F-1/A 1 zk1415170.htm F-1/A zk1415170.htm


As filed with the Securities and Exchange Commission on June 30, 2014
Registration No. 333-194832
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
     
 
Amendment No. 3 to
Form F-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
     
 
Mapi - Pharma Ltd.
(Exact Name of Registrant as Specified in its Charter)
     
 
State of Israel
2834
Not Applicable
(State or Other Jurisdiction of
(Primary Standard Industrial
(I.R.S. Employer Identification No.)
Incorporation or Organization)
Classification Code Number)
 
 
Mapi - Pharma Ltd.
16 Einstein St. P.O. Box 4113
Ness Ziona 74140
+972 (73) 712-1213
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
     
 
Puglisi & Associates
850 Library Avenue, Suite 204
Newark, DE 19715
(302) 738-6680
(Name, address, including zip code, and telephone number, including area code, of agent for service)
     
 
Copies to:
 
Shachar Hadar, Adv.
Rick A. Werner, Esq.
Eran Ben Dor, Adv.
Oded Har-Even, Esq.
Gross, Kleinhendler,
Haynes and Boone, LLP
Zysman, Aharoni, Gayer & Co.
Shy S. Baranov, Esq.
Hodak, Halevy,
30 Rockefeller Plaza,
41-45 Rothschild Blvd.
Zysman, Aharoni, Gayer and
Greenberg & Co.
26th Floor
Beit Zion
Sullivan & Worcester
One Azrieli Center
New York, New York 10112
Tel-Aviv, Israel 65784
LLP
Tel Aviv 67021, Israel
(212) 659-7300
Tel: +972 (3) 795-5555
1633 Broadway
Tel: +972 (3) 607-4444
   
New York, NY 10019
     
Tel: (212) 660-5000
 
Approximate date of commencement of proposed sale to the public: As soon as practicable after effectiveness of this registration statement.
 
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. x
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
 
 
 

 
 
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
     
 
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission acting pursuant to said Section 8(a), may determine.
 
 
 

 
 
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
 
 
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION
DATED JUNE 30, 2014
     
 
 
2,665,000 Ordinary Shares
 
 
 
This is an initial public offering of ordinary shares of Mapi – Pharma Ltd.
 
No public market currently exists for our ordinary shares. The estimated initial public offering price is between $13.00 and $15.00 per share.
 
We have applied to list our ordinary shares on The Nasdaq Capital Market under the symbol “MAPI.”
 
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act) and will be subject to reduced public company reporting requirements.
 
Investing in our ordinary shares involves a high degree of risk. See “Risk Factors” beginning on page 10 of this prospectus for a discussion of information that should be considered in connection with an investment in our ordinary shares.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
   
Per share
   
Total
 
Initial public offering price
  $       $    
Underwriting discounts and commissions
  $       $    
Proceeds to us (before expenses)
  $       $    
 
The underwriters will receive compensation in addition to the underwriting discounts and commissions. See “Underwriting” for a description of compensation payable to the underwriters.
 
We have granted a 45-day option to the underwriters to purchase up to 399,750 additional ordinary shares solely to cover over-allotments, if any.
 
The underwriters expect to deliver the shares to purchasers in the offering on or about          , 2014.
 
Sole Book-Running Manager
 
Aegis Capital Corp
 
Co-Manager
 
Chardan Capital Markets, LLC
 
The date of this prospectus is          , 2014.
 
 
 

 
 
We are a development stage company that has no approved products
and has never recognized revenue from the sale of commercial products.
 
 
 

 
 
Table of Contents
 
 

 
Neither we nor any of the underwriters have authorized anyone to provide information different from that contained in this prospectus, any amendment or supplement to this prospectus or in any free writing prospectus prepared by us or on our behalf. When you make a decision about whether to invest in our ordinary shares, you should not rely upon any information other than the information in this prospectus and any free writing prospectus prepared by us or on our behalf. Neither the delivery of this prospectus nor the sale of our ordinary shares means that information contained in this prospectus is correct after the date of this prospectus. This prospectus is not an offer to sell or solicitation of an offer to buy these ordinary shares in any circumstances under which the offer or solicitation is unlawful.
 
Until and including  , 25 days after the date of this prospectus, all dealers that buy, sell or trade our ordinary shares, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer’s obligation to deliver a prospectus when acting as underwriters and with respect to unsold allotments or subscriptions.
 
For investors outside of the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.
 
 
i

 
 
This prospectus includes statistical, market and industry data and forecasts which we obtained from publicly available information and independent industry publications and reports that we believe to be reliable sources. These publicly available industry publications and reports generally state that they obtain their information from sources that they believe to be reliable, but they do not guarantee the accuracy or completeness of the information. Although we believe that these sources are reliable, we have not independently verified the information contained in such publications.
 
 
ii

 
 
 
PROSPECTUS SUMMARY
 
This summary does not contain all of the information you should consider before investing in our ordinary shares. You should read this summary together with the more detailed information appearing in this prospectus, including “Risk factors,” “Selected consolidated financial data,” “Management’s discussion and analysis of financial condition and results of operations,” “Business” and our consolidated financial statements and the related notes included at the end of this prospectus, before making an investment in our ordinary shares. All references to “Mapi,” “we,” “us,” “our,” the “Company” and similar designations refer to Mapi - Pharma Ltd. and its wholly-owned subsidiaries, MAPI Pharma Holding (Cyprus) Ltd., MAPI Pharma HK Ltd., MAPI Pharma Germany GmbH and MAPI Pharma LAB Nanjing Co. Ltd. The terms “shekels,” “Israeli shekels” and “NIS” refer to New Israeli Shekels, the lawful currency of the State of Israel, the terms “dollar,” “US$” or “$” refer to U.S. dollars, the lawful currency of the United States and the term “Euro” or “€” refer the Euro, the lawful currency of the European Union member states. Unless derived from our financial statements or otherwise indicated, U.S. dollar translations of NIS amounts and U.S. dollar translations of Euro amounts presented in this prospectus are translated using the rate of NIS 3.434 to $1.00 and Euro 0.734 to $1.00, respectively, based on the exchange rates reported by the Bank of Israel on June 27, 2014. We report under International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (the “IASB”). None of the financial statements were prepared in accordance with generally accepted accounting principles in the United States.
 
Our company
 
We are a development stage pharmaceutical company, engaged in the development of high-barrier to entry and high-added zvalue generic drugs that include complex active pharmaceutical ingredients (“APIs”), formulations and life cycle management (“LCM”) products that target large markets.
 
We are currently developing two LCM products for the treatment of multiple sclerosis (“MS”) and neuropathic pain. LCM products are new forms of marketed drugs that may offer advantages over existing formulations, such as improved patient compliance and reduced side effects, and allow extended patent and regulatory exclusivity of a marketed drug due to different formulations of product components, for example through depot or extended release formulations. Our LCM products seek to add value to products that are expected to go off-patent by integrating off-patent APIs with our formulations, resulting in a new final combination that is believed to be patentable.
 
We are also developing a portfolio of 13 complex APIs, five of which we intend to develop formulations for, a generic version of Risperdal® Consta®, Johnson & Johnson’s long acting injection of Risperidone for the treatment of schizophrenia and bipolar disorder and a new chemical entity, a novel pentapolymer developed for treating autoimmune diseases such as MS.
 
Our LCM portfolio focuses on big-market products, consisting of (i) Glatiramer Acetate Depot, a once-monthly injection for the treatment of MS in contrast to the daily 20 mg and the thrice-weekly 40 mg dosage of Copaxone® which is the Glatiramer Acetate brand product and is currently being marketed by Teva Pharmaceutical Industries Ltd. (which we sometimes refer to as “Teva” in this prospectus), (ii) Pregabalin ER, extended release capsules for the treatment of neuropathic pain and epilepsy, and (iii) Risperidone LAI (long acting injection), a depot formulation (which is described below) of Risperdal Consta, expected to be developed under the abbreviated new drug application (“ANDA”) or 505(b)(2) shortened regulatory pathway. We are developing Pregabalin ER currently only in Latin America due to existing patents currently covering this product in other large markets outside of Latin America. Further development in the U.S. and the European Union is expected to be either under the ANDA or 505(b)(2) shortened regulatory pathway.
 
Depot delivery systems are non-digestive formulations containing multiple doses of a drug that are designed to release the drug over a specified, often prolonged, period of time. Depot formulations come in many forms, designed for several different administration routes, including injections and implantations. Depot systems seek to overcome several well-recognized challenges often associated with conventional digestive delivery such as variations in drug plasma levels between doses that can lead to adverse effects or compromised efficacy, poor patient compliance due to frequent dosing, and difficulty localizing exposures to the target organ or tissue.
 
We currently do not have any products approved for sale in any jurisdiction. Our operations have been funded, to date, primarily from a single round of financing completed in 2008, research and development grants we received from the Israeli Office of the Chief Scientist (the “OCS”) and grants from Investitions Bank des Landes Brandenburg, Germany (“ILB”). We have incurred operating losses each year since our inception.
 
 
 
1

 
 
 
Our strategy
 
Our business strategy is to:
 
Complete clinical development and obtain regulatory approval for our LCM products. Our LCM portfolio aims to address large markets. Glatiramer Acetate Depot is an investigational once-monthly injection for the treatment of MS and our Pregabalin ER capsules are being investigated to treat neuropathic pain and epilepsy. We plan to initiate a Phase II clinical trial of Glatiramer Acetate Depot in relapsing-remitting multiple sclerosis (“RRMS”) patients in the third quarter of 2014 in Israel. Simultaneously, we intend to start a single pivotal Phase III clinical trial of Glatiramer Acetate Depot in the third quarter of 2014 for marketing approval in the United States. We plan to initiate a pharmacokinetics trial of Pregabalin ER by the second half of 2014 for the Latin American market, and we are considering the clinical development program for the rest of the world. We filed applications with Institutional Review Boards (Helsinki committees) of several medical institutions in Israel that are under review by the Israeli Ministry of Health for a Phase II trial in support of marketing approval for Glatiramer Acetate Depot. As of June 30, 2014, we received the approval of three Institutional Review Boards (Helsinki committees). On April 27, 2014, we received approval to conduct a questionnaire survey in the Carmel Medical Center in Israel among MS patients treated by Copaxone about their preferences regarding a depot formulation of Glatiramer Acetate compared to other modes of administration, which will accelerate the recruitment of participants in our Phase II clinical trial. In May 2014, we initiated this questionnaire survey. In addition, on February 23, 2014, we received approval from an Institutional Review Board (IRB) in India in connection with our planned bioequivalence trial with Risperidone LAI and we are currently seeking approval from the Drug Controller General of India (DCGI) to commence this bioequivalence trial. Pharmacokinetic trials (PK) attempt to discover the fate of a drug from the moment that it is administered up to the point at which it is completely eliminated from the body. Pharmacokinetic studies describe how the body affects a specific drug after administration through the mechanisms of absorption and distribution, as well as the chemical changes of the substance in the body.
 
Complete clinical development and regulatory approval for our Risperidone LAI, a generic depot formulation of Risperdal Consta. According to Johnson & Johnson, Risperdal Consta produced revenues of approximately $1.3 billion in 2013. We plan to commence bioequivalent clinical trials of Risperidone LAI in the third quarter of 2014. We intend to launch our Risperidone LAI in 2018. Of the 12 Orange Book listed patents for Risperdal Consta, only four expire after the proposed launch date. Based on a preliminary review by outside counsel, our LAI formulation does not infringe any claims of these remaining patents.
 
In January 2014, we signed an agreement with a large pharmaceutical company to jointly develop, manufacture and commercialize Risperdal LAI. As of the date of this prospectus, we have not filed any applications with the FDA or any foreign jurisdictions necessary to commence clinical studies for Risperidone LAI.
 
•      Continue the development and commercialization of our complex APIs and formulations portfolio. APIs are complex due to their intricate, multiple production stages and existing patent limitations. Our know-how, which was developed in-house and was not licensed from third parties, allows us to develop products that avoid solid form and production process patent limitations. Because they are complex to manufacture, the APIs we are developing tend to have a high barrier to entry into the market, which we believe will limit the number of competitors. Therefore, we expect the price erosion of our APIs and the formulations we are developing in the off-patent stage to be less than the price erosion of non-complex APIs and formulations. Our current portfolio consists of 13 APIs scheduled to launch starting in 2017, with early pre-patent expiration quantities of registration batches of certain products to be supplied to generic pharmaceutical companies beginning in 2014. We also plan to develop formulations for five of our APIs. We intend to initially manufacture our APIs through our strategic partners. However, we are currently developing our own manufacturing plant in Israel, where we expect to manufacture our APIs upon completion.
 
•      Pursue co-development and marketing partnerships. We have entered into co-development agreements with large pharmaceutical companies in connection with the development of Pregabalin ER and Risperidone LAI, as well as a co-development and marketing agreement with a large pharmaceutical manufacturer to manufacture the formulations for certain complex generic drugs. We intend to pursue additional co-development partnerships in order to accelerate the clinical development and maximize the market potential for our APIs, as well as for Glatiramer Acetate Depot. In particular, we intend to partner with large pharmaceutical companies that possess market know-how and marketing capabilities to complete the development and commercialization of our products.
 
•      Complete construction of in-house manufacturing capabilities, with significant tax benefits. Our Israeli development and manufacturing plant in the industrial park Neot Hovav, Israel, is an organic synthesis facility, designed for the production of APIs and intermediates. The plant is expected to be operational in the second half of 2014. The plant is designed as a multipurpose facility with mid-size industrial production reactors of varying capacities of up to 4,000 liters. The plant’s scalable design should enable us to expand capacity with limited expenditure. The plant is expected to hold two pilot facilities for smaller scale production to support the production scale-up process and initial sales of registration quantities. The plant also qualifies as a “Preferred Enterprise” under the Israeli Encouragement of Capital Investments, 5719-1959, or the Investment Law, which entitles us to cash grants of 20% of the amount of the approved investment in the plant (which may be increased by an additional 4%). In addition, depending on the fulfillment of certain conditions, income generated from products manufactured at the plant will be entitled to a reduced income tax rate of 9% (compared to a 26.5% corporate income tax rate in 2014). As of the date of this prospectus, we have received grants in the amount $322,000 but we have not utilized any beneficial tax rates under the Investment Law.
 
 
 
2

 
 
 
Our competitive strengths
 
•      Ability to develop high-barrier to entry products. We have the ability to develop high-barrier to entry pharmaceutical products, which we believe will enable us to enter the market with limited competition, thereby subjecting our products to relatively less price erosion in the off-patent stage.
 
•      Experienced management team. Our management team has an extensive track record in the development manufacturing and commercialization of high-barrier to entry pharmaceuticals in an efficient cost-effective manner.
 
o           Our chief executive officer and chairman of the Board, Mr. Ehud Marom, in his previous employment managed companies with large scale research and development operations, solved research and development problems in connection with both innovative and generic products, managed the production of both innovative generic products, and served as a member of a committee to select generic products for development. He was involved in the development of several major pharmaceutical products, including Gemfibrozil®, Diltiazem®, Copaxone®, Etodolac®, Simvastatin®, Pravastatin®, Diapep277®, StemEx®, Statins®, Fipronil® and Venlafaxine®.
 
o            Our Head of API Development, Dr. David Leonov, in his previous employment was involved in the research and development of several major pharmaceutical products including Glatiramer Acetate®, Simvastatin, Pravastatin, Lovastatine®, Atorvastatin®, Ciclosporine®, Alfacalcidol®, Calciptriene®, Doxercalciferol®, Carbamazapine®, Paricalcitol®, Zolpidem®, Mupirocin®, Torseamide®, Etodolac, Etoposide®, Deferoxamine® and Clarithromycin®.
 
o           Our Head of Formulations, Dr. Yoram Sela, in his previous employment was involved in the research and development of several major pharmaceutical products including Alfuzosin ER®, Omega-3®, the prescription product Lovaza®, Morphine sulfate ER® dosage form, Methylphenidate ER®, Niacin ER®, Pentoxiphilline ER®, Etodolac ER®, Carbamazepine ER®, Potassium chloride ER®, Venlafaxine ER®, Osmotic pumps-nifedipine®/Glipizide®/Oxybutinin®, Suboxone®, Dexmethylphenidate EF®, Levodopa/carbidopa ER®, Aggrenox® and Oxycodone ER®.
 
o           Our Executive Vice President, Uri Danon, in his previous employment oversaw the development of Copaxone in solution in pre-filled syringes, was the chief executive officer of a company that developed innovative cell therapy products for organ transplant and angiogenesis, was the chief executive officer of a company that is developing AB103, an innovative short peptide for the treatment of infectious diseases, set to initiate single pivotal trial and he was the chief executive officer of a company that is developing BC819, an innovative biologics (plasmid) for anti-cancer medical indications, set to initiate a single pivotal trial.
 
o           Our Vice President Research and Development, Dr. Shai Rubnov, in his previous employment was involved in the research and development of several major pharmaceutical products including Diapep277, VaxiSome® and Somatoprim®.
 
•      Advantageous LCM formulations under development. The long acting formulations used in our LCM products aim to improve patient compliance by reducing the number of required treatments and enabling direct professional oversight, which may improve the therapeutic effects of treatment. For example, benefits may include a reduced chance of relapse and reduced healthcare costs to the payer. We believe our products will enable physicians to more effectively monitor the administration of the drug.
 
 
 
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•      Patent protection for one of our major LCM products. Our granted U.S. patent with regard to Glatiramer Acetate Depot covers sustained release depot formulations of Glatiramer Acetate having a release profile of Glatiramer Acetate over a period of one week to 6 months, and is expected to exclude others from making, using, or selling such depot formulations for Glatiramer Acetate in the U.S. until 2030.  Corresponding patent applications are pending in Australia, Brazil, Canada, China, Europe, Hong Kong, India, Israel, Japan, and Mexico.
 
•      We may be able to launch our complex APIs and formulations before the brand drug goes off-patent in certain cases. We have carefully selected and chosen to develop certain complex APIs and formulations for certain of our APIs that we believe we will be able to launch prior to the expiration of second generation patents protecting polymorphs and production processes of such drugs, but after expiration of the basic composition of matter patents. In materials science, polymorphism is the ability of a solid material to exist in more than one form of crystal structure. We have received and filed or intend to file patent applications for polymorphs and preparation processes for these APIs that are distinct from the associated brand drugs. Using these technologies, we may be able to launch our products in certain cases without infringing existing second generation patents for the brand drug.
 
Risks associated with our business
 
Investing in our ordinary shares involves risks. You should carefully consider the risks described in “Risk Factors” beginning on page 10 before making a decision to invest in our ordinary shares. The following is a summary of some of the principal risks we face:
 
•      the adequacy of our financial and other resources, particularly in light of our history of recurring losses and the uncertainty regarding the adequacy of our liquidity to pursue our complete business objectives. As of December 31, 2013, we had an accumulated deficit of approximately $11.3 million;
 
•      our ability to commercialize our pharmaceutical products;
 
•      our ability to obtain and maintain adequate protection of our intellectual property;
 
•      our ability to complete the development of our products;
 
•      our ability to find suitable co-development partners;
 
•      our ability to manufacture our products in commercial quantities, at an adequate quality or at an acceptable cost;
 
•      our ability to establish adequate sales, marketing and distribution channels;
 
•      acceptance of our products by healthcare professionals and patients;
 
•      the possibility that we may face third party claims of intellectual property infringement;
 
•      our ability to obtain or maintain regulatory approvals for our products in our target markets and the possibility of adverse regulatory or legal actions relating to our products even if regulatory approval is obtained;
 
•      the results of clinical trials that we may conduct or that our competitors and others may conduct relating to our or their products;
 
•      intense competition in our industry, with competitors having substantially greater financial, technological, research and development, regulatory and clinical, manufacturing, marketing and sales, distribution and personnel resources than we do, with our principal competitors being Teva Pharmaceutical Industries Ltd. (NYSE: TEVA), Impax Laboratories, Inc. (Nasdaq: IPXL), Alkermes Plc (Nasdaq: ALKS), Momenta Pharmaceuticals, Inc. (Nasdaq: MNTA), Mallinckrodt plc. (NYSE: MNK) and Par Pharmaceutical Companies, Inc., a private U.S. company;
 
•      potential product liability claims;
 
 
 
4

 
 
 
•      potential adverse federal, state and local government regulation, in the United States, Europe or Israel; and
 
•      loss or retirement of key executives and research scientists.
 
Corporate information
 
We were incorporated under the laws of the State of Israel on January 29, 2008. Our principal executive offices are located at Weizmann Science Park, 16 Einstein St. P.O. Box 4113, Ness Ziona, Israel 74140 and our telephone number is +972 (73) 712-1213. Our website address is http://www.mapi-pharma.com. The information contained therein or connected thereto shall not be deemed to be incorporated into this prospectus or the registration statement of which it forms a part.
 
 
 
5

 
 
 
 
 
 
The Offering
     
Ordinary shares we are offering...................................................................................
 
2,665,000 ordinary shares (or 3,064,750 ordinary shares if the underwriters exercise their option to purchase additional ordinary shares in full).
     
Ordinary shares to be outstanding after this offering..............................................
 
15,165,000 ordinary shares (or 15,564,750 ordinary shares if the underwriters exercise their option to purchase additional ordinary shares in full).
     
Use of proceeds..............................................................................................................
 
We estimate that we will receive net proceeds from this offering of approximately $33 million, or approximately $38.2 million if the underwriters exercise their option to purchase additional ordinary shares in full, based on an assumed initial public offering price of $14.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses.
     
   
We expect to use the net proceeds from this offering as follows:
     
   
(i) approximately $12 million to expand our clinical development program, specifically with respect to Glatiramer Acetate Depot and Risperidone LAI, as well as other products;
     
   
(ii) approximately $7 million to finance the completion of our manufacturing plant in Neot Hovav, Israel;
     
   
(iii) approximately $3 million to continue the development and commercialization of our complex API and formulation products; and
     
   
(iv) the balance of the net proceeds for general corporate purposes, including working capital requirements. See “Use of Proceeds” on page 36 of this prospectus.
     
Risk factors................................................................................................................
 
See “Risk factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our ordinary shares.
     
Proposed Nasdaq Capital Market symbol .....................................................                                      
 
“MAPI”
 
The number of ordinary shares to be outstanding after this offering is based on 12,500,000 ordinary shares outstanding as of June 30, 2014 (giving prospective effect to the issuance of bonus shares equivalent to the stock split described below) and excludes 500,000 ordinary shares reserved for issuance under our 2014 Equity Incentive Plan, of which, as of June 30, 2014, our board of directors approved the issuance of options to purchase 498,125 ordinary shares at an exercise price of $8.344 per share (giving prospective effect to the issuance of bonus shares equivalent to the stock split described below). The number of shares issuable under the 2014 Equity Incentive Plan will be automatically increased upon the consummation of this offering to a number equal to 8% of our outstanding ordinary shares following this offering.
 
Unless otherwise indicated, all information in this prospectus:
 
 
assumes an initial public offering price of $14.00 per ordinary share, the midpoint of the range on the cover of this prospectus;
 
 
 
 
 
6

 
 
 
assumes no exercise by the underwriters of their over-allotment option to purchase up to 399,750 additional ordinary shares from us;
 
 
gives effect to the adoption and effectiveness of our amended and restated articles of association, which will occur immediately prior to the completion of this offering;
 
 
gives effect to the termination of the Share Purchase and Share Holders Agreement, dated as of August 8, 2008 (the “Share Purchase Agreement”), which includes a put option right and certain anti-dilution rights, which will occur immediately prior to the entry into the underwriting agreement in connection with this offering (see “Certain Relationships and Related Party Transactions – Share purchase agreement”); and 
 
 
reflects the 1-for- 625 share forward split of our ordinary shares by means of a bonus share issue of 624 ordinary shares for each ordinary share outstanding which will occur immediately prior to the completion of this offering.
 
 
 
7

 
 
 
 
The following tables present our summary consolidated statements of comprehensive loss for the two years ended December 31, 2013 and 2012 and our summary consolidated statements of financial position as of December 31, 2013. Our summary consolidated statements of loss for the two years ended December 31, 2013 and 2012 and the consolidated statement of financial position as of December 31, 2013 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. We prepare our consolidated financial statements in accordance with IFRS, as issued by the IASB. Our historical results are not necessarily indicative of results to be expected in any future periods. You should read this information together with “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and related notes included elsewhere in this prospectus.
 
The JOBS Act permits emerging growth companies such as us to delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to utilize this exemption and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
 
   
Year ended December 31,
 
   
2013
   
2012
 
   
(in thousands of U.S. dollars, except share and per share amounts
 
Consolidated Statements of Comprehensive Loss Data:
           
             
Income from co-development arrangement
    13       194  
Research and development expenses, net
    (2,079 )     (2,481 )
General and administrative expenses
    (2,113 )     (1,911 )
Financing income, net
    2,708       3,374  
Loss
    (1,492 )     (845 )
Other comprehensive loss
    -       (8 )
Total comprehensive  loss
    (1,492 )     (853 )
                 
Loss attributable to holders of ordinary shares
    (746 )     (423 )
                 
Loss per ordinary share:(1)
               
Basic
   
(0.12
)    
(0.07
)
Diluted
   
(0.12
)    
(0.07
)
Weighted average number of ordinary shares used in computing basic and diluted loss per share:
   
6,250,000
     
6,250,000
 
                 
Pro forma loss per ordinary share: (2)
               
Basic
    (0.12 )     (0.07 )
Diluted
    (0.12 )     (0.07 )
                 
Weighted average number of ordinary shares used in computing basic and diluted pro forma loss per share:
    12,500,000       12,500,000  
                 
 
 
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Actual as
of December 31, 2013
   
Pro forma as
of December 31, 2013(3)
   
Pro forma as
adjusted as of
December 31, 2013(4)
 
 Consolidated Statement of Financial Position Data:
                   
 Cash and cash equivalents
    2,305       2,305      
35,305
 
 Investment in trading securities
    6,179       6,179      
6,179
 
 Total current assets
    9,520       9,520      
42,520
 
 Total non-current assets
    6,616       6,616      
6,616
 
 Total current liabilities
    5,707       1,574      
1,574
 
 Total non-current liabilities
    109       6      
6
 
 Shareholders’ equity
    10,320       14,556      
47,556
 
 
 (1)
Basic loss per ordinary share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. There are no differences between basic and diluted loss per ordinary share since there are no dilutive potential ordinary shares. The loss per ordinary share reflects the issuance of bonus shares of 624 ordinary shares for each ordinary share outstanding which will occur immediately prior to the completion of this offering.
 
