse tax consequences of holding stock in a PFIC by including in income its share of the corporation’s income on a current basis. However, we do not currently intend to prepare or provide the information that would enable a U.S. Holder to make a qualified electing fund election. Unless otherwise provided by the U.S. Treasury, each U.S. shareholder of a PFIC is required to file an annual information return on IRS Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualifying Electing Fund) containing such information as the U.S. Treasury may require. A U.S. Holder’s failure to file such annual information return could result in the imposition of penalties and the extension of the statute of limitations with respect to U.S. federal income tax. You should consult your own tax advisors regarding the requirements of filing such information returns under these rules, taking into account the uncertainty as to whether we are currently treated as or may become a PFIC. 144 Table of Contents YOU ARE STRONGLY URGED TO CONSULT YOUR OWN TAX ADVISOR REGARDING THE IMPACT AND APPLICATION OF THE PFIC RULES ON YOUR INVESTMENT IN THE ORDINARY SHARES OR ADSs. Backup Withholding and Information Reporting Payments of dividends with respect to Ordinary Shares or ADSs and the proceeds from the sale, retirement, or other disposition of Ordinary Shares or ADSs made by a U.S. paying agent or other U.S. intermediary will be reported to the IRS and to the U.S. Holder as may be required under applicable U.S. Treasury regulations. We, or an agent, a broker, or any paying agent, as the case may be, may be required to withhold tax (backup withholding), currently at the rate of 24%, if a non-corporate U.S. Holder that is not otherwise exempt fails to provide an accurate taxpayer identification number and comply 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. Backup withholding is not an additional tax. Any amount of backup withholding withheld may be used as a credit against your U.S. federal income tax liability provided that the required information is furnished to the IRS. U.S. Holders should consult their own tax advisors as to their qualification for exemption from backup withholding and the procedure for obtaining an exemption. Individual U.S. Holders may be required to file certain U.S. information reporting returns with the IRS with respect to an investment in our Ordinary Shares or ADSs, including, among others, IRS Form 8938 (Statement of Specified Foreign Financial Assets). U.S. Holders paying more than $100,000 for our Ordinary Shares or ADSs may be required to file IRS Form 926 (Return by a U.S. Transferor of Property to a Foreign Corporation) reporting this payment. As described above under “—Passive Foreign Investment Companies,” if we were determined to be a PFIC, each U.S. Holder would be required to file an annual report containing certain information. Substantial penalties may be imposed upon a U.S. Holder that fails to comply with the required information reporting. You should consult your 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 TAX CONSEQUENCES OF AN INVESTMENT IN OUR ORDINARY SHARES OR ADSs IN LIGHT OF SUCH INVESTOR’S PARTICULAR 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, and under those requirements, we file reports with the SEC. Those other reports or other information are available to the public through the SEC’s website at http://www.sec.gov. As a foreign private issuer, we are exempt from the rules under the Exchange Act, related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery 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 the informational requirements of the Exchange Act, and, accordingly, file current reports on Form 6-K, annual reports on Form 20-F and other information with the SEC. 145 Table of Contents We maintain a corporate website at www.redhillbio.com. Information contained on, or that can be accessed through, our website does not constitute a part of this Annual Report. I. Subsidiary Information Not applicable. ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is the risk of loss related to changes in market prices, including interest rates and foreign exchange rates, of financial instruments that may adversely impact our financial position, results of operations or cash flows. Our overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on our financial performance. Risk of Interest Rate Fluctuation and Credit Exposure Risk At present, our credit and interest risk arise from our term loan facility, cash and cash equivalents, deposits with banks and a portfolio of corporate bonds as well as accounts receivable. A substantial portion of our liquid instruments is invested in short-term deposits and corporate bonds in highly-rated institutions. Our term loan facility indebtedness uses LIBOR as a benchmark for establishing the interest rate. The most popular LIBOR indices will be phased out by the end of June 2023. It is unclear whether new methods of calculating LIBOR will be established or if alternative benchmark reference rates will be adopted. The replacement of LIBOR with an alternative benchmark reference rate may adversely affect interest rates and result in higher borrowing costs for us under current or future credit agreements. This could adversely affect our liquidity and financial condition, results of operations, and ability to acquire debt financing. We cannot predict the effect of the elimination of LIBOR or the establishment and use of alternative benchmark reference rates and the corresponding effects of our cost of capital. We estimate that because the liquid instruments are invested mainly for the short-term and with highly-rated institutions, the credit and interest risk associated with these balances is low. The primary objective of our investment activities is to preserve principal while maximizing the income we receive from our investments without significantly increasing risk and loss. Our investments are exposed to market risk due to fluctuations in interest rates, which may affect our interest income and the fair market 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 us and classified in our financial statements as financial assets at fair value through profit or loss. To manage the price risk arising from investments in tradable securities, we invest in marketable securities with high ratings and diversify our investment portfolio. Foreign Currency Exchange Risk Our foreign currency exposures give rise to market risk associated with exchange rate movements of the U.S. dollar, our functional and reporting currency, mainly against the NIS and other currencies. Although the U.S. dollar is our functional currency and reporting currency, a portion of our expenses is denominated in NIS and in Euro. Our NIS expenses consist principally of payments to employees or service providers and office-related expenses in Israel. Our Euro expenses consist primarily of payments to vendors related to our therapeutic candidates. We also hold short-term investments in currencies other than the U.S. dollar. We anticipate that a sizable portion of our expenses will continue to be denominated in currencies other than the U.S. dollar. If the U.S. dollar fluctuates significantly against the NIS, it may have a negative impact on our results of operations. We manage our foreign exchange risk by aligning the currencies for holding short-term investments with the currencies of expected expenses, based on our expected cash flows. 146 Table of Contents Portfolio diversification is performed based on risk level limits that we set. To date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverse effects of such fluctuations. (A) Set forth below is a sensitivity test to possible changes in U.S. dollars/NIS exchange rate on our assets and liabilities as of December 31, 2020: Sensitive instrument Cash and cash equivalents Bank deposits Accounts receivable (except prepaid expenses) Accounts payable and accrued expenses Total loss Income (loss) from change in exchange rate (U.S. dollars in thousands) Value (U.S. dollars in thousands) Down 2 % 1 4 9 (20) (6) Down 5 % 4 9 22 (38) (3) 29,296 16,180 3,324 50,380 Income (loss) from change in exchange rate (U.S. dollars in thousands) Up Up 2 5 % % (4) (9) (22) 38 3 (1) (4) (9) 20 6 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 Global Market. The form of the deposit agreement for the ADSs and the form of American Depositary Receipt (ADR) that represents an ADS have been incorporated by reference as exhibits to this Annual Report on Form 20-F. Copies of the deposit agreement are available for inspection at the principal office of The Bank of New York Mellon, located at 101 Barclay Street, New York, New York 10286. 147 Table of Contents Fees and Expenses Persons depositing or withdrawing shares or American Depositary Shareholders must pay: $5.00 (or less) per 100 American Depositary Shares (or portion of 100 American Depositary Shares) $0.05 (or less) per American Depositary Share A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of American Depositary Shares $0.05 (or less) per American Depositary Shares per calendar year Registration or transfer fees Expenses of the depositary Taxes and other governmental charges the depositary or the custodian have to pay on any American Depositary Share or share underlying an American Depositary Share, for example, stock transfer taxes, stamp duty or withholding taxes Any charges incurred by the depositary or its agents for servicing the deposited securities For: ● Issuance of American Depositary Shares, including issuances resulting from a distribution of shares or rights or other property ● Cancellation of American Depositary Shares for the purpose of withdrawal, including if the deposit agreement terminates ● Any cash distribution to American Depositary Shareholders ● Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to American Depositary Shareholders ● Depositary services ● Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares ● Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement) ● Converting foreign currency to U.S. dollars ● As necessary ● As necessary The depositary collects its fees for delivery and surrender of American Depositary Shares directly from investors depositing shares or surrendering American Depositary Shares for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of the distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid. From time to time, the depositary may make payments to us to reimburse us or share its revenue with us from the fees collected from American Depositary Shareholders or waive fees and expenses for services provided, generally relating to costs and expenses arising out of establishment and maintenance of the American Depositary Share program. In performing its duties under the deposit agreement, the depositary may use brokers, dealers or other service providers that are affiliates of the depositary and that may earn or share fees or commissions. ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES Not applicable. ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS Not applicable. 148 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 that information required to be disclosed on Form 20-F and filed with the SEC is recorded, processed, summarized and reported timely within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. There can be no assurance that our disclosure controls and procedures will detect or uncover all 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 desired control objectives. Based on our evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange 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 for establishing 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 process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that: ● pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and asset dispositions; ● provide reasonable assurance that transactions are recorded as necessary to permit the preparation of our financial statements in accordance with generally accepted accounting principles; ● provide reasonable assurance that receipts and expenditures are made only in accordance with authorizations of our management and board of directors (as appropriate); and ● provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition 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 inadequate because 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 Chief Financial Officer, we assessed the effectiveness of our internal control over financial reporting as of December 31, 2020, based on the framework for Internal Control-Integrated Framework set forth by The Committee of Sponsoring Organizations of the Treadway Commission (COSO) (2013). Based on our assessment and this framework, our management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2020. Our auditor, Kesselman & Kesselman, Certified Public Accountants (Isr.), a member firm of PricewaterhouseCoopers International Limited, an independent registered public accounting firm, has provided an attestation report on our internal control over financial reporting, which is included herein.(see “– Attestation Report of Registered Public Accounting Firm.”) 149 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 Annual Report on Form 20-F, and as part of its audit, has issued its audit report on the effectiveness of our internal control over financial reporting. This report is included in pages F-2 and F-3 of this Annual Report on Form 20-F and is incorporated herein by reference. (d) Changes in Internal Control Over Financial Reporting There were no material changes in our internal control over financial reporting that occurred during the year ended December 31, 2020, 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 Ms. Alla Felder, Mr. Ofer Tsimchi and Mr. Eric Swenden are audit committee financial experts. Ms. Felder, Mr. Tsimchi and Mr. Eric Swenden are independent directors for the purposes of the Nasdaq Listing Rules. 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 of ethics is posted on our website, https://ir.redhillbio.com/static-files/9be49636-4b2f-453e-ac3e-7b759b984c40. We intend to post on our website any amendments or waivers to the code of ethics that apply to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. 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 public accounting firm for professional services. Services Rendered Audit (1) Audit-related services (2) Tax (3) Total Year Ended December 31, 2020 2019 (U.S. dollars in thousands) 185 65 19 269 210 52 22 284 (1) Audit fees consist of services that would normally be provided in connection with statutory and regulatory filings or engagements, 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 the external auditor. The audit committee approves in advance the particular services or categories of services to be 150 Table of Contents provided to the Company during the following yearly period and also sets forth a specific budget for such audit services. All non-audit services are pre-approved by the audit committee. ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES Not applicable. ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS Not applicable. ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT Not applicable. 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 the Nasdaq Listing Rules, provided that we disclose which requirements we are not following and the equivalent Israeli requirement. We rely on this “foreign private issuer exemption” with respect to the following items: ● Shareholder Approval - We seek shareholder approval for all corporate actions requiring such approval in accordance with the requirements of the Israeli Companies Law, which are different from the shareholder approval requirements of the Nasdaq Listing Rules. The Nasdaq Listing Rules require that we obtain shareholder approval for certain dilutive events, such as for the establishment or amendment of certain equity-based compensation plans and arrangements, issuances that will result in a change in control of a company, certain transactions other than a public offering involving issuances of 20% or more of the shares or voting power in a company, and certain acquisitions of the stock or assets of another company involving issuances of 20% or more of the shares or voting power in a company or if any director, officer or holder of 5% or more of the shares or voting power of the company has a 5% or greater interest in the company or assets to be acquired or consideration to be paid and the transaction could result in an increase in the outstanding common shares or voting power by 5% or more; ● Under the Israeli Companies Law, shareholder approval is required for any transaction, including any grant of equity-based compensation, to a director or a controlling shareholder, but is not generally required to establish or amend an equity-based compensation plan. Similarly, shareholder approval is required for a private placement that is deemed an “extraordinary private placement” or that involves a director or controlling shareholder. An “extraordinary private placement” is a private placement in which a company issues securities representing 20% or more of its voting rights prior to the issuance and the consideration received pursuant to such issuance is not comprised, in whole or in part, solely of cash or securities registered for trade on an exchange or which is not made pursuant to market conditions, and as a result of which the shareholdings of a 5% holder of the shares or voting rights of the company increases or as a result of which a person will become a holder of 5% of the shares or voting rights of the company or a controlling shareholder after the issuance; ● Quorum - As permitted under the Israeli Companies Law, pursuant to our articles of association, the quorum required for an ordinary meeting of shareholders consists of at least two shareholders present in person or by proxy who hold or represent at least 25% of the voting rights of our shares (and at an adjourned meeting, with some exceptions, any number 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 director nominees subject to the terms of our articles of association which provide that incumbent directors are re- nominated for additional terms. Directors are not selected, or recommended for board of director selection, by independent directors constituting a majority of the board’s independent directors or by a nominations committee comprised solely of independent directors as required by the Nasdaq Listing Rules. 151 Table of Contents Otherwise, we comply with the rules generally applicable to U.S. domestic companies listed on the Nasdaq Stock Market. We may in the future decide to use the foreign private issuer exemption with respect to some or all of the other Nasdaq Listing Rules related to corporate governance. We also comply with Israeli corporate governance requirements under the Israeli 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 155. 152 Table of Contents Glossary of Terms Certain standards and other terms that are used in this Annual Report are defined below: API - active pharmaceutical ingredient, including their starting materials - the ingredient in a pharmaceutical drug that is biologically active. cGMP - Current Good Manufacturing Practice - Standards, procedures, and guidelines designed for production quality control. CMC - chemistry, manufacturing and controls of pharmaceutical products. CRO - Contract Research Organization, also called a clinical research organization is a service organization that provides outsourced pharmaceutical research services. DESI - Drug Efficacy Study Implementation program of the FDA - the DESI program was created, in part, to require the FDA to conduct a retrospective evaluation of the effectiveness 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 was substantial evidence of their effectiveness. 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. Barry Marshall and Dr. Robin Warren and is associated with peptic ulcer disease and the development of gastric cancer. IND - Investigational New Drug - a status assigned by the FDA to a drug before allowing its use in humans, so that experimental clinical trials may be conducted. IRB - Institutional Review Board - Under FDA regulations, an IRB is an appropriately constituted group that has been formally 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 a clinical study are included in the analysis. 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 been suspected as the cause of Crohn’s disease in humans. NDA - New Drug Application - an application by drug sponsors to the FDA for approval of a new pharmaceutical for sale and marketing in the U.S. NTM - Nontuberculous Mycobacteria– a class of Mycobacteria also known as environmental mycobacteria, atypical mycobacteria and mycobacteria other than tuberculosis (MOTT). Ondansetron - a drug in a class of medications called serotonin 5-HT3 receptor antagonists. Ondansetron works by blocking the action of serotonin, a natural substance that may cause nausea and vomiting. 153 Table of Contents Orphan Drug Designation - the designation of orphan drug designation to drugs that are in the process of development for the treatment of rare diseases, affecting fewer than 200,000 people in the United States. This status provides tax reductions and 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 Now Act, which is intended to encourage the development of new antibiotic drugs for the treatment of serious or life- threatening infections that have the potential to pose a serious threat to public health. 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 of diseases, 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 determined by appropriate stability testing. The stability of drug products needs to be evaluated over time in the same container-closure system in which the drug product is marketed. TNFα - Tumor necrosis factor alpha is a cell-signaling protein (cytokine) involved in systemic inflammation. 154 Table of Contents REDHILL BIOPHARMA LTD EXHIBIT INDEX 1.1 2.1 2.2 2.3 4.1* 4.2 4.3* 4.4† 4.5* 4.6* 4.7† 4.8 4.9 Articles of Association of the Registrant, as amended (unofficial English translation). Form of Deposit Agreement among the Registrant, the Bank of New York Mellon, as Depositary, and all 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 Bank of New York Mellon with the Securities and Exchange Commission on December 6, 2012). Form of American Depositary Receipt (Incorporated by reference to Exhibit 1 to the Registration Statement on Form F-6 filed by The Bank of New York Mellon with the Securities and Exchange Commission on December 6, 2012). Description of Share Capital. Asset Purchase Agreement, dated August 11, 2010, by and between the Registrant and Giaconda Limited (RHB-104, 105, 106) (incorporated by reference to Exhibit 4.4 to Draft Registration Statement on Form DRS disseminated with the Securities and Exchange Commission, dated December 3, 2012). Amendment to Asset Purchase Agreement by and between the Registrant and Giaconda Limited (RHB-104, 105, 106) dated February 27, 2014 (incorporated by reference to Exhibit 4.4 of the Annual Report on Form 20- F filed with the Securities and Exchange Commission on February 26, 2015). Exclusive License Agreement, dated March 30, 2015, by and between the Registrant and Apogee Biotechnology Corp (incorporated by reference to Exhibit 4.7 of the Annual Report on Form 20-F filed with the Securities and Exchange Commission on February 25, 2016). Amendment #1 dated January 23, 2017, to the Exclusive License Agreement dated March 30, 2015, by and between the Registrant and Apogee Biotechnology Corp. (incorporated by reference to Exhibit 4.6 of the Annual Report on Form 20-F/A filed with the Securities and Exchange Commission on May 15, 2019). Amendment #2 dated June 22, 2017, to the Exclusive License Agreement dated March 30, 2015, by and between the Registrant and Apogee Biotechnology Corp. (incorporated by reference to Exhibit 4.5 of the Annual Report on Form 20-F filed with the Securities and Exchange Commission on February 22, 2018). 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 Exhibit 4.6 of the Annual Report on Form 20-F filed with the Securities and Exchange Commission on February 22, 2018). Amendment #4 dated January 3, 2019, to the Exclusive License Agreement dated March 30, 2015, by and between the Registrant and Apogee Biotechnology Corp. (incorporated by reference to Exhibit 4.9 of the Annual Report on Form 20-F/A filed with the Securities and Exchange Commission on May 15, 2019). Amendment #5 dated January 23, 2019, to the Exclusive License Agreement dated March 30, 2015, by and between the Registrant and Apogee Biotechnology Corp. (incorporated by reference to Exhibit 4.10 of the Annual Report on Form 20-F filed with the Securities and Exchange Commission on February 26, 2019). Form of Letter of Exemption and Indemnity adopted on July 2013 (unofficial English translation) (incorporated by reference to Exhibit B to Exhibit 99.1 to Form 6-K disseminated with the Securities and Exchange Commission, dated June 26, 2013). 155 Table of Contents 4.10 Amended and Restated Award Plan (2010) (incorporated by reference to Exhibit 4.10 of the Annual Report on Form 20-F filed with the Securities and Exchange Commission on March 3, 2020). 4.11 Compensation Policy, as amended. 4.12† 4.13† 4.14^ 4.15 4.16 4.17 4.18^ 4.19^ 4.20† 4.21† 4.22† 4.23† 4.24† Subscription Agreement, dated October 17, 2019, by and between Registrant and Cosmo Pharmaceuticals N.V. and Cosmo Technologies Ltd (incorporated by reference to Exhibit 4.12 of the Annual Report on Form 20-F filed with the Securities and Exchange Commission on March 3, 2020). Exclusive License Agreement, dated October 17, 2019, by and between Registrant and Cosmo Technologies Ltd (incorporated by reference to Exhibit 4.13 of the Annual Report on Form 20-F filed with the Securities and Exchange Commission on March 3, 2020). Credit Agreement, dated February 23, 2020, by and among RedHill Biopharma Ltd., RedHill Biopharma Inc., HCR Collateral Management, LLC and the lenders from time to time party thereto (incorporated by reference to Exhibit 4.14 of the Annual Report on Form 20-F filed with the Securities and Exchange Commission on March 3, 2020). First amendment dated March 31, 2020, to the Credit Agreement dated February 23, 2020, by and among RedHill Biopharma Ltd., RedHill Biopharma Inc., HCR Collateral Management, LLC and the lenders from time to time party thereto. Second amendment dated August 12, 2020, to the Credit Agreement dated February 23, 2020, by and among RedHill Biopharma Ltd., RedHill Biopharma Inc., HCR Collateral Management, LLC and the lenders from time to time party thereto. Third amendment dated January 28, 2021, to the Credit Agreement dated February 23, 2020, by and among RedHill Biopharma Ltd., RedHill Biopharma Inc., HCR Collateral Management, LLC and the lenders from time to time party thereto. Security Agreement, dated February 23, 2020, by and among RedHill Biopharma Ltd., RedHill Biopharma Inc., and HCR Collateral Management, LLC (incorporated by reference to Exhibit 4.15 of the Annual Report on Form 20-F filed with the Securities and Exchange Commission on March 3, 2020). Pledge Agreement, dated February 23, 2020, by and among RedHill Biopharma Ltd., RedHill Biopharma Inc., and HCR Collateral Management, LLC (incorporated by reference to Exhibit 4.16 of the Annual Report on Form 20-F filed with the Securities and Exchange Commission on March 3, 2020). License Agreement, dated February 23, 2020, by and between Registrant and AstraZeneca AB (incorporated by reference to Exhibit 4.17 of the Annual Report on Form 20-F filed with the Securities and Exchange Commission on March 3, 2020). Amendment #1 dated March 31, 2020, to the License Agreement, dated February 23, 2020, by and between Registrant and AstraZeneca AB. Amendment #2 dated July 14, 2020, to the License Agreement, dated February 23, 2020, by and between Registrant and AstraZeneca AB. Amendment #3 dated October 6, 2020, to the License Agreement, dated February 23, 2020, by and between Registrant and AstraZeneca AB. Amendment #4 dated March 11, 2021, to the License Agreement, dated February 23, 2020, by and between Registrant and AstraZeneca AB. 156 Table of Contents 4.25† 4.26† 4.27† 8.1 12.1 12.2 13. 15.1 101. Supply Agreement, dated February 23, 2020, by and between Registrant and AstraZeneca AB (incorporated by reference to Exhibit 4.18 of the Annual Report on Form 20-F filed with the Securities and Exchange Commission on March 3, 2020). Termination Agreement, dated August 3, 2020, by and between RedHill Biopharma Inc. and Daiichi Sankyo Inc. Securities Purchase Agreement, dated August 3, 2020, but effective as of July 1, 2020, by and between RedHill Biopharma Ltd., and Daiichi Sankyo, Inc. Subsidiary List (incorporated by reference to Exhibit 8.1 of the Annual Report on Form 20-F filed with the Securities and Exchange Commission on February 22, 2018). Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification by Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. Consent of Independent Registered Public Accounting Firm. The following financial statements from the Company’s 20-F for the fiscal year ended December 31, 2020, formatted in XBRL: (i) Consolidated Statements of Comprehensive Loss, (ii) Consolidated Statements of Financial Position, (iii) Consolidated Statements of Changes in Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to the Consolidated Financial Statements. * Confidential treatment granted with respect to certain portions of this Exhibit. † Portions of this exhibit have been omitted because they are both (i) not material and (ii) would likely cause competitive harm to the Company if publicly disclosed. ^ Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to furnish copies of any of the omitted schedules upon request by the Securities and Exchange Commission. 157 Table of Contents The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. SIGNATURE 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: March 18, 2021 158 Table of Contents REDHILL BIOPHARMA LTD. 2020 CONSOLIDATED FINANCIAL STATEMENTS TABLE OF CONTENTS Report of Independent Registered Public Accounting Firm Consolidated Statements of Comprehensive Loss Consolidated Statements of Financial Position Consolidated Statements of Changes in Equity Consolidated Statements of Cash Flows Notes to the Consolidated Financial Statements Page F-1 F-4 F-5 F-6 F-7 F-8 Table of Contents Report 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 its subsidiary (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of comprehensive loss, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2020, 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 financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Change in Accounting Principle As discussed in Note 2(r) to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control 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). Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Kesselman & Kesselman, Derech Menachem Begin 146 Tel Aviv-Yafo 6492103 Israel, P.O Box 7187 Tel-Aviv 6107120 Telephone: +972 -3- 7954555, Fax:+972 -3- 7954556, www.pwc.com/il F-1 Table of Contents Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. 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 the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, 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 inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Recognition and measurement of allowance for certain rebates As described in Note 2 to the consolidated financial statements, the Company offers various rebate and patient discount programs, which result in discounted prescriptions to qualified patients, of which the most significant are Managed Care (commercial rebates), Medicare Part D and Medicaid (and similar state programs). Rebates provided to patients under these arrangements are accounted for as variable consideration, and recognized as a reduction in revenue, for which unsettled amounts are accrued. The allowance for these rebates is calculated based on historical and estimated utilization of the rebate programs in accordance with the specific terms in the individual agreement, the estimated product in the channel and the estimated mix of programs in future prescriptions utilization. The allowance reported as of December 31, 2020 for revenue deductions amounted to $18.3 million, with a significant portion relating to Managed Care, Medicare Part D, and Medicaid. Kesselman & Kesselman, Derech Menachem Begin 146 Tel Aviv-Yafo 6492103 Israel, P.O Box 7187 Tel-Aviv 6107120 Telephone: +972 -3- 7954555, Fax:+972 -3- 7954556, www.pwc.com/il F-2 Table of Contents The principal considerations for our determination that performing procedures related to recognition and measurement of allowance for rebates is a critical audit matter are the significant estimations made by management due to the measurement uncertainty involved in developing these allowances, as the reserves are based on assumptions developed using contractual and mandated terms with payors and historical experience. This in turn led to a high degree of auditor judgment and subjectivity in applying procedures relating to these assumptions. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the assumptions used to estimate the allowance for Managed Care (commercial rebates), Medicare Part D and Medicaid (and similar state programs). These procedures also included, among others, developing an independent expectation of these allowance using the terms of the specific rebates programs and the historical trend of actual rebates claims paid; comparing the independent estimate to management’s estimate recorded by the Company; and testing rebates claims processed by the Company, including evaluating those claims for consistency with the contractual and mandated terms of the Company’s arrangements. /s/ Kesselman & Kesselman Certified Public Accountants (Isr.) A member of PricewaterhouseCoopers International Limited Tel-Aviv, Israel March 17, 2021 We have served as the Company’s auditor since 2010. Kesselman & Kesselman, Derech Menachem Begin 146 Tel Aviv-Yafo 6492103 Israel, P.O Box 7187 Tel-Aviv 6107120 Telephone: +972 -3- 7954555, Fax:+972 -3- 7954556, www.pwc.com/il F-3 Table of Contents REDHILL BIOPHARMA LTD. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Note 2020 Year Ended December 31, 2019 U.S. dollars in thousands 2018 NET REVENUES COST OF REVENUES GROSS PROFIT RESEARCH AND DEVELOPMENT EXPENSES SELLING, MARKETING AND BUSINESS DEVELOPMENT EXPENSES GENERAL AND ADMINISTRATIVE EXPENSES OPERATING LOSS FINANCIAL INCOME FINANCIAL EXPENSES FINANCIAL EXPENSES (INCOME), net LOSS AND COMPREHENSIVE LOSS FOR THE YEAR LOSS PER ORDINARY SHARE, basic and diluted (U.S. dollars): 20 21 22 23 24 26 64,359 36,892 27,467 16,491 49,285 25,375 63,684 270 12,759 12,489 76,173 6,291 2,259 4,032 17,419 18,333 11,481 43,201 1,335 438 (897) 42,304 8,360 2,837 5,523 24,862 12,486 7,506 39,331 678 167 (511) 38,820 0.21 0.14 0.17 The accompanying notes are an integral part of these financial statements. F-4 Table of Contents REDHILL BIOPHARMA LTD. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION CURRENT ASSETS: Cash and cash equivalents Bank deposits Financial assets at fair value through profit or loss Trade receivables Prepaid expenses and other receivables Inventory NON-CURRENT ASSETS: Restricted cash Fixed assets Right-of-use assets Intangible assets TOTAL ASSETS CURRENT LIABILITIES: Accounts payable Lease liabilities Allowance for deductions from revenue Accrued expenses and other current liabilities Payable in respect of intangible assets purchase NON-CURRENT LIABILITIES: Borrowing Payable in respect of intangible assets purchase Lease liabilities Royalty obligation TOTAL LIABILITIES EQUITY: Ordinary shares Additional paid-in capital Accumulated deficit TOTAL EQUITY TOTAL LIABILITIES AND EQUITY Note 5 6 7 8 9 10 11 10 14 13 16a(5)(6) 15 16a(5)(6) 10 14a(3) 18 December 31, December 31, 2020 U.S. dollars in thousands 2019 29,295 17 481 28,655 5,521 6,526 70,495 16,164 511 5,192 87,879 109,746 180,241 11,553 1,710 18,343 24,082 17,547 73,235 81,386 7,199 3,807 750 93,142 166,377 1,054 293,144 (280,334) 13,864 180,241 29,023 10,349 8,500 1,216 2,244 1,882 53,214 152 228 3,578 16,927 20,885 74,099 4,184 834 1,267 4,331 — 10,616 — — 2,981 500 3,481 14,097 962 267,403 (208,363) 60,002 74,099 The accompanying notes are an integral part of these financial statements. F-5 Table of Contents REDHILL BIOPHARMA LTD. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY BALANCE AT JANUARY 1, 2018 CHANGES DURING THE YEAR ENDED DECEMBER 31, 2018: Share-based compensation to employees and service providers Issuance of ordinary shares, net of issuance costs Exercise of options into ordinary shares BALANCE AT DECEMBER 31, 2018 575 — 190 2 767 — 41,712 359 219,505 2,678 2,678 — 41,902 361 — 51,186 (169,086) Ordinary shares Additional paid-in capital Accumulated deficit U.S. dollars in thousands 177,434 (132,944) Total equity 45,065 BALANCE AT JANUARY 1, 2019 CHANGES DURING THE YEAR ENDED DECEMBER 31, 2019: Share-based compensation to employees and service providers Issuance of ordinary shares to private investor Exercise of options into ordinary shares Comprehensive loss BALANCE AT DECEMBER 31, 2019 767 219,505 (169,086) 51,186 — 195 * — 962 — 47,893 5 — 267,403 3,027 3,027 — 48,088 5 — (42,304) (42,304) 60,002 (208,363) BALANCE AT JANUARY 1, 2020 CHANGES DURING THE YEAR ENDED DECEMBER 31, 2020: Share-based compensation to employees and service providers Issuance of ordinary shares, net of expenses Exercise of options into ordinary shares Share-based compensation in consideration for intangible assets Comprehensive loss BALANCE AT DECEMBER 31, 2020 962 267,403 (208,363) 60,002 — 84 * 8 — 1,054 — 23,783 52 1,906 — 293,144 4,202 4,202 — 23,867 52 — 1,914 — (76,173) (76,173) 13,864 (280,334) *Less than a thousand The accompanying notes are an integral part of these financial statements. F-6 Table of Contents REDHILL BIOPHARMA LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS OPERATING ACTIVITIES: Comprehensive loss Adjustments in respect of income and expenses not involving cash flow: Share-based compensation to employees and service providers Depreciation Amortization and impairment of intangible assets Non-cash interest expenses related to borrowing and payable in respect of intangible assets purchase and royalty obligation Fair value adjustments on derivative financial instruments Fair value losses (gains) on financial assets at fair value through profit or loss Exchange differences and revaluation of bank deposits Changes in assets and liability items: Decrease (increase) in trade receivables Decrease (increase) in prepaid expenses and other receivables Increase in inventories Increase (decrease) in accounts payable Increase (decrease) in accrued expenses and other liabilities Increase in allowance for deductions from revenue Net cash used in operating activities INVESTING ACTIVITIES: Purchase of fixed assets Purchase of intangible assets Change in investment in current bank deposits Purchase of financial assets at fair value through profit or loss Proceeds from sale of financial assets at fair value through profit or loss Net cash provided by (used in) investing activities FINANCING ACTIVITIES: Proceeds from issuance of ordinary shares, net of issuance costs Exercise of options into ordinary shares Proceeds from long-term borrowings, net of transaction costs Increase in restricted cash Decrease in restricted cash Payment of principal with respect to lease liabilities Repayment of payable in respect of intangible asset purchase Net cash provided by financing activities INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS EXCHANGE DIFFERENCES ON CASH AND CASH EQUIVALENTS BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD BALANCE OF CASH AND CASH EQUIVALENTS AT END OF PERIOD SUPPLEMENTARY INFORMATION ON INTEREST RECEIVED IN CASH SUPPLEMENTARY INFORMATION ON INTEREST PAID IN CASH SUPPLEMENTARY FINANCING ACTIVITIES: Acquisition of right-of-use assets by means of lease liabilities INFORMATION ON NON-CASH INVESTING AND Purchase of intangible assets posted as payable Purchase of an intangible asset in consideration for issuance of shares Year Ended December 31, 2020 2019 2018 U.S. dollars in thousands (76,173) (42,304) (38,820) 4,202 1,710 7,035 6,032 — 94 101 19,174 (27,439) (3,277) (4,644) 7,369 19,335 17,076 8,420 (48,579) (406) (53,368) 10,200 — 7,925 (35,649) 23,867 52 78,061 (20,000) 4,000 (1,610) — 84,370 142 130 29,023 29,295 414 6,654 2,930 24,619 1,914 3,027 997 216 — (344) (27) 24 3,893 (258) (368) (1,113) 860 (2,726) 1,267 (2,338) (40,749) (168) (35) (2,069) (4,325) 11,761 5,164 36,300 5 — — — (796) — 35,509 (76) 94 29,005 29,023 753 251 2,805 — 11,788 2,678 90 — — (104) 137 138 2,939 570 1,414 (116) (1,481) 722 310 1,419 (34,462) (23) (35) 4,869 (6,976) 7,517 5,352 41,902 361 — — — — (500) 41,763 12,653 (103) 16,455 29,005 728 — — — — The accompanying notes are an integral part of these financial statements. F-7 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - GENERAL: a. General: 1) RedHill Biopharma Ltd. (the “Company”), incorporated on August 3, 2009, together with its wholly- owned subsidiary, RedHill Biopharma Inc. (“RedHill Inc.”), incorporated in Delaware, U.S. on January 19, 2017, is a specialty biopharmaceutical company primarily focused on gastrointestinal (“GI”) diseases and infectious diseases. The Company’s ordinary shares were traded on the Tel-Aviv Stock Exchange (“TASE”) from February 2011 to February 2020, after which the Company voluntarily delisted from trading on the TASE, effective February 13, 2020. The Company’s American Depositary Shares (“ADSs”) were traded on the Nasdaq Capital Market from December 27, 2012 and have been listed on the Nasdaq Global Market (“Nasdaq”) since July 20, 2018. The Company’s registered address is 21 Ha’arba’a St, Tel-Aviv, Israel. 2) Since the Company established its commercial presence in the U.S. in 2017, it has promoted or commercialized various GI-related products that were either developed internally, acquired through in- licensing or through co-promotion agreements. As of the date of approval of these financial statements, the Company commercializes in the U.S., Talicia®, for the treatment of Helicobacter pylori infection in adults, the first product approved by the U.S. Food and Drug Administration (“FDA”) being developed primarily internally by the Company, Movantik®, for the treatment of opioid-induced constipation, and Aemcolo® (rifamycin), for traveler’s diarrhea. On February 23, 2020, RedHill Inc. entered into an exclusive license agreement (the “License Agreement”) with AstraZeneca AB (“AstraZeneca”) pursuant to which AstraZeneca granted RedHill Inc. exclusive, worldwide (excluding Europe, Canada and Israel) commercialization and development rights to Movantik® (naloxegol). In addition, RedHill Inc. entered into a supply agreement (“Supply Agreement”) and a transitional services agreement (“TSA”) with AstraZeneca, pursuant to which AstraZeneca provides RedHill Inc. certain technology transfers and related materials for an agreed period to enable the Company to manufacture and distribute Movantik® through its own supply chain, as well as various other supporting services over certain agreed periods. On October 6, 2020, the parties amended the License Agreement to grant RedHill Inc. also the exclusive commercialization and development rights to Movantik® (naloxegol) in Israel. See note 16(a)(5). 3) Through December 31, 2020, the Company has an accumulated deficit and its activities have been funded primarily through public and private offerings of the Company’s securities and borrowing. There is no assurance that the Company’s business will generate sustainable positive cash flows. The Company plans to further fund its future operations through commercialization and out-licensing of its therapeutic candidates, commercialization of in-licensed or acquired products and raising additional capital through equity or debt financing or through non-dilutive financing. The Company’s current cash resources are not sufficient to complete the research and development of all of its therapeutic candidates and to fully support its commercial operations until generation of sustainable positive cash flows. Management expects that the Company will incur additional losses as it continues to focus its resources on advancing the development of its therapeutic candidates, as well as advancing its commercial operations, based on a prioritized plan that will result in negative cash flows from operating activities. The Company believes its existing capital resources should be sufficient to fund its current and planned operations for at least the next 12 months. See note 28 with respect to an offering completed by the Company subsequent to December 31, 2020. F-8 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS If the Company is unable to out-license, sell or commercialize its therapeutic candidates, generate sufficient and sustainable revenues from its commercial operations, or obtain future financing, the Company may be forced to delay, reduce the scope of, or eliminate one or more of its research and development or commercialization programs, any of which may have a material adverse effect on the Company’s business, financial condition or results of operations. The current COVID-19 pandemic has presented substantial public health and economic challenges around the world and specifically in the Company’s target markets in the U.S., affecting employees, patients, communities and business operations. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted at this stage. The Company took actions designed to mitigate the potential impact of the COVID-19 pandemic on its business operations and to date, the COVID-19 pandemic has not caused significant disruptions to the supply chain and the Company has sufficient supply on hand to meet U.S. commercial demand. A number of the Company’s commercial activities have been impacted by the COVID-19 pandemic, including some launch sales and marketing activities for Talicia® for H. pylori infection and Aemcolo® for travelers’ diarrhea. Although no major disruptions, other than manageable impact on its development and commercial activities, the Company continues to assess the potential impact of the COVID-19 pandemic on its business and operations, including on its sales, expenses, supply chain, financial resources and clinical trials. See also note 3 and note 11(b) regarding the impairment test performed by the Company. b. Approval of the financial statements: These financial statements were approved by the Board of Directors (the "BoD") on March 3, 2021. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: a. Basis for presentation of the financial statements The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). The significant accounting policies described below have been applied consistently in relation to all the periods presented, unless otherwise stated. The consolidated financial statements have been prepared under the historical cost convention, subject to adjustments in respect of revaluation of financial assets and financial liabilities at fair value through profit or loss. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3. Actual results could 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 primary economic environment in which the Company and its subsidiary operate (the “Functional F-9 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Currency”). The consolidated financial statements are presented in U.S. dollars (“$”), which is the Company’s functional and presentation currency. 2) Transactions and balances Foreign currency transactions in currencies different from the Functional Currency (hereafter foreign currency, mostly New Israeli Shekel (“NIS”)) and Euro (“EUR”) are translated into the Functional Currency using the exchange rates at the dates of the transactions. Foreign exchange differences resulting from the settlement of such transactions and from the translation of period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recorded in the Statements of Comprehensive Loss under financial income or financial expenses. c. Principles of consolidation The Company’s consolidated financial statements include the accounts of the Company and its subsidiary. All intercompany balances and transactions have been eliminated in consolidation. d. Cash and cash equivalents Cash and cash equivalents include cash on hand and unrestricted short-term bank deposits with maturities of three months or less. e. Trade receivables Trade receivables are recognized initially at the amount of consideration that is unconditional. They are subsequently measured at amortized cost using the effective interest method, less loss allowance. See also note (i)(3). f. Inventory The Company’s inventory represents items purchased by the Company and held for sale in the ordinary course of business, as well as inventory in the process of production for a sale in the ordinary course of business or materials or supplies to be used in the production process, to the extent they are recoverable. The inventory is stated at the lower of cost or net realizable value. Cost of inventory is 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. When evidence indicates that the carrying value of a product may not be recoverable, a charge is recorded to reduce the inventory to its current net realizable value. g. Fixed assets Fixed assets items are stated at cost less accumulated depreciation. F-10 Table of Contents REDHILL 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 residual value over their estimated useful lives as follows: Computer equipment Office furniture and equipment % 33 8-15 Leasehold improvements are depreciated by the straight-line method over the shorter of the term of the lease or the estimated useful life of the improvements. h. Intangible assets 1) Licenses The Company’s intangible assets represent in-licenses of development-phase compounds acquired by the Company, where the Company continues or has the option to continue to do the development work (“R&D assets”), as well as commercialization rights for approved products ("Commercialization assets"). R&D assets are stated at cost and are not amortized. These assets are tested for impairment at least annually. At the time these assets will be available for use, they will be amortized over their useful lives. Commercialization assets are stated at cost and are amortized on a straight-line basis over their useful economic life when they are available for use. These assets are subsequently carried at cost less accumulated amortization and impairment losses. In determining the useful economic life of a commercialization asset, the Company considered, among other factors, the duration of the license, patent and regulatory data exclusivities of the product, anticipated duration of sales of the product following loss of exclusivity, and competitors in the marketplace. Amounts due for future payment based on contractual agreements are accrued upon reaching the relevant milestones. All intangible assets are tested for impairment if any events have occurred or changes in circumstances have taken place which might indicate that their carrying amounts may not be recoverable. See also note 3 for key assumptions used in the determination of the recoverable amounts. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). 2) Research and development Research expenses are recognized as an expense as incurred. An intangible asset arising from the development of the Company’s therapeutic candidates is recognized if all of the following 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; F-11 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ● 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 sell the intangible asset are available and costs associated with the intangible asset during development can be measured reliably. Other development costs that do not meet the above criteria are recognized as expenses as incurred. Development costs previously recognized as an expense are not recognized as an asset in a subsequent period. Research and development costs for the performance of pre-clinical trials, clinical trials, and manufacturing by subcontractors are recognized as expenses when incurred. i. Financial assets 1) Classification The financial assets of the Company are classified into the following categories: financial assets at fair value through profit or loss, and financial assets at amortized cost. The classification is done on the basis of the Company’s business model for managing the financial asset and the contractual cash flow 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 to hold assets in order to collect contractual cash flows and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Financial assets at amortized cost are included in current assets, except for those with maturities greater than 12 months after the Statements of Financial Position date (for which they are classified as noncurrent assets). Financial assets at amortized cost of the Company are included in trade receivables, and other receivables 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 profit or loss of the Company are assets not measured at amortized cost in accordance with (1)(a) above. Assets in this category are classified as current assets if they are expected to be settled within 12 months; otherwise, they are classified as noncurrent. 2) Recognition and measurement Regular purchases and sales of financial assets are recognized on the settlement date, which is the date on which the asset is delivered to the Company or delivered by the Company. Investments are initially recognized at fair value plus direct incremental transaction costs for all financial assets not recorded at fair value through profit or loss, except for trade receivables, that are recognized initially at the amount of consideration that is unconditional. F-12 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Financial assets measured at fair value through profit or loss are initially recognized at fair value, related transaction costs are expensed to profit or loss. