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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 ⌧
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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
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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;
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● 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;
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● 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
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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.
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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.
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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
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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.
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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.
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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
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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
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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
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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."
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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.
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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
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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.
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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;
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● 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
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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.
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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.
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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
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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;
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● 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
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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.
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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
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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
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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.
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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;
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● 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.
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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
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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
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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
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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
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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
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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
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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.
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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
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● 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
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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
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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
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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;
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● 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
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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;
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● 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
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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
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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
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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
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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
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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
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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.
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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.
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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.
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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.
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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.
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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.
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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;
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● 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.
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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®.
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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
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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®.
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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.
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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®.”
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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.
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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.
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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.
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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.
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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
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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.
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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.
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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.
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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.
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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.”
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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.
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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.”
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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.
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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
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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
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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.
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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.
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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.
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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.
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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
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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.
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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.
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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.
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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.
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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
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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,
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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.
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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
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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
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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.
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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.
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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
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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,
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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;
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● 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
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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.
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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.
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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.
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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.
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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.
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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
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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.
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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.
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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
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● 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.
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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.
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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.”
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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.
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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
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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
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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
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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
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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
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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.
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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
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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.
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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
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● 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
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● 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.
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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
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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.
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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.
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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.
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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
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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.
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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;
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● 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.
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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.
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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.
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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
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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.
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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.
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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.
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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.”
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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).
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.”)
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(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
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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.
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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.
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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.
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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.
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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).
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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.
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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.
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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
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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
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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.
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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
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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.
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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;
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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.
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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.
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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
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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
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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
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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
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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
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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
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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
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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.
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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.
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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.
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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.
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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.
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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.
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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%.
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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.
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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).
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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
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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
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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.
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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
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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 $23.5 million.
NOTE 19 - SHARE-BASED PAYMENTS:
On May 30, 2010, a general meeting of shareholders approved the option plan of the Company (the
“Option Plan”), after being approved by the BoD. In 2017 the Option Plan was amended and restated as
the 2010 Award Plan (the “Award Plan”). As of December 31, 2020, the Award Plan allows the Company
to allocate up to 59,206,448 options to purchase ordinary shares to employees, consultants, and directors
and are reserved by the BoD for issuance under the Award Plan. The terms and conditions of the grants
were determined by the BoD and are according to the Award Plan.
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REDHILL BIOPHARMA LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
a. The following is information on options granted in 2020:
Number of options granted in ADSs
According to the Award Plan
of the Company
Other than to
directors (1) To directors (1)(2)
Date of grant
January 2020
February
2020
March 2020
May 2020
June 2020
July 2020
August 2020
November
2020
95,000
52,500
285,000
143,000
767,500
12,500
55,500
21,000
—
Total
95,000
—
144,000
75,000
52,500
429,000
218,000
— 767,500
12,500
—
55,500
—
—
21,000
10.20
1,432,000
219,000
1,651,000
Exercise
price for 1
ADS ($)
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.
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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
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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
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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,
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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.
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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
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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,
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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
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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
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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.
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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.
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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
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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
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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.
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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.
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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.
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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
*
*
*
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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;
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· 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
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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.
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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
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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.
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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.
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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.
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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;
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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”)
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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
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· 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;
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· 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
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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;
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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