 (2)
Pro forma basic and diluted loss per ordinary share and pro forma basic and diluted weighted average ordinary shares outstanding give effect to the termination of the Share Purchase Agreement, which includes a put option right and certain anti-dilution rights, which will occur immediately prior to the entry into the underwriting agreement in connection with this offering and the issuance of bonus shares of 624 ordinary shares for each ordinary share outstanding which will occur immediately prior to the completion of this offering, but does not give effect to the issuance of any ordinary shares in connection with this offering.
 
 (3)
Pro forma gives effect to the termination of the Share Purchase Agreement, which includes a put option right and certain anti-dilution rights, which will occur immediately prior to the entry into the underwriting agreement in connection with this offering, but does not give effect to the issuance of any ordinary shares in connection with this offering. 
 
 (4)
Pro forma as adjusted gives further effect to the issuance and sale of ordinary shares by us in this offering at an assumed initial public offering price of $14.00 per ordinary share after deducting underwriting discounts and commissions and estimated offering expenses payable by us. A $1.00 increase (decrease) in the assumed initial public offering price of $14.00 per share would increase (decrease) each of cash and cash equivalents, total current assets and total shareholders’ equity by approximately $2.5 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions. The pro forma as adjusted information presented in the summary statement of financial position data is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing.
 
 
 
9

 
 
Risk Factors
 
Investment in our ordinary shares involves a high degree of risk. You should carefully consider the risks described below and all other information contained in this prospectus before you decide to buy our ordinary shares. If any of the following risks actually occur, our business, financial condition and results of operations could be materially and adversely affected. In that event, the trading price of our ordinary shares would likely decline and you might lose all or part of your investment.
 
Risks related to our business
 
We have a history of losses, may incur future losses and may not achieve profitability.
 
We have incurred net losses since our formation in 2008. In particular, we incurred net losses of $1,492,000 in 2013 and $845,000 in 2012. As of December 31, 2013, our accumulated deficit was $11,258,000. We expect to continue to incur net losses for the foreseeable future, as we continue to invest in research and development and incur additional costs as a result of being a public company. The extent of our future operating losses and the timing of becoming profitable are highly uncertain, and we may never achieve or sustain profitability.
 
Our limited operating history may make it difficult to evaluate the success of our business to date and to assess our future viability.
 
We have a limited operating history and have focused much of our efforts, to date, on the research and development of our products, rather than their commercialization. As such, we cannot provide you with any assurances as to when, if ever, we will generate sufficient revenues to achieve sustained profitability. Our ability to successfully commercialize our products and become profitable is subject to a number of challenges, including, among others:
 
 
we may not have adequate financial or other resources;
 
 
we may not be able to manufacture our products in commercial quantities, at an adequate quality or at an acceptable cost;
 
 
we may not be able to establish adequate sales, marketing and distribution channels;
 
 
we may not be able to find suitable marketing partners;
 
 
healthcare professionals and patients may not accept our products;
 
 
we may not be aware of possible complications from the continued use of our products since we have limited clinical experience with respect to the actual use of our products;
 
 
changes in the market, new alliances between existing market participants and the entrance of new market participants may interfere with our market penetration efforts;
 
 
third-party payers may not agree to reimburse patients for any or all of the purchase price of our products, which may adversely affect patients’ willingness to purchase our products;
 
 
uncertainty as to market demand may result in inefficient pricing of our products;
 
 
we may face third party claims of intellectual property infringement;
 
 
we may fail to obtain or maintain regulatory approvals for our products in our target markets or may face adverse regulatory or legal actions relating to our products even if regulatory approval is obtained; and
 
 
we are dependent upon the results of ongoing clinical studies relating to our products and the products of our competitors.
 
The occurrence of any one or more of these events may limit our ability to successfully commercialize our products, which in turn could have a material adverse effect on our business, financial condition and results of operations. Consequently, there can be no guaranty of the accuracy of any predictions about our future success or viability.
 
 
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We may require additional funds to continue and complete our research and development operations and, if additional funds are not available, we may need to significantly scale back or cease our planned operations.
 
We may require additional funds to develop our primary pipeline of APIs and LCM products in order to conduct clinical trials and other research and development activities, enter into and perform our obligations under collaborative agreements with third parties and complete construction of our manufacturing plant in Neot Hovav, Israel. Since our inception, we have raised approximately ˆ20,000,000 ($29,654,000 at the closing date) from investors. However, the funds we have raised thus far, as well as the funds we intend to raise from this offering may not be sufficient to finance our long-term operational plans. In addition, our financing needs may increase as a result of our research and development activities, changes in regulatory requirements and increased competition, among other factors.
 
Any transaction involving the issuance of shares and/or securities convertible into ordinary shares and/or any other kind of securities could result in substantial dilution to present and prospective holders of our ordinary shares and could also result in a decrease in the market value of our equity securities.
 
The terms of any securities issued by us in future capital transactions may be more favorable to new investors, and may include preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect on the holders of any of our securities then outstanding.
 
Furthermore, any additional debt or equity financing that we may need may not be available on terms favorable to us, or at all. If we are unable to obtain such additional financing on a timely basis, we may have to curtail our development activities and growth plans and/or be forced to sell assets, perhaps on unfavorable terms, which would have a material adverse effect on our business, financial condition and results of operations, and ultimately we could be forced to discontinue our operations and liquidate, in which event it is unlikely that shareholders would receive any distribution on their shares. Further, we may not be able to continue operating if we do not generate sufficient revenues from operations needed to stay in business.
 
In addition, we may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we issue, such as convertible notes and warrants, which may adversely impact our financial condition.
 
If we are not able to retain our key management, Ehud Marom, Uri Danon and Shai Rubnov, PhD, or attract and retain qualified scientific, technical and business personnel, our ability to implement our business plan may be adversely affected.
 
Our success largely depends on the skill, experience and effort of our senior management. The loss of the service of any of these persons, including Mr. Marom, our chief executive officer and the chairman of our board, Mr. Danon, our executive vice president, or Dr. Rubnov, our vice president of research and development, would likely result in a significant loss in the knowledge and experience that we possess and could significantly delay or prevent successful product development and other business objectives. There is intense competition from numerous pharmaceutical and biotechnology companies, universities, governmental entities and other research institutions, seeking to employ qualified individuals in the technical fields in which we operate, and we may not be able to attract and retain the qualified personnel necessary for the successful development and commercialization of our product candidates.
 
Under applicable employment laws, we may not be able to enforce covenants not to compete.
 
Our employment agreements generally include covenants not to compete. These agreements prohibit our employees, if they cease working for us, from competing directly with us or working for our competitors for a limited period. We may be unable to enforce these agreements under the laws of the jurisdictions in which our employees work. For example, Israeli courts have required employers seeking to enforce covenants not to compete to demonstrate that the competitive activities of a former employee will harm one of a limited number of material interests of the employer, such as the secrecy of a company’s confidential commercial information or the protection of its intellectual property. If we cannot demonstrate that such an interest will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our former employees or consultants and our competitiveness may be diminished.
 
 
11

 
 
Our revenues and operating income could fluctuate significantly.
 
Our revenues and operating results may vary significantly from year-to-year and quarter-to-quarter. Variations may result from, among other factors:
 
 
the timing of FDA or any other regulatory authority approvals;
 
 
the timing of process validation for particular products;
 
 
the timing of product launches, and market acceptance of such products launched;
 
 
changes in the amount we spend to research, develop, acquire, license or promote new products;
 
 
the outcome of our research, development and clinical trial programs;
 
 
serious or unexpected health or safety concerns related to our products, the brand products we have genericized, or our product candidates;
 
 
• 
the introduction of new products by others that render our products obsolete or noncompetitive;
 
 
the ability to maintain selling prices and gross margins on our products;
 
 
the ability to comply with complex governmental regulations applicable to many aspects of our business;
 
 
changes in coverage and reimbursement policies of health plans and other health insurers, including changes to Medicare, Medicaid and similar state programs;
 
 
increases in the cost of raw materials used to manufacture our products;
 
 
manufacturing and supply interruptions, including product rejections or recalls due to failure to comply with manufacturing specifications;
 
 
the ability of our product license partner(s) to secure regulatory approval, gain market share, sales volume, and sales milestone levels;
 
 
timing of revenue recognition related to our alliance and collaboration agreements;
 
 
the ability to protect our intellectual property and avoid infringing the intellectual property of others; and
 
 
the outcome and cost of possible litigation over patents with third parties.
 
Our business is highly dependent on market perceptions of us and the safety and quality of our products. Our business or products could be subject to negative publicity, which could have a material adverse effect on our business.
 
Market perceptions of our business are very important to us, especially market perceptions of the safety and quality of our products. If any of our products or similar products that other companies distribute, or third-party products from which our products are derived are subject to market withdrawal or recall or are proven to be, or are claimed to be, harmful to consumers, it could have a material adverse effect on our business. Because our business is dependent on market perceptions, negative publicity associated with product quality, illness or other adverse effects resulting from, or perceived to be resulting from, our products could have a material adverse impact on our business.
 
Additionally, continuing and increasingly sophisticated studies of the proper utilization, safety and efficacy of pharmaceutical products are being conducted by the industry, government agencies and others which can call into question the utilization, safety and efficacy of previously marketed products. In some cases, studies have resulted, and may in the future result, in the discontinuance of product marketing or other costly risk management programs such as the need for a patient registry.
 
 
12

 
 
We will be dependent on a single facility that houses the majority of our manufacturing operations.
 
Once the construction of our manufacturing plant in Neot Hovav, Israel is complete, we will be highly dependent on the uninterrupted and efficient operations of the plant. If operations at the plant were to be disrupted as a result of equipment failures, earthquakes and other natural disasters, fires, accidents, work stoppages, power outages, acts of war or terrorism or other reasons, our business could be materially adversely affected. Our plant’s location in Israel may increase the likelihood of such events impacting us (see “Risks related to our operations in Israel”). Lost sales or increased costs that we may experience during the disruption of operations may not be recoverable under our insurance policies, and longer-term business disruptions could result in a loss of customers. If this were to occur, our business could be materially negatively impacted.
 
The illegal distribution and sale by third parties of counterfeit versions of our products or of stolen products could have a negative impact on our reputation and a material adverse effect on our business, results of operations and financial condition.
 
Third parties could illegally distribute and sell counterfeit versions of our products, which do not meet the rigorous manufacturing and testing standards that our products undergo. Counterfeit products are frequently unsafe or ineffective, and can be life-threatening. Counterfeit medicines may contain harmful substances, the wrong dose of the API or no APIs at all. However, to distributors and users, counterfeit products may be visually indistinguishable from the authentic version.
 
Reports of adverse reactions to counterfeit drugs similar to our products or increased levels of counterfeiting such products could materially affect patient confidence in our authentic products. It is possible that adverse events caused by unsafe counterfeit products will mistakenly be attributed to our authentic products. In addition, thefts of our inventory at warehouses, plants or while in-transit, which are not properly stored and which are sold through unauthorized channels could adversely impact patient safety, our reputation and our business.
 
Public loss of confidence in the integrity of our pharmaceutical products as a result of counterfeiting or theft could have a material adverse effect on our business, financial position and results of operations.
 
If we do not establish collaborations for our products or otherwise raise substantial additional capital, we will likely need to alter our development and any commercialization plans.
 
The development, approval and potential commercialization of our products will require additional cash to fund expenses. As such, our strategy includes selectively partnering or collaborating with other pharmaceutical companies to assist us in furthering development and potential commercialization of our products, in some or all jurisdictions. Although we are currently aware of numerous potential third party partners for the development or commercialization of our products, we may not be successful in entering into new collaborations with third parties on acceptable terms, or at all. In addition, if we fail to negotiate and maintain suitable development and/or commercialization agreements, we may have to limit the size or scope of our activities or we may have to delay 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 products or our failure to develop, market and commercialize such product independently will have an adverse effect on our business, financial condition and results of operation.
 
Any collaborative arrangements that we establish may not be successful or we may otherwise not realize the anticipated benefits from these collaborations. We do not control third parties with whom we have or may have collaborative arrangements, and we will rely on them to achieve results which may be significant to us. In addition, any future collaboration arrangements may place the development and commercialization of our products outside our control, may require us to relinquish important rights or may otherwise be on terms unfavorable to us.
 
Our existing and anticipated collaborative arrangements require us to rely on external consultants, advisors, and experts for assistance in several key functions, including clinical development, manufacturing, regulatory and intellectual property. We do not control these third parties, but we rely on them to achieve results, which may be significant to us. Relying upon collaborative arrangements to develop and commercialize our products subjects us to a number of risks, including:
 
 
we may not be able to control the amount and timing of resources that our collaborators may devote to our products;
 
 
13

 
 
 
should a collaborator fail to comply with applicable laws, rules, or regulations when performing services for us, we could be held liable for such violations;
 
 
our collaborators may experience financial difficulties or changes in business focus;
 
 
our collaborators partners may fail to secure adequate commercial supplies of our products upon marketing approval, if at all;
 
 
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 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 product developed either independently or in collaboration with others, including our competitors; and
 
 
collaborative arrangements are often terminated or allowed to expire, which could delay the development and may increase the cost of developing our products.
 
If any of these scenarios materialize, they could have adverse effect on our business, financial condition or results of operations.
 
The manufacture of pharmaceutical products is complex and manufacturers often encounter difficulties in production. If we or any of our third-party manufacturers encounter any difficulties, our ability to provide product candidates for clinical trials or our products to patients, once approved, the development or commercialization of our products could be delayed or stopped.
 
The manufacture of pharmaceutical products is complex and requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. We and our contract manufacturers must comply with current good manufacturing practices (“cGMP”) regulations and guidelines. Manufacturers of pharmaceutical products often encounter difficulties in production, particularly in scaling up and validating initial production and contamination controls. These problems include difficulties with production costs and yields, quality control, including stability of the product, quality assurance testing, operator error, shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. Furthermore, if microbial, viral or other contaminations are discovered in our products or in the manufacturing facilities in which our products are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination.
 
We cannot assure you that any stability or other issues relating to the manufacture of any of our product candidates or products will not occur in the future. Additionally, we and our third party manufacturers may experience manufacturing difficulties due to resource constraints or as a result of labor disputes or unstable political environments. If we or our third party manufacturers were to encounter any of these difficulties, our ability to provide any product candidates to patients in clinical trials and products to patients, once approved, would be jeopardized. Any delay or interruption in the supply of clinical trial supplies could delay the completion of clinical trials, increase the costs associated with maintaining clinical trial programs and, depending upon the period of delay, require us to commence new clinical trials at additional expense or terminate clinical trials completely. Any adverse developments affecting clinical or commercial manufacturing of our product candidates or products may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls, or other interruptions in the supply of our products. We may also have to take inventory write-offs and incur other charges and expenses for products that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives. Accordingly, failures or difficulties faced at any level of our supply chain could materially adversely affect our business and delay or impede the development and commercialization of any of our products and could have a material adverse effect on our business, prospects, financial condition and results of operations.
 
 
14

 
 
We rely upon third-party contractors and service providers for the execution of most aspects of our development programs. Failure of these third parties to provide services of a suitable quality and within acceptable timeframes may cause the delay or failure of our development programs.
 
We outsource certain functions, tests and services to clinical research organizations, medical institutions and collaborators as well as outsourcing manufacturing to collaborators and/or contract manufacturers, and we rely on third parties for quality assurance, clinical monitoring, clinical data management and regulatory expertise. We also have engaged, and may in the future engage, a clinical research organization to run all aspects of a clinical trial on our behalf. There is no assurance that such individuals or organizations will be able to provide the functions, tests, biologic supply or services as agreed upon or in a quality fashion and we could suffer significant delays in the development of our products or processes.
 
In some cases there may be only one or few providers of such services, including clinical data management or manufacturing services. In addition, the cost of such services could be significantly increased over time. We rely on third parties and collaborators as mentioned above to enroll qualified patients and conduct, supervise and monitor our clinical trials. Our reliance on these third parties and collaborators for clinical development activities reduces our control over these activities. Our reliance on these parties, however, does not relieve us of our regulatory responsibilities, including ensuring that our clinical trials are conducted in accordance with current good clinical practices regulations and the investigational plan and protocols contained in the regulatory agency applications. In addition, these third parties may not complete activities on schedule or may not manufacture under cGMP conditions. Preclinical or clinical studies may not be performed or completed in accordance with Good Laboratory Practices regulatory requirements or our trial design. If these third parties or collaborators do not successfully carry out their contractual duties or meet expected deadlines, obtaining regulatory approval for manufacturing and commercialization of our product candidates may be delayed or prevented. We rely substantially on third-party data managers for our clinical trial data. There is no assurance that these third parties will not make errors in the design, management or retention of our data or data systems. There is no assurance these third parties will pass FDA or regulatory audits, which could delay or prohibit regulatory approval.
 
There is a substantial risk of product liability claims in our business. We currently do not maintain product liability insurance and a product liability claim against us would adversely affect our business.
 
Our business exposes us to significant potential product liability risks that are inherent in the development, manufacturing and marketing of our products. Product liability claims could delay or prevent completion of our development programs. If we succeed in commercializing our products, such claims could result in a recall of our products or a change in the approved indications for which they may be used. While we intend to maintain product liability insurance that we believe is adequate for our operations upon commercialization of our products, we cannot be sure that such coverage will be adequate to cover any incident or all incidents. Furthermore, product liability insurance is becoming increasingly expensive. As a result, we may be unable to maintain sufficient insurance at a reasonable cost to protect us against losses that could have a material adverse effect on our business. These liabilities could prevent or interfere with our product development and commercialization efforts.
 
Adverse side effects or other safety risks associated with our products could delay or preclude approval, cause us to suspend or discontinue clinical trials, abandon product candidates, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.
 
Undesirable side effects caused by our product candidates could result in the delay, suspension or termination of clinical trials by us, our collaborators, the FDA or other regulatory authorities for a number of reasons. If we elect or are required to delay, suspend or terminate any clinical trial of any product candidates that we develop, the commercial prospects of such product candidates will be harmed and our ability to generate product revenues from any of these product candidates will be delayed or eliminated. Serious adverse events observed in clinical trials could hinder or prevent market acceptance of the product candidate at issue. Any of these occurrences may harm our business, prospects, financial condition and results of operations significantly.
 
Our continued growth is dependent on our ability to continue to successfully develop and commercialize new products in a timely manner.
 
Our financial results depend upon our ability to introduce and commercialize additional complex APIs, formulations and LCM products in a timely manner. Generally, revenue from new generic products is highest immediately following launch and then declines over time, as new competitors enter the market. Furthermore, the greatest revenue is generally experienced by the company that is able to bring its product to the market first. Our continued growth is therefore dependent upon our ability to continue to successfully introduce and commercialize new complex APIs, formulations and LCM products.
 
 
15

 
 
The FDA and other regulatory authorities may not approve our product applications at all or in a timely fashion for our products under development. Additionally, we may not successfully complete our development efforts for other reasons, such as poor results in clinical trials or a lack of funding to complete the required trials. Even if the FDA approves our products, we may not be able to market them successfully or profitably. Our future results of operations will depend significantly upon our ability to timely develop, receive FDA approval for, and market new pharmaceutical products or otherwise develop new products or acquire the rights to other products.
 
We face intense competition from both brand-name and generic manufacturers for our complex APIs, formulations and LCM products.
 
The pharmaceutical industry is highly competitive and many of our competitors have longer operating histories and substantially greater financial, research and development, marketing, and other resources. In addition, pharmaceutical manufacturers’ customer base consists of an increasingly limited number of large pharmaceutical wholesalers, chain drug stores that warehouse products, mass merchandisers and mail order pharmacies. Our competitors may be able to obtain cheaper raw materials and/or API supplies and develop cheaper production processes or other polymorphs for their products and delivery technologies competitive with or more effective or less expensive than our own for many reasons, including that they may have:
 
 
superior proprietary processes or delivery systems;
 
 
greater resources in the area of research and development and marketing;
 
 
larger or more efficient production capabilities;
 
 
more expertise in a particular therapeutic area;
 
 
more expertise in preclinical testing and human clinical trials;
 
 
more experience in obtaining required regulatory approvals, including FDA approval;
 
 
more products;
 
 
established relationships with customers; or
 
 
more experience in developing new drugs and financial resources, particularly with regard to brand manufacturers.
 
With respect to generic pharmaceutical products, the FDA approval process often results in the FDA granting final approval to a number of ANDAs for a given product at the time a patent claim for a corresponding brand product or other regulatory and/or market exclusivity expires. Thus, we expect, in accordance with the standard practices in the industry, to face immediate competition when we introduce a generic product into the market. As competition from other manufacturers intensifies, selling prices and gross profit margins often decline. Accordingly, the level of market share, revenue and gross profit attributable to a particular generic product that we develop is generally related to the number of competitors in that product’s market and the timing of that product’s regulatory approval and launch, in relation to competing approvals and launches. Additionally, ANDA approvals often continue to be granted for a given product subsequent to the initial launch of the generic product. These circumstances generally result in significantly lower prices and reduced margins for generic products compared to brand products. New generic market entrants generally cause continued price and margin erosion over the generic product life cycle.
 
In addition to the competition we face from other generic manufacturers, we face competition from brand-name manufacturers related to our generic products. Branded pharmaceutical companies often sell their branded products as “authorized generics” (an industry term that describes instances when a brand-name manufacturer licenses another company, such as a subsidiary or a generic manufacturer, to market the brand product under the licensee’s name and registration at typical generic discounts). Further, branded pharmaceutical companies may seek to delay FDA approval of our ANDAs or reduce generic competition by, for example, obtaining new patents on drugs whose original patent protection is about to expire, filing patent infringement suits that automatically delay FDA approval of generics, developing new versions of their products to obtain FDA market exclusivity, filing “citizen petitions” contesting FDA approvals of generics such as on alleged health and safety grounds, developing “next generation” versions of products that reduce demand for generic versions we are developing, changing product claims and labeling, and seeking approval to market as over-the-counter (“OTC”) branded products.
 
 
16

 
 
We believe that our principal competitors in the generic pharmaceutical products and LCM markets are Teva Pharmaceutical Industries Ltd. (NYSE: TEVA), Impax Laboratories, Inc. (Nasdaq: IPXL), Alkermes Plc (Nasdaq: ALKS), Momenta Pharmaceuticals, Inc. (Nasdaq: MNTA), Mallinckrodt plc. (NYSE: MNK) and Par Pharmaceutical Companies, Inc., a private U.S. company.
 
We expend a significant amount of resources on research and development efforts that may not lead to successful product introductions or the recovery of our research and development expenditures.
 
We conduct research and development primarily to enable us to manufacture and market pharmaceuticals in accordance with FDA regulations as well as other regulatory authorities. We spent approximately $2,079,000  and $2,481,000 on research and development activities during the years ended December 31, 2013, and 2012, respectively. We are required to obtain FDA approval before marketing our drug products in the United States. The FDA approval process is costly, time consuming and inherently risky.
 
Typically, research expenses related to the development of innovative compounds and the filing of NDAs for new chemical entity products are significantly greater than those expenses associated with ANDAs for our complex APIs and formulations and the 505(b)(2) pathway NDAs for our LCM products. As we continue to develop our complex APIs, formulations and LCM products, our research expenses will likely increase. Because of the inherent risk associated with research and development efforts in our industry, our research and development expenditures may not result in the successful introduction of FDA-approved pharmaceuticals. For example, our research and development program which we initiated in 2011 for Entecavir (BARACLUDE® tablets), an oral antiviral drug used in the treatment of hepatitis B infection, was declared unsuccessful because its development of the intended release profile did not meet our expectations. See “Business – Our LCM Products – Entecavir.”
 
Our bioequivalence studies, clinical trials and/or other data may not result in FDA approval to market our products. While we believe that the FDA’s 505(b)(2) NDA and ANDA procedures will apply to our products, including our extended-release drugs, these drugs may not be suitable for, or approved as part of, that 505(b)(2) NDA or ANDA pathway. Furthermore, the FDA could disagree with our decision to submit an ANDA for a particular product and require an NDA (or vice versa). Also, for reasons to be discussed below, it is possible that our application could be blocked for approval due to a competitor’s patent or market exclusivity protection. In addition, even if our products are suitable for FDA approval by filing under a 505(b)(2) NDA or an ANDA, these applications are costly and time consuming to complete. After we submit a 505(b)(2) NDA or ANDA, the FDA may require that we conduct additional studies, and as a result, we may be unable to reasonably determine in advance the total research and development costs to develop a particular product. Also, for products pending approval, we may obtain raw materials or produce batches of inventory to be used in anticipation of the product’s launch. In the event that FDA approval is denied or delayed, we could be exposed to the risk of this proposed product or inventory becoming obsolete. Finally, we cannot be certain that any investment made in developing products or product-delivery technologies will be recovered, even if we are successful in commercialization. To the extent that we expend significant resources on research and development efforts and are not able to introduce successful new products or new delivery technologies as a result of those efforts, we will be unable to recover those expenditures.
 
If the market for a reference brand product significantly declines, sales or potential sales of our complex APIs, formulations and LCM products and product candidates may suffer and our business would be materially impacted.
 
Competition in the biotechnology industry is intense. Brand name products face competition on numerous fronts as technological advances are made or new products are introduced. As new products are approved that compete with the reference brand product to our complex APIs, formulations and LCM products, sales of the reference brand products may be significantly and adversely impacted and the reference brand product may be rendered obsolete. In addition, brand product companies may pursue life cycle management as well as patent extension strategies that also impact the marketability and profitability of our generic or LCM products.
 