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. Financial assets at fair value through profit or loss are subsequently recorded at fair value. Financial assets at amortized cost 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 or loss are presented in the Statements of Comprehensive Loss under “Financial Expenses (Income), net.” 3) Impairment The Company recognizes a loss allowance for expected credit losses on financial assets at amortized cost. At each reporting date, the Company assesses whether the credit risk on a financial instrument has increased significantly since initial recognition. If the financial instrument is determined to have a low credit risk at the reporting date, the Company assumes that the credit risk on a financial instrument has not increased significantly since initial recognition. The Company measures the loss allowance for expected credit losses on trade receivables that are within the scope of IFRS 15 and on financial instruments for which the credit risk has increased significantly since initial recognition based on lifetime expected credit losses. Otherwise, the Company measures the loss allowance at an amount equal to 12-month expected credit losses at the current reporting date. j. Financial liabilities Financial liabilities are initially recognized at their fair value minus transaction costs that are directly attributable to the issue of the financial liability and are subsequently measured at amortized cost. The Company’s financial liabilities at amortized cost include: accounts payable, accrued expenses and other current liabilities, lease liabilities, borrowing, payable in respect of the intangible asset and royalty obligation. k. Share capital The Company’s ordinary shares are classified as the Company’s share capital. Incremental costs directly attributed to the issuance of new shares or warrants are presented under equity as a deduction from the proceeds of issuance. l. Employee benefits 1) Pension and retirement benefit obligations In any matter related to payment of pension and severance pay to employees in Israel to be dismissed or 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 pay severance pay and/or pensions to employees dismissed or retired, in certain circumstances. F-13 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The Company has a severance pay plan in accordance with Section 14 of the Israeli Severance Pay Law which is treated as a defined contribution plan. According to the plan, the Company regularly makes payments to severance pay or pension funds without having a legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay the related payments to employees’ service in current and prior periods. Contributions for severance pay or pension are recognized as employee benefit expenses when they are due commensurate with receipt of work services 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. 2) Vacation and recreation pay Under Israeli law, each employee in Israel is entitled to vacation days and recreation pay, both computed on an annual basis. This entitlement is based on the period of employment. The Company records expenses and liability for vacation and recreation pay based on the benefit accumulated by each employee. m. Share-based payments The Company operates several equity-settled, share-based compensation plans to employees (as defined in IFRS 2 “Share-Based Payments”) and service providers. As part of the plans, the Company grants employees and service providers, from time to time and at its discretion, options to purchase Company shares. The fair value of the employee and service provider services received in exchange for the grant of the options is recognized as an expense in profit or loss and is recorded as accumulated deficit within equity. For employees, the total amount recognized as an expense over the vesting period of the options (the period during which all vesting conditions are expected to be met) is determined by reference to the fair value of the options granted at the date of grant. For service providers (including equity instruments granted in consideration for intangible assets, see note 16(a)(4)), the Company measures the awards based on the fair value of the asset or service received. 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 specified vesting conditions are to be satisfied. At the end of each reporting period, the Company revises its estimates of the number of options that are expected to vest based on non-market vesting conditions. The Company recognizes the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to accumulated deficit. When exercising options, the Company issues new shares. The proceeds, less directly attributable transaction costs, are recognized as share capital (par value) and share premium. n. Revenue from contracts with customers The Company generated revenue in the years presented in these financial statements from product sales, including in-licensed products, and from promotional services provided in relation to third-party products. F-14 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1) Revenue from the sale of products The Company sells products mainly to wholesale distributors. Revenue is recognized at a point in time when control over the product is transferred to the customer (upon delivery), at the net selling price, which reflects reserves for variable consideration, including discounts and allowances. The transaction price in these arrangements is the consideration to which the Company expects to be entitled from the customer. The consideration promised in a contract with the Company’s customers may include fixed amounts and variable amounts. The Company estimates the variable consideration and includes it in the transaction price using the most likely outcome method, and only to the extent it is highly probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The specific considerations the Company uses in estimating these amounts related to variable consideration are as follows: Trade discounts and distribution fees. The Company offers discounts to its customers, as an incentive for prompt payment. The Company records these discounts as a reduction of revenue in the period the related revenue from the sale of products is recognized. In addition, distribution fees are paid to certain distributors based on contractually determined rates from the gross consideration. As the fee paid to the customer is not for a distinct good or service, it is recognized as a reduction of revenue in the period the related revenue from the sale of products is recognized. Rebates and patient discount programs. The Company offers various rebate and patient discount programs, which result in discounted prescriptions to qualified patients. The Company estimates the allowance for these rebates and coupons based on historical and estimated utilization of the rebate and discount programs, at the time the revenues are recognized. These estimates are recognized as a reduction of revenue. Product returns. The Company offers customers a right of return. The Company estimates the amount of product sales that may be returned by its customers and records this estimate as a reduction of revenue at the time of sale, based on historical rates of return, or, if such historical data is not available, the Company estimates product returns based on its own sales information, its visibility into the inventory remaining in the distribution channel and product dating. At the end of each reporting period, the Company may decide to constrain revenue for product returns based on information from various sources. Principal versus agent considerations. When a third party is involved in providing goods or services to a customer, the Company analyzes whether the Company acts as a principal or an agent in the transaction, based on whether the Company obtains control of the product before it is transferred to the customer, using the indicators provided in IFRS 15, including: primary responsibility for fulfilling the promise to provide the products to its customers, inventory risk before and after transfer to the customers and discretion in establishing the selling price of each product. When determined to be the principal in the arrangements, the Company recognizes revenues in the gross amount it expects to be entitled in exchange for the products transferred to the customers. 2) Revenue from promotional services In 2020, the Company terminated the promotional agreements and recognized immaterial revenues from promotional services. In 2019 and 2018, the Company recognized revenue from promotional services as it satisfied its performance obligation over time, in an amount equal to the consideration F-15 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS to which it expected to be entitled to, taking into consideration the constraint on variable considerations stipulated in IFRS 15. 3) Practical expedients and exemptions The Company expenses sales commissions when incurred since the amortization period of the asset that the Company otherwise would have recognized would have been for less than one year. These costs are recorded as selling and marketing expenses. o. Advertising and promotional expenses Advertising and promotional costs include, among others, distribution of free samples of the commercialized products. These costs are recognized as an expense when incurred. p. Loss per ordinary share The computation of basic loss per share is based on the Company’s loss divided by the weighted average number 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 to be issued to the average number of shares outstanding used to calculate the basic loss per share, assuming all shares that have a potentially dilutive effect have been exercised into shares. q. Deferred taxes Deferred income tax is recognized using the liability method for temporary differences arising between the tax 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 substantially enacted by the date of the Statements of Financial Position and are expected to apply when the related deferred income tax asset will be realized, or the deferred income tax liability will be settled. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available 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, no deferred tax assets were recorded in these financial statements. r. Leases a) The Company has adopted IFRS 16 retrospectively from January 1, 2019, but has not restated comparatives for the 2018 reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognized in the statement of financial position at the date of initial application. On adoption of IFRS 16, the Company recognized lease liabilities in relation to leases that had previously been classified as ‘operating leases’ under the principles of IAS 17 “Leases.” These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as of January 1, 2019. The weighted average lessee’s incremental annual borrowing rate applied to the lease liabilities on January 1, 2019, was 6.9%. The associated right-of-use assets were measured at the amount equal to the lease liability and as a result, there was no impact on accumulated deficit on January 1, 2019. F-16 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS In applying IFRS 16 for the first time, the Company has used the following practical expedient permitted by the standard - the accounting for operating leases with a remaining lease term of less than 12 months as of January 1, 2019, as short-term leases. The Company has also elected not to reassess whether a contract is or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date, the Company relied on its assessment made applying IAS 17 and IFRIC 4 determining whether an arrangement contains a lease. b) From January 1, 2019, the leases are recognized as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Company. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments: fixed payments (including in-substance fixed payments) and variable lease payments that are based on an index or a rate. The lease payments are discounted using the lessee’s incremental borrowing rate, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions. Right-of-use assets are measured at cost being the amount of the initial measurement of the lease liability. Payments associated with short-term leases and leases of low-value assets are not recognized as right-of-use assets or lease liabilities but are recognized on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets include IT-equipment and small items of office furniture. Contracts may contain both lease and non-lease components. For leases of properties, the Company allocates the consideration in the contract to the lease and non-lease components based on their relative stand-alone prices. However, for leases of vehicles, for which the Company is a lessee, it has elected not to separate lease and non-lease components and instead accounts for these as a single lease component. c) Until the 2018 financial year, the leases of offices and cars by the Company and its subsidiary were classified as operating leases and payments made were charged to profit or loss on a straight-line basis over the period of the lease. s. Recently adopted pronouncements Amendments to IFRS 3 'business combinations' - Definition of a Business ("the amendment"). The amended definition of a business requires an acquisition to include an input and a substantive process that together significantly contribute to the ability to create outputs. The definition of the term ‘outputs’ is amended to focus on goods and services provided to customers, generating investment income and other income, and it excludes returns in the form of lower costs and other economic benefits. The amendment also provides an optional test - the concentration test. If substantially all of the fair value F-17 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, then the acquired set of assets and activities are not considered a business. The Company applied the amendment to IFRS 3 prospectively as from January 1, 2020. See also note 16a(5) for the acquisition of Movantik®. NOTE 3 - CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS: The preparation of financial statements requires management to make estimates which, by definition, will seldom equal the actual results and will affect the reported amounts in the Company’s consolidated financial statements and the accompanying notes. Some of the policies described in note 2 of the Company’s consolidated financial statements involve a high degree of judgment or complexity. The Company believes that the most critical accounting policies and significant areas of judgment and estimation are in: ● Recognition and measurement of allowance for rebates and patient discount programs ● Impairment reviews of intangible R&D assets ● Estimated recoverable amount and useful economic life of the Aemcolo® asset. ● Estimated useful economic life of the acquired assets in the Movantik® acquisition. Recognition and measurement of allowance for rebates and patient discount programs The Company offers various rebate and patient discount programs, which result in discounted prescriptions to qualified patients. Rebates and discounts provided to the wholesalers and to the patients under these arrangements are accounted for as variable consideration, and recognized as a reduction in revenue, for which unsettled amounts are accrued. The allowance for these rebates is calculated based on historical and estimated utilization of the rebate and discount programs at the time the revenues are recognized. The main estimates used in recognizing and measuring this allowance relate to the amount of products sold to customers not yet prescribed to patients (units “in the channel”) and the mix of rebate and discount programs estimated for future prescription utilization. The Company periodically evaluates it estimates against actual results and, if necessary, updates the estimates accordingly. Impairment reviews of intangible R&D assets The Company reviews annually or when events or changes in circumstances indicate the carrying value of the R&D assets may not be recoverable. When and if necessary, an impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is determined using discounted cash flow calculations where the asset’s expected post-tax cash flows are risk-adjusted over their estimated remaining useful economic life. The risk-adjusted cash flows are discounted using the estimated Company’s post-tax weighted average cost of capital (“WACC”) which is 17%. The main estimates used in calculating the recoverable amount include: outcome of the therapeutic candidates R&D activities; probability of success in gaining regulatory approval, size of the potential market and the Company’s asset’s specific share in it and amount and timing of projected future cash flows. Estimated recoverable amount and useful economic life of the Aemcolo® asset The Aemcolo® asset was acquired in October 2019 in exchange of the Company’s ADSs and was recognized at fair value at the acquisition date. Following the outbreak of the COVID-19 pandemic and its significant impact on worldwide travel, the Company expects a continued decrease in U.S. outbound travel and the potential market for Aemcolo®, for traveler’s diarrhea, and therefore has recalculated the recoverable amount of the intangible asset related to Aemcolo®. The recoverable amount was determined using discounted cash F-18 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS flow calculations where the asset’s expected post-tax cash flows are risk-adjusted (using WACC) over their estimated remaining useful economic life. The main estimates used in calculating the recoverable amount include size of the potential market, the asset’s peak market share and the period in which it will be reached and the amount and timing of projected future cash flows. See note 11(b). Moreover, the Company determined the asset’s useful economic life, over which the asset will be amortized on a straight-line from its acquisition. The main estimate used in determining the useful life was the anticipated duration of sales of the product after its patent expiration. Estimated useful economic life of the acquired assets in the Movantik® acquisition In connection with the agreements mentioned in note 1a(2) above, the Company accounted for the acquisition of rights to Movantik® as an asset acquisition. Since all acquired assets are intended to generate revenues from sales of Movantik® and have a similar useful life, the Company attributed this consideration to a single intangible asset representing the acquired rights to Movantik®. The Company determined the asset’s useful economic life, over which the asset will be amortized on a straight-line from its acquisition. The main estimate used in determining the useful life was the anticipated duration of sales of the product after its expected patent expiration. 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 risks (including foreign exchange risk and interest risk), credit risk and liquidity risk. The Company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s results of operations and financial position. Risk management is performed by the Chief Financial Officer of the Company who identifies and evaluates 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 activities in accordance with policies approved by its BoD. The BoD provides general guidelines for overall financial risk management, as well as policies dealing with specific areas, such as exchange rate risk, interest rate risk, credit risk, use of financial instruments, and investment of excess cash. In order to minimize market risk and credit risk, the Company invests the majority of its cash balances in low-risk investments, such as (i) highly-rated bank deposits with terms of up to one-year term with exit points and (ii) a managed portfolio of select corporate bonds comprised of a diversified mix of highly-rated bonds. No more than 10% of the total value of the Company’s corporate bonds portfolio is invested in a single bond issuer. (a) Market risks (i) The Company could be exposed to foreign exchange risk as a result of its payments to employees and 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 the currencies for holding liquidity with the currencies of expected expenses, based on the expected cash flows of the Company. Had the Functional Currency of the Company been F-19 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS stronger by 5% against the NIS, assuming all other variables remained constant, the Company would have recognized an additional expense of $3,000, $12,000, and $58,000 in profit or loss for the years ended December 31, 2020, 2019 and 2018, respectively. The foreign exchange risks associated with these balances are immaterial. (ii) The Company’s main interest rate risk arises from long-term borrowing with interest on the outstanding loan computed as the 3-month USD LIBOR rate (hereinafter – the “LIBOR”), subject to a 1.75% floor rate, plus 8.2% fixed rate, which will be decreased to 6.7%, starting April 1, 2021. The Company regularly monitors the LIBOR, as well as the LIBOR forward curve. Based on that, the Company estimates that the 1.75% floor rate will remain effective (i.e. – LIBOR will remain below 1.75%) throughout the entire period of the borrowing and therefore the interest rate on this loan is effectively fixed. In July 2017, the United Kingdom’s Financial Conduct Authority (“FCA”), which regulates LIBOR, announced its intention to stop compelling the group of major banks that sustain LIBOR to submit rate quotations after the end of 2021 (the “LIBOR Reform”). ICE Benchmark Administration Limited (IBA), the administrator of the LIBOR, intends to cease the publication of the LIBOR settings immediately following the LIBOR publication on June 30, 2023. The IBA noted that any publication of the LIBOR settings based on panel bank submissions beyond December 31, 2021, will need to comply with applicable regulations, including as to representativeness. Based on current information from panel banks, IBA anticipates there being a representative panel for the continuation of these USD LIBOR settings through to June 30, 2023. As described above and in note 15, the Company’s long-term borrowing, which matures in 2026, is linked to the LIBOR. It is unclear whether new methods of calculating LIBOR will be established or if alternative benchmark reference rates will be adopted. The borrowing agreement stipulates that if the administrator responsible for determining and publishing the LIBOR has made a public announcement identifying a date certain on or after which such rate shall no longer be provided or published, as the case may be, then the lender may, upon prior written notice to the Company, choose a reasonably comparable index or source to enable to preserve the current all-in yield (including interest rate margins, any interest rate floors and original issue discount, but without regard to future fluctuations of such alternative index). As mentioned above, and despite the LIBOR Reform, the Company estimates that the effective floor rate will remain 1.75% throughout the entire period of the borrowing. (b) Credit risk Credit risk arises mainly from cash and cash equivalents and trade receivables. The Company estimates that since the liquid instruments are mainly invested with highly rated institutions, the credit and interest risks associated with these balances are low. Credit risk of trade receivables is the risk that customers may fail to pay their debts. The Company manages credit risk by setting credit limits, performing controls and monitoring qualitative and quantitative indicators 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 its largest customers. See also note 25(b). The Company’s vast majority of sales is to three U.S.-based large wholesale customers, which their historical loss rate is practically zero. An immaterial amount of the trade receivable balance as of December 31, 2020, relates to U.S.-based smaller wholesale customers to whom the Company has only limited history of sales. Based on the above information, as well as analyzing if there is any relevant forward-looking information related to the Company’s F-20 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS customers, the Company did not record a loss allowance for trade receivables as of December 31, 2020, and December 31, 2019. (c) Liquidity risk Prudent liquidity risk management requires maintaining sufficient cash or the availability of funding through an adequate amount of committed credit facilities. Management monitors rolling forecasts of the Company’s liquidity reserve (comprising of cash and cash equivalents, deposits and financial assets through profit or loss). This is generally carried out based on the expected cash flow in accordance with practices and limits set by the management of the Company. As of December 31, 2020, the Company has generated revenues from commercialization and promotional activities, however, no sufficient revenue was generated to compensate for operating expenses and therefore the Company is exposed to liquidity risk. The tables below break down the Company’s financial liabilities into relevant maturity groupings based on their contractual and estimated maturities. The amounts disclosed in the tables are the contractual and estimated undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant. Contractual maturities of financial liabilities at 31 December 2020 Accounts payable Lease liabilities Accrued expenses and other current liabilities Borrowing Payable in respect of intangible assets purchase Royalty obligation Contractual maturities of financial liabilities at 31 December 2019 Less than 1 year 2-5 years More than 5 years Total contractual cash flows Carrying amount U.S. Dollars in Thousands 11,553 1,985 24,082 4,210 11,553 6,195 11,553 5,517 24,082 24,082 10,154 107,514 18,530 136,198 81,386 20,600 10,000 747 127 Less than 1 year 2-5 years 24,745 750 30,600 1,786 Total contractual cash flows Carrying amount 912 More than 5 years U.S. Dollars in Thousands Accounts payable Lease liabilities Accrued expenses and other current liabilities Royalty obligation 4,184 1,052 5,598 3,117 385 — 394 999 4,184 4,554 5,598 1,393 4,184 3,815 5,598 500 2) Capital risk management The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders, maintain optimal capital structure, and to reduce the cost of capital. As discussed in note 15, the Credit Agreement contains a financial covenant requiring RedHill Inc. to maintain a minimum level of cash, as well as a covenant requiring it to maintain minimum net sales, beginning with the fiscal quarter ending June 30, 2022. As of December 31, 2020, the minimum level of cash, which relates to the term loans is $16 million. This amount is presented as restricted cash on the statement of financial position. F-21 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 or liability, 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 at dates of the Statements of Financial Position. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’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 using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity-specific estimates. If all significant inputs required to determine 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 is included in level 3. The following table presents Company assets and liabilities measured at fair value: December 31, 2020: Assets - Financial assets at fair value through profit or loss December 31, 2019: Assets - Financial assets at fair value through profit or loss Level 1 U.S. dollars in thousands 481 8,500 The carrying amount of cash equivalents, current and non-current bank deposits, receivables, account payables and accrued expenses approximate their fair value due to their short-term characteristics. The fair values of the Borrowing and the Payable in respect of intangible assets purchase balances as of December 31, 2020, are approximately $94 million and $26.6 million. These fair values are based on discounted cash flows using a current borrowing rate. The fair value of the Royalty obligation balance is not materially different from its carrying amount. F-22 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 - CASH AND CASH EQUIVALENTS: Cash in bank Short-term bank deposits December 31, 2020 2019 U.S. dollars in thousands 14,264 15,031 29,295 6,471 22,552 29,023 The carrying amounts of the cash and cash equivalents approximate their fair values. NOTE 6 - FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS: These financial assets as of December 31, 2020, 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 and to sell these financial assets. The Company is primarily focused on fair value information and uses that information to assess the assets’ performance and to make decisions. Therefore, this portfolio is classified as financial 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 and reporting period. NOTE 7 - PREPAID EXPENSES AND OTHER RECEIVABLES: Advance to suppliers Discount from service provider Prepaid expenses Government institutions December 31, 2020 2019 U.S. dollars in thousands 2,543 46 2,298 634 5,521 1,412 63 413 356 2,244 The fair value of other receivables, which constitute of financial assets, approximates their carrying amount. NOTE 8 - INVENTORY: Raw materials Finished goods December 31, 2020 2019 U.S. dollars in thousands 1,792 4,734 6,526 1,590 292 1,882 During the years ended December 31, 2020, and 2019, the Company recognized amounts of $5.2 million and $0.9 million, respectively, in inventory cost as part of cost of revenues. Write-downs of inventories to net realizable value amounted to $0.4 million in 2020 and $0.1 million in 2019. These were recognized as an expense, included in cost of revenues in the statement of comprehensive loss. F-23 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 - FIXED ASSETS: The composition of assets and accumulated depreciation are grouped by major classifications: Cost December 31 Accumulated depreciation Depreciated balance December 31 December 31 2020 2019 2020 2019 2020 2019 U.S. dollars in thousands Office furniture and equipment (including computers) Leasehold improvements 753 357 1,110 534 138 672 479 120 599 324 120 444 274 237 511 210 18 228 NOTE 10 - LEASES: Amounts recognized in the Statements of Financial Position: Right-of-use assets: Properties Vehicles Lease liabilities: December 31, 2020 December 31, 2019 U.S dollars in thousands 2,593 2,599 5,192 3,199 379 3,578 Current Non-current 834 2,981 3,815 *Additions to the right-of-use assets and lease liabilities during the year ended 2020 and 2019 were $2.9 million and $2.8 million, respectively. 1,710 3,807 5,517 Amounts recognized in the Statements of Comprehensive Loss: Depreciation charge of right-of-use assets Properties Vehicles Interest expense (included in financial expenses) Year Ended December 31, 2020 Year Ended December 31, 2019 607 948 1,555 574 524 370 894 390 *Expense relating to short-term leases and expense relating to leases of low-value assets are immaterial. **The total cash outflow for leases in 2020 and 2019 was $2 million and $1 million, respectively. F-24 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 - INTANGIBLE ASSETS: a. The Company’s intangible assets represent in-licenses of R&D assets and Commercialization assets (rights related to Movantik® and Aemcolo®). The changes in those assets are as follows: R&D assets: Cost: Balance at beginning of year Additions during the year Amortization charges Balance at end of year Commercialization assets: Cost: Balance at beginning of year Additions during the year see notes 16(a)(4)-16(a)(6) Amortization and impairment charges see (b) below Balance at end of year Year Ended December 31, 2020 2019 U.S. dollars in thousands 5,355 402 (50) 5,707 11,572 77,585 (6,985) 82,172 87,879 5,320 35 — 5,355 — 11,788 (216) 11,572 16,927 The Company estimated the useful life of assets related to Movantik® and Aemcolo® at 10.5 years and 11 years, respectively, from the dates of each asset’s acquisition (April 2020 and October 2019, respectively). Moreover, the Company estimated the useful life of the asset related to Talicia® at approximately 15 years from its marketing approval date (November 2019). For further details regarding the intangible assets see notes 2h, 3, and 16. b. Intangible assets impairment: Following the outbreak of the COVID-19 pandemic and its significant impact on worldwide travel, the Company expects a continued decrease in U.S. outbound travel and the potential market for Aemcolo®, for traveler’s diarrhea, and therefore has recalculated the recoverable amount of the intangible asset related to Aemcolo®. During the year ended 2020, the Company adjusted the recoverable amount to approximately $9.8 million and recognized an impairment loss of $0.8 million. The significant changes in assumptions are related to an expected decrease in the size of the potential market from 2020 through 2023, as well as a change in the WACC used to discount the asset’s cash flows from 15.4% as of December 31, 2019, to 17.2% as of the date of the recalculation on March 31, 2020. The impairment loss was recognized under Cost of Revenues in the Consolidated Statements of Comprehensive Loss, and it is attributable in full to the Commercial Operations segment. As of December 31, 2020, the Company determined that there is no indication for additional impairment with respect to the Aemcolo® product and therefore no additional assessment was required for this asset. As there were no indicators for impairment of any of the other amortized intangible assets, the Company did not specifically evaluate their recoverable amounts. NOTE 12 - LIABILITY FOR EMPLOYEE RIGHTS UPON RETIREMENT: a. Labor laws and agreements in Israel require the Company to pay severance pay and/or pensions to an employee dismissed or retiring from their employment in certain circumstances. F-25 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS b. The Company’s pension liability and the Company’s liability for payment of severance pay for employees in Israel for whom the liability is within the scope of Section 14 of the Severance Pay Law, is covered by ongoing deposits with defined contribution plans. The amounts deposited are not included in the Statements of Financial Position. The amounts charged as an expense with respect to defined contribution plans in 2020, 2019, and 2018 were $214,000, $184,000, and $182,000, respectively. NOTE 13 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES: Accrued expenses Employees and related liabilities Government institutions December 31, 2020 2019 U.S. dollars in thousands 18,972 4,963 147 24,082 2,996 1,228 107 4,331 NOTE 14 - ALLOWANCE FOR DEDUCTIONS FROM REVENUES: The following table shows the movement of the allowance for deductions from revenue: Rebates and patient discount programs Product returns Total As of January 1, 2020 Increases Decreases (utilized) Adjustments As of December 31, 2020 As of January 1, 2019 Increases Decreases (utilized) Adjustments As of December 31, 2019 NOTE 15 – BORROWING: a. General 1,001 56,669 (40,656) (634) 16,380 U.S. dollars in thousands 266 2,469 (772) - 1,963 1,267 59,138 (41,428) (634) 18,343 Rebates and patient discount programs Product returns Total U.S. dollars in thousands 385 303 (72) (350) 266 573 2,485 (2,057) - 1,001 958 2,788 (2,129) (350) 1,267 On February 23, 2020 (“Closing Date”) RedHill Inc. entered into a credit agreement and certain security documents (the “Credit Agreement”) with HCR Collateral Management, LLC (“HCRM”). Under the terms of the Credit Agreement, RedHill Inc. received on March 12, 2020, a $30 million term loan to support its commercial operations. On March 31, 2020, RedHill Inc. received an additional $50 million term loan to fund the acquisition of rights to Movantik® from AstraZeneca. F-26 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For each quarter for the period from January 1, 2021, to December 31, 2029, HCRM will receive royalties of 4% of the Company’s worldwide net revenues, subject to a $75 million cap per annum, as well as interest on the outstanding term loan to be computed as the 3-month LIBOR rate (“LIBOR”), subject to a 1.75% floor rate, plus 8.2% fixed rate, which will be decreased to 6.7% starting April 1, 2021. The term loans mature in six years with no principal payments required in the first three years. In case certain net revenue targets are not met, principal payments will be accelerated and commence following the two-year anniversary of the Closing Date. The term loans can be prepaid at RedHill Inc.’s discretion, subject to customary prepayment fees, which decrease over time. Upon the prepayment or repayment of all or any portion of the term loans, RedHill Inc. will pay HCRM 4% on the principal amount of the term loan being repaid or prepaid as an exit fee. The borrowings under the Credit Agreement are secured by a first priority lien on substantially all of the current and future assets of RedHill Inc., all assets related in any material respect to Talicia®, and all of the equity interests in RedHill Inc. The Credit Agreement also restricts the ability of RedHill Inc. to make certain payments, including paying dividends, to the Company prior to the full repayment of the term loan facility. The Credit Agreement contains certain customary affirmative and negative covenants, which were all met as of December 31, 2020. The Credit Agreement also contains a financial covenant requiring RedHill Inc. to maintain a minimum level of cash, as well as a covenant requiring it to maintain minimum net sales, beginning with the fiscal quarter ending June 30, 2022. The minimum level of cash is relative to the amount borrowed under the term loan facility. The Credit Agreement contains defined events of default, in certain cases subject to a grace period, following which the lenders may declare any outstanding principal and unpaid interest immediately due and payable. As of December 31, 2020, the minimum level of cash, which relates to the term loans is $16 million. This amount is presented as restricted cash on the statement of financial position. b. Accounting treatment A financial liability is recognized for each tranche upon drawdown, at the amount drawn less transaction costs attributable to that tranche. Upon initial recognition, the effective interest rate is calculated by estimating the future cash flows throughout the expected life of that tranche, taking into account the transaction costs allocated to each tranche. The Company determined that the basis of the royalty payments due to HCRM, the Company’s worldwide net revenues, is a non-financial variable and specific to the Company. Moreover, the royalty feature is an integral part of the terms and conditions of the term loans and cannot be transferred or settled separately from the term loan. Therefore, the royalties feature is not classified separately, does not meet the definition of a derivative, and is not measured separately. Instead, the royalty feature and other net revenues features are taken into account in estimating the effective interest rate. Determining the weighted effective interest rate requires certain judgment related to the estimation of the timing and amounts of the Company’s future worldwide net revenues. The weighted effective interest rate on the Closing Date was approximately 16.5%. F-27 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Each tranche drawn down is subsequently measured at amortized cost. The effective interest rate is re- estimated at each interest rate determination date, as defined in the Credit Agreement, by updating per the LIBOR, if needed, taking into account the LIBOR floor (that is considered to be closely related to the host debt contract and is not separated from the host debt). Furthermore, revisions to estimated amounts or timing of future cash flows, if needed, shall adjust the amortized cost of each tranche drawn down to reflect the present value of actual and revised estimated contractual cash flows, discounted using the original effective interest rate (adjusted for changes in the LIBOR, as described above). The adjustment will be recognized in profit or loss as a financial income or expense. As described above, the Credit Agreement contains a financial covenant requiring the Company to maintain a level of cash liquidity, on any business day from the Closing Date to the maturity date, in accounts that are subject to HCRM’s control. Therefore, the amounts of minimum cash and cash equivalents are excluded from cash and cash equivalents in the Statements of Financial Position and the Statements of Cash Flows. Instead, these amounts are presented as restricted cash in the Statements of Financial Position and the movements in this restricted cash are presented as financing activities in the Statements of Cash Flows. The minimum cash amounts are restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period and therefore are presented as non- current assets until 12 months prior to the term loan maturity dates. Further details of the Company’s exposure to risks arising from the Credit Agreement, as well as maturities and fair value information, are set out in note 4. NOTE 16 - COMMITMENTS: a. Agreements to purchase intellectual property and commercial products: 1) On August 11, 2010, the Company entered into an agreement with a private Australian company in an asset purchase agreement to acquire intellectual property relating to three therapeutic candidates for the treatment of gastrointestinal conditions. Pursuant to the asset purchase agreement, as amended, the Company paid the Australian company an initial amount of $500,000 and undertook to pay future payments in the range of 7% - 20% from the Company’s revenues that may be generated from the sale and sublicense of the therapeutic candidates, less certain deductible amounts, as detailed in the agreement. Such potential payments are due until termination or expiration of the last of the patents transferred to the Company pursuant to the agreement (each on a product-by-product basis). In 2014, the Company entered into a licensing agreement with Salix Pharmaceuticals, Ltd., which was later acquired by Valeant Pharmaceuticals International, Inc. and subsequently renamed to Bausch Health Companies Inc. (“Bausch Health”), pursuant to which Bausch Health licensed from the Company the exclusive worldwide rights to one of the above-mentioned therapeutic candidates. Under the license agreement, Bausch Health paid the Company an upfront payment of $7 million, recognized by the Company as revenues in 2014, and as a result, the Company paid the Australian company an amount of $1 million, that were recognized as cost of revenues in the Statements of Comprehensive Loss. In December 2019, the Company terminated the licensing agreement with Bausch Health and regained the exclusive worldwide rights to the therapeutic candidate licensed. Through December 31, 2020, the Company has paid the Australian company in total $1.5 million, as mentioned above. F-28 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2) On June 30, 2014, the Company entered into an agreement with a German company that 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 the terms of the agreement, the Company paid the German company an upfront payment of $1 million and agreed to pay the German company potential tiered royalties, less certain deductible amounts, as detailed in the agreement, ranging from mid-teens and up to 30%. Such potential royalties are due until the later of (i) the expiration of the last to expire licensed patent that covers the product in the relevant country and (ii) the expiration of regulatory exclusivity in the relevant country. Through December 31, 2020, the Company has paid the German company only the initial amount mentioned above. 3) On March 30, 2015, the Company entered into an agreement with a U.S.-based private company that granted the Company the exclusive worldwide development and commercialization rights for all indications to a therapeutic candidate, and additional intellectual property rights, targeting multiple oncology, inflammatory and GI indications. Under the terms of the agreement, the Company undertook to pay the U.S. company an initial amount of $1.5 million and an additional amount of $2 million to be paid on a specific date. In addition, the Company undertook to pay up to $2 million in potential development milestone payments, and potential tiered royalties on revenues, less certain deductible amounts starting in the low double-digits, as detailed in the agreement. Such potential royalties are due until the later of (i) the expiration of the last to expire licensed patent that covers the product in the relevant country; and (ii) the expiration of regulatory exclusivity in the relevant country. Through December 31, 2020, 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 Company elected to convert the current payment of the remaining $0.5 million into increased future potential royalty payments. As of December 31, 2020, and December 31, 2019, the Company recognized an amount of $0.75 million and $0.5 million, respectively, as a non-current liability with respect to the increase in potential royalty payments. 4) On October 17, 2019, the Company entered into a strategic collaboration with Cosmo Pharmaceuticals N.V. (“Cosmo”), which includes an exclusive license agreement for the U.S. rights to Aemcolo® and a simultaneous private investment by Cosmo. Under the terms of the license agreement, Cosmo invested $36.3 million in cash and granted the Company the exclusive rights to commercialize Aemcolo® in the U.S. for travelers’ diarrhea. The license agreement also grants the Company certain rights related to the potential development of additional indications for Aemcolo®, as well as arrangements related to other pipeline therapeutic candidates of Cosmo. Under the terms of the agreements, the Company issued 5,185,715 ADSs to Cosmo for the cash investment and 1,714,286 ADSs to Cosmo Technologies Ltd, a wholly-owned subsidiary of, as an upfront payment for the U.S commercialization rights granted under the license. In addition, the Company agreed to pay Cosmo a royalty percentage in the high twenties on net sales generated from the commercialization of Aemcolo® in the U.S. The license agreement further provides for potential regulatory and commercial milestone payments to Cosmo totaling up to $100 million. With respect to this agreement, the Company measured the commercialization rights based on their fair value (approximately $11.8 million, as of the date of the acquisition) with a corresponding credit to equity. See also note 11(b). F-29 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 5) Movantik® acquisition: 1. General In connection with the agreements mentioned in note 1a(2), on April 1, 2020 (“Effective Date”), RedHill Inc. made an upfront payment of $52.5 million to AstraZeneca, and the License Agreement, the Supply Agreement and the TSA became effective. Under the terms of the License Agreement, as amended on July 14, 2020, RedHill Inc. agreed to pay a further non-contingent payment of $15.5 million in December 2021. See note 28 (e) regarding with regard to an amendment to the License Agreement subsequent to December 2020. RedHill Inc. will also assume responsibility for sales-based royalty, currently at a rate of 20%, as well as sales-based potential milestone payments that AstraZeneca is required to pay to Nektar Therapeutics (“Nektar”), the originator of Movantik®. The Company considers the likelihood of having to pay the milestone payments or increased royalties as negligible. In addition, AstraZeneca transferred on the Effective Date to RedHill Inc. a co-commercialization agreement with Daiichi Sankyo, Inc. (“DSI”) for Movantik® in the U.S, according to which, RedHill Inc. would share costs and pay sales-based payments to DSI under that agreement. Effective July 1, 2020, RedHill Inc. and DSI replaced this agreement with a new royalty-bearing agreement. See note 16(a)(6) below. On October 6, 2020, the parties amended the License Agreement to grant RedHill Inc. also the exclusive commercialization and development rights to Movantik® (naloxegol) in Israel. Under its Supply Agreement with AstraZeneca used in connection with its commercialization of Movantik®, RedHill Inc. undertook an obligation for future purchase of API, bulk tables and finished goods. As of December 31, 2020, the total consideration for such purchase is approximately $25 million. RedHill Inc. expects to purchase the inventory, in the regular course of business, as part of its ongoing commercialization of Movantik®. Under the terms of the License Agreement, RedHill Inc. assumes responsibility over the Abbreviated New Drug Application litigations initiated by AstraZeneca and Nektar against Apotex, Inc. and Apotex Corp. (together “Apotex”) and against MSN Laboratories (“MSN”) in December 2018 and against Aurobindo Pharma U.S.A (“Aurobindo”) in November 2019, in the United States District Court for the District of Delaware. In the complaints, it is alleged that the generic companies’ versions of Movantik®, if approved and marketed, would infringe a Movantik®-related patent set to expire in April 2032 (U.S. Patent No. 9,012,469). There exist other Orange Book-listed patents covering Movantik®, the last of which to expire is U.S. Patent No. 7,786,133 (expected expiry in September 2028), which have not been challenged by the generic companies. 2. Accounting treatment The Company, in accordance with IFRS 3 – Business Combinations and IAS 38 – Intangible Assets, accounted for the acquisition of rights to Movantik® as an asset acquisition, that does not constitute a business, for the following considerations: (a) The Supply Agreement provides RedHill Inc. with the ability to purchase finished products and materials from AstraZeneca during a transition period at approximately fair value, without acquiring AstraZeneca's organized workforce or existing processes required to manufacture Movantik®. That is, RedHill Inc. does not purchase an in-place manufacturing process nor any specialized equipment required for the manufacturing process, but instead, the purpose of the Supply Agreement is to enable RedHill Inc. to establish its own manufacturing capabilities, whether directly or through a F-30 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS third party, that would also require obtaining relevant regulatory approvals, which presumably will take a significant period of time. (b) The TSA is intended to allow a smooth transition of the different activities related to Movantik® for a relatively short period and is not intended for RedHill Inc. to acquire AstraZeneca's organized workforce, supply chain or distribution processes. The TSA had terminated on September 30, 2020. (c) In addition, the Company determined that the concentration test under the new definition of a business is met, since substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. (the rights to produce and sell Movantik®). Therefore, the Movantik® acquisition does not represent a business combination, rather than an asset acquisition. The total acquisition consideration, including upfront payment, discounted present value of the deferred payment and directly attributable transaction costs amounted to approximately $65 million. Since all acquired assets are intended to generate revenues from sales of Movantik® and have a similar useful life, the Company attributed this consideration to a single intangible asset representing the acquired rights to Movantik®. The intangible asset shall be amortized commencing the Effective Date on a straight-line basis over its useful life, which was estimated at approximately 10.5 years from the Effective Date. With respect to sales-based royalties and milestone payments aforementioned, the Company applied an accounting policy, pursuant to which these variable payments shall not be included in the initial measurement of the cost of the intangible asset acquired, as they are not a present obligation of RedHill Inc. The sales-based royalties are expensed as incurred and recognized under Cost of Revenues. Through September 30, 2020, AstraZeneca provided, among other services, Sales Order-To-Cash (SOTC) services. During this period, AstraZeneca remitted to RedHill Inc. the Sales Margin, as defined in the TSA, for the products sold and RedHill Inc. paid a fee of 4.5% of Net Revenues, as well as non-sales-based fees and out-of-pocket costs for the services rendered. The Company determined that AstraZeneca does not control the product before it is transferred to the end customers (the wholesalers) since Redhill Inc. has the significant risks and rewards of holding the product rather than AstraZeneca. In addition, RedHill Inc. is primarily responsible for fulfilling the obligation to provide Movantik® to customers, including for acceptability. Moreover, RedHill Inc. bears the inventory risk and has discretion over pricing and discounts and AstraZeneca has limited ability in entering into new agreements with customers or changing commercial terms of existing agreements. Therefore, the Company concluded that RedHill Inc. is a principal in providing Movantik® during the SOTC period, and it recognized revenues in the gross amount of consideration to which it expects to be entitled in exchange for the finished products transferred to the customers (the wholesalers). The fees and out-of-pocket costs shall be expensed as incurred. Starting October 1, 2020, AstraZeneca no longer provided the abovementioned services. 6) As described in note 16a(5) above, as part of the Movantik® transaction, the Company undertook the pre-existing co-commercialization agreement with DSI, under which the Company and DSI share certain costs while paying DSI a significant share from its sales volume of Movantik®. Effective July 1, 2020, RedHill Inc. and DSI replaced the co-commercialization agreement with a new royalty-bearing agreement, under which RedHill Inc. bears all responsibilities and costs for commercializing Movantik® in the U.S. During the term of this new agreement, RedHill Inc. will pay DSI a mid-teen royalty rate on net sales of Movantik® in the U.S. in addition to $5.1 million in December 2021 and $5 million in July of each of the years 2022 and 2023. Concurrently, the F-31 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Company also entered into a security purchase agreement, under which DSI received 283,387 ADSs as a partial consideration in relation to Movantik®. The Company recognized an intangible asset in the amount of approximately $12.5 million. This amount includes approximately $10.5 million for the present value of the above-mentioned payments, recognized against a corresponding financial liability and approximately $2 million for the ADSs issued to DSI. The intangible asset recognized has similar estimated useful life as the intangible asset discussed in note 16a(5) above and shall be amortized on a straight-line basis over its useful life. b. Payroll Protection Program: In April 2020, RedHill Inc. received a loan of approximately $2.3 million under the U.S. Small Business Administration Payroll Protection Program (“PPP”) which was created under the Coronavirus Aid, Relief and Economic Security Act. The loan has a term of two years and bears a fixed interest rate of 1% per annum, with the initial six months of interest deferred. Under the PPP, repayment of the loan, including interest, may be forgiven based on payroll expenses, rent, utilities and other qualifying expenses incurred in the eight weeks following receipt of the loan, provided that RedHill Inc. will adhere to specific requirements outlined in the PPP. The Company estimates that there is reasonable assurance that RedHill Inc. will comply with the conditions associated with forgiveness of the loan and that the loan will be forgiven, and therefore accounted for the PPP loan as a government grant, recognizing it in the statements of comprehensive loss, as a reduction of sales and marketing and general and administration expenses. NOTE 17 - 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 Taxable Income), 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 Principles Generally Accepted in Israel (Israeli GAAP). These financial statements are prepared in accordance with IFRS. The differences between IFRS and Israeli GAAP, both on an annual and a cumulative basis cause differences between taxable results and the results are 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 for 2020, 2019, and 2018 were 23%. b. U.S. subsidiary: The Company’s subsidiary is incorporated in the U.S and is taxed under U.S. tax laws. The applicable corporate tax rates is 21% since 2018 and thereafter. As a general rule, inter-company transactions between the Israel-resident Company and its U.S-resident subsidiary are subject to the reporting provisions of the Income Tax Regulations, section 85-A, 2006 of the Israeli Tax Ordinance of the Israeli Tax Ordinance. F-32 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS c. Carryforward losses: As of December 31, 2020, the Company had net operating loss (“NOLs”) carried forward of approximately $190 million. Under Israeli tax laws, carryforward tax losses have no expiration date. As of December 31, 2020, the U.S. subsidiary had a net operating loss carryforward of approximately $64 million, of which approximately $10 million expires in 2037, and approximately $54 million does 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 to utilize NOL carryforwards to 80% of taxable income. In addition, NOLs arising after 2017 can be carried forward indefinitely, but carryback is generally prohibited. NOLs generated in tax years beginning before January 1, 2018, will not be subject to the foregoing taxable income limitation and will continue to have a two-year carryback and twenty-year carryforward period. Furthermore, in accordance with Coronavirus Aid, Relief, and Economic Security Act (CARES Act) of 2020, losses from tax years beginning in 2018, 2019 or 2020 can be carried back 5 years. Deferred tax assets on losses for tax purposes carried forward to subsequent years are recognized if utilization of the related tax benefit against a future taxable income is expected. The Company has not created deferred taxes on its carryforward losses since their utilization is not expected in the foreseeable future. d. Deductible temporary differences: The amount of cumulative deductible temporary differences, other than carryforward losses (as mentioned in c. above), for which deferred tax assets have not been recognized in the Statements of Financial Position as of December 31, 2020, and 2019, were $12 million and $17 million, respectively. These temporary differences have no expiration dates. e. Tax assessments: The Company has not been assessed for tax purposes since its incorporation. The Company’s tax assessments for 2015 are therefore considered final. NOTE 18 - SHARE CAPITAL: a. Composition: Company share capital is composed of shares of NIS 0.01 par value, as follows: Authorized ordinary shares Authorized preferred shares (reserved) Issued and paid ordinary shares Number of shares December 31, 2020 2019 In thousands 794,000 6,000 594,000 6,000 383,981 352,696 In May 2018, a general meeting of the Company’s shareholders approved the increase of the authorized share capital of the Company to 600,000,000 ordinary shares. In June 2019, a general meeting of the Company’s shareholders approved to amend the Company's registered share capital F-33 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS into (i) 594,000,000 ordinary shares, par value NIS 0.01 each, and (ii) 6,000,000 preferred shares, par value NIS 0.01 each. In May 2020, a general meeting of the Company’s shareholders approved the increase of the authorized share capital of the Company to 800,000,000 ordinary shares. Consisting of 794,000,000 Ordinary Shares, NIS 0.01 par value per share and 6,000,000 preferred shares, NIS 0.01 par value per share. b. During 2020, the Company sold 2,837,038 ADSs under an “at-the-market” equity offering program (“ATM program”) at an average price of $8.62 per ADS. Net proceeds to the Company, following issuance expenses of approximately $0.6 million, were approximately $23.8 million. The sales are under the Company's sales agreement with SVB Leerink LLC (“Leerink”) which provides that, upon the terms and subject to the conditions and limitations in the sales agreement, the Company may elect from time to time, to offer and sell its ADSs having aggregate gross sales proceeds of up to $60 million through the ATM program, under which Leerink acts as the sales agent. The issuance and sale of ADSs by the Company under the ATM program are being made pursuant to the Company’s shelf registration statement declared effective on July 31, 2018. c. During 2020 and 2019, the Company issued 8,156 ADSs and 8,750 ordinary shares for $52,000 and $5,000, respectively, resulting from exercises of options that had been issued to employees, of the Company. d. In July 2020, as part of the transaction described in note 16a(6) above, the Company entered into a security purchase agreement with DSI and subsequently issued to DSI 283,387 ADSs for approximately $2 million. e. In October 2019, the Company, under the strategic collaboration discussed in note 16(a)(4), issued 5,185,715 ADSs to Cosmo for proceeds in cash of $36.3 million and 1,714,286 ADSs to Cosmo Technologies Ltd, a wholly-owned subsidiary of Cosmo, as an upfront payment for the U.S commercialization rights of Aemcolo®. f. In December 2018, the Company completed an underwritten offering in the U.S. of an aggregate of 2,857,143 ADSs for gross proceeds to the Company of approximately $20 million. Net proceeds to the Company from the offering, following underwriting commissions and other offering expenses, were approximately $18.4 million. g. In August 2018, the Company completed an underwritten offering in the U.S. of an aggregate of 4,166,667 ADSs for gross proceeds to the Company of approximately $25 million. Net proceeds to the Company from the offering, following underwriting commissions and other offering expenses, were approximately $23.5 million. NOTE 19 - SHARE-BASED PAYMENTS: On May 30, 2010, a general meeting of shareholders approved the option plan of the Company (the “Option Plan”), after being approved by the BoD. In 2017 the Option Plan was amended and restated as the 2010 Award Plan (the “Award Plan”). As of December 31, 2020, the Award Plan allows the Company to allocate up to 59,206,448 options to purchase ordinary shares to employees, consultants, and directors and are reserved by the BoD for issuance under the Award Plan. The terms and conditions of the grants were determined by the BoD and are according to the Award Plan. F-34 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS a. The following is information on options granted in 2020: Number of options granted in ADSs According to the Award Plan of the Company Other than to directors (1) To directors (1)(2) Date of grant January 2020 February 2020 March 2020 May 2020 June 2020 July 2020 August 2020 November 2020 95,000 52,500 285,000 143,000 767,500 12,500 55,500 21,000 — Total 95,000 — 144,000 75,000 52,500 429,000 218,000 — 767,500 12,500 — 55,500 — — 21,000 10.20 1,432,000 219,000 1,651,000 Exercise price for 1 ADS ($) 6.60 6.05 4.87 7.50 7.72 7.69 8.72 Fair value of options on date of grant in U.S. dollars in thousands (3) 243 119 970 831 2,671 45 264 90 5,233 1) The options will vest as follows: for directors, employees and consultants of the Company and the Company's subsidiary who had provided services exceeding one year as of the grant date, options will vest in 16 equal quarterly installments over a four-year period. For directors, employees and consultants of the Company and the Company's subsidiary who had not provided services exceeding one year as of the grant date, the options will vest as follows: 1/4 of the options will vest one year following the grant date and the rest will vest over 12 equal quarterly installments. During the contractual term, the options will be exercisable, either in full or in part, from the vesting date until the end of 10 years from the date of grant. The options are exercisable into the Company’s ADSs. 2) The general meeting of the Company’s shareholders held on May 4, 2020 (the “May 2020 AGM”), subsequent to approval of the Company’s BoD, approved the grant of 219,000 options under the Company’s Award Plan, to directors and to the Company's Chief Executive Officer. 3) The fair value of the options was computed using the binomial model and the underlying data used was mainly the following: price of the Company’s ADSs: $4.28 - $9.19, expected volatility: 57.73% - 63.63%, risk-free interest rate: 0.64% - 1.51% and the expected term was derived based on the contractual term of the options, the expected exercise behavior and expected post-vesting forfeiture rates. the expected volatility assumption used in based on the historical volatility of the Company’s ordinary share. F-35 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS b. The following is information on options granted in 2019: Number of options granted in ADSs According to the Award Plan of the Company To directors (1) (2) Total Other than to directors (1) 158,000 564,000 — 158,000 — 564,000 187,500 43,500 35,000 60,000 137,000 — 187,500 — 43,500 35,000 60,000 137,000 Exercise price for 1 Ads Fair value of options on date of grant in U.S. dollars $) 8.90 9.20 9.20 8.00 8.00 7.60 6.90 in thousands (3) 628 2,433 641 173 150 195 451 Date of grant February 2019 May 2019 June 2019 July 2019 September 2019 November 2019 December 2019 997,500 187,500 1,185,000 4,671 1) The options vesting terms are as described in note 19(a)(1) above. 2) The general meeting of the Company’s shareholders held on June 24, 2019 (the “June 2019 AGM”), subsequent to approval of the Company’s BoD, granted 187,500 options under the Company’s Award Plan, to the Company’s directors and to the Chief Executive Officer. 3) The fair value of the options was computed using the binomial model and the underlying data used was mainly the following: price of the Company’s ordinary share: $6.1 - $8.3 expected volatility: 57.48% - 58.27%, risk-free interest rate: 1.63% - 2.67% and the expected term was derived based on the contractual term of the options, the expected exercise behavior and expected post-vesting forfeiture rates. the expected volatility assumption used based on the historical volatility of the Company’s ordinary share. c. Changes in the number of options in ADSs and weighted averages of exercise prices are as follows: Outstanding at beginning of year Exercised Expired and forfeited Granted Outstanding at end of year Exercisable at end of year Year Ended December 31, 2020 2019 Weighted average of exercise price ($) Weighted average of exercise price ($) Number of options Number of options 4,050,898 (8,156) (264,939) 10. 3 6.38 9.65 2,936,024 (875) (69,250) 10.50 6.10 10.30 1,651,000 6.90 1,185,000 8.70 5,428,803 9.08 4,050,898 10.3 3,178,317 10.19 2,490,292 11.40 F-36 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS d. The following is information about the exercise price and remaining useful life of outstanding options at year-end: 2020 2019 Year Ended December 31, Number of options outstanding at end of year 5,428,803 Exercise price range $5.6-$16.1 Weighted average of remaining useful life 5.9 Number of options outstanding at end of year 4,050,898 Exercise price range $5.6-$16.1 Weighted average of remaining useful life 5.2 e. Expenses recognized in profit or loss for the options are as follows: 2020 4,202 Year Ended December 31, 2019 U.S. dollars in thousands 3,027 2018 2,678 The remaining compensation expenses as of December 31, 2020, are $4.5 million and will be expensed in full by September 2024. NOTE 20 - NET REVENUES: Movantik® revenues Other revenues (1) 2020 Year Ended December 31, 2019 U.S dollars in thousands 59,356 5,003 64,359 — 6,291 6,291 2018 — 8,360 8,360 1) During the years 2019 and 2018, $3.1 million and $3.7 million, respectively, were attributed to the promotional services, and $3.2 million and $4.7 million, respectively, were attributed to commercialization of products. In 2020, the Company terminated the promotional agreements and recognized immaterial revenues from promotional services. NOTE 21 - RESEARCH AND DEVELOPMENT EXPENSES: Payroll and related expenses Professional services and consulting fees Share-based payments Clinical and pre-clinical trials Intellectual property development Other 2020 Year Ended December 31, 2019 U.S. dollars in thousands 2018 636 1,752 883 12,569 298 353 16,491 623 2,345 671 12,840 317 623 17,419 552 2,297 872 20,373 290 478 24,862 F-37 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 22 - SELLING, MARKETING AND BUSINESS DEVELOPMENT EXPENSES: Payroll and related expenses Share-based payments Professional services Samples Travel, fleet, meals and related expenses Office-related expenses Other NOTE 23 - GENERAL AND ADMINISTRATIVE EXPENSES: Payroll and related expenses Share-based payments Professional services Medical affairs Office-related expenses Other NOTE 24 - FINANCIAL (INCOME) EXPENSES, net: 2020 Year Ended December 31, 2019 U.S. dollars in thousands 9,335 2018 20,756 1,464 18,957 438 5,729 957 984 49,285 941 3,680 178 2,193 789 1,217 18,333 7,540 575 1,626 — 1,822 495 428 12,486 2018 2020 Year Ended December 31, 2019 U.S. dollars in thousands 4,903 1,415 3,479 299 585 800 11,481 11,159 1,855 9,132 1,052 1,168 1,009 25,375 3,880 1,231 1,461 — 547 387 7,506 2020 Year Ended December 31, 2019 U.S dollars in thousands 2018 Financial income: financial Fair value gains on derivative instruments Gains on financial assets at fair value through profit or loss Gains from changes in exchange rates Interest from bank deposits Financial expenses: Interest and finance charges for lease liabilities Loss from changes in exchange rates Interest expenses related to borrowing and payable in respect of intangible assets purchase Other ( Financial (income) /expenses, net NOTE 25 - SEGMENT INFORMATION: — 344 94 — 176 270 405 9 12,045 300 12,759 12,489 474 74 443 1,335 390 — — 48 438 (897) 104 295 — 279 678 — 125 — 42 167 (511) The Company has two segments, Commercial Operations and Research & Development. In line with the reporting to the Chief Executive Officer, the performance of these segments is reviewed at revenues, F-38 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS gross profit, and operating expenses levels. The Commercial Operations segment covers all areas relating to the commercial sales and operating expenses directly related to that activity and is being performed by the Company’s U.S. subsidiary. The Research and Development segment includes all activities related to the research and development of therapeutic candidates and is being performed by the Company. There is no segmentation of the Statements of Financial Position. Charges such as depreciation, impairment and other non-cash expenses are charged to the relevant segment. a. Segment information December 31, 2020: Net revenues Cost of revenues Gross profit Research and development expenses, net Selling, marketing, and business development expenses General and administrative expenses Operating loss Net revenues Cost of revenues Gross profit Research and development expenses, net Selling, marketing, and business development expenses General and administrative expenses Operating loss Net revenues Cost of revenues Gross profit Research and development expenses, net Selling, marketing, and business development expenses General and administrative expenses Operating loss Year Ended December 31, 2020 Research and Development U.S. dollars in thousands — — — 16,491 1,817 7,778 26,086 Year Ended December 31, 2019 Research and Development U.S. dollars in thousands — — — 17,419 1,479 6,308 25,206 Year Ended December 31, 2018 Research and Development U.S. dollars in thousands — — — 24,862 1,157 4,711 30,730 Consolidated 64,359 36,892 27,467 16,491 49,285 25,375 63,684 Consolidated 6,291 2,259 4,032 17,419 18,333 11,481 43,201 Consolidated 8,360 2,837 5,523 24,862 12,486 7,506 39,331 Commercial Operations 64,359 36,892 27,467 — 47,468 17,597 37,598 Commercial Operations 6,291 2,259 4,032 — 16,854 5,173 17,995 Commercial Operations 8,360 2,837 5,523 — 11,329 2,795 8,601 F-39 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS b. Major customers The following table represent the percentages of total net revenues from the major customers: Customer A Customer B Customer C Customer D Customer E 2020 35% 28% 35% Year Ended December 31, 2019 2018 10% 45% 18% 42% 46% The Company’s revenues were entirely in the U.S. and the payment terms for all customers are 30 to 60 days. c. Segment assets The Company’s non-current assets located in Israel as of December 31, 2020, amount to $7.5 million (mainly Intangible assets- $5.7 million and Right-of-use assets - $1.4 million). The remainder of the consolidated non-current assets as of December 31, 2020, equal to $102.3 million, are located in the U.S (consisting mainly of Intangible assets- $82.2 million, Restricted Cash - $16 million and Right-of-use assets - $3.8 million). NOTE 26 - LOSS PER ORDINARY SHARE: a. Basic The basic loss per share is calculated by dividing the loss by the weighted average number of ordinary shares in issue during the period. The following is data taken into account in the computation of basic loss per share: Loss (U.S. dollars in thousands) Weighted average number of ordinary shares outstanding during the period (in thousands) Basic loss per share (U.S. dollars) Year Ended December 31, 2020 76,173 2019 42,304 2018 38,820 364,276 0.21 296,922 0.14 231,204 0.17 b. Diluted Diluted loss per share is calculated by adjusting the weighted average number of ordinary shares outstanding, assuming conversion of all potentially dilutive ordinary shares, using the treasury stock method. The Company had two categories of potentially dilutive ordinary shares: warrants issued to investors and options issued to employees and service providers. The effect of these options and warrants for all reporting years is anti-dilutive. F-40 Table of Contents REDHILL BIOPHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 27 - RELATED PARTIES: a. Key management in 2020 includes members of the Board of Directors, including the Company’s Chief Commercial Officer and Chief Executive Officer: Key management compensation: Salaries and other short-term employee benefits Post-employment benefits Share-based payments Other long-term benefits b. Balances with related parties: Year Ended December 31, 2020 2019 2018 U.S. dollars in thousands 1,526 61 710 33 876 43 468 26 734 36 510 26 Current liabilities - Credit balance in “accrued expenses and other current liabilities” December 31, 2020 2019 U.S. dollars in thousand 484 175 NOTE 28 - EVENTS SUBSEQUENT TO DECEMBER 31, 2020: a. b. In January 2021, the Company completed an underwritten bought deal offering of 3,188,776 ADSs for gross proceeds to the Company of approximately $25 million. Net proceeds to the Company from the offering, following underwriting commissions and other offering expenses, were approximately $23.1 million. In March 2021, the Company completed an underwritten bought deal offering of 4,647,433 ADSs for gross proceeds to the Company of approximately $37 million. Net proceeds to the Company from the offering, following underwriting commissions and other offering expenses, were approximately $34.8 million. c. During 2021 the Company issued 428,421 ADSs for $3.5 million, resulting from exercises of options that had been issued to employees, consultants, and the Chief Executive Officer of the Company. d. On February 22, 2021, Aether Therapeutics Inc., filed a complaint against the Company in the United States District Court for the District of Delaware ("Aether Litigation"). The complaint asserts that the Company's marketing of the Movantik® product infringes U.S. Patent Nos. 6,713,488, 8,748,448, 8,883,817 and 9,061,024 held by Aether Therapeutics Inc., or the Aether Patents. Aether has asserted the Aether Patents against other entities previously involved in the marketing of the Movantik® product. The complaint requests customary remedies for patent infringement, including (i) a judgment that the Company has infringed, contributed to and induced infringement of the Aether patents, (ii) damages, (iii) attorneys’ fees and (iv) costs and expenses. the Company intends to vigorously defend itself against these claims. Given the early stage of the Aether Litigation, the Company is unable to predict the likelihood of success of the claims of Aether Therapeutics Inc. or to quantify any risk of loss. e. On March 11, 2021, RedHill Inc and AstraZeneca signed an amendment to the License Agreement. Pursuant to the amendment, the $15.5 million payment due in December 2021 and contemplated in note 16(a)(5) will be adjusted to gradual payments starting in March 2021 and ending in December 2022, totaling $16 million. F-41 Exhibit 1.1 These Articles of Association are an unofficial translation of the Articles of Association in Hebrew adopted by the Company. The Articles of Association will take effect upon the public issuance of the Company Articles of Association of Redhill Biopharma Ltd. (“Company”) As approved by the extraordinary general meeting of shareholders on October 26, 2020 1 Table of Contents Introduction A Public Company Donations Company's Objectives Limitation of Liability Amendments to the Articles of Association Share Capital. Issuance of Shares and Other Securities The Register of Shareholders of the Company and Issue of Share Certificates Transfer of the Company's Shares Bearer Share Warrant Alteration of Share Capital Powers of the General Meeting Annual and Special General Meetings Proceedings at General Meetings Votes of Shareholders Appointment of a Voting Proxy Appointment of Directors and Termination of Their Office Chairman of the Board of Directors Directors’ Actions Validity of Actions and Approval of Transactions General Manager Internal Auditor Auditor Distribution and Allocation of Bonus Shares Dividends and Bonus Shares Acquisition of Company Shares Exemption of Officeholders Indemnification of Officeholders Officeholders’ Insurance Exemption, Indemnification and Insurance - General 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 26. 27. 28. 29. 30. 31. 32. 33. 34. Merger 35. 36. 37. 38. Liquidation Reorganization of the Company Notices Forum Selection 3 4 4 4 4 5 5 5 6 7 9 10 11 12 12 13 13 15 18 19 20 21 21 21 22 22 25 25 25 26 27 27 27 27 28 29 2 1. Introduction 1.1 In these Articles, each of the terms set forth below shall have the meaning set forth opposite it: Law - Administrative Proceeding - The Companies Law - The Securities Law - Business Day - Writing - Securities - Incapacitated - Companies Ordinance - Simple Majority - The provisions of any law applicable in the State of Israel. A proceeding pursuant to Chapter H3 (Imposing Monetary Sanction by the ISA), H4 (Imposing Administrative Enforcement Measures by the Administrative Enforcement Committee) and/or I1 (Conditioned Arrangement for Avoidance of Taking Action of for Stopping Action) of the Securities Law, as amended from time to time The Companies Law, 5759 – 1999; or any provision of law superseding same. The Securities Law, 5728 – 1968; or any provision of law superseding same. A day on which most of the banks in Israel are open for the performance of transactions. Print and any other form of imprinting words including documents transmitted in writing via facsimile, by telegraph, telex, email, computer in any other electronic means of or communication, creating or allowing the creation of any copy and/or printed output of the document. As defined in Section 1 of the Securities Law. A person declared incapacitated pursuant to the Legal Capacity and Guardianship Law, 5722 – 1962. The Companies Ordinance [New Version], 5743 – 1983, or any provision of law superseding same. A majority of over one half of the votes of the shareholders entitled to vote who have voted in person or by proxy or by means of a voting paper, other than abstainees. Articles of Association - A majority of 75% - A majority of 75% or more of the votes of the shareholders entitled to vote who have voted in person or by proxy or by means of a voting paper, other than abstainees. The Company's articles of association as per the wording herein or as duly modified, from time to time, either expressly or under any law. the Regulations enacted by virtue of Companies Law and/or by virtue of the Companies Ordinance. Regulations enacted by virtue of the Securities Law. The Companies Regulations - Securities Regulations - 3 Related Corporation - A corporation controlling the Company directly and/or indirectly and/or any corporation directly and/or indirectly controlled by such corporation 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, mutatis mutandis, to the interpretation of these Articles, where there is no other provision in respect of such matter and where such matter or the context thereof, contain nothing which does not comply with such applicability. Save for the provisions of this Article, any word or term in these Articles shall have the meaning imparted to them in the Companies Law, and where there is no such meaning in the Companies Law, then the meaning imparted to them in the Companies Regulations, and where there is no such meaning, then the meaning imparted to them in the Securities Law, and where there is no such meaning, then the meaning imparted to them in the Securities Regulations and where there is no such meaning, then the meaning imparted to them in any other law, all where the meaning imparted as aforesaid is not in conflict with the context where such word or expression appears or with 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 or revoked, such provision shall be deemed valid and as though it were part of the Articles, unless in consequence 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 in the Companies Law. In the event that any of the provisions of these Articles is in contravention of that permitted under law, the provisions of these Articles shall be interpreted to the extent possible in accordance with the provisions of the law. 2. A Public Company The Company is a public company. 3. Donations The Company may make donations, even if the donation is not made as part of commercial considerations. 4. Company's Objectives The Company shall engage in any lawful business. 5. Limitation of Liability 4 The liability of the shareholders of the Company is limited, each of them to full payment of the amount that he has undertaken to pay for the shares allocated to him at the time of the allocation. 6. Amendments to the Articles of Association The Company may amend any of the provisions of these Articles or substitute these Articles for other Articles, by means of a resolution passed by the a simple majority at a general meeting, apart from the provisions of Sub-Articles 14.1, 14.2, 19.1 and 19.2 herein, the amendment or replacement of which is subject to a resolution to be passed by a majority of 75% at a general meeting. Chapter Two - The Share Capital of the Company 7. Share Capital. 7.1 The Company's registered share capital is NIS 8,000,0001, divided into (i) 794,000,000 registered ordinary shares of NIS 0.01 par value each (hereinafter: "share", "ordinary share", "shares" or "ordinary shares", as the case may be) and (ii) 6,000,000 preferred shares of NIS 0.01 par value each (hereinafter: “the preferred shares"). Each ordinary share confers a right to receive invitations to participate in and vote at the general meetings. A shareholder shall have one vote for every fully paid up ordinary share that he holds. All ordinary shares have equal rights inter se with respect to dividend, distribution of bonus shares or any other distribution, capital refund and participation in distribution of surplus of Company assets upon liquidation. The preferred shares may be issued from time to time in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted by the board of directors (authority to do so being hereby expressly vested in the board of directors). The board of directors is further authorized, subject to any limitations prescribed by law, to fix by resolution or resolutions the designation, powers, preferences, and rights of the shares of each such series and any qualifications, limitations or restrictions thereof. The board of directors is further authorized to increase (but not above the total number of authorized shares of the class) or decrease (but not below the number of shares of any such series then outstanding) the number of shares of any series, the number of which was fixed by it, subject to the powers, preferences and rights, and the qualifications, limitations and restrictions thereof stated in these Articles or the resolution of the board of directors originally fixing the number of shares of such series. 7.2 The provisions of these Articles in relation to shares, shall also apply, mutatis mutandis, to other securities to be issued by the Company except to the extent otherwise determined by the board of directors. 8. Issuance of Shares and Other Securities 8.1 No Priority Right - the existing shareholders of the Company shall not have a priority right, a right of preference, or any other right whatsoever to acquire the Company's 1 As adopted by the Company's shareholders at the annual general meeting held on May 4, 2020. 5 securities. The board of directors may, at its exclusive discretion, first offer the Company's securities to all or any of the current shareholders. 8.2 Redeemable Securities The Company may issue redeemable securities, with rights attached to them and subject to such 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's securities, either conditionally or unconditionally, on such terms and conditions as shall be prescribed by the board of directors. Payment as aforementioned in this Article can be made either in cash or in securities of the Company, or some of them in one way and some of them in another way. 8.4 The board of directors may introduce distinctions between holders of the Company's securities in relation to the terms and conditions of allocation of the Company’s securities and the rights attached to such securities and may also vary such terms and conditions, including waiving some of them. The board of directors may further issue calls to the holders of securities for payment of the money that has not yet been 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 value and only then on account of the premium for each share, unless otherwise prescribed in the terms of the allocation. 8.6 A shareholder will not be entitled to his rights as a shareholder, including to a dividend, unless he has paid the amounts in full in accordance with the terms of the allocation, with the addition of interest, linkage and expenses, if there were any, and all if not otherwise prescribed in the terms of the allocation. 8.7 The board of directors may forfeit as well as sell, re-allocate or otherwise transfer any security as it shall decide, in respect of which the full consideration has not been paid, including for nil consideration. 8.8 The forfeiture of a security shall result, at the time of such forfeiture, in the revocation of any right in the Company and any claim or demand against it in relation to such security, except for such rights and obligations as are excluded from this rule in accordance with these Articles or which the law confers on or imposes on a former shareholder. 9. The Register of Shareholders of the Company and Issue of Share Certificates 9.1 The secretary of the Company or whoever is appointed for such purpose by the board of directors of the Company shall be responsible for keeping a Register of the Company's Shareholders. A shareholder is entitled to receive from the Company, free of charge, within two months after the allocation or the registration of the transfer (unless the terms of the issue stipulate another period of time), one certificate or a number of certificates, at the Company's discretion, in respect of all 6 the shares that are registered in his name, which shall specify the number of shares, and any other detail that is important in the opinion of the board of directors. In the event of a jointly held share, the Company shall not be required to issue more than one certificate to all the joint holders, and delivery of such a certificate to one of the joint holders 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 days annually. 9.3 Every certificate shall bear the seal or stamp of the Company or its printed name and shall bear the signature of one director and the Company secretary, or of two directors or of any other person 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 may require, and after payment of an amount that shall be prescribed by the board of directors and the Company may also, in accordance with a resolution of the board of directors, replace existing certificates with new certificates free of charge subject to such conditions as the board of directors shall stipulate. 9.5 Where two or more persons are registered as the joint holders of a share, each of them may confirm receipt of a dividend or other payments for such share and his confirmation will bind all holders of such share. 9.6 The Company is entitled to recognize a holder of a share as a trustee and to issue a share certificate in the name of the trustee provided that the trustee has notified the Company of the identity 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, or a future right or a partial right to a share, or any other right in relation to a share, other than the absolute right of the registered holder in respect of any share, unless this is done on the basis of a judicial decision or in accordance with the requirements of any law. 10. Transfer of the Company's Shares2 10.1 The Company shares are transferable. 10.2 No transfer will be registered of shares that are registered in the register of shareholders in the name of a registered shareholder, unless an original, signed deed of transfer of the shares has been submitted to the Company (hereinafter: "deed of transfer"), unless otherwise stipulated by the board of directors of the Company. The deed of transfer shall be drawn up in the form set out hereunder or in such other format as is as similar as possible to it or in another format which shall be approved by the board of directors. ======================================================== Deed of Transfer 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 company and 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. 7 I, _______________ Identity Card No. / Corporate No. ____________________ (hereinafter: "the transferor") of _______________ hereby transfer to _________________ Identity Card No. / Corporate No. ____________________ (hereinafter: "the transferee") of _________________ in consideration of the sum of NIS __________________ that he has paid to me, ________ shares, each having a nominal value of NIS _________, which are marked by the numbers ______ to ___________ inclusive, of _____________Ltd. (hereinafter: "the Company"), and they shall be in the transferee, his estate administrators, guardians, and his duly authorized possession of representatives, in accordance with the conditions under which I personally held the shares at the time of signature of this deed, and I, the transferee, agree to accept the said shares in accordance with the conditions set out above and subject to the 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 _____ the Transferor - Name: Signature: Transferee Name: Signature: Witness to the Transferor's Signature: Name: Signature: , Advocate Witness to the Transferee's Signature: Name: Signature: , Advocate ======================================================== Neither a transfer of non-fully paid up shares or of shares over which the Company has a lien or a charge shall be valid unless it has been approved by the board of directors, which may, at its 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 directors may also make such a transfer of shares conditional on an undertaking by the transferee, in such scope and in such manner as the board of directors shall stipulate, or settle the transferor's liabilities in respect of such shares or the liabilities in respect of which the Company 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 transferred until such time as the name of the transferee is registered in the Company's register of shareholders. 10.4 A deed of transfer shall be submitted to the registered office of the Company for registration together with the certificates of registration of the shares that are about to be transferred (if such certificates have been issued) and any other proof which the Company shall require as to 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 the share certificate, will not be bound to attach the share certificate to the transfer deed provided that in the transfer deed it is stated that the transferor is not in possession of the share certificate in respect of the share in which his right is being transferred and that the share being transferred is held jointly with others, together with their particulars. 8 10.6 The Company may require payment of a fee for registration of the transfer of such an amount or at 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 the shareholder, as parties with the sole right to the shares of the shareholder, after the entitlement thereto is substantiated in such manner as shall be determined by the board of directors. 10.8 In the event that a deceased shareholder held shares jointly with others, the Company will recognize the survivor as a shareholder in respect of the said shares, unless all the joint holders of the share have notified the Company in writing prior to the death of one of them, of their wish that the provisions of this Article shall not apply, provided that this shall not absolve the estate of a joint holder of a share from any obligation whatsoever that the joint holder would 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, heir of a shareholder, a receiver, liquidator or trustee in bankruptcy of a shareholder or in accordance with any other legal provision, may, if and when he proves his right as such may be required by the board of directors, be registered as the shareholder or may transfer such shares to another person, subject to the provisions of the 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 also accept and give receipts for a dividend or for other payments payable in respect of such share; however, he will not be entitled to receive notices regarding the general meetings of the Company (insofar as such a right exists), and to participate at or vote at such meetings in connection 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 Warrant The 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 paid up, which are registered in the name of any shareholder, and over the proceeds of sale thereof, 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 respect of such shares. The Company shall also have a first charge over all the shares (except fully paid up shares) that are registered in the name of any shareholder as security for monies that are due from him or from his assets, whether his liability is individual or jointly with others. The said charge shall also apply over such dividends as have been declared from time to time in respect of such shares. 9 12.2 The board of directors may sell the shares to which the charge applies for the purpose of realizing the charge and lien, or any part thereof, in any manner as it sees fit. No such sale shall proceed until after written notification has been given to such shareholder as to the intention of the Company to sell them, and the amounts have not been paid within fourteen days after such notification. The net proceeds of any such sale, after payment of the sale expenses, shall be utilized in discharging the debts or obligations of such shareholder and the 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 facie exercise of the powers vested as aforesaid, the board of directors may register such shares in the register of shareholders, in the name of the purchaser, and the purchaser will be under no obligation to examine the propriety of the transaction or the way in which the purchase price is used. Following registration of the said shares in the register of shareholders in the name of the purchaser, no person shall have the right to challenge the validity of the sale. 13. Alteration of Share Capital3 The general meeting may resolve at any time to take one of the following actions, provided that a resolution of the general meeting as aforesaid has been adopted by a simple majority. 13.1 Increase of the Registered Share Capital To increase the registered share capital of the Company, irrespective of whether or not all the shares registered at that time have been issued. The increased capital will be divided into ordinary shares with equal rights. 13.2 Consolidation and Division of Share Capital To consolidate and re-divide some or all of its share capital into shares of a greater or smaller nominal value than that which is specified in the Articles. In a case in which, as a result of such consolidation, shareholders whose shares have been consolidated are left with fractions of shares, the board of directors may, if it receives approval thereto from the general 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 whose name the share certificates containing the fractions shall be issued, and the trustee shall sell the said fractions, and the proceeds received less commissions and expenses shall be distributed to eligible shareholders. The board of directors will be entitled to decide that shareholders who are entitled to the consideration, which is less than an amount that it shall stipulate, will not receive a consideration from the sale of the said fractions, and their share in the sale proceeds shall be distributed among such shareholders who are entitled to a consideration that exceeds the stipulated amount, pro rata to the consideration to which they are entitled; 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, the Company's share capital will consist of one class of shares. 10 B. C. 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 consolidation with the fraction will be sufficient for one complete consolidated share, and such an allocation shall be deemed as being effective immediately prior to such consolidation; Determine that shareholders shall not be entitled to receive a consolidated share in respect of a fraction of a consolidated share, which derives from the consolidation of half or less of the number of shares whose consolidation creates one consolidated share, and they shall be entitled to receive a consolidated share in respect of a fraction of a consolidated share which derives from the consolidation of more than half of the number of shares whose consolidation creates one consolidated share. In the event that an action taken in accordance with sub-paragraphs (b) or (c) above requires the issue of additional shares, payment therefor shall be made in the manner in which bonus shares may be repaid. Consolidation and division as aforesaid shall not be deemed to be a variation of the rights of the shares forming the subject of the consolidation and division. 13.3 Cancellation of Un-allocated Registered Share Capital To cancel registered share capital which has not yet been allocated provided that the Company is under no obligation to allocate such shares. 13.4 Split of Share Capital To split some or all of the Company's share capital, into shares with a smaller nominal value than that which is prescribed in the articles of association by division of some or all of the Company shares, at that time. Chapter Three - General Meetings 14. Powers of the General Meeting 14.1 Subjects within the authority of the General Meeting Resolutions of the Company in respect of the following matters shall be passed by the general meeting: 14.1.1 Changes to the Articles. 14.1.2 Exercise of the powers of the board of directors, provided that the general meeting has decided by a majority of 75% of the votes of shareholders who are entitled to vote and have voted either in person or by proxy, that the board of directors is incapable of exercising its powers and further that the exercise of its powers is essential for the proper management of the Company. 11 14.1.3 Approval of actions or transactions requiring approval of the general meeting pursuant 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 a general 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 Organs The general meeting may by a majority of 75% of the votes of shareholders who are entitled to vote and have voted either in person or by proxy, assume such powers as are vested in another organ and may also transfer powers that are vested in the general manager to the authority of the board of directors, and all either in respect of a particular matter or for a particular period of time which shall not exceed the period of time required under the circumstances. 15. Annual and Special General Meetings 15.1 Notice of a General Meeting The Company is not obliged to give notice of a general meeting to shareholders except in so far as this is mandatory by law. The notice of a general meeting shall specify the place and the time for the convening of the meeting, its agenda, a summary of the proposed resolutions and any other detail as may be required under law. 16. Proceedings at General Meetings 16.1 Quorum No general meeting may proceed unless a quorum is present at the time of the deliberation. Two shareholders who are present in person or by proxy and who hold or represent at least twenty five percent (25%) of the voting rights in the Company shall constitute a quorum. For the purpose of a quorum, a shareholder or his proxy, who also acts as proxy for other shareholders, shall be deemed to be two or more shareholders, depending on the number of shareholders that he represents. 16.2 Postponement of the General Meeting in the Absence of a Quorum Where half an hour has elapsed from the time designated for the meeting and no quorum is present, the meeting shall be postponed to the business day following the day of the meeting, at the same time and at the same place or to such other day, time and place as shall be prescribed by the board of directors in a notification to the shareholders. The Company shall give notice, via an immediate report, of postponement of the meeting and the time of the holding of the adjourned meeting. Where no quorum is present at such adjourned meeting as aforesaid, at least one shareholder, 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 Meeting 12 The 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 the absence of a chairman, or if he has not appeared at the meeting after 15 minutes from the time designated for the meeting, the shareholders present at the meeting shall, in person or by proxy, elect one of the directors or the officeholders of the Company present at the meeting as chairman, or if no director or officeholder is present, or where all of them refuse to chair the meeting, one of the shareholders present, or one of the officeholders present, shall be 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 passed unanimously or by a specific majority or was rejected and the minutes of the general meeting signed by the chairman shall serve as prima facie evidence of that stated therein. 17. Votes of Shareholders 17.1 Majority - resolutions at the general meeting shall be passed by a simple majority unless another 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 by means of counting of votes, where each shareholder will have one vote per each share held by him. 17.2 Confirmation of title - a shareholder must furnish the Company with confirmation of title at least two business days prior to the date of the general meeting. The Company may waive such requirement. 17.3 Vote of a legally incapacitated party - a legally incapacitated party may only vote by a trustee, natural guardian or other legal guardian. Such persons may vote either in person or by proxy. 17.4 Vote of joint holders of a share - where two or more shareholders are the joint holders of a share, one of them shall vote, either in person or by proxy. Where more than one joint holder wish to participate in a vote, only the first of the joint holders will be able to vote. For such purpose the first of the joint holders shall be deemed to be the person whose name is recorded first in the register of shareholders. 17.5 The manner of voting and the counting of votes shall be done in accordance with the provisions of the Companies Law. A resolution at a general meeting shall be passed if it has received such majority as it is required to receive under law or in accordance with the provisions of these Articles. 18. Appointment of a Voting Proxy 18.1 Voting by Proxy A shareholder may appoint a proxy to participate in and vote in his place, either at a particular general meeting or generally at the general meetings of the Company, provided that the written document authorizing the appointment of a proxy has been delivered to the Company at least 48 hours prior to the date of the general meeting, 13 unless the Company has waived 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 to one 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 a person to participate in and vote in its place at the general meeting. 18.2 Format of the Proxy The proxy shall be signed by the shareholder or by the person who is duly authorized in writing for such purpose, and where the appointing party is a corporation it shall be signed in such manner as binds such corporation. The Company may require that it be furnished with written confirmation to its satisfaction as to the fact of the due authority of the signatories to bind such corporation. A proxy shall be drawn up in the form specified hereunder. The Company secretary or the board of directors of the Company may, at their discretion, accept a proxy in a different form, including in the English language, provided that the variations are not 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 an Israeli license. ==================================================== Proxy To: [Name of Company Corporate address:] Dear Sir or Madam; Date: Re: Annual / special general meeting of _______________ (the "Company") to be held on ______________(The "Meeting") the undersigned ____________________, I 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 instead of me at the aforementioned meeting and at any adjourned meeting of the aforesaid meeting of the Company/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 of the Company held by him, provided that he shall not issue proxies for a quantity of shares that is greater than the quantity 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 its issue shall be stated instead. (**) ==================================================== 18.3 Validity of Proxy 14 A vote in accordance with a proxy shall be lawful even if the appointing party has previously died or has become legally incapacitated or has become bankrupt or, in the event of a corporation - has been wound up, or has cancelled the proxy, or transferred the share in respect of which it was given, other than if notification in writing that such an event has occurred has been received at the registered office of the Company prior to the meeting. 18.4 Disqualification of Proxies Subject 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 have been furnished in respect of shares for which other proxies have been issued. 18.5 Voting by Voting Papers In accordance with these Articles and the provisions of the Companies Law and the regulations enacted thereunder, the Company shareholders shall be given the option to vote at general meetings of the Company by means of voting papers, on all such matters as are obligatory by law as well as on such matters in respect of which the board of directors shall decide from time to time to allow a vote by means of voting papers. 