For example, we anticipate current injectable treatments commonly used to treat MS, including Copaxone, which is the Glatiramer Acetate brand product and is currently being marketed by Teva, to experience competition from a number of novel drug products, including oral therapies. These novel drugs may offer patients a more convenient form of administration than Copaxone and may provide increased efficacy. On January 29, 2014, Teva announced that it received FDA approval for a Supplemental NDA for a 40mg, thrice-weekly dosage of Copaxone. Teva’s 40mg, thrice-weekly version of Copaxone was approved following a single phase III pivotal trial, which we believe validates our regulatory and research and development strategy of a single pivotal trial under the FDA’s 505(b)(2) regulatory pathway. Teva’s 40mg thrice-weekly version of Copaxone has the potential to delay the anticipated erosion of the Glatiramer Acetate market, which is expected to be brought on by possible generic competitors that are developing the once-daily dosage of Glatiramer Acetate. In addition, the efforts of Teva, the current industry leader, that are invested in a formulation with a lesser frequency of injections for Copaxone may be indicative of the shift in the RRMS market toward longer-acting depot formulations of Glatiramer Acetate. If the market for the reference brand product is impacted, we in turn may lose significant market share or market potential for our APIs or LCM product candidates, and the value for our APIs or LCM products pipeline could be negatively impacted. As a result, our business, including our financial results and our ability to fund future discovery and development programs, would suffer.
 
 
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The risks and uncertainties inherent in conducting clinical trials could delay or prevent the development and commercialization of our products, which could have a material adverse effect on our results of operations, liquidity, financial condition, and growth prospects.
 
There are a number of risks and uncertainties associated with clinical trials. The results obtained from clinical trials may not be indicative of results that would be obtained from large scale testing. Clinical trials are often conducted with patients having advanced stages of disease and, as a result, during the course of treatment these patients can die or suffer adverse medical effects for reasons that may not be related to the pharmaceutical agents being tested, but which nevertheless affect the clinical trial results. In addition, side effects experienced by the patients may cause a delay of approval or limited profile of an approved product. Moreover, our clinical trials may not demonstrate sufficient safety and efficacy to obtain FDA approval.
 
Failure can occur at any time during the clinical trial process, the results from early clinical trials may not be predictive of results obtained in later and larger clinical trials and product candidates in later clinical trials may fail to show the desired safety or efficacy despite having progressed successfully through earlier clinical testing. In the future, the completion of clinical trials for our product candidates may be delayed or halted for many reasons, including:
 
 
delays in patient enrollment, and variability in the number and types of patients available for clinical trials;
 
 
failure of the clinical research organization that is working for us to perform the trial monitoring or any other services related to clinical trials in a manner satisfying regulatory requirements;
 
 
regulators or institutional review boards may not allow us to commence or continue a clinical trial;
 
 
our inability, or the inability of our partners, to manufacture or obtain from third parties materials sufficient to complete our clinical trials;
 
 
delays or failure in reaching agreement on acceptable clinical trial contracts or clinical trial protocols with prospective clinical trial sites;
 
 
risks associated with trial design, which may result in a failure of the trial to show statistically significant results even if the product candidate is effective;
 
 
difficulty in maintaining contact with patients after treatment commences, resulting in incomplete data;
 
 
poor effectiveness of product candidates during clinical trials;
 
 
safety issues, including adverse events associated with product candidates;
 
 
the failure of patients to complete clinical trials due to adverse side effects, dissatisfaction with the product candidate, or other reasons;
 
 
governmental or regulatory delays or changes in regulatory requirements, policy and guidelines; and
 
 
varying interpretation of data by the FDA or foreign regulatory agencies.
 
 
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In addition, our product candidates could be subject to competition for clinical study sites and patients from other therapies under development which may delay the enrollment in or initiation of our clinical trials.
 
The FDA or foreign regulatory authorities may require us to conduct unanticipated additional clinical trials, which could result in additional expense and delays in bringing our product candidates to market. Any failure or delay in completing clinical trials for our product candidates would prevent or delay the commercialization of our product candidates. We cannot assure you that our expenses related to clinical trials will lead to the development of products that will generate revenues in the near future, or ever. Delays or failure in the development and commercialization of our products could have a material adverse effect on our results of operations, liquidity, financial condition, and our growth prospects.
 
We may experience reductions in the levels of reimbursement for pharmaceutical products by governmental authorities, Health Maintenance Organizations (“HMOs”) or other third-party payers. Any such reductions could have a material adverse effect on our business, financial position and results of operations.
 
Various governmental authorities and private health insurers and other organizations, such as HMOs, provide reimbursement to consumers for the cost of certain pharmaceutical products. Demand for our products depends in part on the extent to which such reimbursement is available. In addition, third-party payers are attempting to control costs by limiting the level of reimbursement for medical products, including pharmaceuticals, and increasingly challenge the pricing of these products, which may adversely affect the pricing of our products. Moreover, health care reform has been, and is expected to continue to be, an area of national and state focus, which could result in the adoption of measures that could adversely affect the pricing of pharmaceuticals or the amount of reimbursement available from third-party payers for our products.
 
Certain governments tend to impose strict price or reimbursement controls, which may adversely affect our revenue, if any.
 
In some countries, particularly the countries of the European Union, the pricing and/or reimbursement of prescription pharmaceuticals are subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be adversely affected.
 
Our approved LCM products may not achieve expected levels of market acceptance.
 
Even if we are able to obtain and maintain regulatory approvals for our new LCM products, the success of those products is also dependent upon market acceptance. Levels of market acceptance for our new products could be affected by several factors, including:
 
 
the availability of alternative products from our competitors;
 
 
the prices of our products relative to those of our competitors;
 
 
the timing of our market entry;
 
 
the marketing efforts invested by a partner;
 
 
the ability to market our products effectively at the retail level; and
 
 
the perception of patients and the healthcare community, including third-party payers, regarding the safety, efficacy and benefits of our drug products compared to those of competing products.
 
Some of these factors are not within our control, and our products may not achieve expected levels of market acceptance.
 
 
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The time necessary to develop generic drugs may adversely affect whether, and the extent to which, we receive a return on our capital.
 
We generally begin our development activities for an API for a product expected to become generic several years in advance of the patent expiration date of the brand-name drug equivalent. The development process, including drug formulation (where applicable), testing, and FDA review and approval, often takes three or more years. This process requires that we expend considerable capital to pursue activities that do not yield an immediate or near-term return. Also, because of the significant time necessary to develop a product, the actual market for a product at the time it is available for sale may be significantly less than the originally projected market for the product. If this were to occur, our potential return on our investment in developing the product, if approved for marketing by the FDA, would be adversely affected and we may never receive a return on our investment in the product. It is also possible for the manufacturer of the brand-name product for which we are developing a generic drug to obtain approvals from the FDA to switch the brand-name drug from the prescription market to the OTC market. If this were to occur, we would be prohibited from marketing our product other than as an OTC drug, in which case revenues could be substantially less than we anticipated.
 
Approvals for our new generic drug products may be delayed or become more difficult to obtain if the FDA institutes changes to its approval requirements.
 
The FDA may institute changes to its ANDA approval requirements, which may make it more difficult or expensive for us to obtain approval for our new generic products. For instance, in July 2012, the Generic Drug User Fee Amendments of 2012 (“GDUFA”) was enacted into law. The GDUFA legislation implemented fees for new ANDAs, Drug Master Files, product and establishment fees and a one-time fee for back-logged ANDAs pending approval as of October 1, 2012. In return, the program is intended to provide faster and more predictable ANDA reviews by the FDA and increased inspections of drug facilities. Under GDUFA, generic product companies face significant penalties for failure to pay the new user fees, including rendering an ANDA not “substantially complete” until the fee is paid. It is currently uncertain the effect the new fees will have on our ANDA process and business, however, any failure by us or our suppliers to pay the fees or to comply with the other provisions of GDUFA may impact or delay our ability to file ANDAs, obtain approvals for new generic products, generate revenues and thus may have a material adverse effect on our business, results of operations and financial condition.
 
Some abbreviated application procedures for products, including those related to our ANDA filings, are or may also become the subject of petitions filed by brand-name drug manufacturers seeking changes from the FDA in the approval requirements for particular drugs, which can delay or make development of generic drugs more difficult. We cannot predict whether the FDA will make any changes to its abbreviated application requirements as a result of these petitions, or the effect that any changes may have on us. Any changes in FDA requirements as a result of these petitions or otherwise may similarly make it more difficult for us to file ANDAs or obtain approval of our ANDAs and generate revenues and thus could have a material adverse effect on our business, results of operations and financial condition.
 
We are an international business, and we are exposed to various global and local risks that could have a material adverse effect on our financial condition and results of operations.
 
We operate globally and develop and manufacture products in our research and manufacturing facilities in multiple countries. Consequently, we face complex legal and regulatory requirements in multiple jurisdictions, which may expose us to certain financial and other risks. International sales and operations are subject to a variety of risks, including:
 
 
foreign currency exchange rate fluctuations;
 
 
greater difficulty in staffing and managing foreign operations;
 
 
greater risk of uncollectible accounts;
 
 
longer collection cycles;
 
 
logistical and communications challenges;
 
 
potential adverse changes in laws and regulatory practices, including export license requirements, trade barriers, tariffs and tax laws;
 
 
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changes in labor conditions;
 
 
burdens and costs of compliance with a variety of foreign laws;
 
 
political and economic instability;
 
 
increases in duties and taxation;
 
 
foreign tax laws and potential increased costs associated with overlapping tax structures;
 
 
greater difficulty in protecting intellectual property;
 
 
the risk of third party disputes over ownership of intellectual property and infringement of third party intellectual property by our products; and
 
 
general economic and political conditions in these foreign markets.
 
International markets are also affected by economic pressure to contain reimbursement levels and healthcare costs. Profitability from international operations may be limited by risks and uncertainties related to regional economic conditions, regulatory and reimbursement approvals, competing products, infrastructure development, intellectual property rights protection and our ability to implement our overall business strategy. We expect these risks will increase as we pursue our strategy to expand operations into new geographic markets. We may not succeed in developing and implementing effective policies and strategies in each location where we conduct business. Any failure to do so may harm our business, results of operations and financial condition.
 
We are subject to risk as a result of our international manufacturing operations.
 
Because certain of our products are and will be manufactured at our facilities located in China and Germany, in addition to our facilities in Israel, our operations are subject to risk inherent in doing business internationally. Such risks include the adverse effects on operations from corruption, war, international terrorism, civil disturbances, political instability, governmental activities, deprivation of contract and property rights and currency valuation changes.
 
Since 1978, the Chinese government has been reforming its economic and political systems, and we expect this to continue. Although we believe that these reforms have had a positive effect on the economic development of China and have improved our ability to successfully operate our facility in China, we cannot assure you that these reforms will continue or that the Chinese government will not take actions that impair our operations or assets in China.
 
We might be subject to certain liabilities if we accept the approved grant applications from ILB.
 
In May 2010, our subsidiary Mapi Pharma Germany GmbH obtained approval from ILB for a grant of ˆ500,000 (approximately $659,000), of which it received ˆ435,000 (approximately $564,000). This grant expired in accordance with its terms in October 2013. Mapi Pharma Germany GmbH has filed two follow-up applications with ILB, one research and development grant application and one grant application for the establishment of a cGMP production facility in Germany. These two grant applications were approved, however, as of the date of this prospectus, we have not accepted these grants or subjected ourselves to any of the conditions associated with the grants. If we and Mapi Pharma Germany GmbH decide to accept these grants, certain obligations will be imposed upon us, primarily pertaining to the recruitment of a local employee for every ˆ250,000 (approximately $326,000) received through the grants. If we fail to comply, we may be required to repay the grant funds.
 
Unstable economic conditions may adversely affect our industry, business, financial position and results of operations.
 
The global economy has recently undergone a period of significant volatility which has led to diminished credit availability, declines in consumer confidence and increases in unemployment rates. There remains caution about the stability of the U.S. economy following the global financial crisis, and we cannot assure you that a new deterioration in the financial markets will not occur. Adverse economic conditions have, in the past, and could again in the future, lead to reduced consumer spending related to healthcare in general and pharmaceutical products in particular.
 
 
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In addition, we are and will be exposed to many different industries and counterparties, including our partners under our alliance and collaboration agreements, suppliers of raw chemical materials, subcontractors that are performing research and development work for us or consulting us, clinical research organizations performing clinical trials work for us, and in the future, drug wholesalers and other customers that may be affected by an unstable economic environment. Any economic instability may affect these parties’ ability to fulfill their respective contractual obligations to us or cause them to limit or place burdensome conditions upon future transactions with us, each of which could materially and adversely affect our business, results of operations and financial position.
 
Furthermore, the capital and credit markets have experienced extreme volatility. Disruptions in the credit markets could make it harder and more expensive for us to obtain funding at times when we need additional capital to sustain or grow our business. The availability of additional financing will depend on a variety of factors such as market conditions and the general availability of credit. Future debt financing may not be available to us when required or may not be available on acceptable terms, and as a result we may be unable to grow our business, take advantage of business opportunities, or respond to competitive pressures.
 
Risks related to our intellectual property
 
We depend on our intellectual property, and our future success is dependent on our ability to protect our intellectual property and not infringe on the rights of others.
 
Our success depends, in part, on our ability to obtain patent protection for our products, maintain the confidentiality of our trade secrets and know how, operate without infringing on the proprietary rights of others and prevent others from infringing 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 products, inventions and improvements that may be important to the continuing development of our products. However, we cannot assure you that:
 
 
any of our future processes or products will be patentable;
 
 
our processes or products will not infringe upon the patents of third parties; or
 
 
we will have the resources to defend against charges of patent infringement or other violation or misappropriation of intellectual property by third parties or to protect our own intellectual property rights against infringement, misappropriation or violation by third parties.
 
Because the patent position of pharmaceutical companies involves complex legal and factual questions, we cannot predict the validity and enforceability of patents with certainty. Our issued patents 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. Our competitors may also independently develop formulations, processes and 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 relatively limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage.
 
Patent rights are territorial; thus, the patent protection we do have will only extend to those countries in which we 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 United States 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.
 
After the completion of development and registration of our patents, third parties may still act to manufacture and/or market products in infringement of our patent protected rights. Such manufacture and/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 products, thereby reducing our anticipated profits.
 
 
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In addition, due to the extensive time needed to develop, test and obtain regulatory approval for our products, any patents that protect our products may expire early during commercialization. This may reduce or eliminate any market advantages that such patents may give us. Following patent expiration, we may face increased competition through the entry of competing products into the market and a subsequent decline in market share and 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 it, such as our development and/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 our products.
 
The development, manufacture, use, offer for sale, sale or importation of our products may infringe on the claims of third-party patents or other intellectual property 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 the 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 our products 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 could potentially limit our competitive advantage. Ultimately, we could be prevented from commercializing a product 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 could harm our business significantly.
 
 
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If we elect to sell a generic product prior to the final resolution of outstanding patent litigation, we could be subject to liabilities for damages.
 
At times we may seek approval to market generic products before the expiration of patents for those products, based upon our belief that such patents are invalid, unenforceable, or would not be infringed by our products. As a result, we may be involved in patent litigation, the outcome of which could materially adversely affect our business. Based upon a complex analysis of a variety of legal and commercial factors, we may elect to market a generic product even though litigation is still pending. This could be before any court decision is rendered or while an appeal of a lower court decision is pending. To the extent we elect to proceed in such a manner, if the final court decision is adverse to us, we could be required to cease the sale of the infringing products and face substantial liability for patent infringement. These damages may be significant as they may be measured by a royalty on our sales or by the profits lost by the patent owner and not by the profits earned. Because of the discount pricing typically involved with generic pharmaceutical products, patented brand products generally realize a significantly higher profit margin than generic pharmaceutical products. In the case of a willful infringer, the definition of which is not precise and depends on judicial determination, these damages may even be trebled.
 
Furthermore, there may be risks involved in entering into in-licensing arrangements for products, which are often conditioned upon the licensee’s sharing in the patent-related risks.
 
For business reasons, we will continue to examine such product opportunities (i.e., involving non-expired patents) going forward and this could result in patent litigation and adverse judicial determinations, the outcomes of which may impact our profitability.
 
Decreasing opportunities to obtain U.S. market exclusivity for generic versions of significant products may adversely affect our revenues and profits.
 
Our ability to achieve continued growth and profitability through sales of generic pharmaceuticals is dependent on our success in challenging patents, developing non-infringing products or developing products with increased complexity to provide launch opportunities with U.S. market exclusivity or limited competition. The failure to continue to develop such opportunities could adversely affect our sales and profitability.
 
To the extent that we succeed in being the first to market a generic version of a significant product, and particularly if we are the only company authorized to sell during the 180-day period of exclusivity in the U.S. market, as provided under the Hatch-Waxman Act, our sales, profits and profitability can be substantially increased in the period following the introduction of such product and prior to a competitor’s introduction of an equivalent product. Even after the exclusivity period ends, there is often continuing benefit from being the first generic product in the market.
 
The number of significant new generic products for which Hatch-Waxman exclusivity is available, and the size of those product opportunities, vary significantly over time and are expected to decrease over the next several years in comparison to those available in the past. Patent challenges have become more difficult and costly in recent years. Additionally, we increasingly expect to share the 180-day exclusivity period with other generic competitors, which diminishes the commercial value of the exclusivity.
 
The 180-day market exclusivity period is triggered by commercial marketing of the generic product after approval or, in certain cases, can be triggered by a final court decision that is no longer subject to appeal holding the applicable patents to be invalid, unenforceable or not infringed. However, the exclusivity period can be forfeited by our failure to launch a product following such a court decision. The Hatch-Waxman Act also contains other forfeiture provisions that may deprive the first “Paragraph IV” filer of exclusivity if certain conditions are met, some of which may be outside our control. Accordingly, we may face the risk that any exclusivity period we obtain is triggered or forfeited before we are able to commercialize a product, and therefore we may not be able to exploit a given exclusivity period for one or more specific products.  It is important to recognize there is no guarantee we will obtain such exclusivity in any situation. In fact, a competitor might obtain exclusivity that would block our 505(b)(2) NDA or ANDA if the competitor obtains approval first.
 
Risks related to regulatory approvals
 
We may not be able to obtain all of the required approvals in order to sell products manufactured in our new plant in Israel to regulated markets, which may lead to significant delays in production and higher manufacturing costs
 
The pharmaceutical industry is subject to regulation by various governmental authorities. The FDA, European Medicines Agency and other healthcare regulators enforce strict standards with respect to the development, manufacturing, labeling, and marketing of pharmaceutical products and the facilities in which such pharmaceutical products are tested and manufactured. Our plant currently under construction in Neot Hovav, Israel must be registered with the FDA as well as regulators outside the United States, and our products manufactured in the plant must be made in a manner consistent with cGMP. Failure to comply with these requirements may lead to financial penalties, compliance expenditures, total or partial suspension of production and/or distribution, suspension of the applicable regulator’s review of a company’s submissions, enforcement actions, product recalls, injunctions and even criminal prosecution, any of which could materially and adversely affect our business, financial condition and results of operations.
 
 
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If we do not comply with laws regulating the protection of the environment and health and human safety, our business could be adversely affected.
 
Our research and development and manufacturing involve the use of hazardous materials and chemicals and related equipment. If an accident occurs, we could be held liable for resulting damages, which could be substantial. We are also subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures and the handling of biohazardous materials. Insurance may not provide adequate coverage against these potential liabilities and we do not maintain insurance for environmental liability claims that may be asserted against us. Moreover, additional foreign and local laws and regulations affecting our operations may be adopted in the future. We may incur substantial costs to comply with such regulations and pay substantial fines or penalties if we violate any of these laws or regulations.
 
With respect to environmental, safety and health laws and regulations, we cannot accurately predict the outcome or timing of future expenditures that we may be required to make in order to comply with such laws as they apply to our operations and facilities. We are also subject to potential liability for the remediation of contamination associated with both present and past hazardous waste generation, handling, and disposal activities. We will be periodically subject to environmental compliance reviews by environmental, safety, and health regulatory agencies. Environmental laws are subject to change and we may become subject to stricter environmental standards in the future and face larger capital expenditures in order to comply with environmental laws which could have a material adverse effect on our business.
 
Legislative or regulatory reform of the healthcare system in the United States may harm our future business.
 
Healthcare costs have risen significantly over the past decade. On March 23, 2010, President Obama signed the “Patient Protection and Affordable Care Act” (P.L. 111-148) and on March 30, 2010, the President signed the “Health Care and Education Reconciliation Act” (P.L. 111-152), collectively commonly referred to as the “Healthcare Reform Law” which, among other things, requires most individuals to have health insurance, effective January 1, 2014, establishes new regulations on health plans (with the earliest changes for certain benefits beginning with plan years commencing after September 23, 2010), creates insurance exchanges (effective January 2014) and imposes new requirements and changes in reimbursement or funding for healthcare providers, device manufacturers and pharmaceutical companies (with the earliest changes effective on March 23, 2010) and other changes staged in thereafter. The Healthcare Reform Law imposes additional requirements and obligations upon our company, which, to a certain extent, will depend upon the mix of products we sell. These changes include, among other things:
 
 
revisions to the Medicaid rebate program by: (a) increasing the rebate percentage for branded drugs dispensed after December 31, 2009 to 23.1% of the average manufacturer price (“AMP”), with limited exceptions, (b) increasing the rebate for outpatient generic, multiple source drugs dispensed after December 31, 2009 to 13% of AMP; (c) changing the definition of AMP; and (d) extending the Medicaid rebate program effective January 1, 2011 to Medicaid managed care plans, with limited exception;
 
 
the imposition of annual fees upon manufacturers or importers of branded prescription drugs, which fees will be in amounts determined by the Secretary of Treasury based upon market share and other data;
 
 
providing a 50% discount on brand-name prescriptions filled in the Medicare Part D coverage gap beginning in 2011;
 
 
imposing increased penalties for the violation of fraud and abuse laws and funding for anti-fraud activities;
 
 
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creating a new pathway for approval of biosimilar biological products and granting an exclusivity period of 12 years for branded drug manufacturers of biological products before biosimilar products can be approved for marketing in the United States; and
 
 
expands the definition of “covered entities” that purchase certain outpatient drugs in the 340B Drug Pricing Program of Section 340B of the Public Health Service Act.
 
While the aforementioned Healthcare Reform Law may increase the number of patients who have insurance coverage for our products, the Healthcare Reform Law also restructures payments to Medicare managed care plans and reduces reimbursements to many institutional customers. Accordingly, the timing on the insurance mandate, the change in the Medicaid rebate levels, the additional fees imposed upon our company if it markets branded drugs, other compliance obligations, and the reduced reimbursement levels to institutional customers may result in a loss of revenue and could adversely affect our business. In addition, the Healthcare Reform Law contemplates the promulgation of significant future regulatory action which may also further affect our business.
 
Risks related to our operations in Israel
 
Our headquarters, manufacturing and other significant operations are located in Israel and, therefore, our business and operation may be adversely affected by political, economic and military conditions in Israel.
 
Our business and operation will be directly influenced by the political, economic and military conditions affecting Israel at any given time. A change in the security and political situation in Israel and in the economy could impede the raising of the funds required to finance our research and development plans and to create joint ventures with third parties and could otherwise have a material adverse effect on our business, operating results and financial condition. Although Israel has entered into various agreements with Egypt, Jordan and the Palestinian Authority, there have been times since October 2000 when Israel has experienced an increase in unrest and terrorist activity. The establishment in 2006 of a government in the Palestinian Authority by representatives of the Hamas militant group has created additional unrest and uncertainty in the region.
 
During the Second Lebanon War of 2006, between Israel and Hezbollah, a militant Islamic movement, thousands of rockets were fired from Lebanon up to 50 miles into Israel. In January 2009, Israel attacked, during three weeks, Hamas strongholds in the Gaza strip, in reaction to rockets that were fired from Gaza up to 25 miles into Israel. In November 2012, Israel launched a seven-day operation against Hamas operatives in the Gaza strip in response to Palestinian groups launching over 100 rockets at Israel over a 24-hour period. Major hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners could result in damage to our facilities and likewise have a material adverse effect on our business, operating results and financial condition.
 
Popular uprisings in various countries in the Middle East and North Africa are affecting the political stability of those countries. Such instability may lead to deterioration in the political and trade relationships that exist between the State of Israel and these countries. Furthermore, 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 if hostilities in the region continue or intensify. Such restrictions may seriously limit our ability to sell our products to customers in those countries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners, or significant downturns in the economic or financial condition of Israel, could adversely affect our operations and product development, cause our revenues to decrease and adversely affect the share price of publicly traded companies having operations in Israel, such as us. Similarly, Israeli corporations are limited in conducting business with entities from several countries.
 
Our operations may be affected by negative labor conditions in Israel.
 
Strikes and work-stoppages occur relatively frequently in Israel. If Israeli trade unions threaten additional strikes or work-stoppages and such strikes or work-stoppages occur, those may, if prolonged, have a material adverse effect on the Israeli economy and on our business, including our ability to deliver products to our customers and to receive raw materials from our suppliers in a timely manner.
 
 
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Our operations could be disrupted as a result of the obligation of our personnel to perform military service.
 
All of our executive officers and key employees of our business reside in Israel and although most of the management team is no longer required to perform reserve duty, some may be required to perform annual military reserve duty and may be called for active duty under emergency circumstances at any time. Our operations could be disrupted by the absence for a significant period of time of one or more of these officers or key employees due to military service. Any such disruption could adversely affect our business, results of operations and financial condition.
 
Exchange rate fluctuations between U.S. dollar, the New Israeli Shekel, Euro, and other foreign currencies, may negatively affect our future revenues.
 
In the future, we expect that a substantial portion of our revenues will be generated in U.S. dollars, Euros and other foreign currencies, although we currently incur a significant portion of our expenses in currencies other than U.S. dollars, and mainly in NIS. Our financial records are maintained, and will be maintained, in U.S. dollars, which is our functional currency. As a result, our financial results may be affected by fluctuations in the exchange rates of currencies in the countries in which our prospective products may be sold.
 