19. Appointment of Directors and Termination of Their Office Chapter Four - The Board of Directors 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 is required 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 Replacement 19.2.1 The Company directors serving in office (who are not outside directors), will be divided into three groups, one third each, which will hereinafter be referred to as: the "First third to the Third Third") as nearly equal in number as practicable.. The initial division into thirds will be carried out pursuant to the board of directors' resolution with respect to such division. Should the number of directors vary, the number of directors in each group will vary in accordance with the aforesaid rule. 19.2.2 At the first annual meeting of the Company shareholders to be held after the Company has become a public company (in 2011), the office of the directors included in the first third will terminate and they will be put up for re-appointment at that meeting. At the second annual meeting of the Company shareholders to be held after the Company has become a public company (in 2012), the office of 15 the directors included in the second third will terminate and they will be put up for re- appointment at that meeting. At the third annual meeting of the Company shareholders to be held after the Company has become a public company (in 2013), the office of the directors included in the third will terminate and they will be put up for re-appointment at that meeting. At the three subsequent annual general meetings the aforesaid mechanism will reapply, and so on and so forth. Any director elected as aforesaid, will be elected for a three-year term (unless his office is terminated in accordance with the provisions of these Articles), so that every year the office of a group of one third of the board of directors will terminate, as aforesaid. Directors may be elected for a term of less than three years in order to ensure that the three groups of directors have as equal number of directors as possible as provided in Sub-Article 19.2.1 above. Notwithstanding the foregoing, the term of office of any director elected to the Company's board of directors, and originally nominated for election by virtue of the nomination right granted to any investor who purchased, in the Company's public offering 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, if any, from the exercise of warrants), shall automatically expire at the first annual meeting of the Company shareholders following the annual meeting of the Company shareholders held in May 2017 unless such investor, at least 75 days prior to such first following annual meeting of shareholders evidences to the Company its beneficial ownership, together with its affiliates, of at least 4% of the Company's outstanding shares. If not so expired at the first annual meeting of the Company shareholders following the annual meeting held in May 2017, the term of office of such director shall automatically expire at the second annual meeting of the Company shareholders following the annual meeting of the Company shareholders held in May 2017 unless such investor, at least 75 days prior to such second following annual meeting of shareholders, evidences to the Company its beneficial ownership, together with its affiliates, of at least 4% of the Company's outstanding shares. In any event, the term of office of such director shall automatically expire at the third annual meeting of the Company shareholders following the annual meeting held in May 2017 unless re-elected by the Company's shareholders. The elected directors shall assume their office commencing from the end of the meeting at which they were elected unless a later date is stipulated in the resolution on their appointment. 19.2.3 The appointment of members of the board of directors (who are not outside directors), will be carried out by the shareholders present at the meeting, in person or by proxy, or by means of a voting paper, by a simple majority of the votes of the shareholders as aforesaid. 16 19.2.4 If a director who was put up for re-appointment at the general meeting convened to deliberate same is not re-elected, the Company will convene another general meeting, at which another proposed director will be put up for the approval of the meeting. Notwithstanding the foregoing, the office of the director who has not been re-appointed or his alternate (insofar as he has appointed an alternate in accordance 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 the annual general meeting as aforesaid in Sub-Article 19.2.2 above. It shall further be clarified that a director appointed as aforesaid will belong to the group of the third to which the director he replaced belonged, so that his office will expire on the date of the general meeting at which the office of the other directors of that third group will expire. 19.2.5 The general meeting may, at any time, by a majority of 75%, dismiss a director and it may decide at that time to appoint another person in his place by a majority of 75%. A director whose dismissal is on the agenda of the meeting will be given a reasonable 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 of directors whose office has terminated and also in any case in which the number of members of the board of directors falls below the minimum that has been stipulated in these Articles or by the general meeting by a majority of 75% of the shareholders' votes. It should be clarified that a director appointed as aforesaid will belong to the group of the third to which the director he replaced belonged, so that his office will expire on the date of the general meeting at which the office of the other directors of that third group will expire. 19.2.7The foregoing provisions of Sub-Articles 19.2.1 - 19.2.6 shall not apply to the appointment and term in office of outside directors, in respect of whom the provisions of the Companies Law shall apply. 19.2.8Subject 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 office of 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 or whether in the capacity of a director or additional directors, provided that the number of directors shall not exceed the maximum number of members of the board of directors. Any director so appointed shall serve up to the first annual meeting held subsequent to his appointment. In the event that the number of directors has fallen below the minimum number of directors, as prescribed in Sub-Article 19.1 above, the remaining directors may only act to convene a general meeting of the Company for the purpose of appointing the vacant positions of directors and up to the date of such meeting, act to conduct the Company's affairs in connection with matters that are pressing. 17 19.4 Date of Commencement of the Office of a Director - the elected directors shall assume their offices commencing at the end of the general meeting at which they were elected or on the date of their appointment by the board of directors as provided above in Sub-Article 19.3, as the 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 time appoint an alternate director for himself (hereinafter: "alternate director"), dismiss such an alternate director, and may also appoint another alternate director in lieu of any alternate director whose office has been vacated for any reason, either for a specific meeting or permanently. 19.6 A Director's Proxy - any director and any alternate director may appoint a proxy who shall participate and vote in their name at, any meeting of the board of directors or of a board of directors’ committee. Such an appointment may be general or for the purpose of one or a number of meetings. Where a director or an alternate director is present at such a meeting the proxy may not vote in lieu of the director who appointed him. Such an appointment shall be valid in accordance with the contents thereof or until its revocation by the appointor. A director 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 directors does not fall below the minimum number of directors that has been determined in these Articles or prescribed by the general meeting. If the number of directors has fallen below the foregoing, the remaining directors may only act in order to convene a general meeting of the Company. 19.8 Holding a Meeting by means of Communication and Without Convening At a meeting that has been held by the use of any means of communication, it is sufficient that all of the directors who are entitled to participate in the proceedings and in a vote, shall be able to hear each other. The board of directors may also pass resolutions without actually convening, provided that all of the directors who are entitled to participate in the discussion and to vote on the matter put forward for resolution have agreed not to meet to discuss such matter. Where resolutions have been passed as aforesaid, minutes of such resolutions shall be prepared, including the resolution not to convene and shall be signed by the chairman of the board of directors. The provisions of these Articles shall apply mutatis mutandis to such a resolution. A resolution that has been passed in accordance with this Article shall be valid in all respects as though it 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 the Companies Law the Company may remunerate the Directors for fulfilling their functions as directors. 20. Chairman of the Board of Directors 20.1 Appointment - the board of directors shall elect one of its members to serve as chairman of the board of directors and will also designate the term in which he is to 18 serve in his office, in the 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 is appointed in his place or until he ceases serving as a director, whichever is the earlier. Where the chairman of the board of directors has ceased serving in office as a director of the Company, the board of directors, at the first board of directors meeting held subsequently, 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, neither the chairman of the board of directors nor any person that has been elected to conduct the meeting, shall have an additional vote. 21. Directors’ Actions 21.1 Convening a Meeting of the Board of Directors Any notification of a meeting of the board of directors may be given verbally or in writing provided that such notification is given at least three business days prior to the date designated 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 aforesaid notwithstanding, the board of directors may convene for a meeting without notice only in urgent 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 other means of communication and all to such address or the facsimile number, electronic mail address 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, or in a subsequent written notification to the Company and shall include reasonable details regarding the issues brought up for discussion at the meeting Where an alternate or a proxy has been appointed, notification shall be given to such alternate or proxy unless the director has given notice that he wishes that notice shall also be given to him. 21.2 Quorum - the quorum for meetings shall be a majority of members of the board of directors who are not precluded by law from participating in a meeting, or any other quorum as will be prescribed 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 as have been taken in good faith at a meeting of the board of directors or by a committee of the board of directors or by any person acting as a director shall be valid, even if it is subsequently discovered that there was a flaw in the appointment of a director or of such a person acting as aforesaid, or that they or one of them was disqualified, as though such a person had actually been duly appointed and was qualified to be a director. 21.4 Committees of the Board of Directors 19 Subject to the provisions of the Companies Law, the board of directors may appoint board of directors’ committees. The committees of the board of directors shall report to the board of directors their resolutions or recommendations on a regular basis, as shall be prescribed by the board of directors. The board of directors may cancel the resolution of a committee that has been appointed by it; however, such cancellation shall not affect the validity of any resolution of a committee, pursuant to which the Company acted, vis-à-vis another person, who was not aware of the cancellation thereof. Decisions or recommendations of the committee of the board of directors which require the approval of the board of directors will be brought to the directors' attention a reasonable time prior to the discussion at the board of directors. 22. Validity of Actions and Approval of Transactions 22.1 Subject to the provisions of any law, all such actions as have been taken by the board of directors or by a committee of the board of directors or by any person acting as a director, or as a member of a committee of the board of directors, or by the general manager, as the case may be, shall be valid even if it is subsequently discovered that there was any flaw in the appointment of the board of directors, a committee of the board of directors, the director who was a member of the committee or the general manager, as the case may be, or that any of the 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 the Company, a stakeholder, or an officeholder of any other corporation, including a corporation in which the Company is a stakeholder, or which is a shareholder of the Company, it shall not disqualify the officeholder from serving as an officeholder of the Company. Likewise, an officeholder shall not be disqualified from serving as an officeholder of the Company due to his contractual engagement or due to the contractual engagement of any corporation as aforesaid with the Company in any matter whatsoever and in any manner whatsoever. 22.2.2 The office of a person as an officeholder in the Company shall not disqualify him and/or a relative of his and/or another corporation in which he is a stakeholder from entering into transactions in which the officeholder has a personal interest in any way with the Company. 22.2.3 An officeholder may participate in and vote at discussions in respect of the approval of transactions or acts in which he has a prima facie personal interest, as prescribed in Sub-Articles 22.2.1 and 22.2.2. 22.3 Subject to the provisions of the Companies Law, a general notice that is given to the board of directors by an officeholder or a controlling shareholder of the Company with regard to his personal interest in a particular entity, while giving details of his personal interest, shall amount to disclosure on the part of the officeholder or the controlling shareholder to the Company with regard to his personal interest as aforesaid, for the purpose of the entering into any transaction which is not exceptional, with such an entity. 20 Chapter Five – Officeholders, Secretary, Internal Auditor and Auditor 23. General Manager 23.1 The board of directors may, from time to time, appoint a general manager for the Company and may further appoint more than one general manager. The board of directors may further dismiss the general manager or replace him at any time it deems fit, subject to the provisions of any agreement between him and the Company. The general manager will be responsible for the day-to-day management of the Company's affairs within the framework of the policy determined 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 were vested, pursuant to the Law or these Articles, or by virtue thereof, in another organ of the Company, apart from such powers as have been transferred from him to the board of directors. 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 of his 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 general manager will submit to the board of directors, reports on such issues, on such dates and in such 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 chairman of the board of directors or if the chairman of the board of directors is unable to fulfill his function, the general manager will give a notice to that effect to all members of the board of directors. 23.6 The general manager may from time to time appoint officeholders for the Company (apart from directors and general manager), for permanent, temporary or special functions, as the general manager finds fit and the general manager may further terminate the services of one or more of the foregoing at any time. 24. Internal Auditor 24.1 The Company's board of directors will appoint an internal auditor, at the recommendation of the audit committee. 24.2 The officer in charge of the internal auditor at the organization will be the chairman of the board of directors. 24.3 The internal auditor will submit for the approval of the audit committee a proposed annual or periodic work plan and the audit committee will approve it with such amendments as it finds fit. 21 25. Secretary The board of directors may appoint a Company secretary, on such terms as it shall deem appropriate, and appoint a deputy secretary and determine the scope of their functions and their authorities. Where a Company secretary has not been appointed, the general manager, or whoever he designates to this end, and in the absence of a general manager, whoever is empowered for such purpose by the board of directors, shall perform the secretary's functions that are prescribed under any law, in accordance with these Articles and in accordance with a resolution of the board of directors. The Company secretary will be responsible for all the documents that are kept at the registered office of the Company and for maintaining all the registers that the Company maintains by law. 26. Auditor 26.1 Subject to the provisions of the Companies Law, the general meeting may appoint an auditor for 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 statement committee's (as determined by the board of directors) recommendations shall determine the remuneration of the Company's auditor for audit work as well as his remuneration for other services that are not audit work, unless otherwise determined by the general meeting of the Company. Chapter Six - Preservation of the Capital of the Company and its Distribution 27. Distribution and Allocation of Bonus Shares The 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 Law and the terms thereof, shall be passed by the board of directors of the Company. 28. Dividends and Bonus Shares 28.1 Right to a Dividend or to Bonus Shares 28.1.1 A dividend or bonus shares shall be distributed to whoever is registered in the register of shareholders of the Company on the date of the resolution as to such distribution or on such other date as shall be prescribed in such resolution. 4 28.2 Payment of the Dividend 28.2.1 The board of directors may resolve that the dividend be paid, in whole or in part, in cash or by means of distribution of assets in kind, including in securities or in any other manner, at its discretion. 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 to whoever is registered in the register of shareholders of the Company on the effective date determined on the date of the resolution. 22 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 a reserve fund for the distribution of dividend, distribution of bonus shares or for any other 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 sums so allocated and the monies in the funds in any investment whatsoever, as it shall deem fit, deal with such investments, alter them or make any other use thereof, and it may subdivide the reserve fund into special funds and use any fund or any part thereof for the Company's affairs, without holding it separately from the other assets of the Company, all at the discretion of the board of directors and under such terms as it shall determine. 28.2.2 The Method of Payment5 If no other provisions have been prescribed in the resolution as to distribution of the dividend it will be permissible to pay any dividend, after deduction of the requisite tax under any law, by check to the beneficiary only, which shall be sent by registered mail to 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. A dividend in kind shall be distributed as stipulated in the distribution resolution. In the event of joint registered shareholders, the check shall be sent to the shareholder whose name is recorded first in the register of shareholders in relation to the joint ownership. Sending of a check to a person whose name, on the effective date, is registered in the 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 payments made in relation to such share. The Company may resolve that a check below a certain amount, shall not be sent and amounts of the dividend that should have been paid as aforesaid shall be treated as unclaimed dividend. The Company may offset against the dividend to which a shareholder is entitled, any debt of such shareholder to the Company, whether or not the time for payment thereof has fallen due. 28.2.3 Unclaimed Dividend The board of directors may invest any amount of dividend that has not been claimed for a period of one year after having been declared, or use it otherwise for the benefit of the Company until it is claimed. The Company will not be compelled to pay interest or linkage in respect of an unclaimed dividend. 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 not apply. 23 After one year has elapsed from the due date of any unclaimed dividend, the Company may use the unclaimed dividend as aforesaid for any purpose whatsoever and the shareholder who is entitled to such unclaimed dividend will have no claim and/or demand in relation thereto. 28.3 Method of Capitalization of Profits into Capital Funds and Distribution of Bonus Shares 28.3.1 Funds The board of directors may, at its discretion, set aside into special capital funds, any amount out of the Company’s profits, or arising from a revaluation of its assets, or its pro rata stake in the revaluation of assets of its affiliated companies and determine the 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, the board of directors may resolve to allocate bonus shares and render share capital as part of the Company's profits, within the meaning thereof in Section 302 (b) of the Companies Law, from premium on shares or from any other source contained in its equity, referred to in its last financial statements, in such sum as shall be determined by the board of directors and which shall not fall below the nominal value of the bonus shares. Allocated bonus shares shall be deemed as fully repaid. The board of directors resolving to allocate bonus shares may resolve that the Company will transfer to a special fund designated for future distribution of bonus shares, such amount as the rendering thereof into share capital will be sufficient to allocate to whoever, at that time, for any reason whatsoever, has a right to purchase shares in the Company (including a right exercisable only on a subsequent date), bonus shares which would have been due to him had he exercised the right to purchase the shares on the eve of the effective date for the right to receive the bonus shares (hereinafter, in this Article: the "effective date"). If after the effective date, the holder of the said right should exercise his right to purchase 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 the right to purchase the shares which he actually purchased, on the eve of the effective date. The bonus shares will entitle their owners to participate in distribution of dividends as of the date designated by the board of directors. For the purpose of determining the amount to be transferred to the said special fund, any amount transferred to this fund for previous distributions of bonus shares shall be treated as having already been capitalized, where shares entitling the holders of the right to purchase shares, have been allocated therefrom, for bonus shares. For the purpose of distribution of bonus shares, the board of directors may, as it sees fit, resolve any difficulty that might arise and make adjustments, such as deciding that fractions of a share shall not be distributed, issue certificates in respect of an aggregate quantity of share fractions, sell such 24 fractions and pay the proceeds from the sale thereof to those entitled to receive the fractions of the bonus shares and may also decide that cash payments shall be made to the shareholders, or that fractions of a lesser value than a stipulated amount (and if not stipulated then amounts which are less than NIS 50) shall not be brought into account in making such adjustments. Notwithstanding the foregoing, a shareholder will be entitled to apply to the Company and ask that such payment be made to him at the Company's offices. 29. Acquisition of Company Shares The Company may acquire its own securities. Where the Company has acquired securities as aforesaid it may cancel them. Chapter Seven - Exemption, Indemnification and Insurance of Officeholders 30. Exemption of Officeholders The Company may exempt an officeholder therein, in advance or post factum, from some or all of his liability for damage as a result of breach of a duty of care vis-à-vis the Company, to the maximum extent that is permissible under any law. 31. Indemnification of Officeholders The Company may indemnify its officeholders to the maximum extent permissible under any law. 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 or expense imposed on him or that he has incurred as a result of an action, which he took by virtue 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 to any investigation or proceeding conducted against him by any authority competent to conduct an investigation or proceeding, at the end of which no indictment was filed against him and no financial liability was levied on him as an alternative for a criminal proceeding, or at the end of which no indictment was filed against him but a financial liability was levied as an alternative for a criminal proceeding in an offense not 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, or with which he was charged by the Court, in a proceeding filed against him by the Company or on its behalf or by any other person, or in criminal charges from which he was acquitted, or in criminal charges in which he was convicted of an offense which does not require proof of mens rea. 25 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 Proceeding conducted in his matter, including reasonable litigation expenses, including legal fees. 31.1.6 Any other liability or expense for which it is permitted and/or will be permitted by law to indemnify an officeholder. 31.2 Advance Indemnification The Company may give an undertaking in advance to indemnify an officeholder for a liability, payment or expense as specified above in Sub-Article 31.1.1., provided that such advance indemnity undertaking shall be limited to such events as, in the opinion of the board of directors, are anticipated in view of the Company's actual activity at the time of giving the indemnity undertaking, and to such amount or criterion as the board of directors have determined to be reasonable under the circumstances of the case, and further provided that such undertaking shall state the events that in the opinion of the board of directors are anticipated in view of the Company's actual activity at the time of giving such undertaking as well as the amount or criterion that the board of directors have determined to be reasonable in the circumstances of the case. And the Company may also give an indemnity undertaking in advance to an officeholder in respect of liabilities or an expense as specified in Articles 31.1.2, 31.1.3, 31.1.4, and 31.1.5 above. 31.3 Retroactive Indemnification The Company may indemnify an officeholder therein ex post facto. 32. Officeholders’ Insurance 32.1 The Company may insure its officeholders to the maximum extent permitted under any law. Without derogating from the generality of the foregoing, the Company may enter into a contract for insuring the liability of an officeholder in the Company in respect of a liability or a payment that may be imposed on him as a result of an action that he has taken in his capacity 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 Officeholder acted in good faith and had reasonable grounds to assume that his act would not compromise 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 Proceeding conducted in his matter, including reasonable litigation expenses, including legal fees; 26 32.1.6 Any other event for which it is permitted and/or will be permitted pursuant to the law to insure the liability of an officeholder. 33. Exemption, Indemnification and Insurance - General 33.1 It is neither the intention of the foregoing provisions in relation to exemption, indemnification and insurance, nor will there be any future intention, to restrict the Company in any way from entering into a contract in relation to exemption, insurance or indemnification of the parties specified 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 relation to exemption, indemnification and insurance of officeholders in companies under its control, related companies and other companies in which it has any interest, to the maximum extent permitted under any law, and in this context the foregoing provisions in relation to exemption, indemnification and insurance of officeholders in the Company 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 the office of such officeholder in the Company has terminated. Chapter Eight - Merger, Winding Up and Reorganization of the Company 34. Merger 34.1 The requisite majority for approval of a merger by the general meeting shall be a simple majority. 35. Liquidation 35.1 If the Company is wound up, whether voluntarily or otherwise, the liquidator may, with the approval of a general meeting, distribute in specie parts of the Company's assets among the shareholders, and he may, with like approval, deposit such part of the Company's assets with trustees for the benefit of the shareholders, as the liquidator, with such approval, shall deem appropriate. 35.2 Subject to special rights of shares, where shares have been issued with special rights, the Company's shares shall have equal rights inter se in relation to the amounts of capital that have been paid or that have been credited as paid in respect of the nominal value of the shares, in connection with the surrender of capital and participation in a distribution of surplus assets of the Company upon liquidation. 36. Reorganization of the Company 36.1 Upon the sale of assets of the Company, the board of directors, or the liquidators (in the case of liquidation) may, if they have been duly authorized to do so in a resolution that has been passed by a simple majority at the general meeting of the 27 Company, accept shares that are either fully or partially paid up, debentures or securities of another company, either Israeli or foreign, whether it has been incorporated or is about to be incorporated, for the purchase of all or any of the Company's assets, and the directors (if the Company's profits so allow) or the liquidators (in case of a liquidation), may distribute, among the shareholders, the shares or securities as aforesaid or any other assets of the Company without realizing them, or deposit 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 the Company by a simple majority, decide as to a valuation of the securities or assets as aforesaid at such price and in such manner as the general meeting shall decide, and all the shareholders will be bound to accept any valuation or distribution that has been authorized as aforesaid and to waive their rights in this context, except, in the event that the Company is about 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. 37. Notices Chapter Nine - Notifications 37.1 A notification or any other document may be delivered by the Company to any shareholder who appears in the register of shareholders of the Company, either personally or by sending by registered mail addressed in accordance with the registered address of such shareholder in the register of shareholders or to such address as the shareholder has notified in writing to the Company as his address for the delivery of notifications, or by publication of notices in two newspapers in Israel, or by means of publishing an immediate report on the Magna system. 37.2 All notices to be given to the shareholders shall, in relation to shares that are jointly held, be given to such person whose name appears first in the register of shareholders and any notification that is given in such manner shall be sufficient notification to all the joint shareholders. 37.3 Any notification or other document which is delivered or sent to a shareholder in accordance with these Articles shall be deemed to have been duly delivered and sent in respect of all the shares held by him (whether as regards Shares held by him alone or by him jointly with others), even where such shareholder has passed away at that time or became insolvent, or an order has been issued for its winding up, or a trustee or liquidator or receiver has been appointed for his shares (whether or not the Company was aware of the occurrence of such event), until another person is registered in the register of shareholders instead of him as the holder thereof, and delivery or sending of a notification or document as aforesaid shall be deemed 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 an address in Israel shall be deemed to have been delivered within 48 hours from the day on which the letter containing such notification or document was dispatched at the post office or within 96 hours in the event that the address is overseas, and for the purpose of proving delivery, it shall be sufficient to prove that the letter 28 containing the notification or the document was duly addressed and was dispatched at the post office. Any notice or document delivered by means of notifications in newspapers or via an immediate report on the Magna system, will be deemed to have been delivered on the date of publishing the notice 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 so far as this is mandatory by law. The notice of a general meeting shall specify the place and the time for the convening of the meeting, its agenda, a summary of the proposed resolutions and any other specification as is required under law. 37.6 Accidental omission in giving notice of a general meeting to any shareholder or non-receipt of a notification as to a meeting or other notification by any shareholder shall not invalidate a resolution that has been passed at such meeting, or cause the invalidation of processes based 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 receive notification, or his right to receive notification within a specific period of time, and may agree that a general meeting of the Company or a meeting of the board of directors, as the case may be, shall convene and be held despite his not having received notification or despite such notification not having been received by him within the required time. 38. Forum Selection 38.1 Unless the Company consents in writing to the selection of an alternative forum: 38.1.1. The federal district courts of the United States shall be the exclusive forum for the resolution of any claim arising under the Securities Act of 1933, as amended; and 38.1.2. The Tel Aviv District Court (Economic Division) shall be the exclusive forum for (A) any derivative action or proceeding brought on behalf of the Company, (B) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Company’s shareholders, or (C) any action asserting a claim arising pursuant to any provision of the Israeli Companies Law 5759-1999 or the Israeli Securities Law 5728-1968 and providing that any person or entity purchasing or otherwise acquiring or holding any interest in shares of the Company shall be deemed to have notice of and consented to these provisions. 38.2. Any person or entity purchasing or otherwise acquiring or holding any interest in shares of the Company shall be deemed to have notice of and consented to these provisions * * * 29 DESCRIPTION OF SHARE CAPITAL Exhibit 2.3 The following descriptions of our share capital and provisions of our amended and restated articles of association are summaries and do not purport to be complete. Our amended and restated articles of incorporation are filed with the SEC as an exhibit to our registration statement, of which this prospectus forms a part. Each of the American Depositary Shares, or ADSs, represents 10 Ordinary Shares. The ADSs trade on the NASDAQ Global Market. The principal office of The Bank of New York Mellon, located at 101 Barclay Street, New York, New York 10286. You may hold American Depositary Shares either (A) directly (i) by having an American Depositary Receipt, which is a certificate evidencing a specific number of American Depositary Shares, registered in your name, or (ii) by having American Depositary Shares registered in your name in the Direct Registration System, or (B) indirectly by holding a security entitlement in American Depositary Shares through your broker or other financial institution. If you hold American Depositary Shares directly, you are a registered American Depositary Share holder. This description assumes you are an American Depositary Share holder. If you hold the American Depositary Shares indirectly, you must rely on the procedures of your broker or other financial institution to assert the rights of American Depositary Share holders described in this section. You should consult with your broker or financial institution to find out what those procedures are. The Direct Registration System, or DRS, is a system administered by The Depository Trust Company, also referred to as DTC, pursuant to which the depositary may register the ownership of uncertificated American Depositary Shares, which ownership is confirmed by periodic statements sent by the depositary to the registered holders of uncertificated American Depositary Shares. As an American Depositary Share holder, we will not treat you as one of our shareholders and you will not have shareholder rights. Israeli law governs shareholder rights. The depositary will be the holder of the ordinary shares underlying your American Depositary Shares. As a registered holder of American Depositary Shares, you will have American Depositary Share holder rights. A deposit agreement among us, the depositary and you, as an American Depositary Share holder, and all other persons indirectly holding American Depositary Shares sets out American Depositary Share holder rights as well as the rights and obligations of the depositary. New York law governs the deposit agreement and the American Depositary Shares. The following is a summary of the material provisions of the deposit agreement. For more complete information, you should read the entire deposit agreement and the form of American Depositary Receipt, each of which has been filed as an exhibit to our Registration Statement on Form F-6 filed with the Securities and Exchange Commission. Dividends and Other Distributions How will you receive dividends and other distributions on the shares? The depositary has agreed to pay to American Depositary Share holders the cash dividends or other distributions it or the custodian receives on shares or other deposited securities, after deducting its fees and expenses. You will receive these distributions in proportion to the number of shares your American Depositary Shares represent. · Cash. The depositary will convert any cash dividend or other cash distribution we pay on the shares into U.S. dollars, if it can do so on a reasonable basis and can transfer the U.S. dollars to the U.S. If that is not possible or if any government approval is needed and cannot be obtained, the deposit agreement allows the depositary to distribute the foreign currency only to those American Depositary Share holders to whom it is possible to do so. It will hold the foreign currency it cannot convert for the account of the American Depositary Share holders who have not been paid. It will not invest the foreign currency and it will not be liable for any interest. Before making a distribution, any withholding taxes, or other governmental charges that must be paid will be deducted. It will distribute only whole U.S. dollars and cents and will round fractional cents to the nearest whole cent. If the exchange rates fluctuate during a time when the depositary cannot convert the foreign currency, you may lose some or all of the value of the distribution. · Shares. The depositary may, and will if we so request, distribute additional American Depositary Shares representing any shares we distribute as a dividend or free distribution. The depositary will only distribute whole American Depositary Shares. It will sell shares which would require it to deliver a fractional American Depositary Share and distribute the net proceeds in the same way as it does with cash. If the depositary does not distribute additional American Depositary Shares, the outstanding American Depositary Shares will also represent the new shares. The depositary may sell a portion of the distributed shares sufficient to pay its fees and expenses in connection with that distribution. · Rights to purchase additional shares. If we offer holders of our securities any rights to subscribe for additional shares or any other rights, the depositary may make these rights available to American Depositary Share holders. If the depositary decides it is not legal and practical to make the rights available but that it is practical to sell the rights, the depositary will use reasonable efforts to sell the rights and distribute the proceeds in the same way as it does with cash. The depositary will allow rights that are not distributed or sold to lapse. In that case, you will receive no value for them. If the depositary makes rights available to American Depositary Share holders, it will exercise the rights and purchase the shares on your behalf. The depositary will then deposit the shares and deliver American Depositary Shares to the persons entitled to them. It will only exercise rights if you pay it the exercise price and any other charges the rights require you to pay. U.S. securities laws may restrict transfers and cancellation of the American Depositary Shares represented by shares purchased upon exercise of rights. For example, you may not be able to trade these American Depositary Shares freely in the U.S. In this case, the depositary may deliver restricted depositary shares that have the same terms as the American Depositary Shares described in this section except for changes needed to put the necessary restrictions in place. · Other Distributions. The depositary will send to American Depositary Share holders anything else we distribute on deposited securities by any means it thinks is legal, fair and practical. If it cannot make the distribution in that way, the depositary has a choice. After consultation with us to the extent practicable, it may decide to sell what we distributed and distribute the net proceeds, in the same way as it does with cash. Or, it may decide to hold what we distributed, in which case American Depositary Shares will also represent the newly distributed property. However, the depositary is not required to distribute any securities (other than American Depositary Shares) to American Depositary Share holders unless it receives satisfactory evidence from us that it is legal to make that distribution. The depositary may sell a portion of the distributed securities or property sufficient to pay its fees and expenses in connection with that distribution. The depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any American Depositary Share holders. We have no obligation to register American Depositary Shares, shares, rights or other securities under the Securities Act. We also have no obligation to take any other action to permit the distribution of American Depositary Shares, shares, rights or anything else to American Depositary Share holders. This means that you may not receive the distributions we make on our shares or any value for them if it is illegal or impractical for us to make them available to you. Deposit, Withdrawal and Cancellation How are American Depositary Shares issued? The depositary will deliver American Depositary Shares if you or your broker deposits shares or evidence of rights to receive shares with the custodian. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will register the appropriate 2 number of American Depositary Shares in the names you request and will deliver the American Depositary Shares to or upon the order of the person or persons that made the deposit. How can American Depositary Share holders withdraw the deposited securities? You may surrender your American Depositary Shares at the depositary’s corporate trust office. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will deliver the shares and any other deposited securities underlying the American Depositary Shares to the American Depositary Share holder or a person the American Depositary Share holder designates at the office of the custodian. Or, at your request, risk and expense, the depositary will deliver the deposited securities at its corporate trust office, if feasible. How do American Depositary Share holders interchange between certificated American Depositary Shares and uncertificated American Depositary Shares? You may surrender your American Depositary Receipt to the depositary for the purpose of exchanging your American Depositary Receipt for uncertificated American Depositary Shares. The depositary will cancel that American Depositary Receipt and will send to the American Depositary Share holder a statement confirming that the American Depositary Share holder is the registered holder of uncertificated American Depositary Shares. Alternatively, upon receipt by the depositary of a proper instruction from a registered holder of uncertificated American Depositary Shares requesting the exchange of uncertificated American Depositary Shares for certificated American Depositary Shares, the depositary will execute and deliver to the American Depositary Share holder an American Depositary Receipt evidencing those American Depositary Shares. Voting Rights How do you vote? American Depositary Share holders may instruct the depositary to vote the number of deposited shares their American Depositary Shares represent. The depositary will notify American Depositary Share holders of shareholders’ meetings and arrange to deliver our voting materials to them if we ask it to. Those materials will describe the matters to be voted on and explain how American Depositary Share holders may instruct the depositary how to vote. For instructions to be valid, they must reach the depositary by a date set by the depositary. Otherwise, you won’t be able to exercise your right to vote unless you withdraw the shares. However, you may not know about the meeting enough in advance to withdraw the shares. The depositary will try, as far as practical, subject to the laws of Israel and of our articles of association or similar documents, to vote or to have its agents vote the shares or other deposited securities as instructed by American Depositary Share holders. The depositary will only vote or attempt to vote as instructed. If the depositary solicited your voting instructions but does not receive instructions by the date specified, the depositary will consider you to have instructed it to give a proxy to a person designated by us to vote the deposited shares, unless we notify the depositary that: - we do not wish to receive a proxy; - substantial opposition exists; or - the matter would materially and adversely affect the rights of holders of our ordinary shares. We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise your right to vote and there may be nothing you can do if your shares are not voted as you requested. 3 In order to give you a reasonable opportunity to instruct the depositary as to the exercise of voting rights relating to deposited securities, if we request the depositary to act, we agree to give the depositary notice of any such meeting and details concerning the matters to be voted upon at least 30 days in advance of the meeting date. Amendment and Termination How may the deposit agreement be amended? We may agree with the depositary to amend the deposit agreement and the American Depositary Receipts without your consent for any reason. If an amendment adds or increases fees or charges, except for taxes and other governmental charges or expenses of the depositary for registration fees, facsimile costs, delivery charges or similar items, or prejudices a substantial right of American Depositary Share holders, it will not become effective for outstanding American Depositary Shares until 30 days after the depositary notifies American Depositary Share holders of the amendment. At the time an amendment becomes effective, you are considered, by continuing to hold your American Depositary Shares, to agree to the amendment and to be bound by the American Depositary Receipts and the deposit agreement as amended. How may the deposit agreement be terminated? The depositary will terminate the deposit agreement at our direction by mailing notice of termination to the American Depositary Share holders then outstanding at least 30 days prior to the date fixed in such notice for such termination. The depositary may also terminate the deposit agreement by mailing notice of termination to us and the American Depositary Share holders if 60 days have passed since the depositary told us it wants to resign but a successor depositary has not been appointed and accepted its appointment. After termination, the depositary and its agents will do the following under the deposit agreement but nothing else: collect distributions on the deposited securities, sell rights and other property, and deliver shares and other deposited securities upon cancellation of American Depositary Shares. Four months after termination, the depositary may sell any remaining deposited securities by public or private sale. After that, the depositary will hold the money it received on the sale, as well as any other cash it is holding under the deposit agreement for the pro rata benefit of the American Depositary Share holders that have not surrendered their American Depositary Shares. It will not invest the money and has no liability for interest. The depositary’s only obligations will be to account for the money and other cash. After termination our only obligations will be to indemnify the depositary and to pay fees and expenses of the depositary that we agreed to pay. Limitations on Obligations and Liability Limits on our Obligations and the Obligations of the Depositary; Limits on Liability to Holders of American Depositary Shares The deposit agreement expressly limits our obligations and the obligations of the depositary. It also limits our liability and the liability of the depositary. We and the depositary: · are only obligated to take the actions specifically set forth in the deposit agreement without negligence or bad faith; · are not liable if we are or it is prevented or delayed by law or circumstances beyond our control from performing our or its obligations under the deposit agreement; · are not liable if we or it exercises discretion permitted under the deposit agreement; · are not liable for the inability of any holder of American Depositary Shares to benefit from any distribution on deposited securities that is not made available to holders of American Depositary Shares under the terms of the deposit agreement, or for any special, consequential or punitive damages for any breach of the terms of the deposit agreement; 4 · have no obligation to become involved in a lawsuit or other proceeding related to the American Depositary Shares or the deposit agreement on your behalf or on behalf of any other person; and · may rely upon any documents we believe or it believes in good faith to be genuine and to have been signed or presented by the proper person. In the deposit agreement, we and the depositary agree to indemnify each other under certain circumstances. Requirements for Depositary Actions Before the depositary will deliver or register a transfer of an American Depositary Share, make a distribution on an American Depositary Share, or permit withdrawal of shares, the depositary may require: · payment of stock transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for the transfer of any shares or other deposited securities; · satisfactory proof of the identity and genuineness of any signature or other information it deems necessary; and · compliance with regulations it may establish, from time to time, consistent with the deposit agreement, including presentation of transfer documents. The depositary may refuse to deliver American Depositary Shares or register transfers of American Depositary Shares generally when the transfer books of the depositary or our transfer books are closed or at any time if the depositary or we think it advisable to do so. Your Right to Receive the Shares Underlying your American Depositary Shares American Depositary Share holders have the right to cancel their American Depositary Shares and withdraw the underlying shares at any time except: · when temporary delays arise because: (i) the depositary has closed its transfer books or we have closed our transfer books; (ii) the transfer of shares is blocked to permit voting at a shareholders’ meeting; or (iii) we are paying a dividend on our shares; · when you owe money to pay fees, taxes and similar charges; or · when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to American Depositary Shares or to the withdrawal of shares or other deposited securities. Securities Registers The transfer agent and registrar for our ADSs is The Bank of New York Mellon, and its address is 101 Barclay Street, New York, NY. Objects and Purposes According to Section 4 of our articles of association, we shall engage in any legal business. Our number with the Israeli Registrar 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 before the private placement, and all or part of the private placement consideration is not in cash or in public traded securities or is not in market terms and if as a 5 result of the private placement the holdings of a substantial shareholder will increase or as a result of it a person will become a substantial shareholder, then, in either case, the allotment must be approved by the board of directors and by the shareholders of the company. A “substantial shareholder” is defined as a shareholder who holds five percent or more of the company’s outstanding share capital, assuming the exercise of all of the securities convertible into shares held by that person. In order for the private placement to be on “market terms” the board of directors has to determine, on the basis of detailed explanation, that the private placement is on market terms, unless proven otherwise. Board of Directors Under our articles of association, resolutions by the board of directors are decided by a majority of votes of the directors present, 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 provided for in a company’s articles of association and in certain circumstances by the compensation or audit committee and by the board of directors itself. Those transactions that require such approval pursuant to a company’s articles of association must be approved by its board of directors. In certain circumstances, compensation or audit committee and shareholder approval are also required. The Israeli Companies Law requires that a member of the board of directors or senior management of the company promptly and, in any event, not later than the first board meeting at which the transaction is discussed, disclose any personal interest that he or she may have, either directly or by way of any corporation in which he or she is, directly or indirectly, a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager, as well as all related material information known to him or her, in connection with any existing or proposed transaction by the company. In addition, if the transaction is an extraordinary transaction, (that is, a transaction other than in the ordinary course of business, otherwise than on market terms, or is likely to have a material impact on the company’s profitability, assets or liabilities), the member of the board of directors or senior management must also disclose any personal interest held by his or her spouse, siblings, parents, grandparents, descendants, spouse’s descendants, siblings and parents, and the spouses of any of the foregoing. Once the member of the board of directors or senior management complies with the above disclosure requirement, a company may approve the transaction in accordance with the provisions of its articles of association. Under the provisions of the Israeli Companies Law, whoever has a personal interest in a matter, which is considered at a meeting of the board of directors or the audit committee, may not be present at this meeting or vote on this matter, unless it is not an extraordinary transaction as defined in the Israeli Companies Law. However, if the chairman of the board of directors or the chairman of the audit committee has determined that the presence of a director or an officer with a personal interest is required for the presentation of a matter, such officer holder may be present at the meeting. Notwithstanding the foregoing, if the majority of the directors have a personal interest in a matter, they will be allowed to participate and vote on this matter, but an approval of the transaction by the shareholders in the general meeting will be required. Our articles of association provide that, subject to the Israeli Companies Law, all actions executed in good faith by the board of directors or by a committee thereof or by any person acting as a director or a member of a committee of the board of directors, will be deemed to be valid even if, after their execution, it is discovered that there was a flaw in the appointment of these 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 may appoint board of directors’ committees. The committees of the board of directors report to the board of directors their resolutions or recommendations on a regular basis, as prescribed by the board of directors. The board of directors may cancel the resolution of a committee that has been appointed by it; however, such cancellation will not affect the validity of any resolution of a committee, pursuant to which we acted, vis-à-vis another person, who was not aware of the cancellation thereof. Decisions or recommendations of the committee of the board which require the approval of the board of directors will be brought to the directors’ attention a reasonable time prior to the discussion at the board of directors. 