The ability of any Israeli company to pay dividends is subject to Israeli law and the amount of cash dividends payable may be subject to devaluation in the Israeli currency.
 
The ability of an Israeli company to pay dividends is governed by Israeli law, which provides that cash dividends may be paid only out of retained earnings as determined for statutory purposes in Israeli currency. In the event of a devaluation of the Israeli currency against the U.S. dollar, the amount in U.S. dollars available for payment of cash dividends out of prior years’ earnings will decrease.
 
The termination or reduction of tax and other incentives that the Israeli Government provides to domestic companies may increase the costs involved in operating a company in Israel.
 
The Israeli government currently provides major tax and capital investment incentives to domestic companies, as well as grant and loan programs relating to research and development and marketing and export activities. In recent years, the Israeli Government has reduced the benefits available under these programs and the Israeli Governmental authorities have indicated that the government may in the future further reduce or eliminate the benefits of those programs. We currently take advantage of these programs. There is no assurance that such benefits and programs would continue to be available in the future to us. If such benefits and programs were terminated or further reduced, it could have an adverse effect on our business, operating results and financial condition.
 
The Israeli government grants that we have received require us to meet several conditions and restrict our ability to manufacture products and transfer know-how outside of Israel and require us to satisfy specified conditions.
 
We have received royalty-bearing grants from the government of Israel through the OCS, for the financing of a portion of our research and development expenditures in Israel. When know-how is developed using OCS grants, the Encouragement of Industrial Research and Development Law 5744-1984 (the “R&D Law”), as well as the terms of these grants restrict our ability to manufacture particular products and transfer particular technology and know-how, which were developed as part of the OCS’s programs, outside of Israel. Transfer of know-how outside of Israel where the transferring company remains an operating Israeli entity or where the transferring company ceases to exist as an Israeli entity, requires pre-approval by the OCS, which may at its sole discretion grant such approval and impose certain conditions, including requirement of payment of a redemption fee (referred to in the law as the “Base Amount”) calculated according to the formula provided in the R&D Law which takes into account the consideration for such know-how paid to us in the transaction in which the technology is transferred. In 2012, new regulations were promulgated which establish a maximum payment of the redemption fee paid to the OCS under the formulas provided in the R&D Law and differentiates between certain situations, as further detailed in such regulations. In addition, the products may be manufactured outside Israel by us or by another entity only if prior approval is received from the OCS (such approval is not required for the transfer of less than 10% of the manufacturing capacity in the aggregate). As a condition for obtaining approval to manufacture outside Israel, we would be required to pay increased royalties, as defined under the R&D Law. The total amount to be repaid to the OCS would be adjusted to an amount which constitutes 120% to 300% of the grants, depending on the manufacturing volume that is performed outside Israel. These restrictions may impair our ability to enter into agreements for those products or technologies without the approval of the OCS. We cannot be certain that any approval of the OCS will be obtained on terms that are acceptable to us, or at all. Furthermore, in the event that we undertake a transaction involving the transfer to a non-Israeli entity of technology developed with OCS funding pursuant to a merger or similar transaction, the consideration available to our shareholders may be reduced by the amounts we are required to pay to the OCS. Any approval, if given, will generally be subject to additional financial obligations. Failure to comply with the requirements under the R&D Law may subject us to mandatory repayment of grants received by us (together with interest and penalties), as well as expose us to criminal proceedings. See “Business – Government regulations – Regulations in Israel.”
 
 
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Enforcing a U.S. judgment against us and our executive officers and directors, or asserting U.S. securities law claims in Israel, may be difficult.
 
We are incorporated in Israel. All of our executive officers and directors reside in Israel and most of our assets reside outside of the United States. Therefore, a judgment obtained against us or any of these persons in the United States, including one based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the United States and may not be enforced by an Israeli court. It may also be difficult to effect service of process on these persons in the United States or to assert U.S. securities law claims in original actions instituted in Israel.
 
Even if an Israeli court agrees to hear such a claim, it may determine that Israeli, and not U.S., law is applicable to the claim. Under Israeli law, if U.S. law is found to be applicable to such a claim, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process, and certain matters of procedure would be governed by Israeli law. There is little binding case law in Israel addressing these matters. See “Enforceability of Civil Liabilities” for additional information on your ability to enforce civil claim against us and our executive officers and directors.
 
Provisions of our Amended and Restated Articles of Association and Israeli law and tax considerations may delay, prevent or make difficult an acquisition of us, which could prevent a change of control and negatively affect the price of our ordinary shares.
 
Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for certain transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. These provisions of Israeli law may delay, prevent or make difficult an acquisition of us, which could prevent a change of control and therefore depress the price of our shares.
 
Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to our shareholders, especially for those shareholders whose country of residence does not have a tax treaty with Israel which exempts such shareholders from Israeli tax. 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 a number of conditions, including, in some cases, a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating companies are subject to certain restrictions. 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 disposition of the shares has occurred.
 
We may become subject to claims for remuneration or royalties for assigned service invention rights by our employees, which could result in litigation and adversely affect our business.
 
We have entered into assignment of invention agreements with our employees pursuant to which such individuals agree to assign to us all rights to any inventions created in the scope of their employment or engagement with us. A significant portion of our intellectual property has been developed by our employees in the course of their employment for us. Under the Israeli Patent Law, 5727-1967, or the Patent Law, inventions conceived by an employee during the scope of his or her employment with a company are regarded as “service inventions,” which belong to the employer, absent a specific agreement between the employee and employer giving the employee service invention rights. The Patent Law also provides that if there is no such agreement between an employer and an employee, the Israeli Compensation and Royalties Committee, or the Committee, a body constituted under the Patent Law, shall determine whether the employee is entitled to remuneration for his or her inventions. Recent decisions by the Committee have created uncertainty in this area, as it held that employees may be entitled to remuneration for their service inventions despite having specifically waived any such rights. Further, the Committee has not yet determined the method for calculating this Committee-enforced remuneration. Although our employees have agreed to assign to us service invention rights, we may face claims demanding remuneration in consideration for assigned inventions. As a consequence of such claims, we could be required to pay additional remuneration or royalties to our current and/or former employees, or be forced to litigate such claims, which could negatively affect our business.
 
 
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The government tax benefits that we currently are entitled to receive require us to meet several conditions and may be terminated or reduced in the future.
 
Some of our operations in Israel, referred to as “Preferred Enterprises,” will entitle us to certain tax benefits under the Law for the Encouragement of Capital Investments, 5719-1959, or the Investment Law, once we being to produce revenues. If we do not meet the requirements for maintaining these benefits, they may be reduced or cancelled and the relevant operations would be subject to Israeli corporate tax at the standard rate, which is set at 26.5% for 2014 and thereafter. In addition to being subject to the standard corporate tax rate, we could be required to refund any tax benefits that we have already received, plus interest and penalties thereon. Even if we continue to meet the relevant requirements, the tax benefits that our current “Preferred Enterprise” is entitled to may not be continued in the future at their current levels or at all. If these tax benefits were reduced or eliminated, the amount of taxes that we pay would likely increase, as all of our operations would consequently be subject to corporate tax at the standard rate, which could adversely affect our results of operations. Additionally, if we increase our activities outside of Israel, for example, by way of acquisitions, our increased activities may not be eligible for inclusion in Israeli tax benefits programs. See “Taxation and government programs – Israeli tax considerations and government programs – Tax benefits under the 2011 Amendment” for additional information concerning these tax benefits.
 
Your rights and responsibilities as a shareholder will be governed by Israeli law, which differs in some material respects from the rights and responsibilities of shareholders of U.S. companies.
 
The rights and responsibilities of the holders of our ordinary shares are governed by our amended and restated articles of association and by Israeli law. These rights and responsibilities differ in some material respects from the rights and responsibilities of shareholders in U.S.-based corporations. For example, a shareholder of an Israeli company has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards the company and other shareholders, and to refrain from abusing its power in the company, including, among other things, voting at a 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 related party transactions requiring shareholder approval. In addition, a shareholder who is aware 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 nature of this duty or the implications of these provisions. These provisions may be interpreted to impose additional obligations and liabilities on holders of our ordinary shares that are not typically imposed on shareholders of U.S. corporations.
 
Risks primarily related to our ordinary shares and the offering
 
You will experience immediate and substantial dilution in the net tangible book value of the ordinary shares you purchase in this offering.
 
The initial public offering price of our ordinary shares will substantially exceed the net tangible book value per share of our ordinary shares immediately after this offering. Therefore, based on an assumed public offering price of $14.00 per share, the midpoint of the initial public offering price range set forth on the cover page of this prospectus, if you purchase our ordinary shares in this offering, you will suffer, as of December 31, 2013, immediate dilution of $10.86 per share, or $10.61 if the underwriters exercise their option to purchase additional ordinary shares, in net tangible book value after giving effect to the sale of 2,665,000 ordinary shares in this offering at an initial public offering price of $14.00 per share less underwriting discounts and commissions and the estimated expenses payable by us, and the application of the net proceeds as described in “Use of proceeds.” As a result of this dilution, as of December 31, 2013, investors purchasing ordinary shares from us in this offering will have contributed 55.72% of the total amount of our total gross funding to date but will own only 17.57% of our equity. In addition, if outstanding options to purchase our ordinary shares are exercised in the future, you will experience additional dilution. See “Dilution.”
 
 
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Our share price may be volatile, and you may lose all or part of your investment.
 
The initial public offering price for the ordinary shares sold in this offering will be determined by negotiation between us and the representative of the underwriters. This price may not reflect the market price of our ordinary shares following this offering and the price of our ordinary shares may decline. In addition, the market price of our ordinary shares could be highly volatile and may fluctuate substantially as a result of many factors, including:
 
 
actual or anticipated fluctuations in our results of operations;
 
 
variance in our financial performance from the expectations of market analysts;
 
 
announcements by us or our competitors of significant business developments, changes in distributor relationships, acquisitions or expansion plans;
 
 
changes in the prices of our raw materials or the products we sell;
 
 
our involvement in litigation;
 
 
our sale of ordinary shares or other securities in the future;
 
 
market conditions in our industry;
 
 
changes in key personnel;
 
 
the trading volume of our ordinary shares;
 
 
changes in the estimation of the future size and growth rate of our markets; and
 
 
general economic and market conditions.
 
In addition, the stock markets have experienced extreme price and volume fluctuations. Broad market and industry factors may materially harm the market price of our ordinary shares, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against that company. If we were involved in any similar litigation, we could incur substantial costs and our management’s attention and resources could be diverted.
 
There has been no prior public market for our ordinary shares, and an active trading market may not develop.
 
Prior to this offering, there has been no public market for our ordinary shares. An active trading market may not develop following completion of this offering or, if developed, may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital by selling shares of capital stock and may impair our ability to acquire other companies by using our shares as consideration.
 
If equity research analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our ordinary shares, the price of our ordinary shares could decline.
 
The trading market for our ordinary shares will rely in part on the research and reports that equity research analysts publish about us and our business. The price of our ordinary shares could decline if one or more securities analysts downgrade our ordinary shares or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business.
 
 
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The controlling share ownership position of Allegro S.à.r.l, acting for and on behalf of Generali Financial Holdings FCP-FIS - Sub-Fund 2 (“Allegro”) and of Mr. Marom and our other founders (collectively, the “Marom Group”) will limit your ability to elect the members of our board of directors, may adversely affect our share price and will result in our non-affiliated investors having very limited, if any, influence on corporate actions.
 
As of June 30, 2014, Allegro, together with the Marom Group, beneficially own 100% of our ordinary shares. We have been informed that Allegro and the Marom Group intend to enter into a voting agreement pursuant to which they will agree to vote for each other’s nominees for our board of directors provided that each party maintains their shareholdings above certain thresholds. As a result of this concentration of share ownership and voting agreement, Allegro and the Marom Group, acting together, will have the ability to control all matters submitted to our shareholders for approval, including the election of directors and approval of any merger or consolidation. This concentration of voting power could delay or prevent an acquisition of our company on terms that other shareholders may desire. In addition, as the interests of Allegro and the Marom Group may not always coincide with the interests of our minority shareholders, this large concentration of voting power may lead to shareholder votes that are inconsistent with the best interests of our minority shareholders or the best interest of us as a whole.
 
As a foreign private issuer whose shares are listed on the Nasdaq Capital Market, we intend to follow certain home country corporate governance practices instead of certain Nasdaq requirements.
 
As a foreign private issuer whose shares will be listed on the Nasdaq Capital Market, we are permitted to follow certain home country corporate governance practices instead of certain requirements of the rules of the Nasdaq Capital Market. As permitted under the Israeli Companies Law of 1999 (the "Companies Law"), our articles of association to be effective following the closing of this offering will provide that the quorum for any meeting of shareholders is 33 1/3% of the issued share capital, as required under Nasdaq requirements, however, if the meeting is adjourned for lack of quorum, the quorum for such adjourned meeting will be any number of record shareholders, instead of 33 1/3% of the issued share capital. We also intend to approve material changes to equity incentive plans in accordance with the Companies Law, which does not impose a requirement of shareholder approval for such actions. However, in accordance with our amended and restated articles of association, any increase in the size of the 2014 Equity Incentive Plan will require shareholder approval. We intend to follow Israeli corporate governance practices instead of Nasdaq requirements with regard to, among other things, the composition of our board of directors and nominating committee, and director nomination procedures. In addition, we will follow Israeli corporate governance practice instead of Nasdaq requirements to obtain shareholder approval for certain dilutive events (such as issuances that will result in a change of control, certain transactions other than a public offering involving issuances of a 20% or greater interest in us and certain acquisitions of the stock or assets of another company). Accordingly, our shareholders may not be afforded the same protection as provided under Nasdaq corporate governance rules. Following our home country governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on the Nasdaq Capital Market may provide less protection than is accorded to investors of domestic issuers. See “Management - Corporate governance practices.”
 
In addition, as a foreign private issuer, we will be exempt from the rules and regulations under the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”), related to the furnishing and content of proxy statements, and our officers, directors, and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file annual, quarterly and current reports and financial statements with the Securities and Exchange Commission (“SEC”) as frequently or as promptly as domestic companies whose securities are registered under the Exchange Act.
 
We have broad discretion as to the use of the net proceeds from this offering and may not use them effectively.
 
We currently intend to use the net proceeds from this offering to expand our clinical development program, finance the completion of our manufacturing plant in Neot Hovav, Israel, continue the development and commercialization plan of our complex API products; and for general corporate purposes, including working capital requirements. For more information, see “Use of Proceeds.” However, our management will have broad discretion in the application of the net proceeds. Our shareholders may not agree with the manner in which our management chooses to allocate the net proceeds from this offering. The failure by our management to apply these funds effectively could have a material adverse effect on our business, financial condition and results of operation. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income.
 
We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.
 
As a public company whose ordinary shares are listed in the United States, we will incur accounting, legal and other expenses that we did not incur as a private company, including costs associated with our reporting requirements under the Exchange Act. We also anticipate that we will incur costs associated with corporate governance requirements, including requirements under Section 404 and other provisions of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), as well as rules implemented by the SEC and the Nasdaq Capital Market, and provisions of Israeli corporate law applicable to public companies. We expect that these rules and regulations will increase our legal and financial compliance costs, introduce new costs such as investor relations and stock exchange listing fees, and will make some activities more time-consuming and costly. We are currently evaluating and monitoring developments with respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
 
 
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As an “emerging growth company,” as defined in the JOBS Act, we may take advantage of 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). When these exemptions cease to apply, we expect to incur additional expenses and devote increased management effort toward ensuring compliance with them. We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs.
 
Pursuant to Section 404 of the Sarbanes-Oxley Act and the related rules adopted by the SEC and the Public Company Accounting Oversight Board, starting with the second annual report that we file with the SEC after the closing of this offering, our management will be required to report on the effectiveness of our internal control over financial reporting. In addition, once we no longer qualify as an “emerging growth company” under the JOBS Act and lose the ability to rely on the exemptions related thereto discussed above and depending on our status as per Rule 12b-2 of the Exchange Act, our independent registered public accounting firm may also need to attest to the effectiveness of our internal control over financial reporting under Section 404. We have not yet commenced the process of determining whether our existing internal controls over financial reporting systems are compliant with Section 404 and whether there are any material weaknesses or significant deficiencies in our existing internal controls. This process will require the investment of substantial time and resources, including by our chief financial officer and other members of our senior management. As a result, this process may divert internal resources and take a significant amount of time and effort to complete. In addition, we cannot predict the outcome of this determination and whether we will need to implement remedial actions in order to implement effective controls over financial reporting. The determination and any remedial actions required could result in us incurring additional costs that we did not anticipate, including the hiring of outside consultants. Irrespective of compliance with Section 404, any failure of our internal controls could have a material adverse effect on our stated results of operations and harm our reputation. As a result, we may experience higher than anticipated operating expenses, as well as higher independent auditor fees during and after the implementation of these changes. If we are unable to implement any of the required changes to our internal control over financial reporting effectively or efficiently or are required to do so earlier than anticipated, it could adversely affect our operations, financial reporting and/or results of operations and could result in an adverse opinion on internal controls from our independent auditors.
 
Changes in the laws and regulations affecting public companies will result in increased costs to us as we respond to their requirements. These laws and regulations could make it more difficult or more 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. We cannot predict or estimate the amount or timing of additional costs we may incur in order to comply with such requirements.
 
We are an “emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies may make our ordinary shares less attractive to investors.
 
We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various requirements that are applicable to other public companies that are not “emerging growth companies.” Most of such requirements relate to disclosures that we would only be required to make if we also ceased to be a foreign private issuer in the future, for example, the requirement to hold stockholder advisory votes on executive and severance compensation and executive compensation disclosure requirements for U.S. companies. However, as a foreign private issuer, we would still be required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. We are exempt from such requirement for as long as we remain an emerging growth company, which may be up to five fiscal years after the date of this offering. We will remain an emerging growth company until the earliest of: (a) the last day of our fiscal year during which we have total annual gross revenues of at least $1.0 billion; (b) the last day of our fiscal year following the fifth anniversary of the closing of this offering; (c) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (d) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act. When we are no longer deemed to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above. We cannot predict if investors will find our ordinary shares less attractive as a result of our reliance on exemptions under the JOBS Act. If some investors find our ordinary shares less attractive as a result, there may be a less active trading market for our ordinary shares and our share price may be more volatile.
 
 
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As an “emerging growth company” we may take advantage of the extended transition period for complying with new or revised accounting standards.
 
The JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards. This means that an “emerging growth company,” such as us, can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to utilize this exemption and, therefore, until we cease to be an emerging growth company, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies until those standards apply to private companies. In addition, as a result of this election, our future financial statements may not be comparable to those of public companies that are not emerging growth companies and are required to comply with the public company effective dates for new or revised accounting standards.
 
Our U.S. shareholders may suffer adverse tax consequences if we are characterized as a passive foreign investment company.
 
Generally, if for any taxable year 75% or more of our gross income is passive income, or at least 50% of the average quarterly value of our assets (which may be determined in part by the market value of our ordinary shares, which is subject to change) are held for the production of, or produce, passive income, we would be characterized as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes. Our status as a PFIC may also depend on how quickly we use the cash proceeds from this offering in our business. Based on certain estimates of our gross income and gross assets, our intended use of proceeds of this offering, and the nature of our business, we do not expect that we will be classified as a PFIC for the taxable year ending December 31, 2014. There can be no assurance that we will not be considered a PFIC for any taxable year. If we are characterized as a PFIC, our U.S. shareholders may suffer adverse tax consequences, including having gains realized on the sale of our ordinary shares treated as ordinary income, rather than as capital gain, the loss of the preferential rate applicable to dividends received on our ordinary shares by individuals who are U.S. Holders (as defined in "Taxation—U.S. Federal Income Tax Consequences"), and having interest charges apply to distributions by us and the proceeds of share sales. Certain elections exist that may alleviate some of the adverse consequences of PFIC status and would result in an alternative treatment (such as mark-to-market treatment) of our ordinary shares; however, we do not intend to provide the information necessary for U.S. holders to make qualified electing fund elections if we are classified as a PFIC. See “Taxation and Government Programs – U.S. federal income tax consequences – Passive foreign investment company consequences.
 
The market price of our ordinary shares could be negatively affected by future sales of our ordinary shares.
 
After this offering, there will be 15,165,000 ordinary shares outstanding. Sales by us or our shareholders of a substantial number of our ordinary shares in the public market following this offering, or the perception that these sales might occur, could cause the market price of our ordinary shares to decline or could impair our ability to raise capital through a future sale of, or pay for acquisitions using, our equity securities. Of our issued and outstanding shares, all of the ordinary shares sold in this offering will be freely transferable, except for any shares held by our “affiliates,” as that term is defined in Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”).
 
Following completion of this offering, approximately 12,500,000 of our outstanding ordinary shares will be beneficially owned by shareholders that have agreed with the underwriters that, subject to limited exceptions, for a period of 180 days after the date of this prospectus, they will not directly or indirectly offer, pledge, sell, contract to sell, sell any option or contract to purchase or otherwise dispose of any ordinary shares or any securities convertible into or exercisable or exchangeable for ordinary shares, or in any manner transfer all or a portion of the economic consequences associated with the ownership of ordinary shares, or cause a registration statement covering any ordinary shares to be filed, without the prior written consent of Aegis Capital Corp, which may, in their sole discretion and at any time without notice, release all or any portion of the shares subject to the corresponding lock-up agreements. After the expiration of the lock-up period, these shares can be resold into the public markets in accordance with the requirements of Rule 144, subject to certain volume limitations. In addition, starting nine months after the closing of this offering, the Marom Group and Allegro are entitled to require that we register their shares under the Securities Act for resale into the public markets. All shares sold pursuant to an offering covered by such registration statement will be freely transferable.
 
 
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In addition, we intend to file one or more registration statements on Form S-8 with the SEC covering all of the ordinary shares issuable under our 2014 Equity Incentive Plan or any other incentive plan that we may adopt, and such shares will be freely transferable, except for any shares held by “affiliates,” as such term is defined in Rule 144 under the Securities Act. The market price of our ordinary shares may drop significantly when the restrictions on resale by our existing shareholders lapse and these shareholders are able to sell our ordinary shares into the market.
 
Upon the filing of the registration statements and following the expiration of the lock-up restrictions described above, the number of ordinary shares that are potentially available for sale in the open market will increase materially, which could make it harder for the value of our ordinary shares to appreciate unless there is a corresponding increase in demand for our ordinary shares. This increase in available shares could result in the value of your investment in our ordinary shares decreasing.
 
In addition, a sale by the company of additional ordinary shares or similar securities in order to raise capital might have a similar negative impact on the share price of our ordinary shares. A decline in the price of our ordinary shares might impede our ability to raise capital through the issuance of additional ordinary shares or other equity securities, and may cause you to lose part or all of your investment in our ordinary shares.
 
We cannot provide assurances regarding the amount or timing of dividend payments and may decide not to pay dividends in the future.
 
We do not anticipate paying any cash dividends on our ordinary shares for at least the next several years following this offering. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business. As a result, capital appreciation, if any, of our ordinary shares will be the investors’ sole source of gain for the next several years. In addition, Israeli law limits our ability to declare and pay dividends, and may subject us to certain Israeli taxes.
 
 
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Special Note Regarding Forward-Looking Statements
 
We make forward-looking statements in this prospectus that are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our business, financial condition, results of operations, liquidity, plans and objectives. In some cases, you can identify forward-looking statements by terminology such as “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “potential,” or the negative of these terms or other similar expressions. Forward-looking statements are based on information we have when those statements are made or our management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:
 
 
the adequacy of our financial and other resources, particularly in light of our history of recurring losses and the uncertainty regarding the adequacy of our liquidity to pursue our complete business objectives;
 
 
our ability to commercialize our pharmaceutical products;
 
 
our ability to obtain and maintain adequate protection of our intellectual property;
 
 
our ability to complete the development of our products;
 
 
our ability to find suitable co-development partners;
 
 
our ability to manufacture our products in commercial quantities, at an adequate quality or at an acceptable cost;
 
 
our ability to establish adequate sales, marketing and distribution channels;
 
 
acceptance of our products by healthcare professionals and patients;
 
 
the possibility that we may face third party claims of intellectual property infringement;
 
 
our ability to obtain or maintain regulatory approvals for our products in our target markets and the possibility of adverse regulatory or legal actions relating to our products even if regulatory approval is obtained;
 
 
the results of clinical trials that we may conduct or that our competitors and others may conduct relating to our or their products;
 
 
intense competition in our industry, with competitors having substantially greater financial, technological, research and development, regulatory and clinical, manufacturing, marketing and sales, distribution and personnel resources than we do;
 
 
potential product liability claims;
 
 
potential adverse federal, state and local government regulation, in the United States, Europe or Israel; and
 
 
loss or retirement of key executives and research scientists.
 
You should review carefully the risks and uncertainties described under the heading “Risk Factors” in this prospectus for a discussion of these and other risks that relate to our business and investing in our ordinary shares. The forward-looking statements contained in this prospectus are expressly qualified in their entirety by this cautionary statement. Except as required by law, we undertake no obligation to update publicly any forward-looking statements after the date of this prospectus to conform these statements to actual results or to changes in our expectations.
 
 
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Use of Proceeds
 
We estimate that our net proceeds from this offering will be approximately $33 million, or approximately $38.2 million if the underwriters exercise in full their option to purchase additional ordinary shares, based upon an assumed initial public offering price of $14.00 per share (the midpoint of the initial public offering price range set forth on the cover page of this prospectus), after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. A $1.00 increase (decrease) in the assumed public offering price would increase (decrease) the net proceeds we receive from this offering by $2.5 million, assuming that the number of ordinary shares offered, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses.
 
The primary purposes of this offering are to raise additional capital, create a U.S. public market for our ordinary shares, allow potential future access to the U.S. public markets should we need more capital in the future, increase the profile and prestige of our company with existing and possible strategic partners and make our shares more valuable and attractive to our employees and potential employees for compensation purposes.
 