6 According to the Israeli Companies Law, a contract of a company with its directors, regarding their conditions of service, including the grant to them of exemption from liability from certain actions, insurance, and indemnification as well as the company’s contract with its directors on conditions of their employment, in other capacities, require the approval of the compensation committee, the board of directors, and the shareholders by a Special Majority. Description of Securities Ordinary Shares Our registered share capital is NIS 8,000,000, divided into (i) 794,000,000 registered Ordinary Shares of NIS 0.01 par value each, and (ii) 6,000,000 preferred shares of NIS 0.01 par value each.. The Ordinary Shares do not have preemptive rights, preferred rights or any other right to purchase our securities. Neither our articles of association nor the laws of the State of Israel restrict the ownership or voting of Ordinary Shares by non-residents of Israel, except for subjects of countries that are enemies of Israel. Transfer of Shares. Fully paid Ordinary Shares are issued in registered form and may be freely transferred pursuant to our articles 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, under regulations promulgated under the Israeli Companies Law, we are required to publish a notice in two daily newspapers at least 35 calendar days prior any shareholders’ meeting in which the agenda includes matters which may be voted on by voting instruments. Regulations under the Israeli Companies Law exempt companies whose shares are listed for trading both on a stock exchange in and outside of Israel, from some provisions of the Israeli Companies Law. An amendment to these regulations exempts us from the requirements of the Israeli proxy regulation, under certain circumstances. According to the Israeli Companies Law and the regulations promulgated thereunder, for purposes of determining the shareholders entitled to notice and to vote at such meeting, the board of directors may fix the record date not more than 40 nor less than four calendar days prior to the date of the meeting, provided that an announcement regarding the general meeting 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 from time to time, in a resolution approved by a majority of 75% or more of the votes cast by those shareholders present and voting at the meeting in person, by proxy or by a voting instrument, not taking into consideration abstaining votes, to change the minimum or maximum number of directors as stated above as well as to amend the board classification under our Articles. A simple majority shareholder vote is required to elect a director for a term of less than three years. Dividend and Liquidation Rights. Our profits, in respect of which a resolution was passed to distribute them as a dividend or bonus shares, are to be paid pro rata to the amount paid or credited as paid on account of the nominal value of shares held by the shareholders. In the event of our liquidation, the liquidator may, with the general meeting’s approval, distribute parts of our property in specie among the shareholders and he may, with similar approval, deposit any part of our property with trustees in favor of the shareholders as the liquidator, with the approval mentioned above deems fit. The terms of our term loan facility prohibit us from paying dividends. Voting, Shareholders’ Meetings and Resolutions. Holders of Ordinary Shares are entitled to one vote for each Ordinary Share held on all matters submitted to a vote of shareholders. The quorum required for an ordinary meeting of shareholders consists of at least two shareholders present, in person or by proxy, or who has sent us a voting instrument indicating the way in which 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 place as prescribed by the board of directors in the notice to the shareholders. At the reconvened meeting one 7 shareholder at least, present in person or by proxy constitutes a quorum except where such meeting was called at the demand of shareholders. With the agreement of a meeting at which a quorum is present, the chairman may, and on the demand of the meeting he must, adjourn the meeting from time to time and from place to place, as the meeting resolves. Annual general meetings of shareholders are held once every year within a period of not more than 15 months after the last preceding annual general shareholders’ meeting. The board of directors may call special general meetings of shareholders. The Israeli Companies Law provides that a special general meeting of shareholders may be called by the board of directors or by a request of two directors or 25% of the directors in office, whichever is the lower, or by shareholders holding at least 5% of our issued 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, at the 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 and conditions 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 target company’s issued and outstanding share capital is required by the Israeli Companies Law to make a tender offer to all of the company’s shareholders for the purchase of all of the issued and outstanding shares of the company. A person wishing to acquire shares of an Israeli public company and who would as a result hold over 90% of the issued and outstanding share capital of a certain class of shares is required to make a tender offer to all of the shareholders who hold shares of the same class for the purchase of all of the issued and outstanding shares of the same class. If the shareholders who do not respond to or accept the offer hold less than 5% of the issued and outstanding share capital of the company or of the applicable class of the shares, and more than half of the shareholders who do not have a personal interest in the offer accept the offer, all of the shares that the acquirer offered to purchase will be transferred to the acquirer by operation of law. However, a tender offer will be accepted if the shareholders who do not accept it hold less than 2% of the issued and outstanding share capital of the company or of the applicable class of the shares. Upon a successful completion of such a full tender offer, any shareholder that was an offeree in such tender offer, whether such 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 be paid as determined by the court. However, under certain conditions, the offeror may determine in the terms of the tender offer that an offeree who accepted the offer will not be entitled to petition the Israeli court as described above. If the shareholders who did not respond or accept the tender offer hold at least 5% of the issued and outstanding share capital of the company or of the applicable class, the acquirer may not acquire shares of the company that will increase its holdings to more than 90% of the company’s issued and outstanding share capital or of the applicable class from shareholders who accepted the tender offer. The description above regarding a full tender offer will also apply, with necessary changes, when a full tender offer is accepted, 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 a special tender offer if as a result of the acquisition the purchaser would become a holder of at least 25% of the voting rights in the company. This rule does not apply if there is already another holder of at least 25% of the voting rights in the company. 8 Similarly, the Israeli Companies Law provides that an acquisition of shares of a public company must be made by means of a special tender offer if as a result of the acquisition the purchaser would become a holder of more than 45% of the voting rights in the company, if there is no other shareholder of the company who holds more than 45% of the voting rights in the company. These requirements do not apply if the acquisition (i) occurs in the context of a private offering, on the condition that the shareholders meeting approved the acquisition as a private offering whose purpose is to give the acquirer at least 25% of the voting rights in the company if there is no person who holds at least 25% of the voting rights in the company, or as a private offering 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 and resulted in the acquirer becoming a holder of at least 25% of the voting rights in the company; or (iii) was from a holder of more than 45% of the voting rights in the company and resulted in the acquirer becoming a holder of more than 45% of the voting rights in the company. The special tender offer may be consummated only if (i) at least 5% of the voting power attached to the company’s outstanding shares will be acquired by the offeror and (ii) the special tender offer is accepted by a majority of the votes of those offerees who gave notice of their position in respect of the offer; in counting the votes of offerees, the votes of a holder in 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 or companies under their control, are not taken into account. In the event that a special tender offer is made, a company’s board of directors is required to express its opinion on the advisability of the offer or must abstain from expressing any opinion if it is unable to do so, provided that it gives the reasons for 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 cause the failure of an existing or foreseeable special tender offer or is to impair the chances of its acceptance, is liable to the potential purchaser and shareholders for damages resulting from his acts, unless such officer acted in good faith and had reasonable grounds to believe he or she was acting for the benefit of the company. However, officers of the target company may negotiate with the potential purchaser in order to improve the terms of the special tender offer, and may further negotiate with third parties in order to obtain a competing offer. If a special tender offer was accepted by a majority of the shareholders who announced their stand on such offer, then shareholders who did not respond to the special offer or had objected to the special tender offer may accept the offer within four days of the last day set for the acceptance of the offer. In the event that a special tender offer is accepted, then the purchaser or any person or entity controlling it and any corporation controlled by them must refrain from making a subsequent tender offer for the purchase of shares of the target company and may not execute a merger with the target company for a period of one year from the date of the offer unless the purchaser or such person or entity undertook to effect such 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 certain requirements described under the Israeli Companies Law are met, a majority of each party’s shareholders, by a majority of each 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 determine whether in its opinion there exists a reasonable concern that, as a result of a proposed merger, the surviving company will not be able to satisfy its obligations toward 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 the approval of the board of directors of each of the merging companies, the boards of directors must jointly prepare a merger proposal for submission to the Israeli Registrar of Companies. 9 For purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the shares voting at the shareholders meeting (excluding abstentions) that are held by parties other than the other party to the merger, any person who holds 25% or more of the means of control of the other party to the merger or anyone on their behalf including their 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 each class of shareholders. If the transaction would have been approved but for the separate approval of each class of shares or the exclusion of the votes of certain shareholders as provided above, a court may still rule that the company has approved the merger upon the request of holders of at least 25% of the voting rights of a company, if the court holds that the merger is fair and reasonable, taking into account the appraisal of the merging companies’ value and the consideration offered to the shareholders. Under the Israeli Companies Law, each merging company must send a copy of the proposed merger plan to its secured creditors. Unsecured creditors are entitled to receive notice of the merger, as provided by the regulations promulgated under the Israeli Companies Law. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy the obligations of the target company. The court may also give instructions in order to secure the rights of creditors. In addition, a merger may not be completed unless at least 50 days have passed from the date that a proposal for approval of the merger was filed with the Israeli Registrar of Companies and 30 days from the date that shareholder approval of both merging 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 Ordinary Shares, including shares providing certain preferred or additional rights to voting, distributions or other matters and shares having preemptive rights. We have 6,000,000 authorized unissued preferred shares. Our authorized preferred shares, and any other class of shares other than Ordinary Shares that we may create and issue in the future, depending on the specific rights that may be attached to them, may delay or prevent a takeover or otherwise prevent our shareholders from realizing a potential premium over the market value of their Ordinary Shares. The authorization of a new class of shares will require an amendment to our articles of association which requires the prior approval of a majority of our shares represented and voting at a general meeting. Shareholders voting at such a meeting will be subject to the restrictions under the Israeli Companies Law. In addition, provisions of our articles of our association relating to the election of our directors for terms of three years make it more difficult for a third party to effect a change in control or takeover attempt that our management and board of directors oppose. 10 Exhibit 4.11 RedHill Biopharma Ltd. (The "Company") Compensation Policy (the “Policy” or “Compensation Policy”) As last amended by the Company's Shareholders on October 26, 2020. 1. Definitions "Board of Directors" or “Board” - The Company's board of directors; "Committee" or "Compensation - The Company's compensation committee; Committee" "Company" "Companies Law" "Securities Law" "Retirement Bonus" "Officer" "Stock Option Plan" “Base Salary” "Cost" - RedHill Biopharma Ltd.; - The Companies Law, 1999, Israel; - The Securities Law, 1968, Israel; - Bonus, payment, compensation or any other benefit awarded to an officer with regard to conclusion of their office with the Company; - As defined in the Companies Law; - Amended and Restated Award Plan (2010), as it may be amended from time to time, or such other equity incentive plan, including an employee stock purchase plan, adopted by the Company from time to time; - A fixed amount paid by the Company to its Officers in return for work performed. Base salary does not include benefits, bonuses or any other potential compensation; - Cost to the employing entity. 1 2. Overview The principles of the Compensation Policy were set forth in accordance with the requirements of the Companies Law and after discussions by the Compensation Committee and the Board. Policy principles were designed to grant proper, fair and well-considered compensation to Officers, in alignment with the Company's long-term best interests and organizational strategy. Part of the rationale is that the Policy should encourage a sense of identification with the Company and its objectives on the part of its Officers. An increase in Officer satisfaction and motivation should retain the employment of high-quality Officers in the Company's service over the long term. The Compensation Policy considers, inter alia, the Company's risk management parameters, size and nature of its operations and, with regard to terms of office and employment which include variable components, the Officer's long-term contribution to achieving the Company's objectives and to maximizing shareholders value, taking into account the scope and reach of the Officer's role. The Compensation Policy was prepared with due consideration to the nature of the Company’s operations in the biopharmaceutical sector, territories where the Company operates, market capitalization on the applicable stock exchange or trading platforms on which the Company's ordinary shares and American Depository Shares (“ADS”) are then listed or traded, as well as other criteria. The compensation principles, targets and benchmarks are derived, inter alia, form the Company's annual work plan and from long-term plans as determined by the Board of Directors from time to time. In the process of drafting this Policy, the Board and the Compensation Committee have examined the ratio between employer cost (as defined in the Companies Law) associated with the engagement of the Officer and the average and median employer cost associated with the engagement of the other employees of the Company (the "Ratio"). The Compensation Committee and Board believe that the current Ratio does not adversely impact the work environment in the Company. Compensation Policy components will include each of the following: a. Base Salary; 2 b. Benefits; c. Cash bonuses; d. Equity based compensation; e. Retirement and termination of service arrangements; and f. Exemption, Indemnification and Insurance. While the Company's employment agreements and/or consulting agreements may be in NIS or in USD, the Company's compensation costs (including salaries, benefits and consulting) are reported in the Company's financial statements in USD. Thus, all compensation components are presented in this policy in USD. The language of this Compensation Policy uses the male pronoun only as a measure of comfort. This Policy applies to both male and female Officers. This Policy aims to balance the mix of "Fixed Component" (comprised of Base Salary and benefits) and "Variable Component" (comprised of cash bonuses and equity-based compensation) in order to, among other things, appropriately incentivize Officers to meet the Company's short and long term goals, while taking into consideration the Company’s need to manage a variety of business risks. The total Variable Component of each Officer shall not exceed 80% of the total compensation package of such Officer on an annual basis. The Compensation Committee and Board believe that such ratio expresses the appropriate compensation mix in the event that all performance objectives are achieved and assumes that all compensation elements are granted with respect to a given year. 3. Officers' areas of responsibility, education and experience The compensation package to the Officers is individually determined by the Compensation Committee and the Board (unless other approvals are required under any applicable law) according to the educational background, prior vocational experience, qualifications, role, business responsibilities, past performance and previous compensation arrangements of such Officer. 4. Base Salary and Benefits 4.1. Position: Chairman of the Board of Directors (the “Chairman”) 3 4.1.1. The annual Base Salary of the Chairman, consisting of a fixed annual payment and additional fixed payment per meeting, shall not exceed two times the annual Base Salary of other Board members. If the Chairman is also an Officer, no additional compensation will be payable to the Chairman for his role as Chairman. 4.1.2. The Chairman will be entitled to reimbursement of reasonable expenses incurred in the course of discharging his office, including expenses with respect to attending meetings, travel and entertainment expenses, against provision of receipts. The policy for overseas travel expense reimbursement will be the same as for the Company CEO. 4.2. Position: Company CEO 4.2.1. The annual Base Salary for the Company CEO shall be up to USD 750,0001 for a full time position. Such amount may be linked to increases in the Israeli Consumer Price Index or to increases in the representative rate of exchange of the US dollar, as the case may be. 4.2.2. The Company CEO will be entitled to reimbursement of reasonable per diem expenses incurred in the course of discharging his office, including expenses with respect to attending meetings, travel and entertainment expenses, against provision of receipts. The Company may pay the CEO's expenses by credit card. Expense reimbursement for overseas travel will be in conformity with Company's policy. The following benefits will be granted to the CEO in order, among other things, to comply with legal requirements: · Vacation days in accordance with market practice and applicable law, including redemption thereof; · Sick days in accordance with market practice and applicable law; · Convalescence pay according to applicable law; 1 In accordance with the USD-NIS representative rate of exchange of the Bank of Israel as of the date of approval of the Policy by the Company shareholders 4 · Monthly remuneration for a study fund with reference to the Company's practice and common market practice; · Contribution by the Company on behalf of the Officer to an insurance policy or a pension fund, as allowed by applicable law and with reference to the Company's policies and procedures and common market practice; and · Contribution by the Company on behalf of the Officer towards work disability insurance, as allowed by applicable law and with reference to the Company's policies and procedures and common market practice. The Company may offer additional benefits to the CEO, including but not limited to: communication, company car and travel benefits, insurances, other benefits (such as newspaper subscriptions, academic and professional studies), etc., including their gross up. 4.3. Position: Officers (other than Board member or CEO) 4.3.1. The annual Base Salary for each Officer (other than a Board member, in his capacity as a Board member only, or the CEO) shall not exceed 90% of the annual Base Salary for the CEO. 4.3.2. In addition, each Officer (other than a Board member, in his capacity as a Board member only, or the CEO) will be entitled to reimbursement of reasonable per diem expenses incurred in the course of discharging his office, including expenses with respect to attending meetings, travel and entertainment expenses, against provision of receipts. The Company may pay the Officer's expenses by credit card. Expense reimbursement for overseas travel will be in conformity with Company policy. The following benefits may be granted to Officers in order, among other things, to comply with legal requirements: · Vacation days in accordance with market practice and applicable law, including redemption thereof; · Sick days in accordance with market practice and applicable law; · Convalescence pay according to applicable law; 5 · Monthly remuneration for a study fund, as allowed by applicable law and with reference to the Company's practice and common market practice; · Contribution by the Company on behalf of the Officer to an insurance policy or a pension fund, as allowed by applicable law and with reference to the Company's policies and procedures and common market practice; and · Contribution by the Company on behalf of the Officer towards work disability insurance, as allowed by applicable law and with reference to the Company's policies and procedures and common market practice. The Company may offer additional benefits to the Officers, including but not limited to: communication, company car and travel benefits, insurances, other benefits (such as newspaper subscriptions, academic and professional studies), etc., including their gross up. 4.4. Position: Board member 4.4.1. The compensation of Board members (including external directors, to the extent applicable, and independent directors, but excluding the Chairman) shall be in accordance with the provisions of the companies’ regulations (rules concerning compensation and expense reimbursement for an external director) - 2000 (the "Compensation Regulations"). In case in which a Board member is serving also as an Officer, he will be entitled to additional compensation accordingly. 4.4.2. Board members will be entitled to reimbursement of reasonable expenses incurred in the course of their duty, including expenses with respect to attending meetings, travel and entertainment expenses, against provision of receipts. Expense reimbursement for overseas travel will be in accordance with Company policies. 4.5. According to section 1B3 to the Companies Regulations (Relief in Transactions With Related Parties), 2000, non-material changes in the terms of employment of an officer who is subject to the CEO, will not require compensation committee approval, as stated in section 272(C) to the Companies Law. For these purposes, a change shall be considered to be non-material so long as the change in the 6 compensation does not exceed 15% of the fixed compensation and has been approved by the CEO, and all within the framework of the Policy. 4.6. Signing Bonus At the Compensation Committee’s and Board’s discretion, the Company may grant a signing bonus to a newly recruited Officer. The signing bonus shall not exceed six (6) monthly Base Salaries of such Officer. 4.7. Work overseas 4.7.1. The maximum Base Salary for an Officer who works in the US may exceed the maximum Base Salary for the Officer pursuant to this Policy, by up to 50%. 4.7.2. Conditioned only upon continued employment with the Company, the Company may reimburse an Officer for his actual reasonable relocation expenses when relocating, outside or inside the US, and when returning. 4.7.3. Conditioned only upon continued employment with the Company, the Company may grant a one- time relocation bonus of up to six (6) monthly Base Salaries to an Officer, when relocating, outside or inside the US. 5. Cash Bonuses 5.1. Annual bonus The Company may award an annual bonus to an Officer based on the following guidelines: 5.1.1. The payment of annual bonuses for any particular fiscal year shall be subject to the satisfaction (in addition to the satisfaction of the applicable objectives set forth below in Section 5.1.2 below) of one or more of the following criteria: 5.1.1.1. For the Company to recognize minimum revenues of US $15 million in the relevant year; 7 5.1.1.2. For the Company to reduce its negative cash from operations to less than $25 million per annum; 5.1.1.3. A market cap of at least USD 275 million; 5.1.1.4. Increase in the share price of 15% or more in the relevant fiscal year; 5.1.1.5. A significant positive event in the Company’s business, affecting the Company’s overall positioning and prospect in the medium or the long term. 5.1.2. The annual bonus to the Chairman and the CEO will be based on measurable criteria. The measurable criteria and their relative weight shall be determined by the Compensation Committee and the Board in respect of each calendar year. These measurable criteria may include, inter alia, objectives relating to the development of clinical trials, significant progress of pipeline products, operational and financial targets achieved, significant business development progress and any additional significant objectives determined by the Board. 5.1.3. In addition, the Company may grant the CEO a bonus of up to three (3) monthly Base Salaries or up to 25% of the total variable compensation, at the sole discretion of the Compensation Committee and Board, based on the CEO's contribution to the Company. 5.1.4. The Company may also grant, subject to the approval of the Compensation Committee and the Board, an annual bonus to its Officers (other than the CEO) for their contribution to the Company. Such grants may be based in whole or in part on discretion of the Compensation Committee and the Board, provided that they do not exceed the ceiling specified in Section 5.4 below. 5.2. Special Annual Bonus In addition to the Annual Bonus, each Officer of the Company may be awarded once a year a special annual bonus (the "Special Annual Bonus") regardless of a specified 8 target and regardless of a bonus plan. Such Special Annual Bonus shall be approved by the Compensation Committee and the Board of Directors, which shall consider the CEO's recommendation (based on recognition of special and extraordinary contribution by the Officer in the course of Company business, such as a special effort and achievements related to financing raised, merger, acquisition, sale or license of rights, achievement of major corporate goal in R&D or in commercial operations, business and corporate development or other significant general corporate goal, intellectual property protection of the Company’s products, etc.). Such Special Annual Bonus shall not exceed three (3) monthly Base Salaries for each Officer of the Company, except for the CEO as provided in Section 5.1.3 above. 5.3. Bonus calculation upon termination of employment: Should the employment or service of the Officer terminate prior to the end of a fiscal year, the Company may pay the Officer the pro rata share of that fiscal year’s bonus, based on the period such Officer was employed by the Company or has served in the Company. 5.4. Maximum bonus: the combined Annual Bonus and Special Annual Bonus amount shall not exceed 200% of the Officer’s annual Base Salary. 5.5. The Company's Compensation Committee and Board of Directors may reduce the bonus awarded to an Officer at their discretion, including under the following circumstances: material deterioration of the Company's position or such material deterioration anticipated by the Board of Directors, deterioration in the state of the economy, deterioration in the performance of the Officer or inappropriate conduct by the Officer. 5.6. Compensation Recovery ("Clawback"): 5.6.1. In the event of an accounting restatement, the Company shall be entitled to recover from its Officers the bonus compensation in the amount in which such bonus exceeded what would have been paid under the financial statements, as restated, provided that a claim is made by the Company prior to the third anniversary of fiscal year end of the restated financial statements. 9 5.6.2. Notwithstanding the aforesaid, subject to compliance with applicable law, the compensation recovery will not be triggered in the following events: · The financial restatement is required due to changes in the applicable financial reporting standards; or · The Compensation Committee has determined that Clawback proceedings in the specific case would be impossible, impractical or not commercially or legally efficient; or · The amount to be paid under the Clawback proceedings is less than 10% of the relevant bonus received by the Officer. 5.6.3. Nothing in this Section limits the Company's obligation to comply with any "Clawback" or similar provisions regarding disgorging of profits imposed on Officers by virtue of applicable securities laws. 6. Equity-Based Compensation 6.1. The Compensation Committee and the Board shall review from time to time the overall equity-based grant for all Officers. When doing so, the Compensation Committee and the Board shall take into consideration: (1) each Officer's (including Board members) contribution to the Company including expected contribution; and (2) creating an effective long-term incentive to harness and motivate Officers. 6.2. The equity-based compensation offered by the Company may be in the form of share options, restricted shares and/or other equity-based awards, such as RSUs, in accordance with the Stock Option Plan. 6.3. Subject to any applicable law and at the Compensation Committee and the Board’s discretion, as applicable, the Company may determine the tax regime under which equity-based compensation may be granted, including a tax regime which will maximize the benefit to the Officers. 6.4. The fair market value of equity-based compensation awarded to each Officer in a given year, as calculated at grant date, shall not exceed 200% of the annual Base Salary of such Officer, as the case may be. 6.5. The exercise price for each option would be determined as the higher of the average Company share price on the Tel-Aviv Stock Exchange over the 30 10 trading days preceding the Board’s decision plus up to 30% premium, or the closing Company share price on the Tel-Aviv Stock Exchange on the date of the approval of the award by the Board of Directors. In case the Company's shares are not listed on Tel-Aviv Stock Exchange, this section 6.5 shall be null and void. 6.6. All other terms of the equity awards shall be in accordance with the Stock Option Plan and other related practices and policies. 6.7. Subject to the terms of the Stock Option Plan, the Compensation Committee and Board of Directors shall not reduce the amount of unexercised options of an Officer, nor will they limit the exercise value of such unexercised options. 7. Retirement and Termination of Service Arrangements 7.1. Severance pay: in the case of termination (other than termination of an Officer for cause), the Officer will be eligible to receive severance pay in full. 7.2. Notice period: - The Company may give an Officer a notice period of up to twelve (12) months. - The Company may waive the Officer's services to the Company during the notice period and pay the amount payable in lieu of notice, plus the value of benefits, even in case of immediate termination. - During the notice period, the Officer would be eligible to receive bonuses with respect to this period and would also continue to accrue vesting of options awarded. 7.3. Non-compete bonus: the Company may grant an Officer a bonus upon termination of employment in return for a commitment by the Officer not to compete with Company business. The extent of the non- compete commitment would be determined by the Company's Compensation Committee and Board of Directors. Such bonus shall be calculated according to a key of up to two (2) monthly Base Salaries for each three (3) months of non-compete period and shall not exceed a total of twelve (12) monthly Base Salaries. 11 7.4. Retirement bonus: the Company may grant an Officer a retirement bonus upon termination of employment. The retirement bonus shall not exceed twelve (12) monthly Base Salaries for Officers that engaged with the Company for over three (3) years and six (6) monthly Base Salaries for an Officer that was engaged with the Company for less than three (3) years, except in the case of termination of employment upon "change of control" in which case the limitations of Section 7.5 shall apply. Such retirement bonus, if applicable, shall be awarded based on the Officer's tenure, the Company's achievements during the relevant period and the Officer's contribution to such achievements, and the circumstances of such Officer's retirement from the Company. 7.5. Creation/Change of Control: the Company may grant an Officers a bonus upon a "change of control" (as defined in a plan approved by the Compensation Committee and the Board) upon such conditions determined by the Compensation Committee and the Board. The bonus shall not exceed twelve (12) monthly Base Salaries for each Officer who served the Company for over three (3) years and six (6) monthly Base Salaries for each Officer who served in the Company for less than three (3) years. The Company may also grant the CEO a bonus upon a "change of control" upon such conditions determined by the Compensation Committee and the Board. The bonus to the CEO shall not exceed eighteen (18) monthly Base Salaries. 8. Exemption, Indemnification and Insurance 8.1. Board member and Officer liability insurance (claims made): the Company may obtain a liability insurance policy for Board members and Officers, which would apply to Officers of the Company and/or of its subsidiaries, as they may be, from time to time, subject to the following terms and conditions: (a) the total insurance coverage under the insurance policy shall not exceed US $100 million; and (b) the purchase of such policy shall be approved by the Compensation Committee (and, if required by law, by the Board) which shall determine that such policy reflects the current market conditions, and it shall not materially affect the Company's profitability, assets or liabilities. 12 8.2. Board member and Officer’s liability insurance (run-off): should the Company sell its operations (in whole or in part) and/or in case of merger, spin-off or any other significant business combination involving the Company and/or part or all of its assets, the Company may obtain a Board member and Officer’s liability insurance policy (run-off) for Board members and Officers in office with regard to the relevant operations, subject to the following terms and conditions: (a) the insurance term shall not exceed 7 years; (b) the coverage amount shall not exceed US $100 million; and (c) the purchase of such policy shall be approved by the Compensation Committee (and, if required by law, by the Board) which shall determine that such policy reflects the current market conditions, and it shall not materially affect the Company's profitability, assets or liabilities. 8.3. Waiver of liability: the Company may, subject to statutory provisions, waive the Officer's liability for any damage incurred by the Company, directly or indirectly, due to any breach of the Officer's due care duty towards the Company and/or any affiliated entity by his action and pursuant to his position as an Officer. 8.4. Advance indemnification: the Company may provide a commitment to indemnify in advance any Officer of the Company in the course of his position as Officer of the Company and its subsidiaries thereof, all subject to the letter of indemnification, as approved by the Company's shareholders from time to time and in accordance with the Company's Articles of Association. 8.5. Retroactive indemnification: the Company may provide retroactive indemnification to any Officer to the extent allowed by the Companies Law. 9. Engagement as a contractor or through a management company The Company may engage an Officer as an independent contractor rather than as a salaried employee. In such a case, the maximum cost of employment would be calculated based on the maximum cost for a salaried employee in a similar position, and guidelines of the Compensation Policy would apply to such an officer, mutatis mutandis. 10. Miscellaneous 13 10.1. The identity of the Officers is subject to the discretion of the Company's CEO. Changes may occur in the identity of Officers from year to year, and persons who served as Officers in one year and whose terms of employment or office were subject to this Compensation Policy may not necessarily continue to serve as Officers in subsequent years, and thus, their terms of employment or office would not be subject to this Compensation Policy, and vice versa. Moreover, the Company may revise the terms of employment or office of any Officer at any time, and is under no obligation to apply the same terms of employment or office to any Officer applied to them in previous years. 10.2. This Policy shall not confer any right on Officers to whom this Compensation Policy applies, nor on any other third party, to receive any compensation whatsoever. 10.3. Note, for the sake of clarification, that the content of this policy does not detract from provisions of the Companies Law with regard to the manner of approval of contracting between the Company and any Officer with regard to terms of employment or office, and the provisions of this Policy do not detract from any mandatory reporting with regard to Officer compensation pursuant to the Securities Law and regulations based there upon. 10.4. For the avoidance of doubt, it is clarified that in case of any amendment made to provisions of the Companies Law and any other relevant rules and regulations in a manner that will facilitate the Company with respect to its action with regard to Officer compensation, the Company may be entitled to follow these provisions even if they contradict the principles of this Policy. 10.5. Any payment made to Officers pursuant to compensation plans, in addition to the fixed compensation component, is not and shall not be deemed part of the Officer's regular pay for all intents and purposes, and shall not form basis for calculation and/or eligibility and/or accrual of any benefits and will not, notwithstanding the foregoing, be a component included in payment of paid leave, severance pay, contributions to provident funds, etc. 10.6. As part of the approval process of each annual plan, with its various components, changes to Company objectives, market conditions, the Company's position, etc. 14 would be reviewed annually by the Board of Directors. Consequently, the targets, benchmarks and compensation targets for each plan would be reviewed annually, and their actual application would be subject to change based on decisions made by the Board of Directors from time to time. 10.7. The Board of Directors shall review from time to time the Compensation Policy and the need to revise it in case of any material change in circumstances prevailing upon setting said Policy, or for any other reasons. 10.8. Any change in compensation of an Officer related to his or her fixed component that will change the composition of the compensation without affecting the total employer cost to the Company will not require approval of the compensation committee nor the Board of Directors, if it is approved by the CEO or the CFO of the Company and provided that such changed compensation is otherwise in accordance with the terms of the Compensation Policy. * * * * * 15 Exhibit 4.15 FIRST AMENDMENT TO CREDIT AGREEMENT THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this “Amendment”), dated as of March 31, 2020 (the “Amendment Effective Date”), is made by and among REDHILL BIOPHARMA INC., a Delaware corporation (the “Borrower”), REDHILL BIOPHARMA LTD., a company incorporated under the laws of the State of Israel, as Guarantor (“RedHill Parent”), the Lenders (defined in the Credit Agreement), HCR COLLATERAL MANAGEMENT, LLC, as Administrative Agent (“Agent”) and those additional entities that hereafter become parties to the Credit Agreement in accordance with the terms thereof by executing a Joinder Agreement. The Borrower, RedHill Parent, the Lenders and Agent are parties to a Credit Agreement dated as of February 23, 2020 (as amended, restated, modified or supplemented from time to time, the “Credit Agreement”). The Borrower, RedHill Parent, the Lenders and Agent agree to certain amendments to the Credit Agreement. Accordingly, the parties hereto agree as follows: SECTION 1 Definitions; Interpretation. (a) Terms Defined in Credit Agreement. All capitalized terms used in this Amendment (including in the recitals hereof) and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement. (b) Interpretation. The rules of interpretation set forth in Section 1.02 of the Credit Agreement shall be applicable to this Amendment and are incorporated herein by this reference. SECTION 2 Amendments to the Credit Agreement. (a) The Credit Agreement shall be amended as follows effective as of the Amendment Effective Date: (i) Section 1.01 is hereby amended to add the following term and definition in appropriate alphabetical order: “Aether Litigation” means Aether Therapeutics Inc. v. Astrazeneca AB, et al. (Case No. CIV: 1:20-cv-00381) before the District Court (including, for the avoidance of doubt, if any Person appears as a plaintiff or defendant in such litigation after the date hereof). “District Court” means the United States District Court for the District of Delaware. (ii) Section 8.16 is hereby amended in its entirety and replaced with the following: “8.16 Liquidity. (a) Permit, on any Business Day, cash and Cash Equivalents, in each case, of the Loan Parties held in Deposit Accounts and Securities Accounts for which the Administrative Agent shall have received an effective Control Agreement at any time to be less than (i) $7,500,000, from the Closing Date to the earlier of (x) the Term Loan Maturity Date and (y) the Tranche B Funding Date, (ii) $20,000,000, from the Tranche B Funding Date to the earlier of (x) the Term Loan Maturity Date and (y) the Tranche C Funding Date, (iii) $25,000,000, from the Tranche C Funding Date to the earlier of (x) the Term Loan Maturity Date and (y) the Tranche D Funding Date and (iv) $28,750,000, from the Tranche D Funding Date to the Term Loan Maturity Date. (b) The Loan Parties and the Administrative Agent hereby agree to negotiate in good faith (with due regard for the procedural posture, facts and other relevant considerations related to the Aether Litigation) an amendment to the Credit Agreement that shall add provisions accounting for the Aether Litigation and risks to RedHill Parent and/or its Subsidiaries associated with U.S. Patent Nos. 8,748,448, 8,883,817 and 9,061,024 in connection therewith in a manner mutually acceptable to the Administrative Agent and the Loan Parties (the “Aether Litigation Amendment”). Beginning on the date, if any, upon which the Aether Litigation Amendment becomes effective, the Credit Agreement shall be modified as provided therein and paragraph (a) of this Section 8.16 shall cease to apply and shall be replaced in its entirety as follows: Permit, on any Business Day, cash and Cash Equivalents, in each case, of the Loan Parties held in Deposit Accounts and Securities Accounts for which the Administrative Agent shall have received an effective Control Agreement at any time to be less than (i) $6,000,000, from the Closing Date to the earlier of (x) the Term Loan Maturity Date and (y) the Tranche B Funding Date, (ii) $16,000,000, from the Tranche B Funding Date to the earlier of (x) the Term Loan Maturity Date and (y) the Tranche C Funding Date, (iii) $20,000,000, from the Tranche C Funding Date to the earlier of (x) the Term Loan Maturity Date and (y) the Tranche D Funding Date and (iv) $23,000,000, from the Tranche D Funding Date to the Term Loan Maturity Date. (b) References Within Credit Agreement. Each reference in the Credit Agreement to “this Agreement” and the words “hereof,” “herein,” “hereunder,” or words of like import, shall mean and be a reference to the Credit Agreement as amended by this Amendment. SECTION 3 Conditions of Effectiveness. The effectiveness of this Amendment shall be subject to the satisfaction of each of the following conditions precedent: (a) This Amendment. Agent shall have received this Amendment, executed by the Borrower and RedHill Parent. (b) Representations and Warranties; No Default. On the Amendment Effective Date, after giving effect to the amendment of the Credit Agreement contemplated hereby: Amendment Effective Date as though made on and as of such date; and (i) The representations and warranties contained in Section 4 shall be true and correct on and as of the (ii) There exist no Events of Default or events that with the passage of time would result in an Event of Default. SECTION 4 Representations and Warranties. To induce the Lenders to enter into this Amendment, the Borrower and RedHill Parent hereby confirms, as of the date hereof, (a) that the representations and warranties made by it in Article VI of the Credit Agreement and in the other Loan Documents are true and correct in all material respects; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and (b) that there has not been and there does not exist a Material Adverse Effect. For the purposes of this Section 4, (i) each reference in Section 6 of the Credit Agreement to “this Agreement,” and the words “hereof,” “herein,” “hereunder,” or words of like import in such Section, shall mean and be a reference to the Credit Agreement as amended by this Amendment, and (ii) any representations and warranties which relate solely to an earlier date shall not be deemed confirmed and restated as of the date hereof (provided that such representations and warranties shall be true, correct and complete in all material respects as of such earlier date). SECTION 5 Miscellaneous. (a) Loan Documents Otherwise Not Affected; Reaffirmation. Except as expressly amended pursuant hereto or referenced herein, the Credit Agreement and the other Loan Documents shall remain unchanged and in full force and effect and are hereby ratified and confirmed in all respects. The Lenders’ and Agent’s execution and delivery of, or acceptance of, this Amendment shall not be deemed to create a course of dealing or otherwise create any express or implied duty by any of them to provide any other or further amendments, consents or waivers in the future. The Borrower and RedHill Parent hereby reaffirms the grant of security under the Collateral Documents and hereby reaffirms that such grant of security in the Collateral secures all Obligations under the Credit Agreement, including without limitation any Loans funded on or after the Amendment Effective Date, as of the date hereof. (b) Conditions. For purposes of determining compliance with the conditions specified in Section 3, each Lender that has signed this Amendment shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless Agent shall have received notice from such Lender prior to the Amendment Effective Date specifying its objection thereto. (c) Release. In consideration of the agreements of Agent and each Lender contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and RedHill Parent, each on behalf of itself and its successors, assigns, and other legal representatives, hereby fully, absolutely, unconditionally and irrevocably releases, remises and forever discharges Agent and each Lender, and its successors and assigns, and its present and former shareholders, affiliates, subsidiaries, divisions, predecessors, directors, officers, attorneys, employees, agents and other representatives (Agent, Lenders and all such other persons being hereinafter referred to collectively as the “Releasees” and individually as a “Releasee”), of and from all demands, actions, causes of action, suits, covenants, contracts, controversies, agreements, promises, sums of money, accounts, bills, reckonings, damages and any and all other claims, counterclaims, defenses, rights of set-off, demands and liabilities whatsoever of every name and nature, known or unknown, suspected or unsuspected, both at law and in equity, which Borrower and RedHill Parent, or any of their successors, assigns, or other legal representatives may now or hereafter own, hold, have or claim to have against the Releasees or any of them for, upon, or by reason of any circumstance, action, cause or thing whatsoever which arises at any time on or prior to the day and date of this Amendment, including, without limitation, for or on account of, or in relation to, or in any way in connection with the Credit Agreement, or any of the other Loan Documents or transactions thereunder or related thereto. Borrower and RedHill Parent understand, acknowledge and agree that the release set forth above may be pleaded as a full and complete defense and may be used as a basis for an injunction against any action, suit or other proceeding which may be instituted, prosecuted or attempted in breach of the provisions of such release. Borrower and RedHill Parent agree that no fact, event, circumstance, evidence or transaction which could now be asserted or which may hereafter be discovered shall affect in any manner the final, absolute and unconditional nature of the release set forth above. (d) No Reliance. Borrower and RedHill Parent hereby acknowledge and confirm to Agent and the Lenders that the Borrower and RedHill Parent are executing this Amendment on the basis of their own investigation and for their own reasons without reliance upon any agreement, representation, understanding or communication by or on behalf of any other Person. (e) Costs and Expenses. The Borrower agrees to pay to Agent within ten (10) days of its receipt of an invoice, the reasonable out-of-pocket costs and expenses of Agent and the Lenders party hereto, and the reasonable fees and disbursements of counsel to Agent and the Lenders party hereto (including allocated costs of internal counsel), in connection with the negotiation, preparation, execution and delivery of this Amendment and any other documents to be delivered in connection herewith on the Amendment Effective Date or after such date. (f) Binding Effect. This Amendment binds and is for the benefit of the successors and permitted assigns of each party. (g) Governing Law. THIS AMENDMENT AND ANY CLAIMS, CONTROVERSY, DISPUTE OR CAUSE OF ACTION (WHETHER IN CONTRACT OR TORT OR OTHERWISE) BASED UPON, ARISING OUT OF OR RELATING TO THIS AMENDMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. (h) Complete Agreement; Amendments. This Amendment and the Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements with respect to such subject matter. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Amendment and the Loan Documents merge into this Amendment and the Loan Documents. (i) Severability of Provisions. Each provision of this Amendment is severable from every other provision in determining the enforceability of any provision. (j) Counterparts. This Amendment may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, is an original, and all taken together, constitute one Amendment. Delivery of an executed counterpart of a signature page of this Amendment by facsimile, portable document format (.pdf) or other electronic transmission will be as effective as delivery of a manually executed counterpart hereof. (k) Loan Documents. This Amendment and the documents related thereto shall constitute Loan Documents. [Balance of Page Intentionally Left Blank; Signature Pages Follow] IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment, as of the date first above written. BORROWER: REDHILL BIOPHARMA INC. /s/ Micha Ben Chorin By Name: Micha Ben Chorin Title: CFO /s/ Dror Ben Asher By Name: Dror Ben Ashe Title: CEO [Signature Page to First Amendment to Credit Agreement] GUARANTOR: REDHILL BIOPHARMA LTD. /s/ Dror Ben Asher By Name: Dror Ben Ashe Title: CEO /s/ Micha Ben Chorin By Name: Micha Ben Chorin Title: CFO [Signature Page to First Amendment to Credit Agreement] ADMINSTRATIVE AGENT: HCR COLLATERAL MANAGEMENT, LLC /s/ Clarke B. Futch By Name:Clarke B. Futch Title: Managing Partner [Signature Page to First Amendment to Credit Agreement] LENDERS: HCR Stafford Fund, L.P. By HCR Stafford Fund GP, LLC, its general partner /s/ Clarke B. Futch By Name: Clarke B. Futch Title: Managing Partner HCR Molag Fund, L.P. By HCR Molag Fund GP, LLC, its general partner /s/ Clarke B. Futch By Name: Clarke B. Futch Title: Managing Partner HCR Potomac Fund, L.P. By HCR Potomac Fund GP, LLC, its general partner /s/ Clarke B. Futch By Name: Clarke B. Futch Title: Managing Partner HCRP Overflow Fund, L.P. By HCRP Overflow Fund GP, LLC, its general partner /s/ Clarke B. Futch By Name: Clarke B. Futch Title: Managing Partner HealthCare Royalty Partners IV, L.P. By HealthCare Royalty GP IV, LLC, its general partner /s/ Clarke B. Futch By Name: Clarke B. Futch Title: Managing Partner [Signature Page to First Amendment to Credit Agreement] Exhibit 4.16 SECOND AMENDMENT TO CREDIT AGREEMENT THIS SECOND AMENDMENT (this “Amendment”) to the Credit Agreement, dated February 23, 2020 (the “Credit Agreement”), among REDHILL BIOPHARMA INC., a Delaware corporation (the “Borrower”), REDHILL BIOPHARMA LTD., a company incorporated under the laws of the State of Israel, as Guarantor (“Parent”), the Lenders (defined therein), HCR Collateral Management, LLC (“Agent” and together with the Borrower, Parent, the Lenders and Agent, the “Parties”), as Administrative Agent and those additional entities that hereafter become parties hereto in accordance with the terms hereof by executing a Joinder Agreement, is executed as of August 12, 2020 (the “Effective Date”). Capitalized terms not otherwise defined herein have the same meaning as in the Credit Agreement (and all rules governing terminology or interpretation set forth in the Credit Agreement are hereby incorporated by reference). WHEREAS, the Borrower wishes to amend the Credit Agreement to modify the provisions requiring a certain number of salespeople on and after a certain date pursuant to Section 7.21(b) (the “Salespeople Requirement”); WHEREAS, the Borrower wishes to amend the Credit Agreement to permit the Borrower to incur indebtedness under the Paycheck Protection Program administered by the U.S. Small Business Administration and established pursuant to the Coronavirus Aid, Relief, and Economic Security Act, as in effect from time to time (the “PPP Loan”); and WHEREAS, the Lenders previously indicated to the Borrower that the violation of the Salespeople Requirement and the incurrence of the PPP Loan would be permitted, and therefore the Borrower now requests that the Lenders formally waive any and all defaults which may have resulted from the violation of the Salespeople Requirement and the incurrence of the PPP Loan. NOW, THEREFORE, in accordance with and pursuant to Section 11.01 of the Credit Agreement, the Lenders and the Borrower hereby agree as follows: 1. Amendments (a) Section 7.21(b) of the Credit Agreement shall be deleted in its entirety and the following shall be inserted in place thereof: “The Loan Parties shall Exploit or engage in the Exploitation of (i) Talicia and the Talicia Assets in accordance with the plan provided to the Administrative Agent prior to the Closing Date and attached hereto as Exhibit I; provided, that, for the avoidance of doubt, the number of sales representatives exclusively responsible for Talicia, the Acquired Assets and Aemcolo being below (a) 76 sales representatives on or after the Effective Date through September 30, 2020, (b) 100 sales representatives from and after September 30, 2020, and (c) 119 sales representatives from and after January 1, 2021, in each case for 30 consecutive days shall be a failure to perform and observe this Section 7.21, and (ii) the Acquired Assets in accordance with the plan to be provided to the Administrative Agent prior to the Tranche B Funding Date pursuant to Section 5.03(a)(ii).” (b) Section 8.03(i) of the Credit Agreement shall be modified by replacing the period at the end thereof with “; and”. (c) The following shall be inserted immediately after Section 8.01(i) of the Credit Agreement: “(j) unsecured indebtedness in an amount not to exceed $2,500,000 (i) incurred pursuant to the Paycheck Protection Program (the “PPP Indebtedness”) administered by the U.S. Small Business Administration and established pursuant to the Coronavirus Aid, Relief, and Economic Security Act (as in effect from time to time the “CARES Act”), (ii) used exclusively for the purposes set forth in Sections 1102 and 1106(b) of the CARES Act and (iii) provided that the Borrower applies for, and submits all documents required to obtain, forgiveness or other relief of all PPP Indebtedness by all deadlines required by the CARES Act.” (d) Section 8.16 of the Credit Agreement shall be deleted and replaced with the following: “8.16 Liquidity. Permit on any Business Day, aggregate cash and Cash Equivalents of the Loan Parties held in Deposit Accounts and Securities Accounts for which the Administrative Agent shall have received an effective Control Agreement at any time to be less than $16,000,000 (the “Cash Minimum”); provided, however, that in the event of any development in the Aether Litigation that, in the reasonable judgment of the Administrative Agent, could be reasonably likely to have a material negative impact on the creditworthiness of the Company, then the Administrative Agent may increase the Cash Minimum to $20,000,000 upon not less than 30 days prior written notice to the Loan Parties.” 2. Waiver. The Agent and each Lender hereby waive any Default or Event of Default which resulted, or would have resulted, from a failure to meet the Salesperson Requirement or the incurrent of the PPP Loan, provided, that such waiver shall be retroactive, and from and after the -2- date hereof, the Borrower shall be required to comply with the terms and conditions of the Credit Agreement as amended by this Amendment. 3. Representations and Warranties. The Borrower hereby represents and warrants to the Agent and each Lender (before and after giving effect to this Amendment) that: (a) The Borrower has the corporate power and authority, and the legal right, to execute, deliver and perform this Amendment and to obtain extensions of credit under the Credit Agreement as amended by this Amendment (the “Amended Credit Agreement”); (b) The Borrower has taken all necessary corporate action to authorize the execution, delivery and performance of this Amendment; (c) No consent or authorization of, filing with, notice to or other act by, or in respect of, any Governmental Authority or any other Person is required in connection with this Amendment, the extensions of credit under the Amended Credit Agreement or the execution, delivery, performance, validity or enforceability of this Amendment, or the performance, validity or enforceability of the Amended Credit Agreement, except consents, authorizations, filings and notices which have been obtained or made and are in full force and effect; (d) This Amendment has been duly executed and delivered on behalf of the Borrower. This Amendment and the Amended Credit Agreement constitute the legal, valid and binding obligations of the Borrower and the other Loan Parties party thereto and are enforceable against the Borrower and the other Loan Parties party thereto in accordance with their terms except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law); (e) Each of the representations and warranties made by the Borrower herein or in or pursuant to the Loan Documents is true and correct in all material respects on and as of the Effective Date as if made on and as of such date (except that any representation or warranty which by its terms is made as of an earlier date shall be true and correct in all material respects as of such earlier date); (f) No Default or Event of Default has occurred and is continuing, or will result from this Amendment or any extension of credit under the Amended Credit Agreement. 4. Miscellaneous. (a) Loan Documents Otherwise Not Affected; Reaffirmation. Except as expressly amended pursuant hereto or referenced herein, the Credit Agreement and the other Loan Documents shall remain unchanged and in full force and effect and are hereby ratified and confirmed in all respects. The Lenders’ and Agent’s execution and delivery of, or acceptance of, this Amendment shall not be deemed to create a course of dealing or otherwise create any express or implied duty by any of them to provide any other or further amendments, consents or waivers in the future. The Borrower and Parent hereby reaffirms the grant of security under the Collateral -3- Documents and hereby reaffirms that such grant of security in the Collateral secures all Obligations under the Credit Agreement, including without limitation any Loans funded on or after the Effective Date, as of the date hereof. (b) Release. In consideration of the agreements of Agent and each Lender contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and Parent, each on behalf of itself and its successors, assigns, and other legal representatives, hereby fully, absolutely, unconditionally and irrevocably releases, remises and forever discharges Agent and each Lender, and its successors and assigns, and its present and former shareholders, affiliates, subsidiaries, divisions, predecessors, directors, officers, attorneys, employees, agents and other representatives (Agent, Lenders and all such other persons being hereinafter referred to collectively as the “Releasees” and individually as a “Releasee”), of and from all demands, actions, causes of action, suits, covenants, controversies, agreements, promises, sums of money, accounts, bills, reckonings, damages and any and all other claims, counterclaims, defenses, rights of set- off, demands and liabilities whatsoever of every name and nature, known or unknown, suspected or unsuspected, both at law and in equity, which Borrower and Parent, or any of their successors, assigns, or other legal representatives may now own, hold, have or claim to have against the Releasees or any of them for, upon, or by reason of any circumstance, action, cause or thing whatsoever which arises at any time on or prior to the day and date of this Amendment, including, without limitation, for or on account of, or in relation to, or in any way in connection with, the Credit Agreement, or any of the other Loan Documents or transactions thereunder or related thereto. Borrower and Parent understand, acknowledge and agree that the release set forth above may be pleaded as a full and complete defense and may be used as a basis for an injunction against any action, suit or other proceeding which may be instituted, prosecuted or attempted in breach of the provisions of such release. Borrower and Parent agree that no fact, event, circumstance, evidence or transaction which could now be asserted or which may hereafter be discovered shall affect in any manner the final, absolute and unconditional nature of the release set forth above. (c) No Reliance. Borrower and Parent hereby acknowledge and confirm to Agent and the Lenders that the Borrower and Parent are executing this Amendment on the basis of their own investigation and for their own reasons without reliance upon any agreement, representation, understanding or communication by or on behalf of any other Person. (d) Costs and Expenses. The Borrower agrees to pay to Agent within ten (10) days of its receipt of an invoice, the reasonable and documented out-of-pocket costs and expenses of Agent and the Lenders party hereto, and the reasonable fees and disbursements of counsel to Agent and the Lenders party hereto (including allocated costs of internal counsel), in connection with the negotiation, preparation, execution and delivery of this Amendment and any other documents to be delivered in connection herewith on the Effective Date or after such date. (e) permitted assigns of each party. Binding Effect. This Amendment binds and is for the benefit of the successors and (f) Governing Law. THIS AMENDMENT AND ANY CLAIMS, CONTROVERSY, DISPUTE OR CAUSE OF ACTION (WHETHER IN CONTRACT OR -4- TORT OR OTHERWISE) BASED UPON, ARISING OUT OF OR RELATING TO THIS AMENDMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. (g) Complete Agreement; Amendments. This Amendment and the Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements with respect to such subject matter. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Amendment and the Loan Documents merge into this Amendment and the Loan Documents. (h) Severability of Provisions. Each provision of this Amendment is severable from every other provision in determining the enforceability of any provision. (i) Counterparts. This Amendment may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, is an original, and all taken together, constitute one Amendment. Delivery of an executed counterpart of a signature page of this Amendment by facsimile, portable document format (.pdf) or other electronic transmission will be as effective as delivery of a manually executed counterpart hereof. (j) Loan Documents. Loan Documents. This Amendment and the documents related thereto shall constitute [SIGNATURE PAGE FOLLOWS] -5- IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written. BORROWER: REDHILL BIOPHARMA INC. By: /s/ Dror Ben Asher Name: Dror Ben Asher Title: CEO By: /s/ Micha Ben Chorin Name: Micha Ben Chorin Title: CFO GUARANTOR: REDHILL BIOPHARMA.LTD By: /s/ Dror Ben Asher Name: Dror Ben Asher Title: CEO By: /s/ Micha Ben Chorin Name: Micha Ben Chorin Title: CFO AGENT: HCR Collateral Management, LLC. By: /s/Paul J. Haden Name: Paul J. Haden Title: Authorized Signatory [Signature Page to Consent] Lenders: HCR Stafford Fund, L.P. By: HCR Stafford Fund GP, LLC, its general partner By: /s/Paul J. Haden Name: Paul J. Haden Title: Authorized Signatory HCR Stafford Fund, L.P. By: HCR Stafford Fund GP, LLC, its general partner By: /s/Paul J. Haden Name: Paul J. Haden Title: Authorized Signatory HCR Molag Fund, L.P. By: HCR Molag Fund GP, LLC, its general partner By: /s/Paul J. Haden Name: Paul J. Haden Title: Authorized Signatory HCR Overflow Fund, L.P. By: HCR Overflow Fund GP, LLC, its general partner By: /s/Paul J. Haden Name: Paul J. Haden Title: Authorized Signatory HealthCare Royalty Partners IV, L.P. By: HealthCare Royalty Partners IV, LLC, its general partner By: /s/Paul J. Haden Name: Paul J. Haden Title: Authorized Signatory HCR Stafford Fund, L.P. By: HCR Stafford Fund GP, LLC, its general partner By: /s/Paul J. Haden Name: Paul J. Haden Title: Authorized Signatory Exhibit 4.17 THIRD AMENDMENT TO CREDIT AGREEMENT THIS THIRD AMENDMENT (this “Amendment”) to the Credit Agreement, dated February 23, 2020 (the “Credit Agreement”), among REDHILL BIOPHARMA INC., a Delaware corporation (the “Borrower”), REDHILL BIOPHARMA LTD., a company incorporated under the laws of the State of Israel, as Guarantor (“Parent”), the Lenders (defined therein), HCR Collateral Management, LLC (“Agent” and together with the Borrower, Parent, the Lenders and Agent, the “Parties”), as Administrative Agent and those additional entities that hereafter become parties hereto in accordance with the terms hereof by executing a Joinder Agreement, is executed as of January 28, 2021 (the “Effective Date”). Capitalized terms not otherwise defined herein have the same meaning as in the Credit Agreement (and all rules governing terminology or interpretation set forth in the Credit Agreement are hereby incorporated by reference). WHEREAS, the Borrower wishes to amend the Credit Agreement to modify the provisions requiring a certain number of salespeople on and after a certain date pursuant to Section 7.21(b) (the “Salespeople Requirement”).and NOW, THEREFORE, in accordance with and pursuant to Section 11.01 of the Credit Agreement, the Lenders and the Borrower hereby agree as follows: 1. Amendments (a) Section 7.21(b) of the Credit Agreement shall be deleted in its entirety and the following shall be inserted in place thereof: “The Loan Parties shall Exploit or engage in the Exploitation of (i) Talicia and the Talicia Assets in accordance with the plan provided to the Administrative Agent prior to the Closing Date and attached hereto as Exhibit I; provided, that, for the avoidance of doubt, the number of sales representatives exclusively responsible for Talicia, the Acquired Assets and Aemcolo being below (a) 76 sales representatives on or after the Effective Date through September 30, 2020, (b) 100 sales representatives from and after September 30, 2020, and (c) 119 sales representatives from and after July 1, 2021, in each case for 30 consecutive days shall be a failure to perform and observe this Section 7.21, and (ii) the Acquired Assets in accordance with the plan to be provided to the Administrative Agent prior to the Tranche B Funding Date pursuant to Section 5.03(a)(ii).” 2. Waiver. The Agent and each Lender hereby waive any Default or Event of Default which resulted, or would have resulted, from a failure to meet the Salesperson Requirement, provided, that such waiver shall be retroactive, and from and after the date hereof, the Borrower shall be required to comply with the terms and conditions of the Credit Agreement as amended by this Amendment. 3. Representations and Warranties. The Borrower hereby represents and warrants to the Agent and each Lender (before and after giving effect to this Amendment) that: (a) The Borrower has the corporate power and authority, and the legal right, to execute, deliver and perform this Amendment and to obtain extensions of credit under the Credit Agreement as amended by this Amendment (the “Amended Credit Agreement”); (b) The Borrower has taken all necessary corporate action to authorize the execution, delivery and performance of this Amendment; (c) No consent or authorization of, filing with, notice to or other act by, or in respect of, any Governmental Authority or any other Person is required in connection with this Amendment, the extensions of credit under the Amended Credit Agreement or the execution, delivery, performance, validity or enforceability of this Amendment, or the performance, validity or enforceability of the Amended Credit Agreement, except consents, authorizations, filings and notices which have been obtained or made and are in full force and effect; (d) This Amendment has been duly executed and delivered on behalf of the Borrower. This Amendment and the Amended Credit Agreement constitute the legal, valid and binding obligations of the Borrower and the other Loan Parties party thereto and are enforceable against the Borrower and the other Loan Parties party thereto in accordance with their terms except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law); (e) Each of the representations and warranties made by the Borrower herein or in or pursuant to the Loan Documents is true and correct in all material respects on and as of the Effective Date as if made on and as of such date (except that any representation or warranty which by its terms is made as of an earlier date shall be true and correct in all material respects as of such earlier date); (f) No Default or Event of Default has occurred and is continuing, or will result from this Amendment or any extension of credit under the Amended Credit Agreement. 4. Miscellaneous. (a) Loan Documents Otherwise Not Affected; Reaffirmation. Except as expressly amended pursuant hereto or referenced herein, the Credit Agreement and the other Loan -2- Documents shall remain unchanged and in full force and effect and are hereby ratified and confirmed in all respects. The Lenders’ and Agent’s execution and delivery of, or acceptance of, this Amendment shall not be deemed to create a course of dealing or otherwise create any express or implied duty by any of them to provide any other or further amendments, consents or waivers in the future. The Borrower and Parent hereby reaffirms the grant of security under the Collateral Documents and hereby reaffirms that such grant of security in the Collateral secures all Obligations under the Credit Agreement, including without limitation any Loans funded on or after the Effective Date, as of the date hereof. (b) Release. In consideration of the agreements of Agent and each Lender contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and Parent, each on behalf of itself and its successors, assigns, and other legal representatives, hereby fully, absolutely, unconditionally and irrevocably releases, remises and forever discharges Agent and each Lender, and its successors and assigns, and its present and former shareholders, affiliates, subsidiaries, divisions, predecessors, directors, officers, attorneys, employees, agents and other representatives (Agent, Lenders and all such other persons being hereinafter referred to collectively as the “Releasees” and individually as a “Releasee”), of and from all demands, actions, causes of action, suits, covenants, controversies, agreements, promises, sums of money, accounts, bills, reckonings, damages and any and all other claims, counterclaims, defenses, rights of set- off, demands and liabilities whatsoever of every name and nature, known or unknown, suspected or unsuspected, both at law and in equity, which Borrower and Parent, or any of their successors, assigns, or other legal representatives may now own, hold, have or claim to have against the Releasees or any of them for, upon, or by reason of any circumstance, action, cause or thing whatsoever which arises at any time on or prior to the day and date of this Amendment, including, without limitation, for or on account of, or in relation to, or in any way in connection with, the Credit Agreement, or any of the other Loan Documents or transactions thereunder or related thereto. Borrower and Parent understand, acknowledge and agree that the release set forth above may be pleaded as a full and complete defense and may be used as a basis for an injunction against any action, suit or other proceeding which may be instituted, prosecuted or attempted in breach of the provisions of such release. Borrower and Parent agree that no fact, event, circumstance, evidence or transaction which could now be asserted or which may hereafter be discovered shall affect in any manner the final, absolute and unconditional nature of the release set forth above. (c) No Reliance. Borrower and Parent hereby acknowledge and confirm to Agent and the Lenders that the Borrower and Parent are executing this Amendment on the basis of their own investigation and for their own reasons without reliance upon any agreement, representation, understanding or communication by or on behalf of any other Person. (d) Costs and Expenses. The Borrower agrees to pay to Agent within ten (10) days of its receipt of an invoice, the reasonable and documented out-of-pocket costs and expenses of Agent and the Lenders party hereto, and the reasonable fees and disbursements of counsel to Agent and the Lenders party hereto (including allocated costs of internal counsel), in connection with the negotiation, preparation, execution and delivery of this Amendment and any other documents to be delivered in connection herewith on the Effective Date or after such date. -3- (e) Binding Effect. This Amendment binds and is for the benefit of the successors and permitted assigns of each party. (f) Governing Law. THIS AMENDMENT AND ANY CLAIMS, CONTROVERSY, DISPUTE OR CAUSE OF ACTION (WHETHER IN CONTRACT OR TORT OR OTHERWISE) BASED UPON, ARISING OUT OF OR RELATING TO THIS AMENDMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. (g) Complete Agreement; Amendments. This Amendment and the Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements with respect to such subject matter. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Amendment and the Loan Documents merge into this Amendment and the Loan Documents. (h) Severability of Provisions. Each provision of this Amendment is severable from every other provision in determining the enforceability of any provision. (i) Counterparts. This Amendment may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, is an original, and all taken together, constitute one Amendment. Delivery of an executed counterpart of a signature page of this Amendment by facsimile, portable document format (.pdf) or other electronic transmission will be as effective as delivery of a manually executed counterpart hereof. (j) Loan Documents. This Amendment and the documents related thereto shall constitute Loan Documents. [SIGNATURE PAGE FOLLOWS] -4- IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written. BORROWER: REDHILL BIOPHARMA INC. By:/s/ Dror Ben Asher Name: Dror Ben Asher Title: CEO GUARANTOR: REDHILL BIOPHARMA INC. By:/s/ Dror Ben Asher Name: Dror Ben Asher Title: CEO AGENT: HCR Collateral Management, LLC. By:/s/ Paul J. Haden Name: Paul J. Haden Title: Authorized Signatory Lenders: HCR Stafford Fund, L.P. By: HCR Stafford Fund GP, LLC, its general partner By:/s/ Paul J. Haden Name: Paul J. Haden Title: Authorized Signatory [Signature Page to Consent] HCR Stafford Fund, L.P. By: HCR Stafford Fund GP, LLC, its general partner By:/s/ Paul J. Haden Name: Paul J. Haden Title: Authorized Signatory HCR Molag Fund, L.P. By: HCR Molag Fund GP, LLC, its general partner By:/s/ Paul J. Haden Name: Paul J. Haden Title: Authorized Signatory HCR Overflow Fund, L.P. By: HCR Overflow Fund GP, LLC, its general partner By:/s/ Paul J. Haden Name: Paul J. Haden Title: Authorized Signatory HealthCare Royalty Partners IV, L.P. By: HealthCare Royalty Partners IV, LLC, its general partner By:/s/ Paul J. Haden Name: Paul J. Haden Title: Authorized Signatory HCR Stafford Fund, L.P. By: HCR Stafford Fund GP, LLC, its general partner By:/s/ Paul J. Haden Name: Paul J. Haden Title: Authorized Signatory Exhibit 4.21 CERTAIN IDENTIFIED INFORMATION MARKED [***] HAS BEEN EXCLUDED FROM THE EXHIBIT BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO THE COMPANY IF PUBLICLY DISCLOSED. Amendment No. 1 to License Agreement This Amendment No. 1 to the License Agreement, dated as of March 31, 2020 (this “Amendment”), is made by and between AstraZeneca AB (“AstraZeneca”) and RedHill Biopharma Inc. (“Licensee”), each individually a “Party” and collectively, the “Parties”. WHEREAS, AstraZeneca and Licensee are parties to that certain License Agreement dated as of February 23, 2020 (the “License Agreement”). Capitalized terms used and not defined herein shall have the meanings assigned to such terms in the License Agreement. WHEREAS, the Parties desire to amend and clarify certain provisions of the License Agreement. NOW, THEREFORE, in consideration of the premises and the mutual promises and conditions set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, do hereby agree as follows: 1 Amendments: 1.1 The first sentence of Section 9.1 of the License Agreement shall be amended and restated in its entirety as set forth below: “In consideration of the rights granted by AstraZeneca to Licensee hereunder and subject to Section 17.2, Licensee shall pay AstraZeneca (a) on the date that is the earlier of (i) [***], provided that the Approval Date shall have occurred prior to such date and (ii) [***] following the Approval Date, a non-refundable and non-creditable upfront amount equal to Fifty-two million five hundred thousand Dollars (US$52,500,000) and (b) not later than [***]after the Effective Date, a nonrefundable and non-creditable upfront amount equal to Fifteen Million Dollars (US$15,000,000).” 1.2 The second paragraph of Section 17.2 of the License Agreement shall be amended and restated in its entirety as set forth below: “If Licensee has not made the fifty-two million five hundred thousand Dollars (US$52,500,000) payment described in Section 9.1(a) on the date that is the earlier of (i) [***], provided that the Approval Date shall have occurred on or prior to [***] and (i) [***] following the Approval Date, AstraZeneca shall have the right to terminate this Agreement immediately upon notice to [***] and upon receipt of such notice by [***], this Agreement shall be null and void and have no further force and effect.” 1.3 Section 7.5.2(b) of the License Agreement shall be deleted to remove the language [***] and replace it with the following: [***]. 1.4 New Section 13.6 is hereby added to the License Agreement to read as follows: “13.6 Preservation of Remedies The representations and warranties of AstraZeneca, and Licensee’s right to any remedy with respect thereto or under Article 16 hereof, shall not be affected or deemed waived: (i) by reason of any investigation made by or on behalf of Licensee after the Execution Date; (ii) by reason of the fact that Licensee knew or should have known at any time after the Execution Date, whether before or after the Effective Date, that any representation or warranty is, was or might be inaccurate; or (iii) by reason of [***], as the case may be, in each case, in connection with (x) any claim, demand, or other allegation arising from or relating to, [***][***], [***], or any of their respective Affiliates, directors, officers, employees or agents, or (y) any breach of or default under the License Agreement or the Nektar Agreement in connection therewith. For the avoidance of doubt, Licensee does not presently take a position on whether any [***]or that any of the conditions set forth in Section 17.2 will not be satisfied on the Effective Date.” 2 Effect of this Amendment: This Amendment and all modifications to the License Agreement herein shall be effective from and as of the date hereof. From and as of the date hereof each reference to the License Agreement shall be deemed to be a reference to the License Agreement as amended by this Amendment. Except as expressly set forth in the foregoing provisions of this Amendment, neither this Amendment nor the consummation of the transactions contemplated by the License Agreement shall, by implication or otherwise, limit, impair, constitute a waiver of, or otherwise affect the rights and remedies of the parties to the License Agreement, and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the License Agreement. 3 Miscellaneous: 3.1 This Amendment and the terms hereof are subject to the confidentiality provisions set forth in Section 12 of the License Agreement. 3.2 All disputes arising under this Amendment shall be resolved in accordance with Section 18.5 of the License Agreement. 3.3 Sections 18.4, 18.6, 18.7, 18.9.2, 18.17, 18.18 and 18.19 of the License Agreement are hereby incorporated by reference, mutatis mutandis. [Signature Page Follows] IN WITNESS WHEREOF, the Parties have duly executed this Amendment as of the date first set forth above. ASTRAZENECA AB /s/ [***] By: Name: [***] [***] Title: [Signature Page – Amendment No. 1 to License Agreement] REDHILL BIOPHARMA INC. /s/ [***] By: Name: [***] [***] Title: [Signature Page – Amendment No. 1 to License Agreement] Exhibit 4.22 CERTAIN IDENTIFIED INFORMATION MARKED [***] HAS BEEN EXCLUDED FROM THE EXHIBIT BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO THE COMPANY IF PUBLICLY DISCLOSED. Amendment No. 2 to License Agreement This Amendment No. 2 to the License Agreement, dated as of July 14, 2020 (this “Amendment”), is made by and between AstraZeneca AB (“AstraZeneca”) and RedHill Biopharma Inc. (“Licensee”), each individually a “Party” and collectively, the “Parties”. WHEREAS, AstraZeneca and Licensee are parties to that certain License Agreement dated as of February 23, 2020, as amended (the “License Agreement”). Capitalized terms used and not defined herein shall have the meanings assigned to such terms in the License Agreement. WHEREAS, the Parties desire to amend and clarify certain provisions of the License Agreement. NOW, THEREFORE, in consideration of the premises and the mutual promises and conditions set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, do hereby agree as follows: 1 Amendments: 1.1 The first sentence of Section 9.1 of the License Agreement shall be amended and restated in its entirety as set forth below: “In consideration of the rights granted by AstraZeneca to Licensee hereunder and subject to Section 17.2, Licensee shall pay AstraZeneca (a) on the date that is the earlier of (i) [***] provided that the Approval Date shall have occurred prior to such date and (ii) [***] following the Approval Date, a non-refundable and non-creditable upfront amount equal to Fifty-two million five hundred thousand Dollars (US$52,500,000) and (b) not later than [***], a nonrefundable and non-creditable upfront amount equal to Fifteen Million Five Hundred Dollars (US$15,500,000).” 1.2 2 For the avoidance of doubt, the Parties acknowledge and agree that the amounts due to AstraZeneca under clause (a) of Section 9.1 have been paid in full and only those payments set forth in clause (b) of such Section 9.1 remain outstanding. Effect of this Amendment: This Amendment and all modifications to the License Agreement herein shall be effective from and as of the date hereof. From and as of the date hereof each reference to the License Agreement shall be deemed to be a reference to the License Agreement as amended by this Amendment. Except as expressly set forth in the foregoing provisions of this Amendment, neither this Amendment nor the consummation of the transactions contemplated by the License Agreement shall, by implication or otherwise, limit, impair, constitute a waiver of, or otherwise affect the rights and remedies of the parties to the License Agreement, and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the License Agreement. 3 Miscellaneous: 3.1 This Amendment and the terms hereof are subject to the confidentiality provisions set forth in Section 12 of the License Agreement. 3.2 All disputes arising under this Amendment shall be resolved in accordance with Section 18.5 of the License Agreement. 3.3 Sections 18.4, 18.6, 18.7, 18.9.2, 18.17, 18.18 and 18.19 of the License Agreement are hereby incorporated by reference, mutatis mutandis. [Signature Page Follows] IN WITNESS WHEREOF, the Parties have duly executed this Amendment as of the date first set forth above. ASTRAZENECA AB By: Name: Title: /s/ [***] [***] [***] [Signature Page - Amendment No. 2 to License Agreement] REDHILL BIOPHARMA INC. By: Name: Title: /s/ [***] [***] [***] [Signature Page - Amendment No. 2 to License Agreement] Exhibit 4.23 CERTAIN IDENTIFIED INFORMATION MARKED [***] HAS BEEN EXCLUDED FROM THE EXHIBIT BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO THE COMPANY IF PUBLICLY DISCLOSED. Amendment No. 3 to License Agreement This Amendment No. 3 to the License Agreement, dated as of October 6, 2020 (this “Amendment”), is made by and between AstraZeneca AB (“AstraZeneca”) and RedHill Biopharma Inc. (“Licensee”), each individually a “Party” and collectively, the “Parties”. WHEREAS, AstraZeneca and Licensee are parties to that certain License Agreement dated as of February 23, 2020, as amended (the “License Agreement”). Capitalized terms used and not defined herein shall have the meanings assigned to such terms in the License Agreement. WHEREAS, the Parties desire to amend certain provisions of the License Agreement. NOW, THEREFORE, in consideration of the premises and the mutual promises and conditions set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, do hereby agree as follows: 1 Amendments: 1.1 Article 1 of the License Agreement is hereby amended by deleting “Israel (including the Palestinian Authority),” from the definition of a “AstraZeneca Territory.” 1.2 For clarity, and without limiting Licensee’s rights and remedies under Article 16 of the License Agreement, Licensee does not assume any Losses in connection with Third Party Claims from the Exploitation of the Licensed Product in Israel (including the Palestinian Authority) by AstraZeneca, or any of its Affiliates, sublicensees, Partners and/or Distributors, as applicable. Nothing in this Amendment shall modify the obligation of AstraZeneca to indemnify Licensee and Licensee to indemnify AstraZeneca in accordance with Article 16 of the License Agreement. 1.3 Notwithstanding the provisions of Section 6.1 of the License Agreement or any other provisions of the License Agreement, Licensee shall be under no obligation to engage in the Commercialization and/or Exploitation of the Licensed Product in Israel (including the Palestinian Authority) if Licensee, acting reasonably, determines that the Commercialization and/or Exploitation of the Licensed Product in Israel (including the Palestinian Authority) would be unprofitable or otherwise not business-viable. 2 Effect of this Amendment. This Amendment and all modifications to the License Agreement herein shall be effective from and as of the date hereof. From and as of the date hereof each reference to the License Agreement shall be deemed to be a reference to the License Agreement as amended by this Amendment. Except as expressly set forth in the foregoing provisions of this Amendment, neither this Amendment nor the consummation of the transactions contemplated by the License Agreement shall, by implication or otherwise, limit, impair, constitute a waiver of, or otherwise affect the rights and remedies of the parties to the License Agreement, and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the License Agreement. 3 Miscellaneous: 3.1 This Amendment and the terms hereof are subject to the confidentiality provisions set forth in Section 12 of the License Agreement. 3.2 All disputes arising under this Amendment shall be resolved in accordance with Section 18.5 of the License Agreement. 3.3 Sections 18.4, 18.6, 18.7, 18.9.2, 18.17, 18.18 and 18.19 of the License Agreement are hereby incorporated by reference, mutatis mutandis. [Signature Page Follows] IN WITNESS WHEREOF, the Parties have duly executed this Amendment as of the date first set forth above. ASTRAZENECA AB By: /s/ [***] Name:[***] Title: [***] [Signature Page - Amendment No. 3 to License Agreement] /s/ [***] REDHILL BIOPHARMA INC. By: Name:[***] Title: [***] [Signature Page - Amendment No. 3 to License Agreement] Exhibit 4.24 CERTAIN IDENTIFIED INFORMATION MARKED [***] HAS BEEN EXCLUDED FROM THE EXHIBIT BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO THE COMPANY IF PUBLICLY DISCLOSED. Amendment No. 4 to License Agreement This Amendment No. 4 to the License Agreement, dated as of March 11th, 2021 (this “Amendment”), is made by and between AstraZeneca AB (“AstraZeneca”) and RedHill Biopharma Inc. (“Licensee”), each individually a “Party” and collectively, the “Parties”. WHEREAS, AstraZeneca and Licensee are parties to that certain License Agreement dated as of February 23, 2020, as amended (as amended, the “License Agreement”). Capitalized terms used and not defined herein shall have the meanings assigned to such terms in the License Agreement. WHEREAS, the Parties desire to amend certain provisions of the License Agreement. NOW, THEREFORE, in consideration of the premises and the mutual promises and conditions set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, do hereby agree as follows: 1 Amendments. The first sentence of Section 9.1 of the License Agreement shall be amended and restated in its entirety as set forth below: “In consideration of the rights granted by AstraZeneca to Licensee hereunder and subject to Section 17.2, (a) Licensee previously paid to AstraZeneca a non-refundable and non-creditable upfront amount equal to Fifty- two million five hundred thousand Dollars (US$52,500,000) and (b) will pay the following additional non- refundable and non-creditable payments to Astra Zeneca: (1) [***] Dollars (US$[***]) [***], (2) [***] installments of [***]Dollars (US$[***]) due and payable on the first Business Day of each calendar month commencing on [***], (3) [***] installments of [***]Dollars (US$[***]) due on each of [***] (4) [***] installments of [***] Dollars (US$[***]) due on each of [***] and (5) [***] installments of [***]Dollars (US$[***]) due and payable on the first Business Day of each calendar month commencing [***] and ending on December 1, 2022.” 2 Effect of this Amendment. This Amendment and all modifications to the License Agreement herein shall be effective from and as of the date hereof. From and as of the date hereof each reference to the License Agreement shall be deemed to be a reference to the License Agreement as amended by this Amendment. Except as expressly set forth in the foregoing provisions of this Amendment, neither this Amendment nor the consummation of the transactions contemplated by the License Agreement shall, by implication or otherwise, limit, impair, constitute a waiver of, or otherwise affect the rights and remedies of the parties to the License Agreement, and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the License Agreement. 3 Miscellaneous: CONFIDENTIAL 1 3.1 This Amendment and the terms hereof are subject to the confidentiality provisions set forth in Section 12 of the License Agreement. 3.2 All disputes arising under this Amendment shall be resolved in accordance with Section 18.5 of the License Agreement. 3.3 Sections 18.4, 18.6, 18.7, 18.9.2, 18.17, 18.18 and 18.19 of the License Agreement are hereby incorporated by reference, mutatis mutandis. [Signature Page Follows] CONFIDENTIAL 2 IN WITNESS WHEREOF, the Parties have duly executed this Amendment as of the date first set forth above. ASTRAZENECA AB By: /s/ [***] Name: [***] Title: [***] [Signature Page - Amendment No. 4 to License Agreement] CONFIDENTIAL 3 /s/ [***] REDHILL BIOPHARMA INC. By: Name: [***] Title: [***] [Signature Page - Amendment No. 4 to License Agreement] CONFIDENTIAL 4 Exhibit 4.26 EXECUTION VERSION CERTAIN IDENTIFIED INFORMATION MARKED [***] HAS BEEN EXCLUDED FROM THE EXHIBIT BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO THE COMPANY IF PUBLICLY DISCLOSED. TERMINATION AGREEMENT This Termination Agreement (this “Termination Agreement”) is made and entered into on August 3, 2020 but effective as of July 1, 2020 (the “Termination Effective Date”) by and between REDHILL BIOPHARMA, INC., a company organized under the laws of the state of Delaware (“RedHill”), and DAIICHI SANKYO, INC., a company organized under the laws of the state of Delaware (“Daiichi Sankyo”). Each of RedHill and Daiichi Sankyo is referred to individually as a “Party” and collectively as the “Parties.” Reference is made to that certain Co-Commercialization Agreement by and between Daiichi Sankyo and AstraZeneca UK Limited (“AstraZeneca”), dated as of March 18, 2015, as amended as of March 18, 2015, January 1, 2017, October 1, 2018, January 1, 2019, and August 7, 2019 (as amended, the “Co- Commercialization Agreement”), which AstraZeneca assigned in its entirety to RedHill on March 31, 2020 (the “RedHill Acquisition Date”). Capitalized terms used in this Termination Agreement without definition shall have the meanings ascribed to them in the Co-Commercialization Agreement. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements set forth below, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties hereby agree as follows: 1. ASSUMPTION AND TERMINATION 1.1 Assumption of Co-Commercialization Agreement. RedHill acknowledges, agrees, and certifies to Daiichi Sankyo that effective as of the RedHill Acquisition Date, RedHill accepts and assumes all liabilities and responsibilities of AstraZeneca under the Co-Commercialization Agreement arising from and after the RedHill Acquisition Date. 1.2 Termination of Co-Commercialization Agreement. Effective upon the Termination Effective Date, the Parties hereby terminate the Co-Commercialization Agreement and all rights and obligations thereunder. As of the Termination Effective Date, each Party’s obligations to the other Party under the Co-Commercialization Agreement are forever waived, satisfied and extinguished, and neither Party shall have any further obligation or liability to each other under the Co-Commercialization Agreement; provided, that the obligations of the Parties under the provisions identified as surviving expiration or termination in Section 17.4 of the Co- Commercialization Agreement shall remain in full force and effect; provided, further, that subject to the next sentence, neither Party waives or deems satisfied or extinguished any right to indemnification for Third Party Claims (as defined in the Co-Commercialization Agreement) to which such Party would be entitled to indemnification under the Co-Commercialization Agreement arising from or relating to obligations of the other Party (or the breach or non-performance thereof) under the Co-Commercialization Agreement. Notwithstanding the foregoing or the terms of Section 17.4 of the Co-Commercialization Agreement, the Parties agree 1 and acknowledge that Sections 16.1, 16.2 and 16.3 of the Co-Commercialization Agreement will survive the Termination Effective Date only to the extent that they relate to Losses (as defined in the Co-Commercialization Agreement) or Third Party Claims that arise from Exploitation of the Product prior to the Termination Effective Date. 2. RESPONSIBILITIES AND CERTAIN COVENANTS EXECUTION VERSION 2.1 Activities with Respect to Movantik. Effective upon the Termination Effective Date, Daiichi Sankyo will not be in any Commercialization, Medical Affairs Activities, or other activities related to Movantik® (“Movantik”) or any other RedHill Product, nor provide any reports or payments in connection therewith. Effective upon the Termination Effective Date, RedHill will: the Co-Commercialization Agreement required under to participate (i) be solely responsible, at its own cost and expense, for the Exploitation of Movantik and other RedHill Products in the United States, including, without limitation, Commercialization and Medical Affairs Activities in connection therewith; (ii) use Commercially Reasonable Efforts to Commercialize RedHill Products and maximize Net Sales thereof; and (iii) remove Daiichi Sankyo’s name and/or logo from any RedHill Product Promotional Materials and/or any RedHill Product Labels and Inserts. Within) [***] days after the end of each Calendar Quarter, RedHill will provide to Daiichi Sankyo a written report, which shall (x) specify in reasonable detail the Commercialization activities conducted by RedHill with respect to RedHill Products during such Calendar Quarter and (y) provide in reasonable detail a calculation of Net Sales for the applicable Calendar Quarter, including the line item deductions described in Section 3.1 to this Termination Agreement. For the avoidance of doubt, the portions of such written report regarding RedHill’s Commercialization activities shall be in such format and contain such level of detail as RedHill ordinarily produces in the ordinary course of its business and shall not be required to be in any specific format or contain any specific level of detail so long as such reports would reasonably permit Daiichi Sankyo to monitor RedHill’s compliance with this Termination Agreement. 2.2 Certain Definitions. Unless otherwise indicated, the following terms, when used herein, shall have the following meanings: 2.2.1 “Calendar Quarter” means each successive period of three calendar months commencing on January 1, April 1, July 1 and October 1; provided, however, that the first Calendar Quarter of the Term shall commence on the Termination Effective Date and end on the day immediately prior to the first to occur of January 1, April 1, July 1 or October 1 after the Termination Effective Date, and the last Calendar Quarter of the Term shall end on the last day of the Term. 2.2.2 “Commercialization” means any and all activities directed to the 2 EXECUTION VERSION Marketing and Promotion of a RedHill Product for commercial sale, and shall include Marketing, Promoting, advisory boards, speakers bureau programs, patient assistance, indigent care and other financial assistance programs, marketing research, the offering to commercially sell and commercially distributing and selling the RedHill Product, and such other activities as may be mutually agreed upon by the Parties. When used as a verb, “Commercializing” means to engage in Commercialization and “Commercialize” and “Commercialized” have corresponding meanings. 2.2.3 “Commercially Reasonable Efforts” means, with regard to the Commercialization of a RedHill Product, conducting the relevant tasks using such reasonable efforts and resources as would typically be expended by a similarly situated pharmaceutical company in conducting the tasks with regard to its own compounds and similar products with similar commercial and scientific potential at a similar stage in their lifecycle in a similar therapeutic area. 2.2.4 “Detail” means a sales call during which a sales representative makes a presentation with respect to a RedHill Product to an eligible prescriber of the RedHill Product. 2.2.5 “Exploit” means to make, have made, import, use, sell or offer for sale, including to research, develop, Commercialize, register, hold or keep (whether for disposal or otherwise), have used, export, transport, distribute, Promote, market or have sold or otherwise dispose of a product or a process, and “Exploitation” means the act of Exploiting a product or process. 2.2.6 “Marketing” means, with respect to a RedHill Product, advertising, public relations, including market research, development and distribution of selling, advertising and promotional materials, field literature, direct or indirect advertising or educational campaigns, media/journal advertising, and exhibiting at seminars and conventions. 2.2.7 “Medical Affairs Activities” means medical grants, externally sourced research, medical education programs, activities of medical science liaisons, and medical affairs department activities with respect to a RedHill Product. 2.2.8 “Promotion” means the conduct of activities ordinarily undertaken by a pharmaceutical company’s field sales representatives aimed at encouraging the approved use of a pharmaceutical product. When used as a verb, “Promote” means to engage in any of the foregoing activities. 2.2.9 “RedHill Affiliate” means (for clarity, as of the Termination Effective Date or during the Term) any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common 3 EXECUTION VERSION control with RedHill. “Control” as used in this definition, and, with correlative meanings, the terms “controlled by” and “under common control with”, means the power to direct and control the management or policies of the applicable Person, whether through ownership of voting securities or by contract relating to voting rights or corporate governance, resolution, regulation or otherwise. 2.2.10 “RedHill Product” means Movantik and any other product under development or developed by AstraZeneca or its Affiliates for the United States prior to the RedHill Acquisition Date or any product under development or developed by RedHill or any RedHill Affiliate, which product includes the Compound as its sole active ingredient. 2.2.11 “RedHill Product Labels and Inserts” means (a) any display of written, printed or graphic matter upon the immediate container, outside container, wrapper or other packaging of a RedHill Product and (b) any written, printed or graphic material on or within the package from which a RedHill Product is to be dispensed. 2.2.12 “RedHill Product Promotional Materials” means all written, printed, electronic or graphic material, other than RedHill Product Labels and Inserts, provided by RedHill for use in Marketing of a RedHill Product. 2.3 No Recruitment. For a period of [***] months following the execution of this Termination Agreement, neither Party nor its Affiliates (or, in the case of RedHill, the RedHill Affiliates) shall actively recruit, solicit, or attempt to solicit or hire away any employee or personnel of the other Party who has been directly involved with the conduct of activities in connection with this Termination Agreement and/or the Co- Commercialization Agreement without the prior written consent of the other Party; provided, that notwithstanding the foregoing, each Party and its Affiliates (or, in the case of RedHill, the RedHill Affiliates) shall be permitted to engage in general recruitment through advertisements or recruiting through head-hunters so long as employees and personnel of the other Party are not specifically targeted. 