We expect to use the net proceeds from this offering as follows: (i) approximately $12 million to expand our clinical development program, specifically with respect to Glatiramer Acetate Depot and Risperidone LAI, as well as other products; (ii) approximately $7 million to finance the completion of our manufacturing plant in Neot Hovav, Israel; (iii) approximately $3 million to continue the development and commercialization of our complex API and formulation products; and (iv) the balance of the net proceeds for general corporate purposes, including working capital requirements. We believe that based on the anticipated size of this offering, the net proceeds from the offering, together with our current cash reserves, should be sufficient to complete Phase II trials in both Europe and Israel and a Phase III trial for Glatiramer Acetate Depot and a bioequivalence trial for Risperidone LAI in India.
 
Our expected use of net proceeds from this offering represents our current intentions based upon our present plans and business condition. As of the date of this prospectus, we cannot predict with certainty any or all of the particular uses for the net proceeds to be received upon the completion of this offering, or the amounts, if any,  that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending on numerous factors, including our ability to obtain additional financing, the progress, cost and results of our preclinical and clinical development programs, and whether we are able to enter into future product development partnerships and technology license arrangements. As a result, our management will have broad discretion in the application of the net proceeds, which may include uses not set forth above, and investors will be relying on our judgment regarding the application of the net proceeds from this offering.
 
Pending their use, we plan to invest the net proceeds from this offering in short- and intermediate-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government or to hold such proceeds as cash.
 
 
36

 

Dividend Policy
 
We have never declared or paid any cash dividends on our ordinary shares and we anticipate that, for the foreseeable future, we will retain any future earnings to support operations and to finance the growth and development of our business. Therefore, we do not expect to pay cash dividends for at least the next several years.
 
The distribution of dividends may also be limited by the Companies Law, which permits the distribution of dividends only out of retained earnings or earnings derived over the two most recent fiscal years, whichever is higher, provided that there is no reasonable concern that payment of a dividend will prevent a company from satisfying its existing and foreseeable obligations as they become due. Our articles of association provide that dividends will be paid at the discretion of, and upon resolution by, our board of directors, subject to the provision of the Companies Law.
 
 
37

 

Capitalization
 
The following table sets forth our capitalization as of December 31, 2013 on:
 
 
an actual basis;
 
 
on a pro forma basis, to give effect to the termination of the Share Purchase Agreement, which includes a put option right and certain anti-dilution rights, which will occur immediately prior to the entry into the underwriting agreement in connection with this offering; and
 
 
on a pro forma as adjusted basis, to give further effect to the issuance of ordinary shares in this offering at the initial public offering price of $14.00 per share, the midpoint of the initial public offering price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses.
 
You should read this table in conjunction with our audited consolidated financial statements and related notes as of December 31, 2013 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.
 
   
As of December 31, 2013
 
   
Actual
 
Pro Forma
   
Pro Forma as adjusted
 
   
(In thousands US$)
 
Ordinary shares of NIS 1.00 par value per share: 70,000,000
  ordinary shares authorized, 12,500,000 ordinary shares issued
  and outstanding(1), actual; 70,000,000 ordinary shares
  authorized, 15,165,000 ordinary shares issued and
  outstanding, pro forma as adjusted(2)
   
3,603
     
3,603
     
4,371
 
Accumulated losses
    (11,258 )     (11,155 )    
(11,155
)
Share premium and other reserves
   
17,975
     
22,108
     
54,340
 
Total Capitalization
    10,320       14,556      
47,556
 



(1) The actual number of shares outstanding as of December 31, 2013 is adjusted to reflect the 1-for- 625 share forward split of our ordinary shares by means of a bonus share issue of 624 ordinary shares for each ordinary share outstanding which will occur immediately prior to the completion of this offering. The number of shares authorized as of December 31, 2013 on actual basis gives prospective effect to an increase in our share capital to an aggregate of NIS 70,000,000 million divided into 70,000,000 ordinary shares, NIS 1.00 par value each, which will occur immediately prior to the completion of this offering.
 
(2) The number of shares outstanding as of December 31, 2013 on a pro forma as adjusted basis gives prospective effect to the 1-for- 625 share forward split of our ordinary shares by means of a bonus share issue of 624 ordinary shares for each ordinary share outstanding which will occur immediately prior to the completion of this offering. The number of shares authorized as of December 31, 2013 on pro forma as adjusted basis gives prospective effect to an increase in our share capital to an aggregate of NIS 70,000,000 million divided into 70,000,000 ordinary shares, NIS 1.00 par value each, which will occur immediately prior to the completion of this offering. The number of ordinary shares to be outstanding after this offering is based on 12,500,000 ordinary shares outstanding as of June 30, 2014 (giving prospective effect to the issuance of bonus shares equivalent to the stock split described above) and excludes 500,000 ordinary shares reserved for issuance under our 2014 Equity Incentive Plan, of which, as of June 30, 2014, our board of directors approved the issuance of options to purchase 498,125 ordinary shares at an exercise price of $8.344 per share (giving prospective effect to the issuance of bonus shares equivalent to the stock split described above). The number of shares issuable under the 2014 Equity Incentive Plan will be automatically increased upon the consummation of this offering to a number equal to 8% of our outstanding ordinary shares following this offering.
 
A $1.00 increase (decrease) in the assumed initial public offering price of $14.00 per share (the midpoint of the initial public offering price range set forth on the cover page of this prospectus) would increase (decrease) the pro forma as adjusted amount of each of share premium and total capitalization by approximately $2.5 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
 
 
38

 
 
Dilution
 
If you invest in our ordinary shares in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share and the net tangible book value per ordinary share after this offering. Our consolidated net tangible book value as of December 31, 2013 was $10.3 million, or $0.83 per ordinary share (giving prospective effect to the issuance of bonus shares of 624 ordinary shares for each ordinary share outstanding which will occur immediately prior to the completion of this offering). Consolidated net tangible book value per ordinary share was calculated by:
 
 
subtracting our consolidated liabilities from our consolidated tangible assets; and
 
 
dividing the difference by the number of ordinary shares outstanding.
 
Pro forma consolidated net tangible book value per ordinary share furthermore reflects the termination of the Share Purchase Agreement, which includes a put option right and certain anti-dilution rights, which will occur immediately prior to the entry into the underwriting agreement in connection with this offering. Our pro forma consolidated net tangible book value as of December 31, 2013 was $14.6 million, or $1.16 per ordinary share (giving prospective effect to the issuance of bonus shares of 624 ordinary shares for each ordinary share outstanding which will occur immediately prior to the completion of this offering).
 
After giving effect to adjustments relating to this offering, our consolidated net tangible book value on December 31, 2013 would have been approximately $47.6 million, equivalent to $3.14 per ordinary share. The adjustments made to determine our consolidated net tangible book value are as follows:
 
 
an increase in consolidated tangible assets to reflect the net proceeds of this offering received by us as described under “Use of proceeds;” and
 
 
the addition of the ordinary shares offered in this prospectus, assuming an initial public offering price of $14.00 per ordinary share (the midpoint of the range on the cover of this prospectus) to the number of ordinary shares outstanding.
 
The following table illustrates the immediate increase in our consolidated net tangible book value of $1.98 per ordinary share and the immediate pro forma dilution to new investors:
 
Assumed initial public offering price per ordinary share
        $ 14.00  
Pro forma consolidated net tangible book value per ordinary share as of December 31, 2013
  $ 1.16          
Increase in consolidated net tangible book value per ordinary share attributable to the offering
  $
1.98
         
Pro forma as adjusted net tangible book value per share after this offering
          $
3.14
 
Dilution per ordinary share to new investors
          $
10.86
 
Percentage of dilution per ordinary share to new investors
           
78
%
 
A $1.00 increase (decrease) in the assumed initial public offering price of $14.00 per ordinary share (the midpoint of the range on the cover of this prospectus) would increase (decrease) the consolidated net tangible book value attributable to this offering by $0.93 per ordinary share, the consolidated net tangible book value after giving effect to this offering by $0.16 per ordinary share and the dilution per ordinary share to new investors in this offering by $0.84 assuming that the number of ordinary shares offered remains the same and after deducting underwriting discounts and commissions and estimated offering expenses.
 
If the underwriters’ over-allotment option to purchase additional shares from us is exercised in full, and assuming an initial public offering price of $14.00 per ordinary share (the midpoint of the range on the cover of this prospectus), the consolidated net tangible book value attributable to this offering would be $12.46 per ordinary share, the consolidated net tangible book value after giving effect to this offering would be $3.39 per ordinary share and the dilution per ordinary share to new investors in this offering would be $10.61, after deducting underwriting discounts and commissions and estimated offering expenses.
 
The table below summarizes, as of December 31, 2013, the differences for our existing shareholders and new investors in this offering, with respect to the number of ordinary shares purchased from us, the total consideration paid and the average per ordinary share price paid before deducting fees and offering expenses.
 
   
Shares purchased
 
Total consideration
 
Average
price per
share
 
   
Number
   
%
 
Amount
   
%
     
Existing shareholders                                               
    12,500,000       82.43     $ 29,654,000       44.28     $ 2.37  
New investors                                               
    2,665,000       17.57       37,310,000       55.72       14.00  
Total                                               
    15,165,000       100     $ 69,964,000       100     $ 4.42  
 
 
39

 

Selected Consolidated Financial and Other Data
 
The following table sets forth our selected consolidated financial data, which is derived from our consolidated financial statements, which have been prepared in accordance with IFRS. The selected consolidated statement of financial position data as of December 31, 2013 and 2012 and our selected statement of comprehensive loss data for the years ended December 31, 2013 and 2012 is derived from our audited consolidated financial statements presented elsewhere in this prospectus. You should read this selected financial data in conjunction with, and it is qualified in its entirety by, reference to our historical financial information and other information provided in this prospectus including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes. The historical results set forth below are not necessarily indicative of the results to be expected in future periods.
 
   
Year ended December 31,
 
   
2013
   
2012
 
   
(in thousands US$ except share and
per share data)
 
Consolidated Statements of Comprehensive Loss Data:
           
Income from co-development arrangements
    13       194  
Research and development expenses, net
    (2,079 )     (2,481 )
General and administrative expenses
    (2,113 )     (1,911 )
Financing income, net
    2,708       3,374  
Loss
    (1,492 )     (845 )
Comprehensive Loss
    (1,492 )     (853 )
Loss attributable to holders of ordinary shares
    (746 )     (423 )
Weighted average number of ordinary shares used in computing basic net loss per share
   
6,250,000
      6,250,000  
Net loss per share basic and diluted
   
(0.12
)    
(0.07
)
 
   
December 31,
2013
   
December 31,
2012
 
Consolidated Statements of Financial Position Data:
           
Cash and cash equivalents
    2,305       4,014  
Investment in trading securities
    6,179       10,503  
Total current assets
    9,520       14,924  
Total non-current assets
    6,616       4,010  
Total current liabilities
    5,707       4,721  
Total non-current liabilities
    109       2,401  
Shareholders’ equity
    10,320       11,812  

 
40

 

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
 
The following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this prospectus. This discussion and other parts of the prospectus contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this prospectus. See Special Note Regarding Forward-Looking Statements.”
 
Introduction
 
We are a development stage pharmaceutical company, engaged in the development of high-barrier-to-entry and high-added value generic drugs that include complex APIs, formulations and LCM products that target large markets.
 
We are currently developing two LCM products for the treatment of MS and neuropathic pain, a portfolio of 13 complex APIs, five of which we intend to develop formulations for, a generic version of Risperdal Consta, Johnson & Johnson’s long acting injection of Risperidone for the treatment of schizophrenia and bipolar disorder, and an NCE, a novel pentapolymer developed for treating autoimmune diseases such as MS.
 
We currently do not have any products approved for sale in any jurisdiction. Our operations have been funded, to date, primarily from a single round of financing completed in 2008, research and development grants we received from the OCS and grants from ILB. We have incurred operating losses each year since our inception. As of December 31, 2013, we had an accumulated deficit of approximately $11.3 million.
 
The following is a description of each of our primary sources of funding, other than the offering to which this prospectus relates.
 
 
We completed an equity round of financing totaling approximately $30 million in 2008.
 
 
We obtained approvals for eight grants from the OCS related to three research and development projects (Glatiramer Acetate Depot, Risperidone LAI and Entecavir, a discontinued product). We were approved for grants totaling approximately $1,413,000 in the aggregate. As of December 31, 2013, we have received approximately $674,000 of such grants. With respect to Entecavir, we have decided not to continue pursuing its development since the development of the release profile of the product has not met our expectations.
 
 
In May 2010, our subsidiary Mapi Pharma Germany GmbH was approved by ILB for a grant of ˆ500,000 (approximately $659,000), of which it received ˆ435,000 (approximately $564,000). This grant expired in accordance with its terms in October 2013. Mapi Pharma Germany GmbH has filed two follow-up applications with ILB, one research and development grant application and one grant application for the establishment of a cGMP production facility in Germany. These two grant applications were approved. However, as of the date of this prospectus, we have not accepted these grants or subjected ourselves to any of the conditions associated with the grants.
 
As of December 31, 2013, we have not generated revenues from the sale of any product. We have generated only non-material income from research and development milestone payments by our co-development partner under the collaborative agreement related to the development and manufacture of Pregabalin ER. We expect to generate revenues starting in 2015, mainly from more significant research and development milestone payments by our co-development partner under the collaborative agreement related to the development and manufacture of Pregabalin ER and thereafter from royalty payments once our products are sold. In addition, we believe we will be able to launch our complex API and formulation products once their reference listed products go off patent, starting in 2016, and expect to launch our LCM products when we have completed development of and received regulatory approval for such products. We anticipate that we will be able to begin selling our LCM products starting in 2018.
 
We are currently building a development and manufacturing plant in the industrial park Neot Hovav, Israel. The plant will be an organic synthesis facility, designed for the production of APIs and intermediates. The plant is expected to be operational in the second half of 2014. As of December 31, 2013, we invested a total of $4,316,000 (net of $515,000 in grants received or receivable) in the plant and related equipment out of the $15,000,000 we estimate will be required to complete construction and purchasing equipment. We expect to use $7 million of the net proceeds from this offering to finance the completion of construction.
 
 
41

 
 
Financial overview
 
Revenues
 
Our current revenues consist of research and development milestone payments received from our co-development partner under the collaborative agreement related to the development and manufacture of Pregabalin ER.
 
Operating expenses
 
Our current operating expenses consist of two components: research and development expenses and general and administrative expenses.
 
Research and development expenses
 
Our research and development expenses consist primarily of salaries and related personnel expenses, cost of third party consultants, raw materials, costs related to conducting preclinical studies, patent costs and travel expenses.
 
We estimate that the costs for developing each API will be from $250,000 to $500,000. For our Glatiramer Acetate Depot and Risperidone LAI products, we expect costs to be significantly higher, and the overall expenses for each of these products until reaching clinical trials is estimated to be approximately $1.5 million to $2.0 million. We estimate that the cost to conduct clinical trials will be approximately $2 million for Risperidone LAI and approximately $30 million for the Glatiramer Acetate Depot. We intend to engage with a partner in order to conduct these clinical trials. The development costs for our Pregabalin ER have been partially paid and will continue to be paid by our partner pursuant to the development milestones under the collaborative agreement. For more information, see “Collaborative Agreements - Pregabalin manufacturing agreement.” Part of our research and development expenses have been and, we believe will continue to be, financed by our OCS and ILB grants.
 
The following table shows the breakdown of our research and development expenses for the periods indicated:
 
   
Year Ended December 31,
 
   
2013
   
2012
 
   
(in thousands US$)
 
Salaries and related personnel expenses
    990       987  
Cost of materials, subcontractors and
   consultants
    741       1,226  
Patent registration
    248       380  
Other expenses
    616       564  
Total
    2,595       3,157  
Less related party participation
    (222 )     (152 )
Less ILB and OCS participation in research and development
    (294 )     (524 )
Total research and development expenses, net
    2,079       2,481  
 
We expect our research and development expenses to increase significantly as our current products reach more advanced and expensive stages of development and as we increase the number of products in our pipeline. We also plan to initiate several clinical trials, starting in the third quarter of 2014.
 
 
42

 
 
General and administrative expenses
 
General and administrative expenses consist primarily of salaries and related personnel expenses, professional service fees for accounting, legal, bookkeeping, facilities costs and depreciation expenses.
The following table shows the breakdown of our general and administrative expenses for the periods indicated:

   
Year Ended
December 31,
 
   
2013
   
2012
 
   
(in thousands US$)
 
Salaries and related personnel expenses, including directors fee
    1,682       1,516  
Professional expenses
    163       123  
Rent, insurance and maintenance
    137       115  
Other expenses
    131       157  
Total
    2,113       1,911  
 
We expect that our general and administrative expenses, particularly salaries, accounting and legal fees, will increase when we become subject to U.S. public reporting requirements as a result of the associated compliance and disclosure costs. 
 
Financing expenses and income
 
Financing expenses and income consist mainly of interest income on bank deposits and trading securities, change in the fair value of trading securities and foreign currencies gains or losses. In addition, financing expenses and income include the change in the fair value of an anti-dilution derivative held by our majority shareholder and exchange rate differences on our obligations related to a put option held by our majority shareholder. These rights will be terminated upon the closing of this offering.
 
The following table shows the breakdown of our financing income (expenses) for the periods indicated:
 
   
Year Ended
December 31,
 
   
2013
   
2012
 
   
(in thousands US$)
 
Interest income
    454       816  
Net foreign exchange income (expenses)
    (116 )     (48 )
Change in fair value of derivative in respect of anti-dilution right
    2,284       963  
Net change in fair value of investment in trading securities
    112       1,669  
Bank charges
    (26 )     (26 )
Total
    2,708       3,374  
 
Critical accounting policies and estimates
 
We describe our significant accounting policies and estimates more fully in Note 2 and Note 3 to our consolidated financial statements as of and for the year ended December 31, 2013 contained elsewhere in this prospectus. We believe that the accounting policies and estimates below are critical in order to fully understand and evaluate our financial condition and results of operations.
 
We prepare our consolidated financial statements in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or the IASB.
 
In preparing these consolidated financial statements, management has made judgments, estimates and assumptions that affect the application of our accounting policies and the reported amounts recognized in our consolidated financial statements. Actual results may differ from these estimates.
 
 
43

 
 
Derivative with respect to an anti-dilution right held by our majority shareholder
 
We measured the fair value of the derivative associated with the anti-dilution right held by our majority shareholder using the Monte Carlo simulation. The Monte Carlo simulation yields a numerical solution that considers the various terms of the agreement, our equity value, the shareholder’s investment and the number of our shares held by the shareholder for each of the valuation dates. Measurement inputs include our equity fair value estimation less the value of the put option right embedded in the redeemable shares, expected term of the derivative, expected volatility, expected dividends and the risk-free interest rate.
 
The parameters used to calculate the fair values of the derivative are as follows:
 
   
Year Ended December 31,
 
   
2013
   
2012
 
Equity value (US$ thousands) (1)
    169,898       149,641  
Expected term (in years) (2) 
    0.5       1.5  
Expected volatility (3) 
    72.5 %     92.5 %
Risk-free interest rate (4) 
    0.17 %     0.04 %
Dividend yield
    0       0  
 
 
(1)
Based on our equity fair value estimation using discounted cash flows methodology.
 
 
(2)
Based on the period until expected fund raising (June 30, 2014 for all valuation dates).
 
 
(3)
Based on the average equity volatility of drug companies.
 
 
(4)
Based on zero coupon Euro treasury bonds fixed with maturity equal to expected terms.
 
JOBS Act
 
On April 5, 2012, the JOBS Act was signed into law. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. This means that an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to utilize this exemption and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. In addition, as a result of this election, our future financial statements may not be comparable to those of public companies that are not emerging growth companies and are required to comply with public company effective dates for new or revised accounting standards.
 
Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we also elected or may elect to rely on other exemptions, including without limitation, not (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404 and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis). These exemptions will apply until the earliest of (a) the last day of our fiscal year during which we have total annual gross revenues of at least $1.0 billion; (b) the last day of our fiscal year following the fifth anniversary of the closing of this offering; (c) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (d) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act.
 
 
44

 
 
Results of operations
 
Below is a summary of our results of operations for the periods indicated:
 
   
Year Ended
December 31,
 
   
2013
   
2012
 
   
(in thousands US$)
 
             
Income from co-development arrangement
    13       194  
Research and development expenses, net
    (2,079 )     (2,481 )
General and administrative expenses
    (2,113 )     (1,911 )
Operating loss
    (4,179 )     (4,198 )
Financing income, net
    2,708       3,374  
Loss before taxes on income
    (1,471 )     (824 )
Taxes on income
    (21 )     (21 )
Net loss
    (1,492 )     (845 )
Defined employees benefit plan actuarial gains (losses)
    -       (8 )
Total comprehensive loss attributable to holders of ordinary shares
    (1,492 )     (853 )
 
Income from co-development arrangement
 
During the year ended December 31, 2013, we generated $13,000 in income upon the achievement of a research and development milestone under the collaborative agreement related to the commercialization of Pregabalin ER (for more information, see “Business – Collaborative agreements – Pregabalin manufacturing agreement”), compared to $194,000 for the year ended December 31, 2012, which was also due to the achievement of a research and development milestone under the same agreement.
 
Research and development expenses
 
Our research and development expenses amounted to $2,079,000 for the year ended December 31, 2013, a decrease of $402,000, or 16%, compared to $2,481,000 for the year ended December 31, 2012. The decrease was primarily due to a decrease in usage of materials, subcontractors and consultants. See the table set forth under “Financial overview - Operating expenses – Research and development expenses” above for a breakdown of each component of our research and development expenses during the periods.
 
During the year ended December 31, 2013, we recognized $294,000 and $0 from the OCS and ILB, respectively, compared to $215,000 and $309,000 from the OCS and ILB, respectively, for the year ended December 31, 2012. The grants received from the OCS and ILB are recognized when we are entitled to receive them.
 
General and administrative expenses
 
Our general and administrative expenses totaled $2,113,000 for the year ended December 31, 2013, an increase of $202,000, or 11%, compared to $1,911,000 for the year ended December 31, 2012. See the table set forth under “Financial Overview – Operating expenses – General and administrative expenses” above for a breakdown of each component of our general and administrative expenses during the periods.
 
Operating loss
 
As a result of the foregoing, our operating loss for the year ended December 31, 2013 was $4,179,000, similar to the operating loss of $4,198,000 for the year ended December 31, 2012.
 
Financing income (expenses)
 
We recognized financing income of $2,708,000 for the year ended December 31, 2013, a decrease of $666,000 compared to financing income of $3,374,000 for the year ended December 31, 2012. The decrease in the financing income was mainly due to changes in the fair value of the anti-dilution derivative held by our majority shareholder and changes in the fair value of our investment in trading securities. See the table set forth under “Financial overview – Financing expenses and income” above for a breakdown of each component of our financing income during the periods.
 
 
45

 
 
Loss
 
Primarily as a result of the foregoing, our loss for the year ended December 31, 2013 was $1,492,000, as compared to a loss of $845,000 for the year ended December 31, 2012, an increase of $647,000, or 77%. The increase in the net loss is mainly due to the decrease in financing income.
 
See the table set forth under “Results of operations” above for a breakdown of each component of our net loss during the periods.

Liquidity and Capital Resources
 
Overview
 
From our inception through December 31, 2013, we have funded our operations principally from a single round of financing completed in 2008 in the amount of $29,654,000 and grants received from the OCS and ILB in the aggregate amount of $1,132,000. As of December 31, 2013, we had $2,305,000 in cash and cash equivalents and an additional $6,179,000 in trading securities.
 
The table below shows our cash flow activities for the periods indicated:
 
   
Year Ended
December 31,
 
   
2013
   
2012
 
   
(in thousands US$)
 
             
Operating activities
    (3,102 )     (2,907 )
Investing activities
    1,356       4,441  
Financing activities
    -       -  
Net increase (decrease) in cash and cash equivalents
    (1,746 )     1,534  

Operating Activities
 
Net cash used in operating activities of $3,102,000 during the year ended December 31, 2013 was primarily used for payments of approximately $741,000 to research and development advisors and subcontractors, approximately $248,000 for patent registration costs and fees and approximately $2,640,000 for salaries, less approximately $779,000 of grants received from the OCS and ILB and interest received from our investing activities. The remaining amount was used for travel, rent and other miscellaneous expenses.
 
Net cash used in operating activities of approximately $2,907,000 during the year ended December 31, 2012 was primarily used for payments of approximately $1,226,000 to research and development advisors and subcontractors, approximately $380,000 for patent registration costs and fees and approximately $2,480,000 for salaries, offset by approximately $1,288,000 of grants and interest received. The remaining amount was used for travel, rent and other miscellaneous expenses.
 
Investing Activities
 
Net cash provided by investing activities of $1,356,000 and $4,441,000 during the year ended December 31, 2013 and 2012, respectively, derived mainly from the sale of trading securities to finance operating activities in the amount of $4,436,000 and $6,315,000, respectively, less cash invested in fixed assets of approximately $3,077,000 and $1,870,000, respectively. Of the cash invested in fixed assets during the year ended December 31, 2013, we invested a net amount of $4,316,000, in our production plant in Neot Hovav. The plant was granted a “Preferred Enterprise” status by the Israeli government, which entitles us to cash grants of 20% of the amount of the approved investment in the plant (which may be increased by an additional 4%). In addition, depending on the fulfillment of certain conditions, income generated from products manufactured at the plant will be entitled to a reduced tax rate of 9% (compared to a 26.5% corporate income tax rate in 2014).
 
 
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Current Outlook
 
We have financed our operations to date primarily through proceeds from a single financing round in 2008 and grants received from the OCS and ILB. We have incurred operating losses and generated negative cash flows from operations since inception. To date, we have not generated any revenue from the sale of products.
 
 As of December 31, 2013, our cash, cash equivalents, short term deposits and investment in trading securities totaled $8,484,000. We believe that these resources will be adequate to meet our capital expenditure requirements and liquidity needs for the next year.
 
We also believe that our existing cash resources and the net proceeds from this offering will be sufficient to fund our projected cash requirements approximately through 2016. Depending on the progress of our development program and its success, we may require additional financing in the future to fund our operations.
 
Our future capital requirements will depend on many factors, including:
 
 
the progress and costs of our pre-clinical studies, clinical trials and other research and development activities;
 
 
the scope, prioritization and number of our clinical trials and other research and development programs;
 
 
any cost that we may incur under in- and out-licensing arrangements relating to our LCM products or complex APIs and formulations that we may enter into in the future;
 
 
the costs and timing of obtaining regulatory approval for our drug candidates;
 
 
the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;
 
 
the costs of, and timing for, strengthening our manufacturing agreements for production of sufficient clinical and commercial quantities of our drug candidate; and
 
 
the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally.
 
Our future capital needs may require us to raise additional capital. We may be unable to raise sufficient additional capital when we require it or upon terms favorable to us. In addition, the terms of any securities we issue in future financings may be more favorable to new investors and may include preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect on the holders of any of our securities then outstanding. If we are unable to obtain adequate funds on reasonable terms, we will need to curtail operations significantly, including possibly postponing anticipated clinical trials or entering into financing agreements with unattractive terms.
 
 
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Contractual Obligations
 
The following table summarizes our significant contractual obligations at December 31, 2013:
 
   
Total
   
Less than 1 year
   
1-3 years
   
3-5 years
   
More than 5 years
 
   
(in thousands US$)
 
OCS                                               
    674       -       -       -       674  
Operating leases                                               
    76       76       -       -       -  
Investment in Neot Hovav Plant*
    1,286       -       1,286       -       -  
 
 * Because the plant was granted a “Preferred Enterprise” status by the Israeli government, if we invest NIS 30,000,000 (approximately $8,036,000), we will be entitled to receive a grant equal to 20% of our aggregate investment.
 
In addition, we have contractual obligations in respect to an anti-dilution right and a put option held by our majority shareholder which as at December 31, 2013 amount to $103,000 and $4,133,000, respectively, which will be terminated upon the closing of this offering and pursuant to a previous engagement with an investment banker, we may be required to pay a tail fee of $300,000 in connection with the offering.
 
Off-Balance Sheet Arrangements
 
We currently do not have any off-balance sheet arrangements.
 
Quantitative and Qualitative Disclosure about Market Risk
 
We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Accordingly, a substantial majority of our financial resources are held in deposits and securities that bear interest. Given the current low rates of interest we receive, we will not be adversely affected if such rates are reduced. Our market risk exposure is primarily a result of foreign currency exchange rates, which is discussed in detail in the following paragraph.
 
Foreign Currency Exchange Risk
 
Our results of operations and cash flow are subject to fluctuations due to changes in foreign currency exchange rates. As discussed above, the vast majority of our liquid assets are held in U.S. dollars, and a certain portion of our expenses is denominated in NIS. For instance, in 2013, approximately 57% of our operating expenses were denominated in NIS. Changes of 3% and 5% in the U.S. dollar/NIS exchange rate would have increased/decreased operating expenses by 2% and 3%, respectively, during 2013. However, these historical figures may not be indicative of future exposure, as we expect that the percentage of our NIS denominated expenses will materially decrease in the near future, therefore reducing our exposure to exchange rate fluctuations.
 
 We do not hedge our foreign currency exchange risk. In the future, we may enter into formal 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.
 
 
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Business
 
Overview
 
We are a development stage pharmaceutical company, engaged in the development of high-barrier to entry and high-added value generic drugs that include complex APIs, formulations and LCM products that target large markets.
 
We are currently developing two LCM products for the treatment of multiple sclerosis (“MS”) and neuropathic pain. LCM products are new forms of marketed drugs which may offer advantages over existing formulations, such as improved patient compliance and reduced side effects, and allow extended patent and regulatory exclusivity of a marketed drug due to different formulations of product components, for example through depot or extended release formulations. Our LCM products seek to add value to products that are expected to go off-patent by integrating off-patent APIs with our formulations, resulting in a new final combination that is believed to be patentable.
 
Our LCM portfolio focuses on big-market products, consisting of (i) Glatiramer Acetate Depot, a once-monthly injection for the treatment of MS, (ii) Pregabalin ER, extended release capsules for the treatment of neuropathic pain and epilepsy, and (iii) Risperidone LAI, a depot formulation of Risperdal Consta. We are developing Pregabalin ER currently only in Latin America, although further development in the U.S. and the European Union is expected to be either under the ANDA or 505(b)(2) shortened regulatory pathway. We expect that Risperidone LAI will also be developed under either the ANDA or 505(b)(2) shortened regulatory pathway.
 
Our current API portfolio consists of 13 complex APIs and formulations scheduled to launch between 2017 and 2028, with early pre-patent expiration quantities of registration batches to be supplied to generic pharmaceutical companies beginning in 2014.
 
We plan to market our complex APIs and formulations through two channels. The first will be by licensing out the APIs to pharmaceutical companies that will manufacture the formulations and commercialize them into the market. The second will be by developing the APIs and the respective formulations ourselves and ultimately selling or licensing them, in certain cases using regulatory pathways that enable a period of exclusivity and a first generic positioning. For our LCM products, we plan to seek co-development partnerships with large pharmaceutical companies and enter into co-development arrangements at the manufacturing and/or marketing stages. At present, we do not plan to develop our own sales organization, but rather to focus on business development activities, co-development and product sales partnerships.
 
Our intellectual property includes assigned patents, pending patent applications, trade secrets and know-how, some of which may be the subject of future patent applications. Our intellectual property is strategically focused on the following areas: (i) process and polymorph patents for FDA-approved drugs that can facilitate the early launch of certain products after expiration of the basic composition of matter patents, and (ii) application of long-acting depot technology on “blockbuster” drugs.
 
We have incurred operating losses each year since our formation in 2008. We incurred net losses of $1,492,000 and $845,000 in 2013 and 2012, respectively. As of December 31, 2013, our accumulated deficit was $11,258,000. Our operating losses are mostly due to expenses incurred in connection with product development. We expect to continue to incur significant expenses and increasing operating losses for at least the next two years as of the date of this prospectus.
 
We currently do not have any products approved for sale in any jurisdiction. Our operations have been funded, to date, primarily from a single round of financing completed in 2008, from research and development grants we received from the OCS and from grants from ILB.
 
Our strategy
 
Our objective is to develop, in a cost-efficient manner, complex APIs, formulations and LCM products for which we believe there are high barriers to entry and which we believe have high value for customers due to the complexity of the manufacturing process and the difficulty of obtaining sufficiently pure pharmaceutical ingredients. We select products that we believe are potentially applicable to large patient markets, involve proven therapeutics and for which we believe there is and will be limited competition. As described in more detail below, we intend to obtain FDA approval through the 505(b)(2) and ANDA regulatory pathways, which are streamlined approval processes in comparison to an original New Drug Application and which permit use of certain reference-listed drug information like safety and toxicity data. For a discussion of the 505(b)(2) and the ANDA processes, see “– Government regulations.” We believe this business model mitigates the risks associated with the development of new and unproven drugs.
 
 
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Our business strategy is to:
 
•      Complete clinical development and obtain regulatory approval for our LCM products. Our LCM portfolio aims to address large markets. Glatiramer Acetate Depot is a once-monthly injection for the treatment of MS, and our Pregabalin ER capsules treat neuropathic pain and epilepsy. We plan to initiate a Phase II clinical trial of Glatiramer Acetate Depot in RRMS patients in the third quarter of 2014 in Israel. Simultaneously, we intend to start a single pivotal Phase III clinical trial of Glatiramer Acetate Depot in the third quarter of 2014 for marketing approved in the United States. We plan to initiate a pharmacokinetics trial of Pregabalin ER by the second half of 2014 for the Latin American market, and we are considering a clinical development program for the rest of the world. We filed applications with Institutional Review Boards (Helsinki committees) of several medical institutions in Israel that are under review by the Israeli Ministry of Health for a Phase II trial in support of marketing approval for Glatiramer Acetate Depot. As of June 30, 2014, we received the approval of three Institutional Review Boards (Helsinki committees). On April 27, 2014, we received approval to conduct a questionnaire survey in the Carmel Medical Center in Israel among MS patients treated by Copaxone about their preferences regarding a depot formulation of Glatiramer Acetate compared to other modes of administration, which will accelerate the recruitment of participants in our Phase II clinical trial. In May 2014, we initiated this questionnaire survey. In addition, on February 23, 2014, we received an approval from an Institutional Review Board (IRB) in India in connection with our planned bioequivalence trial for Risperidone LAI. We are currently in the process of seeking approval from the Drug Controller General of India (DCGI) to commence this bioequivalence trial.
 
•      Complete clinical development and regulatory approval for our Risperidone LAI, a generic depot formulation of Risperdal Consta. According to Johnson & Johnson, Risperdal Consta produced revenues of approximately $1.3 billion in 2013. We plan to commence clinical trials of Risperidone LAI in the third quarter of 2014. We intend to launch our Risperidone LAI in 2018. Of the 12 Orange Book listed patents for Risperdal Consta, four expire after the proposed launch date. Based on a preliminary review by outside counsel, our LAI formulation does not infringe any claims of these remaining patents.
 
•       Continue the development and commercialization of our complex APIs and formulations portfolio. APIs are complex due to their intricate, multiple production stages and existing patent limitations. Our know-how, which was developed in-house and was not licensed from third parties, allows us to develop products that avoid solid form and production process patent limitations. Because they are complex to manufacture, the APIs we are developing tend to have a high barrier to entry into the market, which we believe will limit the number of competitors. Therefore, we expect the price erosion of the APIs we are developing in the off-patent stage to be less than the price erosion of non-complex APIs. Our current portfolio consists of 13 APIs scheduled to launch starting in 2017, with early pre-patent expiration quantities of registration batches of certain products to be supplied to generic pharmaceutical companies beginning in 2014. We intend to initially manufacture our APIs through our strategic partners. However, we are currently developing our own manufacturing plant in Israel, where we expect to manufacture our APIs upon completion.
 
•       Pursue co-development and marketing partnerships. We have entered into co-development agreements with large pharmaceutical companies in connection with the development of Pregabalin ER and Risperidone LAI, as well as a co-development and marketing agreement with a large pharmaceutical manufacturer to manufacture the formulation for certain complex generic drugs. We intend to pursue additional co-development partnerships in order to accelerate the clinical development and maximize the market potential for our APIs, as well as for Glatiramer Acetate Depot. In particular, we intend to partner with large pharmaceutical companies that possess market know-how and marketing capabilities to complete the development and commercialization of our products.
 
•       Complete construction of in-house manufacturing capabilities, with significant tax benefits. Our Israeli development and manufacturing plant in the industrial park Neot Hovav, Israel, is an organic synthesis facility, designed for the production of APIs and intermediates. The plant is expected to be operational in the second half of 2014. The plant is designed as a multipurpose facility with mid-size industrial production reactors of varying capacities of up to 4,000 liters. The plant’s scalable design should enable us to expand capacity with limited expenditures. The plant is expected to hold two pilot facilities for smaller scale production to support the production scale-up process and initial sales of registration quantities. The plant also qualifies as a “Preferred Enterprise” under the Investment Law, which entitles us to cash grants of 20% of the amount of the approved investment in the plant (which may be increased by an additional 4%). In addition, depending on the fulfillment of certain conditions, income generated from products manufactured at the plant will be entitled to a reduced income tax rate of (compared to a 26.5% corporate income tax rate in 2014). As of the date of this prospectus, we have received or are entitled to receive grants in the amount $515,000 but we have not utilized any beneficial tax rates under the Investment Law.
 
 
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Our competitive strengths
 
•      Ability to develop high-barrier to entry products. We have the ability to develop high-barrier to entry pharmaceutical products, which we believe will enable us to enter the market with limited competition, thereby subjecting our products to relatively less price erosion in the off-patent stage.
 
•      Experienced management team. Our management team has an extensive track record in the development manufacturing and commercialization of high-barrier to entry pharmaceuticals in an efficient cost-effective manner.
 
o           Our chief executive officer and chairman of the Board, Mr. Ehud Marom, in his previous employment managed companies with large scale research and development operations, solved research and development problems in innovative and generic products, managed the production of both innovative and generic products, and served as member of committee to select generic products for development. He was involved in the development of several major pharmaceutical products including Gemfibrozil, Diltiazem, Copaxone, Etodolac, Simvastatin, Pravastatin, Diapep277, StemEx, Statins, Fipronil and Venlafaxine.
 
o           Our Head of API Development, Dr. David Leonov, in his previous employment was involved in the research and development of several major pharmaceutical products including Glatiramer Acetate, Simvastatin, Pravastatin, Lovastatine, Atrorvastatin, Ciclosporine, Alfacalcidol, Calciptriene, Doxercalciferol, Carbamazapine, Paricalcitol, Zolpidem, Mupirocin, Torseamide, Etodolac, Etoposide, Deferoxamine and Claritromycin.
 
o            Our Head of Formulations, Dr. Yoram Sela, in his previous employment was involved in the research and development of several major pharmaceutical products including Alfuzosin ER, Omega-3, the prescription product Lovaza, Morphine sulfate ER dosage form, Methylphenidate ER Niacin ER, Pentoxiphilline ER, Etodolac ER, Carbamazepine ER, Potassium chloride ER, Venlafaxine ER, Osmotic pumps-nifedipine/Glipizide/Oxybutinin, Suboxone-buprenorphine-naloxone, Dexmethylphenidate EF, Levodopa/carbidopa ER, Aggrenox and Oxycodone ER.
 
o           Our Executive Vice President, Uri Danon, in his previous employment oversaw the development of Copaxone in solution in pre-filled syringes, was the chief executive officer of a company that developed innovative cell therapy products for organ transplant and angiogenesis, AB103, was the chief executive officer of a company that is developing an innovative short peptide for infectious diseases, set to initiate single pivotal trial and was the chief executive officer of a company that is developing BC819, an innovative biologics (plasmid) for anti-cancer medical indications, set to initiate single a pivotal trial.
 
o           Our Vice President Research and Development, Dr. Shai Rubnov, in his previous employment was involved in the research and development of several major pharmaceutical products including Diapep277, VaxiSome and Somatoprim.
 
•      Advantageous LCM formulations under development. The long acting formulations used in our LCM products aim to improve patient compliance by reducing the number of required treatments and enabling direct professional oversight, which may improve the therapeutic effects of treatment. For example, benefits may include a reduced chance of relapse and reduced healthcare costs to the payer. We believe our products will enable physicians to more effectively monitor the administration of the drug.
 
•      Patent protection for one of our major LCM products. Our granted U.S. patent with regard to Glatiramer Acetate Depot covers sustained release depot formulations of Glatiramer Acetate having a release profile of Glatiramer Acetate over a period of one week to 6 months, and is expected to exclude others from making, using, or selling such depot formulations for Glatiramer Acetate in the U.S. until 2030.  Corresponding patent applications are pending in Australia, Brazil, Canada, China, Europe, Hong Kong, India, Israel, Japan, and Mexico.
 
 
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•       We may be able to launch our complex APIs and formulations before the brand drug goes off-patent in certain cases. We have carefully selected and chosen to develop certain complex APIs and formulations for certain of our APIs that we believe we will be able to launch prior to the expiration of second generation patents protecting polymorphs and production processes of such drugs, but after expiration of the basic composition of matter patents. In materials science, polymorphism is the ability of a solid material to exist in more than one form of crystal structure. We have received and filed, or intend to file, patent applications for polymorphs and preparation processes for these APIs that are distinct from the associated brand drugs.  Using these technologies, we may be able to launch our products in certain cases without infringing existing second generation patents for the brand drug.
 
Overview of LCM products
 
LCM products are new forms of marketed drugs, which may offer advantages over existing formulations, such as improved patient compliance or reduced side effects, and allow developers to extend patent and regulatory exclusivity of a marketed drug due to different formulations of product components. Our LCM products seek to add value to off-patent products by integrating the off-patent APIs with our formulations, resulting in a final combination that is patentable.
 
Our LCM portfolio focuses on big-market products, consisting of (i) Glatiramer Acetate Depot, a once-monthly injection for the treatment of MS and (ii) Pregabalin ER, extended release capsules for the treatment of neuropathic pain and epilepsy We are developing Glatiramer Acetate Depot under the shortened regulatory registration pathway of 505(b)(2). We are developing Risperidone LAI under the ANDA pathway. We are developing Pregabalin ER currently only in Latin America, although further development in the U.S. and the European Union is expected to be either under the ANDA or 505(b)(2) pathway. We are scheduled to commence clinical trials for these three LCM products in 2014.
 
Market overview for Glatiramer Acetate Depot. Worldwide sales for Glatiramer Acetate (Copaxone), currently being marketed by Teva, reported by Teva, in their annual report for the year 2013, totaled approximately $4.3 billion. In February 2013, Teva announced that Copaxone’s U.S. market share was approximately 40% of the RRMS market, but cautioned that while the global market share of the drug had increased in relation to the currently available major therapies for MS, its status as the established RRMS market leader was threatened by intense competition from existing injectable therapies. Teva also noted the additional threats of potential generic competition to Copaxone due to its May 2014 patent expiration, and competition from the rapidly developing market of oral treatments, which offer substantial convenience over injectables, particularly Novartis’ Gilenya® (Fingolimod) and Biogen’s Tacfidera® (dimethyl fumarate). At that time, Teva noted that the increase in global Copaxone revenue seen in 2012 compared with the previous year was primarily due to the successful take-back of marketing and distribution rights in Europe and increased sales in rest of the world markets. On January 29, 2014, Teva announced that it received FDA approval for a Supplemental NDA for a 40mg, thrice-weekly dosage of Copaxone. Teva’s 40 mg, thrice-weekly version of Copaxone was approved following a single phase III pivotal trial which, we believe validates our regulatory and research and development strategy of a single pivotal trial under the FDA’s 505(b)(2) regulatory pathway. Teva’s 40mg, thrice-weekly version of Copaxone has the potential to delay the anticipated erosion of the Glatiramer Acetate market, which is expected to be brought on by possible generic competitors that are developing the once-daily dosage of Glatiramer Acetate. In addition, the efforts of Teva, the current industry leader, that are invested in a formulation with a lesser frequency of injections for Copaxone may be indicative of the shift in the RRMS market toward longer-acting depot formulations of Glatiramer Acetate. We believe that due to the strong competition in the MS market, and the possible introduction of generic competition into the market, Copaxone’s market share will likely decline.
 
Market overview for Pregabalin (Lyrica®). Worldwide sales for Lyrica, Pfizer’s Pregabalin-based drug, reported by Pfizer in their annual report for the year 2012 were $4.158 billion, representing an increase of 13% compared to sales in 2011. U.S. revenue increased by 10%, but was affected by increased generic competition. Lyrica revenue worldwide increased by 14% due to a focus on increasing neuropathic pain diagnosis and treatment, the European Union re-launch of the general anxiety disorder indication and physician education regarding neuropathic pain in Japan. As of November 2009, Pfizer was also investigating a controlled-release formulation of Pregabalin, developed for the treatment of epilepsy. In August 2012, a Phase III clinical trial of the formulation as an adjunctive therapy in partial onset epilepsy was completed. In November 2012, Pfizer announced that their controlled-release formulation failed to meet the primary endpoint of epilepsy, but had a statistically significant positive effect compared to placebo in the chronic pain indication. Pfizer announced it would wait for the results from the third and final ongoing Phase III trial in post-herpetic neuralgia patients to ascertain the potential use of Pregabalin as a once-a-day therapy. Pfizer’s basic product patent which covers the drug, expires in 2018 in the U.S. Pfizer’s patent covering the use of Pregabalin in the treatment of pain, expires in 2018 in the European Union.
 
 
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Glatiramer Acetate Depot, as well as our Risperidone LAI generic product, use our long-acting depot technology. Currently, the daily administration of injections is the most common delivery method of drugs that otherwise have poor bioavailability (meaning that a low quantity of the ingested dose actually reaches systemic circulation). This route triggers a rapid increase in systemic drug level followed by a rapid decline. Treatment is generally most effective when systemic drug levels are maintained within the therapeutically effective concentration range for as long as the specific treatment requires. In order to maintain such effective concentration range, frequent injections are required, which lead to patient discomfort and increased treatment burden.
 
Depot technology is designed to provide a maintained systemic drug level for patients over an extended period of time by a single administration of the drug. The depot drug delivery system is comprised of a biodegradable polymer that encapsulates the API and disintegrates over an extended period of time, releasing the API gradually. This method requires less frequent injections, with increased patient convenience and compliance and reduced treatment burden, leading to better efficacy and therapeutic effects.
 
In the last decade, depot technology has also been introduced to replace orally administered small molecules. Products such as Risperidone, Paliperidone, Olanzepine and Naltrexone, which were previously delivered orally, were converted into long acting injections administered once or twice per month, and in such form, each product attained a significant market share. Most of these drugs are central nervous system drugs, for which compliance and adherence to treatment protocols is of crucial importance to efficacy.
 
Our depot technology is based on combining biodegradable polymers, with or without additional excipients (additives). Our product-tailored technology provides extensive know-how and non-infringing generic solutions to the currently marketed long-acting drugs. Currently, we do not plan to apply for a patent for the depot formulation technology, as we are using non-proprietary depot technology. However, we were granted a U.S. patent with respect to Glatiramer Acetate Depot for the combination of the API and any depot formulation.
 
Long-acting drugs are often technologically complex, protected by formulation patents and subject to high regulatory barriers and unique development challenges and manufacturing requirements. As a result of these barriers, we believe competition from other companies developing these generic products tends to be more limited, and we expect less price erosion in the off-patent stage in the foreseeable future. We believe that providing generic long-acting drugs is an important need that has not been fully met in this niche market.
 
Overview of complex APIs and formulations
 
Our product list is comprised primarily of low to medium volume (ranging from several kilograms up to one-hundred metric tons annually) complex APIs and formulations which are difficult to develop. The complex nature of these APIs creates a high barrier to entry into the market and may minimize the number of competitors. Therefore, we expect price erosion of our APIs in the off-patent stage to be less than the price erosion of non-complex APIs. Our current portfolio consists of 13 complex APIs and seven formulations scheduled to launch between 2017 and 2028, with early pre-patent expiration quantities of registration batches to be supplied to generic pharmaceutical companies beginning in 2014. The manufacture of APIs and formulations is scheduled to commence at the facilities of future partners and is expected to shift to our plant in Israel upon its completion. We believe that utilizing in-house expertise, which we believe will be possible upon the completion of the plant, will shorten development time and reduce financial risks and other risks associated with development and operations by allowing for greater internal control over the entire development process. For certain of our APIs, we will file an ANDA containing a Paragraph IV certification, potentially providing us 180 days of first-to-file or co-exclusivity. These products are expected to be launched as a later stage of our product development, which will potentially accelerate our revenue growth. For a discussion of the ANDA process and Paragraph IV certification, see “– Government regulations – Abbreviated New Drug Application.”
 
 
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Our LCM products
 
The table below provides a brief description of the three LCMs that we are currently developing: 
 
LCM Product
 
Sales in 2013 (approximate figures)*
 
Medical indication
 
R&D status
Glatiramer Acetate Depot
 
$4.3 billion
 
RRMS
 
Pre-clinical development
Risperidone LAI
 
$1.32 billion
 
Schizophrenia and bipolar disorder
 
Pre-clinical development
Pregabalin ER
 
$4.5 billion
 
Neuropathic pain
 
Pre-clinical development
 
* Thomson Reuters CortellisTM report for the 2013 fiscal year.

Glatiramer Acetate Depot
 
Glatiramer Acetate is used to treat RRMS. Our investigational Glatiramer Acetate Depot formulation is designed to allow RRMS patients currently treated with daily subcutaneous injections of Glatiramer Acetate to receive a once-monthly intramuscular injection (by a healthcare professional). Our Glatiramer Acetate Depot is intended to have the fewest periodic administrations among all currently approved parenteral treatments (treatments via a route other than the mouth) of RRMS, so as to offer the greatest convenience and lowest treatment burden of all treatment options. For example, our Glatiramer Acetate Depot formulation is intended to be administered 12 times per year, while other currently approved parenteral treatments and their administration times per year (according to the FDA’s prescribing information for each product) are as follows: Copaxone - 365; Extavia® - 182; Betaseron® - 182; Rebif® - 156; Avonex® - 52; Plegridy™ (under development) - 26.
 
An in-vitro release profile of Glatiramer Acetate Depot, taken from in-house studies we have conducted, demonstrated sustained drug release over a 30-day period, as noted in the graph below.
 
 
 
* Glatiramer Acetate Depot formulation In Vitro release test, content % of GA was determined using GPC (gel permeation chromatography). Total released (day 30) = 90.6%
 
We have also evaluated Glatiramer Acetate Depot in several pre-clinical animal studies and in experimental autoimmune encephalitis (“EAE”) animal models, acceptable for MS.
 
 
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EAE model in mice simulating MS conditions. MOG-induced (Myelin Oligodendrocyte Glycoprotein, a glycoprotein believed to be important in the process of myelinization of, or adding a protective sheath around, nerves in the central nervous system) chronic EAE in C57BL/6 female mice (number=10/group), for 14 days. Clinical scoring has been assessed on a daily basis for each mouse and the mean disease score was determined for the treatment groups compared the control group. The clinical indicates the severity of the effects of the disease (i.e., a score of 0 reflects no overt sign of disease and a score of 5 reflects moribund state).
 