2.4 Settlement of Commercialization Expenses. Within [***] days after the Termination Effective Date, Daiichi Sankyo shall pay, or cause to be paid, to RedHill [***], in full satisfaction of Daiichi Sankyo’s obligations with respect to Commercialization Costs for the second Calendar Quarter of 2020 (the “Commercialization Cost True-Up Payment”). Subject to such payment of the Commercialization Cost True-Up Payment, RedHill (a) acknowledges and agrees that Daiichi Sankyo has satisfied all of its obligations with respect to Commercialization Costs pursuant to the Co-Commercialization Agreement, and will not seek or demand payment of, or reduce or offset any payment by RedHill on account of, any Commercialization Costs, and (b) forever releases and waives any and all claims, whether now existing or arising in the future, against Daiichi Sankyo or its Affiliates, successors or assigns with respect to the payment of any past, present, or future Commercialization Costs pursuant to the Co-Commercialization Agreement. 4 EXECUTION VERSION 3. CONSIDERATION 3.1 Royalties. During the Term, RedHill shall pay to Daiichi Sankyo a royalty of [***] of Net Sales of any RedHill Product in the United States. “Net Sales” means the gross invoiced amount on sales of the RedHill Product by RedHill, RedHill Affiliates and licensees to Third Parties (including branded and authorized generic distributors) in the United States, less the following deductions to the extent actually incurred or allowed (under internal audited systems of RedHill or the applicable RedHill Affiliate or licensee in accordance with International Financial Reporting Standards and the accrual method of accounting, consistently applied) with respect to such sales: 3.1.1 normal and customary trade, quantity or prompt settlement discounts off of the invoice amounts actually allowed; 3.1.2 amounts repaid or credited by reason of rejection, returns or recalls of goods, rebates or bona fide price reductions to trade customers, distributors and pharmaceutical benefit managers, group purchasing organizations and other managed care organizations based upon purchase or utilization of the RedHill Product, as determined by RedHill, RedHill Affiliates or RedHill’s licensees in good faith and consistent with its customary practices; 3.1.3 rebates and similar payments made with respect to sales paid for by any governmental or regulatory authority such as, by way of illustration and not in limitation of the Parties’ rights hereunder, federal or state Medicaid, Medicare or similar state program in the United States; 3.1.4 any invoiced amounts which are not collected, including bad debts, and are actually written off by RedHill or RedHill Affiliates or RedHill’s licensees (but provided that if any such amounts are subsequently collected, such collected amounts shall be included in Net Sales in the Calendar Quarter collected); 3.1.5 sales taxes, use taxes, excise taxes, and other governmental taxes imposed on the sale, importation, use or distribution of the RedHill Product, to the extent included and separately stated in the invoice, including fees paid pursuant to Section 9008 of the Patient Protection and Affordable Care Act (where RedHill shall allocate a reasonable amount of such fees to the RedHill Product in a manner consistent with its method of allocating such fees across its other pharmaceutical products, consistently over time, provided that the allocation of such fees to the RedHill Product shall not exceed a pro rata allocation reflecting the percentage of sales (on a revenue basis) of RedHill Products under this Termination Agreement relative to the aggregate sales (on a revenue basis) of products on which the fees owed are based); 3.1.6 any other similar and customary amounts payable to patients (e.g., 5 EXECUTION VERSION currently, co-pay cards) directly related to the prescribing of the Product that are consistent with international accounting standards and the actual practice of RedHill, RedHill Affiliates or RedHill’s licensees at the time in calculating and reporting its actual product net sales throughout its businesses (in the particular country, if applicable), provided that no item shall be deducted pursuant to this Section 3.1.6 if included in any another deduction provided for under this definition; and 3.1.7 as an allowance for transportation costs, distribution expenses (other than (i) the one time launch incentive called “Discount on Ship,” and (ii) fees paid to wholesalers to maintain inventory thresholds or provide forecast information and reports (e.g. sometimes referred to as “Allow - Distribution” or “Distribution Service Allowance”), which are to be deducted separately under this section 3.1), special packaging and related insurance charges, [***]percent ([***]%) of the amount arrived at after application of the deductions under Sections 3.1.1 through 3.1.6 above (and no costs included in this calculation may be deducted under Sections 3.1.1 through 3.1.6 above). 3.2 Royalty Payment and Reports. RedHill shall calculate all amounts payable by it pursuant to Section 3.1 at the end of each Calendar Quarter. For the avoidance of doubt, payments owed by RedHill with respect to any time periods prior to the Termination Effective Date shall be calculated and paid in accordance with Article 11 of the Co-Commercialization Agreement, even if such payments become due and payable during the Term. RedHill shall, within [***] days following the end of each Calendar Quarter, provide to Daiichi Sankyo a statement of the amount of the Net Sales of the RedHill Product in the United States during the applicable Calendar Quarter, including an itemized summary of all deductions from the gross invoiced amount used in calculating Net Sales, and a calculation of the amount of royalty payment due on such Net Sales for such Calendar Quarter using substantially the same form attached as Schedule 1 to this Termination Agreement. RedHill shall pay to Daiichi Sankyo the royalty amounts due with respect to a given Calendar Quarter within [***] days of delivery of such statement. 3.3 Fees. In addition to any payments owed by RedHill to Daiichi Sankyo under Section 3.1 of this Termination Agreement, (i) on or before [***] RedHill shall pay, or cause to be paid, to Daiichi Sankyo a non- refundable, non-creditable payment of Five Million One Hundred Thousand Dollars ($5,100,000), and (ii) on or before July 1 of each of the years 2022 and 2023, RedHill shall pay, or cause to be paid, to Daiichi Sankyo a non- refundable, non-creditable payment of Five Million Dollars ($5,000,000) (for a total of Fifteen Million One Hundred Thousand Dollars ($15,100,000)). 3.4 Payments. All payments by RedHill under this Termination Agreement shall be made by deposit of Dollars in the requisite amount to such bank as Daiichi Sankyo may from time to time designate by notice to RedHill. RedHill shall pay all fees incurred by either Party in connection with completing such deposit, except that any transfer fee imposed by a bank designated by Daiichi Sankyo shall be paid by Daiichi Sankyo. The initial such account is: 6 EXECUTION VERSION Bank: [***] ABA ACH: [***] ABA Wire: [***] Account No.: [***] 3.5 Taxes. In the event that any Applicable Law requires RedHill to deduct or withhold Taxes with respect to any payment to be made by RedHill pursuant to this Termination Agreement, RedHill will notify Daiichi Sankyo of such requirement prior to making the payment to Daiichi Sankyo and provide such assistance to Daiichi Sankyo, including the provision of such documentation as may be required by a Tax authority, as may be reasonably necessary in Daiichi Sankyo’s efforts to claim an exemption from or reduction of such Taxes. RedHill will, in accordance with such Applicable Law, deduct or withhold Taxes from the amount due, remit such Taxes to the appropriate Tax authority when due, and furnish Daiichi Sankyo with proof of payment of such Taxes within thirty (30) days following the payment. Any Taxes withheld or deducted from the amount due and remitted to a Tax authority as required under the first sentence of this Section 3.5 shall be considered as if paid to Daiichi Sankyo. If Taxes are paid to a Tax authority, RedHill shall provide reasonable assistance to Daiichi Sankyo to obtain a refund of Taxes withheld, or obtain a credit with respect to Taxes paid. Daiichi Sankyo shall furnish to RedHill on the Termination Effective Date a validly executed W-9 form with respect to the funds to be transferred to Daiichi Sankyo. 3.6 Interest on Late Payments. If any Payment due to Daiichi Sankyo under this Termination Agreement is not paid when due (other than (i) a Payment subject to a good faith dispute by the Parties, except if interest thereon is specifically awarded by a court in connection with the resolution of such good faith dispute, or (ii) a Payment with respect to which Daiichi Sankyo has not provided the payment instructions as required by Section 3.4), then RedHill shall pay interest thereon at an annual rate of LIBOR from the due date until paid in full or, if less, the maximum interest rate permitted by Applicable Law. 3.7 Records. RedHill shall keep, or shall cause to be kept, for a period of [***] years after the expiration or termination hereof, complete and accurate books and records pertaining to its performance hereunder, and all information reasonably necessary to calculate and verify all amounts payable hereunder. 3.8 Audit. At the request of Daiichi Sankyo, RedHill shall, and shall cause the RedHill Affiliates to, permit an independent certified public accountant designated by Daiichi Sankyo, at reasonable times and upon reasonable notice, to audit the books and records maintained pursuant to Section 3.7 to ensure RedHill’s compliance with its obligations hereunder and to verify all amounts payable hereunder, including the accuracy of all reports and payments made hereunder, no more than once during any [***]period during the Term and a period of [***] thereafter and no more than once with respect to any period so examined; provided that if any such audit reveals that RedHill is or was not in material compliance with the terms of this Termination Agreement, Daiichi Sankyo shall have the right to conduct such additional audits as may be reasonably required by Daiichi Sankyo to determine whether RedHill has appropriately remedied such non- 7 EXECUTION VERSION compliance. The cost of any such audit shall be borne by Daiichi Sankyo, unless with respect to an audit of payments made hereunder, the audit reveals a variance of more than ten percent (10%) from reported amounts, in which case RedHill shall bear the cost of the audit. If any such audit concludes that additional payments were owed or that excess payments were received during such period, the owing Party shall pay the additional payments or the receiving Party shall reimburse such excess payments within [***] days after the date on which such audit is completed. For clarity, this Section 3.8 is not intended and shall not be construed to apply to records with respect to the manufacture of any RedHill Product by or on behalf of RedHill, or provide Daiichi Sankyo the right to audit the RedHill’s compliance with its own policies. 4. STOCK ISSUANCE Concurrently with the execution of this Termination Agreement, RedHill’s parent company, RedHill BioPharma Ltd., will issue to Daiichi Sankyo American Depository Shares representing ordinary shares of RedHill BioPharma Ltd. (“ADSs”) having a value of Two Million Dollars ($2,000,000), subject to the terms and conditions of the Securities Purchase Agreement being executed by Daiichi Sankyo and RedHill BioPharma Ltd. as of the Termination Effective Date. 5. REPRESENTATIONS AND WARRANTIES 5.1 Mutual Representations and Warranties. Each of the Parties hereby represents and warrants to the other that it is duly authorized and empowered to execute, deliver and perform this Termination Agreement and that such action does not conflict with or violate any provision of law, regulation, policy, contract, deed of trust or other instrument to which it is a party or by which it is bound and that this Termination Agreement constitutes a valid and binding obligation of it enforceable in accordance with its terms. 5.2 RedHill Representation and Warranty. RedHill hereby represents and warrants to Daiichi Sankyo that AstraZeneca assigned to RedHill, and RedHill is the successor-in-interest to, all rights, title, interest and obligations of AstraZeneca under the Co-Commercialization Agreement. 6. CONFIDENTIALITY 6.1 Confidentiality Obligations. Except to the extent permitted by this Termination Agreement and subject to the provisions of Section 6.2 and 6.3, at all times during the Term and for [***] years following the expiration or termination hereof, the Receiving Party (a) shall keep completely confidential and shall not publish or otherwise disclose any Confidential Information furnished to it by or on behalf of the Disclosing Party, except to those officers, directors, employees, representatives or consultants of the Receiving Party and its Affiliates (or RedHill Affiliates, where RedHill is the Receiving Party) who have a need to know such information to perform such Party’s obligations hereunder or are reasonably necessary for its internal business purposes relating to the RedHill Product (and who shall be advised of the Receiving Party’s obligations hereunder and who are bound by confidentiality obligations with respect to such Confidential Information no less onerous than those set forth in this Section 6) (collectively, 8 EXECUTION VERSION “Recipients”) and (b) shall not use any Confidential Information of the Disclosing Party directly or indirectly for any purpose other than performing its obligations hereunder. The Receiving Party shall be jointly and severally liable for any breach by any of its Recipients of the restrictions set forth in this Termination Agreement. For clarity, “Confidential Information” means any information provided by one Party (the “Disclosing Party”) to the other Party (the “Receiving Party”), whether oral or in writing or in any other form, on or after the Termination Effective Date relating to (i) the terms of this Termination Agreement, (ii) any RedHill Product (including the Regulatory Documentation and regulatory approvals and any information or data contained therein), (iii) any Exploitation of the RedHill Product, or (iv) the scientific, regulatory or business affairs or other activities or Information of either Party. In the event that RedHill discloses any Confidential Information with respect to which it has an obligation of confidentiality to a Third Party (as defined below) and notifies Daiichi Sankyo of any additional obligations of confidentiality that may apply to such information, then Daiichi Sankyo shall comply with such additional obligations on and after the date on which Daiichi Sankyo is made aware of such additional obligations, to the extent reasonably practicable at the time Daiichi Sankyo is made aware of such additional obligations. 6.2 Exceptions to Confidentiality. The Receiving Party’s obligations set forth in this Termination Agreement shall not extend to any Confidential Information of the Disclosing Party: 6.2.1 that is or hereafter becomes part of the public domain by public use, publication, general knowledge or the like through no wrongful act, fault or negligence on the part of a Receiving Party or its Recipients; 6.2.2 that is received from any Person other than RedHill, RedHill Affiliates, Daiichi Sankyo and Daiichi Sankyo’s Affiliates (a “Third Party”) without restriction and without breach of any obligation of confidentiality between such Person and the Disclosing Party; 6.2.3 that the Receiving Party can demonstrate by competent evidence was already in its possession without any limitation on use or disclosure prior to its receipt from the Disclosing Party; 6.2.4 that is generally made available to Third Parties by the Disclosing Party without restriction on disclosure; or 6.2.5 that the Receiving Party can demonstrate by competent evidence was independently developed by the Receiving Party without the aid, use or application of any Confidential Information of the Disclosing Party. 6.3 Authorized Disclosure. The Receiving Party and its Recipients may disclose Confidential Information to the extent that such disclosure is: 6.3.1 made by the Receiving Party to AstraZeneca pursuant to written confidentiality obligations consistent with those set forth herein; provided that such disclosure is necessary in connection with the Receiving Party 9 EXECUTION VERSION carrying out its obligations to AstraZeneca with respect to, or enforcing the obligations of AstraZeneca under, the Co-Commercialization Agreement; 6.3.2 made in response to a valid subpoena or order of a court of competent jurisdiction or other Agency of a country or any political subdivision thereof of competent jurisdiction; provided, however, that, if legally permissible, the Receiving Party shall first have given notice to the Disclosing Party and given the Disclosing Party, at its own expense, a reasonable opportunity to quash such order or to obtain a protective order requiring that the Confidential Information or documents that are the subject of such order be held in confidence by such court or Agency or, if disclosed, be used only for the purposes for which the order was issued; and provided, further that if a disclosure order is not quashed or a protective order is not obtained, the Confidential Information disclosed in response to such court or governmental order shall be limited to that information that is legally required to be disclosed in such response to such court or governmental order; or 6.3.3 otherwise required by Applicable Law or the requirements of a national securities exchange or another similar regulatory body, with the Receiving Party providing prior written notice thereof to the Disclosing Party and a reasonable opportunity for the Disclosing Party to review and comment on such required disclosure and propose that portions be subject to a request for confidential treatment thereof or a protective order therefor prior to making such disclosure and the Receiving Party using reasonable efforts to secure confidential treatment or any other applicable protection for the portions of the Confidential Information that the Disclosing Party requests be redacted. 6.4 Notification. The Receiving Party shall notify the Disclosing Party promptly, and cooperate with the Disclosing Party as the Disclosing Party may reasonably request, upon the Receiving Party’s discovery of any loss or compromise of the Disclosing Party’s Confidential Information. 6.5 Return or Destruction of Confidential Information. Upon the effective date of the expiration or termination of this Termination Agreement for any reason, either Party may request in writing and the non- requesting Party shall either, with respect to Confidential Information to which such non-requesting Party does not retain rights under the surviving provisions of this Termination Agreement: (i) promptly destroy all copies of such Confidential Information in the possession or control of the non-requesting Party and confirm such destruction in writing to the requesting Party; or (ii) promptly deliver to the requesting Party, at the non-requesting Party’s sole cost and expense, all copies of such Confidential Information in the possession or control of the non-requesting Party. Notwithstanding the foregoing, the non-requesting Party shall be permitted to retain (x) such Confidential Information to the extent necessary or useful for purposes of performing any continuing obligations or exercising any ongoing rights hereunder and, in any 10 EXECUTION VERSION event, a single copy of such Confidential Information for archival purposes and (y) any computer records or files containing such Confidential Information that have been created solely by such non-requesting Party’s automatic archiving and back-up procedures, to the extent created and retained in a manner consistent with such non- requesting Party’s standard archiving and back-up procedures, but not for any other uses or purposes. All Confidential Information (except with respect to Confidential Information permitted to be disclosed pursuant to Section 6.3 and 6.4) shall continue to be subject to the terms of this Termination Agreement for the period set forth in Section 6.1. 6.6 Press Release; Use of Name and Disclosure of Terms. The Parties agree that RedHill will issue a mutually agreed upon press release promptly after the Termination Effective Date substantially in the form attached hereto as Schedule 2. In all other cases, subject to this Section 6.6, each Party agrees not to, and agrees to cause its Affiliates (and, in the case of RedHill, the RedHill Affiliates) not to, issue any press release or other public statement disclosing any information relating to this Termination Agreement, the activities hereunder, or the transactions contemplated hereby, unless such press release or other public statement is approved by the other Party in writing. The restrictions imposed by this Section 6.6 shall not prohibit either Party from making any disclosure identifying the other Party that is required by Applicable Law or the requirements of a national securities exchange or another similar regulatory body, provided that any such disclosure shall be governed by Section 6.3, and provided further that (a) the Corporate Communications department of Daiichi Sankyo shall be notified in writing in advance of any press release or disclosure made hereunder by RedHill and (b) RedHill shall be notified in writing in advance of any press release or disclosure made hereunder by Daiichi Sankyo. Further, the restrictions imposed on each Party under this Section 6.6 are not intended, and shall not be construed, to prohibit a Party from (x) identifying the other Party in its internal business communications, provided that any Confidential Information in such communications remains subject to this Section 6 or (y) disclosing (i) information for which consent has previously been obtained and (ii) information of a similar nature to that which has been previously disclosed publicly with respect to this Termination Agreement, each of which ((i) and (ii)) shall not require advance approval, but copies of which shall be provided to the other Party as soon as practicable after the release or communication thereof. 7. TERM 7.1 The term of this Termination Agreement shall commence on the Termination Effective Date and shall continue until the end of the first Calendar Year during which the annual Net Sales of the RedHill Product in the Territory fall below[***] (the “Term”). 8. ACCRUED RIGHTS; SURVIVING OBLIGATIONS 8.1 Accrued Rights. Termination or expiration of this Termination Agreement for any reason shall be without prejudice to any rights that shall have accrued to the benefit of a Party prior to such termination or expiration. 8.2 Surviving Obligations. Sections 3.1 (for Net Sales during the Term), 3.2 (for final accounting), 3.3, 3.4, 3.5, 3.6, 3.7, 3.8, 6, 9, 10, and this Section 8 shall survive expiration or 11 EXECUTION VERSION termination of this Termination Agreement for any reason. 9. INDEMNITY 9.1 Indemnification. In addition to any other remedy available to Daiichi Sankyo, RedHill shall indemnify, defend and hold harmless Daiichi Sankyo, its Affiliates and its and their respective directors, officers, employees and agents (the “Daiichi Sankyo Indemnitees”) from and against any and all liabilities, claims, demands, causes of action, damages, judgments, penalties, costs and expenses (including reasonable attorneys’ fees and expenses) (collectively, “Losses”) incurred by any of them in connection with, arising from or occurring as a result of (a) any and all suits, investigations, claims or demands of Third Parties (collectively, “Third Party Claims”) in connection with, arising from or occurring as a result of (i) the negligence, fraud or willful misconduct by RedHill in connection with this Termination Agreement or the breach by RedHill of any of its obligations under this Termination Agreement, (ii) the Exploitation of any RedHill Product or any activities carried out in connection with such Exploitation in each case following the Termination Effective Date, including, without limitation, (w) any claim or assertion relating to Marketing activities conducted by or on behalf of RedHill, or (x) any claim or assertion that a RedHill Product or the Exploitation thereof infringes any intellectual property right of a third party, (y) any claim or assertion relating to any In-License Agreement, or (z) death, personal injury, or other property damage arising out of or resulting from the manufacture or labeling (including failure to warn claims) of any RedHill Product; or (b) the enforcement by Daiichi Sankyo of its rights under this Section 9.1. 9.2 Indemnification Procedures. 9.2.1 Notice of Claim. All indemnification claims in respect of Daiichi Sankyo, its Affiliates or their respective directors, officers, employees and agents (each, an “Indemnitee”) shall be made solely by Daiichi Sankyo. Daiichi Sankyo shall give RedHill prompt written notice (an “Indemnification Claim Notice”) of any Losses or discovery of fact upon which such Indemnitee intends to base a request for indemnification under Section 9.1, but in the case of Section 9.1, in no event shall RedHill be liable for any Losses that result from any delay in providing such notice. Each Indemnification Claim Notice must contain a description of the claim and the nature and amount of such Loss (to the extent that the nature and amount of such Loss is known at such time). Daiichi Sankyo shall furnish promptly to RedHill copies of all papers and official documents received in respect of any Losses and Third Party Claims. 9.2.2 Control of Defense. At its option, RedHill may assume the defense of any Third Party Claim (each an “Indemnification Claim”) by giving written notice to Daiichi Sankyo within [***] days after RedHill’s receipt of an Indemnification Claim Notice. The assumption of the defense of an Indemnification Claim by RedHill shall not be construed as an acknowledgment that RedHill is liable to indemnify the Indemnitee in respect of the Indemnification Claim, nor shall it constitute a waiver by 12 EXECUTION VERSION RedHill of any defenses it may assert against Daiichi Sankyo’s claim for indemnification. Upon assuming the defense of an Indemnification Claim, RedHill may appoint as lead counsel in the defense of the Indemnification Claim any legal counsel selected by RedHill. In the event RedHill assumes the defense of an Indemnification Claim, Daiichi Sankyo shall immediately deliver to RedHill all original notices and documents (including court papers) received by Daiichi Sankyo in connection with the Indemnification Claim. Should RedHill assume the defense of an Indemnification Claim, except as provided in Section 9.2.3, RedHill shall not be liable to Daiichi Sankyo for any legal expenses subsequently incurred by Daiichi Sankyo in connection with the analysis, defense or settlement of the Indemnification Claim unless specifically requested in writing by RedHill. In the event that it is ultimately determined that RedHill is not obligated to indemnify, defend or hold harmless the Indemnitee from and against the Indemnification Claim, Daiichi Sankyo shall reimburse RedHill for any and all costs and expenses (including attorneys’ fees and costs of suit) and any Losses incurred by RedHill in its defense of the Indemnification Claim. 9.2.3 Right to Participate in Defense. Any Indemnitee and Daiichi Sankyo shall be entitled to participate in, but not control, the defense of such Indemnification Claim and to employ counsel of its choice for such purpose; provided, however, that such employment shall be at the Indemnitee’s or Daiichi Sankyo’s sole cost and expense unless (i) the employment thereof has been specifically authorized by RedHill in writing, (ii) RedHill has failed to assume the defense and employ counsel in accordance with Section 9.2.2 (in which case, Daiichi Sankyo shall control the defense) or (iii) the interests of the Indemnitee and RedHill with respect to such Indemnification Claim are sufficiently adverse to prohibit the representation by the same counsel of both Parties under Applicable Law, ethical rules or equitable principles. 9.2.4 Settlement. With respect to any Losses relating solely to the payment of money damages in connection with an Indemnification Claim and that shall not result in the Indemnitee’s or Daiichi Sankyo’s becoming subject to injunctive or other relief and as to which RedHill shall have acknowledged in writing the obligation to indemnify the Indemnitee hereunder, RedHill shall have the sole right to consent to the entry of any judgment, enter into any settlement or otherwise dispose of such Loss, on such terms as RedHill, in its sole discretion, shall deem appropriate. With respect to all other Losses in connection with Indemnification Claims, where RedHill has assumed the defense of the Indemnification Claim in accordance with Section 9.2.2, RedHill shall have authority to consent to the entry of any judgment, enter into any settlement or otherwise dispose of such Loss. If RedHill does not assume and conduct the defense of an Indemnification Claim as provided above, Daiichi Sankyo may defend against such 13 EXECUTION VERSION Indemnification Claim. Notwithstanding anything contained herein to the contrary, in cases where RedHill has acknowledged in writing its obligation to indemnify Daiichi Sankyo for the applicable Losses pursuant to this Section 9.2.4 but does not assume and conduct the defense of the applicable Indemnification Claim, Daiichi Sankyo shall not settle or compromise such Claim without the prior written consent of RedHill, which may not be unreasonably, withheld, delayed or conditioned. 9.2.5 Cooperation. Regardless of whether RedHill chooses to defend or prosecute any Indemnification Claim, Daiichi Sankyo shall, and shall cause each Indemnitee to, cooperate in the defense or prosecution thereof and shall furnish such records, information and testimony, provide such witnesses and attend such conferences, discovery proceedings, hearings, trials and appeals as may be reasonably requested in connection therewith. Such cooperation shall include access during normal business hours afforded to RedHill to and reasonable retention by the Indemnitee and Daiichi Sankyo of, records and information that are reasonably relevant to such Indemnification Claim and making Daiichi Sankyo and other employees and agents available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder and RedHill shall reimburse Daiichi Sankyo for all its reasonable and verifiable out-of-pocket expenses incurred in connection therewith. 9.2.6 Expenses. Except as provided above, the costs and expenses, including fees and disbursements of counsel, incurred by Daiichi Sankyo in connection with any claim shall be reimbursed on a Calendar Quarter basis by RedHill, without prejudice to RedHill’s right to contest Daiichi Sankyo’s right to indemnification and subject to refund in the event RedHill is ultimately held not to be obligated to indemnify the Indemnitee. 9.3 Insurance. RedHill shall at all times maintain a product liability insurance policy or self-insurance with a [***] limit each occurrence and in the aggregate for the period of insurance. RedHill shall furnish to Daiichi Sankyo upon execution of this Termination Agreement a Certificate of Insurance or other reasonable proof of coverage (which may be a certificate or other evidence issued RedHill under a program of self-insurance) evidencing: (i) the requisite coverage required under this Section 9.3 during the Term; (ii) the effective and expiration dates of the insurance policies required hereunder; and (iii) the limits of liability per occurrence and in the aggregate. RedHill shall provide Daiichi Sankyo (a) current Certificates of Insurance evidencing renewal of insurance throughout the Term and (b) [***] advance written notice prior to the cancellation or non-renewal during the Term of any insurance policy required hereunder. To the extent that RedHill elects to self-insure under governing state statutes (if applicable) for any of the insurance coverages required under this Termination Agreement, upon request, RedHill shall provide Daiichi Sankyo, throughout the Term, with proof of continuing financial responsibility equal to or greater than the minimum limits of insurance required hereunder. The insurance policies shall be under an occurrence form, or on a claims-made form, however, if a claims-made 14 form is used, then RedHill shall continue to maintain such insurance after the expiration or termination of this Termination Agreement for a period of [***] years. EXECUTION VERSION 10. MISCELLANEOUS 10.1 Governing Law. 10.1.1 In the event of any dispute arising out of this Termination Agreement or the activities contemplated herein, the Parties, prior to instituting any lawsuit, shall work collaboratively and in good faith to resolve such dispute. Specifically, prior to instituting any lawsuit, any dispute shall be referred, in the case of RedHill, to the Chief Executive Officer of RedHill (or such other equivalent person as RedHill may designate upon written notice to Daiichi Sankyo) and, in the case of Daiichi Sankyo, to the President of Daiichi Sankyo (or such other equivalent person as Daiichi Sankyo may designate upon written notice to RedHill) (the “Senior Executives”). If the Senior Executives are unable to resolve such dispute within [***] days following their initial discussion of the dispute, either Party shall be free to institute litigation in accordance with Section 10.1.3 and seek such remedies as may be available. Notwithstanding anything in this Termination Agreement to the contrary, each Party shall be entitled to (i) institute litigation in accordance with Section 10.1.3 below immediately if litigation is necessary to prevent irreparable harm to that Party and (ii) exercise its rights under Section 10.8. 10.1.2 The interpretation and construction of this Termination Agreement shall be governed by the laws of the State of New York, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Termination Agreement to the substantive law of another jurisdiction. 10.1.3 The Parties hereby irrevocably and unconditionally consent to the exclusive jurisdiction of the courts of the State of New York and the United States District Court for the Southern District of New York for any action, suit or proceeding (other than appeals therefrom) concerning this Termination Agreement and agree not to commence any action, suit or proceeding (other than appeals therefrom) related thereto except in such courts. For clarity, claims for damages or relief shall be brought under this Section 10.1.3. The Parties irrevocably and unconditionally waive their right to a jury trial. 10.1.4 Each Party further agrees that service of any process, summons, notice or document by registered mail to its address set forth in Section 10.4 shall be effective service of process for any action, suit or proceeding brought against it under this Termination Agreement in any such court. 10.2 Force Majeure. No liability shall result from delay in performance or non- 15 EXECUTION VERSION performance, in whole or in part, by either of the Parties to the extent that such delay or non-performance is caused by an event of Force Majeure. “Force Majeure” means an event that is beyond a non-performing Party’s reasonable control, including an act of God, act of the other Party, strike, lock-out or other industrial/labor dispute, war, acts of war (whether war be declared or not) riot, civil commotion, terrorist act, malicious damage, epidemic, quarantine, fire, flood, storm, or natural disaster. The non-performing Party shall promptly after the occurrence of the Force Majeure event give written notice to the other Party stating the nature of the Force Majeure event, its anticipated duration and any action being taken to avoid or minimize its effect. Any suspension of performance shall be of no greater scope and of no longer duration than is reasonably required and the non-performing Party shall use commercially reasonable efforts to remedy its inability to perform; provided, however, if the suspension of performance continues for sixty (60) days after the date of the occurrence and such failure to perform would constitute a material breach of this Termination Agreement in the absence of such event of Force Majeure, the Parties shall meet and discuss in good faith an appropriate course of action. 10.3 Waiver and Non-Exclusion of Remedies. A Party’s failure to enforce, at any time or for any period of time, any provision of this Termination Agreement or to exercise any right or remedy, does not constitute a waiver of such provision, right or remedy or prevent such Party thereafter from enforcing any or all provisions of this Termination Agreement and exercising any or all other rights and remedies. To be effective, any waiver must be in writing. The rights and remedies provided herein are cumulative and do not exclude any other right or remedy provided by Applicable Law or otherwise available except as expressly set forth herein. 10.4 Notices. Unless otherwise expressly provided for herein, all Notices shall be in writing, shall refer specifically to this Termination Agreement and shall be hand delivered or sent by internationally recognized overnight delivery service that maintains records of delivery, costs prepaid, or by facsimile (with transmission confirmed), to the respective addresses specified below (or to such other address as may be specified by Notice to the other Party): If to RedHill, to: With a copy to: RedHill BioPharma, Inc. 8045 Arco Corporate Drive, Suite 200 Raleigh, NC 27617 Tel: [***] Fax: [***] Attention: [***] RedHill BioPharma Ltd. 21 Ha’arba’a St., Tel-Aviv 6473921, Israel Tel: [***] Fax: [***] Attention: [***] 16 If to Daiichi Sankyo, to: With a copy to: EXECUTION VERSION Daiichi Sankyo, Inc. 211 Mount Airy Road Basking Ridge, New Jersey 07920 Attention: [***] Facsimile No.: [***] Daiichi Sankyo, Inc. 211 Mount Airy Road Basking Ridge, New Jersey 07920 Attention: [***] Facsimile No.: [***] Any Notice delivered by facsimile shall be confirmed by a hard copy delivered as soon as practicable thereafter. The effective date of any Notice shall be: (a) the date of the addressee’s receipt, if delivered by hand or internationally recognized overnight delivery service that maintains records of delivery; or (b) the date of receipt if received by 5:00 p.m. local time on a Business Day or, if not, the first (1st) Business Day after receipt, if sent by facsimile. It is understood and agreed that this Section 10.4 is not intended to govern the day-to-day business communications necessary between the Parties in performing their duties, in due course, under the terms of this Termination Agreement. 10.5 Entire Agreement. This Termination Agreement, together with any schedules and other attachments hereto and those provisions of the Co-Commercialization Agreement survive pursuant to Section 1.2 hereof, constitutes the entire agreement between the Parties with respect to the subject matter hereof and supersedes all prior or contemporaneous understandings or agreements, whether written or oral, with respect to the subject matter hereof. Each Party confirms that it is not relying on any representations, warranties or covenants of the other Party except as specifically set forth herein. No amendment, modification, release or discharge of this Termination Agreement shall be binding upon the Parties unless in writing and duly executed by authorized representatives of both Parties. 10.6 Successors and Assigns. This Termination Agreement may not be assigned or otherwise transferred by RedHill without the written consent of Daiichi Sankyo; provided, however, that RedHill may, without such consent, assign this Termination Agreement, in whole or in part, (a) to any of its Affiliates, and (b) to a Third Party successor or purchaser of all or substantially all of its business or assets to which this Termination Agreement relates, whether in a merger, sale of stock, sale of assets or other similar transaction; provided that, the Third Party successor or purchaser provides written notice to Daiichi Sankyo that such Third Party agrees to be bound by the terms of this Termination Agreement. Any purported assignment in violation of this Section 10.6 will be void. Any permitted assignee shall assume all applicable obligations of its assignor under this Termination Agreement. With respect to an assignment to an Affiliate (or a RedHill Affiliate, where RedHill is the assigning Party), such assigning Party shall remain responsible for the performance by such Affiliate (or RedHill Affiliate, where RedHill is the assigning Party) of the rights and obligations hereunder. Daiichi Sankyo may assign this Termination Agreement freely without the consent of RedHill. 17 EXECUTION VERSION 10.7 Severability. To the fullest extent permitted by Applicable Law, the Parties waive any provision of law that would render any provision in this Termination Agreement invalid, illegal or unenforceable in any respect. If any provision of this Termination Agreement is held to be invalid, illegal or unenforceable, in any respect, then such provision will be given no effect by the Parties and shall not form part of this Termination Agreement. To the fullest extent permitted by Applicable Law and if the rights or obligations of either Party will not be materially and adversely affected, all other provisions of this Termination Agreement shall remain in full force and effect and the Parties shall use their best efforts to negotiate a provision in replacement of the provision held invalid, illegal or unenforceable that is consistent with Applicable Law and achieves, as nearly as possible, the original intention of the Parties. 10.8 Remedies. Each Party acknowledges that the failure by a Party to comply with any of the provisions of Section 6 will result in irreparable injury and continuing damage to the other Party for which there will be no adequate remedy at law and that, in the event of a failure of a Party so to comply, the other Party shall be entitled to such preliminary and permanent injunctive relief as may be necessary to ensure compliance with all the provisions of Section 6 without having to prove actual damages or to post a bond. Such other Party shall also be entitled to an equitable accounting of all earnings, profits and other benefits arising from any such violation. 10.9 Relationship of the Parties. It is expressly agreed that RedHill, on the one hand, and Daiichi Sankyo, on the other hand, shall be independent contractors and nothing contained in this Termination Agreement shall be construed as creating a partnership, joint venture or agency relationship between the Parties. The Parties agree that the rights and obligations under this Termination Agreement are not intended to constitute a partnership or similar arrangement that will require separate reporting for Tax purposes consistent with the intent reflected in the foregoing sentence and agree that they shall not file any reports, documents or other item relating to Taxes or state or acknowledge to any Tax authority that such relationship is a partnership or similar arrangement unless required by Applicable Law. 10.10 Counterparts; Facsimile Execution. This Termination Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which taken together shall be deemed to constitute one and the same instrument. An executed signature page of this Termination Agreement delivered by facsimile transmission, by electronic mail in “portable document format” (“.pdf”), or using generally recognized e-signature technology (e.g., DocuSign or Adobe Sign) shall be as effective as an original executed signature page. [The rest of this page intentionally left blank.] 18 IN WITNESS WHEREOF, the parties hereto have duly executed this Termination Agreement as of the Termination Effective Date. RedHill Biopharma, Inc. Daiichi Sankyo, Inc. EXECUTION VERSION By: /s/ [***] Name: [***] Title: [***] Date: By: /s/ [***] Name: [***] Title: [***] Date: 19 RedHill Product (including MOVANTIK® US) Gross to Net Sales M USD Gross Sales Managed Markets Discounts Returns, Recalls, Rebates, Price Reductions Governmental Rebates Write-offs Taxes Other Amounts Payable to Patients Discount on Ship Net Sales - Reported Royalty Payment Royalty to Daiichi Sankyo: EXECUTION VERSION Schedule 1 Royalty Report Q1 Q2 Q3 Q4 YTD 2020 2020 2020 2020 2020 $ $ $ $ $ $ $ $ $ $ — — — — — — — — — — [***]% Schedule 2 Press Release Press Release RedHill Biopharma Announces New Agreement with Daiichi Sankyo for Movantik® 20 EXECUTION VERSION RedHill acquired Movantik® for opioid induced constipation from AstraZeneca in April 2020; Movantik® generated $96 million in 2019 -- RedHill and Daiichi Sankyo replaced their co-commercialization agreement for Movantik® with a new royalty- bearing agreement, under which RedHill will maintain sole and exclusive responsibility for the commercialization of Movantik® in the U.S. -- The companies also entered a subscription agreement under which Daiichi Sankyo received equity of RedHill as a partial consideration in relation to Movantik® -- TEL-AVIV, Israel and RALEIGH, NC, July __ 2020, RedHill Biopharma Ltd. (Nasdaq: RDHL) (“RedHill” or the “Company”), a specialty biopharmaceutical company, today announced that it has replaced its existing 2015 co-commercialization agreement with Daiichi Sankyo, Inc. (“Daiichi Sankyo”) for Movantik® (naloxegol)1, which was assigned to RedHill under its April 2020 acquisition agreement with AstraZeneca, with a new royalty- bearing agreement. “The closing of this new agreement with Daiichi Sankyo will allow us to have full control over brand strategy and commercialization activities for Movantik® in the U.S. while also increasing our margins. We thank our colleagues at Daiichi Sankyo for their trust and look forward to continuing this fruitful partnership”, said Rick Scruggs, RedHill’s Chief Commercial Officer, Head of U.S. Operations. Under the terms of the new agreement, RedHill will bear all responsibilities and costs for commercializing Movantik® in the U.S. During the term of this new agreement, RedHill will pay Daiichi Sankyo a mid-teen royalty rate on net sales of Movantik® in the U.S., in addition to three lump sum payments each year starting in 2021 and ending in 2023. In addition, the companies also entered a subscription agreement under which Daiichi Sankyo received [x] in American Depositary Shares of RedHill as a partial consideration in relation to Movantik®. RedHill acquired the global rights, excluding Europe, Canada and Israel, to Movantik® for the treatment of opioid induced constipation from AstraZeneca in April 2020 and immediately initiated promotion in the U.S. with its expanded sales force. About Movantik® Movantik® is a proprietary once-daily oral PAMORA approved by the U.S. Food and Drug Administration for the treatment of OIC in adult patients with chronic non-cancer pain, including patients with chronic pain related to prior cancer or its treatment who do not require frequent (e.g. weekly) opioid dosage escalation. Movantik® is the first oral PAMORA approved in the U.S. for 1 Full prescribing information for Movantik® (naloxegol) is available at: www.Movantik.com. 21 EXECUTION VERSION the treatment of OIC and is recommended by the American Gastroenterological Association (AGA) guidelines2 and the National Comprehensive Cancer Network (NCCN) guidelines. Movantik® is part of the exclusive worldwide license agreement announced in 2009 between AstraZeneca and Nektar Therapeutics. It was developed using Nektar’s oral small-molecule polymer conjugate technology. Movantik® was first approved in 2014 and launched in the U.S. by AstraZeneca and Daiichi Sankyo in 2015. Further information about Movantik® is available at: www.Movantik.com. About Opioid-Induced Constipation (OIC) OIC is a condition caused by prescription opioid pain medicines. Opioids play an important role in chronic pain relief and work by binding to mu-receptors in the central nervous system, but they can also bind to mu-receptors in the bowel, which can result in patients suffering from OIC. OIC is the most prevalent and disabling adverse effect associated with opioid therapy, estimated to affect between 40-80% of the millions of patients taking chronic opioid therapy each year4. About RedHill Biopharma RedHill Biopharma Ltd. (Nasdaq: RDHL) is a specialty biopharmaceutical company primarily focused on gastrointestinal diseases. RedHill promotes the gastrointestinal drugs Movantik® for opioid-induced constipation in adults3, Talicia® for the treatment of Helicobacter pylori (H. pylori) infection in adults4 and Aemcolo® for the treatment of travelers’ diarrhea in adults5. RedHill’s key clinical late-stage development programs include: (i) RHB-204, with a planned pivotal Phase 3 study for pulmonary nontuberculous mycobacteria (NTM) infections; (ii) Opaganib (Yeliva®), a first-in-class SK2 selective inhibitor, targeting multiple indications, with a Phase 2/3 program for COVID-19 and ongoing Phase 2 studies for prostate cancer and cholangiocarcinoma; (iii) RHB-104, with positive results from a first Phase 3 study for Crohn's disease; (iv) RHB-102 (Bekinda®), with positive results from a Phase 3 study for acute gastroenteritis and gastritis and positive results from a Phase 2 study for IBS-D; (v) RHB-106, an encapsulated bowel preparation, and (vi) RHB-107, a Phase 2-stage first-in-class, serine protease inhibitor, targeting cancer and inflammatory gastrointestinal diseases. More information about the Company is available at www.redhillbio.com. IMPORTANT SAFETY INFORMATION ABOUT MOVANTIK · MOVANTIK may cause serious side effects, including: - Opioid withdrawal. You may have symptoms of opioid withdrawal during treatment with MOVANTIK, including sweating, chills, diarrhea, stomach pain, anxiety, irritability, and 2 Crockett, Seth D., et al. American Gastroenterological Association Institute guideline on the medical management of opioid- induced constipation, Gastroenterology 156.1 (2019): 218-226. 3 Full prescribing information for Movantik® (naloxegol) is available at: www.Movantik.com. 4 Full prescribing information for Talicia® (omeprazole magnesium, amoxicillin and rifabutin) is available at: www.Talicia.com. 5 Full prescribing information for Aemcolo® (rifamycin) is available at: www.Aemcolo.com. 22 EXECUTION VERSION yawning. Patients taking methadone to treat their pain may be more likely to experience stomach pain and diarrhea. Tell your doctor if you have any of these symptoms - Severe Stomach Pain and/or Diarrhea. This can happen within a few days of starting MOVANTIK and can lead to hospitalization. If either of these side effects occurs, stop taking MOVANTIK and call your doctor immediately - Tear in your stomach or intestinal wall (perforation). Stomach pain that is severe can be a sign of a serious medical condition. If you get stomach pain that gets worse or does not go away, stop taking MOVANTIK and get emergency medical help right away · Do not take MOVANTIK if you: - Have a bowel blockage (intestinal obstruction) or have a history of bowel blockage - Are allergic to MOVANTIK or any of the ingredients in MOVANTIK · MOVANTIK can interact with other medicines and cause side effects, including opioid withdrawal symptoms (see symptoms above). Tell your doctor or pharmacist before you start or stop any medicines during treatment with MOVANTIK · Before you take MOVANTIK, tell your doctor about all of your medical conditions, including if you: - Have any stomach, bowel (intestines) problems, including inflammation in parts of the large intestine (diverticulitis), or inflammation and injury of the intestines caused by reduced blood flow (ischemic colitis) - Have had recent surgery on the stomach or intestines - Have any kidney, or liver problems - Are pregnant or plan to become pregnant. Taking MOVANTIK during pregnancy may cause opioid withdrawal symptoms in you or your unborn baby. Tell your healthcare provider right away if you become pregnant during treatment with MOVANTIK - Are breastfeeding or plan to breastfeed. It is not known if MOVANTIK passes into your breast milk. Taking MOVANTIK while you are breastfeeding may cause opioid withdrawal in your baby. You and your healthcare provider should decide if you will take MOVANTIK or breastfeed. You should not breastfeed if you take MOVANTIK 23 EXECUTION VERSION · Tell your doctor about all of the medicines you take, including prescription and over-the-counter medicines, vitamins, and herbal supplements. Other medicines may affect the way MOVANTIK works · If you stop taking your opioid pain medicine, stop taking MOVANTIK and tell your doctor · Avoid eating grapefruit or drinking grapefruit juice during treatment with MOVANTIK · The most common side effects of MOVANTIK include: Stomach (abdomen) pain, diarrhea, nausea, gas, vomiting, headache, and excessive sweating APPROVED USE FOR MOVANTIK MOVANTIK is a prescription medicine used to treat constipation that is caused by prescription pain medicines called opioids, in adults with long-lasting (chronic) pain that is not caused by active cancer. You are encouraged to report Adverse Reactions to RedHill Biopharma Inc. at 1-833-ADRHILL (1-833-237- 4455) or FDA at 1-800-FDA-1088 or www.fda.gov/medwatch. This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may be preceded by the words “intends,” “may,” “will,” “plans,” “expects,” “anticipates,” “projects,” “predicts,” “estimates,” “aims,” “believes,” “hopes,” “potential” or similar words. The findings to date are only preliminary, are based on clinical results of a very limited number of patients. There is no guarantee that these patients will continue to show clinical improvement or that other patients will show similar clinical improvement. Forward-looking statements are based on certain assumptions and are subject to various known and unknown risks and uncertainties, many of which are beyond the Company’s control and cannot be predicted or quantified, and consequently, actual results may differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include (i) the initiation, timing, progress and results of the Company’s research, manufacturing, pre-clinical studies, clinical trials, and other therapeutic candidate development efforts, and the timing of the commercial launch of its commercial products and ones it may acquire or develop in the future; (ii) the Company’s ability to advance its therapeutic candidates into clinical trials or to successfully complete its pre-clinical studies or clinical trials or the development of a commercial companion diagnostic for the detection of MAP; (iii) the extent and number and type of additional studies that the Company may be required to conduct and the Company’s receipt of regulatory approvals for its therapeutic candidates, and the timing of other regulatory filings, approvals and feedback; (iv) the manufacturing, clinical development, commercialization, and market acceptance of the Company’s therapeutic candidates and commercial products; (v) the Company’s ability to successfully commercialize and promote Talicia®, and Aemcolo® and Movantik®; (vi) the Company’s ability to establish and maintain corporate collaborations; (vii) the Company's ability to acquire products approved for marketing 24 EXECUTION VERSION in the U.S. that achieve commercial success and build its own marketing and commercialization capabilities; (viii) the interpretation of the properties and characteristics of the Company’s therapeutic candidates and the results obtained with its therapeutic candidates in research, pre-clinical studies or clinical trials; (ix) the implementation of the Company’s business model, strategic plans for its business and therapeutic candidates; (x) the scope of protection the Company is able to establish and maintain for intellectual property rights covering its therapeutic candidates and commercial products and its ability to operate its business without infringing the intellectual property rights of others; (xi) parties from whom the Company licenses its intellectual property defaulting in their obligations to the Company; (xii) estimates of the Company’s expenses, future revenues, capital requirements and needs for additional financing; (xiii) the effect of patients suffering adverse experiences using investigative drugs under the Company's Expanded Access Program; (xiv) competition from other companies and technologies within the Company’s industry; and (xv) the hiring and maintaining employment of executive managers. More detailed information about the Company and the risk factors that may affect the realization of forward-looking statements is set forth in the Company's filings with the Securities and Exchange Commission (SEC), including the Company's Annual Report on Form 20-F filed with the SEC on March 4, 2020. All forward-looking statements included in this press release are made only as of the date of this press release. The Company assumes no obligation to update any written or oral forward-looking statement, whether as a result of new information, future events or otherwise unless required by law. Company contact: Adi Frish Senior VP Business Development & Licensing RedHill Biopharma +972-54-6543-112 adi@redhillbio.com IR contact (U.S.): Timothy McCarthy, CFA, MBA Managing Director, Relationship Manager LifeSci Advisors, LLC +1-212-915-2564 tim@lifesciadvisors.com 25 SECURITIES PURCHASE AGREEMENT Exhibit 4.27 THE SYMBOL "[***]" DENOTES PLACES WHERE PORTIONS OF THIS DOCUMENT HAVE BEEN OMIITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. SUCH MATERIAL HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION THIS SECURITIES PURCHASE AGREEMENT (“Agreement”) is made and entered into as of August 3, 2020 (the “Signing Date”), by and between RedHill Biopharma Ltd., a company limited by shares organized under the laws of the State of Israel (the “Company”), and Daiichi Sankyo, Inc., a Delaware corporation (“Daiichi Sankyo”). The Company and Daiichi Sankyo shall be referred to individually each as a “Party” and collectively as the “Parties.” A. Concurrently with the execution of this Agreement, the Company is entering into a Termination Agreement (the “Termination Agreement”) with Daiichi Sankyo, pursuant to which the Company and Daiichi Sankyo are agreeing to terminate a certain Co-Commercialization Agreement between them, and the Company is agreeing to make certain payments to Daiichi Sankyo in connection with the termination of such Co- Commercialization Agreement; and B. Pursuant to the Termination Agreement, the Company has agreed to issue to Daiichi Sankyo American Depositary Shares (“ADSs”) representing ordinary shares of the Company, par value NIS 0.01 per share (“Ordinary Shares”), in accordance with the terms and conditions of this Agreement and in partial consideration for the execution and delivery by Daiichi Sankyo of the Termination Agreement. AGREEMENT In consideration of the mutual covenants contained in this Agreement and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and Daiichi Sankyo hereby agree as follows: SECTION 1. SALE AND PURCHASE OF ADSS. 1.1 Sale of ADSs. Subject to the terms and conditions of this Agreement, the Company will issue and sell to Daiichi Sankyo, and Daiichi Sankyo will purchase from the Company, in each case as partial consideration for the execution and delivery by Daiichi Sankyo of the Termination Agreement, at the Closing (as defined below), 283,387 ADSs (the “Securities”). SECTION 2. CLOSING AND DELIVERY 2.1 Closing. The closing of the purchase and sale of the Securities will occur, subject to and upon satisfaction of the conditions set forth in Section 6 below, within three business days of the execution of this Agreement, and shall take place remotely via electronic means (the “Closing”) in which separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument, will first be delivered by an electronic mail exchange of signature pages, with originals to follow addressed to each party’s counsel. 2.2 Delivery. At the Closing, as partial consideration for execution and delivery by Daiichi Sankyo of the Termination Agreement, the Company shall deliver or cause to be delivered to Daiichi Sankyo book-entry credits evidencing the Securities, registered in the name of Daiichi Sankyo on the records of The Bank of New York Mellon, as the depositary (the “Depositary”) pursuant to the Deposit Agreement, dated as of December 26, 2012, among the Company, the Depositary, and all owners and holders from time to time of ADSs issued thereunder, bearing the legend expressly provided for by Section 5.2 hereof. SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth in the SEC Documents (as defined below) submitted to the Securities and Exchange Commission (the “SEC”) since March 1, 2020 and prior to the execution of this Agreement, excluding any “forward-looking statements” or other statements that are predictive or forward-looking in nature (the “Recent SEC Disclosures”) or as set forth on Schedule 3 attached hereto, the Company hereby represents and warrants to, and covenants with, Daiichi Sankyo as follows as of the Signing Date: 3.1 Organization and Power. The Company and each of its subsidiaries is a corporation duly incorporated and validly existing under the laws of the jurisdiction in which it is incorporated and has the requisite corporate power to own, lease and operate its properties and assets and to conduct its business as it is now being conducted and as described in the reports filed by the Company with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), since the end of the Company’s most recently completed fiscal year through the date hereof, including, without limitation, the Company’s most recent report on Form 20-F. The Company and each of its subsidiaries is qualified to do business as a foreign corporation in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except for any jurisdiction(s) (alone or in the aggregate) in which the failure to be so qualified will not have a Material Adverse Effect. For the purposes of this Agreement, “Material Adverse Effect” means any effect on the business, operations, properties or financial condition of the Company that is material and adverse to the Company, taken as a whole, and any condition, circumstance or situation that would prohibit the Company from entering into and performing any of its obligations hereunder or under the Termination Agreement. All of the issued and outstanding capital stock of each subsidiary of the Company has been duly authorized and validly issued and are fully paid and nonassessable, and the capital stock of each subsidiary is wholly owned by the Company, directly or through subsidiaries, and is owned free from liens, encumbrance and defects that would affect the value thereof or interfere with the operation of such subsidiaries or the Company’s exercise of ownership rights with respect thereto except as disclosed in the Recent SEC Disclosures. 3.2 Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement and to issue and sell the Securities in accordance with the terms hereof. The execution, delivery and performance of this Agreement by the Company and the consummation by it of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action, and no further consent or authorization of the Company, its board of directors or stockholders is required. When executed and delivered by the Company, this Agreement shall constitute a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, reorganization, moratorium, liquidation, 2 conservatorship, receivership or similar laws relating to, or affecting generally the enforcement of, creditor’s rights and remedies or by other equitable principles of general application. 3.3 Issuance of ADSs. The Securities and the Ordinary Shares underlying the Securities (the “Underlying Shares”) have been duly authorized for issuance and, when paid for and issued in accordance with the terms hereof, will be validly issued, fully paid and nonassessable and free and clear of all liens, claims, charges, security interests or agreements, pledges, assignments, covenants, restrictions or other encumbrances created by, or imposed by, the Company and rights of refusal of any kind imposed by the Company (other than restrictions on transfer under this Agreement and applicable securities laws) and the holder of the Securities shall be entitled to all rights accorded to a holder of ADSs. 3.4 No Conflicts; Governmental Approvals. The execution, delivery and performance of the Agreement and the Termination Agreement by the Company and any other document or instrument contemplated hereby or thereby, and the consummation by the Company of the transactions contemplated hereby, do not and will not (i) violate any provision of the Company’s articles of association, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, mortgage, deed of trust, indenture, note, bond, license, lease agreement, instrument or obligation to which the Company is a party or by which the Company’s properties or assets are bound, or (iii) result in a violation of any material federal, state, local or foreign statute, rule, regulation, order, judgment or decree (including securities laws and regulations) applicable to the Company or by which any property or asset of the Company is bound or affected, except, in all cases, for such conflicts, defaults, terminations, amendments, acceleration, cancellations and violations as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company is not required under federal, state, local or foreign law, rule or regulation or any rule or regulation of any self- regulatory body to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under this Agreement or issue and sell the Securities in accordance with the terms hereof, other than a Form D under Regulation D promulgated under the Securities Act of 1933, as amended (the “Securities Act”). 3.5 Capitalization. As of June 30, 2020 (the “Reference Date”), a total of 361,269,738 Ordinary Shares were issued and outstanding. The Company has not issued any capital stock since the Reference Date other than pursuant to the exercise of stock options under the Company’s Amended and Restated Award Plan (2010) (the “Plan”) and issuances of ADSs pursuant to its “at the market” program with SVB Leerink. No individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company or other entity (“Person”) has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by this Agreement. Except as granted to employees, directors, consultants or other service providers pursuant to the Plan, there are no outstanding options, warrants, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, any ADSs or Ordinary Shares, or contracts, commitments, understandings or arrangements by which the Company is or may become bound to issue additional ADSs or Ordinary Shares. Neither the 3 issuance nor sale of the Securities will obligate the Company to issue ADSs, Ordinary Shares or other securities to any Person other than Daiichi Sankyo and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. All of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable, have been issued in compliance with all applicable federal, state and foreign securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. Except as set forth in the reports, schedules, forms, statements and other documents filed by the Company with the SEC (the “SEC Documents”) since December 31, 2019, there are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party. 3.6 SEC Documents, Financial Statements. The ADSs are registered pursuant to Section 12(b) of the Exchange Act. During the two year period preceding the Closing, the Company has timely filed all SEC Documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Act or the Exchange Act. At the times of their respective filing, all such reports, schedules, forms, statements and other documents complied in all material respects with the requirements of the Securities Act or the Exchange Act, as applicable, and the rules and regulations of the SEC promulgated thereunder. At the times of their respective filings, such reports, schedules, forms, statements and other documents did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements of the Company included in the SEC Documents complied in all material respects with the applicable accounting requirements and the published rules and regulations of the SEC or other applicable rules and regulations with respect thereto in effect at the time of filing. Such financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements), and fairly present in all material respects the consolidated financial position of the Company as of the dates thereof and the results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). The Company has received no notices or correspondence from the SEC since January 1, 2019 relating to matters that, to the knowledge of the Company, remain outstanding or unresolved. To the knowledge of the Company, the SEC has not commenced, nor threatened, any enforcement proceedings against the Company or any of its subsidiaries. 3.7 Internal Controls and Procedures. The Company maintains disclosure controls and procedures as such terms are defined in, and required by, Rule 13a-15 and Rule 15d-15 under the Exchange Act. Such disclosure controls and procedures are effective as of the latest date of management’s evaluation of such disclosure controls and procedures as set forth in the SEC Documents to ensure that all material information required to be disclosed by the Company in the reports that it files or furnishes under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. The Company maintains a system of internal controls over financial reporting sufficient to provide reasonable assurance that (a) transactions are executed in accordance with management’s general or specific 4 authorizations and (b) transactions are recorded as necessary to permit preparation of financial statements in conformity with International Financial Reporting Standards (“IFRS”). The Company has disclosed, based on its most recent evaluation prior to the date hereof, to the Company’s auditors and the audit committee of the Company’s Board of Directors (y) any material weaknesses in its internal control over financial reporting and (z) any allegation of fraud that involves management of the Company or any other employees of the Company who have a significant role in the Company’s internal control over financial reporting or disclosure controls and procedures. 3.8 Off-Balance Sheet Arrangements. There is no transaction, arrangement, or other relationship between the Company and an unconsolidated or other off balance sheet entity that is required to be disclosed by the Company in the SEC Documents and is not so disclosed or that otherwise would be reasonably likely to have a Material Adverse Effect. 3.9 Absence of Certain Changes. Since December 31, 2019, no event or series of events has or have occurred that would, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect. 3.10 No Undisclosed Liabilities. Neither the Company nor any of its subsidiaries has any liabilities, obligations, claims or losses (whether liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent or otherwise) that would be required to be disclosed on the consolidated balance sheet of the Company (including the notes thereto) in conformity with IFRS and are not disclosed in the SEC Documents, other than those contemplated by this Agreement and the Termination Agreement or incurred in the ordinary course of the Company’s or its subsidiaries’ respective businesses since December 31, 2019. 3.11 No Undisclosed Events or Circumstances. Except for the transactions contemplated by this Agreement and the Termination Agreement, to the knowledge of the Company, no event or circumstance has occurred or exists with respect to the Company, its subsidiaries, or their respective businesses, properties, operations or financial condition that, under applicable law, rule or regulation, requires a filing with the SEC on Form 6-K, would be required to be included in a Registration Statement on Form F-1 filed under the Securities Act were such a registration statement filed on the date hereof, or requires public disclosure or announcement by the Company but that has not been so filed or publicly announced or disclosed except for the Company’s financial results for the quarter ended June 30, 2020 and issuances of ADSs pursuant to its “at the market” program with SVB Leerink. 3.12 Actions Pending. There is no action, suit, proceeding, governmental inquiry or investigation (“Action”) pending, or, to the Company’s knowledge, threatened, against the Company or any officer, director of the Company, that questions the validity of this Agreement or the right of the Company to enter into this Agreement or to consummate the transactions contemplated hereby. There is no Action pending or, to the knowledge of the Company, threatened, against or involving the Company, any subsidiary, or any of their respective properties or assets that would be reasonably expected to have a Material Adverse Effect. The Company is not subject to any outstanding judgment, order or decree that would reasonably be expected to have a Material Adverse Effect. 5 3.13 Compliance with Law. The Company possesses all material permits, licenses, franchises, authorizations, orders and approvals of (collectively, “Permits”), and has made all filings, applications and registrations with, governmental authorities that are required in order to permit the Company to own or lease its properties and assets and to carry on its business as presently conducted, except where the failure to possess such Permits or make such filings, applications or registrations would not reasonably be expected to have a Material Adverse Effect. Neither the issuance or sale of the Securities hereunder nor the performance of the Company’s other obligations under this Agreement, will result in the suspension, revocation, impairment, forfeiture or nonrenewal of any permit applicable to the Company, its businesses or operations or any of its assets or properties. The Company and its subsidiaries have complied and are in compliance in all material respects with all Permits, statutes, laws, regulations, rules, judgments, orders and decrees of all governmental authorities applicable to it, except where failure to be so in compliance would not reasonably be expected to result in a Material Adverse Effect. The Company has not received any notice alleging noncompliance, and, to the knowledge of the Company, the Company is not under investigation with respect to, or threatened to be charged with, any material violation of any applicable statutes, laws, regulations, rules, judgments, orders or decrees of any governmental authorities. The Company has not received any notice of proceedings relating to the suspension, revocation, impairment, forfeiture or nonrenewal of any permit. Since January 1, 2019, the Company has not entered into or been subject to any judgment, consent decree, compliance order or administrative order with respect to any aspect of the business, affairs, properties or assets of the Company. 3.14 No Defaults or Violations. Neither the Company nor any of its subsidiaries is in is in default under or in violation or breach of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any of its subsidiaries under), nor has the Company or any of its subsidiaries received notice of a claim that it is in default under or that it is in violation or breach of, (a) any agreement or instrument to which the Company is a party or by which it or any of its properties is bound that is required to be filed as an exhibit by the Company with the SEC which default, violation or breach would be reasonably expected to have a Material Adverse Effect or (b) any material obligation, agreement, covenant or condition contained in the Company’s credit agreement, dated February 23, 2020, by and among the Company, RedHill Biopharma Inc., HCR Collateral Management, LLC and the lenders from time to time party thereto, any related security or pledge agreement, or any other indenture, loan, credit agreement, or other evidence of indebtedness to which the Company is a party or by which it or any of its properties is bound. 3.15 FCPA; Anti-Bribery. The Company is in material compliance, and has established policies and procedures to promote and achieve material compliance, with all applicable laws dealing with improper or illegal payments, gifts and gratuities, including the U.S. Foreign Corrupt Practices Act of 1977, the UK Bribery Act 2010, the International Anti-Bribery and Fair Competition Act of 1998, and has not paid, promised to pay or authorized the payment of any money or anything of value, directly or indirectly, to any person for the purpose of illegally or improperly inducing a decision or obtaining or retaining business, or securing any improper advantage, including in connection with this Agreement or the Termination Agreement. 3.16 Sanctioned Persons. Neither the Company nor any of its subsidiaries, or to the knowledge of the Company, any director, officer, agent employee, affiliate or shareholder of the 6 Company: (i) is, or is owned or controlled by, a Person that is the subject of sanctions administered or enforced by the United States of America (including without limitation the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”)), the State of Israel, the United Kingdom, the European Union, the United Nations Security Council or any other applicable governmental authority (collectively, “Sanctions”); or (ii) has knowingly engaged in or is now knowingly engaging in any dealings or transactions that resulted in or will result in a violation of any laws, regulations, or rules related to the imposition of Sanctions in connection with the performance of this Agreement or the Termination Agreement. The Company will not directly or indirectly use the proceeds of the offering of the Securities hereunder, or lend, contribute or otherwise make available such proceeds to any joint venture partner or other person or entity for the purpose of financing the activities of any person that, to the Company’s knowledge, is currently subject to any U.S. sanctions administered by OFAC. 3.17 Regulatory Matters. The Company and its subsidiaries (a) have operated their respective businesses and are currently in material compliance with all applicable statutes, rules, regulations and policies of the FDA and equivalent foreign regulatory authorities that are material to the operation of the Company and (b) possess, and are in material compliance with the terms of, all material certificates, authorizations, franchises, licenses and permits, including, without limitation, from the FDA and equivalent foreign regulatory authorities (“Licenses”) necessary for the conduct of the business now conducted by them, and have not received any notice of proceedings or inquiries relating to the revocation or modification of any Licenses that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate be material to the Company. To the knowledge of the Company, any clinical trials and studies conducted by or on behalf of the Company or in which the Company has participated were and, if still pending, are being conducted in material accordance with standard medical and scientific research procedures and any applicable rules, regulations and policies of the jurisdiction in which such trials and studies are being conducted. 3.18 Intellectual Property. The Company owns, or has the right pursuant to a valid, written license agreement to use and exploit, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade dress, trade secrets, inventions and discoveries and invention disclosures whether or not patented, copyrights in both published and unpublished works, including without limitation all compilations, data bases and computer programs, materials and other documentation, licenses, internet domain names and other intellectual property rights and similar rights (“Intellectual Property”) used in or necessary for the conduct of the business of the Company and that is material to the business of the Company as currently conducted (collectively, the “Company Intellectual Property”). No claims have been asserted by a third party in writing (including any governmental authority) (a) alleging that the conduct of the business of the Company has infringed or misappropriated any Intellectual Property of any third party, or (b) challenging or questioning the validity, enforceability, or effectiveness of any Company Intellectual Property owned by the Company (and to the knowledge of the Company with respect to Company Intellectual Property not owned by the Company), and, to the Company’s knowledge, there is no valid basis for any such claim. To the knowledge of the Company, all issued patents and registered trademarks that are Company Intellectual Property are valid and enforceable and to the knowledge of the Company there is no existing infringement by another Person of any of the Company Intellectual Property. To the knowledge of the Company, there are no actual or threatened disputes concerning any of the Company Intellectual Property. Neither the Company 7 nor any of its subsidiaries has received written notice that any Company Intellectual Property has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within three years from the date of this Agreement, that would, individually or in the aggregate, have a Material Adverse Effect. 3.19 Environmental Laws. The Company and its subsidiaries (i) are in compliance with any and all applicable foreign, state, local and foreign laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (“Environmental Laws”), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval, in each case above except where the failure to so comply would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. 3.20 Insurance. The Company and each of its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its subsidiaries are engaged. Neither the Company nor any such subsidiary has been refused any insurance coverage sought or applied for. Neither the Company nor any subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not reasonably be expected to materially and adversely affect the condition, financial or otherwise, or the earnings, business or operations of the Company and its subsidiaries, taken as a whole. 3.21 Taxes. The Company and each of its subsidiaries has made or filed all federal, state and foreign income and all other material tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply, except where the failure to file or pay would reasonably not expected to have a Material Adverse Effect. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and to the knowledge of the Company, there is no basis for any such claim. 3.22 Privacy. The Company and its subsidiaries are in material compliance with all applicable data privacy and security laws and regulations, including, without limitation, the Health Insurance Portability and Accountability Act (“HIPAA”), as amended by the Health Information Technology for Economic and Clinical Health Act (42 U.S.C. Section 17921 et seq.); and the Company and its subsidiaries have taken all necessary action to comply in all material respects with the European Union General Data Protection Regulation (“GDPR”) (EU 2016/679) (collectively, “Privacy Laws”). To ensure compliance with the Privacy Laws, the Company and its subsidiaries have in place, comply with, and take appropriate steps reasonably designed to ensure compliance in all material respects with their policies and procedures relating to data 8 privacy and security and the collection, storage, use, disclosure, handling and analysis of Personal Data (the “Policies”). The Company provides accurate notice of its Policies to its customers, employees, third party vendors and representatives. The Policies provide accurate and sufficient notice of the Company’s then-current privacy practices relating to its subject matter and such Policies do not contain any material omissions of the Company’s then-current privacy practices. “Personal Data” means (i) a natural persons’ name, street address, telephone number, email address, photograph, social security number, bank information, or customer or account number; (ii) any information which would qualify as “personally identifying information” under the Federal Trade Commission Act, as amended; (iii) Protected Health Information as defined by HIPAA; (iv) “personal data” as defined by GDPR; and (v) any other piece of information that allows the identification of such natural person, or his or her family, or permits the collection or analysis of any data related to an identified person’s health or sexual orientation. None of such disclosures made or contained in any of the Policies have been inaccurate, misleading, deceptive or in violation of any Privacy Laws or Policies in any material respect. The execution, delivery and performance of this Agreement or any other agreement referred to in this Agreement will not result in a breach of any Privacy Laws or Policies. Neither the Company nor any of its subsidiaries, (i) has received written notice of any actual or potential liability under or relating to, or actual or potential violation of, any of the Privacy Laws, and has no knowledge of any event or condition that would reasonably be expected to result in any such notice; (ii) is currently conducting or paying for, in whole or in part, any investigation, remediation or other corrective action pursuant to any Privacy Law; or (iii) is a party to any order, decree, or agreement that imposed any obligation or liability under any Privacy Law. 3.23 IT Systems. (i)(x) To the knowledge of the Company, there has been no material security breach or attack or other material compromise of or relating to any of the Company’s and its subsidiaries’ information technology and computer systems, networks, hardware, software, data (including the data of their respective customers, employees, suppliers, vendors and any third party data maintained by or on behalf of them), equipment or technology (“IT Systems and Data”), and (y) the Company and its subsidiaries have not been notified of any event or condition that would reasonably be expected to result in any security breach, attack or compromise to their IT Systems and Data that would reasonably be expected to have a Material Adverse Effect, (ii) the Company and its subsidiaries have complied, and are presently in compliance with, all applicable laws, statutes or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority and all industry guidelines, standards, internal policies and contractual obligations relating to the privacy and security of IT Systems and Data and to the protection of such IT Systems and Data from unauthorized use, access, misappropriation or modification, except as would not, in the case of this clause (ii), individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; and (iii) the Company and its subsidiaries have implemented backup and disaster recovery technology consistent with commonly accepted industry standards and practice. 3.24 Application of Takeover Protections. The Company has taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination or other similar anti-takeover provision under the Company’s articles of association or the laws of the State of Israel that is applicable to Daiichi Sankyo as a result of the transactions contemplated by this Agreement, including, without limitation, the Company’s issuance of the Securities and Daiichi Sankyo’s ownership of the Securities and the Underlying Shares. The Company has not adopted 9 any stockholder rights plan, “poison pill” or similar arrangement that would trigger any right, obligation or event as a result of the issuance of the Securities and the Underlying Shares and Daiichi Sankyo’s ownership of the Securities and the Underlying Shares. 3.25 Listing and Maintenance Requirements. The Company is in material compliance with the requirements of the Nasdaq Global Market (“Nasdaq”) for continued listing of the ADSs thereon and has not received any notification that, and has no knowledge that Nasdaq is contemplating terminating such listing. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of Nasdaq in any material respect. To the extent required by Nasdaq rules, the Company has submitted, and Nasdaq has completed its review of, a Listing of Additional Shares Notification Form with respect to the Securities. 3.26 Private Placement. Neither the Company nor its Affiliates (as defined below), nor any Person acting on its or their behalf, (i) has engaged in any form of general solicitation or general advertising in connection with the offer or sale of the Securities hereunder, (ii) has, directly or indirectly, made any offers or sales of the Securities or solicited any offers to buy the Securities, under any circumstances that would require registration of the sale and issuance by the Company of the Securities under the Securities Act or (iii) has issued any ADSs or shares of any series of preferred stock or other securities or instruments convertible into, exchangeable for or otherwise entitling the holder thereof to acquire ADSs that would be integrated with the sale of the Securities to Daiichi Sankyo for purposes of the Securities Act or of any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of any stock exchange or automated quotation system on which any of the securities of the Company are listed or designated, nor will the Company or any of its subsidiaries or Affiliates take any action or steps that would require registration of any of the Securities under the Securities Act or cause the offering of the Securities to be integrated with other offerings. Assuming the accuracy of the representations and warranties of Daiichi Sankyo, the offer and sale of the Securities by the Company to Daiichi Sankyo pursuant to this Agreement will be exempt from the registration requirements of the Securities Act. For the purposes of this Agreement, an “Affiliate” of a Person means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with such Person, as such terms are used in and construed under Rule 144 under the Securities Act (“Rule 144”). 3.27 Bad Actor. None of the Company, any of its predecessors, any affiliated issuer, and to the knowledge of the Company, any director, any executive officer, any other officer of the Company participating in the offer of the Securities, any beneficial owner of twenty percent (20%) or more of the Company’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with the Company in any capacity at the time of sale is subject to any of the “bad actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a “Disqualification Event”), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). 3.28 Investment Company. The Company is not an investment company within the meaning of the Investment Company Act of 1940, as amended. 10 3.29 Shell Company. The Company is not, and has never been, an issuer described in Rule 144(i) promulgated under the Securities Act. 3.30 Brokers. Neither the Company nor any of the officers, directors or employees of the Company has employed any broker or finder in connection with the transaction contemplated by this Agreement. SECTION 4. REPRESENTATIONS AND WARRANTIES OF DAIICHI SANKYO. 4.1 Purchaser Sophistication. Daiichi Sankyo represents and warrants to, and covenants with, the Company that Daiichi Sankyo: (a) is knowledgeable, sophisticated and experienced in making, and is qualified to make decisions with respect to, investments in shares presenting an investment decision like that involved in the purchase of the Securities, including investments in securities issued by the Company and investments in comparable companies, and has had the opportunity to request and has reviewed and considered all information it deemed necessary in making an informed decision to purchase the Securities; (b) is an “accredited investor” pursuant to Rule 501 of Regulation D under the Securities Act; (c) is acquiring the Securities for its own account for investment only and with no present intention of distributing any of the Securities or any arrangement or understanding with any other persons regarding the distribution of such Securities; (d) has not been formed for the specific purpose of acquiring the Securities; (e) understands that the Securities have not been and will not be registered under the Securities Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred other than pursuant to an exemption from the registration requirements under the Securities Act or pursuant to an effective registration statement under the Securities Act and Daiichi Sankyo will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire to take a pledge of) any of the Securities except in compliance with the Securities Act and applicable state securities laws; (f) understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of the Securities Act and state securities laws, and that the Company is relying upon the truth and accuracy of, and Daiichi Sankyo’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of Daiichi Sankyo set forth herein in order to determine the availability of such exemptions and the eligibility of Daiichi Sankyo to acquire the Securities; (g) understands that its investment in the Securities involves a significant degree of risk, including a risk of total loss of Daiichi Sankyo’s investment, and is able to afford a complete loss of such investment (provided that such acknowledgment in no way diminishes the representations, warranties and covenants made by the Company hereunder); and (h) understands that no U.S. federal, state of foreign agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities. 4.2 Authorization and Power. Daiichi Sankyo is a corporation duly incorporated and validly existing under the laws of the State of Delaware and has the requisite power and authority to enter into and perform this Agreement and to purchase the Securities. The execution, delivery and performance of this Agreement by Daiichi Sankyo and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary corporate action, and no further consent or authorization of Daiichi Sankyo or its board of directors or stockholders is 11 required. When executed and delivered by Daiichi Sankyo, this Agreement shall constitute a valid and binding obligation of Daiichi Sankyo enforceable against Daiichi Sankyo in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, conservatorship, receivership or similar laws relating to, or affecting generally the enforcement of, creditor’s rights and remedies or by other equitable principles of general application. 4.3 No Conflict. The execution, delivery and performance of this Agreement and the Termination Agreement by the Company by Daiichi Sankyo and any other document or instrument contemplated hereby or thereby and the consummation by Daiichi Sankyo of the transactions contemplated hereby do not (i) violate any provision of Daiichi Sankyo’s charter or organizational documents, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, mortgage, deed of trust, indenture, note, bond, license, lease agreement, instrument or obligation to which Daiichi Sankyo is a party or by which Daiichi Sankyo’s properties or assets are bound, or (iii) result in a violation of any material federal, state, local or foreign statute, rule, regulation, order, judgment or decree (including securities laws and regulations) applicable to Daiichi Sankyo or by which any property or asset of Daiichi Sankyo are bound or affected, except, in all cases, other than violations (with respect to securities laws) above, for such conflicts, defaults, terminations, amendments, acceleration, cancellations and violations as would not, individually or in the aggregate, reasonably be expected to materially and adversely affect Daiichi Sankyo’s ability to perform its obligations under the Agreement. 4.4 Ownership of ADSs. As of the Closing, excluding the Securities and the Underlying Shares, Daiichi Sankyo and its Affiliates beneficially own no ADSs or Ordinary Shares and no securities convertible into or exchangeable for ADSs or Ordinary Shares. SECTION 5. RESALE OF ADSS AND COVENANTS OF THE COMPANY. 5.1 Lock-Up Period. Prior to the first anniversary of the Closing (the “Lock-Up Period”), Daiichi Sankyo will not directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of the Securities. The undersigned also agrees and consents to the entry of stop transfer instructions with the Depositary against the transfer of the Securities during the Lock-Up Period. Upon the expiration of the Lock- Up Period, Daiichi Sankyo covenants that the Securities will be transferred only in compliance with applicable securities laws. 5.2 Legend. Daiichi Sankyo acknowledges that the offering and sale of the Securities will not be registered with the Securities and Exchange Commission and as such, the Securities shall initially bear a restrictive legend in substantially the following form (and including related transfer instructions and record notations): THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER 12 THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH IN ACCORDANCE WITH ALL APPLICABLE STATE SECURITIES LAWS AND SECURITIES LAWS OF OTHER JURISDICTIONS. THESE SECURITIES ARE SUBJECT TO LOCK-UP RESTRICTIONS SET FORTH IN THE SECURITIES PURCHASE AGREEMENT DATED AS OF AUGUST 3, 2020. 5.3 Removal of Legend. The Company agrees that upon the expiration of the Lock-Up Period and delivery by Daiichi Sankyo and its broker of customary representation letters providing to the Company or its counsel information deemed by the Company to be reasonably necessary to determine that the Securities may be sold by Daiichi Sankyo without restriction under Rule 144 under the Securities Act, the Company shall promptly remove, or cause the Depositary to remove, the legend referenced in Section 5.2 above from the book-entries representing such Securities, without any requirement for the delivery by Daiichi Sankyo of any further certificate, consent, agreement, opinion of counsel or other document. 5.4 Reporting and Listing. The Company covenants and agrees that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by SEC thereunder to enable Daiichi Sankyo to sell the Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 under the Securities Act, as such Rule 144 may be amended from time to time, or any similar rule or regulation hereafter adopted by SEC. The Company hereby agrees to use commercially reasonable efforts to maintain the listing of the ADSs on Nasdaq. SECTION 6. CONDITIONS TO CLOSING. 6.1 The obligation hereunder of the Company to issue and sell the Securities to Daiichi Sankyo at the Closing is subject to the satisfaction or waiver, at or before the Closing of the conditions set forth below. These conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion. (a) Accuracy of Daiichi Sankyo’s Representations and Warranties. The representations and warranties of Daiichi Sankyo shall be true and correct as of the date when made and as of the Closing as though made at that time, except for representations and warranties that are expressly made as of a particular date, which shall be true and correct as of such date. (b) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by this Agreement. (c) Termination Agreement. The Termination Agreement shall be in full force and effect. 13 6.2 The obligation hereunder of Daiichi Sankyo to purchase the Securities and consummate the transactions contemplated by this Agreement is subject to the satisfaction or waiver, at or before the Closing, of each of the conditions set forth below. These conditions are for Daiichi Sankyo’s sole benefit and may be waived by Daiichi Sankyo at any time in its sole discretion. (a) Accuracy of the Company’s Representations and Warranties. Each of the representations and warranties of the Company in this Agreement shall be true and correct as of the date when made and as of the Closing as though made at such time, except for representations and warranties that are expressly made as of a particular date, which shall be true and correct as of such date. (b) Performance by the Company. The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing. (c) Compliance Certificate. A duly authorized officer of the Company shall deliver to Daiichi Sankyo at the Closing a certificate stating that the conditions specified in Sections 6.2(a) and (b) have been fulfilled and certifying and attaching the Company’s articles of association and authorizing resolutions of the Company’s board of directors with respect to this Agreement, the Termination Agreement and the transactions contemplated hereby and thereby. (d) Termination Agreement. The Termination Agreement shall be in full force and effect. (e) No Suspension, Etc. Trading in the Securities shall not have been suspended by the SEC or Nasdaq. (f) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits or otherwise restrains the consummation of any of the transactions contemplated by this Agreement. SECTION 7. NOTICES. All notices or other communications that are required or permitted hereunder shall be in writing and addressed as follows: If to the Company: RedHill Biopharma Ltd. 21Ha’arba’a Street Tel Aviv 64739 21 Israel Attention: [***] Email: [***] 14 with copies (which copies shall not constitute notice to the Company) to: Gross, Kleinhendler, Hodak, Halevy, Greenberg, Shenhav & Co. One Azrieli Center, Round Building Tel Aviv, 67021, Israel Attention: [***] Email: [***] If to Daiichi Sankyo: Daiichi Sankyo, Inc. 211 Mt. Airy Road Basking Ridge, New Jersey 07920 Attention: [***] Facsimile No: [***] with copies (which copies shall not constitute notice to Daiichi Sankyo) to: Hogan Lovells US LLP 100 International Drive, Suite 2000 Baltimore, Maryland 21202 Attention:[***] Email: [***] or to such other address as the Party to whom notice is to be given may have furnished to the other Party in writing in accordance herewith. Any such communication shall be deemed to have been given when delivered if personally delivered or sent by facsimile or email (provided that the Party providing such notice promptly confirms receipt of such transmission with the other Party by email or telephone), on the business day after dispatch if sent by a nationally-recognized overnight courier and on the third business day following the date of mailing if sent by certified mail, postage prepaid, return receipt requested. SECTION 8. MISCELLANEOUS. 8.1 Survival. Notwithstanding any investigation made by either Party, all representations and warranties made in this Agreement shall survive the Closing and the sale and issuance of the Securities for a period of 12 months from the date of this Agreement. All covenants and agreements contained herein shall survive until, by their respective terms, they are fully performed and no longer operative. 8.2 Fees and Expenses. Each Party shall pay the fees and expenses of its advisors, counsel, accountants and other experts, if any, and all other expenses, incurred by such Party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. 8.3 Waivers and Amendments. Neither this Agreement nor any provision hereof may be changed, waived, discharged, terminated, modified or amended except upon the written consent of the Parties hereto. The failure of either Party to assert a right hereunder or to insist upon 15 compliance with any term or condition of this Agreement shall not constitute a waiver of that right or excuse a similar subsequent failure to perform any such term or condition by the other Party. 8.4 Headings. The headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement. 8.5 Severability. If any provision hereof should be held invalid, illegal or unenforceable in any respect, then, to the fullest extent permitted by law, (a) all other provisions hereof shall remain in full force and effect and shall be liberally construed in order to carry out the intentions of the Parties as nearly as may be possible and (b) the Parties shall use their best efforts to replace the invalid, illegal or unenforceable provision(s) with valid, legal and enforceable provision(s) that, insofar as practical, implement the purposes of such provision(s) in this Agreement. 8.6 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York as applied to contracts entered into and performed entirely in the State of New York, without regard to conflicts of law principles. 8.7 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument, and shall become effective when one or more counterparts have been signed by each Party hereto and delivered to the other Parties. Any such counterpart, to the extent delivered by means of facsimile or by .pdf, .tif, .gif, .jpeg, or similar attachment to electronic mail, shall be treated in all manner and respects as an original executed counterpart and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. 8.8 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the Parties hereto. 8.9 No Third Party Beneficiaries. This Agreement is intended for the benefit of the Parties hereto and their respective permitted successors and assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person. 8.10 Expenses. Each Party shall pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of this Agreement. 8.11 Entire Agreement. This Agreement and the Termination Agreement and other documents delivered pursuant hereto and thereto, including the exhibits, constitute the full and entire understanding and agreement between the Parties with regard to the subjects hereof and thereof. 8.12 Waiver of Rule of Construction. Each Party has had the opportunity to consult with counsel in connection with the review, drafting and negotiation of this Agreement. Accordingly, the rule of construction that any ambiguity in this Agreement shall be construed against the drafting Party shall not apply. 16 8.13 Further Assurances. From and after the date of this Agreement, upon the reasonable request of Daiichi Sankyo or the Company, the Company and Daiichi Sankyo shall execute and deliver such instruments, documents and other writings as may be reasonably necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of this Agreement. [Remainder of page intentionally left blank.] 17 IN WITNESS WHEREOF, the Parties hereto have caused this Securities Purchase Agreement to be executed by their duly authorized representatives as of the day and year first above written. REDHILL BIOPHARMA LTD. /s/ [***] By: Name: [***] [***] Title: DAIICHI SANKYO, INC. /s/ [***] By: Name: [***] [***] Title: [Signature page to Securities Purchase Agreement] Schedule 3 to Securities Purchase Agreement Litigation commenced by Aether Therapeutics, Inc. (“Aether”) filed in March 2020 relating to Movantik® and the alleged infringement of patents assigned to Aether. CERTIFICATION BY CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 Exhibit 12.1 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 a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to 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, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely 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 internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are 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 a significant role in the company’s internal control over financial reporting. Date: March 18, 2021 /s/ Dror Ben-Asher Dror Ben-Asher Chief Executive Officer 1 CERTIFICATION BY CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE 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.; Exhibit 12.2 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to 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, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely 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 internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are 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 a significant role in the company’s internal control over financial reporting. Date: March 18, 2021 /s/ Micha Ben Chorin Micha Ben Chorin Chief Financial Officer 1 Exhibit 13 CERTIFICATION BY CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUAN 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 ended December 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to such officer's knowledge: (1) (2) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company Dated: March 18, 2021 /s/ Dror Ben-Asher Dror Ben-Asher Chief Executive Officer /s/ Micha Ben Chorin Micha Ben Chorin Chief Financial Officer Exhibit 15.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statements on Form F-3 (file No. 333-232777, file No. 333- 226278 and file No. 333-209702) and the Registration Statements on Form S-8 (file No. 333-232776, 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 March 17, 2021 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 20-F. /s/ Kesselman & Kesselman Certified Public Accountants (Isr.) A member firm of PricewaterhouseCoopers International Limited Tel-Aviv, Israel March 18, 2021 Kesselman & Kesselman, Derech Menachem Begin 146 Tel Aviv-Yafo 6492103 Israel, P.O Box 7187 Tel-Aviv 6107120 Telephone: +972 -3- 7954555, Fax:+972 -3- 7954556, www.pwc.com/il 

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