 
 
 
In EAE study #1 (above), we found that our research-grade Glatiramer Acetate Depot administrated intramuscularly (dose, 10mg) at days 0 and 1 (presented in green in the graph above) exerts a prolonged effect that is substantially similar to Glatiramer Acetate (Copaxone®), dose 10mg) administrated intramuscularly (“IM”) over a period of 14 days (presented in red in the graph below)
 
 
In a recent EAE study #2 (above), we have tested dose-response with GA Depot manufactured in scaled-up GMP grade facility intended for clinical supply. We have found that our Glatiramer Acetate Depot (dose, 2mg) administered IM at days 0 (presented in green in the graph above) exerts a prolonged effect for a period of 14 days that is substantially better than Glatiramer Acetate (Copaxone®) administered subcutaneously (“SC”) daily (2mg/day), during days 0 to 8 (presented in red in the graph above). Also, higher dose of Glatiramer Acetate Depot (10mg) administered IM at days 0 and 1 (presented in black in the graph above) exerts a prolonged effect for a period of 14 days stronger than Glatiramer Acetate (Copaxone) administered subcutaneously (“SC”) daily (2mg/day), during days 0 to 8.
 
We believe that the cost to use our Glatiramer Acetate Depot will be less than the cost of traditional Glatiramer Acetate administration due to the reduced quantity of API necessary and the number of required syringes and associated additional disposable materials otherwise required for treatment. Teva Pharaceutical Industries Ltd.’s patent for Glatiramer Acetate (under the name Copaxone) expired in the U.S in May 2014 (based on the FDA Orange Book). We plan to initiate a Phase II clinical trial of Glatiramer Acetate Depot in RRMS patients in the third quarter of 2014. A Phase II clinical trial generally involves approximately 100 to 300 patients to test safety and efficacy. Simultaneously, we intend to set a pre-Investigational New Drug (“pre-IND”) meeting with the FDA, followed by a single pivotal multicenter Phase III clinical trial scheduled to commence in the third quarter of 2014. The Phase III clinical trial is expected to last 30 months with results expected by 2017 that are designed to enable submission of a registration file to the FDA. A Phase III clinical trial for similar medical indications generally involves 1,000 to 2,000 patients to confirm efficacy, monitor side effects, compare against commonly used treatments and collect information that will allow safe use. As part of our phase III clinical trial, we plan to enroll approximately 900 subjects, aged 18 to 55 years, who have been diagnosed with RRMS, and to observe these patients for a period of one year.  Those subjects will be randomized into Glatiramer Acetate Depot and placebo groups. On January 29, 2014, Teva announced that it received FDA approval for a Supplemental NDA for a 40 mg, thrice-weekly dosage of Copaxone. Teva’s 40 mg, thrice-weekly version of Copaxone was approved following a single phase III pivotal trial, which we believe validates our regulatory and research and development strategy of a single pivotal trial under the FDA’s 505(b)(2) regulatory pathway. Teva’s 40mg, thrice-weekly version of Copaxone has the potential to delay the anticipated erosion of the Glatiramer Acetate market, which is expected to be brought on by possible generic competitors that are developing the once-daily dosage of Glatiramer Acetate. The efforts of Teva, the current industry leader, that are invested in a formulation with a lesser frequency of injections for Copaxone may be indicative of the shift in the RRMS market to toward longer-acting depot formulations of Glatiramer Acetate.
 
We agreed to partner with a large pharmaceutical company to evaluate the development of Glatiramer Acetate Depot.  The results of the feasibility study do not have commercial impact and we are actively seeking a partner for our Phase III clinical trial.
 
 
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The benefits of our Glatiramer Acetate Depot product with respect to patient compliance are expected to be significant. According to a study conducted in 2010, based on the medication possession ratio, Copaxone-treated patients are currently administering the drug at a 70% compliance rate (Kleinman NL, Beren IA, Rajagopalan K, et al. “Medication adherence with disease modifying treatments for multiple sclerosis among US employees” J. Med. Econ. 2010). A study conducted in 2011 found that patients with a medication possession ratio (a measure of compliance) that was greater than 70% had significantly lower odds of a relapse than those patients whose medication possession ratios were 70% or lower (MerriKay Oleen-Burkey et al, “The relationship between alternative medication possession ratio thresholds and outcomes evidence from the use of Glatiramer Acetate,” Journal of Medical Economics, 2011). Assuming that our Glatiramer Acetate Depot, by enabling a reduction in the number of administered treatments and ensuring closer medical supervision, is able to increase administration above the 70% compliance rate, we believe that it should significantly improve overall patient health.
 
We believe that the benefits of our Glatiramer Acetate Depot over the generic competition, which is administered daily, will enable premium pricing, which is still expected to be lower than brand parenterals and new oral competitors. We currently expect to commercialize Glatiramer Acetate Depot by the end of 2018, after completion of our pivotal Phase III trial and filing of our 505(b)(2) NDA with the FDA.
 
In February 2013, our first US patent was issued for depot systems comprising Glatiramer or a pharmacologically acceptable salt thereof, which will be in force until August 2030. An additional application was allowed in May 2014, broadening the coverage of the earlier patent to include Glatiramer Acetate Depot in combination of at least one additional drug.
 
Risperidone LAI (Long Acting Injection)
 
Risperdal is an anti-psychotic drug developed and launched by Janssen, a subsidiary of Johnson & Johnson. Risperdal Consta, developed by Alkermes plc, a development partner of Johnson & Johnson, is a sustained-release version of Risperdal. Risperdal Consta is a two-week long-acting depot intramuscular injectable formulation prescribed for the treatment of schizophrenia and for the maintenance treatment of bipolar disorder as an alternative to daily oral Risperidone. This depot formulation has improved patient compliance, which has reduced hospitalizations and treatment costs. Alkermes plc’s patent exclusivity over the formulation technology of Risperdal Consta expires in 2023 in the U.S. and in 2021 - 2022 in the European Union.
 
Our development in this field is Risperidone LAI (long acting injection), a generic version of Risperdal Consta using our depot technology, which we believe we will be able to commercialize in 2018, up to five years prior to expiration of the Alkermes plc patent in the U.S. and up to three years prior to the expiration of the Alkermes plc patent in the European Union. We intend to be able to commercialize Risperidone LAI prior to the expiration of Alkermes’s plc patent due to our depot formulation, which we believe does not infringe on the U.S. patents for Risperdal Consta which expires after 2018. We are pursuing Risperidone LAI under the generic regulatory pathway. For more information, see “Government Regulations.” We are not aware of any other ANDA application for a generic version of Risperdal Consta, and if our ANDA is accepted and approved, and our non-infringement challenge succeeds, we might receive first-to-file exclusivity for our Risperidone LAI ANDA. With or without exclusivity, we believe that the number of competitors in the time period between now and launch, and as a result, price erosion, will be minimal.
 
Like Risperdal Consta, Risperidone LAI will require a single injection only once every two weeks. We plan to start evaluating Risperidone LAI in a pilot human bioequivalence study in the third quarter of 2014.
 
Pregabalin ER capsules
 
Pregabalin (Lyrica), a gamma-aminobutyric acid alpha-2-delta subunit agonist, was developed and launched by Pfizer Inc. The product is prescribed for the oral management of neuropathic pain associated with diabetic peripheral neuropathy, postherpetic neuralgia and spinal cord injury, as well as adjunctive therapy for adults with partial onset seizures and, in Europe, for the treatment of generalized anxiety disorder. The composition of matter patent covering the drug is held by Pfizer Inc. and Northwestern University and expires in 2018 in the United States and 2017 in Canada. This patent was divided into five Pregabalin-related divisional patents, relating to different uses of Pregabalin, and all such patents are in the joint names of Northwestern University and Pfizer Inc. Pfizer Inc. submitted a patent application covering the extended release formulation technology in 2006 (according the U.S. Patent and Trademark Office (the “U.S. PTO.”)), which, if granted, to our estimation, will expire in 2026. As of December 2013, no corresponding patent had yet been granted in any Latin American country.
 
 
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Our Pregabalin extended release capsule is being co-developed with a large pharmaceutical company, primarily for the Latin American market. We expect to receive royalties from product sales in Latin America and to later pursue our rights to develop and market the product in the U.S. and China, potentially as a generic version to Pfizer Inc.’s extended release formulation of Pregabalin, once Pfizer Inc.’s extended release product has launched and exclusivity thereof has expired. For further information, see “Collaborative agreements” below.
 
Entecavir 
 
Entecavir (BARACLUDE® tablets) is an oral antiviral drug used in the treatment of hepatitis B infection. In 2011 we initiated a research and development program exploring the possibility of developing an Entecavir injectable sustained release formulation via biodegradable microparticles technology for intramuscular administration, aimed at providing extended release of the drug for two to four weeks. We investigated 35 prototypes, however, only two prototypes showed sustained release profiles of approximately two weeks and relatively low initial burst types. Subsequently, we decided not to continue pursuing the development of Entecavir since its development of the release profile did not meet our expectations.
 
Our complex APIs
 
The table below provides a brief description of the 13 complex APIs that we are developing:
 
API
 
Medical Indication Pursued
 
Our Patent
 
Earliest date of off-patent development in the relevant territory
Deferasirox
 
Chronic Iron Overload
 
A Patent Cooperation Treaty (“PCT”) application directed to processes and polymorphs was filed in January 2010. The US application was allowed in April 2014. National phase applications are pending in the EPO and Israel.
 
2017 (Canada); 2019 (U.S.)
Darunavir
 
HIV
 
A PCT polymorphs application was filed in December 2009 and a PCT processes application was filed in January 2011. In February 2014, a processes patent was allowed in the European Union, in April 2014, a process patent was allowed in the US. Grant procedures are in process.
 
2017 (U.S.)
Alogliptin Benzoate
 
Diabetes
 
A PCT polymorphs application was filed in November 2010 and a PCT processes application was filed in March 2010. In May 2014, the patent application for the process of the preparation of Alogliptin Benzoate was allowed in the U.S.
 
2024 (E.U.); 2028 (U.S.)
Febuxostat
 
Chronic hyperuricemia
 
A PCT application directed to processes and intermediates was filed in March 2011.
 
2019 (U.S.)
Tapentadol HCl
 
Acute pain
 
A PCT application directed to intermediates was filed in December 2010. This patent has been granted in the U.S. with an expiration date of December 2030.
 
2022 (U.S.)
Dronedarone HCl
 
Atrial fibrillation
 
None.
 
2019 (E.U.) 2016 (U.S.)
Lurasidone HCl
 
Schizophrenia
 
A PCT application directed to processes and intermediates was filed in June 2012.
 
2018 (U.S.)
Fingolimod HCl
 
RRMS
 
A PCT application directed to processes and intermediates was filed in October 2011. The US Patent was granted in May 2014. Applications are still pending in the EPO and Israel.
 
2017 (Israel); 2019 (U.S., E.U., Australia)
Indacaterol Maleate
 
Chronic obstructive pulmonary disease
 
None.
 
2020 (Russia, China, Latin America, Turkey); 2021 (Canada); 2024 (E.U.); 2025 (U.S.)
Abiraterone Acetate
 
Prostate cancer
 
A PCT application directed to processes and intermediates was filed in July 2013.
 
2015 (Israel), 2016 (U.S.)
Perampanel
 
Epilepsy
 
A PCT processes application was filed in January 2013.
 
2021 (Canada); 2022 (U.S. and E.U.)
Dapagliflozin Propanediol
 
Type 2 diabetes
 
A PCT co-crystals application was filed in December 2013.
 
2020 (U.S.)
Glatiramer Acetate
 
RRMS
 
None.
 
2014 (U.S.)
 
 
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Deferasirox
 
Deferasirox (Exjade®) is used to treat chronic iron overload due to blood transfusions in adult and pediatric patients over two years of age, and for the treatment of chronic iron overload in patients with non-transfusion-dependent thalassemia syndromes. Deferasirox is under development by the NDA-holder, Novartis AG, for the potential treatment of iron overload associated with hereditary hemochromatosis, a genetic disease that causes the body to absorb and store too much iron. The drug is also being tested for the potential treatment of myelodysplastic syndrome, a medical condition that involves ineffective production of blood cells.
 
The patent for the active ingredient in Deferasirox expires in 2017 in Canada, in 2019 in the U.S. and in 2021 in other markets. In January 2013, Novartis AG reported that a generic company had challenged the compound patent in the U.S. as part of a Paragraph IV ANDA submission. We currently do not have any further information on this challenge. Deferasirox was granted orphan drug status in March 2002 in the U.S. and Europe and in May 2005 in Australia. An orphan drug is a pharmaceutical agent that has been developed specifically to treat a rare medical condition. It is generally easier to gain marketing approval for an orphan drug, and there may be other financial incentives, such as extended exclusivity periods. The Deferasirox orphan drug exclusivity expired in late 2012.
 
Description of Our Program
 
In April 2014, a PCT patent was allowed for a process for the preparation of Deferasirox and Deferasirox polymorphs that we developed. The national stages of this application are currently under review in the U.S., the European Union and Israel. We expect to commence commercial sales of Deferasirox during 2014 in territories other than the U.S. and the European Union, where patent coverage for Deferasirox is either expired or non-existent.
 
Currently known processes for production of Deferasirox are technologically cumbersome, involve high temperatures and are expensive to execute. We believe that we have developed a process, however, in which no significant heating is required and in which the formation of impurities, in particular genotoxic impurities (impurities that have been demonstrated cause deleterious changes in genetic material) and corrosive and hazardous gases such as hydrogen chloride, is minimized or altogether avoided. We are currently in pilot scale production. Commercial scale production is planned for 2014.
 
Darunavir
 
Darunavir (Prezista®) is an oral HIV-1 protease inhibitor. In the U.S., Darunavir is a drug used for the treatment of HIV-1 infection. A subsidiary of Johnson & Johnson currently holds the patent for the active ingredient Darunavir, which is set to expire in November 2017, and also holds a patent in the U.S. for Darunavir ethanolate, a solvate form of Darunavir used in the marketed Prezista, which is set to expire in June 2027. We have a proprietary production process and have developed a solid state form of Darunavir that is a different form than that covered by Johnson & Johnson’s solvate form patent, which we believe may permit us to launch a generic version in the U.S. as early as 2017 when Johnson & Johnson’s U.S. compound patent expires, if approved by the FDA.
 
Description of Our Program
 
In December 2009, we filed a PCT patent application for polymorphs of Darunavir. In January 2011, we filed a patent application for the process of preparing Darunavir in the U.S. In February 2014, a processes patent was allowed in the European Union and in April 2014 it was allowed in the U.S. The remaining application is currently under review in Israel. We included a Paragraph IV certification in our U.S. ANDA application to seek early launch of our generic version of Darunavir before the later Johnson & Johnson patent expires. We intend to take advantage of our development of the new solid state form by also developing a generic dossier (similar to an ANDA, outside the U.S.) or applying for generic regulatory approval rights, as applicable, for the finished product in Israel and the European Union, potentially with a marketing partner.
 
We are developing and intend to develop and manufacture both the API and the formulation of this product, with the aim that our production process will be fully vertically integrated, potentially increasing production efficiency and profit margins. We may also enter into a co-development partnership to develop our Darunavir program, pursuant to which we would supply the entire API requirements for the development of a product.
 
 
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Alogliptin Benzoate
 
Alogliptin Benzoate (Nesina®; Vipidia®) is a small-molecule dipeptidyl peptidase IV (DPP IV) inhibitor used for the oral treatment of type-2 diabetes. The U.S. patent covering Alogliptin Benzoate, held by Takeda Pharmaceutical Company Limited, will expire in June 2028 and the patent in the European Union will expire in December 2024. Additionally, Takeda Pharmaceutical Company Limited has a patent covering the marketed crystal form of Alogliptin Benzoate which is set to expire in September 2026 in the European Union. Takeda Pharmaceutical Company Limited has also filed a PCT patent application claiming a process for preparing Alogliptin Benzoate and the application has thus far been granted in the U.S. with an expiration date of September 2026.
 
Description of Our Program
 
In November 2010, we filed a PCT patent application for polymorphs of Alogliptin Benzoate. In March 2010, we filed a PCT patent application for the process of the preparation of Alogliptin Benzoate. In May 2014, the patent application for the process of the preparation of Alogliptin Benzoate was allowed in the U.S. The remaining national stage applications of these PCT applications are currently under review in the U.S., the European Union and Israel.
 
We have developed a proprietary production process, and a proprietary polymorph that we believe will enable us to market generic Alogliptin Benzoate outside of the U.S. after expiration of the product patent. We believe both technologies will enable launch of a generic version in the European Union, either as an API with a unique solid state form or as a fully integrated formulation, that we expect to launch in 2025 in the European Union and Japan and in 2028 in the U.S. Earlier sales may be possible for markets not under patent coverage such as Latin America and Russia.
 
Febuxostat
 
Febuxostat (Uloric®; Feburic®) is an oral, non-purine selective inhibitor of xanthine oxidase, which is used for the treatment of chronic hyperuricemia in gout. In Japan, the product is also used for the treatment of hyperuricemia without symptoms of gout. Teijin Ltd. is the current holder of patents pertaining to Febuxostat in various territories, including the U.S., the European Union, Canada and Japan. The exclusivity of Febuxostat’s basic patent is set to expire in March 2019 in the U.S. and Teijin Ltd.’s patent covering the marketed crystal form and the formulation comprising it is set to expire in the U.S. in March 2024.
 
Description of Our Program
 
In March 2011, we filed a PCT patent application for the process and intermediates for the preparation of Febuxostat and other substituted 2-arylthiazolecarboxylic acids. The national stage of the patent application is currently under review in the U.S., the European Union and Israel.
 
We have developed a proprietary production process that we believe overcomes problems associated with existing methods for making Febuxostat, including, among others, low yields, prolonged reaction times and the use of problematic reagents (substances added to bring about a chemical reaction). Some of these reagents are not commercially available or possess hazardous properties. Our production process has been demonstrated in both the lab and pilot scale facilities to be safe, cost-effective, and industrially feasible.
 
We have also developed a solvate form, which we believe is distinct from the form claimed in Teijin Ltd.’s patent expiring in 2024 and which we believe will allow the early launch of a formulation before this patent expires. The formulation comprising of our solvate form has been developed and can ultimately be sold by us as a drug product. We hope to locate a partner to launch this formulation.
 
Tapentadol
 
Tapentadol (Nucynta®) is an opioid pain medication used as an immediate-release (“IR”) tablet formulation for the oral treatment of moderate-to-severe acute pain. It is a schedule II controlled substance, regulated under the Controlled Substances Act, meaning it has a high potential for abuse, has a currently accepted medical use in treatment in the U.S., and abuse of the drug or other substances may lead to severe psychological or physical dependence. The product is marketed in various regions by Grünenthal Group and the Johnson & Johnson subsidiaries Janssen Pharmaceutical, Janssen Pharmaceuticals and Janssen. Grünenthal Group and Johnson & Johnson also market an extended-release Tapentadol formulation. Grünenthal Group and Johnson & Johnson currently hold the patents pertaining to Tapentadol in various territories, including the U.S., the European Union, Canada and Israel. The regulatory exclusivity granted by the FDA expired in November 2013 according to the FDA Orange Book. Johnson & Johnson has patents covering Tapentadol, which are set to expire in the U.S. in August 2022 (basic patent) and June 2025 (polymorph patent).
 
 
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Description of Our Program
 
In December 2010, we filed a PCT patent application for new intermediate compounds obtained in our synthesis process, and the process for the preparation of Tapentadol. The national stage of this patent has been granted in the U.S. with an expiration date of December 2030. The national stage applications are under review in the European Union and Israel.
 
Several processes have been patented by various companies for Tapentadol. However, all of these involve sophisticated reaction conditions and separation techniques which we believe make them commercially less viable than our process. Their main disadvantage is their use of complex separation and expensive reagents, which require special equipment, extra dry solvents, inert atmosphere and other safety measures.
 
We believe that our proprietary API production process, using our innovative chemical technology and as pursued in our patent application noted above, overcomes these problems and significantly reduces the process complexity and cost to make this API. In addition, the API is not listed in the Israeli Ministry of Health’s narcotic list, which makes it easier to handle and commercialize in Israel than in the U.S., where it is regulated as a controlled substance.
 
Dronedarone
 
Dronedarone (Multaq®) is a calcium, potassium and sodium channel blocker with anti-adrenergic properties developed by Sanofi-Aventis. The product is approved for use in reducing the risk of cardiovascular hospitalization in patients with paroxysmal or persistent atrial fibrillation or atrial flutter, who have had a recent episode, associated cardiovascular risk factors, and are in sinus rhythm or will be cardioverted. In the European Union, Dronedarone is used in clinically stable adult patients with a history of, or with current non-permanent, atrial fibrillation to prevent recurrence or to lower ventricular rate.
 
The initial patents for Dronedarone expired in the European Union and Japan in 2011. In the U.S., the patent was due to expire in July 2013 and was extended to July 2016. The drug is protected by later filed formulation patents in the U.S. and the European Union until June 2018 and June 2023, respectively. Regulatory exclusivity expires in July 2014 in the U.S. and November 2019 in the European Union.
 
Description of Our Program
 
We have developed a process, which we evaluated at lab and pilot production scale, that we believe avoids granted process patents for this product and is industrially feasible with a low cost of goods. We have also developed a formulation that, we believe, based on internal studies conducted with our advisors, avoids patent limitations imposed by Sanofi-Aventis’s patent that expires in 2018, enabling potential product launch as early as 2016. We believe that our API production process will reduce the process complexity and cost to make this API. We intend to sell the API with a support technical package for the formulation as well as know-how that we have developed, which we believe will make it easier for a partner to register the product.
 
Lurasidone
 
Lurasidone (Latuda®) is a product developed by Dainippon Sumitomo Pharma Company Ltd. (formerly Sumitomo) (“Dainippon”) which is prescribed for the treatment of schizophrenia and bipolar I disorder. In February 2011, Lurasidone was launched for schizophrenia in the U.S. by Dainippon’s U.S. subsidiary, Sunovion Pharmaceuticals Inc. In June 2013, Lurasidone was approved in the U.S. for treatment of bipolar I disorder. The drug was approved in Switzerland in August 2013 for the treatment of schizophrenia. As of November 2013, the filing was still under review in the European Union. Development is also ongoing for other psychiatric indications, including major depressive disorder and autism which, if completed, are expected to significantly increase Lurasidone’s market share.
 
Sunovion Pharmaceuticals Inc. has clinical data exclusivity over Lurasidone, which expires in October 2015. The patent that covers the product component is set to expire in July 2018.
 
 
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Description of Our Program
 
In June 2012, we filed a PCT patent application for intermediate compounds and a process for the preparation of Lurasidone. The application is awaiting review in the U.S., the European Union and Israel. In order to avoid Dainippon’s patent limitations imposed on Lurasidone, we have developed and claimed a proprietary, cost-effective production process. In addition, we have developed know-how for manufacturing the key starting materials required for the production of Lurasidone, which we believe will enable a full vertical integration and major reduction in cost of goods of the product. Upon expiration of the patent exclusivity in July 2018, we intend to sell the API without developing a formulation at this stage.
 
Fingolimod
 
Fingolimod (Gilenia®; Gilenya; Imusera®) is a synthetic derivative of myriocin that facilitates lymphocyte homing developed and launched by Novartis AG and Mitsubishi Tanabe Pharma. The product is prescribed for the first-line treatment of relapsing forms of MS to reduce the frequency of clinical exacerbations and delay the accumulation of physical disability. Fingolimod is also being developed for the potential treatment of chronic inflammatory demyelinating polyneuropathy, optic neuritis and uveitis.
 
Fingolimod is protected by a family of patents, the earliest of which expires in February 2019 and relates to the Fingolimod itself. Patent protection for the commercial formulation of Fingolimod is set to expire in most major markets, including the European Union and Japan, in 2024 and in the U.S. in 2026. In October 2013, a further patent application for the commercial formulation was granted in the U.S. (due to expire in 2028). In Europe, Novartis AG also has regulatory exclusivity for the data generated for Fingolimod approval until 2021, with a possible one-year extension.
 
Description of Our Program
 
In October 2011, we filed a PCT patent application for intermediate compounds and a process for the preparation of Fingolimod. The US Patent derived from this PCT issued in May 2014. The remaining national stage applications are pending and awaiting review in the European Patent Office and Israel.
 
We intend to complete our development of Fingolimod API during the second half of 2014, producing the key starting material at our China facility and the final API at a sub-contractor facility in India.
 
Additionally, we plan to develop a formulation for this product at a sub-contracted facility in Israel, where the product’s exclusivity is the first to expire worldwide in April 2017. We intend to market the product in Israel in other territories outside the U.S. and European Union starting in 2017, and in 2019 and onwards in the regulated markets, e.g., the U.S., the European Union and Australia, following expiration of limiting patents and exclusivities.
 
Indacaterol Maleate
 
Indacaterol Maleate (Onbrez® Breezhaler®; Arcapta® Neohaler®) is a long-acting beta-2 agonist (LABA) and bronchodilator developed and launched by Novartis AG, currently delivered with an inhaler. The product is prescribed for maintenance bronchodilator treatment of airflow obstruction in adults with chronic obstructive pulmonary disease (COPD), including chronic bronchitis and/or emphysema. Patent protection for Indacaterol Maleate is expected to expire in 2025 in the U.S. (including patent term extension), 2024 in the European Union (including extensions) and in 2020 in other markets.
 
Description of Our Program
 
We are developing Indacaterol as a fully vertically integrated API, with key starting materials manufactured at our China facility. The API production is planned to be conducted at our new plant in Israel. We have developed know-how and trade secrets to manufacture this API and its starting materials. We believe this approach will significantly lower costs and enable our Indacterol Maleate to have a competitive market position. In addition, due to the low commercial volume (worldwide forecasted quantity below 100Kg), the number of generic API developers is expected to be low. Indacaterol Maleate is a highly complex API with significant process hurdles (such as high-level impurities that require removal during processing, chiral purity to isolate one isomer from the rest and multiple production steps). We intend to sell the API to a partner with expertise in generic inhalation dosage forms, starting by 2020 when the patents described above begin to expire.
 
 
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Abiraterone Acetate
 
Abiraterone Acetate (Zytiga®) is an oral selective inhibitor of 17 alpha-hydroxylase available in a tablet formulation developed and launched by Johnson & Johnson under license from BTG. The product is prescribed for treatment of prostate cancer in men who have received prior chemotherapy containing docetaxel.
 
Abiraterone Acetate has regulatory exclusivity in the U.S. that expires in April 2016. The U.S. patent covering Abiraterone Acetate is set to expire in December 2016 and in the European Union the relevant patent is expected to expire in March 2018 (following patent extension). BTG also has patents that cover processes for production of Abiraterone Acetate and its intermediates.
 
Description of Our Program
 
We are developing Abiraterone Acetate as a fully integrated product, with its key starting material to be manufactured at our China facility or another sub-contracted site. We believe that the vertical integration of the starting material would serve as a major cost saving factor.
 
In July 2013, we filed a PCT patent application for intermediate compounds and a process for the preparation of Abiraterone Acetate, which is comprised of innovative routes of synthesis and purification and in our view, avoids the BTG process patents.
 
In addition, we intend to complete the development of a generic version of Abiraterone Acetate, manufactured in Israel for the Israeli, U.S. and European Union markets. The generic product dossier is expected to be ready for submission during 2015 for the Israeli market and during the second quarter of 2016 for the U.S. market.
 
Perampanel
 
Perampanel (Fycompa®) is a selective AMPA-type glutamate receptor antagonist used for the oral treatment of epilepsy. The drug is prescribed in Europe and the U.S. as an adjunctive treatment of partial-onset seizures, with or without secondarily generalized seizures, in individuals with epilepsy aged 12 years and older. Perampanel was first claimed in a patent granted to Eisai Co. Ltd. (“Eisai”), which enjoys protection in the European Union, Canada and Japan until June 2021 and in the U.S. until April 2022. Several further related patents are also assigned to Eisai claiming acid salts, and amorphous and crystalline forms of Perampanel. These patents are expected to expire in April 2027 and December 2026, respectively, and are currently not listed in the FDA’s Orange Book.
 
Description of Our Program
 
In January 2013, we filed a PCT patent application for polymorphs of Perampanel. The proprietary limitations on the polymorphs of Perampanel provide us with the opportunity to prepare for a launch of the generic product as early as 2021 in Canada and the following year in the U.S. and European Union. Our Perampanel crystal form might enable us to submit our generic product through the Paragraph IV regulatory pathway and possibly pursue a first-to-file right in the U.S. if our testing is complete and our ANDA is filed to obtain this exclusivity. In addition, we intend to launch our generic product in the European Union once marketing exclusivity expires in May 2022.
 
Dapagliflozin Propanediol
 
Dapagliflozin Propanediol (Forxiga®; Appebb®; Edistride®; Empliciti®) is an orally active sodium glucose cotransporter type 2 inhibitor developed and launched by Bristol-Myers Squibb Company (“BMS”) and AstraZeneca PLC. The product is prescribed in Europe and the U.S. for the once-daily treatment of type 2 diabetes, in combination with other glucose-lowering medicinal products, including insulin, or as a monotherapy in metformin-intolerant patients.
 
BMS’s composition of matter patent coverage for Dapagliflozin expires in the U.S. in October 2020. The patent expires in May 2023 in the European Union. Additionally, BMS has a patent covering the Propanediol solvate forms, which expires in June 2026 in the U.S.
 
 
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Description of Our Program
 
The proprietary limitations on the polymorph of Dapagliflozin provide us with the opportunity to prepare for a launch of the generic product upon the expiration of the patent in the U.S. in 2020. In December 2013, we filed a PCT patent application for co-crystals of Dapagliflozin. We expect that our Dapagliflozin co-crystal form will enable us to submit a generic product through the Paragraph IV regulatory pathway and could enable us to enjoy first-to-file exclusivity in the U.S. if our testing is complete and our ANDA is filed and successfully approved so as to obtain this exclusivity. In addition, we intend to launch our generic product in the European Union once marketing exclusivity expires in November 2022.
 
Glatiramer Acetate
 
Glatiramer Acetate (Copaxone) is a product which serves as a decoy for myelin, drawing autoreactive T cells away from nerve cells prescribed for reduction of the frequency of relapses in patients with RRMS, including patients who have experienced a first clinical episode and have MRI features consistent with MS, developed and launched by Teva Pharmaceuticals Ltd. Teva Pharmaceuticals Ltd.’s patent relating to Glatiramer Acetate expired in May 2014 in the U.S. We are aware of three companies that have submitted ANDAs for the generic form of Glatiramer Acetate, namely Mylan Inc./Natco Pharma Ltd., Sandoz B.V./Momenta Pharmaceuticals, Inc. and Synthon Biopharmaceuticals. As of December 2013, all applications are pending approval from the FDA.
 
Description of Our Program
 
We have developed know how and trade secrets to manufacture the Glatiramer Acetate and, pending the release of guidelines from the FDA on generic requirements, we intend to manufacture this API at our plant in Israel, and potentially as a generic formulation.
 
New Chemical Entity
 
We are developing a new chemical entity which is a novel pentapolymer for treating autoimmune diseases such as MS. The product is in pre-clinical studies and we plan to invest approximately $200,000 in its development throughout the next two years. Preliminary studies have shown that the therapeutic efficacy for treatment of MS by this novel pentapolymer may be superior to that of Glatiramer Acetate.
 
Collaborative agreements
 
Pregabalin manufacturing agreement
 
In January 2012, we reached an agreement with a major international pharmaceutical manufacturer to jointly develop and manufacture Pregabalin ER in dosages of 150mg and 300mg, with a current term expiring in January 2016. Our partner will obtain regulatory approval required in its territory of Latin America, and we will be responsible for obtaining regulatory approval for our territory, which consists of the U.S. and China. The parties will split all industrial and other intellectual property rights outside of each party’s territory. As of the date of this prospectus, the expected schedule of the product development and identification of a manufacturing site has not yet been determined.
 
As of December 31, 2013, we received ˆ150,000 (approximately $194,000) from our partner after satisfactory results of preliminary development milestones and we currently expect to receive an additional ˆ100,000 (approximately $130,000) after satisfactory results of stability and bio-equivalence tests sufficient to submit a generic drug application to the governmental drug regulatory authorities. Our partner has also undertaken to pay us 5% royalties of their net sales for the first five years following commercialization of the products in our partner’s territory and 3% from the sixth year through the tenth year.
 
Risperidone LAI manufacturing agreement
 
In January 2014, we entered into a manufacture and commercialization agreement for Risperidone LAI and the Risperidone slow release tablet with a major Chinese pharmaceutical manufacturer. The established milestones in the agreement require our partner to complete the pertinent studies and provide a prepared dossier of the product to be submitted to the China Food and Drug Administration within 24 months of the commencement of the agreement, which may be extended upon events set forth in the agreement up to a maximum of 36 months. Upon launch, our partner will be required to pay us a semi-annual royalty payment equal to the greater of 5% of our partner’s net sales of the products or 35% of its net profit from the sales of the products for each semi-annual period. After five years, the semi-annual royalty payments will be reduced to the greater of 3% of our partner’s net sales or 30% of its net profit. The agreement is set to expire on the eighth anniversary of the commencement of sales of the products by our partner, unless extended by the parties.
 
 
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Other co-development agreements
 
We are currently exploring co-development partnerships in order to accelerate the clinical development and maximize the market potential for some of our APIs, Glatiramer Acetate Depot and Risperidone LAI. We are currently discussing with a major international pharmaceutical company a co-development exclusive partnership for one of our generic products. As part of this partnership we would supply the entire API requirements of our partner towards the development of a product. We hope to partner with large pharmaceutical companies that possess market know-how and marketing capabilities for marketing purposes with respect to Glatiramer Acetate Depot and Risperidone LAI.
 
Generics manufacturing agreement
 
In June 2011, we entered into an agreement for co-development and marketing of certain complex generic products with a large pharmaceutical manufacturer to manufacture the formulation products. We intend to provide the preliminary development plan for the products and the manufacturer will carry out the remaining development work with our assistance. Our partner will have the right to manufacture and sell the products in the territory of China, and we will have the right to manufacture and sell the products in any territory other than China. Each party will transfer to the other party 50% of the gross profit generated from the sales in its respective territories.
 
Research and development
 
We have three fully operational research and development facilities for complex APIs and formulations with headquarters in Israel and laboratories in Nanjing, China and Luckenwalde, Germany. Our current patent portfolio contains about 20 patent applications for complex APIs, formulations, polymorphs, and routes of synthesis, many of which were submitted during the 12 months prior to the completion of this offering.
 
Competition
 
The pharmaceutical industry is highly competitive and is affected by new technologies, new developments, government regulations, health care legislation, availability of financing, and other factors. Many of our competitors have longer operating histories and substantially greater financial, research and development, marketing, and other resources than we have. We compete with numerous other companies that currently operate, or intend to operate, in the pharmaceutical industry, including companies that are engaged in the development of controlled-release drug delivery technologies and products, and other manufacturers that may decide to undertake development of such products. We view our principal competitors in the generic pharmaceutical products and LCM markets as Teva Pharmaceutical Industries Ltd., Impax Laboratories, Inc., Alkermes Plc., Momenta Pharmaceuticals, Inc., and Andrx Corporation, a private U.S. company. Due to their size, in general our competitors may have significant advantages over us. For a discussion of some of these advantages and the competitive risks we face, see “Risk Factors – We face intense competition from both brand-name and generic manufacturers for our complex APIs, formulations and LCM products.”
 
We anticipate current injectable treatments commonly used to treat MS, including Copaxone, which is the Glatiramer Acetate brand product, to experience competition from a number of novel drug products, including oral therapies. These novel drugs may offer patients a more convenient form of administration than Copaxone and may provide increased efficacy. In addition, Teva Pharmaceutical Industries Ltd. has received for FDA approval for a Supplemental NDA for a 40mg, thrice-weekly dosage of Copaxone. Teva’s thrice-weekly dosage of Copaxone has the potential to delay the anticipated erosion of the Glatiramer Acetate market, which is expected to be brought on by possible generic competitors that are developing the once-daily dosage of Glatiramer Acetate. In addition, the efforts of Teva, the current industry leader, that are invested in a formulation with a lesser frequency of injections for Copaxone may be indicative of the shift in the RRMS market toward longer-acting depot formulations of Glatiramer Acetate.
 
If the market for the reference brand product is impacted, we in turn may lose significant market share or market potential for our APIs or LCM product candidates, and the value for our APIs or LCM products pipeline could be negatively impacted. As a result, our business, including our financial results and our ability to fund future discovery and development programs, would suffer.
 
 
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Due to our focus on relatively hard to replicate controlled-release products, our competition in the generic pharmaceutical market is expected to be limited to those competitors who possess appropriate drug delivery technology or partner with those who have it. We believe the principal competitive factors in the generic pharmaceutical market are:
 
 
the ability to introduce generic versions of products promptly after a patent expires;
 
 
price;
 
 
product quality;
 
 
customer service (including maintenance of inventories for timely delivery); and
 
 
the ability to identify and market niche products.
 
Properties
 
Our Israeli development and manufacturing plant in Neot Hovav, Israel will be an organic synthesis facility, designed for the production of APIs and intermediates. The plant is expected to be operational in the second half of 2014. The plant is designed as a multipurpose facility with mid-size industrial production reactors of varying capacities of up to 4,000 liters. The plant’s scalable design should enable us to expand capacity with limited expenditure. The plant is expected to hold two pilot facilities for smaller scale production to support the production scale-up process and initial sales of registration quantities. The manufacturing operations in the plant are subject to regulatory inspections and approvals. We leased the land on which the plant is built for 49 years in accordance with a development agreement with Israel Land Authority, dated September 13, 2012. Due to the nature of this long term lease, we have made a single payment in the amount of NIS 428,000 (approximately $106,000) which is based on the current property valuation. Such payment may need to be supplemented, in accordance with the agreement, subject to the appreciation of the property value. The plant also qualifies as a “Preferred Enterprise” under the Investment Law, which entitles us to cash grants of 20% of the amount of the approved investment in the plant (which may be increased by an additional 4%). In addition, depending on the fulfillment of certain conditions, income generated from products manufactured at the plant will be entitled to a reduced tax rate of 9% (compared to a 26.5% corporate income tax rate in 2014). As of December 31, 2013, we invested a total of $4,316,000 (net of grants) in the plant and related equipment out of the $15,000,000 we estimate will be required to complete construction and purchasing equipment. We expect to use $7 million of the net proceeds from this offering to finance the completion of construction.
 
 
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Our manufacturing facilities are located on the following properties:

Properties
 
Location
 
Owned/Leased
 
Purpose
 
Size
Israel research and development facility
 
Ness Ziona, Israel
 
Leased
 
Headquarters, multipurpose research and development.
 
600 square meters
Israeli development and manufacturing plant, currently under construction
 
Neot Hovav, Israel
 
Leased
 
Manufacture of complex APIs.
 
Approximately 12,000 square meters
China research and development facility
 
Nanjing, China
 
Owned
 
Asian development and production center, developing intermediates for our production sites and other global development centers.
 
1,400 square meters
Germany research and development facility
 
Luckenwalde, Germany
 
Leased
 
Development of finished oral dosage forms and complex generics.
 
150 square meters
 
Government regulations
 
Our operations are subject to many governmental regulations. We are required to receive regulatory approvals to conduct clinical trials and upon completion of such clinical trials, submit further regulatory applications. Once we have received the requisite approvals, we may then manufacture and market the respective product. The marketing of each product is conditioned upon obtaining the consent of health authorities in each of the countries in which it will be marketed, including the FDA, the European Agency for the Evaluation of Medicinal Products and the China Food and Drug Administration. In order to market our products outside of the U.S., we have to comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy. Approval procedures vary among countries and can involve additional product testing and additional administrative review periods. The time required to obtain approval in countries outside of the U.S. might differ from that required to obtain FDA approval. The regulatory approval process in other countries may include all of the risks detailed below regarding FDA approval as well as other risks. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others.
 
The manufacturing and distribution of pharmaceutical products are subject to extensive regulation by the federal government, primarily through the FDA and sometimes additionally the Drug Enforcement Administration (“DEA”), and to a lesser extent by state and local governments. The Food, Drug, and Cosmetic Act, Controlled Substances Act and other federal statutes and regulations govern or influence the manufacture, labeling, testing, storage, record keeping, approval, advertising and promotion of our products. Facilities used in the manufacture, packaging, labeling and repackaging of pharmaceutical products must be registered with the FDA and are subject to compliance with cGMP and FDA inspection to ensure that drug products are manufactured in accordance with cGMP. Noncompliance with applicable requirements can, e.g., result in product recalls, seizure of products, injunctions, suspension of production, refusal of the government to enter into supply contracts or to approve drug applications or delays in entering such contacts or granting such approvals, civil penalties and criminal fines, and disgorgement of profits.
 
FDA approval is required before any “new drug” may be marketed, including new formulations, strengths, dosage forms, and generic versions, of previously approved drugs. Generally, the following two types of applications are used to obtain FDA approval of a “new drug.”
 
 
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New Drug Application (“NDA”)
 
For a drug product containing an active ingredient not previously approved by the FDA, a prospective manufacturer must submit a complete application containing the results of clinical studies supporting the drug product’s safety and efficacy. A shorter form of an NDA under the FDA’s 505(b)(2) regulatory pathway is also required for a drug with a previously approved active ingredient if the drug will be modified in some way, e.g., used to treat an indication for which the drug was not previously approved or if the dosage form, strength or method of delivery is changed. The process required by the FDA before a pharmaceutical product may be approved for marketing in the U.S. generally involves the steps listed below, which could take from approximately three to more than ten years to complete.
 
 
Laboratory and clinical tests;
 
 
Submission of an Investigational New Drug (“IND”) application, which must become effective before clinical studies may begin;
 
 
Adequate and well-controlled human clinical studies to establish the safety and efficacy of the proposed product for its intended use;
 
 
Submission of an NDA containing the results of the preclinical tests and clinical studies establishing the safety and efficacy of the proposed product for its intended use, as well as extensive data addressing such matters such as manufacturing and quality assurance;
 
 
Scale-up to commercial manufacturing; and
 
 
FDA approval of an NDA.
 
As noted above, the submission of an NDA is no guarantee that the FDA will find it complete and accept it for filing. The FDA reviews all NDAs submitted before it accepts them for filing. It may refuse to file the application and instead request additional information, in which case, the application is delayed and must be resubmitted with the supplemental information. After the application is deemed filed by the FDA, FDA staff will review an NDA to determine, among other things, whether a product is safe and efficacious for its intended use.
 
If, after reviewing the NDA, the FDA determines that the application cannot be approved in its current form, the FDA sends the NDA applicant a Complete Response Letter identifying all outstanding deficiencies that preclude final approval. The FDA then halts its review until the applicant resubmits the NDA with new information designed to address the deficiencies. An applicant receiving a Complete Response Letter may resubmit the application with data and information addressing the FDA’s concerns or requirements, withdraw the application without prejudice to a subsequent submission of a related application or request a hearing on whether there are grounds for denying approval of the application. If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, among other limits, which could restrict the commercial value of the product. For our 505(b)(2) products, FDA also may require a boxed warning (i.e., black box warning), a Risk Evaluation and Mitigation Strategy (REMS) program, or both, to address a specific safety concern. A boxed warning is used to highlight serious or life-threatening potential adverse events or other safety concerns. A REMS program may be required when FDA believes specific measures are necessary to ensure that the benefits of the drug outweigh its risks. Among other requirements, the REMS may include a patient medication guide, patient package insert, and regular assessments of the drug’s risks versus its benefits. The imposition of a boxed warning or REMS program could significantly affect the commercial value of the product. In addition, for our ANDA submissions, if the innovator product has a black box warning or a REMS program, we likely will be required to adopt such a boxed warning or risk program.
 
In addition, the FDA may require an applicant to conduct Phase IV testing, which involves clinical trials designed to further assess a drug’s safety and effectiveness after NDA approval, and may require complex and costly surveillance programs to monitor the safety of approved products which have been commercialized. Once issued, the FDA may withdraw product approval if ongoing regulatory requirements are not met or if safety or efficacy questions are raised after the product reaches the market. The agency may also impose requirements that the NDA holder conduct new studies, make labeling changes, implement Risk Evaluation and Mitigation Strategies, and take other corrective measures.
 
 
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Abbreviated New Drug Application
 
For a generic version of an approved drug — a drug product that contains the same active ingredient as a drug previously approved by the FDA and is in the same dosage form and strength, utilizes the same method of delivery and will be used to treat one or more of the same indications as the approved product — the FDA requires only an ANDA that ordinarily need not include clinical studies demonstrating safety and efficacy. An ANDA typically requires only data demonstrating that the generic formulation is bioequivalent to the previously approved “reference listed drug,” indicating that the rate of absorption and levels of concentration of the generic drug in the body do not show a significant difference from those of the reference listed drug. In July 2012, the Generic Drug User Fee Amendments Act of 2012 was enacted into law. The GDUFA legislation implemented fees for new ANDA applications, Drug Master Files, product and establishment fees and a one-time fee for back-logged ANDA applications pending approval as of October 1, 2012. In return, the program is intended to provide faster and more predictable ANDA reviews by the FDA and increased inspections of drug facilities. Under GDUFA, generic product companies face significant penalties for failure to pay the new user fees, including rendering an ANDA application not “substantially complete” until the fee is paid.
 
Under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the “Hatch-Waxman Act,” which established the procedures for obtaining approval of generic drugs in the U.S., an ANDA filer must make certain patent certifications that can result in significant delays in obtaining FDA approval. If the applicant intends to challenge the validity or enforceability of an existing patent covering the reference listed drug or asserts that its proposed drug does not infringe such patent, the applicant files a so called “Paragraph IV” certification with the FDA and is required to properly notify the patent holder that it has done so, explaining the basis for its belief that each such certified patent is not infringed, or is invalid or unenforceable. If the patent holder initiates a patent infringement suit within 45 days after receipt of the Paragraph IV Certification, the FDA is automatically prevented from approving an ANDA until the earlier of 30 months after the date the Paragraph IV litigation is initiated by the patent holder, expiration of the patents involved in the certification, or when the infringement case is decided in the ANDA applicant’s favor. In addition, the first company to file an ANDA for a given drug containing a Paragraph IV certification can be awarded 180 days of market exclusivity following approval of its ANDA, during which the FDA may not approve any other ANDAs for that drug product. Co-exclusivity among multiple ANDA applicants is becoming more common, and in such cases these co-filers who file their ANDA on the same day and who each are ultimately approved will share the 180 days of market exclusivity.
 
During any period in which the FDA is required to withhold its approval of an ANDA due to a statutorily imposed non-approval period, the FDA may grant tentative approval to an applicant’s ANDA. A tentative approval reflects the FDA’s preliminary determination that a generic product satisfies the substantive requirements for approval, subject to the expiration of all statutorily imposed non-approval periods. This can include expiration of brand company patents that are listed in the Orange Book but not certified against under Paragraph IV in the ANDA. A tentative approval does not allow the applicant to market the generic drug product.
 
The Hatch-Waxman Act contains additional provisions that can delay the launch of generic products. A five year marketing exclusivity period is provided for new chemical compounds, and a three year marketing exclusivity period is provided for approved NDAs, such as under the 505(b)(2) regulatory pathway, containing new clinical investigations essential to an approval, such as a new indication for use, or new delivery technologies, or new dosage forms. The three year marketing exclusivity period applies to, among other things, the development of a novel drug delivery system, as well as a new use. In addition, companies can obtain six additional months of exclusivity if they perform pediatric studies of a reference listed drug product. The marketing exclusivity provisions apply to both patented and non-patented drug products. The Act also provides for patent term extensions to compensate for patent protection lost due to time taken in conducting FDA required clinical studies and during FDA review of NDAs before a commercial product can be marketed.
 
These provisions may therefore block approval of company products until the non-patent market exclusivity provisions expire.
 
The Generic Drug Enforcement Act of 1992 establishes penalties for wrongdoing in connection with the development or submission of an ANDA. In general, the FDA is authorized to temporarily bar companies, or temporarily or permanently bar individuals, from submitting or assisting in the submission of an ANDA, and to temporarily deny approval and suspend applications to market generic drugs under certain circumstances. In addition to debarment, the FDA has numerous discretionary disciplinary powers, including the authority to withdraw approval of an ANDA or to approve an ANDA under certain circumstances and to suspend the distribution of all drugs approved or developed in connection with certain wrongful conduct. The FDA may also withdraw product approval or take other correct measures if ongoing regulatory requirements are not met or if safety or efficacy questions are raised after the product reaches the market.
 
 
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U.S. Food and Drug Administration
 
We must obtain the approval of the FDA to market any drugs developed in the U.S., as well as adhere to other U.S. and state regulations. If we seek to market new drugs, we will be required to file a new drug application or abbreviated new drug application and obtain FDA approval. FDA regulations govern the following activities that we may perform, or have performed on our behalf, to ensure that any drugs that we develop are safe and effective for their intended uses:
 
 
pre-clinical (animal) testing including toxicology studies;
 
 
submission of an IND; 
 
 
human testing in clinical trials, Phases I, II and III;
 
 
recordkeeping and retention;
 
 
pre-marketing review through submission of an NDA;
 
 
drug labeling and manufacturing, the latter of which must comply with current good manufacturing practice regulations;
 
 
drug marketing, sales and distribution; and
 
 
post-marketing study commitments (Phase IV), post-marketing surveillance, complaint handling, reporting of deaths or serious injuries and repair or recall of drugs.
 
Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include any of the following sanctions:
 
 
warning letters, untitled letters, fines, injunctions, consent decrees and civil penalties;
 
 
disqualification of clinical investigator and/or sponsor from current and future studies;
 
 
clinical hold on clinical trials;
 
 
operating restrictions, partial suspension or total shutdown of production;
 
 
refusal to approve an NDA;
 
 
post-marketing withdrawal of approval; and
 
 
criminal prosecution.
 
The FDA’s pre-clinical and IND requirements
 
The first step to obtaining FDA approval of a new drug involves development, purification and pre-clinical testing of a pharmaceutically active agent in laboratory animals. Once sufficient pre-clinical data has been collected to demonstrate that the drug is reasonably safe for initial use in humans, an IND can be prepared and submitted to the FDA for review. In the IND review process, FDA physicians and scientists evaluate the proposed clinical trial protocol, chemistry and manufacturing control, pharmacologic mechanisms of action of the drug and toxicological effects of the drug in animals and in vitro. Within 30 days of the IND’s submission, the drug review division of the FDA may contact the filer regarding potential concerns and, if necessary, implement a clinical hold until certain issues are resolved satisfactorily. If it does not take any action, the filer may proceed with clinical trials on the 31st day.
 
 
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Clinical trials
 
Clinical trials represent the ultimate pre-market testing ground for unapproved drugs, generally taking several years to complete. Before testing can begin, an institutional review board (“IRB”) must have reviewed and approved the use of human subjects in the clinical trial. During clinical trials, an investigational compound is administered to humans and evaluated for its safety and effectiveness in treating, preventing or diagnosing a specific disease or condition. The clinical trials consist of Phase I, Phase II, and Phase III testing. During clinical trials, the FDA and IRB closely monitor the studies and may suspend or terminate trials at any time for a number of reasons, such as finding that patients are being exposed to an unacceptable health risk. The results of clinical trials comprise the single most important factor in the approval or disapproval of a new drug.
 
Pervasive and continuing regulation in the U.S.
 
After a drug is approved for marketing and enters the marketplace, numerous regulatory requirements continue to apply. These include, but are not limited to: 
 
 
the FDA’s current good manufacturing practice regulations require manufacturers, including third party manufacturers, to follow stringent requirements for the methods, facilities and controls used in manufacturing, processing and packing of a drug product;
 
 
labeling regulations and the FDA prohibitions against the promotion of drugs for  unapproved uses (known as off-label uses), as well as requirements to provide adequate information on both risks and benefits during promotion of the drug;
 
 
approval of product modifications or use of a drug for an indication other than approved in an NDA;
 
 
adverse drug experience regulations, which require us to report information on rare, latent or long-term drug effects not identified during pre-market testing;
 
 
post-market testing and surveillance requirements, including Phase IV trials, when necessary to protect the public health or to provide additional safety and effectiveness data for the drug; and